<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 3, 1997
REGISTRATION NO. 333-31931
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ISSUER OF SENIOR NOTES AND SENIOR PREFERRED STOCK REGISTERED HEREBY
NORTH ATLANTIC TRADING COMPANY, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 2131 13-3961898
5113
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
NORTH ATLANTIC OPERATING COMPANY, INC. DELAWARE APPLIED FOR
NATIONAL TOBACCO FINANCE CORPORATION DELAWARE 13-3888034
NATIONAL TOBACCO COMPANY, L.P. DELAWARE 61-1133037
(Exact Name of Registrant as (State or Other Jurisdiction of (I.R.S. Employer
specified in its charter) Incorporation or Organization) Identification No.)
</TABLE>
257 PARK AVENUE SOUTH
7TH FLOOR
NEW YORK, NEW YORK 10010-7304
(212) 253-8185
(Address, Including Zip Code, and Telephone Number,
including Area Code, of Registrant's Principal Executive Offices)
DAVID I. BRUNSON
EXECUTIVE VICE PRESIDENT--FINANCE AND ADMINISTRATION,
CHIEF FINANCIAL OFFICER AND DIRECTOR
257 PARK AVENUE SOUTH
7TH FLOOR
NEW YORK, NEW YORK 10010-7304
(212) 253-8185
(Name and Address, Including Zip Code,
and Telephone Number, Including Area Code, of Agent For Service)
Copies of communications to:
DAVID E. ZELTNER, ESQ.
WEIL, GOTSHAL & MANGES LLP
767 FIFTH AVENUE
NEW YORK, NEW YORK 10153-0119
(212) 310-8000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED SEPTEMBER 3, 1997
PRELIMINARY PROSPECTUS
NORTH ATLANTIC TRADING COMPANY, INC.
OFFER TO EXCHANGE 11% SENIOR NOTES DUE 2004, SERIES B FOR 11% SENIOR NOTES DUE
2004, SERIES A AND
12% SENIOR EXCHANGE PAYMENT-IN-KIND PREFERRED STOCK FOR 12% SENIOR
PAYMENT-IN-KIND PREFERRED STOCK.
------------------------------
The Exchange Offer will expire at 5:00 P.M., New York City time, on ,
1997, unless extended.
------------------------------
North Atlantic Trading Company, Inc., a Delaware corporation (the
'Company'), hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and the accompanying Letter of Transmittal (the
'Exchange Offer'), to exchange (i) its 11% Senior Notes due 2004, Series B (the
'New Notes') for an equal principal amount of its outstanding 11% Senior Notes
due 2004, Series A (the 'Old Notes'), of which an aggregate principal amount of
$155,000,000 is outstanding as of the date hereof, and (ii) one share of its 12%
Senior Exchange Payment-In-Kind Preferred Stock (the 'New Preferred Stock') for
each outstanding share of its 12% Senior Payment-In-Kind Preferred Stock (the
'Old Preferred Stock'), of which 1,360,000 shares are outstanding as of the date
hereof. The form and the terms of each of the New Notes and the New Preferred
Stock will be the same in all material respects as the form and terms of each of
the Old Notes and the Old Preferred Stock, respectively, except that (i) each of
the New Notes and the New Preferred Stock will be registered under the
Securities Act of 1933, as amended (the 'Securities Act'), and hence will not
bear legends restricting the transfer thereof and (ii) holders of each of the
New Notes and the New Preferred Stock will not be entitled to certain rights of
holders of Old Notes under the Registration Rights Agreement dated as of June
25, 1997 (the 'Registration Rights Agreement') and Old Preferred Stock under the
Preferred Stock Registration Rights Agreement dated as of June 25, 1997 (the
'Preferred Stock Registration Rights Agreement,' and together with the
Registration Rights Agreement, the 'Registration Rights Agreements'),
respectively, both of which will terminate upon consummation of the Exchange
Offer. See 'The Exchange Offer--Purpose and Effect of the Exchange Offer.' Each
of the New Notes and the New Preferred Stock will be initially issued as a
single, permanent global certificate. See 'Book-Entry; Delivery and Form' and
'Descriptions of Notes.'
The Old Notes and the Old Preferred Stock were issued and sold in a
transaction exempt from the registration requirements of the Securities Act and
may not be offered or sold in the United States unless so registered or pursuant
to an applicable exemption under the Securities Act. The New Notes and the New
Preferred Stock are being offered herewith in order to satisfy certain
obligations of the Company contained in the Registration Rights Agreements.
Based on no-action letters issued by the staff of the Securities and Exchange
Commission (the 'Commission') to third parties, the Company believes that the
New Notes and the New Preferred Stock to be issued pursuant to the Exchange
Offer may be offered for resale, resold and otherwise transferred by holders
thereof (other than (i) a broker-dealer who purchases such Exchange Securities
(as defined herein) from the Company to resell pursuant to Rule 144A or any
other available exemption under the Securities Act, or (ii) a person that 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 Securities 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 Securities. However, the Company has not sought a no-action letter with
respect to the Exchange Offer and there can be no assurance the staff of the
Commission would make a similar determination with respect to the Exchange
Offer. Eligible holders wishing to accept the Exchange Offer must represent to
the Company that such conditions have been met. Each broker-dealer that receives
Exchange Securities for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Securities. The Letters of Transmittal state that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an 'underwriter' within the meaning of the Securities Act. A
broker-dealer may nonetheless be deemed to be an 'underwriter' under the
Securities Act notwithstanding such disclaimer. 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 Securities received in exchange for
Unregistered Securities (as defined herein) where such Unregistered Securities
were acquired by such broker-dealer as a result of market-making activities or
other trading activities. The Company has agreed that, for a period of 180 days
after the Expiration Date (as defined herein), it will make this Prospectus
available to any broker-dealer for use in connection with any such resale. See
'Plan of Distribution.'
(continued on next page)
------------------------------
SEE 'RISK FACTORS' ON PAGE 24 FOR A DESCRIPTION OF CERTAIN RISKS. FOR A
DESCRIPTION OF TAX RELATED RISKS, INCLUDING THE POSSIBILITY OF UNPLANNED
DIVIDEND INCOME, ORIGINAL ISSUE DISCOUNT AND THE APPLICATION OF THE MARKET
DISCOUNT RULES OF THE INTERNAL REVENUE CODE, THAT SHOULD BE CONSIDERED BY
HOLDERS BEFORE DECIDING TO TENDER THEIR UNREGISTERED SECURITIES IN THE EXCHANGE
OFFER. SEE ALSO 'RISK FACTORS-- TAX CONSEQUENCES OF DISTRIBUTIONS WITH RESPECT
TO THE NEW PREFERRED STOCK; POTENTIAL FOR UNPLANNED DEEMED DIVIDENT INCOME' ON
PAGE 24 AND 'CERTAIN U.S. FEDERAL TAX CONSIDERATIONS' ON PAGE 127.
------------------------------
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 September , 1997.
<PAGE>
(continued from previous page)
Holders of Old Notes and Old Preferred Stock whose Old Notes and Old
Preferred Stock are not tendered and accepted in the Exchange Offer will
continue to hold such Old Notes and Old Preferred Stock and will be entitled to
all the rights and preferences and will be subject to the limitations applicable
thereto under the indenture governing the Old Notes and the New Notes and the
certificate of designation governing the Old Preferred Stock, respectively.
Following consummation of the Exchange Offer, the holders of Old Notes and Old
Preferred Stock will continue to be subject to the existing restrictions upon
transfer thereof and the Company will have no further obligation to such holders
to provide for the registration under the Securities Act of the Old Notes and
Old Preferred Stock held by them. The New Notes will evidence the same debt as
the Old Notes and will be entitled to the benefits of the indenture (the
'Indenture'), dated as of June 25, 1997, governing the Old Notes and the New
Notes. The Old Notes and the New Notes are sometimes referred to herein
collectively as the 'Notes.' The Old Preferred Stock and the New Preferred Stock
are sometimes referred to herein collectively as the 'Senior Preferred Stock.'
The Old Notes and the Old Preferred Stock are sometimes referred to herein
collectively as the 'Unregistered Securities.' The New Notes and the New
Preferred Stock are sometimes referred to herein collectively as the 'Exchange
Securities.'
The Notes will bear interest at the rate of 11% per annum, payable
semi-annually on June 15 and December 15, commencing December 15, 1997. The
Notes will mature on June 15, 2004. Except as described below, the Company may
not redeem the Notes prior to June 15, 2001. On or after such date, the Company
may redeem the Notes, in whole or in part, at any time, at the redemption prices
set forth herein, together with accrued and unpaid interest, if any, to the date
of redemption. In addition, at any time and from time to time on or prior to
June 15, 2000, the Company may, subject to certain requirements, redeem up to
35% of the aggregate principal amount of the Notes with the cash proceeds of one
or more public Equity Offerings (as defined) at a redemption price equal to
111.0% of the principal amount to be redeemed, together with accrued and unpaid
interest, if any, to the date of redemption, provided, that at least $100.0
million of the aggregate principal amount of the Notes remain outstanding
immediately after each such redemption. The Notes will not be subject to any
sinking fund requirement. Upon the occurrence of a Change of Control (as
defined), the Company will be required to make an offer to repurchase the Notes
at a price equal to 101% of the principal amount thereof, together with accrued
and unpaid interest, if any, to the date of repurchase. There can be no
assurance that the Company will have funds available to repurchase the Notes
upon the occurence of a Change of Control. See 'Description of
Notes--Redemption--Optional Redemption,' '--Repurchase at the Option of
Holders--Change of Control' and 'Risk Factors--Limitation on Change of Control.'
Other than change of control provisions and other restrictive covenants,
including limitations on indebtedness and restricted payments, as applicable,
the Indenture and the Certificate of Designation do not contain any provisions
that afford holders of the Notes and Senior Preferred Stock protection in the
event of a highly leveraged or other transaction that may adversely affect such
holders. See 'Description of Notes,' 'Description of New Preferred Stock,' and
'Risk Factors--Substantial Leverage and Ability to Service Debt,'
'--Restrictions Imposed by the Terms of the Company's Indebtedness and Preferred
Stock,' and '--Limitation on Change of Control.'
The Old Notes are and the New Notes will be senior unsecured obligations of
the Company. The Old Notes rank and the New Notes will rank pari passu in right
of payment with all existing and future senior indebtedness of the Company and
will rank senior in right of payment to any future subordinated indebtedness of
the Company. The Old Notes are and the New Notes will be unconditionally
guaranteed (the 'Guarantees'), jointly and severally, by each of the Company's
subsidiaries on the issue date of such Notes and by each subsidiary (excluding
Unrestricted Subsidiaries (as defined)) of the Company acquired thereafter
(collectively, the 'Guarantors'). The Guarantees are senior unsecured
obligations of the Guarantors and will rank pari passu in right of payment with
all other existing and future senior indebtedness of the respective Guarantors
and senior in right of payment to all existing and future subordinated
indebtedness of the respective Guarantors and may be released upon the
occurrence of certain events. The Notes and the Guarantees will be effectively
subordinated to any secured debt of the Company and the Guarantors, to the
extent of the assets serving as security therefor. As of June 30, 1997 on a pro
2
<PAGE>
forma basis after giving effect to the Old Notes Offering and the Acquisition
(each, as defined), the aggregate principal amount of the Company's outstanding
senior indebtedness to which the Notes would have been effectively subordinated
is approximately $86 million. See 'Description of Notes' and 'Description of
Other Indebtedness.'
Dividends on the Senior Preferred Stock will be payable quarterly on each
March 15, June 15, September 15 and December 15, beginning the earlier of
September 15, 1997 or such dividend payment date first occuring subsequent to
the consummation of the Exchange Offer and accumulating from the most recent
date on which dividends have been paid on the Old Preferred Stock, or if no
dividends have been paid on the Old Preferred Stock, from June 25, 1997, at a
rate per annum of 12% of the liquidation preference per share. Dividends may be
paid, at the Company's option, on any dividend payment date occurring on or
prior to June 15, 2002 either in cash or by the issuance of additional shares of
Senior Preferred Stock with a liquidation preference equal to the amount of such
dividends; thereafter, dividends shall be paid in cash. The liquidation
preference of the Senior Preferred Stock is $25 per share. At any time and from
time to time on or prior to June 15, 2000 the Company may, subject to certain
requirements, redeem up to 35% of the aggregate liquidation value of the Senior
Preferred Stock with cash proceeds from one or more Equity Offerings (as
defined) at a redemption price equal to 112% of the liquidation preference
thereof, plus accumulated and unpaid dividends to the date of redemption. After
June 15, 2000 and prior to June 15, 2002, the Senior Preferred Stock is not
redeemable. On or after June 15, 2002, the Senior Preferred Stock is redeemable,
at the option of the Company, in whole or in part, at the redemption prices set
forth herein, plus accumulated and unpaid dividends to the date of redemption.
The Company is required, subject to certain limitations, to redeem all of the
Senior Preferred Stock outstanding on June 15, 2007 at a redemption price equal
to 100% of the liquidation preference thereof plus accumulated and unpaid
dividends to the date of redemption. Upon the occurrence of a Change of Control
(as defined), the Company will, subject to certain conditions, be required to
make an offer to purchase all of the outstanding shares of Senior Preferred
Stock at a price equal to 101% of the liquidation preference thereof, plus
accumulated and unpaid dividends to the date of purchase. There can be no
assurance that sufficient funds will be available when necessary to make any
required repurchases. Even if sufficient funds are available, the terms of the
New Senior Secured Facilities (as defined) prohibit the Company's repurchase of
the Senior Preferred Stock following a Change of Control.
The Exchange Offer is not conditioned on any minimum aggregate principal
amount of Series A Notes or any minimum number of shares of Senior
Payment-In-Kind Preferred Stock being tendered for exchange. The Company will
accept for exchange any and all validly tendered Unregistered Securities not
withdrawn prior to 5:00 p.m., New York City time, on , 1997 unless
extended by the Company, (the 'Expiration Date'). Tenders of Unregistered
Securities may be withdrawn at any time prior to the Expiration Date. The
Exchange Offer is subject to certain customary conditions. See 'The Exchange
Offer--Conditions.' The Company has agreed to pay all expenses incident to the
Exchange Offer. The Company will not receive any proceeds from the Exchange
Offer.
The Unregistered Securities consitute securities for which there is no
established trading market. Any Unregistered Securities not tendered and
accepted in the Exchange Offer will remain outstanding. The Company does not
currently intend to list the Exchange Securities on any securities exchange. To
the extent that any Unregistered Securities are tendered and accepted in the
Exchange Offer, a holder's ability to sell untendered Unregistered Securities
could be adversely affected. No assurances can be given as to the liquidity of
the trading market for either the Unregistered Securities or the Exchange
Securities.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES OR OLD PREFERRED STOCK IN ANY
JURISDICTION IN WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE
IN COMPLIANCE WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
3
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 under the Securities Act with respect to the Exchange Securities offered
hereby. As permitted by the rules and regulations of the Commission, this
Prospectus omits certain information, exhibits and undertakings contained in the
Registration Statement. For further information with respect to the Company and
the Exchange Securities offered hereby, reference is made to the Registration
Statement, including the exhibits thereto and the financial statements, notes
and schedules filed as a part thereof. The Registration Statement (and the
exhibits and schedules thereto), as well as the periodic reports and other
information filed by the Company with the Commission, may be inspected and
copied at the public reference section of the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional
offices of the Commission located at 7 World Trade Center, Suite 1300, New York,
New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material can be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
Such information can also be reviewed through the Commission's Electronic Data
Gathering, Analysis and Retrieval System which is publicly available through the
Commission's Web Site (http:www.sec.gov). Statements contained in this
Prospectus as to the contents of any contract or other document are not
necessarily complete, and in each instance reference is made to the copy of such
contract or document filed as an exhibit to the Registration Statement, each
such statement being qualified by such reference.
Pursuant to the Indenture and the Certificate of Designation (as defined)
relating to the Notes and Senior Preferred Stock, respectively, the Company has
agreed to furnish to United States Trust Company of New York, as trustee (the
'Trustee'), and to registered holders of the Notes and Senior Preferred Stock,
without cost to the Trustee or such registered holders, copies of all reports
and other information that would be required to be filed by the Company with the
Commission under the Securities Exchange Act of 1934, as amended (the 'Exchange
Act'), whether or not the Company is then required to file reports with the
Commission.
4
<PAGE>
FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements with respect to
the Company's business, financial condition and results of operations. The words
'estimate,' 'project,' 'intend,' 'expect,' 'anticipate' and similar expressions
are intended to identify forward-looking statements. These forward-looking
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those contemplated in such forward-looking
statements. For a discussion of such risks, see 'Risk Factors.' Investors are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date hereof. Following the consummation of the Exchange
Offer, the Company undertakes no obligation to release publicly any revisions to
these forward-looking statements to reflect events or circumstances after the
date hereof or to reflect the occurrence of unanticipated events.
CERTAIN MARKET INFORMATION
Information provided herein regarding the sizes and growth rates of the
markets for smokeless tobacco and its moist snuff and loose leaf chewing tobacco
categories was compiled by an independent third party for the Smokeless Tobacco
Council, a Washington, D.C. based trade organization. The Smokeless Tobacco
Council aggregates and reports manufacturers' sales, as reported to it by the
manufacturers. Market share information provided herein for National Tobacco (as
defined) was compiled by Information Resources Inc. Information Resources Inc.
measures and reports retail unit sales in food, mass merchandising and drug
stores. Loose leaf chewing tobacco industry volume is expressed in pounds; such
volume information included herein is taken from reports issued by the United
States Department of Agriculture. Manufacturers' price per pound information
provided herein is derived from the Company's and other major competitors' price
lists. All references herein to market size and market share for roll-your-own
('RYO') cigarette paper are estimates derived from reports of 1995 import data,
by weight, released by the United States Department of Commerce.
TRADEMARKS
National Tobacco has registered trademarks on the following brand names:
BEECH-NUT(REGISTERED), TROPHY(REGISTERED) AND HAVANA BLOSSOM(REGISTERED). NAOC
(as defined) licenses from Bollore Technologies, S.A., a corporation organized
under the laws of the Republic of France ('Bollore'), the ZIG-ZAG(REGISTERED)
trade name and trademark for use in RYO cigarette paper and owns the ZIG-
ZAG(REGISTERED) trademark with respect to certain tobacco products.
5
<PAGE>
IMPORTANT
To properly tender Unregistered Securities, the following procedures must
be followed:
o Each beneficial owner owning interests in Unregistered Securities ('Beneficial
Owner') through a DTC Participant (as defined) must instruct such DTC
Participant to cause Unregistered Securities to be tendered in accordance with
the procedures set forth in this Prospectus and in the applicable Letter of
Transmittal.
o Each participant (a 'DTC Participant') in the Depository Trust Company ('DTC')
holding Unregistered Securities through DTC must (i) electronically transmit
its acceptance to DTC through the DTC Automated Tender Offer Program ('ATOP'),
for which the transaction will be eligible, and DTC will then edit and verify
the acceptance, execute a book-entry delivery to the account of United States
Trust Company of New York (the 'Exchange Agent') at DTC and send an Agent's
Message (as defined) to the Exchange Agent for its acceptance, or (ii) comply
with the guaranteed delivery procedures set forth under 'Exchange
Offer--Guaranteed Delivery Procedures.' By tendering through ATOP, DTC
Participants will expressly acknowledge receipt of the accompanying Letter of
Transmittal and agree to be bound by its terms and the Company will be able to
enforce such agreement against such DTC participants.
o Each registered owner of certificated Unregistered Securities (a 'Holder')
must (i) complete and sign the accompanying Letter of Transmittal, and mail or
deliver such Letter of Transmittal, and all other documents required by the
Letter of Transmittal, together with certificate(s) representing all tendered
Unregistered Securities, to the Exchange Agent at its address set forth under
'Exchange Offer-- Exchange Agent,' or (ii) comply with the guaranteed delivery
procedures set forth under 'Exchange Offer--Guaranteed Delivery Procedures.'
For purposes of this Prospectus, 'Tendering Holder' shall mean (i) each DTC
Participant that has properly transmitted (and not properly withdrawn) its
acceptance through ATOP and in respect of which DTC has sent an Agent's Message,
(ii) each Holder that has timely delivered to the Exchange Agent (and not
properly withdrawn) a properly completed and duly executed Letter of
Transmittal, and any other documents required by the Letter of Transmittal,
together with certificate(s) representing all tendered Unregistered Securities,
or (iii) each DTC Participant or Holder that has complied with the guaranteed
delivery procedures set forth herein.
The information in this Prospectus concerning DTC and their book-entry
systems has been obtained by the Company from sources that the Company believes
to be reliable, and the Company takes no responsibility for the accuracy
thereof.
6
<PAGE>
PROSPECTUS SUMMARY
The following is a summary of certain information contained elsewhere in
this Prospectus and is qualified in its entirety by the more detailed
information and financial statements and the related notes thereto appearing
elsewhere in this Prospectus. Prospective investors are urged to read this
Prospectus in its entirety before investing in the Exchange Securities. Unless
otherwise stated in this Prospectus, references to (a) the 'Company' shall mean
North Atlantic Trading Company, Inc. and its wholly owned National Tobacco,
National Tobacco Finance Corporation and NAOC subsidiaries; (b) 'National
Tobacco' shall mean National Tobacco Company, L.P. and its predecessors, a
Delaware limited partnership that manufactures and markets loose leaf chewing
tobacco, primarily under the BEECH-NUT brand name; and (c) 'NAOC' shall mean
North Atlantic Operating Company, Inc., a subsidiary of the Company into which
NATC Holdings USA, Inc., a holding company ('NATC'), and its wholly owned
subsidiary, an importer and distributor of roll-your-own ('RYO') cigarette
papers under the ZIG-ZAG brand name, were merged, and each of their respective
predecessors. NATC was acquired by NAOC on June 25, 1997 (the 'Acquisition').
Unless otherwise indicated, financial information presented herein for the
fiscal year ended December 31, 1996 for National Tobacco reflects pro forma
financial information adjusted to give effect to the May 17, 1996
recapitalization as if it had occurred on January 1, 1996. See 'Unaudited Pro
Forma Condensed Consolidated Financial Statements.'
THE COMPANY
Through its subsidiaries, the Company is a leading marketer of high-quality
loose leaf chewing tobacco, RYO cigarette papers and other tobacco-related
products. National Tobacco is the third largest manufacturer and marketer of
loose leaf chewing tobacco in the United States, selling its products under the
brand names BEECH-NUT REGULAR, BEECH-NUT WINTERGREEN, BEECH-NUT SPEARMINT,
TROPHY and HAVANA BLOSSOM. NAOC is the largest importer and distributor in the
United States of RYO cigarette papers, which are sold under the ZIG-ZAG brand
name pursuant to an exclusive distribution agreement. The BEECH-NUT and ZIG-ZAG
brands date back approximately 100 years and 130 years, respectively, and are
well established among the Company's extensive base of wholesale and retail
customers and loyal consumers. The Company estimates that its domestic shares
(by unit volume) in the loose leaf chewing tobacco and RYO cigarette paper
markets were approximately 21% and 49%, respectively, ranking the Company third
and first, respectively, in these markets. For the year ended December 31, 1996
('fiscal 1996'), the Company's pro forma net sales, net income, and EBITDA (as
defined) were $102.1 million, $3.7 million, and $41.3 million, respectively. See
'Unaudited Pro Forma Condensed Consolidated Financial Statements.'
National Tobacco produces all of its loose leaf chewing tobacco products in
its manufacturing facilities in Louisville, Kentucky. National Tobacco's net
sales, net income, and EBITDA were $55.9 million, $1.5 million, and $15.5
million, respectively, in fiscal 1996.
NAOC imports and distributes RYO cigarette paper and related products which
are manufactured pursuant to a long-term, formula-priced agreement with Bollore
Technologies, S.A. ('Bollore'). NAOC reported net sales, net income, and EBITDA
of $46.1 million, $9.3 million, and $25.8 million, respectively, in fiscal 1996.
The Company was formed in 1997 to effect the acquisition of NATC and its
ZIG-ZAG RYO cigarette paper business. The Company believes the combination of
the ZIG-ZAG RYO cigarette paper business with National Tobacco's BEECH-NUT loose
leaf chewing tobacco business will produce substantial benefits and synergies,
as summarized below:
o Greater product line diversification with leading brand names;
o Improved product mix due to higher-margin RYO cigarette papers;
o Sales growth opportunities through:
--Complementary distribution channels,
-- Strengthened regional market penetration for the ZIG-ZAG brand,
7
<PAGE>
--Continued aggressive promotional strategies; and
o Management team with extensive industry experience.
The Company's near-term strategy is to cultivate these sales, marketing and
distribution synergies through the combination of its loose leaf chewing tobacco
and RYO cigarette paper businesses. The Company believes that National Tobacco's
long-term investment in its 105-person sales force will be instrumental in
realizing this near-term strategy. Prior to the Acquisition, the predecessor
which was ultimately merged into the recently formed NAOC marketed its products
without the benefit of a sales organization that calls on individual retail
outlets. The Company's sales organization will merchandise the ZIG-ZAG brand in
thousands of key retail locations, especially in the Southeast which has
historically been an underdeveloped market for NAOC. The Company believes that
National Tobacco's sales force will be able to enhance the distribution and
increase the sales of its ZIG-ZAG RYO cigarette papers.
Over the long term, the Company's primary strategy for building equity
value is to reduce debt. The Company also intends to continue to identify and
pursue opportunities for profitable growth through new product introductions and
strategic acquisitions.
The Company's principal executive offices are located at 257 Park Avenue
South, New York, New York 10010-7304 and its telephone number is (212) 253-8185.
8
<PAGE>
The following chart illustrates the complementary aspects of its two
primary business segments and summarizes the Company's structure following the
Acquisition. See 'The Transactions' for a structural organization chart.
[CHART]
[PASTE UP CHART OVER TWO RIGHT COLUMNS]
<TABLE>
<S> <C> <C>
1996 NET SALES: $55.9 million $46.1 million
1996 NET INCOME: $1.5 million $9.3 million
1996 EBITDA: $15.5 million $25.8 million
KEY PRODUCTS: Loose leaf chewing tobacco RYO cigarette papers
SELECTED BRANDS: BEECH-NUT REGULAR ZIG-ZAG WHITE
BEECH-NUT WINTERGREEN ZIG-ZAG FRENCH ORANGE
BEECH-NUT SPEARMINT ZIG-ZAG KUTCORNERS
TROPHY
U.S. MARKET SHARE / RANK: 21% / #3 49% / #1
PRIMARY DISTRIBUTION CHANNELS: Food stores Convenience stores
Mass merchandisers Chain and independent drug
Convenience stores stores
Discount tobacco stores Mass merchandisers
Chain and independent drug Food stores
stores Discount tobacco stores
CORE U.S. MARKETS: Southeast West
Southwest Southwest
Rural Northeast North Central
Rural North Central
PRE-ACQUISITION SALESFORCE: 105 sales representatives 6 sales representatives
and managers and managers
CUSTOMER FOCUS: Retailers Wholesalers
PRIMARY MARKETING STRATEGY: 'Pull' strategy through 'Push' strategy through
point-of-sale promotions to volume promotions to
consumers at the retail wholesalers
level
</TABLE>
9
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BUSINESS STRENGTHS
LEADING BRAND NAMES
BEECH-NUT and ZIG-ZAG are among the most widely recognized brand names in
the loose leaf chewing tobacco and RYO cigarette paper industries, respectively.
The Company believes that the strength of these brand names has created a loyal
consumer base and significant barriers to competition. The Company believes
BEECH-NUT has been one of the leading loose leaf chewing tobacco brands in the
United States since its inception in 1897. Similarly, the Company believes
ZIG-ZAG has been the number-one selling domestic RYO cigarette paper brand since
UST, Inc.'s ('UST') introduction of the brand in the United States in 1938.
HIGH-QUALITY PRODUCTS
Management seeks to ensure the quality of the Company's products through
its focus on quality control, research and development and its use of its highly
efficient, well maintained loose leaf chewing tobacco manufacturing facilities.
The Company imports all of its ZIG-ZAG RYO cigarette papers under its strict
quality requirements from Bollore, a major French manufacturer of high-quality
and fine papers.
EXPERIENCED SALES ORGANIZATION
National Tobacco has made a substantial long-term investment in its
105-person sales organization. The Company believes it can successfully
merchandise ZIG-ZAG RYO cigarette papers through thousands of key retail
outlets, especially in the Southeast which has historically been an
underdeveloped market for NAOC, by selling the ZIG-ZAG product line through
National Tobacco's sales force and complementary distribution channels.
CONSISTENT CASH FLOWS
The Company and its predecessors have had a long history of consistent cash
flows from operations. Although there can be no assurance, the Company believes
that this trend will continue, enabling the Company to promptly and
significantly reduce its debt.
MINIMAL CAPITAL EXPENDITURE REQUIREMENTS
The Company's subsidiaries require minimal capital expenditures. National
Tobacco maintains a highly efficient loose leaf chewing tobacco manufacturing
facility. NAOC contracts for the manufacturing of all of its RYO cigarette paper
and related products. The Company's combined capital expenditures averaged
$377,000 annually for the fiscal years 1994 through 1996.
SUCCESSFUL HISTORY OF MANAGEMENT BUYOUTS
The Company's management team has a long and successful history in
profitably operating a business with a leveraged balance sheet. Led by Mr.
Thomas F. Helms, Jr., Chairman, President and Chief Executive Officer of the
Company, substantially all of the Company's current management team have been
with National Tobacco or its predecessors since the initial buyout with Shearson
Lehman Hutton Inc. ('Lehman Brothers') of the interest of Lorillard, Inc.
('Lorillard') in 1988. This same management team participated in two subsequent
management buyouts in April 1992 and in May 1996. Since the initial Lorillard
buyout, National Tobacco has cumulatively repaid approximately $60 million of
National Tobacco's indebtedness. As part of these buyouts, management has
reinvested its equity to increase its ownership from approximately 13% in 1988
to 25% in 1992 to 48% in 1996. After giving effect to the Transactions,
management beneficially owns approximately 72.9% of the Company's Common Stock
(assuming the exercise in full of certain outstanding warrants).
EXPERIENCED AND COMMITTED MANAGEMENT TEAM
The Company's management team is highly experienced in the tobacco
industry. The Company has experienced little management turnover and continues
to be strengthened through the recruitment of additional talented professionals.
The Company's seven senior executives have an average of approximately 25 years
of experience in the tobacco industry. Mr. Helms, Chief Executive Officer of the
Company, has 14 years of tobacco industry experience. In addition, Mr. Jack
Africk, one of the Company's consultants,
10
<PAGE>
has 49 years of tobacco industry experience. The Company's management team is
highly motivated to build value over the long term because of its beneficial
equity ownership of approximately 72.9% of the Company's Common Stock (assuming
the exercise in full of certain warrants).
HIGHLY EFFICIENT INFRASTRUCTURE
The Company's infrastructure is highly efficient. National Tobacco has
consistently sought to improve its manufacturing processes as well as its
product formulation and raw material procurement. National Tobacco's gross
margins have improved from 48.5% in fiscal 1993 to 58.4% in fiscal 1996. The
Company believes it is the low-cost manufacturer of loose leaf chewing tobacco.
NAOC had a fiscal 1996 gross margin of 64.3%, complementing National Tobacco's
high gross margins.
ATTRACTIVE MARKET DYNAMICS
The Company believes that the smokeless tobacco market, including loose
leaf chewing tobacco, and the RYO cigarette paper industry are each
characterized by non-cyclical demand, brand loyalty, significant barriers to
entry, minimal capital expenditure requirements, high profit margins, consistent
price increases at the wholesale level as well as the ability to generate strong
and consistent free cash flows.
STRONG CUSTOMER RELATIONSHIPS
Historically, both National Tobacco and NAOC have enjoyed strong
relationships with their respective customers by virtue of their leading brands,
significant market shares and experienced sales and marketing organizations. By
combining these two businesses' leading brands, management teams and sales
organizations, the Company expects to strengthen its customer relationships and
become a more important source of product supply to major distributors and
retailers. The combination of the National Tobacco and NAOC sales forces will
enable the Company to develop a valuable retail-oriented focus for the ZIG-ZAG
brand.
USE OF PROCEEDS
The Company will not receive any proceeds from the Exchange Offer. The
Company was formed in connection with the Acquisition, a corporate
reorganization and the related financings (collectively, the 'Transactions').
The financings consisted principally of (i) the offering of the Old Notes (the
'Old Notes Offering'), (ii) the establishment of the New Senior Secured
Facilities including an $85 million senior secured term loan (the 'Term
Facility') and a $25 million senior secured revolving credit facility (the
'Revolver') and (iii) a concurrent offering of 1,360 Units (the 'Units'), for
aggregate gross proceeds of $34.0 million, consisting of an aggregate of
1,360,000 shares of 12% senior preferred stock of the Company with a liquidation
preference of $25 per share (the Old Preferred Stock, as defined) and warrants
to purchase an aggregate of 44,440 shares of Common Stock (the 'Warrants'),
representing 7.0% of the Company's Common Stock on a fully diluted basis.
The Company used the $155.0 million of gross proceeds from the Old Notes
Offering, together with $85.0 million of floating rate borrowings and $0.8
million of revolver borrowings under the New Senior Secured Facilities, $34.0
million of aggregate gross proceeds from the concurrent offering of the Units,
$0.7 million from equity investments from certain employees and a consultant of
the Company, to (i) finance the $159.4 million cash portion of the aggregate
purchase price of $162.6 million for the Acquisition, (ii) refinance $56.5
million principal amount outstanding senior indebtedness and accrued interest
(net of deposits) of National Tobacco, (iii) repurchase all of the outstanding
subordinated indebtedness and preferred interests of NTC Holding LLC, a Delaware
limited liability company and former parent of National Tobacco ('LLC'),
together with warrants to purchase membership interests in LLC, for an aggregate
purchase price of approximately $47.5 million, (iv) pay $12.1 million of
estimated fees and expenses associated with the Transactions.
11
<PAGE>
THE EXCHANGE OFFER
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Old Notes..................... The Old Notes were sold by the Company on
June 25, 1997, to NatWest Capital Markets
Limited ('NatWest') and CIBC Wood Gundy
Securities Corp. (collectively, the 'Initial
Purchasers') pursuant to a Purchase
Agreement, dated June 18, 1997 (the 'Note
Purchase Agreement'). The Initial Purchasers
subsequently resold the Notes to qualified
institutional buyers pursuant to Rule 144A
under the Securities Act or institutional
'accredited investors' (as defined in Rule
501 (a)(1), (2), (3) or (7) of Regulation D
under the Securities Act) or outside the
United States in compliance with Regulation S
under the Securities Act.
Registration Rights
Agreement................... Pursuant to the Note Purchase Agreement, the
Company and the Initial Purchasers entered
into the Registration Rights Agreement, which
grants the holders of the Old Notes certain
exchange and registration rights. The
Exchange Offer is intended to satisfy such
exchange and registration rights which
terminate upon the consummation of the
Exchange Offer.
Old Preferred Stock........... Units, which were comprised in part of the
Old Preferred Stock, were sold by the Company
on June 25, 1997, to NatWest pursuant to a
Purchase Agreement dated June 18, 1997 (the
'Units Purchase Agreement', and together with
the Note Purchase Agreement, the 'Purchase
Agreements'). NatWest subsequently resold the
Units to qualified institutional buyers
pursuant to Rule 144A under the Securities
Act or institutional 'accredited investors'
(as defined in the Rule 501 (a)(1), (2), (3)
or (7) of Regulation D under the Securities
Act) or outside the United States in
compliance with Regulation S under the
Securities Act.
Preferred Stock
Registration Rights
Agreement................... Pursuant to the Units Purchase Agreement, the
Company and NatWest entered into the
Preferred Stock Registration Rights
Agreement, which grants the holders of the
Old Preferred Stock certain exchange and
registration rights. The Exchange Offer is
intended to satisfy such exchange and
registration rights which terminate upon the
consummation of the Exchange Offer.
Securities Offered............ $155,000,000 aggregate principal amount of
11% Senior Notes due 2004, Series B (the 'New
Notes') and 1,360,000 shares of 12% Senior
Exchange Payment-In-Kind Preferred Stock (the
'New Preferred Stock').
The Exchange Offer............ The Company is offering to exchange (i)
$1,000 principal amount of New Notes for each
$1,000 principal amount of Old Notes that are
properly tendered and accepted and (ii) one
share of New Preferred Stock for each share
of Old Preferred Stock properly tendered and
accepted. The Company will issue Exchange
Securities on or promptly after the
Expiration Date. As of the date hereof, there
is $155,000,000 aggregate principal amount of
Old Notes outstanding and 1,360,000 shares of
Old Preferred Stock outstanding. The terms of
the Exchange Securities are identical in all
material respects to the terms of the
</TABLE>
12
<PAGE>
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<S> <C>
Unregistered Securities for which they may be
exchanged pursuant to the Exchange Offer,
except that the Exchange Securities are
freely transferable by holders thereof (other
than as provided herein), and are not subject
to any covenant restricting transfer absent
registration under the Securities Act. See
'The Exchange Offer.' The Exchange Offer is
not conditioned upon any minimum aggregate
principal amount of Old Notes or any minimum
number of shares of Old Senior Preferred
Stock being tendered for exchange.
Based on no-action letters issued by the
staff of the Commission to third parties with
respect to similar transactions, the Company
believes that the Exchange Securities issued
pursuant to the Exchange Offer in exchange
for Unregistered Securities may be offered
for resale, resold and otherwise transferred
by holders thereof (other than (i) a
broker-dealer who purchases such Exchange
Securities from the Company to resell
pursuant to Rule 144A or any other available
exemption under the Securities Act, or (ii) a
person that is an 'affiliate' of the Company
within the meaning of Rule 405 of the
Securities Act) without compliance with the
registration and prospectus delivery
requirements of the Securities Act, provided
that such Exchange Securities are acquired in
the ordinary course of such holders' business
and such holders are not engaged in, have no
arrangement or understanding with any person
to participate in, and do not intend to
engage in, any distribution of the Exchange
Securities. However, the Company has not
sought a no-action letter with respect to the
Exchange Offer and there can be no assurance
that the staff of the Commission would make a
similar determination with respect to the
Exchange Offer. Each holder of Exchange
Securities, other than a broker-dealer, must
represent that such conditions have been met.
In addition, each broker-dealer that receives
Exchange Securities for its own account
pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus
in connection with any resale of such
Exchange Securities. The Letter of
Transmittal accompanying this Prospec-tus
states that by so acknowledging and by
delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an
'underwriter' within the meaning of the
Securities Act. A broker-dealer may
nonetheless be deemed to be an 'underwriter'
under the Securities Act notwithstanding such
disclaimer. 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 Securities received
in exchange for Unregistered Securities where
such Unregistered Securities were acquired by
such broker-dealer as a result of
market-making activities or other trading
activities. Pursuant to the Registration
Rights Agreements, the Company has agreed
that, for a period of 180 days after the
Expiration Date, it will make this Prospectus
available to any broker-dealer for use in
connection with any such resale. See 'The
Exchange Offer-- Purpose and Effect of the
Exchange Offer' and 'Plan of Distribution.'
</TABLE>
13
<PAGE>
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Any holder who tenders in the Exchange Offer
with the intention to participate, or for the
purpose of participating, in a distribution
of the Exchange Securities could not rely on
the position of the staff of the Commission
enunciated in no-action letters and, in the
absence of an applicable exemption, must
comply with the registration and prospectus
delivery requirements of the Securities Act
in connection with any resale transaction.
Failure to comply with such requirements in
such instance may result in such holder
incurring liability under the Securities Act
for which the holder is not indemnified by
the Company.
Expiration Date............... 5:00 p.m., New York City time, on
, 1997, unless the Exchange
Offer is extended, in which case the term
'Expiration Date' means the latest date and
time to which the Exchange Offer is extended.
See 'The Exchange Offer-- Expiration Date;
Extensions; Amendments'.
Accrued Interest or
Accumulated Dividends on the
Exchange Securities......... Each Exchange Security will bear interest or
be entitled to dividends from the most recent
date to which interest or dividends have been
paid on the Unregistered Securities or, if no
interest or dividends have been paid on such
Unregistered Securities, from June 25, 1997.
Exchange Date................. As soon as practicable after the close of the
Exchange Offer, the Issuer will accept for
exchange all Unregistered Securities properly
tendered and not validly withdrawn prior to
5:00 p.m., New York City time, on the
Expiration Date. See 'The Exchange
Offer--Withdrawal of Tenders.'
Conditions to the Exchange
Offer....................... The Exchange Offer is subject to customary
conditions, certain of which may be waived by
the Issuer. The Issuer reserves the right to
terminate or amend the Exchange Offer at any
time prior to the Expiration Date upon the
occurrence of any such condition. The
Exchange Offer is not conditioned on any
minimum aggregate principal amount of
Existing Notes being tendered for exchange.
See 'The Exchange Offer-- Conditions.'
Consequences of Failure to
Exchange.................... Any Unregistered Securities not tendered
pursuant to the Exchange Offer will remain
outstanding and continue to accrue interest
or accumulate dividends. Such Unregistered
Securities will remain 'restricted
securities' under the Securities Act, subject
to the transfer restrictions described
herein. As a result, the liquidity of the
market for such Unregistered Securities could
be adversely affected upon completion of the
Exchange Offer. See 'Risk
Factors--Consequences of Failure to Exchange'
and 'The Exchange Offer--Consequences of
Failure to Exchange.'
Certain Federal Income Tax
Considerations.............. The exchange pursuant to the Exchange Offer
should not be a taxable event for federal
income tax purposes. See 'Certain U.S.
Federal Income Tax Considerations.'
Use of Proceeds............... There will be no cash proceeds to the Company
from the Exchange Offer. See 'Use of
Proceeds.'
</TABLE>
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<PAGE>
PROCEDURES FOR TENDERING UNREGISTERED SECURITIES
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Tendering Unregistered
Securities.................. Each beneficial owner owning interests in
Unregistered Securities ('Beneficial Owner')
through a DTC Participant (as defined) must
instruct such DTC Participant to cause
Unregistered Securities to be tendered in
accordance with the procedures set forth in
this Prospectus and in the applicable Letter
of Transmittal. See 'The Exchange
Offer--Procedures for Tendering--Unregistered
Securities held by DTC.'
Each participant (a 'DTC Participant') in the
Depository Trust Company ('DTC') holding
Unregistered Securities through DTC must (i)
electronically transmit its acceptance to DTC
through the DTC Automated Tender Offer
Program ('ATOP'), for which the transaction
will be eligible, and DTC will then edit and
verify the acceptance, execute a book-entry
delivery to the Exchange Agent's account at
DTC and send an Agent's Message (as defined
herein) to the Exchange Agent for its
acceptance, or (ii) comply with the
guaranteed delivery procedures set forth in
this Prospectus and in the Letter of
Transmittal. By tendering through ATOP, DTC
Participants will expressly acknowledge
receipt of the accompanying Letter of
Transmittal and agree to be bound by its
terms and the Company will be able to enforce
such agreement against such DTC participants.
See 'The Exchange Offer--Procedures for
Tendering--Unregistered Securities held by
DTC,' and '--Guaranteed Delivery Procedures--
Unregistered Securities held by DTC.'
Each Holder must (i) complete and sign a
Letter of Transmittal, and mail or deliver
such Letter of Transmittal, and all other
documents required by the Letter of
Transmittal, together with certificate(s)
representing all tendered Unregistered
Securities, to the Exchange Agent at its
address set forth in this Prospectus and in
the Letter of Transmittal, or (ii) comply
with the guaranteed delivery procedures set
forth in this Prospectus. See 'The Exchange
Offer--Procedures for Tendering,' '--Exchange
Agent,' and '--Guaranteed Delivery
Procedures--Unregistered Securities held by
Holders.'
By tendering, each holder will represent to
the Company that, among other things, (i) it
is not an affiliate of the Company, (ii) it
is not a broker-dealer tendering Unregistered
Securities acquired directly from the Company
for its own account, (iii) the Exchange
Securities acquired pursuant to the Exchange
Offer are being obtained in the ordinary
course of business of such holder and (iv) it
has no arrangements or understandings with
any person to participate in the Exchange
Offer for the purpose of distributing the
Exchange Securities. See 'The Exchange
Offer--Procedures for Tendering.'
Guaranteed Delivery
Procedures.................. DTC Participants holding Unregistered
Securities through DTC who wish to cause
their Unregistered Securities to be tendered,
but who cannot transmit their acceptances
through ATOP prior to the Expiration Date,
may effect a tender in accordance with the
procedures set forth in this Prospectus and
in the Letter of Transmittal. See 'Exchange
Offer--Guaranteed Delivery
</TABLE>
15
<PAGE>
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<S> <C>
Procedures.' Holders who wish to tender their
Unregistered Securities but (i) whose
Unregistered Securities are not immediately
available and will not be available for
tendering prior to the Expiration Date, or
(ii) who cannot deliver their Unregistered
Securities, the Letter of Transmittal, or any
other required documents to the Exchange
Agent prior to the Expiration Date, may
effect a tender in accordance with the
procedures set forth in this Prospectus. See
'The Exchange Offer--Guaranteed Delivery
Procedures.'
Withdrawal Rights............. The tender of Unregistered Securities
pursuant to the Exchange Offer may be
withdrawn at any time prior to 5:00 p.m., New
York City time, on the Expiration Date, in
accordance with the procedures set forth in
this Prospectus. See 'The Exchange
Offer--Withdrawal of Tenders.'
Exchange Agent................ United States Trust Company of New York is
serving as Exchange Agent in connection with
the Exchange Offer. See 'The Exchange
Offer--Exchange Agent.'
Shelf Registration
Statement................... Under certain circumstances described in the
Registration Rights Agreements, certain
holders of Unregistered Securities (including
holders who are not permitted to participate
in the Exchange Offer or who may not freely
resell Exchange Securities received in the
Exchange Offer) may require the Company to
file and use best efforts to cause to become
effective, a shelf registration statement
under the Securities Act, which would cover
resales of Unregistered Securities by such
holders. See 'Exchange Offer--Purpose and
Effect of the Exchange Offer.'
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<PAGE>
SUMMARY DESCRIPTION OF THE NEW NOTES
The terms of the New Notes and the Old Notes are identical in all material
respects, except for certain transfer restrictions relating to the Old Notes.
The New Notes will bear interest from the most recent date to which interest has
been paid on the Old Notes or, if no interest has been paid on the Old Notes,
from June 25, 1997. Accordingly, registered holders of New Notes on the relevant
record date for the first interest payment date following the consummation of
the Exchange Offer will receive interest accruing from the most recent date to
which interest has been paid on the Old Notes or, if no interest has been paid,
from June 25, 1997. Old Notes accepted for exchange will cease to accrue
interest from and after the date of consummation of the Exchange Offer. Holders
whose Old Notes are accepted for exchange will not receive any payment in
respect of interest on such Old Notes otherwise payable on any interest payment
date the record date for which occurs on or after consummation of the Exchange
Offer.
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MATURITY...................... June 15, 2004. The New Notes will bear
interest at the rate of 11% per annum.
INTEREST PAYMENT DATES........ June 15 and December 15 of each year,
commencing on December 15, 1997 (the
'Interest Payment Dates').
OPTIONAL REDEMPTION........... Except as described below and under 'Change
of Control', the Company may not redeem the
Notes prior to June 15, 2001. On or after
such date, the Company may redeem the Notes,
in whole or in part, at any time at the
redemption prices set forth herein, together
with accrued and unpaid interest, if any, to
the date of redemption. In addition, at any
time and from time to time on or prior to
June 15, 2000, the Company may, subject to
certain requirements, redeem up to 35% of the
aggregate principal amount of the Notes with
the cash proceeds received from one or more
Equity Offerings at a redemption price equal
to 111.0% of the principal amount to be
redeemed, together with accrued and unpaid
interest, if any, to the date of redemption,
provided that at least $100.0 million of the
aggregate principal amount of the Notes
remain outstanding immediately after each
such redemption. See 'Description of
Notes--Redemption.'
CHANGE OF CONTROL............. Upon the occurrence of a Change of Control,
the Company will be required to make an offer
to repurchase the Notes at a price equal to
101% of the principal amount thereof,
together with accrued and unpaid interest, if
any, to the date of repurchase. See
'Description of Notes--Repurchase at the
Option of the Holders--Change of Control.'
RANKING....................... The Old Notes are and the New Notes will be
senior unsecured obligations of the Company
and will rank pari passu in right of payment
with all existing and future senior
indebtedness of the Company and senior in
right of payment to all existing and future
subordinated indebtedness of the Company.
Holders of secured indebtedness of the
Company will, however, have claims that are
prior to the claims of the holders of Notes
to the extent of the assets securing such
other indebtedness. See 'Description of
Notes--Ranking.'
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<PAGE>
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GUARANTEES.................... The Old Notes are and the New Notes will be
unconditionally guaranteed, jointly and
severally, by each of the Guarantors. The
Guarantees will be senior unsecured
obligations of the Guarantors and will rank
pari passu in right of payment with all other
existing and future senior indebtedness of
the respective Guarantors and senior in right
of payment to all existing and future
subordinated indebtedness of the respective
Guarantors and may be released upon the
occurrence of certain events. The Guarantees
will be effectively subordinated to the
obligations under the New Senior Secured
Facilities and to any other secured debt of
the Guarantors to the extent of the assets
serving as security therefor. See
'Description of Notes--Ranking' and
'--Guarantees.'
RESTRICTIVE COVENANTS......... The indenture under which the Old Notes have
been, and the New Notes will be, issued (the
'Indenture') contains certain covenants that,
among other things, limit (i) the incurrence
of additional indebtedness by the Company and
its subsidiaries, (ii) the payment of
dividends on, and redemption of, capital
stock of the Company and the redemption of
certain subordinated obligations of the
Company, (iii) investments, (iv) sales of
assets and subsidiary stock, (v) transactions
with affiliates and (vi) consolidations,
mergers and transfers of all or substantially
all the assets of the Company. The Indenture
also prohibits certain restrictions on
distributions from subsidiaries. However, all
of these limitations and prohibitions are
subject to a number of important
qualifications and exceptions. See
'Description of Notes--Certain Covenants.'
EXCHANGE OFFER AND
REGISTRATION RIGHTS......... Pursuant to the Registration Rights
Agreement, the Company agreed to (i) file,
within 30 days after the date of original
issuance of the Old Notes (the 'Issue Date')
(the 'Filing Date'), a registration statement
with respect to the Exchange Offer for the
New Notes, (ii) use its best efforts to cause
such registration statement to be declared
effective within 90 days after the Filing
Date and (iii) use its best efforts to
consummate the Exchange Offer within 120 days
after the Filing Date. In the event that the
Company does not comply with certain
covenants set forth in the Registration
Rights Agreement, as the sole remedy
therefor, the Company will be obligated to
pay certain liquidated damages to the holders
of the Old Notes under certain circumstances.
See 'The Exchange Offer.'
For a more complete description of the New
Notes, see 'Description of Notes.'
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SUMMARY DESCRIPTION OF THE NEW PREFERRED STOCK
The terms of the New Preferred Stock and the Old Preferred Stock are
identical in all material respects, except for certain transfer restrictions
relating to the Old Preferred Stock. The New Preferred Stock will be entitled to
dividends from the most recent date to which dividends have been paid on the Old
Preferred Stock or, if no dividends have been paid on the Old Preferred Stock,
from June 25, 1997. Accordingly, registered holders of New Preferred Stock on
the relevant record date for the first dividend payment date following the
consummation of the Exchange Offer will receive dividends accumulating from the
most recent date to which dividends have been paid on the Old Preferred Stock
or, if no dividends have been paid, from June 25, 1997. Old Preferred Stock
accepted for exchange will cease to accumulate dividends from and after the date
of consummation of the Exchange Offer. Holders whose Old Preferred Stock is
accepted for exchange will not receive any payment in respect of dividends on
such Old Preferred Stock otherwise payable on any dividend payment date the
record date for which occurs on or after consummation of the Exchange Offer.
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LIQUIDATION PREFERENCE........ $25.00 per share, plus accumulated and unpaid
dividends.
OPTIONAL REDEMPTION........... At any time and from time to time on or prior
to June 15, 2000, the Company may, subject to
certain requirements, redeem up to 35% of the
Senior Preferred Stock with cash proceeds
from one or more Equity Offerings at a
redemption price equal to 112.0% of the
liquidation preference thereof, plus
accumulated and unpaid dividends to the date
of redemption. After June 15, 2000 and prior
to June 15, 2002, the Senior Preferred Stock
is not redeemable. On or after June 15, 2002,
the Senior Preferred Stock will be
redeemable, at the option of the Company, in
whole or in part at any time, at the
following redemption prices (expressed as a
percentage of liquidation preference) if
redeemed during the twelve month period
commencing on June 15, of the applicable year
set forth below plus, without duplication, an
amount in cash equal to all accumulated and
unpaid dividends to the redemption date:
YEAR PERCENTAGE
---- ----------
2002............................. 106.00%
2003............................. 104.00%
2004............................. 102.00%
2005 and thereafter.............. 100.00%
(See 'Description of New Preferred
Stock--Redemption-- Optional Redemption'.)
MANDATORY REDEMPTION.......... The Company is required, subject to certain
conditions,
to redeem all of the Senior Preferred Stock
outstanding on June 15, 2007 at a redemption
price equal to 100% of the liquidation
preference thereof, plus accumulated and
unpaid dividends to the date of redemption.
(See 'Description of New Preferred Stock--
Redemption--Mandatory Redemption'.)
DIVIDENDS..................... At a rate equal to 12% per annum of the
liquidation preference per share, payable
quarterly beginning the earlier of September
15, 1997 or such dividend payment date first
occuring subsequent to the consummation of
the Exchange Offer and
</TABLE>
19
<PAGE>
<TABLE>
<S> <C>
accumulating from the most recent date to
which dividends have been paid on the Old
Preferred Stock, or if no dividends have been
paid on the Old Preferred Stock, from June
25, 1997. See 'Description of New Preferred
Stock--Dividends.'
DIVIDEND PAYMENT DATES........ March 15, June 15, September 15 and December
15, commencing on the earlier of September
15, 1997 or such dividend payment date first
occuring subsequent to the consummation of
the Exchange Offer. See 'Description of New
Preferred Stock--Dividends.'
VOTING........................ The New Preferred Stock will be non-voting,
except as otherwise required by law and
except in certain circumstances described
herein, including (i) amending certain rights
of the holders of the New Preferred Stock and
(ii) the issuance of any class of equity
securities that ranks on a parity with or
senior to the New Preferred Stock. In
addition, if the Company (i) after June 15,
2002 fails to pay cash dividends in any
dividend period, (ii) fails to make a
mandatory redemption or an offer to purchase
upon a Change of Control, or (iii) fails to
comply with certain covenants or make certain
payments on its Indebtedness, holders of a
majority of the shares of the Senior
Preferred Stock, voting as a class, will be
entitled to elect two directors to the
Company's Board of Directors. See
'Description of New Preferred Stock-- Voting
Rights.'
RANKING....................... The Old Preferred Stock ranks, and the New
Preferred Stock will rank, with respect to
dividend rights and rights on liquidation,
winding-up and dissolution of the Company,
senior to all classes of common stock and to
all other classes of preferred stock of the
Company subject to certain exceptions. See
'Description of New Preferred
Stock--Ranking.'
CHANGE OF CONTROL............. In the event of a Change of Control, the
Company will, subject to certain conditions,
be required to make an offer to purchase all
outstanding shares of Senior Preferred Stock
at a purchase price equal to 101% of the
liquidation preference thereof, plus
accumulated and unpaid dividends to the date
of purchase. There can be no assurance that
the Company will have sufficient funds to
purchase all of the Senior Preferred Stock in
the event of a Change of Control or that the
Company would be able to obtain financing for
such purpose on favorable terms, if at all.
See 'Description of New Preferred
Stock--Change of Control Offer.'
CERTAIN RESTRICTIVE
PROVISIONS.................. The certificate of designation with respect
to the Old Preferred or the New Preferred, as
applicable (the 'Certificate of
Designation'), contains certain restrictive
provisions that, among other things, limit
the ability of the Company and its
subsidiaries to: (i) incur additional
Indebtedness; (ii) issue preferred stock of
subsidiaries; (iii) pay dividends or make
certain other restricted payments; (iv) enter
into transactions with affiliates; or (v)
merge or consolidate with or sell all or
substantially all of their assets to any
other person. See 'Description of New
Preferred Stock-- Certain Covenants.'
</TABLE>
20
<PAGE>
<TABLE>
<S> <C>
EXCHANGE OFFER AND
REGISTRATION RIGHTS......... Pursuant to the Preferred Stock Registration
Rights Agreement the Company agreed to (i)
file, within 30 days after the Filing Date, a
registration statement with respect to the
Exchange Offer for the New Preferred Stock,
(ii) use its best efforts to cause such
registration statement to be declared
effective within 90 days after the Filing
Date and (iii) use its best efforts to
consummate the Exchange Offer for the New
Preferred Stock within 120 days after the
Filing Date. In the event that the Company
does not comply with certain covenants set
forth in the Preferred Stock Registration
Rights Agreement, as the sole remedy
therefor, the Company will be obligated to
pay certain liquidated damages to the holders
of the Old Preferred Stock under certain
circumstances. See 'Exchange Offer--Purpose
and Effect of the Exchange Offer.'
</TABLE>
For a more complete description of the New Preferred Stock, see 'Description of
New Preferred Stock.'
RISK FACTORS
Prospective purchasers of the New Notes and the New Preferred Stock should
consider carefully all of the information set forth in this Prospectus and, in
particular, should evaluate the specific factors set forth under 'Risk Factors'
for risks involved with an investment in the New Notes and the New Preferred
Stock.
21
<PAGE>
SUMMARY OF HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA
The following table presents summary financial data of National Tobacco and
NAOC on a historical and unaudited pro forma basis for the periods indicated.
The financial data used in the preparation of the summary historical financial
data has been derived from the audited financial statements for the year ended
December 31, 1996 and from the unaudited condensed financial statements for the
six-month period ended June 30, 1997. The pro forma financial data has been
derived from the Unaudited Pro Forma Condensed Consolidated Financial
Statements. This financial data is qualified by and should be read in
conjunction with the historical financial statements and the related notes
thereto and the other financial information contained in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 SIX MONTHS ENDED
----------------------------------------- JUNE 30, 1997
NATIONAL -------------------------
TOBACCO THE COMPANY THE THE COMPANY
PRO FORMA (1) NAOC PRO FORMA (2) COMPANY PRO FORMA (2)
------------- ------- ------------- -------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............................................. $55,936 $46,139 $ 102,075 $ 25,938 $ 43,444
Cost of sales......................................... 23,254 16,453 39,707 9,300 15,585
------------- ------- ------------- -------- -------------
Gross profit.......................................... 32,682 29,686 62,368 16,638 27,859
Selling, general and administrative expense........... 21,455 3,980 25,435 11,591 14,682
Amortization of intangible assets..................... 870 5,078 5,633 468 2,848
------------- ------- ------------- -------- -------------
Operating income...................................... 10,357 20,628 31,300 4,579 10,329
Interest expense...................................... 11,813 4,976 26,171 5,194 13,245
Financial advisory fee expense (3).................... -- 1,178 -- -- --
Other expense (income)................................ (122) -- (122) (44) (250)
------------- ------- ------------- -------- -------------
Income (loss) from continuing operations before income
taxes and extraordinary loss........................ (1,334) 14,474 5,251 (571) (2,666)
Provision for income taxes............................ -- 5,130 1,556 5,017 (1,338)
------------- ------- ------------- -------- -------------
Income (loss) from continuing operations before
extraordinary loss.................................. (1,334) 9,344 3,695 (5,588) (1,328)
Extraordinary loss (net of income tax of $3,224)........ -- -- -- (8,262) --
------------- ------- ------------- -------- -------------
Net income (loss)....................................... (1,334) (9,344) 3,695 (13,850) (1,328)
Preferred stock dividends............................. -- -- 4,325 58 2,468
------------- ------- ------------- -------- -------------
Income (loss) applicable to common stock.............. $(1,334) $ 9,344 $ (630) $(13,908) $ (3,796)
------------- ------- ------------- -------- -------------
------------- ------- ------------- -------- -------------
Net income (loss) per common share.................... -- $698.25 $ (1.19) $ (26.33) $ (7.19)
------------- ------- ------------- -------- -------------
------------- ------- ------------- -------- -------------
Weighted average number of common shares outstanding
(000) (4)........................................... -- 13.4 528.2 528.2 528.2
------------- ------- ------------- -------- -------------
------------- ------- ------------- -------- -------------
OTHER DATA:
Ratio of earnings to combined fixed charges and preferred stock dividends (7).... 1.03 --
Ratio of earnings to fixed charges (8)........................................... 1.20 --
Cash flows from operating activities.................. $ 8,145 $18,268 $(25,862)
Cash flows from investing activities.................. (72,445) (8,053) (157,260)
Cash flows from financing activities.................. 66,561 (5,142) 184,460
EBITDA (5)............................................ 15,521 25,768 41,289 5,947 14,077
EBITDA margin......................................... 27.7% 55.8% 40.4% 22.9% 32.4%
Depreciation and amortization of intangible assets.... $ 2,358 $ 5,140 $ 7,183 $ 1,366 $ 3,748
LIFO adjustment....................................... 2,806 -- 2,806 -- --
Capital expenditures.................................. 300 55 442 442 442
Ratio of EBITDA to interest expense (6).......................................... 1.72x 1.16x
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital................................................................................... $ 49,199
Total assets...................................................................................... 274,527
Total debt, including current maturities.......................................................... 240,750
Preferred stock................................................................................... 32,371
Stockholders' Equity (deficit).................................................................... (24,715)
</TABLE>
- ------------------------
(1) Pro forma to reflect the May 17, 1996 recapitalization as if it had occurred
on January 1, 1996.
(2) Pro forma to reflect the Transactions as if they had occurred on January 1,
1996.
(3) Represents salaries, expenses and financial advisory fees paid to previous
owners.
(4) Net income (loss) per common share is based on weighted average number of
shares of common stock outstanding during the period. Stock options and
warrants have not been included in the calculation due to their antidilutive
effect.
(5) 'EBITDA' represents operating income plus depreciation and amortization of
intangible assets plus the recurring non-cash LIFO adjustment, where
applicable. Information regarding EBITDA is presented because management
believes that EBITDA is useful as an indicator of an issuer's historical
cash flow available to service its debt. EBITDA should not be considered as
an alternative to, or more meaningful than, net income
22
<PAGE>
(as determined in accordance with GAAP) as a measure of the Company's
operating results or cash flows (as determined in accordance with GAAP) as a
measure of the Company's liquidity.
Following is a reconciliation of net income to EBITDA:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDING DECEMBER 31, 1996 JUNE 30, 1997
--------------------------------- ----------------------
THE THE
NATIONAL COMPANY COMPANY
TOBACCO PRO THE PRO
PRO FORMA NAOC FORMA(2) COMPANY FORMA(2)
--------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net income.............................................. $ (1,334) $ 9,344 $ 3,695 $ (13,850) $ (1,328)
Interest expense, net................................... 11,813 4,976 26,171 5,194 13,245
Income taxes............................................ -- 5,130 1,556 5,017 (1,338)
Depreciation............................................ 1,488 62 1,550 900 900
Amortization of intangibles............................. 870 5,078 5,633 468 2,848
Financial advisory fee expense.......................... -- 1,178 --
Other income............................................ (122) -- (122) (44) (250)
LIFO adjustment......................................... 2,806 -- 2,806 -- --
Extraordinary loss, net of income tax benefit of
$3,224................................................ -- -- -- 8,262 --
--------- ------- --------- --------- ---------
EBITDA.................................................. $ 15,521 $25,768 $ 41,289 $ 5,947 $ 14,077
--------- ------- --------- --------- ---------
--------- ------- --------- --------- ---------
</TABLE>
(6) For purposes of calculating this ratio, interest expense excludes
amortization of deferred financing costs and dividends on preferred stock.
Management believes this ratio is useful as an indicator of an issuer's
historical cash flow available to service its debt. EBITDA should not be
considered as an alternative to, or more meaningful than, net income (as
determined in accordance with GAAP) as a measure of the Company's operating
results or cash flows (as determined in accordance with GAAP) as a measure
of the Company's liquidity.
(7) For purposes of calculating the ratio of earnings to combined fixed charges
and preferred stock dividends, earnings represent income (loss) before
income taxes plus combined fixed charges and preferred stock dividends.
Combined fixed charges and preferred stock dividends consist of interest
expense (including amortization of deferred financing costs) plus one-third
(the portion deemed to be representative of interest) of rent expense, plus
the pre-tax earnings which would be required to cover preferred stock
dividends (preferred stock dividends divided by 100% minus the relationship
of the provision for income taxes to the income (loss) before income taxes).
The Company had pro forma earnings which were inadequate to cover combined
fixed charges and preferred stock dividends by approximately $5,134 for the
six months ended June 30, 1997.
(8) For purposes of calculating the ratio of earnings to fixed charges, earnings
represent income (loss) before income taxes plus fixed charges. Fixed
charges consist of interest expense (including amortization of deferred
financing costs) plus one-third (the portion deemed to be representative of
the interest portion) of rent expense. The Company had pro forma earnings
which were inadequate to cover fixed charges by approximately $2,666 for
the six months ended June 30, 1997.
23
<PAGE>
RISK FACTORS
Prospective investors should carefully review the information set forth
below, together with the information and financial data set forth elsewhere in
this Prospectus, before making an investment decision.
SUBSTANTIAL LEVERAGE AND ABILITY TO SERVICE DEBT
As a result of the Old Notes Offering and the New Senior Secured
Facilities, the Company is highly leveraged. After giving pro forma effect to
the Transactions, the Company would have had total indebtedness at June 30, 1997
of approximately $240.8 million (96.7% of total capitalization). See 'Summary of
Historical and Unaudited Pro Forma Financial Data,' 'Capitalization,' and
'Unaudited Pro Forma Condensed Consolidated Financial Statements.'
This degree of leverage could have important consequences, including the
following: (i) the ability of the Company to obtain additional financing for
working capital, capital expenditures, debt service requirements or other
purposes may be impaired (see 'Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources'); (ii) a
substantial portion of the Company's cash flow from operations will be required
to pay the Company's debt service; (iii) the Company may be more highly
leveraged than companies with which it competes, which may place it at a
competitive disadvantage; (iv) the Company may be particularly vulnerable in the
event of a downturn in its business or in the economy generally; and (v) to the
extent of any borrowings incurred by the Company under the New Senior Secured
Facilities, the Company will be vulnerable to increases in interest rates.
As a result of the Transactions, a significant portion of the Company's
cash flow will be required to service indebtedness and will not be available for
other purposes. After giving pro forma effect to the Transactions as if they had
been consummated on January 1, 1996, the ratio of the Company's earnings to its
fixed charges for the year ended December 31, 1996 would have been 1.20 to 1 and
for the six months ended June 30, 1997 would have been inadequate to cover fixed
charges by approximately $2,666. In the absence of adequate operating results
and cash flows, the Company may be required to dispose of material assets or
operations or refinance its indebtedness to meet its debt service obligations.
There can be no assurance that the Company will be successful in this regard
should such actions become necessary.
LIMITATIONS ON ABILITY TO PAY DIVIDENDS
The Indenture limits the amount of cash dividends that may be paid on
shares of preferred stock of the Company. However, for all dividend dates
through and including June 15, 2002, the Company may, at its option, pay
dividends in additional shares of New Preferred Stock in lieu of paying cash
dividends.
In addition to the limitations imposed on the payment of dividends by the
Indenture, under Delaware law the Company is permitted to pay dividends on its
capital stock, including the New Preferred Stock, only out of its surplus or, in
the event that it has no surplus, out of its net profits for the year in which a
dividend is declared or for the immediately preceding fiscal year. Surplus is
defined as the excess of a company's total assets over the sum of its total
liabilities plus the par value of its outstanding capital stock. In order to pay
dividends in cash, the Company must have surplus or net profits equal to the
full amount of the cash dividend at the time such dividend is declared.
In determining the Company's ability to pay dividends, Delaware law permits
the Board of Directors of the Company to revalue the Company's assets and
liabilities from time to time to their fair market values in order to create
surplus. The Company cannot predict what the value of its assets or the amount
of its liabilities will be in the future and, accordingly, there can be no
assurance that the Company will be able to pay cash dividends on the New
Preferred Stock.
TAX CONSEQUENCES OF DISTRIBUTIONS WITH RESPECT TO THE NEW PREFERRED STOCK;
POTENTIAL FOR UNPLANNED DEEMED DIVIDEND INCOME
If the redemption price of the New Preferred Stock exceeds its issue price
by more than a de minimis amount, such excess may be treated as a constructive
distribution with respect to the New Preferred Stock of additional stock over
the term of the New Preferred Stock using a constant interest rate method
similar to that used for accruing original issue discount. As a result of the
allocation of a portion of the purchase price of the Units to the Warrants, the
New Preferred Stock will have a redemption price that exceeds its issue price by
more than a de minimis amount, resulting in such constructive distributions. In
addition, because the issue price of the New Preferred Stock distributed in lieu
of payments of cash dividends will be equal to the fair market value of the New
Preferred Stock at the time of distribution, it is possible, depending on its
fair market value at that time, that such New Preferred Stock will be issued
with a redemption premium
24
<PAGE>
large enough to be considered a constructive distribution as described above. In
such event holders would be required to include such premium in income as a
distribution over some period in advance of receiving the cash attributable to
such income, and such New Preferred Stock might trade separately, which might
adversely affect the liquidity of the New Preferred Stock.
EXTENSIVE AND INCREASING REGULATION OF PRODUCTS
Smokeless tobacco companies, like other manufacturers, distributors and
sellers of tobacco products, are subject to regulation at the federal, state and
local levels. Such regulations include labeling requirements, limitations on
advertising, and prohibition of sales to minors. The trend in recent years has
been toward increased regulation of the tobacco industry. There can be no
assurance as to the ultimate content, timing or effect of any regulation of
tobacco products by any federal, state or local legislative or regulatory body,
nor can there be any assurance that any such legislation or regulation would not
have a material adverse effect on the Company's business.
In August 1995, the United States Food and Drug Administration ('FDA')
published proposed rules for regulation of tobacco and tobacco products,
including smokeless tobacco. Following a year of comment and revision, in August
1996 the FDA promulgated final rules which were scheduled to take effect in
August 1997, except for a portion of the rules prohibiting the sale of tobacco
to persons under 18, which have already become effective. The FDA's regulations
restrict access to tobacco and tobacco products, regulate tobacco labeling, and
limit promotion and advertising of tobacco.
On April 25, 1997, a federal court in Greensboro, North Carolina ruled that
the FDA has statutory authority to regulate tobacco products. The court upheld
the FDA's rules restricting access to tobacco products and regulating tobacco
labeling. However, the court ruled that the FDA does not have authority to
regulate promotion and advertising of tobacco products. The judge certified the
case for interlocutory appeal to the United States Fourth Circuit Court of
Appeals, and both the tobacco companies and the government have indicated their
intent to appeal this ruling.
The FDA regulations will prohibit self-service displays of tobacco,
including smokeless tobacco, and require that a retailer sell cigarettes and
smokeless tobacco only in a direct, face to face exchange between the retailer
and the consumer. Historically, smokeless tobacco has been sold primarily by
allowing customers self service access to the product, and there can be no
assurance that prohibiting such access will not have an adverse effect on sales.
In 1996, the Commonwealth of Massachusetts enacted a statute which requires
tobacco companies, incuding smokeless tobacco companies, to disclose information
regarding the ingredients and nicotine content of their products. On February 7,
1997, a federal court in Massachusetts ruled that this statute is not preempted
by federal law. The case has been certified for immediate appeal to the United
States First Circuit Court of Appeals. If tobacco companies are required to
disclose ingredient information, this may risk disclosure of trade secrets,
which may have a material adverse effect on their businesses.
While there is no current regulation materially and adversely affecting the
sale of RYO cigarette papers, there can be no assurance that federal, state or
local regulations will not be enacted which seek to regulate RYO cigarette
papers and which would have a material adverse effect on the business of the
Company. There can also be no assurance that the FDA will not attempt to
regulate the sale of RYO cigarette papers. See 'Business--Regulation.'
TOBACCO INDUSTRY PRODUCT LIABILITY LITIGATION
The tobacco industry, primarily the cigarette segment, has experienced and
is experiencing significant product liability litigation. Numerous class action
and individual lawsuits have been brought against tobacco companies (primarily
the cigarette companies) for health-related injuries allegedly caused by use of
or exposure to tobacco products. Many of these lawsuits seek punitive damages in
addition to compensatory damages. In addition to individual and class action
product liability lawsuits, approximately 40 states and at least ten cities and
counties have sued tobacco companies (primarily the cigarette companies) to
recover substantial medical costs allegedly incurred by such states, cities and
counties in treating tobacco-related illnesses and diseases. The total amount of
damages which may be at risk in these various lawsuits is presently unknown, but
could be material.
Several events have occurred within the past few years which make it likely
that tobacco liability lawsuits will be pursued vigorously against tobacco
companies (primarily the cigarette companies) in the near future, including the
following: in August 1996, a Florida jury awarded, in a verdict which is
currently under appeal, $750,000 in compensatory damages in favor of an
individual plaintiff who claimed he was
25
<PAGE>
injured as a result of smoking cigarettes; documents have been obtained in
discovery from several tobacco companies, which plantiffs allege show that such
companies concealed information regarding the health risks and addictive effects
of nicotine and tobacco; testimony has been given and statements have been made
by present or former tobacco executives regarding possibly harmful and addictive
effects of nicotine and tobacco; at least 25 statewide class actions have been
brought by a well organized and well financed group of plaintiffs' class action
lawyers; approximately 40 states and at least ten cities and counties have
brought lawsuits seeking to recover costs incurred in treating tobacco-related
illnesses and diseases; and Liggett & Myers recently broke ranks with other
major tobacco companies and agreed to reach a separate settlement of its tobacco
liability litigation, pursuant to which it agreed to produce documents and
cooperate with plaintiffs.
Most tobacco liability lawsuits have been brought against manufacturers and
sellers of cigarettes for injuries allegedly caused by smoking or by exposure to
smoke. However, several lawsuits have been brought against manufacturers and
sellers of smokeless tobacco, principally moist snuff, for injuries to health
allegedly caused by use of smokeless tobacco. Historically, such claims have
asserted that use of smokeless tobacco is addictive and causes oral cancer.
These cases include recent purported class actions brought in Louisiana and
Illinois; several of the 40 health care reimbursement actions brought by the
state attorneys general; and four individual actions brought in Louisiana and
Texas. One additional purported class action seeking 'the establishment of a
medical monitoring fund to monitor the health of plaintiffs and class members
for those diseases and health risks associated with the use of smokeless tobacco
products' was filed on June 30, 1997 against National Tobacco and other
manufacturers of smokeless tobacco products. There can be no assurance
that in the future National Tobacco will not be named as a defendant in one or
more additional lawsuits or, if so named, that such lawsuits will not have a
material adverse effect on the Company's business. See "Legal Proceedings."
In addition, National Tobacco, as a member of Smokeless Tobacco Council, Inc.,
a trade organization ('STC'), which is a defendant in certain of these cases,
is responsible for 5% of the STC's operating expenses, including litigation
costs. See 'Business--Product Liability and Litigation.'
POSSIBLE NATIONAL SETTLEMENT OF TOBACCO LIABILITY CLAIMS
There has been widespread publicity and speculation recently about a
possible national settlement of tobacco liability claims. Although the proposed
settlement has neither been enacted by the Congress nor has its
constitutionality been tested in the courts, its terms were made public on June
21, 1997. If enacted in its present form, the proposed settlement would expand
the FDA's authority to regulate the manufacture, marketing and distribution of
nicotine-containing tobacco products (e.g., advertising, warning labels,
manufacture, display and sale of tobacco products) and to require disclosure of
previously non-public or confidential tobacco industry files. If enacted in its
present form, the settlement would also create and finance public health
programs and education campaigns as well as establish goals for reduction of
underage tobacco use and provide a mandatory surcharge on tobacco businesses if
such goals are not met. Standards would also be developed to minimize
involuntary exposure to second-hand smoke.
The total face value of the 25-year settlement program would be $368.5
billion, to be borne by the tobacco industry as a deductible, ordinary business
expense. The legislation, if enacted in its present form, would also settle
certain types of existing lawsuits, including attorney general or similar
government actions and class actions. Punitive damages claims arising from
conduct preceding enactment of the legislation would be prohibited, no class
actions or other devices to resolve cases other than on an individual basis
would be permitted without the defendant's consent. An annual aggregate cap
would be placed on damages companies would pay. Where such cap is exceeded,
settlements and amounts of individual judgements exceeding $1 million would be
payable over time, with no more than $1 million to be paid over in any one year
in which the aggregate cap would be exceeded. All of the above limitations,
except for the limitation of punitive damages, would also apply to suits
claiming the occurence of injury after the effective date of legislation.
It is impossible to predict whether, and in what form, the proposed
legislation will be enacted. Assuming some form is enacted, it is unclear what
effect, if any, such legislation would have upon the Company or the smokeless
tobacco industry.
26
<PAGE>
EFFECTS OF INCREASED EXCISE TAXES
Smokeless tobacco products and RYO cigarette papers have long been subject
to federal and/or state and local excise taxes, and such taxes have frequently
been increased or proposed to be increased, in some cases significantly, to fund
various legislative initiatives. Future enactment of increases in excise taxes
could result in decreased unit sales of smokeless tobacco products and RYO
cigarette papers, which could have a material adverse effect on the Company's
business. See 'Business--Excise Taxes'.
RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY'S INDEBTEDNESS AND PREFERRED STOCK
The terms and conditions of the Indenture, the Certificate of Designation
and the New Senior Secured Facilities impose restrictions that affect the
ability of the Company to incur debt, make distributions, make acquisitions,
create liens and make capital expenditures. See 'Recent Transactions,'
'Description of Notes,' 'Description of New Preferred Stock,' and 'Description
of Other Indebtedness.' The Company also is required to maintain specified
financial ratios and tests and limit its capital expenditures, affiliate
payments and dividends. The restrictive covenants contained in the Indenture,
the Certificate of Designation and the New Senior Secured Facilities, as well as
the highly leveraged position of the Company, could significantly limit the
ability of the Company to respond to changing business or economic conditions or
to substantial declines in operating results. The ability of the Company to
comply with the provisions in the Indenture, the Certificate of Designation and
the New Senior Secured Facilities can be affected by events beyond the Company's
control, and there can be no assurance that the Company will achieve operating
results that will comply with such provisions.
The breach of any of these covenants under the New Senior Secured
Facilities could result in a default thereunder. In the event of any such
default, the Lender could elect to declare all amounts borrowed or owed under
the New Senior Secured Facilities, together with accrued interest and other
fees, to be due and payable or to apply all the available cash of the Company to
repay such amounts or to collateralize letters of credit (in which event cash
would not be available to the Company for other purposes). If the Company were
unable to repay any such amounts when due, the Lender could proceed against all
the collateral securing such debt. If the indebtedness under the New Senior
Secured Facilities or the Notes were to be accelerated, there can be no
assurance that the assets of the Company would be sufficient to repay such other
indebtedness and the Notes in full. See 'Description of Notes' and 'Description
of Other Indebtedness.'
RANKING OF THE NEW NOTES AND THE GUARANTEES; ABILITY TO INCUR ADDITIONAL SECURED
DEBT
The New Notes are not subordinated to any indebtedness of the Company and
rank pari passu with all other unsecured, unsubordinated indebtedness of the
Company including the Old Notes. The Notes are unsecured and thus, in effect,
would rank junior to any secured indebtedness of the Company. The New Senior
Secured Facilities are secured by substantially all of the assets and property
of the Company and each of its Subsidiaries. The Company has approximately $86.0
million in aggregate principal amount of secured indebtedness outstanding under
the New Secured Facilities as of June 30, 1997. In addition, the Indenture
permits the Company and its subsidiaries to incur additional secured debt under
certain circumstances. Some or all of such additional indebtedness may rank pari
passu with the Notes, and the holders of such indebtedness may have a claim to
assets of the Company superior to that of the holders of the Notes because such
additional indebtedness is secured by liens on assets of the Company. Although
there are certain limitations on the ability of the Company to secure such debt,
the incurrence of such additional debt might adversely affect the Company's
ability to meet its obligations under the Notes. See 'Description of
Notes--Certain Covenants' and 'Description of Other Indebtedness.' In the event
of dissolution, liquidation or reorganization of, or similar proceeding relating
to, the Company, the secured lenders of the Company would be entitled to receive
payment to the extent of the value of their collateral or in full, whichever is
less, prior to any payment in respect of the Notes.
The Guarantors have unconditionally guaranteed the payment of principal and
interest on the Notes when due. The Guarantees will rank pari passu with all
existing and future senior indebtedness of the Guarantors. The Guarantees are
unsecured and thus, in effect, would rank junior to any secured indebtedness of
the Guarantors. The Guarantors have $86.0 million in aggregate principal amount
of secured indebtedness outstanding as of June 30, 1997. The Indenture permits
the Company and its subsidiaries (including the Guarantors) to incur additional
secured debt under certain circumstances. Some or all of such additional
indebtedness may rank pari passu with the Guarantees, and the holders of such
indebtedness may have a claim to assets of a Guarantor superior to that of the
holders of the Notes because
27
<PAGE>
such additional indebtedness is secured by liens on assets of such Guarantor.
Although there are certain limitations on the ability of the Guarantors to
secure such debt, the incurrence of such additional debt might adversely affect
the Guarantors' ability to meet their obligations under the Guarantees. See
'Description of Notes--Guarantees.' Consequently, in the event of dissolution,
liquidation or reorganization of, or similar proceeding relating to, any
Guarantor, such Guarantor's secured lenders would be entitled to receive payment
to the extent of the value of their collateral or in full, whichever is less,
prior to any payment in respect of such Guarantor's Guarantee.
FRAUDULENT CONVEYANCE CONSIDERATIONS
The incurrence by the Company of a portion of the indebtedness evidenced by
the Notes to finance the Acquisition, as described under 'Recent Transactions,'
is subject to review under relevant federal and state fraudulent conveyance
statutes in a bankruptcy or reorganization case or a lawsuit by or on behalf of
creditors of the Company. Under these statutes, if a court were to find that
obligations (such as the Notes) were incurred with the intent of hindering,
delaying or defrauding present or future creditors, that the Company received
less than a reasonably equivalent value or fair consideration for those
obligations or that the Company contemplated insolvency with a design to prefer
one or more creditors to the exclusion, in whole or in part, of other creditors
and, at the time of the occurrence of the obligations, the obligor either (i)
was insolvent or rendered insolvent by reason thereof, (ii) was engaged or was
about to engage in a business or transaction for which its remaining
unencumbered assets constituted unreasonably small capital or (iii) intended to
or believed that it would incur debts beyond its ability to pay such debts as
they matured or became due, such court could void the Company's obligations
under the Notes, subordinate the Notes to other indebtedness of the Company or
take other action detrimental to the holders of the Notes.
The measure of insolvency for purposes of a fraudulent conveyance claim
will vary depending upon the law of the jurisdiction being applied. Generally,
however, a company will be considered insolvent at a particular time if the sum
of its debts at that time is greater than the then fair value of its assets or
if the fair salable value of its assets at that time is less than the amount
that would be required to pay its probable liability on its existing debts as
they become absolute and mature. The Company believes that, after giving effect
to the Transactions, the Company is (i) neither insolvent nor rendered insolvent
by the incurrence of indebtedness in connection with the Transactions, (ii) in
possession of sufficient capital to run its business effectively and (iii)
incurring debts within its ability to pay as the same mature or become due.
There can be no assurance, however, as to what standard a court would apply
in order to evaluate the parties' intent or to determine whether the Company was
insolvent at the time of, or rendered insolvent upon consummation of, the
Transactions, the sale of the Old Notes or the Exchange Offer or that,
regardless of the method of valuation, a court would not determine that the
Company was insolvent at the time of, or rendered insolvent upon consummation
of, the Transactions.
In addition, the Guarantees may be subject to review under relevant federal
and state fraudulent conveyance and similar statutes in a bankruptcy or
reorganization case or a lawsuit by or on behalf of creditors of any of the
Guarantors. In such a case, the analysis set forth above would generally apply,
except that the Guarantees could also be subject to the claim that, since the
Guarantees were incurred for the benefit of the Company (and only indirectly for
the benefit of the Guarantors), the obligations of the Guarantors thereunder
were incurred for less than reasonably equivalent value or fair consideration. A
court could avoid a Guarantor's obligation under the Guarantee, subordinate the
Guarantee to other indebtedness of a Guarantor or take other action detrimental
to the holders of the Notes.
To the extent any Guarantee was avoided as a fraudulent conveyance, limited
as described above, or held unenforceable for any other reason, holders of the
Notes would, to such extent, cease to have a claim in respect of such Guarantee
and, to such extent, would be creditors solely of the Company and any Guarantor
whose Guarantee was not avoided, limited or held unenforceable. In such event,
the claims of the holders of the Notes against the issuer of an avoided, limited
or unenforceable Guarantee would be subject to the prior payment of all
liabilities of such Guarantor. There can be no assurance that, after providing
for all prior claims, there would be sufficient assets to satisfy the claims of
the holders of Notes.
CONTROL BY PRINCIPAL STOCKHOLDER
The Company is privately held. Thomas F. Helms, Jr., the Company's
President, Chief Executive Officer and Chairman of the Board owns a majority of
the Company's outstanding shares of Common Stock (before giving effect to the
exercise of the Warrants). Pursuant to the Exchange and Stockholders' Agreement,
dated as of June 25, 1997, between the Company and certain of its stockholders
(the
28
<PAGE>
'Stockholders' Agreement'), Mr. Helms has, in effect, the ability to elect all
or, in certain events, a majority of the members of the Board of Directors of
the Company. See 'Risk Factors--Limitation of Change of Control' and 'The
Transactions.' Accordingly, Mr. Helms has the ability to control the Company's
policies and affairs. Such control may have the effect of discouraging certain
types of transactions involving an actual or potential change of control of the
Company.
HOLDING COMPANY STRUCTURE; CHANGE OF CONTROL
The Company is a holding company with no business operations of its own.
The Company's only material asset is the direct and indirect equity interests in
its National Tobacco and NAOC subsidiaries, through which the Company conducts
its business operations. Accordingly, the Company will be dependent upon the
earnings and cash flows of, and dividends and distributions from, its direct and
indirect equity interests in National Tobacco and NAOC to pay its expenses, meet
its obligations and pay interest and principal on the Notes and dividends on the
Senior Preferred Stock. There can be no assurance that these direct and indirect
equity interests in National Tobacco and NAOC will generate sufficient earnings
and cash flows to pay dividends to distribute funds to the Company to enable the
Company to pay its expenses and meet its obligations and pay interest and
principal on the Notes and dividends on the Senior Preferred Stock.
NO PRIOR HISTORY OF COMBINED OPERATIONS; INTEGRATION OF ACQUIRED COMPANIES
Prior to the Acquisition, the operations of National Tobacco and NAOC were
conducted as separate and distinct businesses, each with its own management
team, sales force and manufacturing or distribution facilities. The Company
intends to manage the operations of National Tobacco and NAOC as an integrated
entity. While the Company believes that it can successfully integrate the
operations of National Tobacco and NAOC, there can be no assurance that this
will be the case. There also can be no assurance that the Company will be able
to realize expected operating and economic efficiencies following the
Transactions.
RELIANCE ON SUPPLIERS
The Company does not grow or purchase from growers any of the raw tobacco
products used in manufacture of its loose leaf chewing tobacco, and has entered
into a purchasing and processing agreement (the 'Lancaster Agreement') with the
Lancaster Leaf Tobacco Company of Pennsylvania ('Lancaster'). Pursuant to the
Lancaster Agreement, the Company, under normal conditions, must purchase all of
its tobacco requirements exclusively from Lancaster. In turn, Lancaster is
required to provide the Company with the quantity and types of tobacco it
desires.
Although the Company has put in place, and the Lancaster Agreement
provides, certain safeguards, including the right, under certain circumstances,
to purchase tobacco from other suppliers, there can be no guarantee that the
Company will be able to meet product demands in a timely manner or that the
Company will be able to find an alternate tobacco supplier if Lancaster is
unable to or does not meet the Company's supply needs. In the event that the
Company is unable to meet product demands, customers of the Company may seek to
fulfill their supply needs by purchasing competing brands, which in turn would
reduce the Company's market share.
The Company's RYO cigarette paper operations consist solely of the
marketing and distribution of finished RYO cigarette papers, rag or cut tobacco
and other tobacco related products. The Company does not manufacture any of its
cigarette paper products and has entered into an agreement with Bollore for the
long-term supply of finished products. Pursuant to the Distribution Agreements
(as defined) with Bollore, the Company, under normal conditions, must purchase
the finished products only from Bollore. In turn, Bollore is required by the
Distribution Agreements to provide the Company with the quantities of the
products that it desires.
Although the Company has put in place certain safeguards including the
maintenance by the Company of a six- to 12-week supply of inventory, and by
Bollore of a two-month supply of immediately available inventory at a public
warehouse in Sparks, Nevada, and the ability under certain circumstances to sell
ZIG-ZAG RYO cigarette papers which are purchased from sources other than
Bollore, there can be no guarantee that the Company will be able to meet product
demands in a timely manner or that the Company will be able to find an alternate
supplier if Bollore is unable to or does not meet the Company's supply needs. In
the event that the Company is unable to meet product demands, customers of the
Company may seek to fulfill their supply needs by purchasing competing brands,
which in turn would reduce the Company's market share.
29
<PAGE>
The Distribution Agreements prohibit ownership by a competitor of NAOC (a
'Competitor') of equity in the Company, transfer of equity in the Company to a
Competitor, and certain investments by significant stockholders of the Company
in a Competitor. If such prohibited transactions occurred, they would breach the
Bollore Agreement and could result in its termination. See: 'Business--Raw
Materials; Product Supply and Inventory Management' and '--Distribution
Agreements.'
RISKS ASSOCIATED WITH FOREIGN SUPPLIER
Although NAOC does not have material foreign operations or assets located
outside the United States, NAOC does make substantial purchases of inventory
from Bollore, on terms of net 45 days in French francs. Thus NAOC bears certain
foreign exchanges risks in its inventory purchases. To hedge this risk, NAOC
began utilizing the short-term forward currency market in 1997. In addition,
Bollore provides a contractual hedge against substantial currency fluctuation
under its agreement with NAOC. Foreign currency transactions are subject to
fluctuations, the impact of inflation, government expropriation, exchange
controls, political instability, civil insurrection and other risks. Changes in
certain exchange rates could have an adverse effect on the Company's ability to
meet interest, dividend and principal obligations with respect to its U.S.
dollar-denominated debt and preferred stock, including payments on the Notes and
Senior Preferred Stock.
COMPETITION
The Company encounters significant competition for the Company's products
from other third-party providers of similar products. The Company believes that
the principal competitive factors affecting the business for both major product
categories--loose leaf chewing tobacco products and RYO cigarette
papers--include product quality and taste, brand name recognition, product
innovation, low-cost manufacturing and sales and marketing resources.
Additionally, competitive pricing is a significant factor affecting the business
for both loose leaf chewing tobacco and RYO cigarette paper products. Certain
competitors of the Company in the loose leaf chewing tobacco and the RYO
cigarette paper businesses are better capitalized and less leveraged than the
Company and may have greater financial and other resources than those available
to the Company. See 'Business--Business Strategy' and '--Competition.'
QUARTERLY FLUCTUATIONS IN EARNINGS
On a pro forma basis, approximately half of the Company's net sales and
approximately two thirds of the Company's operating profits are derived from
NAOC. NAOC's sales are promotionally oriented. A substantial portion of its
sales are derived from three four-week promotions which occur in March,
July/August and November. As a result, the Company's net sales and profits may
fluctuate from quarter to quarter. In addition, NAOC's failure to successfully
promote its products during one or more of these periods could have a material
adverse effect on the Company.
LIMITATION ON CHANGE OF CONTROL
Upon a Change of Control (as defined) the Company will be required to offer
to purchase all of the outstanding Notes and the Senior Preferred Stock at a
price equal to 101% of the principal amount of the Notes plus accrued and unpaid
interest, if any, to the date of purchase and 101% of the liquidation preference
of the Senior Preferred Stock plus accumulated and unpaid dividends to the date
of purchase, respectively. The Change of Control purchase feature of the Notes
and the Senior Preferred Stock may in certain circumstances discourage or make
more difficult a sale or takeover of the Company. In particular, a Change of
Control may cause an acceleration of indebtedness under the New Senior Secured
Facilities and certain other indebtedness, if any, of the Company and its
subsidiaries, in which case such indebtedness would be required to be repaid in
full before repurchase of the Notes and the Senior Preferred Stock. See
'Description of Notes--Repurchase at the Option of Holders--Change of Control,'
'Description of New Preferred Stock--Change of Control Offer' and 'Description
of Other Indebtedness.' The inability to repay such indebtedness, if
accelerated, and to purchase all of the tendered Notes would constitute an event
of default under the Indenture. Finally, there can be no assurance that the
Company will have funds available to repurchase the Notes upon the occurrence of
a Change of Control.
DEPENDENCE ON MANAGEMENT
Certain of the executive officers of the Company are vital to the direction
and management of the Company. The loss of the services of such persons could
have a material adverse effect on the business and operations of the Company,
and there can be no assurance that the Company would be able to find
replacements for such persons with equivalent business experience.
30
<PAGE>
ABSENCE OF PUBLIC MARKET
Prior to the Exchange Offer, there has not been any public market for the
Unregistered Securities. The Unregistered Securities have not been registered
under the Securities Act and will be subject to restrictions on transferability
to the extent that they are not exchanged for Exchange Securities by holders who
are entitled to participate in the Exchange Offer. Certain holders of
Unregistered Securities (other than any such holder that is an affiliate of the
company within the meaning of Rule 405 under the Securities Act) who are not
eligible to participate in the Exchange Offer are entitled to certain
registration rights, and the Company may be required to file a Shelf
Registration Statement with respect to such Unregistered Securities. The New
Notes and New Preferred Stock will each constitute a new issue of securities
with no established trading market. The Company does not intend to list the
Exchange Securities on any national securities exchange or to seek approval for
quotation through any automated quotation system. The initial purchasers of the
Unregistered Securities currently make a market in the Unregistered Securities,
but they are not obligated to do so and may discontinue such market making at
any time. In addition, such market making activity will be subject to the limits
imposed by the Securities Act and the Exchange Act and may be limited during the
Exchange Offer and the pendency of a Shelf Registration Statement. Accordingly,
no assurance can be given that an active public or other market will develop for
the Exchange Securities or as to the liquidity of the trading market for the
Exchange Securities. Consequently, holders of Exchange Securities may experience
difficulty in reselling the Exchange Securities or may be unable to sell them at
all. If a market for the Exchange Securities develops, any such market may be
discontinued at any time.
If a public trading market develops for the Exchange Securities, future
trading prices of such securities will depend on many factors, including among
other things, prevailing interest rates, the Company's results of operations and
the market for similar securities. Depending on prevailing interest rates, the
market for similar securities and other factors, including the financial
condition of the Company, the Exchange Securities may trade at a discount from
their principal amount.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Unregistered Securities who do not exchange their Unregistered
Securities for Exchange Securities pursuant to the Exchange Offer will continue
to be subject to the restrictions on transfer of such securities as set forth in
the legend thereon and in the Offering Memorandum dated June 18, 1997, because
the Unregistered Securities were issued 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 Unregistered Securities
may not be offered or sold unless registered under the Securities Act and
applicable state securities laws, or pursuant to an exemption therefrom, or in a
transaction not subject to the Securities Act and applicable state securities
laws. The Company does not intend to register the Unregistered Securities under
the Securities Act and, after consummation of the Exchange Offer, will not be
obligated to do so except under limited circumstances. See 'The Exchange
Offer--Purpose and Effect.' Based on an interpretation by the staff of the
Commission set forth in no-action letters issued to third parties, the Company
believes that the Exchange Securities issued pursuant to the Exchange Offer in
exchange for Unregistered Securities may be offered for resale, resold or
otherwise transferred by holders thereof (other than (i) a broker-dealer who
purchases such Exchange Securities from the Company to resell pursuant to Rule
144A or any other available exemption under the Securities Act, or (ii) a person
that 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 securities 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 securities and
neither such holders nor any such other person is engaging in or intends to
engage in a distribution of such securities. Any holder of Unregistered
Securities who tenders in the Exchange Offer for the purpose of participating in
a distribution of the Exchange Securities 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. Each broker-dealer that receives
Exchange Securities for its own account in exchange for Unregistered Securities,
where such Unregistered Securities 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
Securities. See 'Plan of Distribution,' and 'The Exchange Offer--Procedures for
Tendering.' To the extent the Unregistered Securities are tendered and accepted
in the Exchange Offer, the trading market for untendered and tendered but
unaccepted Unregistered Securities could be adversely affected. See 'The
Exchange Offer--Purpose and Effect of the Exchange Offer.'
31
<PAGE>
USE OF PROCEEDS
The Exchange Offer is intended to satisfy certain of the Company's
obligations under the Registration Rights Agreements. In consideration for
issuing the Exchange Securities contemplated in this Prospectus, the Company
will exchange Old Notes and Old Preferred Stock for Exchange Securities (in a
like principal amount and like number of shares), the form and terms of which
are the same as the form and terms of such Unregistered Securities, except as
otherwise described herein. The Old Notes surrendered in exchange for New Notes
will be retired and canceled and cannot be reissued. Shares of New Preferred
Stock will be issued in exchange for shares of Old Preferred Stock on a
one-for-one basis. Accordingly, issuance of the Exchange Securities will not
result in any increase or decrease in the indebtedness of the Company or the
Guarantors. As such, no effect has been given to the Exchange Offer in the pro
forma statements or capitalization tables. The Company will not receive any
proceeds from the Exchange Offer. The gross proceeds to the Company from Old
Notes Offering and the concurrent offering of the Units on June 25, 1997, were
approximately $189 million (before deducting fees and expenses relating to the
Offering). The net proceeds of the Old Notes Offering and the concurrent
offering of the Units, together with proceeds of $85 million of floating rate
borrowings under the New Senior Secured Facilities, $712,000 in equity
investments by certain employees and a consultant of the Company, and
approximately $0.6 million of excess cash were used to finance the Acquisition,
refinance certain indebtedness of National Tobacco, repurchase all of the
outstanding subordinated indebtedness and preferred interests of and warrants to
purchase membership interests in LLC, to pay a fee to Bollore, and to pay fees
and expenses associated with the Transactions which were consummated on June 25,
1997.
32
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization as of June 30, 1997 of
the Company on a historical basis. This table should be read in conjunction with
the historical consolidated financial statements and the related notes thereto
and the other information included elsewhere in this Prospectus. See 'Unaudited
Pro Forma Condensed Consolidated Financial Statements' and 'Recent
Transactions.'
<TABLE>
<CAPTION>
<S> <C>
Cash and cash equivalents.......................................................................... $ 3,547
-----------
-----------
Senior debt:
Revolving credit facility........................................................................ $ 750
Floating rate term facility...................................................................... 85,000
11% Senior Notes due 2004, Series A.............................................................. 155,000
11% Senior Notes due 2004, Series B.............................................................. --
-----------
Total debt.................................................................................... 240,750
Preferred stock.................................................................................... 32,371
Exchange preferred stock........................................................................... --
Stockholders' equity............................................................................... (24,715)
-----------
Total capitalization.......................................................................... $ 248,406
-----------
-----------
</TABLE>
33
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
The following Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the six-month period ended June 30, 1997 has been derived from
the unaudited condensed Statement of Operations of National Tobacco and the
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the year
ended December 31, 1996 has been derived from the audited Statement of
Operations of National Tobacco, adjusted to give effect to the Recent
Transactions (see 'Recent Transactions' on page 74) and the May 17, 1996
recapitalization of National Tobacco (see Note 1 to National Tobacco's annual
financial statements on page F-8) as described in the accompanying Notes to
Unaudited Pro Forma Condensed Consolidated Statement of Operations. The
Unaudited Pro Forma Condensed Consolidated Statements of Operations for the
six-month period ended June 30, 1997 and for the year ended December 31, 1996
were prepared as if the Recent Transactions and the May 17, 1996
recapitalization of National Tobacco had occurred on January 1, 1996. The
Unaudited Pro Forma Condensed Consolidated Statements of Operations do not
purport to represent what the Company's results of operations would have been
had the Recent Transactions and the May 17, 1996 recapitalization of National
Tobacco occurred on such dates or to project the Company's results of operations
on any future dates or for any future periods. The Unaudited Pro Forma Condensed
Consolidated Statements of Operations are qualified by reference to, and should
be read in conjunction with, the historical financial statements and related
notes of National Tobacco and its predecessors.
The Acquisition has been accounted for using the purchase method of
accounting, under which the purchase price of NAOC has been allocated to the
tangible and intangible assets and liabilities of NAOC based upon their
respective fair values. The Unaudited Pro Forma Condensed Consolidated
Statements of Operations have been prepared based upon certain assumptions made
by management regarding the Recent Transactions and a preliminary estimate of
the purchase price allocation. Actual accounting adjustments for the Recent
Transactions may differ from the pro forma adjustments based on the balances of
the assets and liabilities of National Tobacco and NAOC and the final purchase
price allocation.
34
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Six Months Ended June 30, 1997
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------
NAOC
NAOC MARCH
JANUARY 31,
1, 1997 1997
TO TO PRO THE
MARCH JUNE FORMA COMPANY
NATIONAL 31, 25, ADJUSTING PRO
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) TOBACCO 1997 1997 ENTRIES FORMA
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales....................................... $25,938 $10,244 $7,262 ---- $43,444
Cost of sales................................... 9,300 3,386 2,899 ---- 15,585
------- ------- ------- ------- -------
Gross profit.................................. 16,638 6,858 4,363 ---- 27,859
Selling, general and administrative expenses.... 11,591 1,159 1,932 ---- 14,682
Amortization of intangible assets............... 467 1,330 1,314 $(2,644)(1)
2,382 (2) 2,848
------- ------- ------- ------- -------
Operating income.............................. 4,580 4,369 1,117 (262) 10,329
Interest expense, net........................... 5,195 1,151 1,215 (7,561)(3)
12,169 (4)
1,076 (5) 13,245
Financial advisory fee expense.................. ---- 481 295 (776) ----
Other income.................................... (44) ---- (206) ---- (250)
------- ------- ------- ------- -------
Income (loss) from continuing operations
before income taxes......................... (571) 2,737 (187) (4,646) (2,666)
Provision for income taxes...................... 5,018 903 56 (5,978)(7)
(1,338)(8) (1,338)
------- ------- ------- ------- -------
Income (loss) from continuing operations...... (5,589) 1,834 (243) (2,670) (1,328)
Preferred stock dividends....................... 58 ---- ---- 2,410 (9) 2,468
------- ------- ------- ------- -------
Income (loss) from continuing operations
applicable to common stock (10)............. $(5,647) $ 1,834 $ (243) $ 260 $(3,796)
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Income (loss) from continuing operations per
common share.................................. $(10.69) $137.54 $(18.27) $ (7.19)
------- ------- ------- -------
------- ------- ------- -------
Weighted average number of common shares
outstanding (000) (11)........................ 528.2 13.3 13.3 528.2
------- ------- ------- -------
------- ------- ------- -------
Supplemental financial data:
Historical loss from continuing operations
before income taxes......................... $ (571)
Pro forma benefit for income taxes (12)....... (228)
-------
Pro forma loss from continuing operations..... $ (342)
Preferred stock dividends..................... 58
-------
Pro forma loss from continuing operations
applicable to common share.................. $ (400)
-------
-------
Pro forma loss from continuing operations per
common share................................ $ (0.76)
-------
-------
Weighted average common shares outstanding.... 528.2
<CAPTION>
OTHER DATA:
<S> <C>
Ratio of earnings to combined fixed charges and preferred
stock dividend (deficiency of $5,134) (19)........................................................ ----
Ratio of earnings to fixed charges (deficiency of $2,166)(20)....................................... ----
<CAPTION>
<S> <C> <C> <C> <C>
EBITDA (17)..................................... $ 5,947 $5,715 ---- $14,077
Depreciation and amortization of intangible
assets........................................ 1,368 1,346 $1,091 3,748
Capital expenditures............................ 442 30 ---- 442
</TABLE>
See notes to Unaudited Pro Forma Condensed Consolidated Statement of Income.
35
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended December 31, 1996
<TABLE>
<CAPTION>
Historical
-----------------------------------------------------------
Pro National Pro The
Forma Tobacco Forma Company
(Dollars in thousands, NTC National Adjusting Pro Adjusting Pro
except per share data) Predecessor Tobacco Entries Forma NAOC Entries Forma
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............................. $19,810 $36,126 ---- $55,936 $46,139 ---- $102,075
Cost of sales......................... 7,847 15,407 ---- 23,254 16,453 ---- 39,707
------- ------- ------- ------- ------- ------- --------
Gross profit........................ 11,963 20,719 ---- 32,682 29,686 ---- 62,368
Selling, general and administrative
expenses............................ 7,904 13,551 ---- 21,455 3,980 ---- 25,435
Amortization of intangible assets..... 365 504 $(365)(13) 5,078 $(5,078)(1)
366 (13) 870 4,763 (2) 5,633
------- ------- ------- ------- ------- ------- --------
Operating income.................... 3,694 6,664 (1) 10,357 20,628 (315) 31,300
Interest expense, net................. 2,453 6,398 (2,453) (3) 4,976 (16,789)(3)
4,450 (15) 24,020 (4)
965 (16) 11,813 2,151 (5) 26,171
Financial advisory fee expense........ 114 ---- (114)(14) ---- 1,178 (1,178)(6) ----
Other expense (income)................ (5) (117) ---- (122) ---- ---- (122)
------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes... 1,132 383 (2,849) (1,334) 14,474 (7,889) 5,251
Provision for income taxes............ ---- ---- ---- ---- 5,130 (5,130)
1,556 (8) 1,556
------- ------- ------- ------- ------- ------- -------
Net income (loss)................... 1,132 383 (2,849) (1,334) 9,344 4,315 3,695
Preferred stock dividends............. ---- ---- ---- ---- ---- 4,325 (9) 4,325
------- ------- ------- ------- ------- ------- -------
Net income (loss) applicable to
common stock (10)................. $ 1,132 $ 383 $(2,849) $(1,334) $ 9,344 $(8,640) $ (630)
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
Net income (loss) per common share.... $698.25 $ (1.19)
------- -------
------- -------
Weighted average number of common
shares outstanding (000) (11)....... 13.4 528.2
------- -------
------- -------
Supplemental financial data:
Historical income (loss) before
income taxes...................... $ 1,132 $ 383 $(2,849) $(1,334)
Pro forma provision (benefit) for
income taxes(12).................. 453 153 (1,140) (534)
------- ------- ------- -------
Pro forma net income (loss)......... $ 679 $ 230 $(1,709) $ (800)
------- ------- ------- -------
------- ------- ------- -------
<CAPTION>
OTHER DATA:
<S> <C>
Ratio of earnings to combined fixed charges and preferred stock dividends (19)........................................ 1.03
Ratio of earnings to fixed charges (20)............................................................................... 1.20
<CAPTION>
<S> <C> <C> <C> <C>
EBITDA(17)..................................................................... $15,521 $25,768 ---- $41,289
Depreciation and amortization of intangible assets............................. 2,358 5,140 $ (853) 7,183
LIFO adjustment................................................................ 2,806 ---- ---- 2,806
Capital expenditures........................................................... 300 55 ---- 442
Ratio of EBITDA to interest expense(18)............................................................................... 1.72x
Ratio of EBITDA minus capital expenditures to interest expense(18).................................................... 1.70x
</TABLE>
See notes to Unaudited Pro Forma Consolidated Condensed Statement of Operations.
36
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF INCOME
Three Months Ended March 31, 1997 and Year Ended December 31, 1996
(Dollars in thousands)
The Unaudited Pro Forma Consolidated Statements of Income give effect to
the following unaudited pro forma adjustments:
(1) Reflects the elimination of historical amortization expense of NAOC.
(2) Reflects the amortization of goodwill resulting from the acquisition of
NAOC. The estimated goodwill of $119,080 will be amortized over a 25-year
period on the straight-line method.
(3) Represents the removal of historical and pro forma interest expense and
deferred financing costs of National Tobacco and NAOC.
(4) Reflects the interest expense computed to give effect to the Transactions,
as follows:
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, June 30,
1996 1997
------------- ----------------
<S> <C> <C>
Interest expense on the Notes at 11%....................................... $17,050 $8,525
Interest expense on the Term Facility at 8.5%.............................. 6,970 3,644
------------- ----------------
Total.................................................................... $24,020 $12,169
------------- ----------------
------------- ----------------
</TABLE>
(5) Represents the amortization of deferred financing costs related to the
Transactions.
(6) Reflects the elimination of certain historical financial advisory fee
expenses which are non-recurring due to the termination of the related
agreement upon the occurrence of the Transactions.
(7) Reflects the elimination of the historical provision for income taxes of
NAOC.
(8) Reflects the pro forma income tax provision for the Company at a combined
statutory federal and state income tax rate of 40%, giving effect to the
nondeductible goodwill amortization expense related to the acquisition of
NAOC.
(9) Reflects pay-in-kind preferred dividends on and accretion of the Senior
Preferred Stock.
(10) National Tobacco and NTC Predecessor were partnerships for federal and
state income tax purposes through the consummation of this Exchange
Offering and, accordingly, did not incur any federal or state income taxes
during these periods.
(11) Income (loss) from continuing operations per common share is based on
weighted average number of shares of common stock outstanding during the
period. Stock options and warrants have not been included in the
calculation due to their antidilutive effect.
(12) Pro forma income taxes have been calculated using an effective tax rate of
40% (34% federal and 6% state).
(13) Reflects adjustment to remove historical amortization expense of NTC
Predecessor and record the amortization of the goodwill of $31,952
resulting from the May 17, 1996 recapitalization which is being amortized
over a 40-year period.
(14) Represents the removal of NTC Predecessor's financial advisory fee expenses
which are non-recurring to National Tobacco due to the termination of the
related agreement upon recapitalization on May 17, 1996.
(15) Reflects the interest expense computed to give effect of the May 17, 1996
recapitalization.
(16) Reflects the amortization of deferred financing costs of $5,700 and
amortization of the discount on National Tobacco's subordinated notes
resulting from the May 17, 1996 recapitalization.
37
<PAGE>
(17) 'EBITDA' represents operating income plus depreciation and amortization of
intangible assets plus the recurring non-cash LIFO adjustment, where
applicable. Information regarding EBITDA is presented because management
believes that EBITDA is useful as an indicator of an issuer's historical
cash flow available to service its debt. EBITDA should not be considered as
an alternative to, or more meaningful than, net income (as determined in
accordance with GAAP) as a measure of the Company's operating results or
cash flows (as determined in accordance with GAAP) as a measure of the
Company's liquidity.
Following is a reconciliation of net income to EBITDA:
<TABLE>
<CAPTION>
Year Ended Six months
December 31, Ended
1996 June 30, 1997
------------ -------------
<S> <C> <C>
Net income.................................................... $ 3,695 $(1,328)
Interest expense, net....................................... 26,171 13,245
Income taxes................................................ 1,556 (1,338)
Depreciation................................................ 1,550 900
Amortization of intangibles................................. 5,633 2,848
Other income................................................ (122) (250)
LIFO adjustment............................................. 2,806
----
------------ -------------
EBITDA........................................................ $ 41,289 $14,077
------------ -------------
------------ -------------
</TABLE>
(18) For purposes of calculating this ratio, interest expense excludes
amortization of deferred financing costs and dividends on preferred stock
management believes that EBITDA is useful as an indicator of an issuer's
historical cash flow available to service its debt. EBITDA should not be
considered as an alternative to, or more meaningful than, net income (as
determined in accordance with GAAP) as a measure of the Company's operating
results or cash flows (as determined in accordance with GAAP) as a measure
of the Company's liquidity.
(19) For purposes of calculating the ratio of earnings to fixed charges and
preferred stock dividends, earnings represent income (loss) before income
taxes plus combined fixed charges and preferred stock dividends. Combined
fixed charges and preferred stock dividends consist of interest expense
(including amortization of deferred financing costs) plus one-third (the
portion deemed to be representative of interest) of rent expense, plus the
pre-tax earnings which would be required to cover preferred stock dividends
(preferred stock dividends divided by 100% minus the relationship of the
provision for income taxes to the income (loss) before income taxes). The
Company had pro forma earnings which were inadequate to cover combine
fixed charges and preferred stock dividends by approximately $5,134 for
the six months ended June 30, 1997.
(20) For purposes of calculating the ratio of earnings to fixed charges,
earnings represent income (loss) before income taxes plus fixed charges.
Fixed charges consist of interest expense (including amortization of
deferred financing costs) plus one-third (the portion deemed to be
representative of interest) of rent expense. The Company had pro forma
earnings which were inadequate to cover fixed charges by
approximately $2,166 for the six months ended June 30, 1997.
38
<PAGE>
SELECTED FINANCIAL DATA
NATIONAL TOBACCO
(DOLLARS IN THOUSANDS)
The following table sets forth selected financial data of National Tobacco
for the periods from May 17, 1996 to December 31, 1996 and the six months ended
June 30, 1997. The selected financial data for the period May 17, 1996 to
December 31, 1996 has been derived from audited financial statements of National
Tobacco, and the financial data for the six months ended June 30, 1997 have been
derived from unaudited condensed financial statements. Such unaudited condensed
financial statements include all adjustments, consisting of normal recurring
accruals, which management considers necessary for a fair presentation of the
financial position and the results of operations and cash flows for these
periods. Results for interim periods are not necessarily indicative of results
for the full year. Effective May 17, 1996, Predecessor 1 was recapitalized as
National Tobacco. As such, the selected financial data for the period from
January 1, 1996 to May 17, 1996, the six months ended June 30, 1996 and the
years ended December 31, 1993, 1994 and 1995, and the period from April 15, 1992
to December 31, 1992 have been derived from the audited financial statements of
Predecessor 1. The selected financial data for the Predecessor 1 are not
comparable in certain respects to the selected financial data of National
Tobacco due to the effects of the May 17, 1996 recapitalization. Effective April
15, 1992, Predecessor 2 was recapitalized as Predecessor 1. As such, the
selected historical consolidated financial data for Predecessor 2 are not
comparable in certain respects to the selected financial data of Predecessor 1
and National Tobacco due to the effects of the April 15, 1992 recapitalization.
This selected financial data is qualified by and should be read in conjunction
with the audited financial statements and the unaudited condensed financial
statements, and the related notes thereto, and the other financial information
contained in this Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR 2 PREDECESSOR 1
------------- --------------------------------------------------------------
PERIOD PERIOD PERIOD PERIOD
FROM FROM FROM FROM
01/01/92 04/15/92 YEAR ENDED DECEMBER 31, 01/01/96 5/18/96
TO TO ---------------------------- TO TO
04/15/92 12/31/92 1993 1994 1995 05/17/96 6/30/96
------------- -------- ------- ------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales........................ $12,809 $ 38,615 $52,312 $51,376 $ 52,630 $ 19,810 $ 8,376
Cost of sales.................... 5,716 19,063 26,929 21,872 20,491 7,847 2,974
------------- -------- ------- ------- -------- -------- ---------
Gross profit..................... 7,093 19,552 25,383 29,504 32,139 11,963 5,402
Selling, general and
administrative expenses........ 5,200 11,215 18,639 18,395 19,663 7,904 2,804
Amortization of intangible
assets......................... 743 660 1,040 1,038 973 365 331
------------- -------- ------- ------- -------- -------- ---------
Operating income................. 1,150 7,677 5,704 10,071 11,503 3,694 2,267
Interest expense................. 1,198 5,210 6,896 6,834 7,239 2,453 1,035
Financial advisory fee expense... 0 213 300 300 300 114 --
Other expense (income)(1)........ (3) (47) (27) (2,875) 1,336 (5) (15)
------------- -------- ------- ------- -------- -------- ---------
Income (loss) before income
taxes, cumulative effect of
change in accounting principle
and extraordinary loss......... (45) 2,301 (1,465) 5,812 2,628 1,132 1,247
Provision for income taxes....... -- -- -- -- -- -- --
------------- -------- ------- ------- -------- -------- ---------
Income (loss) before cumulative
effect of change in accounting
principle and extraordinary
loss........................... (45) 2,301 (1,465) 5,812 2,628 1,132 1,247
Cumulative effect of change in
accounting principle........... -- -- -- -- 123 -- --
------------- -------- ------- ------- -------- -------- ---------
Income (loss) before
extroardinary loss............. (45) 2,301 (1,465) 5,812 2,505 1,132 6
Extraordinary loss, net of
deferred tax benefit of
$3,224......................... -- -- -- -- -- -- --
Net income (loss)................ $ (45) $ 2,301 $(1,465) $ 5,812 $ 2,505 $ 1,132 $ 1,247
Preferred stock dividends........ -- -- -- -- -- -- --
Net income (loss) attributable to
common shares..................
Unaudited pro forma net income
(loss) after income taxes(2)... $ (27) $ 1,381 $ (879) $ 3,487 $ 1,503 $ 679 $ 748
------------- -------- ------- ------- -------- -------- ---------
------------- -------- ------- ------- -------- -------- ---------
OTHER DATA:
Ratio of earnings to fixed
charges(5)..................... -- 1.43 -- 1.82 1.35 1.44 2.17
Ratio of earnings to combined
fixed charges and preferred
stock dividends(6)............. N/A N/A N/A N/A N/A N/A N/A
Cash flow from operating
activities..................... $ 1,063 $ 3,804 $ 6,144 $ 6,920 $ 8,714 $ 1,172 $ 1,206
Cash flow from investing
activities..................... (203) (65,782) 607 (355) (239) (144) (72,200)
Cash flow from financing
activities..................... (482) 63,319 (5,668) (7,079) (9,048) (977) 72,087
EBITDA(3)........................ 2,056 9,603 11,715 12,756 13,496 4,700 2,808
Depreciation and amortization of
intangible assets.............. 890 1,400 2,047 2,076 2,046 819 541
LIFO adjustment.................. 16 526 3,964 609 (53) 187 --
Capital expenditures............. 109 262 224 355 239 144 144
Ratio of EBITDA to interest
expense........................ 1.72x 1.97x 1.82x 2.48x 2.42x 2.11x 2.71x
Gross margin..................... 55.4% 50.6% 48.5% 57.4% 61.1% 60.4% 64.5%
EBITDA margin.................... 16.1% 24.9% 22.4% 24.8% 25.6% 23.7% 33.5%
BALANCE SHEET DATA (AT PERIOD END):
Working capital (deficit)........ $(6,820) $ 20,901 $15,323 $13,397 $ 9,936 $ (9,673) $26,441
Total assets..................... 57,481 95,556 85,615 82,136 80,517 81,887 100,439
Total debt, including current
maturities..................... 44,752 71,390 62,200 54,888 48,782 48,388 73,809
Preferred stock.................. -- -- -- -- -- -- --
Preferred interests.............. -- -- -- -- -- -- 2,500
Warrants......................... -- -- -- -- -- -- 8,195
Equity........................... 8,178 13,941 12,172 17,706 20,471 21,603 5,739
<CAPTION>
NATIONAL TOBACCO
-------------------
PERIOD SIX
FROM MONTHS
06/30/96 ENDED
TO JUNE 30,
12/31/96 1997
------- ---------
<S> <C> <C>
INCOME STATEMENT DATA:
Net sales........................ $27,750 $ 25,938
Cost of sales.................... 12,433 9,300
------- ---------
Gross profit..................... 15,317 16,638
Selling, general and
administrative expenses........ 10,747 11,591
Amortization of intangible
assets......................... 173 468
------- ---------
Operating income................. 4,397 4,579
Interest expense................. 5,363 5,194
Financial advisory fee expense... -- --
Other expense (income)(1)........ (102) (44)
------- ---------
Income (loss) before income
taxes, cumulative effect of
change in accounting principle
and extraordinary loss......... (864) (571)
Provision for income taxes....... -- 5,017
------- ---------
Income (loss) before cumulative
effect of change in accounting
principle and extraordinary
loss........................... (864) (5,588)
Cumulative effect of change in
accounting principle........... -- --
------- ---------
Income (loss) before
extroardinary loss............. (5,588)
Extraordinary loss, net of
deferred tax benefit of
$3,224......................... -- (8,262)
Net income (loss)................ $ (864) $ (13,850)
Preferred stock dividends........ -- $ 58
Net income (loss) attributable to
common shares.................. $ (13,908)
---------
---------
Unaudited pro forma net income
(loss) after income taxes(2)... $ (518) $ N/A
------- ---------
------- ---------
OTHER DATA:
Ratio of earnings to fixed
charges(5)..................... -- --
Ratio of earnings to combined
fixed charges and preferred
stock dividends(6)............. N/A --
Cash flow from operating
activities..................... $ 5,466 $ (25,862)
Cash flow from investing
activities..................... (101) (157,260)
Cash flow from financing
activities..................... (4,249) 184,460
EBITDA(3)........................ 5,394 5,947
Depreciation and amortization of
intangible assets.............. 997 1,386
LIFO adjustment.................. 2,619 --
Capital expenditures............. 101 442
Ratio of EBITDA to interest
expense........................ 1.01x 1.15x
Gross margin..................... 55.2% 64.1%
EBITDA margin.................... 19.4% 22.9%
BALANCE SHEET DATA (AT PERIOD END):
Working capital (deficit)........ $25,250 $ 49,199
Total assets..................... 96,553 274,527
Total debt, including current
maturities..................... 70,696 240,750
Preferred stock.................. -- 32,371
Preferred interests.............. 2,737 --
Warrants......................... 8,195 --
Equity........................... 4,875 (24,715)
</TABLE>
39
<PAGE>
- ------------------
(1) Fiscal 1994 other expense (income) includes a one-time charge of $352 for
abandoned debt issuance costs and one-time benefits to adjust the reserves
for asbestos removal by $812 and post-retirement benefits by $2,267. Fiscal
1995 other expense (income) includes a one-time charge of $1,561 for
abandoned debt issuance costs.
(2) National Tobacco and its predecessors were partnerships through the
consummation of the Transactions and, accordingly, did not incur any federal
or state income taxes. Unaudited pro forma net income has been adjusted for
assumed federal and state income taxes based on the statutory (federal and
state) tax rate of 40%.
(3) EBITDA represents operating income plus depreciation and amortization of
intangible assets plus the recurring non-cash LIFO adjustment. Information
regarding EBITDA is presented because management believes that EBITDA is
useful as an indicator of an issuer's historical cash flow available to
service its debt. EBITDA should not be considered as an alternative to, or
more meaningful than, net income (as determined in accordance with GAAP) as
a measure of the Company's operating results or cash flows (as determined in
accordance with GAAP) as a measure of the Company's liquidity.
Following is a reconciliation of net income to EBITDA:
<TABLE>
<CAPTION>
PERIOD PERIOD PERIOD PERIOD
FROM FROM FROM FROM
01/01/92 04/15/92 YEAR ENDED DECEMBER 31, 01/01/96 5/18/96
TO TO --------------------------- TO TO
04/15/92 12/31/92 1993 1994 1995 05/17/96 6/30/96
------------- -------- ------- ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net income......................... $ (45) $ 2,301 $(1,465) $ 5,812 $ 2,505 $ 1,132 $ 1,247
Interest expense, net............ 1,198 5,210 6,896 6,834 7,239 2,453 1,035
Income taxes..................... -- -- -- -- -- -- --
Depreciation..................... 147 740 1,007 1,038 1,073 454 210
Amortization of intangibles...... 743 660 1,040 1,038 973 365 331
Other income..................... (3) (47) (27) (2,875) 1,336 (5) (15)
Financial advisory fee expense... -- 213 300 300 300 114 --
LIPO adjustment.................. 16 526 3,964 609 (53) 187 --
Cumulative effect of accounting
change......................... -- -- -- -- 123 -- --
Extraordinary loss, net.......... -- -- -- -- -- -- --
------------- -------- ------- ------- ------- -------- ---------
EBITDA............................. $ 2,056 $ 9,603 $11,715 $12,756 $13,496 $ 4,700 $ 2,808
------------- -------- ------- ------- ------- -------- ---------
------------- -------- ------- ------- ------- -------- ---------
<CAPTION>
PERIOD
FROM SIX
06/30/96 MONTHS
TO ENDED
12/31/96 6/30/97
------- ---------
<S> <C> <C>
Net income......................... $ (864) $(13,850)
Interest expense, net............ 5,363 5,194
Income taxes..................... -- 5,017
Depreciation..................... 824 900
Amortization of intangibles...... 173 468
Other income..................... (102) (44)
Financial advisory fee expense... -- --
LIPO adjustment.................. -- --
Cumulative effect of accounting
change......................... -- --
Extraordinary loss, net.......... -- 8,262
------- ---------
EBITDA............................. $ 5,394 $ 5,947
------- ---------
------- ---------
</TABLE>
(4) For purposes of calculating this ratio, interest expense excludes
amortization of deferred financing costs. Management believes this ratio is
useful as an indicator of the issuer's historical cash flow available to
service its debt. EBITDA should not be considered as an alternative to, or
more meaningful than, net income (as determined in accordance with GAAP) as
a measure of the Company's operating results or cash flows (as determined in
accordance with GAAP) as a measure of the Company's liquidity.
(5) For purposes of calculating the ratio of earnings to fixed charges, earnings
represent income (loss) before income taxes and cumulative effect of change
in accounting principles plus fixed charges. Fixed charges consist of
interest expense plus one-third of rent expense (the portion deemed to be
representative of the interest portion). For the period from January 1, 1992
to April 15, 1992, the year ended December 31, 1993, the period from May 18,
1996 to December 31, 1996 and the six months ended June 30, 1997, National
Tobacco had earnings which were inadequate to cover fixed charges by
approximately $45 and $1,465, $864 and $571, respectively.
(6) For purposes of calculating the ratio of earnings to combined fixed charges
and preferred stock dividends, earnings represent income (loss) before
income taxes plus combined fixed charges and preferred stock dividends.
Combined fixed charges and preferred stock dividends consist of interest
expense (including amortization of deferred financing costs) plus one-third
(the portion deemed to be representative of interest) of rent expense, plus
the pre-tax earnings which would be required to cover preferred stock
dividends (preferred stock dividends divided by 100% minus the relationship
of the provision for income taxes to the income (loss) before income taxes).
The Company had pro forma earnings which were inadequate to cover combined
fixed charges and preferred stock dividends by approximately $629 for the
six months ended June 30, 1997.
40
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
NORTH ATLANTIC OPERATING COMPANY, INC.
(DOLLARS IN THOUSANDS)
The following table sets forth selected consolidated financial data of
North Atlantic Operating Company, Inc. (together with its predecessors, 'NAOC')
for the years ended December 31, 1996, 1995 and 1994, the period from March 31,
1993 to December 31, 1993 and the three month periods ended March 31, 1996 and
1997. The selected consolidated financial data for the years ended December 31,
1996, 1995 and 1994 and the period from March 31, 1993 to December 31, 1993 have
been derived from audited consolidated financial statements of NAOC and the
selected consolidated financial data of the three month periods ended March 31,
1996 and 1997 have been derived from unaudited consolidated condensed financial
statements. Such unaudited consolidated condensed financial statements include
all adjustments, consisting of normal recurring accruals, which management
considers necessary for a fair presentation of the consolidated financial
position and the results of consolidated operations for these periods. Results
for interim periods are not necessarily indicative of results for the full year.
This selected consolidated financial data is qualified by, and should be read in
conjunction with, the audited consolidated financial statements, and the
unaudited consolidated condensed financial statements, and the related notes
thereto, and the other financial information contained in this Prospectus.
<TABLE>
<CAPTION>
NORTH ATLANTIC OPERATING COMPANY, INC.
--------------------------------------------------------------------------------
YEAR ENDED THREE MONTHS ENDED
PERIOD FROM DECEMBER 31, MARCH 31,
03/31/93 TO ------------------------- ----------------------------------------
12/31/93 1994 1995 1996 1996 1997
----------- ------- ------- ------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............................. $23,708 $40,218 $42,546 $46,139 $12,439 $10,244
Cost of sales......................... 12,955 14,432 15,503 16,453 4,572 3,386
----------- ------- ------- ------- ------- -------
Gross profit.......................... 10,753 25,786 27,043 29,686 7,867 6,858
Selling, general and administrative
expenses............................ 1,858 3,400 4,004 3,980 927 1,159
Amortization of intangible assets..... 3,097 4,379 4,710 5,078 1,230 1,330
----------- ------- ------- ------- ------- -------
Operating income...................... 5,798 18,007 18,329 20,628 5,710 4,369
Interest expense, net................. 3,541 4,471 4,967 4,976 1,321 1,151
Financial advisory fee expense........ 225 305 654 1,178 219 481
Other expense (1)..................... -- -- 285 -- -- --
----------- ------- ------- ------- ------- -------
Income before income taxes and
extraordinary loss.................. 2,032 13,231 12,423 14,474 4,170 2,737
Income taxes.......................... 820 5,435 4,301 5,130 1,460 903
----------- ------- ------- ------- ------- -------
Income before extraordinary loss...... $ 1,212 $ 7,796 $ 8,122 $ 9,344 $ 2,710 $ 1,834
Extraordinary loss from early
extinguishment of debt, net......... -- -- 762 -- -- --
----------- ------- ------- ------- ------- -------
Net income............................ 1,212 7,796 7,360 9,344 2,710 1,834
----------- ------- ------- ------- ------- -------
----------- ------- ------- ------- ------- -------
EARNINGS PER COMMON SHARE:
Income before extraordinary loss...... 60.33 384.04 513.24 698.25 174.50 137.54
Extraordinary loss.................... -- -- (48.15) -- -- --
Net income............................ 60.33 384.04 465.09 698.25 174.50 137.54
Weighted average number of common
shares outstanding (000) (2)........ 20.1 20.3 15.8 13.4 15.5 13.3
OTHER DATA:
Ratio of earnings to fixed charges
(5)................................. 1.57 3.94 3.49 3.89 4.14 3.37
Cash flow from operating activities... $10,667 $11,552 $10,923 $18,268 $ 5,173 $ 2,685
Cash flow from investing activities... (48,402) (7,488) (7,296) (8,053) (2,410) (3,040)
Cash flow from financing activities... 43,663 (7,128) (2,798) (5,142) (1,025) (800)
EBITDA (3)............................ 8,930 22,431 23,097 25,768 6,961 5,715
Depreciation and amortization of
intangible assets................... 3,132 4,424 4,768 5,140 1,251 1,346
Capital expenditures.................. 94 94 88 55 10 30
Ratio of EBITDA to interest expense
(4)................................. 2.95x 6.00x 5.78x 6.50x 6.39x 6.16x
Gross margin.......................... 45.4% 64.1% 63.6% 64.3% 63.2% 66.9%
EBITDA margin......................... 37.7% 55.8% 54.3% 55.8% 56.0% 55.8%
BALANCE SHEET DATA (AT PERIOD END):
Working capital (deficit)............. $ (506) $ 640 $ 1,558 $ 1,852 $ 2,371 $ 2,397
Total assets.......................... 49,185 49,840 58,459 64,685 61,800 64,078
Total debt, including current
maturities.......................... 36,500 29,372 36,900 31,983 36,100 31,182
Stockholder's equity.................. 8,787 16,578 16,438 25,527 18,892 27,361
</TABLE>
- ------------------
(1) 1995 other expense includes a $285,000 one-time charge related to a lawsuit
settlement.
(2) Earnings per common share is based on the weighted average number of common
shares outstanding during the period.
(3) EBITDA represents operating income plus depreciation and amortization of
intangible assets plus the recurring non-cash LIFO adjustment, where
applicable. Information regarding EBITDA is presented because EBITDA should
not be considered as an alternative to, or more meaningful than, net income
(as determined in accordance with GAAP) as a measure of the Company's
operating results or cash flows (as determined in accordance with GAAP) as a
measure of the Company's liquidity.
(Footnotes continued on next page)
41
<PAGE>
(Footnotes continued from previous page)
Following is a reconciliation of net income to EBITDA:
<TABLE>
<CAPTION>
PERIOD FROM YEAR ENDED DECEMBER 31, THREE MONTHS THREE MONTHS
03/31/93 TO ----------------------------- ENDED ENDED
12/31/93 1994 1995 1996 3/31/96 3/31/97
----------- ------- ------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
NET INCOME.............................. $ 1,212 $ 7,796 $ 7,360 $ 9,344 $ 2,710 $ 1,834
Interest expense, net................. 3,541 4,471 4,967 4,976 1,321 1,151
Income taxes.......................... 820 5,435 4,301 5,130 1,460 903
Depreciation.......................... 35 45 58 62 21 16
Amortization of intangibles........... 3,097 4,379 4,710 5,078 1,230 1,330
Other income.......................... -- -- 285 -- -- --
Financial advisory fee expense........ 225 305 654 1,178 219 481
Extraordinary loss, net............... -- -- 762 -- -- --
----------- ------- ------- ------- ------------ ------------
EBITDA................................ $ 8,930 $22,431 $23,097 $25,768 $ 6,961 $ 5,715
----------- ------- ------- ------- ------------ ------------
----------- ------- ------- ------- ------------ ------------
</TABLE>
(4) For purposes of calculating this ratio, interest expense excludes
amortization of deferred financing costs. Management believes this ratio is
useful as an indicator at the issuer's historical cash flow available to
service its debt. EBITDA should not be considered as an alternative to, or
more meaningful than, net income (as determined in accordance with GAAP) as
a measure of the Company's operating results or cash flows (as determined in
accordance with GAAP) as a measure of the Company's liquidity.
(5) For purposes of calculating the ratio of earnings to fixed charges, earnings
represent income (loss) before income taxes and extraordinary loss plus
fixed charges. Fixed charges consist of interest expense plus one-third (the
portion deemed to be representative of the interest portion) of rent
expense.
42
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
On June 25, 1997, the Company acquired NATC in the Acquisition, at which
time NATC and its subsidiaries were merged into NAOC. The Acquisition was
accounted for under the purchase method of accounting. By virtue of the
Acquisition the Company is a leading marketer of high-quality loose leaf chewing
tobacco, RYO cigarette papers and other tobacco-related products. National
Tobacco is the third largest manufacturer and marketer of loose leaf chewing
tobacco in the United States, selling its products under the brand names
BEECH-NUT REGULAR, BEECH-NUT WINTERGREEN, BEECH-NUT SPEARMINT, TROPHY and HAVANA
BLOSSOM. NAOC is the largest importer and distributor in the United States of
RYO cigarette papers, which are sold under the ZIG-ZAG brand name pursuant to an
exclusive distribution agreement. The Company believes that its future operating
results may not be directly comparable to historical operating results of either
National Tobacco or NAOC due to the Company's increased size, related cost
savings and marketing synergies. Certain factors which have affected the
operating results of the Company are discussed below. The unaudited financial
statements of the Company include the results of operations of NAOC from June
25, 1997 through June 30, 1997. The unaudited financial statements of NAOC have
not been updated following the Acquisition because the Acquisition occurred
prior to the end of the quarter ending June 30, 1997. Accordingly, because such
interim financials are not being furnished herewith for the period between March
31, 1997 and the date of Acquisition, no Management's Discussion and Analysis of
Financial Conditions and Results of Operations for NAOC is included with respect
to such interim period.
Purchase Accounting Effects. The Acquisition has currently affected, and
will prospectively affect, the Company's results of operations in certain
significant respects. The aggregate acquisition purchase price of $162.6 million
was allocated to the net assets acquired based on the fair market value of such
net assets. The preliminary allocation of the purchase price resulted in an
increase in the historical book value of certain NATC assets such as intangible
assets, including goodwill, which will result in incremental annual amortization
expense of $0.5 million on a pro forma basis.
Strategic Acquisitions and Recapitalizations. National Tobacco was
originally formed in 1988 by the Company's Chairman, President and Chief
Executive Officer, Mr. Thomas F. Helms, Jr., and an investor group led by Lehman
Brothers to acquire the smokeless tobacco division of Lorillard. Together with
the management team he assembled in connection with this initial buyout, Mr.
Helms participated in two subsequent management buyouts. In April 1992, National
Tobacco's management and Pexco Holdings, Inc. ('Pexco') acquired Lehman
Brothers' interest in National Tobacco. In May 1996, National Tobacco's
management and other investors, including the MainStay Funds and Exeter,
purchased Pexco's interest in National Tobacco. Unless otherwise indicated,
National Tobacco's financial information for fiscal 1996 includes pro forma
adjustments to reflect the May 17, 1996 recapitalization as if it had occurred
on January 1, 1996. See 'Unaudited Pro Forma Condensed Consolidated Financial
Statements.'
NATC was originally formed by the investor group Drake, Goodwin and Graham
to acquire in March 1993 from UST certain assets including exclusive rights to
market and distribute ZIG-ZAG RYO cigarette papers in the United States, Canada
and other international markets. NAOC contracts all manufacturing of its RYO
cigarette paper and related products pursuant to a long-term, formula-priced
agreement with Bollore.
OVERVIEW--NATIONAL TOBACCO
The following discussion and analysis of financial condition and results of
operations should be read in conjunction with the financial statements of
National Tobacco and notes thereto included elsewhere in this Prospectus which
provide additional information on National Tobacco's financial activities and
condition.
43
<PAGE>
National Tobacco is the third largest manufacturer and marketer of loose
leaf chewing tobacco in the United States. For the year ended December 31, 1996,
National Tobacco's pro forma net sales, net income and EBITDA(1) were $55.9
million, $1.5 million and $15.5 million, respectively. For the year ended
December 31, 1995, National Tobacco recorded net sales, net income of $52.6
million and EBITDA of $13.5 million.
The loose leaf chewing tobacco industry has been characterized, in part, by
consistent price increases at the wholesale level. Annual manufacturers' prices
in the loose leaf chewing tobacco market have increased at a compound annual
rate of approximately 5.6% during the period from 1989 to 1996. In June 1996,
manufacturers' prices increased by 6.2%. See 'Business--Industry and Markets.'
With respect to National Tobacco's net sales, these price increases have more
than offset the unit net volume decreases experienced by National Tobacco. The
Company believes these trends are consistent with the entire loose leaf chewing
tobacco market. National Tobacco's net sales reflect gross revenues less
allowances for product discounts, returns and on-time payment discounts.
National Tobacco from time to time conducts promotional activities involving
discounts and coupons. Since 1990, industry-wide promotional activities and
discounting have increased. During this period of increasing manufacturers'
prices and decreasing net pound volume, National Tobacco has increased its
overall share of the chewing tobacco market from 17.1% in 1991 to 21.1% in 1996.
National Tobacco's principal components of cost of sales include raw
tobacco leaf, flavorings and packaging materials. For the period from 1992 to
1996, the cost of raw tobacco leaf has remained relatively stable. National
Tobacco has been able to maintain or lower its raw material costs, primarily by
improving raw tobacco leaf utilization and reformulating its food grade
flavorings. National Tobacco's gross margins have improved from 48.5% for the
year ended December 31, 1993 to 58.4% for the year ended December 31, 1996.
The Company accounts for its inventory using the last-in, first-out
('LIFO') method. As a result, non-cash LIFO charges have decreased (increased)
National Tobacco's gross profit by $0.6 million, $(0.1) million and $2.8 million
in the years ended December 31, 1994, 1995 and 1996, respectively.
- ------------------
(1) EBITDA represents operating income plus depreciation and amortization of
intangible assets plus the recurring non-cash LIFO adjustment.
44
<PAGE>
The following table sets forth, for the periods indicated, certain income
statement items as a percentage of net sales.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------- -----------------
1994 1995 1996 1996 1997
----- ----- ----- -------- -----
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales........................................................ 100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- -------- -----
----- ----- ----- -------- -----
Gross profit..................................................... 57.4% 61.1% 58.4% 61.6% 64.1%
Selling, general and administrative expenses..................... 35.8 37.4 38.4 38.0 44.7
Amortization of intangible assets................................ 2.0 1.8 1.6 2.5 1.8
----- ----- ----- -------- -----
Operating income................................................. 19.6 21.9 18.5 21.1 17.6
Interest expense, net............................................ 13.3 13.8 15.8 12.4 20.0
Financial advisory fee expense................................... 0.6 0.6 0.2 0.4 --
Other expense (income)........................................... (5.6) 2.5 (0.2) 0.1 (0.2)
----- ----- ----- -------- -----
Income before income taxes, cumulative effect of change in
accounting principle, income taxes and extraordinary loss..... 11.3 5.0 2.7 8.4 (2.2)
Provision for income taxes....................................... -- -- -- -- 19.3
----- ----- ----- -------- -----
Income (loss) before cumulative effect of change in accounting
principle and extraordinary loss.............................. 11.3 5.0 2.7 8.4 (21.5)
Cumulative effect of change in accounting principle.............. -- 0.2 -- -- --
----- ----- ----- -------- -----
Income (loss) before extraordinary loss.......................... 11.3 4.8 2.7 8.4 (21.5)
Extraordinary loss............................................... -- -- -- -- 31.9
----- ----- ----- -------- -----
Net income....................................................... 11.3 4.8 2.7 8.4 (53.4)
Preferred stock dividends........................................ -- -- -- -- 0.2
----- ----- ----- -------- -----
Net income (loss) attributable to common shares.................. 11.3% 4.8% 2.7% 8.4% (53.6)%
----- ----- ----- -------- -----
----- ----- ----- -------- -----
OTHER DATA:
EBITDA........................................................... 24.8% 25.6% 27.7% 26.7% 23.1%
LIFO adjustments................................................. 1.2 (0.1) 5.0 -- --
</TABLE>
Gross profit was affected by non-cash LIFO charges. Excluding LIFO
adjustments, the adjusted gross margins for the years ended December 31, 1994,
1995 and 1996 would have been 58.6%, 61.0% and 63.4%, respectively.
RESULTS OF OPERATIONS--NATIONAL TOBACCO
Comparison of Three and Six Months Ended June 30, 1997 to Three and Six Months
Ended
June 30, 1996.
Net Sales. Net sales for the three and six months periods ended June 30,
1997 were $13.4 million and $25.9 million, respectively, compared to $15.5
million and $28.2 million for the three and six months periods ended June 30,
1996. These decreases were attributable to volume decreases of 17.8% and 12.9%,
respectively, which were partially offset by a price increase implemented in
June 1996. The Company believes that the decreases are primarily attributable to
unfavorable weather conditions in the first quarter and competitive promotional
activity during the second quarter.
Gross Profit. Gross profit and gross margin percentage for the three and
six months periods ended June 30, 1997 were $8.6 million or 64.0% of net sales
and $16.6 million or 64.1% of net sales, respectively, compared to $9.6 million
or 62.0% of net sales and $17.4 million or 61.6% of net sales for the three and
six months periods ended June 30, 1996. The increases in gross margin
percentages were primarily attributable to the 1996 price increase combined with
stable variable costs.
45
<PAGE>
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three and six months periods ended June 30, 1997
were $6.2 million and $11.6 million, respectively, compared to $5.7 million and
$10.8 million for the three and six months periods ended June 30, 1996. These
increases were due to the addition of a chief operating officer and a chief
financial officer, an increase in legal fees, costs associated with the
relocation of the Company's executive offices and increased expenses associated
with the Company's membership in the Smokeless Tobacco Council.
Amortization of Intangible Assets. Amortization of intangible assets for
the three and six months periods ended June 30, 1997 was $0.3 million and $0.5
million, respectively, compared to $0.4 million and $0.7 million for the three
and six months periods ended June 30, 1996. These decreases were due to the
change in intangible assets resulting from the May 17, 1996 recapitalization.
Interest Expense and Financing Costs. Interest expense and financing costs
for the three and six months periods ended June 30, 1997 were $2.7 million and
$5.2 million, respectively, compared to $1.9 million and $3.5 million for the
three and six months periods ended June 30, 1996. These increases were the
result of additional indebtedness incurred in the May 17, 1996 recapitalization.
Comparison of Year Ended December 31, 1996 to Year Ended December 31, 1995.
Net Sales. Net sales for the year ended December 31, 1996 were $55.9
million compared to $52.6 million for the year ended December 31, 1995, an
increase of 6.3%. This increase in net sales was primarily attributable to the
continued growth of TROPHY, in addition to the implementation of a 6.2%
manufacturers' price increase in June 1996, which partially offset the
year-to-year decline in net unit volume of 2.6%, due in part to increased
promotional activity.
Gross Profit. Gross profit for the year ended December 31, 1996 was $32.7
million or 58.4% of net sales compared to $32.1 million or 61.1% of net sales
for the year ended December 31, 1995. The increased net sales were partially
offset by the non-cash LIFO charge of $2.8 million in 1996. Excluding such LIFO
adjustments, the adjusted gross margin would have been 63.4% in 1996 compared to
61.0% in 1995. This increase in gross margin was primarily attributable to the
aforementioned increase in net sales combined with stable variable costs on a
per pound basis.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the year ended December 31, 1996 were $21.5 million,
or 38.4% of net sales, an increase from $19.7 million, or 37.4% of net sales,
for the same period in 1995. This increase of $1.8 million was primarily due to
increased promotional activity for TROPHY and BEECH-NUT REGULAR.
Amortization of Intangible Assets. Amortization of intangible assets for
the year ended December 31, 1996 was $0.9 million, a decrease from $1.0 million
for the same period in 1995. This decrease reflects the ongoing amortization of
goodwill.
Net Interest Expense. Net interest expense for the year ended December 31,
1996 increased $1.7 million, or 24.0%, from $7.2 million for the year ended
December 31, 1995, to $8.9 million. This increase was a result of the additional
indebtedness incurred in the May 17, 1996 recapitalization.
Financial Advisory Fee Expense. Financial advisory fee expense for the
year ended December 31, 1996 was $0 compared to $300,000 for the year ended
December 31, 1995. Prior to the recapitalization undertaken by National Tobacco
on May 17, 1996, National Tobacco was required to pay financial advisory fees to
its former general partner, an affiliate of Pexco.
Other Income (Expense). Other income in 1996 was $122,000 and other
expense in 1995 was $1.3 million. Other expense in 1995 included $1.5 million of
abandoned debt issuance costs associated with a proposed refinancing.
Comparison of Year Ended December 31, 1995 to Year Ended December 31, 1994
Net Sales. Net sales for the year ended December 31, 1995 were $52.6
million compared to $51.4 million for the year ended December 31, 1994, an
increase of 2.3%. This increase in net sales
46
<PAGE>
principally resulted from a manufacturers' price increase of 4.8% undertaken by
the Company in May 1995 as well as an increase in unit volume of 0.2% from 1994
to 1995.
Gross Profit. Gross profit for the year ended December 31, 1995 was $32.1
million or 61.1% of net sales compared to $29.5 million or 57.4% of net sales
for the year ended December 31, 1994. This increase was primarily due to the
manufacturers' price increase of 4.8% undertaken by National Tobacco in May
1995, an increase in unit volume as well as raw material expense reductions and
a reduction in the non-cash LIFO charge for 1995. Excluding such LIFO
adjustments, the adjusted gross margin would have been 61.0% in 1995 compared to
58.6% in 1994.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the year ended December 31, 1995 were $19.7 million,
or 37.4% of net sales, an increase of $1.3 million from $18.4 million, or 35.8%
of net sales, for the same period in 1994. This increase was primarily due to
increased promotional activities for TROPHY and BEECH-NUT REGULAR.
Amortization of Intangible Asset. Amortization of intangible assets for
each of the years ended December 31, 1995 and December 31, 1994 was $1.0
million.
Net Interest Expense. Net interest expense for the year ended December 31,
1995 increased $0.4 million or 5.9% to $7.2 million from $6.8 million for the
year ended December 31, 1994. This increase was primarily due to an increase in
the interest rate charged for the senior debt financing during 1995.
Financial Advisory Fee Expense. Financial advisory fee expense was
$300,000 in each of the years ended December 31, 1995 and 1994.
Other Income (Expense), Net. Other expense in 1995 was $1.3 million and
other income in 1994 was $2.9 million. The expense in 1995 consisted primarily
of abandoned debt issuance costs associated with a proposed refinancing. The
other income in 1994 resulted from amendments in National Tobacco's retirement
benefit plans which reduced the post-retirement benefit obligation as a change
in accounting estimate.
LIQUIDITY AND CAPITAL RESOURCES--NATIONAL TOBACCO
Historically, National Tobacco has relied primarily upon cash generated
from operations, on bank borrowings and on the Lancaster Agreement to finance
its working capital requirements. Cash flow from operations was $8.1 million in
1996 and $8.7 million in 1995.
The Lancaster Agreement has been a source of liquidity because National
Tobacco has been able to combine its tobacco procurement with the financing of
its raw tobacco leaf purchases through Lancaster, thereby increasing the
availability of cash for other purposes. In connection with the Transactions,
the Company paid all outstanding balances under the Lancaster Agreement and has
discontinued utilizing the Lancaster Agreement as a source of liquidity. In the
future the Company expects to utilize its Revolver as a source of liquidity and
to finance working capital requirements.
Inventory levels were $40.0 million, $42.0 million and $38.9 million at
June 30, 1997, December 31, 1996 and December 31, 1995, respectively. National
Tobacco believes that its inventory levels are adequate and will remain stable
in the foreseeable future.
National Tobacco has relied primarily on cash provided from operations to
finance its capital expenditure requirements. Capital expenditures for the years
ended December 31, 1994, 1995 and 1996 were $355,000, $239,000 and $300,000,
respectively. The Company believes that its capital expenditure requirements,
given its current operation, will remain within the $300,000 to $500,000 range
for the next several years.
Historically National Tobacco has not been affected by inflation and the
Company believes that any effects of inflation at current levels will be
minimal. Historically, the Company has been able to increase prices at a rate
greater than that of inflation and believes that it will be able to do so in the
foreseeable
47
<PAGE>
future. In addition, National Tobacco has been able to maintain a stable
variable cost structure in significant part due to its procurement and
reformulation activities.
National Tobacco's tax planning efforts have allowed it to create liquidity
benefits through its inventory tax accounting methods. These benefits have
enabled National Tobacco to reduce tax distributions to its partners, making
greater funds available to reduce its debt more rapidly.
OVERVIEW--NAOC
The following discussion and analysis of financial condition and results of
operations should be read in conjunction with the consolidated financial
statements of NAOC and notes thereto included elsewhere in this Prospectus which
provide additional information on NAOC's financial activities and condition.
NAOC is the largest importer and distributor of RYO cigarette paper in the
United States. For the year ended December 31, 1996, NAOC recorded net sales of
$46.1 million, net income of 9.3 million and EBITDA of $25.8 million. For the
year ended December 31, 1995, NAOC recorded net sales of $42.5 million and
EBITDA of $23.1 million.
The RYO cigarette paper industry has been characterized, in part, by
consistent price increases. Annual manufacturers' prices in the RYO cigarette
paper market have increased at a compound annual rate of approximately 7.7% for
the period from 1991 to 1996. In April 1997, NAOC increased its wholesale prices
by 5.5%. See 'Business--Industry and Markets.' These price increases have
occurred in addition to NAOC's unit volume increases. NAOC's net sales reflect
gross revenues less allowances for product discounts, returns, outside selling
commissions and payment discounts. NAOC from time to time conducts promotional
activities involving promotional discounts, placement discounts and a yearly
performance incentive rebate.
NAOC's principal component of cost of sales is the finished product
purchased from Bollore from Bollore's manufacturing facility in Perpignon,
France. NAOC entered into an exclusive licensing agreement with Bollore in 1992,
whereby Bollore became the exclusive supplier of finished product to NAOC for 20
years, renewable in 20 year increments and at specified prices (increases are
indexed to the annual CPI-urban for Northeast U.S.) through December 31, 2004.
Terms are Delivered, Duties Unpaid (DDU). NAOC pays excise taxes at a rate of
$.0075 per 50 leaves at Port of Entry and a duty of 3.4% of manufacturer's
value. Under terms of GATT, the rate of duty decreases by 1/2 of 1% each year
and will be phased out over the next seven years.
Under the terms of its agreement with Bollore, NAOC purchases inventory in
approximately equal monthly quantities. This allows Bollore to manage production
and has permitted NAOC to obtain constant, long-term pricing, subject only to an
annual CPI adjustment. In July 1996 NAOC restructured its key promotional
program, moving from two annual promotions to three. This change helped to
smooth month-to-month fluctuations in sales and more closely aligned sales with
NAOC's purchasing patterns and allowed NAOC to reduce inventory levels. NAOC
accounts for its inventory using the average cost method. At March 31, 1997,
NAOC's inventory was $4.3 million, an 18.9% decrease from $5.3 million at
December 1996. The Company believes that inventory levels are currently adequate
and will remain stable for the foreseeable future. Accordingly, the Company
believes that inventory levels for NAOC will range between $3.0 and $6.0
million, assuming historical growth in sales.
NAOC purchases from Bollore, on terms of net 45 days in French francs.
Thus, NAOC bears certain foreign exchange risks in its inventory purchases. To
hedge this risk, NAOC began utilizing the short-term forward currency market in
1997. In addition, Bollore provides a contractual hedge against substantial
currency fluctuation in its agreement with NAOC.
48
<PAGE>
The following table sets forth, for the periods indicated, certain income
statement items as a percentage of net sales:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH
YEAR ENDED DECEMBER 31, 31,
----------------------- --------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales........................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
Gross profit........................................................ 64.1% 63.6% 64.3% 63.2% 66.9%
Selling, general and administrative expenses........................ 8.5 9.4 8.6 7.5 11.3
Amortization of intangible assets................................... 10.9 11.1 11.0 9.9 13.0
----- ----- ----- ----- -----
Operating income.................................................... 44.8 43.1 44.7 45.9 42.6
Interest expense, net............................................... 11.1 11.7 10.8 10.6 11.2
Financial advisory fee expense...................................... 0.8 1.5 2.6 1.8 4.7
Other expense....................................................... -- 0.7 -- -- --
----- ----- ----- ----- -----
Income before income taxes and extraordinary loss................... 32.9 29.2 31.4 33.5 26.7
Income taxes........................................................ 13.5 10.1 11.1 11.7 8.8
----- ----- ----- ----- -----
Income before extraordinary loss.................................... 19.4 19.1 20.3 21.8 17.9
Extraordinary loss from early extinguishment of debt................ -- 1.8 -- -- --
----- ----- ----- ----- -----
Net income.......................................................... 19.4% 17.3% 20.3% 21.8% 17.9%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
OTHER DATA:
EBITDA.............................................................. 55.8% 54.3% 55.8% 56.0% 55.8%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
RESULTS OF OPERATIONS--NAOC
Comparison of Three Months ended March 31, 1997 to Three Months ended March 31,
1996.
Net Sales. Net sales for the three months ended March 31, 1997 was $10.2
million compared to $12.4 million for the three months ended March 31, 1996, a
decrease of 17.7%. This decrease in net sales was expected and primarily due to
a change in the timing of the Company's promotional periods and the size of the
promotions between 1996 and 1997. In March 1996, NAOC announced the change in
its major promotional activity from a 20% discount ('Buy four, get one free')
promotion to an off-invoice discount of 16.7% (equivalent to 'Buy five, get one
free'). In addition to reducing the discount offered in each promotional period,
NAOC also increased the number of promotional periods from two to three
annually. NAOC's customers knew that the March 1996 promotion was the last at
the 20% discount level and increased their purchases in anticipation of the
proposed change in promotional activities. As a result, NAOC ended the March
1997 promotional period 25% behind in unit volume from the comparable figure in
1996 but approximately 25% ahead of its 1997 budgeted unit goal.
Gross Profit. Gross profit for the three months ended March 31, 1997 was
$6.9 million or 66.9% of net sales compared to $7.9 million or 63.2% of net
sales for the three months ended March 31, 1996. The increase in gross margin
was primarily due to the 1996 manufacturers' price increase of 6.6% which was
partially offset by the Bollore CPI-based price increase.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three months ended March 31, 1997 were $1.2
million, or 11.3% of net sales, an increase from $0.9 million, or 7.5% of net
sales, for the same period in 1996. This increase was due mainly to increased
promotional expenses.
Amortization of Intangible Assets. Amortization expense for the three
months ended March 31, 1997 was $1.3 million, an increase of $0.1 million over
$1.2 million for the same period in 1996. In connection with the purchase of
NAOC in 1993, NAOC paid a royalty to UST of 30% of Gross Profits (as defined in
the UST Asset Purchase Agreement (as defined)). NAOC capitalized this royalty in
the month of
49
<PAGE>
accrual, and amortized the intangible asset created by such royalty payment over
the remainder of a 25-year period. The increase in amortization expense was due
to the increase in the capitalized intangible asset resulting from the 1996
payment and the 1997 accrued payable to UST.
Net Interest Expense. Net interest expense for the three months ended
March 31, 1997 was $1.2 million and for the three months ended March 31, 1996
was $1.3 million. The decrease of $0.1 million was the result of a reduction in
NAOC's senior bank debt.
Financial Advisory Fee Expense. Financial advisory fee expense represents
management fees and expenses paid to Drake, Goodwin and Graham ('DGG'), as well
as salaries of current owners. Financial advisory fee expense for the three
months ended March 31, 1997 was $481,000, or 4.7% of net sales, an increase from
$219,000, or 1.8% of net sales, for the three months ended March 31, 1996. This
was a result of increased salaries and office expenses in New York and Canada.
Income Tax Expense. Income tax expense for the three months ended March
31, 1997 was $0.9 million, or 8.8% of net sales, a decrease from $1.5 million,
or 11.7% of sales, for the three months ended March 31, 1996. The effective
income tax rate for the three months ended March 31, 1997 was 33%, compared to
35% for the same period in 1996.
Comparison of Year Ended December 31, 1996 to Year Ended December 31, 1995.
Net Sales. Net sales for the year ended December 31, 1996 were $46.1
million compared to $42.5 million for the year ended December 31, 1995, an
increase of $3.6 million or 8.5%. This increase in net sales was attributable to
a manufacturer's price increase of 6.6% undertaken by NATC on May 20, 1996 and
the unit volume increase of 3.8% from 1995 to 1996.
Gross Profit. Gross profit for the year ended December 31, 1996 was $29.7
million, or 64.3% of net sales compared to $27.0 million or 63.6% of net sales
for the year ended December 31, 1995. This increase was a result of the price
increase of 6.6% undertaken by NAOC on May 20, 1996, the 3.8% unit volume
increase and an increase in the $US/FFranc exchange rate, the latter of which
lowered the cost of goods sold.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the year ended December 31, 1996 were $4.0 million,
or 8.6% of net sales, compared to $4.0 million, or 9.4% of net sales, for the
same period in 1995. The decline as a percent of net sales was due to the
increase in net sales with no corresponding increase in selling, general and
administrative expenses.
Amortization of Intangible Assets. Amortization for the year ended
December 31, 1996 was $5.1 million, an increase over $4.7 million for the same
period in 1995. In connection with the purchase of NAOC in 1993, NAOC paid a
royalty to UST of 30% of Gross Profits (as defined in the UST Asset Purchase
Agreement (as defined)). NAOC capitalized this royalty in the month of accrual,
and amortized the intangible asset created by such royalty payment over the
remainder of a 25-year period. The increase in amortization expense was due to
the increase in the capitalized intangible asset resulting from the 1995 payment
and 1996 accrued payable to UST.
Net Interest Expense. Net interest expense for the years ended December
31, 1996 and December 31, 1995 was $5.0 million. Net interest expense remained
constant despite fluctuations in monthly interest during this period. After May
5, 1995, as a result of debt incurred in connection with the repurchase of a
minority shareholder's stock, interest expense increased. After May 15, 1996,
interest expense decreased following repayment of certain indebtedness.
Financial Advisory Fee Expense. Financial advisory fee expense paid to DGG
for management fees and expenses, as well as salaries of current owners, for the
year ended December 31, 1996 was $1.2 million or 2.6% of net sales, an increase
from $0.7 million or 1.5% of net sales in the same period of 1995.
Other Expense. Other expense was $285,000 in the year ended December 31,
1995 as a result of a one-time charge related to a lawsuit settlement with a
financial advisor in connection with the 1993 purchase of ZIG-ZAG from UST.
50
<PAGE>
Income Tax Expense. Income tax expense for the year ended December 31,
1996 was $5.1 million, an increase from $4.3 million for the year ended December
31, 1995. This increase in income tax expense was a result of an increase in
income before taxes of $2.1 million. The effective income tax rate for the year
ended December 31, 1996 was comparable to 1995 at 35.4% versus 34.6%,
respectively.
Extraordinary Loss. An extraordinary loss of $762,000 (net of income tax
benefit of $411,000) was recognized in 1995, which was due to the write-off of
deferred financing costs related to the early extinguishment of debt.
Comparison of Year Ended December 31, 1995 to Year Ended December 31, 1994.
Net Sales. Net sales for the year ended December 31, 1995 were $42.6
million compared to $40.2 million for the year ended December 31, 1994, an
increase of 6.0%. This increase in net sales was primarily attributable to two
price increases totalling 14.4% effective January 1, 1995 and June 12, 1995,
partially offset by a unit volume decrease of 3.8% from 1994 to 1995.
Gross Profit. Gross profit for the year ended December 31, 1995 was $27.0
million, or 63.6% of net sales compared to $25.8 million or 64.1% of net sales
for the year ended December 31, 1994. This increase was a result of the
aggregate price increases of 14.4% undertaken by NATC on January 1 and June 12,
1995, partially offset by a decrease in the $US/FFranc exchange rate, raising
per unit cost of goods sold.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the year ended December 31, 1995 were $4.0 million,
or 9.4% of net sales, an increase from $3.4 million, or 8.5% of net sales, for
the same period in 1994. The increase was due to an expansion of NAOC's sales
and administrative staff in 1995.
Amortization of Intangible Assets. Amortization for the year ended
December 31, 1995 was $4.7 million, an increase over $4.4 million for the same
period in 1994. In connection with the purchase of NAOC in 1993, NAOC paid a
royalty to UST of 30% of Gross Profits (as defined in the UST Asset Purchase
Agreement (as defined)). NAOC capitalized this royalty in the month of accrual,
and amortized the intangible asset created by such royalty payment over the
remainder of a 25-year period. The increase in amortization expense was due to
the increase in the capitalized intangible asset resulting from the 1994 payment
and 1995 accrued payable to UST.
Net Interest Expense. Net interest expense for the year ended December
31, 1995 was $5.0 million, up from $4.5 million, for the same period in 1994.
This increase was due to increased debt. On April 5, 1995 NAOC purchased certain
minority shareholder interests, and financed these purchases with debt.
Financial Advisory Fee Expense. Financial advisory fee expense paid to DGG
for the year ended December 31, 1995 was $654,000 or 1.5% of net sales, an
increase from $305,000 or 0.8% of net sales in the same period of 1994.
Other Expense. Other expense was $285,000 in the year ended December 31,
1995 as a result of a one-time charge related to a lawsuit settlement with a
financial advisor in connection with the 1993 purchase of ZIG-ZAG from UST.
Income Tax Expense. Income tax expense for the year ended December 31,
1995 was $4.3 million, a decrease from $5.4 million for the year ended December
31, 1994. This decrease in income tax expense was a result of a decrease in net
income before taxes of $0.8 million and a decrease of the effective federal tax
rate. The effective income tax rate for the year ended December 31, 1995 was
34.6%, compared to 41.1% for the same period in 1994.
Extraordinary Loss. An extraordinary loss of $762,000 (net of income tax
benefit of $411,000) was recognized in 1995, which was due to the write-off of
deferred financing costs related to the early extinguishment of debt.
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LIQUIDITY AND CAPITAL RESOURCES--NAOC
Historically, NAOC has relied primarily upon cash generated from operations
and on bank borrowings to finance its working capital requirements. Cash flow
from operations was $2.7 million for the three months ended March 31, 1997,
$18.3 million for the year ended December 31, 1996 and $10.9 million for the
year ended December 31, 1995.
NAOC has relied primarily on cash provided from operations to finance
capital expenditures. NAOC accrued start-up costs in 1993, 1994 and 1995 related
to the purchase of furniture, computers and trade show displays of less than
$100,000 per year, and the Company anticipates no further expenditures other
than the continued upgrading of computer and software systems as needed.
Accordingly, the Company believes that NAOC's capital expenditures in the
foreseeable future will not significantly exceed NAOC's historical experience.
For the years ended December 31, 1994, 1995, and 1996, capital expenditures were
$94,000, $88,000 and $55,000.
Inventory levels increased from $3.3 million at December 31, 1994 to $6.6
million at December 31, 1995 as a result of purchases pursuant to a volume
rebate made available by Bollore. Inventories were reduced to $5.3 million at
December 31, 1996 and further reduced to $4.3 million at March 31, 1997. The
Company believes that inventories are currently adequate and will remain stable
for the foreseeable future.
Historically NAOC has not been affected by inflation and the Company
believes that any effects of inflation at current levels will be minimal.
Historically, NAOC has been able to increase prices at a rate greater than that
of inflation and believes that it will be able to do so in the foreseeable
future. In addition, NAOC has been able to maintain a stable variable cost
structure in significant part through the terms of the Distribution Agreements.
As part of the purchase price of the ZIG-ZAG brand, NAOC agreed to pay UST
a royalty of 30% of Gross Profits (as defined in the UST Asset Purchase
Agreement (as defined)) for 10 years beginning March 1993. Payments for the
three months ended March 31, 1997 and for the years ended December 31, 1996,
1995 and 1994 were $3.0 million, $8.0 million, $7.2 million and $7.4 million,
respectively. This obligation was extinguished by a $32 million payment to UST
upon consummation of the Acquisition.
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BUSINESS
OVERVIEW
The Company is a leading marketer of high-quality loose leaf chewing
tobacco, RYO cigarette papers and other tobacco-related products. National
Tobacco is the third largest manufacturer and marketer of loose leaf chewing
tobacco in the United States, selling its products under the brand names
BEECH-NUT REGULAR, BEECH-NUT WINTERGREEN, BEECH-NUT SPEARMINT, TROPHY and HAVANA
BLOSSOM. NAOC is the largest importer and distributor in the United States of
RYO cigarette papers, which are sold under the ZIG-ZAG brand name pursuant to an
exclusive distribution agreement. National Tobacco produces all of its loose
leaf chewing tobacco products in its highly efficient, well maintained
manufacturing facilities in Louisville, Kentucky. National Tobacco had pro forma
net sales, net income and EBITDA of $55.9 million, 1.5 million and $15.5
million, respectively, in fiscal 1996. NAOC imports and distributes RYO
cigarette paper and related products which are manufactured pursuant to a
long-term, formula-priced agreement with Bollore. NAOC reported net sales, net
income and EBITDA of $46.1 million, 9.3 million and $25.8 million, respectively,
in fiscal 1996.
EVOLUTION OF THE COMPANY
National Tobacco was originally formed in 1988 by the Company's Chairman,
President and Chief Executive Officer, Mr. Thomas F. Helms, Jr., and an investor
group led by Lehman Brothers to acquire the smokeless tobacco division of
Lorillard, which had introduced the popular BEECH-NUT brand in 1897. Together
with the management team he assembled in connection with this initial buyout,
Mr. Helms participated in two subsequent leveraged buyouts. In April 1992,
National Tobacco's management and Pexco acquired Lehman Brothers' interest in
National Tobacco. In May 1996, National Tobacco's management and other investors
including the MainStay Funds as well as Exeter Equity Partners, L.P. and Exeter
Venture Lenders, L.P. (collectively 'Exeter') purchased Pexco's interest in
National Tobacco. In connection with these transactions, Mr. Helms and his
management team increased their equity ownership from approximately 13% in 1988
to 25% in 1992 to 48% in 1996. After giving effect to the Transactions, which
includes the Company's purchase of all of the interests owned by MainStay Funds
and Exeter, the Company's management team will beneficially own approximately
72.9% of the Company's Common Stock (assuming the exercise in full of the
Warrants). As of March 31, 1997, National Tobacco had repaid over $60 million of
cumulative indebtedness primarily with cash flow generated from operations since
the initial buyout in 1988.
NATC was originally formed by the investor group DGG to acquire in March
1993 from UST, Inc. certain assets, including the exclusive rights to market and
distribute ZIG-ZAG RYO cigarette papers in the United States, Canada and other
international markets. Shortly after this acquisition, Mr. Jack Africk retired
as Vice Chairman of UST and became director, consultant and subsequently Chief
Executive Officer of NATC. Mr. Africk serves as a consultant of the Company. UST
had obtained North American distribution rights in 1938 from Bollore, a major
French manufacturer of high-quality and fine papers. The ZIG-ZAG brand was
introduced in France in 1869.
The Company was formed in 1997 to effect the acquisition of NATC and its
ZIG-ZAG RYO cigarette paper business. The Company believes the combination of
the ZIG-ZAG RYO cigarette paper business with National Tobacco's BEECH-NUT loose
leaf chewing tobacco business will produce substantial benefits and synergies,
as summarized below:
o Greater product line diversification with leading brand names;
o Improved product mix due to higher-margin RYO cigarette papers;
o Sales growth opportunities through:
--Complementary distribution channels,
--Strengthened regional market penetration for the ZIG-ZAG brand,
--Continued aggressive promotional strategies; and
o Management team with extensive industry experience.
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The Company's principal executive offices are located in New York, New York
at 257 Park Avenue South, 7th Floor, New York, New York 10010, and its telephone
number is (212) 253-8185.
BUSINESS STRENGTHS
Leading Brand Names
BEECH-NUT and ZIG-ZAG are among the most widely recognized brand names in
the loose leaf chewing tobacco and RYO cigarette paper industries, respectively.
The Company believes that the strength of these brand names has created a loyal
consumer base and significant barriers to competition. The Company believes
BEECH-NUT has been one of the leading loose leaf chewing tobacco brands in the
United States since its inception in 1897. Similarly, the Company believes
ZIG-ZAG has been the number-one selling domestic RYO cigarette paper brand since
UST's introduction of the brand in the United States in 1938.
High-Quality Products
Management seeks to ensure the quality of the Company's products through
its focus on quality control, research and development and its use of its highly
efficient, well maintained loose leaf chewing tobacco manufacturing facilities.
The Company imports all of its ZIG-ZAG RYO cigarette papers under its strict
quality requirements from Bollore, a major French manufacturer of high-quality
and fine papers.
Experienced Sales Organization
National Tobacco has made a substantial long-term investment in its
105-person sales organization. The Company believes it can successfully
merchandise ZIG-ZAG RYO cigarette papers through thousands of key retail
outlets, especially in the Southeast which has historically been an
underdeveloped market for NAOC, by selling the ZIG-ZAG product line through
National Tobacco's sales force and complementary distribution channels.
Consistent Cash Flows
The Company and its predecessors have had a long history of consistent cash
flows from operations. Although there can be no assurance, the Company believes
that this trend will continue, enabling the Company to promptly and
significantly reduce its debt.
Minimal Capital Expenditure Requirements
The Company's subsidiaries require minimal capital expenditures. National
Tobacco maintains a highly efficient loose leaf chewing tobacco manufacturing
facility. NAOC contracts for the manufacturing of all of its RYO cigarette paper
and related products. The Company's combined capital expenditures averaged
$377,000 annually for the fiscal years 1994 through 1996.
Successful History of Management Buyouts
The Company's management team has a long and successful history in
profitably operating a business with a leveraged balance sheet. Led by Mr.
Thomas F. Helms, Jr., Chairman, President and Chief Executive Officer of the
Company, substantially all of the Company's current management team have been
with National Tobacco or its predecessors since the initial buyout with Lehman
Brothers of Lorillard's interest in 1988. This same management team participated
in two subsequent management buyouts in April 1992 and in May 1996. Since the
initial Lorillard buyout, National Tobacco has cumulatively repaid approximately
$60 million of National Tobacco's indebtedness. As part of these buyouts,
management has reinvested its equity to increase its ownership from
approximately 13% in 1988 to 25% in 1992 to 48% in 1996. After giving effect to
the Transactions, management will beneficially own approximately 72.9% of the
Company's Common Stock (assuming the exercise in full of the Warrants).
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Experienced and Committed Management Team
The Company's management team is highly experienced in the tobacco
industry. The Company has experienced little management turnover and continues
to be strengthened through the recruitment of additional talented professionals.
The Company's seven senior executives have an average of approximately 25 years
of experience in the tobacco industry. Mr. Helms, Chief Executive Officer of the
Company, has 14 years of tobacco industry experience. In addition, Mr. Africk,
one of the Company's consultants, has 49 years of tobacco industry experience.
The Company's management team is highly motivated to build value over the long
term because of its beneficial equity ownership of approximately 72.9% after
giving effect to the Transactions (assuming the exercise in full of the
Warrants).
Highly Efficient Infrastructure
The Company's infrastructure is highly efficient. National Tobacco has
consistently sought to improve its manufacturing processes as well as its
product formulation and raw material procurement. National Tobacco's gross
margins have improved from 48.5% in fiscal 1993 to 58.4% in fiscal 1996. The
Company believes it is the low-cost manufacturer of loose leaf chewing tobacco.
NAOC had a fiscal 1996 gross margin of 64.3%, complementing National Tobacco's
high gross margins.
Attractive Market Dynamics
The Company believes that the smokeless tobacco market, including loose
leaf chewing tobacco, and the RYO cigarette paper industry are each
characterized by non-cyclical demand, brand loyalty, significant barriers to
entry, minimal capital expenditure requirements, high profit margins, consistent
price increases at the wholesale level as well as the ability to generate strong
and consistent free cash flows.
Strong Customer Relationships
Historically, both National Tobacco and NAOC have enjoyed strong
relationships with their respective customers by virtue of their leading brands,
significant market shares and experienced sales and marketing organizations. By
combining these two businesses' leading brands, management teams and sales
organizations, the Company expects to strengthen its customer relationships and
become a more important source of product supply to major distributors and
retailers. The combination of the National Tobacco and NAOC sales forces will
enable the Company to develop a valuable retail-oriented focus for the ZIG-ZAG
brand.
BUSINESS STRATEGY
The Company's near-term strategy is to cultivate sales, marketing and
distribution synergies through the combination of its loose leaf chewing tobacco
and RYO cigarette paper businesses. Over the long term, the Company's primary
strategy for building equity value is to reduce debt. The Company also intends
to continue to identify and pursue opportunities for profitable growth through
new product introductions and strategic acquisitions.
Continue to Capitalize on Strong Brands.
The Company intends to maintain the stability of its core BEECH-NUT, TROPHY
and ZIG-ZAG brands through adherence to its strict quality control procedures,
maintenance of key distributor relationships and the continuation of aggressive
marketing strategies.
Leverage Complementary Distribution Channels.
As a result of the Acquisition, the Company is strategically positioned to
cross-sell its products. This strategy is designed to enhance sales penetration
in certain distribution channels, primarily at the retail level, for each of its
product lines and more intensively focus sales efforts at the retail level on
the Company's higher-margin ZIG-ZAG RYO cigarette paper business.
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The Company believes it can leverage the excellent store-level
relationships of its loose leaf tobacco sales force to distribute more ZIG-ZAG
RYO cigarette papers into the important food, mass merchandising and discount
tobacco store channels, particularly in the Southeast, where BEECH-NUT sales
activity has been strong and where ZIG-ZAG has been historically underdeveloped.
Similarly, management plans to expand the distribution of its BEECH-NUT and
TROPHY loose leaf chewing tobacco brands in large chain convenience store
operations where ZIG-ZAG sales activity has historically been strong.
Broaden Penetration of Geographical Markets.
The Company believes it can increase sales of its higher-margin ZIG-ZAG RYO
cigarette paper products in BEECH-NUT's core markets in the southeastern states,
particularly in this region's convenience store and food store channels, where
ZIG-ZAG's sales have historically been underdeveloped.
Develop and Introduce New Products and Brand Extensions.
The Company intends to expand its overall market shares in its loose leaf
chewing tobacco and RYO cigarette paper businesses through the continued
development and introduction of new products, including line extensions of its
powerful brand names. Since 1988, the Company's National Tobacco subsidiary
successfully introduced two new loose leaf chewing tobacco products, BEECH-NUT
SPEARMINT and TROPHY, without losing appreciable market share for its existing
products. The Company plans at least one new RYO cigarette paper product
introduction within the next twelve months. In addition, the Company is
evaluating consumer demand for several new smokeless tobacco products and line
extensions that are currently being developed and tested. The Company believes
that new tobacco-related products can be manufactured at favorable costs by
utilizing existing capacity at National Tobacco's loose leaf chewing tobacco
manufacturing facility.
Expand into Complementary Niche Markets.
Consistent with its acquisition of the ZIG-ZAG RYO cigarette paper
business, the Company will continue to review opportunities for expansion into
complementary niche market segments with other tobacco-related product lines
through acquisitions and internal development. The addition of these niche
products will enable the Company to take advantage of its strengthened sales
organization, sophisticated research and development capabilities, manufacturing
and storage capacity and well developed distribution channels.
The Company intends to seek out potential strategic acquisitions in its
core smokeless tobacco market, where it could take advantage of synergies in
production, distribution, marketing and merchandising. Although the Company is
currently evaluating the competitive environment, it has not entered into any
letters of intent or other agreements with respect to potential acquisitions.
Continue to Increase Operating Efficiencies.
The Company believes that it can continue to reduce manufacturing and
operating expenses by (i) continuing development of more cost-effective blends
of loose leaf chewing tobacco and flavorings, (ii) reducing packaging costs,
(iii) improving raw material utilization and (iv) exploiting sales, promotional
and operational synergies from the combination of certain operations conducted
by its BEECH-NUT and ZIG-ZAG businesses.
Increase Dollar Sales Volume through Strategic Pricing.
Consistent with overall tobacco industry practice, the Company's strategy
is to enhance growth in net sales primarily through price increases. The Company
historically has been able to increase net sales through annual price increases.
Manufacturers' wholesale prices for loose leaf chewing tobacco and RYO cigarette
papers cumulatively increased 18% and 22%, respectively, over the past three
years. The Company's prices for these products generally have increased at
comparable rates. The Company expects this trend to continue.
Pursue Growth through Aggressive Promotional Strategies.
Management intends to develop promotional synergies between its two product
lines to increase its strong market shares. The Company's loose leaf chewing
tobacco business has historically implemented a retail point-of-sale 'pull'
strategy by offering promotions to consumers throughout the year. The
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Company's ZIG-ZAG RYO cigarette papers historically have been promoted to
wholesalers through a 'push' strategy, initially during two annual promotional
periods at a 20% ('Buy four, get one free') discount, and since July 1996, three
times per year at an off-invoice discount of 16.7% (equivalent to 'Buy five, get
one free'). This change was implemented both to reduce sales spikes and to
generate even stronger margins.
The Company's combined, strengthened sales organization plans to
cross-promote the higher-margin ZIG-ZAG line to retailers in order to expand
into new geographic markets and channels of distribution. For example, the
Company expects to offer certain of its retail customers ZIG-ZAG purchase
incentives and point-of-sale promotional displays in connection with the
retailers' purchases of loose leaf chewing tobacco.
INDUSTRY AND MARKETS
The Company believes that the smokeless tobacco market, including loose
leaf chewing tobacco, and the RYO cigarette paper industry are each
characterized by non-cyclical demand, brand loyalty, significant barriers to
entry, minimal capital expenditure requirements, high profit margins, consistent
price increases at the wholesale level as well as the ability to generate strong
and consistent free cash flows. The Company believes the smokeless tobacco and
loose leaf chewing tobacco markets were approximately $1.7 billion and $334
million, respectively, based on 1995 manufacturers' sales, and have grown at
compound annual rates of approximately 8% and 3%, respectively, since 1989
driven primarily by price increases. The Company believes that the RYO cigarette
paper industry was approximately $100 million, based on 1995 manufacturers'
sales, and has grown at a compound annual rate of approximately 5% since 1991.
Smokeless tobacco products, including chewing tobacco, have a long, established
tradition of use in the United States dating back to colonial times. Loose leaf
chewing tobacco has generally been most popular with outdoor enthusiasts and
blue-collar workers from the Southeast, Southwest, rural Northeast and North
Central regions. An estimated 7 million Americans are regular users of smokeless
tobacco products, according to the Smokeless Tobacco Council. While RYO
cigarette papers are sold in all 50 states, the Company believes sales are more
concentrated in certain western states.
Smokeless Tobacco
The smokeless tobacco industry is comprised of the five product categories
listed below. The Company currently competes in the loose leaf chewing tobacco
segment.
Moist snuff is cured, aged, flavored and finely ground tobacco packaged in
round fiber or plastic cans.
Loose leaf chewing tobacco is typically made from air-cured leaf tobacco,
using both domestic and imported tobaccos, aged, flavored and packed in
foil pouches.
Plug chewing tobacco is made from air-cured leaf tobacco, heavily flavored
and pressed into small bricks or blocks.
Twist chewing tobacco is made of dark, air-cured leaf tobacco, which is
twisted into strands that are dried and packaged like a dry, pliable rope.
Dry snuff is a powdered tobacco product which is sometimes flavored and is
packaged in a variety of containers.
According to information provided by the Smokeless Tobacco Council,
manufacturers' sales for smokeless tobacco were $991 million in 1989 and $1.74
billion in 1995, representing a compound annual growth rate of 9.8%. This
increase is primarily related to the increase in the moist snuff market, in
which manufacturers' sales have grown from $608 million in 1989 to $1.315
billion in 1995, representing a compound annual growth rate of 13.7%.
Manufacturers' sales of loose leaf chewing tobacco were $280 million in 1989 and
$334 million in 1995, representing a compound annual growth rate of 3.0% during
the same period.
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In each of these markets, growth in manufacturers' sales was fueled
primarily by price increases. Manufacturers' prices on moist snuff have
increased from $1.15 per can in 1989 to $1.96 in 1996, a compounded annual
increase of 7.9%. Manufacturers' selling prices for loose leaf chewing tobacco
have risen from $0.94 a pouch in 1989 to $1.38 in 1996, a compound annual
increase of 5.6%. The Company believes that this price differential will
continue to grow and that moist snuff consumers could switch to loose leaf
chewing tobacco as a result of the price disparity.
Loose Leaf Chewing Tobacco
Loose leaf chewing tobacco products are typically sold through the
following retail distribution channels (in order of importance): food stores,
mass merchandisers, convenience stores, discount tobacco stores, chain and
independent drug stores. Discount tobacco retailers are an increasingly
important distribution channel for all tobacco products, including loose leaf
chewing tobacco. Certain retailers purchase direct from manufacturers, although
most purchase through wholesale distributors.
The typical loose leaf chewing tobacco consumer is male, white, blue
collar, aged 25-49, has a high school education or less and lives in a rural 'C'
or 'D' county.
RYO Cigarette Paper
RYO cigarette papers are typically sold through the following retail
distribution channels (in order of importance): convenience stores, chain and
independent drug stores, mass merchandisers, food stores and discount tobacco
stores. Retailers purchase RYO cigarette papers primarily from wholesale
distributors.
PRODUCTS
The Company manufactures and markets loose leaf chewing tobacco and imports
and distributes RYO cigarette papers. The table below depicts the breakdown of
the Company's net sales, on a pro forma basis, by product line for the last
three fiscal years.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1994 1995 1996
------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Net sales:
Loose leaf chewing tobacco (National Tobacco)..................................... $ 51.4 $ 52.6 $ 55.9
RYO cigarette papers (NAOC)....................................................... 40.2 42.6 46.1
------ ------ ------
Total.......................................................................... $ 91.6 $ 95.2 $102.0
------ ------ ------
------ ------ ------
Percent of total net sales:
Loose leaf chewing tobacco........................................................ 56.1% 55.3% 54.8%
RYO cigarette papers.............................................................. 43.9 44.7 45.2
------ ------ ------
Total.......................................................................... 100.0% 100.0% 100.0%
------ ------ ------
------ ------ ------
</TABLE>
Loose Leaf Chewing Tobacco
Loose leaf chewing tobacco products can be broadly characterized as either
full-flavored or mild, each accounting for approximately one half of industry
volume. Loose leaf chewing tobacco is made from aged, air-cured tobacco which is
processed and flavored and then packaged in foil pouches. The BEECH-NUT brands
are available in three flavors: Regular, Wintergreen and Spearmint. BEECH-NUT
REGULAR is a full-flavored product and ranks second in sales in the
full-flavored loose leaf chewing tobacco category, and third overall. BEECH-NUT
WINTERGREEN and BEECH-NUT SPEARMINT were introduced by National Tobacco in 1979
and 1989, respectively. Retail prices of loose leaf chewing tobacco range from
$1.50 to $2.00 per 3 ounce pouch. These pouches are typically sold individually
or in cartons of 12 pouches. BEECH-NUT REGULAR and TROPHY represent 60% and 25%
of the Company's loose leaf chewing tobacco sales.
The Company introduced its TROPHY brand into the mild product segment of
the loose leaf chewing tobacco market in 1992. TROPHY was positioned as a direct
competitor to Conwood Corporation's Levi
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Garrett brand. Since its introduction, National Tobacco has aggressively
marketed TROPHY with promotional programs without impairing the sales or
profitability of its BEECH-NUT brands.
In addition to the BEECH-NUT brands and TROPHY, National Tobacco also
produces a regional brand, HAVANA BLOSSOM, sold primarily in West Virginia,
Pennsylvania and Ohio.
RYO Cigarette Papers
RYO cigarette papers are sold in a variety of different widths and styles,
primarily standard width ZIG-ZAG White, ZIG-ZAG 1 1/4 width French Orange and
ZIG-ZAG Kutcorners, which is designed for easier hand-rolling. Retail prices of
RYO cigarette papers generally range from $0.99 to $1.99 per 32-leaf booklet.
Additionally, in 1989, a waterproof paper brand was developed for sale in
Canada. Other products sold under the ZIG-ZAG name, which constitute less than
2% of ZIG-ZAG sales, are 1 1/2 RYO cigarette papers, Gold Standard tobacco for
roll-your-own-cigarettes and ZIG-ZAG cigarette rollers, cigarette tubes and tube
injectors.
SALES AND MARKETING
Following the Acquisition and as part of the integration of the National
Tobacco and NAOC businesses, the two existing sales organizations were merged,
creating an 111-person sales organization nationwide. By combining these two
businesses' leading brands, management teams and sales organizations, the
Company expects to strengthen its customer relationships and become a more
important source of supply to major distributors. The combination of the
National Tobacco and NAOC sales forces will enable the Company to develop a
valuable retail-oriented focus for the ZIG-ZAG brand. In addition, the BEECH-NUT
sales force is strategically and geographically stronger in markets where the
Company believes ZIG-ZAG has the greatest growth potential. The Company believes
that the sales force integration will be facilitated by its uncomplicated and
complementary product lines and the network of store-level relationships
developed by the National Tobacco sales force, which was designed to concentrate
heavily on retail merchandising. The Company believes that its loose leaf
chewing tobacco sales force has been more effective than those of its
competitors because it focuses primarily on sales of the Company's five loose
leaf chewing tobacco brands. The sales forces of the Company's competitors, for
the most part, are responsible for the sale of a wide range of tobacco brands
and tobacco-related products, in addition to their loose leaf chewing tobacco
brands, which also constitutes a smaller share of their sales activity.
The Company currently sells its products to approximately 1,500 distributor
accounts who, in turn, sell to over 150,000 retail outlets. Only one
distributor, McLane Company, Inc. ('McLane'), a wholly owned subsidiary of
Wal-Mart Stores, Inc. and the largest distributor of food and non-food products
to convenience stores in the United States, comprises more than 10% of the
Company's fiscal 1996 net sales (on a pro forma basis). The top ten distributor
accounts collectively generate approximately 37% of fiscal 1996 sales (on a pro
forma basis).
Historically, NAOC's six-person sales force focused on wholesalers in the
large chain convenience store, drug store and mass merchandising channels
without calling on retail outlets, while National Tobacco's larger sales force
of 105 called on both wholesalers and retail merchants in these channels as well
as the food store and discount tobacco store channels. The Company believes that
its merged sales force will be able to move each of the Company's product lines
into geographical markets and retail channels where they previously had been
underrepresented. The Company believes that the merged sales force will be able
to increase the sales of the ZIG-ZAG product line, skewing the Company's product
mix toward higher-margin RYO cigarette paper. The Company believes that the
resources and longstanding relationships of the combined sales force will
facilitate new areas of market penetration for ZIG-ZAG, including the
Southeastern convenience store and food store channels, where the Company's
loose leaf chewing tobacco market strengths are a strong complement to
ZIG-ZAG's.
Loose leaf chewing tobacco has historically implemented a retail
point-of-sale 'pull' strategy by offering promotions to consumers throughout the
year. The Company's ZIG-ZAG RYO cigarette papers historically have been promoted
to wholesalers through a 'push' strategy, initially during two annual
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promotional periods at a 20% discount ('Buy four, get one free'), and since July
1996, during three annual promotional periods an off-invoice 16.7% discount
(equivalent to 'Buy five, get one free'). This change was implemented to reduce
sales spikes and generate even stronger margins.
Loose Leaf Chewing Tobacco
The Company's loose leaf chewing tobacco has historically been distributed
through approximately 1,500 wholesale tobacco and food distributors.
At the retail level, the Company's loose leaf chewing tobacco products are
promoted through in-store programs, such as 'buy one, get one free,' 'cents
off,' 'price off' coupons and the use of innovative, high visibility
point-of-purchase floor and shelf displays, banners and posters. Promotions
occur only in-store and the Company is therefore not reliant upon (and does not
conduct) any consumer advertising.
The Company's largest customer for loose leaf chewing tobacco (McLane)
accounted for approximately 13.7% of its loose leaf chewing tobacco revenues in
fiscal 1996 (on a pro forma basis). No other customer represents more than 10%
of loose leaf chewing tobacco revenues. The Company believes that the loss of
any one distributor or customer account would not have a material impact on the
financial condition or operations of the Company.
RYO Cigarette Paper
The Company's RYO cigarette paper has historically been distributed through
approximately 950 wholesale distributors.
The Company's largest customer for RYO cigarette papers (McLane) accounted
for approximately 12% of its RYO cigarette paper revenues in fiscal 1996. No
other customer accounts for more than 10% of RYO cigarette paper sales.
The majority of ZIG-ZAG promotional activity is at the distributor level
and consists of distributor 'push' promotions, trade shows and trade
advertising.
Sales by NAOC of its ZIG-ZAG White and ZIG-ZAG French Orange RYO cigarette
papers are the most important in terms of volume, accounting for in excess of
90% of NAOC's sales.
TRADEMARKS AND TRADE SECRETS
The Company has numerous registered trademarks relating to its loose leaf
chewing tobacco products, including the trademarks for its BEECH-NUT and TROPHY
products. These trademarks, which are significant to National Tobacco's
business, expire periodically and are renewable for additional 20-year terms
upon expiration. Flavor formulas relating to the Company's loose leaf chewing
tobacco products, which are key assets of its business, are maintained under
strict secrecy. The ZIG-ZAG trade name and trademark are owned by Bollore and
have been licensed to NAOC; however, NAOC does own the ZIG-ZAG trademark with
respect to certain tobacco products. Bollore retains significant powers over the
trademark. In the event that Bollore is prevented from registering its ZIG-ZAG
trademarks for RYO cigarette papers with the United States patent and trademark
office due to NAOC's ZIG-ZAG trademarks, NAOC has agreed to assign its ZIG-ZAG
trademarks to Bollore. Bollore would then irrevocably license these trademarks
back to NAOC.
RAW MATERIALS; PRODUCT SUPPLY AND INVENTORY MANAGEMENT
Loose Leaf Chewing Tobacco
The Company's loose leaf chewing tobacco is produced from air-cured leaf
tobacco. The Company utilizes tobaccos grown domestically in Pennsylvania and
Wisconsin and imported from many countries, including Argentina, Brazil,
Columbia, France, Germany, Indonesia, Italy and Mexico. Management does not
believe that it is dependent on any single country source for tobacco.
Historically, the prices of raw tobacco leaf have been stable. Pursuant to the
Lancaster Agreement, the Company (i) purchases and processes tobacco on an
exclusive basis and (ii) stores tobacco inventory purchased on behalf of the
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Company. Lancaster purchases and processes raw leaf tobacco under instructions
from the Company, and generally maintains a 15- to 24-month commitment
allocation at its facilities. The Company generally maintains a one- to
two-month operating supply of tobacco in its Louisville facility. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operation--Liquidity and Capital Resources--NAOC.'
Other than raw tobacco, the ingredients used in the Company's finished
loose leaf chewing tobacco products include food grade flavorings approved by
the FDA and other federal agencies, such as licorice, sugar and molasses.
National Tobacco is not dependent upon any one supplier for those raw materials
or for the supply of its products' packaging.
RYO Cigarette Paper
Under normal conditions, pursuant to the Distribution Agreements, the
Company must purchase its entire requirement for RYO cigarette papers from
Bollore. To maintain a steady supply of product: (i) the Company may seek
third-party suppliers and continue use of the ZIG-ZAG trademark if Bollore is
unable or unwilling to perform under the Distribution Agreement; and (ii)
Bollore is required to maintain in a public warehouse a two-month supply of
emergency inventory at Bollore's expense.
The Distribution Agreements set the purchase price for the period 1997
through 2004 based on 1994 prices, subject to certain annual adjustments to
reflect increases or decreases in the U.S. and Canadian Consumer Price Index.
Export duties, insurance and shipping costs are the responsibility of Bollore
and import duties and excise taxes are the responsibility of NAOC.
The Company must pay Bollore in French francs within 45 days after the date
of the bill of lading. The Distribution Agreements reduce catastrophic foreign
exchange risk by providing that Bollore will bear certain exchange rate risks.
The exchange rate risk allocations set forth in the Distribution Agreements will
be maintained until 2004 along with the prices to be paid by NAOC to Bollore for
finished products.
The Company generally seeks to maintain a minimum six-week supply of
product in addition to the immediately available, two-month emergency inventory
on hand at the expense of Bollore. The Company also builds inventory outside
promotional periods in order to have adequate inventory to meet increased demand
during promotion. The Company's inventory is maintained in a bonded public
warehouse located in Reno, Nevada. See '--Distribution Agreements.'
MANUFACTURING
The Company manufactures its loose leaf chewing tobacco products and
contracts for the manufacture of its RYO cigarette papers. The Company believes
that its production, quality control, research and development, facilities and
equipment are vital to maintaining the high-quality brand image and operating
efficiency of its loose leaf tobacco products.
Production and Quality Control
The Company's production process utilizes proprietary techniques and is
subject to strict quality control. After delivery to the Louisville plant, the
tobacco continues to age in thousand-pound bundles for approximately 20 days.
When it is ready to be processed, the leaf is rehydrated to a 29% moisture
content (from approximately 14%) using a proprietary steam jet process.
Mechanized equipment then cuts, cleans and blends the tobacco. A fluid casing
made from a proprietary blend of flavorings including licorice, sugar and
molasses is applied to the strips of leaf. Machines then pack the tobacco into
labeled foil pouches, which are packed in cartons and then into cases. The
machinery is subject to regular maintenance (which is conducted during
off-shifts and three annual shut-down periods of one week each) and requires
minimal labor to operate and service.
During each production day, the Company's quality control department
periodically tests the quality of the tobacco, casings (flavorings in syrup
form), application of casings and packaging. The Company utilizes sophisticated
quality control and pilot plant production equipment to test and closely monitor
the quality of its products, as well as those of its competitors. The quality of
the Company's products is largely the result
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of using high grade, air-cured tobacco leaf, food grade flavorings and ongoing
analysis of leaf shape, cut, flavorings and moisture content.
Research and Development
The Company has developed and built an efficient research and development
laboratory which is responsible for new product development. This department
also reformulates existing products in an effort to maintain a high level of
product consistency and facilitates the use of less costly raw materials without
sacrificing product texture or flavor. Specifically, the use of tobacco from
South America, Africa, Indonesia, Europe and other locations can substantially
reduce the overall product cost when such materials are blended with the more
expensive Pennsylvania and Wisconsin tobaccos. This investment has yielded, and
the Company believes it will continue to yield, cost effective blends of tobacco
and flavorings which reduce overall costs without compromising the high product
quality. For example, a new casings formula has recently been developed which is
composed of natural flavoring ingredients and has provided significant cost
savings since its introduction. Other cost reduction programs involving
flavorings and tobaccos are currently in development.
The Company has an active new product development program, and is
evaluating consumer demand for several new products that it has fully developed
and tested. These products can be introduced to respond to changing consumer
demands and competitive conditions.
National Tobacco spent approximately $284,000, $318,000 and $345,000 in
research and development for fiscal years 1994, 1995 and 1996, respectively.
NAOC did not spend any amount for research and development during this period.
Facilities and Equipment
The Louisville, Kentucky plant, which is owned by National Tobacco, was
formerly used by Lorillard for the manufacture of cigarettes, cigars and chewing
tobacco. This approximately 600,000 square foot facility sits on a 26 acre urban
site near downtown Louisville. The majority of the facility's structures sit on
half of the total acres. The facilities are in good condition and have received
regular maintenance and capital improvement. About two-thirds of the plant is
currently utilized, resulting in substantial manufacturing and storage capacity.
The existing structures would provide ample space to accommodate any expansion
of the Company's loose leaf chewing tobacco product line. The Company believes
that the Company's loose leaf chewing tobacco manufacturing equipment is as
sophisticated as is available in the industry. Annual capital expenditures have
been less than $400,000 for the past eight years and have been primarily spent
on new equipment and facilities in the administrative and research and
development areas. Management does not anticipate any significant new
expenditures for equipment or renovation above this level.
COMPETITION
National Tobacco is a leading manufacturer and marketer of loose leaf
chewing tobacco, and NAOC is the largest importer and distributor in North
America of RYO cigarette papers, with respective market shares of 21.1% and 49%.
The other three principal competitors in the loose leaf chewing tobacco market,
which, together with the Company, control 99% of the market, are Pinkerton
Tobacco Co., Conwood Corporation and Swisher International Group Inc. NAOC's two
major competitors in the RYO cigarette paper market, which, together with NAOC,
control 95% of the market, are Republic Tobacco Co. S.A. and House of Rizla.
Certain competitors of the Company are better capitalized than the Company and
have greater financial and other resources than those available to the Company.
The Company believes that its strong market positions in each of its principal
product lines is due to the high brand recognition and perceived quality of each
of its products, its manufacturing and operating efficiencies, and its
significant sales, marketing and distribution strengths.
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EMPLOYEES
As of March 31, 1997, the Company employed a total of 285 full-time
persons, including manufacturing, sales and administrative personnel comprised
of 265 National Tobacco employees, and 20 NAOC employees. The Company's
integrated sales organization consists of 111 persons. All of the Company's
operations are non-union, with the exception of National Tobacco's hourly
employees, who are covered by collective bargaining agreements which will expire
in 1998. National Tobacco and NAOC each believes its relationships with its
employees are satisfactory.
PROPERTIES AND FACILITIES
As of March 31, 1997, the Company operated manufacturing, distribution,
office and warehouse space in the United States with a total floor area of
approximately 614,338 square feet. Of this footage, approximately 14,338 square
feet are leased and approximately 600,000 are owned.
To provide a cost-efficient supply of products to its customers, the
Company maintains centralized management of nationwide manufacturing and
distribution facilities. National Tobacco has one manufacturing and distribution
facility located in Louisville, Kentucky and five other public warehouse
distribution facilities in other locations throughout the United States. The
Company's management will evaluate the potential closure of additional space
acquired pursuant to the Acquisition.
The following table describes the principal properties of the Company
(other than sales service centers, sales office space or temporary warehouse
space) as of June 30, 1997.
<TABLE>
<CAPTION>
OWNED OR
LOCATION PRINCIPAL USE SQUARE FEET LEASED
- -------------------- ------------------------------- ----------- ----------
<S> <C> <C> <C>
New York, NY Corporate headquarters 10,351 Leased
Louisville, KY Loose leaf chewing tobacco 600,000 Owned (1)
manufacturing and R&D
Raleigh, NC RYO cigarette paper sales and 3,987 Leased
marketing
</TABLE>
- ------------------
(1) Encumbered by a mortgage securing all obligations and liabilities under the
New Senior Secured Facilities.
PRODUCT LIABILITY AND LITIGATION
The tobacco industry, primarily the cigarette segment, has experienced and
is experiencing significant product liability litigation. Numerous class action
and individual lawsuits have been brought against tobacco companies (primarily
the cigarette companies) for health-related injuries allegedly caused by use of
or exposure to tobacco products. Many of these lawsuits seek punitive damages in
addition to compensatory damages. In addition to individual and class action
product liability lawsuits, approximately 40 states and at least ten cities and
counties have sued tobacco companies, primarily cigarette companies, to recover
substantial medical costs allegedly incurred by such states, cities and counties
in treating tobacco-related illnesses and diseases. The total amount of damages
which may be at risk in these various lawsuits is presently unknown but could be
material.
Several events have occurred within the past few years which make it likely
that tobacco liability lawsuits will be pursued vigorously against tobacco
companies, primarily cigarette companies, in the near future, including the
following: in August 1996, a Florida jury awarded, in a verdict which is
currently under appeal, $750,000 in compensatory damages in favor of an
individual plaintiff who claimed he was injured as a result of smoking
cigarettes; documents obtained in discovery from several cigarette companies
which plaintiffs allege show that such companies concealed information regarding
the health risks and addictive effects of nicotine and tobacco; testimony has
been given and statements made by present or former cigarette company executives
regarding possibly harmful and addictive effects of nicotine and tobacco; at
least 25 statewide class actions have been brought by a well organized and well
financed group of plaintiffs' class action lawyers; approximately 40 states and
at least ten cities and counties have brought lawsuits seeking to recover costs
incurred in treating tobacco-related illnesses and diseases; and Liggett & Myers
recently broke ranks with other major cigarette companies and agreed to reach a
separate settlement
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of its tobacco liability litigation, pursuant to which it agreed to produce
documents and cooperate with plaintiffs.
Most tobacco liability lawsuits have been brought against manufacturers and
sellers of cigarettes for injuries allegedly caused by smoking or by exposure to
smoke. However, several lawsuits have been brought against manufacturers and
sellers of smokeless tobacco, principally moist snuff, for injuries to health
allegedly caused by use of smokeless tobacco. Historically, such claims have
asserted that use of smokeless tobacco is addictive and causes oral cancer.
These cases include recent purported class actions brought in Louisiana and
Illinois; several of the 40 health care reimbursement actions brought by the
state attorneys general; and four individual actions brought in Louisiana and
Texas.
One additional purported class action seeking 'the establishment of a
medical monitoring fund to monitor the health of plaintiffs and class members
for those diseases and health risks associated with the use of smokeless
tobacco products' was filed on June 30, 1997 against National Tobacco
and other manufacturers of tobacco products. The Company intends to
defend vigorously against such claim. There can be no assurance that in
the future National Tobacco will not be named as a defendant in one or
more additional lawsuits or, if so named, that such lawsuits would not
have a material adverse effect on the Company's business. See 'Legal
Proceedings.' In addition, National Tobacco, as a member of Smokeless
Tobacco Council, Inc., a trade organization ('STC'), which is a
defendant in certain of these cases, and is responsible for 5% of STC's
operating expenses, including litigation costs.
REGULATION
The tobacco industry, particularly with respect to cigarettes, has been
under public scrutiny for over thirty years. Industry critics include special
interest groups, the Surgeon General and many legislators at the state and
federal levels. Although the smokeless tobacco companies have come under such
scrutiny, much of the focus has been directed at the cigarette industry due to
its large size relative to the smokeless tobacco industry.
Smokeless tobacco manufacturers, like other producers of tobacco products,
are subject to regulation in the United States at federal, state and local
levels. Together with changing public attitudes towards smoking, a constant
expansion of smoking regulations since the early 1970s has been a major cause of
the overall decline in consumption of tobacco products. Moreover, the trend is
toward increasing regulation of the tobacco industry.
Federal law has recently required states, in order to receive full funding
for federal substance abuse block grants, to establish the minimum age of 18
years for the sale of tobacco products together with an appropriate enforcement
program. In recent years, a variety of bills relating to tobacco issues have
been introduced in the United States Congress, including bills that would (i)
prohibit the advertising and promotion of all tobacco products and/or restrict
or eliminate the deductibility of such advertising expenses; (ii) increase
labelling requirements on tobacco products to include, among other things,
additional warnings and lists of additives and toxins; (iii) modify federal
preemption of state laws to allow state courts to hold tobacco manufacturers
liable under common law or state statutes; (iv) shift regulatory control of
tobacco products and advertisements from the FTC to the FDA; (v) increase
tobacco excise taxes; and (vi) require tobacco companies to pay for health care
costs incurred by the federal government in connection with tobacco related
diseases. Hearings have been held on certain of these proposals; however, to
date, none of such proposals have been enacted by Congress. Future enactment of
such proposals or similar bills depending upon their content could have a
material effect on the sales or operations of the Company.
In August 1995, the FDA published proposed rules for regulation of tobacco
and tobacco products, including smokeless tobacco. Following a year of comment
and revision, in August 1996 the FDA promulgated final rules which were
scheduled to take effect in August 1997, except for a portion of the rules
prohibiting the sale of tobacco to persons under 18, which have already become
effective. The FDA's regulations restrict access to tobacco and tobacco
products, regulate tobacco labeling, and limit promotion and advertising of
tobacco.
On April 25, 1997, a federal court in Greensboro, North Carolina ruled that
the FDA has statutory authority to regulate tobacco products. The court upheld
the FDA's rules restricting access to tobacco products and regulating tobacco
labeling. However, the court ruled that the FDA does not have authority to
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regulate promotion and advertising of tobacco products. The judge certified the
case for interlocutory appeal to the United States Fourth Circuit Court of
Appeals and the appeal is still pending.
The FDA regulations prohibit self-service displays of tobacco, including
smokeless tobacco, and require that a retailer sell cigarettes and smokeless
tobacco only in a direct, face to face exchange between the retailer and the
consumer. Historically, smokeless tobacco has been sold primarily by allowing
customers direct access to the product. Accordingly, there can be no assurance
that prohibiting such direct access would not have an adverse effect on sales.
In 1996, Massachusetts enacted a statute which requires tobacco companies,
incuding smokeless tobacco companies, to disclose information regarding the
ingredients and nicotine content of their products. On February 7, 1997, a
federal court in Massachusetts ruled that this statute is not preempted by
federal law. The case has been certified for immediate appeal to the United
States First Circuit Court of Appeals. If tobacco companies are required to
disclose ingredient information, this may risk disclosure of trade secrets,
which may have a material adverse effect on their businesses.
While there is no current regulation materially and adversely affecting the
sale of RYO cigarette papers, there can be no assurance that federal, state or
local regulations will not be enacted which seek to regulate RYO cigarette
papers. In the event such regulations are enacted, depending upon their
parameters, they could have an adverse effect on the business of the Company.
Similarly, there can also be no assurance that the FDA will not attempt to
regulate the sale of RYO cigarette papers.
EXCISE TAXES
Smokeless tobacco products have long been subject to federal, state and
local excise taxes, and such taxes have frequently been increased or proposed to
be increased, in some cases significantly, to fund various legislative
initiatives. RYO cigarette papers are similarly taxed.
Since 1986, smokeless tobacco (including dry and moist snuff and chewing
tobacco) has been subject to federal excise tax. Smokeless tobacco is taxed by
weight (in pounds or fractional parts thereof) manufactured or imported. From
July 1, 1986 through December 31, 1990, the excise tax on snuff was $0.24 per
pound. Effective January 1, 1991, the federal excise tax rate on snuff increased
to $0.30 per pound, and again increased to $0.36 per pound, effective January 1,
1993. From July 1, 1986 through December 31, 1990, the excise tax on chewing
tobacco was $0.08 per pound. Effective January 1, 1991 the federal excise tax on
chewing tobacco was increased to $0.10 per pound, and again increased to $0.12
per pound effective January 1, 1993. The increase in the federal excise tax rate
on smokeless tobacco in 1991 and again in 1993 did not have a material adverse
effect on National Tobacco's product sales. The excise tax on RYO cigarette
paper is $.0075 per fifty papers. This level of taxation has not had a material
adverse effect on NAOC's sales.
Future enactment of increases in excise taxes could have a material adverse
effect on the business of the Company. The Company is unable to predict the
likelihood of the passage or the enactment of future increases in tobacco taxes.
Tobacco products are also subject to certain state and local taxes. Budget
deficit concerns at the state level continue to exert pressure to increase
tobacco excise taxes.
From time to time, the imposition of state and local taxes has had limited
impact on the Company's sales regionally. Any enactment of new state excise
taxes or increase in existing excise taxes are likely to have an increasingly
adverse effect on regional sales as smokeless tobacco consumption generally
declines.
ENVIRONMENTAL REGULATIONS
The Company believes that it is currently in substantial compliance with
all material environmental regulations and pollution control laws.
DISTRIBUTION AGREEMENTS
As part of the acquisition of the ZIG-ZAG RYO cigarette paper business,
NAOC entered into three long-term distribution and licensing agreements with
Bollore with respect to sales of RYO cigarette papers in the United States,
Canada and Hong Kong, Singapore, Dubai, Qatar, Oman and Jordan (respectively,
the 'U.S. Distribution Agreement,' the 'Canada Distribution Agreement' and the
'Other Countries
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Distribution Agreement,' and, collectively, the 'Distribution Agreements').
Under the Distribution Agreements, Bollore has granted NAOC the exclusive right
to purchase RYO cigarette papers bearing the ZIG-ZAG brand name from Bollore for
resale in the countries noted above. The prices payable by NAOC for the ZIG-ZAG
RYO cigarette papers distributed by it are formula based, subject to consumer
price index adjustments, until 2004. NAOC has the sole right to determine the
price and other terms upon which NAOC may resell any products purchased from
Bollore, including the right to determine the distributors of such products
within the countries noted above.
NAOC is required to pay Bollore within 45 days from the date of the bill of
lading. All payments must be made in French francs, exposing NAOC to short-term
foreign exchange rate risk, which can be effectively hedged. The Distribution
Agreements partially reduce such foreign exchange risks by providing that
Bollore bears certain exchange rate risks. The exchange rate risk allocations
set forth in the Distribution Agreements will be renegotiated in 2004 along with
the prices to be paid by NAOC to Bollore for the RYO cigarette papers.
According to NAOC's Distribution Agreements with Bollore, NAOC, under
normal conditions, must purchase the finished product only from Bollore.
Conversely, Bollore is required by such agreements to provide NAOC the
quantities and quality of the products that it desires. The Distribution
Agreements provide NAOC with safeguards in order for NAOC to maintain a steady
supply of product. Such safeguards include (i) granting NAOC the right to seek
third party suppliers with continued use of the ZIG-ZAG trademark if Bollore is
unable or unwilling to perform its obligations under the Distribution Agreements
and (ii) providing NAOC with a two month supply of emergency inventory in the
United States at Bollore's expense.
Under the Distribution Agreements, NAOC has agreed for the term of the
Distribution Agreements and for a period of five years after termination of such
Distribution Agreements not to engage, directly or indirectly, in the
manufacturing, selling, distributing, marketing or otherwise promoting in the
countries identified above RYO cigarette paper or RYO cigarette paper booklets
of a competitor without Bollore's consent, except for certain de minimis
acquisitions of debt or equity securities of such competitor and certain
activities with respect to an alternative supplier used by NAOC as permitted
under the Distribution Agreements.
Each of the Distribution Agreements became effective on March 31, 1993.
Each of the U.S. Distribution Agreement and the Canada Distribution Agreement
was for an initial term of twenty years commencing from the effective date of
such agreement and will be renewed automatically for successive twenty year
terms unless sooner terminated in accordance with the provisions of such
agreement. The Other Countries Distribution Agreement was for an initial term of
ten years commencing from the effective date of such agreement and will be
renewed automatically for successive ten year terms unless sooner terminated in
accordance with the provisions of such agreement. Each of the Distribution
Agreements permits Bollore to terminate such agreement (i) if certain minimum
purchases (which were exceeded in 1996 by a factor of five and seven in the U.S.
and Canada, respectively; such minimum purchases are not applicable with respect
to the Other Countries Distribution Agreement until the last three years of the
initial term of such agreement) of RYO cigarette paper booklets have not been
made by the Company for resale in the jurisdiction covered by such agreement
within a calendar year, (ii) if the Company assigns such agreement without the
consent of Bollore (other than certain permissible assignments to wholly owned
subsidiaries of the Company), (iii) upon a change of control of the Company or
any parent of the Company without the consent of Bollore, (iv) upon certain
acquisitions of equity securities of the Company or any parent of the Company by
a competitor of NAOC or certain investments by significant stockholders of the
Company in a competitor of NAOC (see 'Risk Factors--Reliance on Suppliers') and
(v) certain material breaches, including NAOC's agreement not to promote,
directly or indirectly, RYO cigarette paper or RYO cigarette paper booklets of a
competitor. Additionally, each of the Canada Distribution Agreement and the
Other Countries Distribution Agreement is terminable by either NAOC or Bollore
upon the termination of the U.S. Distribution Agreement.
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MANAGEMENT
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the name, position with the Company and age
of each member of the Board of Directors and each executive officer of the
Company. See '--Election of Directors.'
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------- ---- -------------------------------------------------------------------------
<S> <C> <C>
Thomas F. Helms, Jr............. 57 President, Chief Executive Officer and Chairman of the Board
Jay Martin...................... 63 Executive Vice President and Chief Operating Officer
Maurice R. Langston............. 68 Executive Vice President--Sales and Director
David I. Brunson................ 46 Executive Vice President--Finance and Administration, Chief Financial
Officer and Director
Jeffrey S. Hay.................. 36 Executive Vice President and General Counsel
Alan R. Minsterketter........... 45 Senior Vice President--Purchasing, Distribution and Operations and
Director
Clifford D. Ray................. 64 Vice President--Marketing
Christopher N. Kounnas.......... 60 Vice President--Research and Development
Arnold Sheiffer................. 65 Director
Mark F. Secrest................. 33 Director
</TABLE>
Thomas F. Helms, Jr. Thomas F. Helms, Jr. has been President, Chief
Executive Officer and Chairman of the Board of the Company since June 1997.
Since 1988, he has been President and Chief Executive Officer of National
Tobacco. Mr. Helms also served as President and Chief Executive Officer of
Culbro Corporation's smokeless tobacco division from 1983 until shortly prior to
its sale to American Maize-Products Company in March 1986. From 1979 to 1982,
Mr. Helms was General Manager of the Etherea Cosmetics and Designer Fragrances
Division of Revlon, Inc. Prior to that time, Mr. Helms was employed in marketing
and sales positions in various divisions of Revlon Consumer Products
Corporation.
Jay Martin. Jay Martin has been Executive Vice President and Chief
Operating Officer of the Company since June 1997. Since January 1997 he has held
the same offices with National Tobacco and also served as a Director. From 1991
until December 1996 he was a consultant of National Tobacco. A former owner of a
tobacco and candy wholesale distributor (and customer of National Tobacco), Mr.
Martin has 40 years experience in the tobacco industry. Mr. Martin also served
for five years as a consultant to R.J. Reynolds Tobacco Co. ('RJR') in the area
of wholesale distribution.
Maurice R. Langston. Maurice R. Langston has been Executive Vice
President--Sales and a Director of the Company since June 1997. Since April 1988
he has held the same office with National Tobacco. Mr. Langston, who has worked
in the smokeless tobacco industry for 46 years, was also a Vice President of
Sales of Culbro Corporation's smokeless tobacco division prior to its sale to
American Maize-Products Company in March 1986.
David I. Brunson. David I. Brunson has been Executive Vice
President--Finance and Administration, Chief Financial Officer and a Director of
the Company since June 1997. He has held the same offices with National Tobacco
since April 1997. Prior to that, from November 1992 until April 1997, he was
employed as Managing Director at Societe Generale and established and was
President of Societe Generale Investment Corporation. From July 1979 until
November 1992, he was employed at The First National Bank of Chicago, lastly as
a Managing Director in the Investment Banking Division.
Jeffrey S. Hay. Jeffrey S. Hay has been Executive Vice President and
General Counsel of the Company since July 1997. Since 1993, Mr. Hay was a
founding partner in Fennebresque, Clark, Swindell & Hay, and a partner of Moore
& Van Allen from 1990 until 1993.
Alan R. Minsterketter. Alan R. Minsterketter has been Senior Vice
President--Purchasing, Distribution and Operations of the Company since April
1997 and is a Director. He has held the same title with National Tobacco since
April 1997. From 1988 until April 1997, he was Vice President--Finance and Chief
Financial Officer of National Tobacco. Prior to that, Mr. Minsterketter held
various accounting-related positions with Lorillard.
Clifford D. Ray. Clifford D. Ray has been Vice President--Marketing of the
Company since June 1997. Since 1989 he has held the same office with National
Tobacco. Prior to that time, Mr. Ray was the marketing manager for the BEECH-NUT
brands at Lorillard for eight years. Before joining Lorillard, he worked for
more than
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twenty years at major advertising agencies, managing accounts in the tobacco,
toiletries and household products areas.
Christopher N. Kounnas. Christopher N. Kounnas has been Vice
President--Research and Development of the Company since June 1997. Since 1988
he has been Manager, Director, and lastly, Vice President--Research and
Development of National Tobacco. For three years prior to that time Mr. Kounnas
was Group Development Director Research and Development with Brown and
Williamson Tobacco Corporation ('Brown & Williamson'). Before joining Brown and
Williamson, he was employed by Philip Morris Companies Inc. for 18 years, during
which time he held the position of Senior Scientist and Research and Development
Group Leader for ten years.
Arnold Sheiffer. Arnold Sheiffer is a Director of the Company. Since 1996
he has been a Director of National Tobacco. Mr. Scheiffer has been a Director of
Spanish Broadcasting System, Inc. since 1994 and a Managing Director of Shenkman
Capital Management, Inc. since 1995. From 1990 to 1994, he was President and
Chief Operating Officer of Katz Media Corp., and prior to that, Managing Partner
of A. Sheiffer and Company, Certified Public Accountants.
Mark F. Secrest. Mark F. Secrest is a Director of the Company. Since 1996
he has been a Director of National Tobacco. Mr. Secrest has been a Vice
President--, and subsequently, Director--Investment Banking at UBS Securities
LLC since February 1995. From 1989 until 1995 Mr. Secrest was employed in the
Investment Banking Division of Kidder, Peabody & Co., Inc.
ELECTION OF DIRECTORS
Pursuant to the terms of an Exchange and Stockholders' Agreement, dated as
of June 25, 1997, among the Company and certain of the stockholders of the
Company (the 'Stockholders' Agreement'), Mr. Helms has the ability to elect all
of the directors of the Company unless dividends are not paid in cash to the
holders of the Company's Senior Preferred Stock when such dividends are required
to be paid in cash, in which event such holders have the right to elect two
directors. Mr. Helms and Mr. Brunson have served as directors of the Company
since June 17, 1997 following the formation of the Company. The other four
members of the Board of Directors have served as directors since June 25, 1997,
the date the Acquisition was consummated. Each director is to serve until the
next annual meeting of shareholders (or written consent in lieu thereof) and
until his successor is elected and duly qualified.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation paid
or accrued for the year ended December 31, 1996 for the Chief Executive Officer
and each of the four other most highly compensated executive officers of the
Company. Messrs. Helms, Langston, Ray, Minsterketter and Kounnas' compensation
was paid by National Tobacco.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION ALL OTHER
----------------------- COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($)
- ----------------------------------------------------------------- ------ ---------- --------- ------------
<S> <C> <C> <C> <C>
Thomas F. Helms, Jr.,
President and Chief Executive Officer.......................... 1996 $ 297,462 $ 134,820 $ 50,274(1)
Maurice R. Langston,
Executive Vice President--Sales................................ 1996 167,974 38,802 5,504(2)
Clifford D. Ray,
Vice President--Marketing...................................... 1996 153,077 35,961 15,766(3)
Alan R. Minsterketter,
Senior Vice President--Purchasing,
Distribution and Operations.................................... 1996 130,558 30,634 9,343(4)
Christopher N. Kounnas,
Vice President--Research
and Development................................................ 1996 126,769 5,500 --
</TABLE>
- ------------------
(1) Includes insurance premiums of $41,738 paid by the Company with respect to
term life insurance and contributions by the Company of $8,536 to defined
contribution plans.
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<PAGE>
(2) Includes contributions by the Company of $5,504 to defined contribution
plans.
(3) Includes insurance premiums of $7,635 paid by the Company with respect to
term life insurance and contributions by the Company of $8,131 to defined
contribution plans.
(4) Includes insurance premiums of $2,386 paid by the Company with respect to
term life insurance and contributions by the Company of $6,957 to defined
contribution plans.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Thomas F. Helms, Jr. is the sole director of the Board of Directors of the
general partner of National Tobacco and as such performed the equivalent
function of a compensation committee. Mr. Helms's relationship with National
Tobacco and the Company is set forth under 'Management--Executive Officers and
Directors.' On April 26, 1988 and December 15, 1988, Mr. Helms borrowed $75,000
and $45,000, respectively, in connection with the purchase of a portion of his
partnership interest in National Tobacco, and executed a note payable to the
Company. The note bears interest in kind at a rate of 3% over the prime rate. As
of June 30, 1997 principal outstanding under this note was approximately
$240,000. See 'Recent Transactions.'
COMPENSATION OF DIRECTORS
Directors who do not receive compensation as officers, employees or
consultants of the Company or any of its affiliates will be paid an annual
retainer fee of $25,000, plus reasonable out-of-pocket expenses.
EMPLOYMENT AND CONSULTING AGREEMENTS
THOMAS F. HELMS, JR.
Thomas F. Helms, Jr., President and Chief Executive Officer of the Company,
has an employment agreement with the Company (the 'Helms Employment Agreement')
pursuant to which Mr. Helms will receive an annual base salary of $350,000 to be
reviewed annually, plus a bonus in accordance with the Company's Bonus Program
(as defined). The Helms Employment Agreement provides for a three-year term,
renewable annually, and is terminable at will except with respect to severance.
In addition, Mr. Helms will receive various other benefits, including life
insurance and health, hospitalization, disability and pension benefits and other
perquisites. The Helms Employment Agreement includes a non-compete provision
extending twelve months following the termination of Mr. Helms's employment for
any period during which severance is paid to Mr. Helms. Mr. Helms is entitled to
twelve months' severance and a continuation of benefits following a termination
of his employment by the Company without cause, except that the bonus received
shall be only for the year in which the termination occurred and shall be
prorated.
DAVID I. BRUNSON
David I. Brunson, Executive Vice President and Chief Financial Officer of
the Company, has an employment agreement with the Company (the 'Brunson
Employment Agreement') pursuant to which Mr. Brunson will receive an annual base
salary of $300,000 to be reviewed annually, plus a bonus in accordance with the
Company's Bonus Program, such bonus to be not less than $50,000 in 1997. The
Brunson Employment Agreement provides for a two-year term, renewable annually,
and is terminable at will except with respect to severance. In addition, Mr.
Brunson will receive various other benefits, including life insurance in an
amount equal to $2 million and medical, disability, pension benefits, club
memberships, stock options and reimbursements of certain expenses. The Brunson
Employment Agreement includes a non-compete provision extending twelve months
following the termination of Mr. Brunson's employment for any period during
which severance is paid to Mr. Brunson. Mr. Brunson is entitled to twelve
months' severance and a continuation of benefits following a termination of his
employment by the Company without cause, except that the bonus received shall be
only for the year in which the termination occurred, and shall be prorated. In
connection with his employment, Mr. Brunson also has reached an agreement with
the Company pursuant to which he is entitled to receive options to purchase
30,928 shares of Common Stock of the Company. One third of these options were
vested as of the closing of the Acquisition and one third of these options will
vest on each of the first two anniversaries of the date of his employment, April
23, 1997. In connection with the exercise of such options and
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<PAGE>
subject to certain limitations, including a requirement that Mr. Brunson shall
not have resigned or been terminated for cause, the Company has agreed to pay
Mr. Brunson an amount equal to the sum of (i) the difference between ordinary
income and long-term capital gain tax liability for reportable income resulting
from any exercise of the options, plus (ii) a 'gross-up' to compensate for the
additional ordinary income tax liability resulting from the payment of such
amount. The amount payable by the Company is to be determined by applying the
aggregate of the highest federal, state and local marginal tax rates then
applicable to Mr. Brunson's taxable income for the fiscal year in which the
options are exercised.
In connection with his employment, Mr. Brunson has also reached an
agreement with Mr. Helms regarding payment of additional compensation. This
agreement provides for payment to Mr. Brunson upon the occurence of certain
events, provided he is either an employee at the time payment is due or has been
terminated other than for cause no more than eighteen months prior to the time
such payment is due. In the event of a sale (a 'Sale') of substantially all of
the outstanding equity or all or substantially all of the assets of NTC Holding,
LLC ('LLC') prior to a Termination Event (as defined below), Mr. Helms has
agreed to pay Mr. Brunson an amount equal to 1.78% of the value of the common
equity of the Company (subject to dilution) less $445,000. A Termination Event
is the earlier of a refinancing of the Company's indebtedness (other than in
connection with the acquisition of NATC) or May 1, 2001. No payment will be
required in the event of: (a) a prior occurrence of an Adverse Condition (as
defined in the operating agreement of LLC); (b) a Sale in which Mr. Helms
receives proceeds of less than $25 million; or (c) a merger or consolidation of
LLC in which management receives a significant equity stake in the surviving
company and Mr. Brunson receives employment terms comparable to his present
terms. In addition, if LLC is recapitalized twice, the first recapitalization
occuring after the NATC transaction and prior to May 17, 2001, and the second
recapitalization resulting in payments to the equity holders of the Company of
equal to or greater than $25 million, then Mr. Helms will increase Mr. Brunson's
equity ownership in the Company by 1%.
JAY MARTIN
Jay Martin, Executive Vice President and Chief Operating Officer of the
Company, has an employment agreement with the Company (the 'Martin Employment
Agreement'), pursuant to which Mr. Martin will receive an annual base salary of
$200,000 plus a bonus in accordance with the Company's Bonus Program, such bonus
to be not less than $40,000 per annum. The Martin Employment Agreement provides
for a one year term, renewable annually, and is terminable at will except with
respect to severance. In addition, Mr. Martin will receive various other
benefits, including insurance, retirement and hospitalization benefits. The
Martin Employment Agreement also includes confidentiality and non-compete
provisions extending twelve months from and after the termination of Mr.
Martin's employment. Mr. Martin is entitled to severance in an amount equal to
his then current salary for the greater of the remaining term of the Martin
Employment Agreement or sixty days. Any bonus to be paid during the year of his
termination shall be computed on the basis of the Company's net income from the
beginning of the relevant fiscal year to the date of termination.
JACK AFRICK
Jack Africk is a consultant of the Company. Beginning in 1996 and until the
consummation of the Acquisition, he was Chief Executive Officer of NATC. Prior
to that time, from 1993 to 1996 Mr. Africk was a consultant and Director of
NATC. Mr. Africk is the former Vice Chairman of UST. From 1979 until 1993, Mr.
Africk held various positions with UST, including Vice Chairman and Executive
Vice President, as well as positions with subsidiary organizations including
President of an international division, and President and Chief Executive
Officer of United States Tobacco Company. Mr. Africk entered into a consulting
agreement with the Company (the 'Africk Consulting Agreement'), pursuant to
which Mr. Africk will receive an annual consulting fee of $300,000 plus a
minimum bonus of $75,000 per annum in accordance with the Company's existing
Bonus Program if certain financial targets are met. The Africk Consulting
Agreement provides for a one-year term and, thereafter, for successive one-year
periods, unless terminated by either party by notice at least 90 days prior to
the end of any such one-year term. The Africk Consulting Agreement includes a
non-compete provision for a period of five years following the termination of
Mr. Africk's retention. In addition, Mr. Africk will be reimbursed for certain
expenses, including a monthly car allowance of $1,000 and a monthly office
allowance of $900.
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<PAGE>
RETIREMENT PLAN
The table below illustrates the approximate amounts of annual normal
retirement benefits payable under the Company's Retirement Plan (as defined
herein).
<TABLE>
<CAPTION>
ANNUAL BENEFITS AT RETIREMENT WITH
YEARS OF CREDITED SERVICE(A)
AVERAGE --------------------------------------------------------------
COMPENSATION 10 15 20 25 30 35
- ------------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
$125,000 $15,000 $22,500 $30,000 $37,500 $45,000 $52,500
150,000 18,000 27,000 36,000 45,000 54,000 63,000
175,000 21,000 31,500 42,000 52,500 63,000 73,500
200,000 24,000 36,000 48,000 60,000 72,000 84,000
225,000 27,000 40,500 54,000 67,500 81,000 94,500
250,000 30,000 45,000 60,000 75,000 90,000 105,000
300,000 36,000 54,000 72,000 90,000 108,000 126,000
400,000 48,000 72,000 96,000 120,000 144,000 168,000
450,000 54,000 81,000 108,000 135,000 162,000 189,000
500,000 60,000 90,000 120,000 150,000 180,000 210,000
</TABLE>
- ------------------
(a) Actual amounts paid under the Retirement Plan may be less than the amounts
set forth on the table due to IRC limitations.
The Company has a noncontributory, defined benefit retirement plan (the
'Retirement Plan'), which covers all full-time employees, including officers,
upon completing one year of service.
A participant in the Retirement Plan becomes fully vested prior to normal
retirement at age 65 upon the completion of five years of service. Benefits are
also provided under the Retirement Plan in the event of early retirement at or
after age 55 and the completion of at least ten years of service (or special
early retirement after completion of 30 years of service) and in the event of
retirement for disability after completion of five years of service. The amount
of the contribution, payment or accrual with respect to a specified person is
not and cannot readily be separately or individually calculated by the actuaries
for the Retirement Plan. Benefits under the Retirement Plan are based upon
application of a formula to the specified average compensation and years of
credited service at normal retirement age. Compensation covered by the
Retirement Plan consists of the average annual salary during any five
consecutive calendar years in the last ten years of an employee's service which
affords the highest salary, or, if employed for less than five years, the
average annual salary for the years employed. The benefits are not subject to
any deduction for social security payments. Estimated credited years of service
under the Retirement Plan for the individuals named in the Summary Compensation
Table are as follows: Thomas F. Helms, Jr., 9 years; Maurice R. Langston, 9
years; Alan R. Minsterketter, 19 years; Clifford D. Ray, 15 years; and Chris D.
Kounnas, 9 years.
BONUS PROGRAM
The National Tobacco Company Management Bonus Program ("Bonus Program")
provides executive officers and other participants designated by National
Tobacco's Management Committee with an opportunity to receive bonus pay, based
on annual EBITDA performance.
1997 SHARE INCENTIVE PLAN
The Board of Directors of the Company has adopted, and the Company's
stockholders have approved, the North Atlantic Trading Company, Inc. 1997 Share
Incentive Plan (the 'Incentive Plan').
The Incentive Plan is intended to provide incentives which will attract and
retain highly competent persons as key employees of the Company and its
subsidiaries, by providing them opportunities to acquire shares of stock or to
receive monetary payments based on the value of such shares pursuant to the
Benefits (as defined) described herein.
Awards
The Company has granted options to purchase 30,928 and 15,966 shares of
Common Stock to David I. Brunson and Jeffrey S. Hay, respectively. One third of
the options granted to Mr. Brunson vested as of the closing of the Acquisition
and one third of these options will vest on each of the first two anniversaries
of the date of his employment, April 23, 1997. One third of the options granted
to Mr. Hay vested as of July 28, 1997, and one fifth of the remaining options
will vest on each of the first five anniversaries of the date of his employment,
July 28, 1997.
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<PAGE>
Shares Available
The Incentive Plan makes available for Benefits an aggregate amount of
61,856 shares of Common Stock (of which options to purchase 46,894 shares have
been granted as described above), subject to certain adjustments. Any shares of
Common Stock subject to a stock option or stock appreciation right which for any
reason is cancelled or terminated without having been exercised, and subject to
limited exceptions, any shares subject to stock awards, performance awards or
stock units which are forfeited, any shares subject to performance awards
settled in cash or any shares delivered to the Company as part of full payment
for the exercise of a stock option or stock appreciation right shall again be
available for Benefits under the Incentive Plan.
Administration
The Incentive Plan provides for administration by a committee (the
'Administration Committee') appointed by the Board of Directors from among its
members. Currently, the sole member of the Administration Committee is Thomas F.
Helms, Jr. The Administration Committee is authorized, subject to the provisions
of the Incentive Plan, to establish such rules and regulations as it deems
necessary for the proper administration of the Incentive Plan and to make such
determinations and interpretations and to take such action in connection with
the Incentive Plan and any Benefits granted as it deems necessary or advisable.
Thus, among the Administration Committee's powers are the authority to select
officers and other key employees of the Company and its subsidiaries to receive
Benefits, and determine the form, amount and other terms and conditions of
Benefits. The Administration Committee also has the power to modify or waive
restrictions on Benefits, to amend Benefits and to grant extensions and
accelerations of Benefits.
Eligibility for Participation
Key employees of the Company or any of its subsidiaries are eligible to
participate in the Incentive Plan. The selection of participants from eligible
key employees is within the discretion of the Administration Committee. All
employees are currently eligible to participate in the Incentive Plan.
Types of Benefits
The Incentive Plan provides for the grant of any or all of the following
types of benefits: (1) stock options, including incentive stock options and
non-qualified stock options; (2) stock appreciation rights; (3) stock awards,
including restricted stock; (4) performance awards; and (5) stock units
(collectively, the 'Benefits'). Benefits may be granted singly, in combination,
or in tandem as determined by the Administration Committee. Stock awards,
performance awards and stock units may, as determined by the Administration
Committee in its discretion, constitute Performance-Based Awards, as described
below.
Stock Options
Under the Incentive Plan, the Administration Committee may grant awards in
the form of options to purchase shares of Common Stock. Options may be either
incentive stock options, qualifying for special tax treatment, or non-qualified
stock options. The exercise price may be paid in cash or, in the discretion of
the Administration Committee, by the delivery of shares of Common Stock of the
Company then owned by the participant, by the withholding of shares of Common
Stock for which a stock option is exercisable, or by a combination of these
methods. In the discretion of the Administration Committee, payment may also be
made by delivering a properly executed exercise notice to the Company together
with a copy of irrevocable instructions to a broker to deliver promptly to the
Company the amount of sale or loan proceeds to pay the exercise price. The
Administration Committee may prescribe any other method of paying the exercise
price that it determines to be consistent with applicable law and the purpose of
the Incentive Plan. In determining which methods a participant may utilize to
pay the exercise price, the Administration Committee may consider such factors
as it determines are appropriate.
Stock Appreciation Rights (SARs)
The Incentive Plan authorizes the Administration Committee to grant an SAR
either in tandem with a stock option or independent of a stock option. An SAR is
a right to receive a payment, in cash or Common Stock, equal to the excess of
(x) the fair market value, or other specified valuation (which shall not be
greater than the fair market value), of a specified number of shares of Common
Stock on the date the right is exercised over (y) the
72
<PAGE>
fair market value, or other specified valuation (which shall not be less than
fair market value), of such shares of Common Stock on the date the right is
granted, all as determined by the Administration Committee. Each SAR shall be
subject to such terms and conditions as the Administration Committee shall
impose from time to time.
Stock Awards
The Incentive Plan authorizes the Administration Committee to grant awards
in the form of restricted or unrestricted shares of Common Stock ('Stock
Awards'), which includes mandatory stock bonus incentive compensation and which
may constitute Performance-Based Awards. Such awards will be subject to such
terms, conditions, restrictions, and/or limitations, if any, as the
Administration Committee deems appropriate including, but not by way of
limitation, restrictions on transferability, continued employment and
performance goals established by the Administration Committee over a designated
period of time.
Performance Awards
The Incentive Plan allows for the grant of performance awards which may
take the form of shares of Common Stock or stock units, or any combination
thereof and which may constitute Performance-Based Awards. Such awards will be
contingent upon the attainment over a period to be determined by the
Administration Committee of certain performance goals. The length of the
performance period, the performance goals to be achieved and the measure of
whether and to what degree such goals have been achieved will be determined by
the Administration Committee. Payment of earned performance awards will be made
in accordance with terms and conditions prescribed or authorized by the
Administration Committee. The participant may elect to defer, or the
Administration Committee may require the deferral of, the receipt of performance
awards upon such terms as the Administration Committee deems appropriate.
Stock Units
The Administration Committee may, in its discretion, grant Stock Units to
participants, which may constitute Performance-Based Awards. A 'Stock Unit'
means a notational account representing one share of Common Stock. The
Administration Committee determines the criteria for the vesting of Stock Units
and whether a participant granted a Stock Unit shall be entitled to Dividend
Equivalent Rights (as defined in the Incentive Plan). Upon vesting of a Stock
Unit, unless the Administration Committee has determined to defer payment with
respect to such unit or a participant has elected to defer payment, shares of
Common Stock representing the Stock Units will be distributed to the participant
unless the Administration Committee, with the consent of the participant,
provides for the payment of the Stock Units in cash, or partly in cash and
partly in shares of Common Stock, equal to the value of the shares of Common
Stock which would otherwise be distributed to the participant.
Other Terms of Benefits
The Incentive Plan provides that Benefits shall not be transferable other
than by will or the laws of descent and distribution. The Administration
Committee shall determine the treatment to be afforded to a participant in the
event of termination of employment for any reason including death, disability or
retirement. Notwithstanding the foregoing, other than with respect to incentive
stock options, the Administration Committee may permit the transferability of an
award by a participant to members of the participant's immediate family or
trusts for the benefit of such person or family partnerships.
Upon the grant of any Benefit under the Incentive Plan, the Administration
Committee may, by way of an agreement with the participant, establish such other
terms, conditions, restrictions and/or limitations covering the grant of the
Benefit as are not inconsistent with the Incentive Plan. No Benefit shall be
granted under the Incentive Plan after the date which is ten (10) years after
the Closing. The Board of Directors reserves the right to amend, suspend or
terminate the Incentive Plan at any time, subject to the rights of participants
with respect to any outstanding Benefits.
The Incentive Plan contains provisions for equitable adjustment of Benefits
in the event of a merger, consolidation, reorganization, recapitalization, stock
dividend, stock split, reverse stock split, split up, spinoff, combination of
shares, exchange of shares, dividend in kind or other like change in capital
structure or distribution (other than normal cash dividends) to stockholders of
the Company.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Jay Martin is the sole stockholder of J. Martin Associates, Inc., a firm
which provided consulting services to National Tobacco in 1996. In fiscal 1996
this corporation received a total of $65,433 in fees and expenses for consulting
services rendered to National Tobacco.
UBS Securities LLC ('UBS') has served as a financial advisor to the Company
in connection with the Acquisition and related transactions. In connection
therewith, UBS is entitled to a fee of $1.56 million and the reimbursement of
certain out-of-pocket expenses. Mr. Secrest, a Director--Investment Banking of
UBS, is a Director of the Company.
On April 26, 1988 and December 15, 1988, Thomas F. Helms, Jr., President
and Chief Executive Officer of the Company, borrowed $75,000 and $45,000,
respectively in connection with the purchase of a portion of his partnership
interests in National Tobacco and executed a note payable to the Company. The
note bears interest in kind at a rate of 3% over the prime rate. As of June 30,
1997, principal outstanding under this note was approximately $240,000.
On April 14, 1992, Clifford D. Ray, Vice President--Marketing of the
Company, borrowed $40,000 in connection with the purchase of a portion of his
partnership interests in National Tobacco and executed a note payable to the
Company. The note bears interest at a rate of 2% over the prime rate. As of June
30, 1997, principal and accrued interest outstanding under this note was
approximately $61,000.
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<PAGE>
RECENT TRANSACTIONS
The Company was formed in connection with the Acquisition, a corporate
reorganization and the related financings, consisting principally of the Old
Notes Offering, the establishment of the New Senior Secured Facilities which
includes the Term Facility and the Revolver, and the concurrent offering of the
Units and certain related transactions as more fully described below (the
'Transactions'), all which occurred concurrently with the closing of the Old
Notes Offering on June 25, 1997 (the 'Closing'). The Old Notes Offering provided
funds, before expenses, of $155 million.
Prior to the Acquisition, NTC Holding, LLC, a Delaware limited liability
company ('LLC'), was the sole limited partner of National Tobacco and the sole
stockholder of National Tobacco Finance Corporation (the 'GP'), which is the
sole general partner of National Tobacco. LLC entered into a Stock Purchase
Agreement with NATC Holding Company, Ltd. (the 'Seller'), dated April 17, 1997
(the 'Stock Purchase Agreement'), pursuant to which LLC agreed to acquire in the
Acquisition all of the outstanding capital stock of NATC Holdings USA, Inc.
('NATC'). As part of the Transactions, the membership interests in LLC were
acquired by the Company and LLC transferred all of its assets to the Company,
including the limited partnership interest in National Tobacco, all of the
capital stock of the GP and the right under the Stock Purchase Agreement to
purchase all of the capital stock of NATC. The transfer of the assets resulted
in the dissolution of LLC pursuant to the terms of its operating agreement. A
certificate of cancellation was filed on August 19, 1997. North Atlantic
Operating Company, Inc., a newly formed Delaware subsidiary of the Company
('NAOC'), acquired all of the outstanding capital stock of NATC in the
Acquisition. Immediately following the Acquisition, NATC and a wholly owned
subsidiary of NATC were merged into NAOC. Prior to the Acquisition, DGG received
a financial advisory fee representing management fees and expenses incurred by
the former owners in connection with the operation of the predecessor company
which was merged into NAOC. These fees and expenses will be eliminated following
the Acquisition.
LLC had outstanding $20.0 million aggregate principal amount of 13.5%/16.5%
Subordinated Notes due May 17, 2003, preferred interests in LLC and certain
warrants to purchase membership interests in LLC pursuant to a Subordinated
Note, Warrant and Preferred Equity Purchase Agreement dated May 17, 1996 among
LLC and the purchasers named therein. Such notes, preferred interests and
warrants were acquired by the Company for aggregate consideration of $47.1
million. In addition, the Company acquired certain warrants to purchase
membership interests in LLC from Societe Generale Investment Corporation
('SGIC') for aggregate consideration of $4.0 million.
Pursuant to the Stockholders' Agreement, the holders of all membership
interests in LLC, other than those holders whose interests were acquired as
described above, exchanged such membership interests for shares of Common Stock
of the Company. In addition, certain employees and a consultant of the Company
purchased 17,800 shares of Common Stock for an aggregate purchase price of
$712,000,
Aggregate consideration of approximately $162.6 million was paid by the
Company under the Stock Purchase Agreement (the 'Purchase Price'). The Purchase
Price was reduced by the amount of certain obligations of NATC (the 'NATC
Liabilities') that were paid by the Company on behalf of NATC, including (i) a
prepayment amount of $25.6 million to UST pursuant to an Amendment to the Asset
Purchase Agreement, dated as of November 25, 1992, among NATC, UST and the other
parties named therein, which satisfied and terminated the obligations of NATC to
make future royalty payments to UST thereunder, (ii) the payment in connection
with refinancing existing NATC debt under a term loan and a note purchase
agreement and (iii) the payment of $5 million to Bollore in consideration of its
consent to the change in control of NATC as a result of the Acquisition.
The Stock Purchase Agreement contains certain representations and
warranties and limited rights of indemnification from the Seller, including an
indemnity for 60% of an adjustment proposed by the Internal Revenue Service
('IRS') of approximately $1,672,000 for 1993, 1994 and 1995, and 100% of any
losses which arise from such adjustments following the Closing. The Seller
intends to file an administrative appeal of the IRS's proposed adjustments.
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<PAGE>
The Company effected the following refinancing transactions in connection
with the Acquisition: (i) the Old Notes Offering; (ii) the termination pursuant
to the terms of the Credit Agreement of the Credit and Guaranty Agreement (the
'Old Credit Agreement'), dated May 17, 1996, among National Tobacco as Borrower,
LLC and GP as Guarantors, the lenders named therein and Societe Generale, as
Agent thereunder, and which was replaced by the New Senior Secured Facilities,
in an aggregate principal amount of not greater than $110 million (see
'Description of Other Indebtedness'); (iii) the elimination of an inventory
financing facility for National Tobacco's inventory requirements, in accordance
with the terms of a Second Amended and Restated Purchasing and Processing
Agreement (the 'Amendment') between National Tobacco and Lancaster dated as of
May 17, 1996, pursuant to which Lancaster will continue to purchase and process
tobacco for National Tobacco and to warehouse National Tobacco's tobacco
inventory; and (iv) the offering of Units consisting of Old Preferred Stock and
Warrants, the proceeds of which were used toward the repurchase of certain
subordinated notes, preferred interests and warrants to acquire membership
interests of LLC.
The following chart summarizes the resulting organizational structure and
equity ownership immediately after the consummation of the Transactions.
North Atlantic Trading Company, Inc.
(the 'Company')
/|\
/ | \
/ | \
/ | \
/ | \
100% of / | \ 100% of
Capital Stock / | \ Capital Stock
/ | \
National Tobacco | North Atlantic
Finance | Operating Company, Inc.
Corporation \ | ('NATC')
\ | (operating company)
\ | 99% Limited
1% General \ | Partnership
Partnership \ | Interest
Interest \ |
National Tobacco
Company, L.P.
('National Tobacco')
(operating company)
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PRINCIPAL STOCKHOLDERS
The table below sets forth certain information regarding the beneficial
ownership of Common Stock by (i) each person or entity who beneficially owns
five percent or more of the Common Stock, (ii) each director and named executive
officer of the Company and (iii) all Directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
PERCENT OWNED(A)
-------------------------------------
BEFORE EXERCISE AFTER EXERCISE
BENEFICIAL OWNER NUMBER OF SHARES OF WARRANTS OF WARRANTS
- ---------------------------------------------- ------------------- ---------------- -----------------
<S> <C> <C> <C>
Thomas F. Helms, Jr.(b)(c) ................. 427,146 80.9% 72.2%
Helms Management Corp.
Maurice R. Langston(b) ..................... 47,138 8.9 8.0
Langston Enterprises, Inc.
Alan R. Minsterketter(b) ................... 27,613 5.2 4.7
Alan M, Inc.
Clifford D. Ray(b) ......................... 17,728 3.4 3.0
C.D. Ray, Inc.
Mark F. Secrest(e) ......................... 12,251 2.3 2.1
Jay Martin(b) .............................. 12,137 2.3 2.1
J. Martin Associates, Inc.
David I. Brunson(d) ........................ 10,309 1.9 1.7
Arnold Sheiffer ............................ 8,725 1.7 1.5
Chris Kounnas(b) ........................... 8,377 1.6 1.4
CNK Enterprises, Inc.
Herbert Morris(b) .......................... 37,990 7.2 6.4%
Flowing Velvet Products, Inc.
3 Points of View
Warwick, New York 10990
DIRECTORS AND EXECUTIVE OFFICERS
AS A GROUP (10 PERSONS)(C)(F) .............. 463,753 85.3% 76.4%
</TABLE>
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(a) The percentages assume, in the column entitled 'Before Exercise of
Warrants,' that none of the outstanding warrants to purchase an aggregate of
63,490 shares at an exercise price of $.01 per share is exercised and, in
the column entitled 'After Exercise of Warrants,' that all of such warrants
will be exercised.
(b) Reflects shares held by the corporation listed below the name of such
natural person. Such natural person owns all of the issued and outstanding
shares of capital stock of the corporation listed below the name of such
natural person.
(c) Mr. Helms, through Helms Management Corp., owns 276,300 shares of voting
Common Stock representing approximately 52.3% of the outstanding shares
assuming that none of the outstanding warrants are exercised, or 46.7% of
the outstanding shares assuming that all such warrants are exercised.
Because of his ability to vote an additional 150,846 shares of Common Stock
held by members of the Company's management in respect of the election of
the Company's directors pursuant to the Stockholders' Agreement, he may be
deemed to be the beneficial owner of such additional shares.
(d) Includes 10,309 shares subject to currently exercisable stock options.
(e) Reflects 10,000 shares held by Secrest Holdings, a general partnership of
which Mr. Secrest is a general partner, and 2,251 shares held by Fish Group,
LLC, a limited liability company of which Mr. Secrest is a member. Mr.
Secrest has the power to vote all of such shares.
(f) Executive officers, as a group, beneficially own 442,777 shares and other
members of management beneficially own 37,853 shares. Accordingly, members
of management beneficially own a total of 442,777 shares, representing
approximately 81.4% of the outstanding shares assuming that none of the
outstanding warrants are exercised, or 72.9% of the outstanding shares
assuming that all such warrants are exercised.
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STOCKHOLDER AGREEMENT
The Company and certain stockholders of the Company are parties to the
Stockholders' Agreement, setting forth among other things, the manner in which
directors of the Company are to be selected, See 'Management--Election of
Directors.' The Stockholders' Agreement also sets forth certain restrictions on
the transfer of shares of Common Stock by existing stockholders and on the
acquisition by existing stockholders of investments in competitors of Bollore.
In addition, the Stockholders' Agreement provides the existing stockholders with
certain 'tag-along' rights to participate ratably in sales of Common Stock to
third parties and requires existing stockholders to participate ratably in
certain sales of Common Stock to third parties. Subject to the terms of all
applicable debt agreements of the Company and its subsidiaries, including the
New Senior Secured Facilities, the Notes and the Indenture, the Stockholders'
Agreement provides that the Company may maintain insurance on the lives of the
members of its management officers and, in the event of the death of any such
person, for the mandatory repurchase by the Company of all of such person's
Common Stock at the fair market value thereof (which will be determined by an
independent investment banking firm if the parties cannot otherwise agree upon
such value) to the extent of available insurance proceeds, and the optional
repurchase of additional shares of such person's Common Stock at such fair
market value to the extent of available cash. Subject to the terms of all
applicable debt agreements of the Company and its subsidiaries, including the
New Senior Secured Facilities, the Notes and the Indenture as well as the
Certificate of Designation, the Company also has the right to repurchase the
shares of Common Stock held by members of management if their employment
terminates, in the event of certain bankruptcy proceedings relating to such
persons or upon an involuntary transfer of their shares by court order or
otherwise in each case at the fair market value of such shares.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were originally sold by the Company on June 25, 1997, to the
Initial Purchasers pursuant to the Note Purchase Agreement. The Units, which
were, in part, comprised of the Old Preferred Stock, were sold by the Company on
June 25, 1997, to NatWest, as the initial purchaser of the Units, pursuant to
the Units Purchase Agreement (the Units Purchase Agreement and the Notes
Purchase Agreement being referred to collectively as the 'Purchase Agreements').
The Initial Purchasers and NatWest subsequently resold the Old Notes and the Old
Preferred Stock, as the case may be, to qualified institutional buyers pursuant
to Rule 144A under the Securities Act, or institutional 'accredited investors'
(as defined in Rule 501(a) (1), (2), (3) or (7) of Regulation D under the
Securities Act) or outside the United States in compliance with Regulation S
under the Securities Act. Pursuant to the Purchase Agreements, the Company
entered into the Registration Rights Agreements, pursuant to which the Company
has agreed, for the benefit of the holders of the Unregistered Securities, at
the Company's cost, to use its best efforts to (i) file a registration statement
with the Commission within 30 days after the date of the original issue (the
'Issue Date') of the Unregistered Securities (such date of filing, the 'Filing
Date') with respect to the Exchange Offer for the Exchange Securities, and (ii)
cause the registration statement to be declared effective under the Securities
Act within 90 days after the Filing Date. Upon the registration statement being
declared effective, the Company will offer the Exchange Securities in exchange
for the Unregistered Securities. The Company will keep the Exchange Offer open
for no less than 30 business days (or longer if required by applicable law)
after the date on which notice of the Exchange Offer is mailed to the holders of
the Unregistered Securities.
For each Old Note or share of Old Preferred Stock properly tendered and
accepted pursuant to the Exchange Offer, the holder of such Unregistered
Security will receive a New Note having a principal amount equal to that of the
Old Note tendered or one share of New Preferred Stock, as the case may be.
Interest on each New Note and dividends on each share of New Preferred Stock
will accrue or accumulate from the last respective interest or dividend payment
date on which interest or dividends were paid on the Unregistered Security
tendered in exchange therefor or, if no interest or dividends have been paid on
such Unregistered Security, from the Issue Date.
Each holder of the Unregistered Securities who wishes to exchange the
Unregistered Securities for Exchange Securities in the Exchange Offer will be
required to represent in the Letter of Transmittal that (i) it is not an
affiliate of the Company or Guarantors, (ii) the Exchange Securities to be
received by it were acquired in the ordinary course of its business and (iii) at
the time of commencement of the Exchange Offer, it has no arrangement with any
person to participate in the distribution (within the meaning of the Securities
Act) of the Exchange Securities.
In the event that (i) applicable law or interpretations of the staff of the
Commission do not permit the Company to effect the Exchange Offer, (ii) in
certain circumstances, NatWest or an Initial Purchaser so requests, (iii) any
holder of the Unregistered Securities (other than NatWest or an Initial
Purchaser) is not eligible to participate in the Exchange Offer, or (iv) for any
reason the Exchange Offer is not consummated within 120 days after the Filing
Date, the Company will at its cost, (a) as promptly as reasonably practicable,
file a shelf registration statement covering resales of the Unregistered
Securities (a 'Shelf Registration Statement'), (b) use its best efforts to cause
such Shelf Registration Statement to be declared effective under the Securities
Act by the 165th day after the Issue Date (or one year from the date the Shelf
Registration Statement was declared effective if such Shelf Registration
Statement was filed pursuant to clause (ii), above) and (c) use its best efforts
to keep effective such Shelf Registration Statement until the earlier of two
years after the Issue Date and such time as all of the applicable Registered
Securities have been sold thereunder or when all of the Unregistered Securities
become eligible for resale pursuant to Rule 144 under the Securities Act without
volume restriction). See '--Resale of the Exchange Securities'. The Company
will, in the event of the filing of a Shelf Registration Statement, provide to
each holder of the Registered Securities copies of the prospectus which is a
part of such Shelf Registration Statement. A holder that sells its Registered
Securities pursuant to a Shelf Registration Statement generally will be required
to be named as a selling securityholder in the related prospectus and to deliver
a prospectus to purchasers, will be
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subject to certain of the civil liability provisions under the Securities Act in
connection with such sales and will be bound by the provisions of the
Registration Rights Agreements which are applicable to such holder (including
certain indemnification obligations).
If the Company fails to comply with the above provisions or if such Shelf
Registration Statement fails to become effective, then, as liquidated damages,
additional interest or dividends (the 'Additional Amount'), as applicable, shall
become payable with respect to the Exchange Securities as follows:
(i) if the registration statement for the Exchange Offer or the Shelf
Registration Statement is not filed within 30 days following the Issue Date, the
Additional Amount shall accrue on the Unregistered Securities over and above the
stated interest or dividend percentage at a rate of 0.50% per annum for the
first 60 days commencing on the 31st day after the Issue Date, such Additional
Amount increasing by an additional 0.50% per annum at the beginning of each
subsequent 30-day period;
(ii) if the registration statement for the Exchange Offer or the Shelf
Registration Statement is not declared effective within 90 days following the
Filing Date, an Additional Amount shall accrue on the Unregistered Securities
over and above the stated interest or dividend percentage at a rate of 0.50% per
annum for the first 30 days commencing on the 91st day after the Filing Date,
such Additional Amount increasing by an additional 0.50% per annum at the
beginning of each subsequent 30-day period; or
(iii) if (A) the Company has not exchanged all Unregistered Securities
validly tendered in accordance with the terms of the Exchange Offer on or prior
to 120 days after the Filing Date or (B) the registration statement for the
Exchange Offer ceases to be effective at any time prior to the time that the
Exchange Offer is consummated or (C) if applicable, the Shelf Registration
Statement has been declared effective and such Shelf Registration Statement
ceases to be effective at any time prior to the third anniversary of the Issue
Date (unless all the Registered Securities have been sold thereunder or as
otherwise provided herein), then the Additional Amount shall accrue on the
Unregistered Securities over and above the stated interest or dividend
percentage of 0.50% per annum for the first 30 days commencing on (x) the 121st
day after the Filing Date with respect to the Notes validly tendered and not
exchanged by the Company, in the case of (A) above, or (y) the day of the
registration statement for the Exchange Offer ceases to be effective or usable
for its intended purpose in the case of (B) above, or (z) the day the Shelf
Registration Statement ceases to be effective in the case of (C) above, the rate
of such Additional Amount increasing by an additional 0.50% per annum at the
beginning of each subsequent 30-day period;
provided, however, that the Additional Amount payable on the Unregistered
Securities may not exceed in the aggregate 2.0% per annum; and provided further,
that (1) upon the filing of the registration statement for the Exchange Offer or
the Shelf Registration Statement (in the case of clause (i) above), (2) upon the
effectiveness of such registration statement for the Exchange Offer or the Shelf
Registration Statement (in the case of (ii) above), or (3) upon the exchange of
Exchange Securities for all Unregistered Securities tendered (in the case of
clause (iii) (A) above), or upon the effectiveness of the registration statement
which had ceased to remain effective in the case of clause (iii) (B) above, or
upon the effectiveness of the Shelf Registration Statement which had ceased to
remain effective (in the case of clause (iii) (C) above), the Additional Amount
accruing on the Unregistered Securities as a result of such clause (or the
relevant subclause thereof), as the case may be, shall cease to accrue.
Any Additional Amount due pursuant to clauses (i), (ii) or (iii) above will
be payable in cash, on the same original interest or dividend payment dates, as
the case may be, as interest or dividends on the Unregistered Securities. The
aggregate Additional Amount will be determined by multiplying the applicable
rate of such Additional Amount by the principal amount or liquidation value, as
the case may be, of the Unregistered Securities multiplied by a fraction, the
numerator of which is the number of days such Additional Amount was applicable
during such period (determined on the basis of a 360-day year comprised of
twelve 30-day months), and the denominator of which is 360.
The summary herein of all material provisions of the Registration Rights
Agreements does not purport to be exhaustive and is subject to, and is qualified
in its entirety by, all the provisions of the Registration Rights Agreements, a
copies of which will be available upon request to the Company.
Following the consummation of the Exchange Offer, holders of the
Unregistered Securities who were eligible to participate in the Exchange Offer
but who did not tender their Unregistered Securities will not
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have any further exchange or registration rights and such Unregistered
Securities will continue to be subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for such Unregistered Securities could
be adversely affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all
Unregistered Securities validly tendered and not withdrawn prior to 5:00 p.m.,
New York City time, on the Expiration Date. The Company will issue $1,000
principal amount of New Notes in exchange for each $1,000 principal amount of
outstanding Old Notes accepted in the Exchange Offer. Tendered and accepted
shares of Old Preferred Stock will be exchanged for New Preferred Stock on a
one-for-one basis. Holders may tender some or all of their Unregistered
Securities pursuant to the Exchange Offer. However, Old Notes may be tendered
only in integral multiples of $1,000.
The form and terms of the Exchange Securities are the same as the form and
terms of the Unregistered Securities except (i) the New Notes bear a Series B
designation and a different CUSIP Number from the Old Notes, (ii) the New
Preferred Stock Certificates bear a Senior Exchange Payment-In-Kind designation
and a different CUSIP Number from the Old Preferred Stock, (iii) the Exchange
Securities have been registered under the Securities Act and hence will not bear
legends restricting the transfer thereof. The New Notes will evidence the same
debt as the Old Notes and will be entitled to the benefits of the Indenture.
As of the date of this Prospectus $155,000,000 aggregate principal amount
of Old Notes are outstanding and 1,360,000 shares of Old Preferred Stock are
outstanding. The Company has fixed the close of business , 1997
as the record date for the Exchange Offer for purposes of determining the person
to whom this Prospectus and the Letter of Transmittal will be mailed initially.
Holders of the Unregistered Securities do not have any appraisal or
dissenters' rights under the General Corporation Law of Delaware, the Indenture
or the Certificate of Designation in connection with the Exchange Offer. The
Company intends to conduct the Exchange Offer in accordance with the applicable
requirements of the Exchange Act and the rules and regulations of the Commission
thereunder.
The Company shall be deemed to have accepted validly tendered Unregistered
Securities when, as and if the Company has given oral or written notice thereof
to the Exchange Agent. The Exchange Agent will act as agent for the tendering
holders for the purpose of receiving the Exchange Securities from the Company.
If any tendered Unregistered Securities are not accepted for exchange
because of an invalid tender, the occurrence of certain other events set forth
herein or otherwise, the certificates for any such unaccepted Unregistered
Securities will be returned, without expense, to the tendering holder thereof as
promptly as practicable after the Expiration Date.
Holders who tender Unregistered Securities in the Exchange Offer will not
be required to pay brokerage commissions or fees or, subject to the instructions
of the Letter of Transmittal, transfer taxes with respect to the exchange of
Unregistered Securities pursuant to the Exchange Offer. The Company will pay all
charges and expenses, other than the transfer taxes in certain circumstances, in
connection with the Exchange Offer. See '--Fees and Expenses.'
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term 'Expiration Date' shall mean 5:00 p.m., New York City time, on
, 1997, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term 'Expiration Date' shall mean the latest
date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will mail to the registered
holders an announcement thereof, each prior to 9:00 a.m., New York City time, on
the next business day after the previously scheduled expiration date.
The Company reserves the right, (i) to delay accepting any Unregistered
Securities, to extend the Exchange Offer or to terminate the Exchange Offer if
any of the conditions set forth below under '--Conditions' shall not have been
satisfied, by giving oral or written notice of such delay,
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extension or termination to the Exchange Agent or (ii) to amend the terms of the
Exchange Offer in any manner. Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as practicable by oral or
written notice thereof to the registered holders.
PROCEDURES FOR TENDERING
The tender of Unregistered Securities pursuant to any of the procedures set
forth in this Prospectus and in the Letter of Transmittal will constitute a
binding agreement between the Tendering Holder and the Company in accordance
with the terms and subject to the conditions set forth herein and in the Letter
of Transmittal. The tender of Unregistered Securities will constitute an
agreement to deliver good and marketable title to all tendered Unregistered
Securities prior to the Expiration Date free and clear of all liens, charges,
claims, encumbrances, interests and restrictions of any kind.
EXCEPT AS PROVIDED IN '--GUARANTEED DELIVERY PROCEDURES,' UNLESS THE
UNREGISTERED SECURITIES BEING TENDERED ARE DEPOSITED BY THE HOLDER WITH THE
EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE (ACCOMPANIED BY A PROPERLY COMPLETED
AND DULY EXECUTED LETTER OF TRANSMITTAL), THE COMPANY MAY, AT ITS OPTION, REJECT
SUCH TENDER. ISSUANCE OF EXCHANGE SECURITIES WILL BE MADE ONLY AGAINST DEPOSIT
OF TENDERED UNREGISTERED SECURITIES AND DELIVERY OF ALL OTHER REQUIRED
DOCUMENTS. NOTWITHSTANDING THE FOREGOING, DTC PARTICIPANTS TENDERING THROUGH
ATOP WILL BE DEEMED TO HAVE MADE VALID DELIVERY WHERE THE EXCHANGE AGENT
RECEIVES AN AGENT'S MESSAGE (DEFINED BELOW) PRIOR TO THE EXPIRATION DATE.
Accordingly, to properly tender Unregistered Securities, the following
procedures must be followed:
Unregistered Securities held through DTC. Each Beneficial Owner holding
Unregistered Securities through a DTC Participant must instruct such DTC
Participant to cause its Unregistered Securities to be tendered in accordance
with the procedures set forth in this Prospectus.
Pursuant to an authorization given by DTC to the DTC Participants, each DTC
Participant holding Unregistered Securities through DTC must (i) electronically
transmit its acceptance through ATOP, and DTC will then edit and verify the
acceptance, execute a book-entry delivery to the Exchange Agent's account at DTC
and send an Agent's Message to the Exchange Agent for its acceptance, or (ii)
comply with the guaranteed delivery procedures set forth below and in the Notice
of Guaranteed Delivery. See '--Guaranteed Delivery Procedures.'
The Exchange Agent will (promptly after the date of this Prospectus)
establish accounts at DTC for purposes of the Exchange Offer with respect to
Unregistered Securities held through DTC, and any financial institution that is
a DTC Participant may make book-entry delivery of interests in Unregistered
Securities into the Exchange Agent's account through ATOP. However, although
delivery of interests in the Unregistered Securities may be effected through
book-entry transfer into the Exchange Agent's account through ATOP, an Agent's
Message in connection with such book-entry transfer, and any other required
documents, must be, in any case, transmitted to and received by the Exchange
Agent at its address set forth under '--Exchange Agent,' or the guaranteed
delivery procedures set forth below must be complied with, in each case, prior
to the Expiration Date. Delivery of documents to DTC does not constitute
delivery to the Exchange Agent. The confirmation of a book-entry transfer into
the Exchange Agent's account at DTC as described above is referred to herein as
a 'Book-Entry Confirmation.'
The term 'Agent's Message' means a message transmitted by DTC to, and
received by, the Exchange Agent and forming a part of the Book-Entry
Confirmation, which states that DTC has received an express acknowledgment from
each DTC Participant tendering through ATOP that such DTC Participants have
received a Letter of Transmittal and agree to be bound by the terms of the
Letter of Transmittal and that the Company may enforce such agreement against
such DTC Participants.
Cede & Co., as the Holder of the global certificates representing the Old
Notes and the Old Preferred Stock (each a 'Global Security,' or together, the
'Global Securities'), will tender a portion of each of the Global Securities
equal to the aggregate principal amount due at the stated maturity or number of
shares for which instructions to tender are given by DTC Participants.
Unregistered Securities held by Holders. Each Holder must (i) complete and
sign and mail or deliver the accompanying Letter of Transmittal, and any other
documents required by the Letter of Transmittal, together with certificate(s)
representing all tendered Unregistered Securities, to the Exchange Agent at its
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address set forth under '--Exchange Agent,' or (ii) comply with the guaranteed
delivery procedures set forth below and in the Notice of Guaranteed Delivery.
See '--Guaranteed Delivery Procedures.'
All signatures on a Letter of Transmittal must be guaranteed by any member
firm of a registered national securities exchange or of the National Association
of Securities Dealers, Inc., a commercial bank or trust company having an office
or correspondent in the United States or an 'eligible guarantor' institution
within the meaning of Rule 17Ad-15 under the Exchange Act (each an 'Eligible
Institution'); provided, however, that signatures on a Letter of Transmittal
need not be guaranteed if such Unregistered Securities are tendered for the
account of an Eligible Institution including (as such terms are defined in Rule
17Ad-15): (i) a bank; (ii) a broker, dealer, municipal securities dealer,
municipal securities broker, government securities dealer or government
securities broker; (iii) a credit union; (iv) a national securities exchange,
registered securities association or clearing agency; or (v) a savings
institution that is a participant in a Securities Transfer Association
recognized program.
If a Letter of Transmittal or any Unregistered Security is signed by a
trustee, executor, administrator, guardian, attorney-in-fact, agent, officer of
a corporation or other person acting in a fiduciary or representative capacity,
such person must so indicate when signing, and proper evidence satisfactory to
the Company of the authority of such person so to act must be submitted.
Holders should indicate in the applicable box in the Letter of Transmittal
the name and address to which substitute certificates evidencing Unregistered
Securities for amounts not tendered are to be issued or sent, if different from
the name and address of the person signing the Letter of Transmittal. In the
case of issuance in a different name, the employer identification or social
security number of the person named must also be indicated. If no instructions
are given, such Unregistered Securities not tendered, as the case may be, will
be returned to the person signing the Letter of Transmittal.
By tendering, each Holder and each DTC Participant will make to the Company
the representations set forth in the third paragraph under the heading
'--Purpose and Effect of the Exchange Offer.'
---------------------------------------------------------------
No alternative, conditional, irregular or contingent tenders will be
accepted (unless waived). By executing a Letter of Transmittal or transmitting
an acceptance through ATOP, as the case may be, each Tendering Holder waives any
right to receive any notice of the acceptance for purchase of its Unregistered
Securities.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of tendered Unregistered Securities will be resolved by
the Company, whose determination will be final and binding. The Company reserves
the absolute right to reject any or all tenders that are not in proper form or
the acceptance of which may, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the absolute right to waive any condition to
the Exchange Offer and any irregularities or conditions of tender as to
particular Unregistered Securities. The Company's interpretation of the terms
and conditions of the Exchange Offer (including the instructions in the Letter
of Transmittal) will be final and binding. Unless waived, any irregularities in
connection with tenders must be cured within such time as the Company shall
determine. The Company and the Exchange Agent shall not be under any duty to
give notification of defects in such tenders and shall not incur liabilities for
failure to give such notification. Tenders of Unregistered Securities will not
be deemed to have been made until such irregularities have been cured or waived.
Any Unregistered Securities received by the Exchange Agent that are not properly
tendered and as to which the irregularities have not been cured or waived will
be returned by the Exchange Agent to the tendering Holder, unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date.
LETTERS OF TRANSMITTAL AND UNREGISTERED SECURITIES MUST BE SENT ONLY TO THE
EXCHANGE AGENT. DO NOT SEND LETTERS OF TRANSMITTAL OR UNREGISTERED SECURITIES TO
THE COMPANY OR DTC.
The method of delivery of Unregistered Securities and Letters of
Transmittal, any required signature guaranties and all other required documents,
including delivery through DTC and any acceptance through ATOP, is at the
election and risk of the persons tendering and delivering acceptances or Letters
of Transmittal and, except as otherwise provided in the applicable Letter of
Transmittal, delivery will be
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deemed made only when actually received by the Exchange Agent. If delivery is by
mail, it is suggested that the Holder use properly insured, registered mail with
return receipt requested, and that the mailing be made sufficiently in advance
of the Expiration Date to permit delivery to the Exchange Agent prior to the
Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Unregistered Securities held through DTC. DTC Participants holding
Unregistered Securities through DTC who wish to cause their Unregistered
Securities to be tendered, but who cannot transmit their acceptances through
ATOP prior to the Expiration Date, may cause a tender to be effected if:
(a) guaranteed delivery is made by or through an Eligible Institution;
(b) prior to 5:00 p.m., New York City time on the Expiration Date, the
Exchange Agent receives from such Eligible Institution a properly completed
and duly executed Notice of Guaranteed Delivery (by mail, hand delivery,
facsimile transmission or overnight courier) substantially in the form
provided by the Company herewith; and
(c) Book-Entry Confirmation and an Agent's Message in connection
therewith (as described above) are received by the Exchange Agent within
three NYSE trading days after the date of the execution of the Notice of
Guaranteed Delivery.
Unregistered Securities Held by Holders. Holders who wish to tender their
Unregistered Securities and (i) whose are not immediately available, (ii) who
cannot deliver their Unregistered Securities, the Letter of Transmittal or any
other required documents to the Exchange Agent or (iii) who cannot complete the
procedures for book-entry transfer, prior to the Expiration Date, may effect a
tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to 5:00 p.m., New York City time on the Expiration Date, the
Exchange Agent receives from such Eligible Institution a properly
completed and duly executed Notice of Guaranteed Delivery (by facsimile
transmission, mail or hand delivery) setting forth the name and address
of the holder, the certificate number(s) of such Unregistered
Securities and the principal amount of Unregistered Securities
tendered, stating that the tender is being made thereby and
guaranteeing that, within three New York Stock Exchange trading days
after the Expiration Date, the Letter of Transmittal (or facsimile
thereof) together with the certificate(s) representing the Unregistered
Securities (or a confirmation of book-entry transfer of such
Unregistered Securities into the Exchange Agent's account at the
Book-Entry Transfer Facility), and any other documents required by the
Letter of Transmittal will be deposited by the Eligible Institution
with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all
tendered Unregistered Securities in proper form for transfer (or a
confirmation or book-entry transfer of such Unregistered Securities
into the Exchange Agent's account at the Book-Entry Transfer Facility),
and all other documents required by the Letter of transmittal are
received by the Exchange Agent upon three New York Stock Exchange
trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Unregistered Securities according to
the guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Unregistered Securities may
be withdrawn at any time prior to 5:00 p.m., New York City time, on the
Expiration Date.
Unregistered Securities held through DTC. DTC Participants holding
Unregistered Securities who have transmitted their acceptances through ATOP may,
prior to 5:00 p.m., New York City time, on the Expiration Date, withdraw the
instruction given thereby by delivering to the Exchange Agent, at its address
set forth under '--Exchange Agent,' a written, telegraphic or facsimile notice
of withdrawal of such instruction. Such notice of withdrawal must contain the
name and number of the DTC Participant, the principal amount due at the stated
maturity or number of shares of the Unregistered Securities to which such
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withdrawal related and the signature of the DTC Participant. Withdrawal of such
an instruction will be effective upon receipt of such written notice of
withdrawal by the Exchange Agent.
Unregistered Securities held by Holders. Holders may withdraw a tender of
Unregistered Securities in the Exchange Offer, by a telegram, telex, letter or
facsimile transmission notice of withdrawal received by the Exchange Agent at
its address set forth herein prior to 5:00 p.m., New York City time, on the
Expiration Date. Any such notice of withdrawal must (i) specify the name of the
person having deposited the Unregistered Securities to be withdrawn (the
'Depositor'), (ii) identify the Unregistered Securities to be withdrawn
(including the certificate number(s) and principal amount due at the stated
maturity or number of shares of such Unregistered Securities, or, in the case of
Unregistered Securities transferred by book-entry transfer, the name and number
of the account at the Book-Entry Transfer Facility to be credited), (iii) be
signed by the holder in the same manner as the original signature on the Letter
of Transmittal by which such Unregistered Securities were tendered (including
any required signature guarantees) or be accompanied by documents of transfer
sufficient to have the Trustee with respect to the Unregistered Securities
register the transfer of such Unregistered Securities into the name of the
person withdrawing the tender and (iv) specify the name in which any such
Unregistered Securities are to be registered, if different from that of the
Depositor. All questions as to the validity, form and eligibility (including
time of receipt) of such notices will be determined by the Company, whose
determination shall be final and binding on all parties. Any Unregistered
Securities so withdrawn will be deemed not to have been validly tendered for
purposes of the Exchange Offer and no Exchange Securities will be issued with
respect thereto unless the Unregistered Securities so withdrawn are validly
retendered. Any Unregistered Securities which have been tendered but which are
not accepted for exchange will be returned to the holder thereof without cost to
such holder as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Unregistered Securities
may be retendered by following one of the procedures described above under
'--Procedures for Tendering' at any time prior to the Expiration Date.
All signatures on a notice of withdrawal must be guaranteed by an Eligible
Institution; provided, however, that signatures on the notice of withdrawal need
not be guaranteed if the Unregistered Securities being withdrawn are held for
the account of an Eligible Institution.
A withdrawal of an instruction or a withdrawal of a tender must be executed
by a DTC Participant or a Holder, as the case may be, in the same manner as the
person's name appears on its transmission through ATOP or Letter of Transmittal,
as the case may be, to which such withdrawal relates. If a notice of withdrawal
is signed by a trustee, partner, executor, administrator, guardian,
attorney-in-fact, agent, officer of a corporation or other person acting in a
fiduciary or representative capacity, such person must so indicate when signing
and must submit with the revocation appropriate evidence of authority to execute
the notice of withdrawal. A DTC Participant or a Holder may withdraw an
instruction or a tender, as the case may be, only if such withdrawal complies
with the provisions of this Prospectus.
A withdrawal of a tender of Unregistered Securities by a DTC Participant or
a Holder, as the case may be, may be rescinded only by a new transmission of an
acceptance through ATOP or execution and delivery of a new Letter of
Transmittal, as the case may be, in accordance with the procedures described
herein.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange securities for, any Unregistered
Securities, and may terminate or amend the Exchange Offer as provided herein
before the acceptance of such Unregistered Securities, if:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the Exchange Offer
which, in the judgment of the Company upon written advice of counsel, could
reasonably be expected to materially impair the ability of the Company to
proceed with the Exchange Offer or any material adverse development has
occurred in any existing action or proceeding with respect to the Company
or any of the subsidiaries; or
(b) any law, statute, rule, regulation or interpretation by the staff
of the Commission is proposed, adopted or enacted, which, in the judgment
of the company and based on written advice of counsel, could reasonably be
expected to materially impair the ability of the Company to proceed with
the
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Exchange Offer or materially impair the contemplated benefits of the
Exchange Offer to the Company; or
(c) any governmental approval has not been obtained, which approval
the Company shall, in its discretion and based on written advice of
counsel, deem necessary for the consummation of the Exchange Offer as
contemplated hereby.
If any of the conditions are not satisfied, the Company may (i) refuse to
accept any Unregistered Securities and return all tendered Unregistered
Securities to the tendering holders, (ii) extend the Exchange Offer and retain
all Unregistered Securities tendered prior to the expiration of the Exchange
Offer, subject, however, to the rights of holders to withdraw such Unregistered
Securities (see '--Withdrawal of Tenders') or (iii) waive such unsatisfied
conditions with respect to the Exchange Offer and accept all properly tendered
Unregistered Securities which have not been withdrawn.
EXCHANGE AGENT
United States Trust Company of New York has been appointed as Exchange
Agent for the Exchange Offer. Questions and requests for assistance, requests
for additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notice of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
United States Trust Company of New York
Attention: Corporate Trust Department
770 Broadway
New York, New York 10003
Telephone: (800) 548-6565
Facsimile: (212) 780-0592
Delivery to an address other than as set forth above, or transmission of
instructions via a facsimile number other than the one set forth above, will not
constitute a valid delivery.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers and
regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The Company however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs, among others.
ACCOUNTING TREATMENT
The Exchange Securities will be recorded at the same carrying value as the
Unregistered Securities, which is face value, as reflected in the Company's
accounting records on the date of exchange. Accordingly, no gain or loss for
accounting purposes will be recognized by the Company. The expenses of the
Exchange Offer will be expended over the time of the Exchange Securities.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Unregistered Securities that are not exchanged for Exchange Securities
pursuant to the Exchange Offer will remain restricted securities. Accordingly,
such Unregistered Securities may be resold only (i) to the Company (upon
redemption thereof or otherwise), (ii) so long as the Unregistered Securities
are eligible for resale pursuant to Rule 144A, to a person inside the United
States whom the seller reasonably believes is a qualified institutional buyer
within the meaning of Rule 144A under the Securities Act in a transaction
meeting the requirements of Rule 144A, in accordance with Rule 144 under the
Securities Act, or pursuant
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to another exemption from the registration requirements of the Securities Act
(and based upon an opinion of counsel reasonably acceptable to the Company),
(iii) outside the United States to a foreign person in a transaction meeting the
requirements of Rule 904 under the Securities Act, or (iv) pursuant to an
effective registration statement under the Securities Act, in each case in
accordance with any applicable securities laws of any state of the United
States.
RESALE OF THE EXCHANGE SECURITIES
With respect to resales of Exchange Securities, based on interpretations by
the staff of the Commission set forth in no-action letters issued to third
parties, the Company believes that a holder or other person who receives
Exchange Securities in the ordinary course of business, whether or not such
person is the holder (other than (i) a broker-dealer who purchases such Exchange
Securities from the Company to resell pursuant to Rule 144A or any other
available exemption under the Securities Act or (ii) a person that is an
'affiliate' of the Company within the meaning of Rule 405 under the Securities
Act) who receives Exchange Securities in exchange for Unregistered Securities,
and who is not participating, does not intend to participate, and has no
arrangement or understanding with person to participate, in the distribution of
the Exchange Notes, will be allowed to resell the Exchange Securities to the
public without further registration under the Securities Act and without
delivering to the purchasers of the Exchange Securities a prospectus that
satisfies the requirements of Section 10 of the Securities Act. However, if any
holder acquires Exchange Securities in the Exchange Offer for the purpose of
distributing or participating in a distribution of the Exchange Securities, such
holder cannot rely on the position of the staff of the Commission enunciated in
such no-action letters or any similar interpretive letters, and must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction, unless an exemption from registration is
otherwise available. Further, each Participating Broker-Dealer that receives
Exchange Securities for its own account in exchange for Unregistered Securities,
where such Securities were acquired by such Participating 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
Securities.
As contemplated by these no-action letters and the Registration Rights
Agreements, each holder accepting the Exchange Offer is required to represent to
the Company in the Letter of Transmittal that (i) the Exchange Securities are to
be acquired by the holder or the person receiving such Exchange Securities,
whether or not such person is the holder, in the ordinary course of business,
(ii) the holder or any such other person (other than a broker-dealer referred to
in the next sentence) is not engaging and does not intend to engage, in the
distribution of the Exchange Securities, (iii) the holder or any such other
person has no arrangement or understanding with any person to participate in the
distribution of the Exchange Securities, (iv) neither the holder nor any such
other person is an 'affiliate' of the Company within the meaning of Rule 405
under the Securities Act, and (v) the holder or any such other person
acknowledges that if such holder or other person participates in the Exchange
Offer for the purpose of distributing the Exchange Securities it must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale of the Exchange Securities and cannot rely on
those no-action letters. As indicated above, each Participating Broker-Dealer
that receives an Exchange Securities for its own account in exchange for
Unregistered Securities must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Securities. For a description of the
procedures for such resales by Participating Broker-Dealers, see 'Plan of
Distribution.'
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DESCRIPTION OF NOTES
GENERAL
The Old Notes were issued under an Indenture, dated as of June 25, 1997
(the 'Indenture'), among the Company, the Guarantors and United States Trust
Company of New York, as Trustee (the 'Trustee'), a copy of which is available
upon request to the Company. The New Notes also will be issued under the
Indenture. The Old Notes and the New Notes will be treated as a single class of
securities under the Indenture. The following is a summary of all material
provisions of the Indenture and the Notes and does not purport to be exhaustive
and is subject to, and is qualified in its entirety by reference to, all the
provisions of the Indenture (including the definitions of certain terms therein
and those terms made a part thereof by the Trust Indenture Act of 1939, as
amended) and the Notes. As used herein, the term 'Notes' means the New Notes and
Old Notes treated as a single class.
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes may be exchanged or transferred, at the office or agency of the
Company in the Borough of Manhattan, The City of New York (which initially shall
be the corporate trust office of the Trustee in New York, New York), except
that, at the option of the Company, payment of interest may be made by check
mailed to the address of the holders as such address appears in the Note
Register. Initially, the Trustee will act as Paying Agent and Registrar for the
Notes. The Notes may be presented for registration of transfer and exchange at
the offices of the Registrar, which initially will be the Trustee's corporate
trust office. The Company may change any Paying Agent and Registrar without
notice to holders of the Notes.
The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple of $1,000, and will be
initially issued as a single, permanent global certificate. See 'Book-Entry;
Delivery and Form. No service charge will be made for any registration of
transfer or exchange of Notes, but the Company may require payment of a sum
sufficient to cover any transfer tax or other similar governmental charge
payable in connection therewith.
TERMS OF NOTES
The Notes will be unsecured, senior obligations of the Company, limited to
$155 million aggregate principal amount, and will mature on June 15, 2004. Each
Note will bear interest at the rate of 11% per annum from the date of issuance,
or from the most recent date to which interest has been paid or provided for,
and will be payable semiannually on June 15 and December 15 of each year,
commencing on December 15, 1997, to holders of record at the close of business
on the June 1 or December 1 immediately preceding the Interest Payment Date.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
For each Old Note accepted for exchange, the holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note.
The interest rate on the Old Notes is subject to increase in certain
circumstances relating to the filing of a registration statement or the failure
to consummate the Exchange Offer with respect to the New Notes.
MANDATORY REDEMPTION
The Company will not be required to make mandatory redemptions or sinking
fund payments prior to the maturity of the Notes.
REDEMPTION
Optional Redemption. Except as set forth below, the Notes will not be
redeemable at the option of the Company prior to June 15, 2001. On and after
such date, the Notes will be redeemable, at the Company's option, in whole or in
part, at any time upon not less than 30 nor more than 60 days' prior notice
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mailed by first-class mail to each holder's registered address, at the following
redemption prices (expressed in percentages of principal amount), if redeemed
during the period commencing on the dates set forth below, plus accrued and
unpaid interest to the redemption date (subject to the right of holders of
record on the relevant record date to receive interest due on the relevant
Interest Payment Date):
<TABLE>
<CAPTION>
REDEMPTION
DATE PRICE
- ----------------------------------------------------------- ----------
<S> <C>
June 15, 2001.............................................. 105.500%
June 15, 2002.............................................. 102.750%
June 15, 2003 and thereafter............................... 100.000%
</TABLE>
Optional Redemption upon Equity Offering. In addition, at any time prior
to June 15, 2000, the Company may, at its option, redeem up to 35% of the Notes
with Net Cash Proceeds of one or more Equity Offerings by the Company so long as
there is a Public Market at the time of such redemption, at a redemption price
equal to 111.0% of the principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the date of redemption; provided, however, that
after any such redemption the aggregate principal amount of the Notes
outstanding must equal at least $100.0 million. In order to effect the foregoing
redemption with the proceeds of any Equity Offering, the Company shall make such
redemption not more than 60 days after the consummation of any such Equity
Offering.
Selection. In the case of any partial redemption, selection of the Notes
for redemption will be made by the Trustee on a pro rata basis, by lot or by
such other method as the Trustee in its sole discretion shall deem to be fair
and appropriate; provided, however, that if a partial redemption is made with
proceeds of an Equity Offering, selection of the Notes or portion thereof for
redemption shall be made by the Trustee only on a pro rata basis, unless such
method is otherwise prohibited. Notes may be redeemed in part in multiples of
$1,000 principal amount only. Notice of redemption will be sent, by first class
mail, postage prepaid, at least 45 days (unless a shorter period is acceptable
to the Trustee) prior to the date fixed for redemption to each holder whose
Notes are to be redeemed at the last address for such holder then shown on the
registry books. If any Note is to be redeemed in part only, the notice of
redemption that relates to such Note shall state the portion of the principal
amount thereof to be redeemed. A new Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the holder thereof upon
cancellation of the original Note. On and after any redemption date, interest
will cease to accrue on the Notes or part thereof called for redemption as long
as the Company has deposited with the Paying Agent funds in satisfaction of the
redemption price pursuant to the Indenture.
RANKING
The Old Notes are, and the New Notes will be, senior unsecured obligations
of the Company. The Notes will rank pari passu in right of payment with all
existing and future senior indebtedness of the Company and will rank senior in
right of payment to any future subordinated indebtedness of the Company. The
Notes (and the Guarantees) will be effectively subordinated to any secured debt
of the Company and the Guarantors, to the extent of the assets serving as
security therefor. As of March 31, 1997, on a pro forma basis after giving
effect to the Offering and the Acquisition, the aggregate principal amount of
the Company's outstanding senior indebtedness to which the Notes would have been
effectively subordinated would have been approximately $85.0 million and the
aggregate principal amount of the Guarantors' outstanding senior indebtedness to
which the Guarantees would have been effectively subordinated would have been
approximately $85.0 million.
GUARANTEES
Each Guarantor irrevocably and unconditionally guarantees, jointly and
severally, to each holder and the Trustee, as primary obligor and not as a
surety, the full and prompt payment of principal of and interest on the Notes,
and of all other monetary obligations of the Company under the Indenture.
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The obligations of each Guarantor are limited to the maximum amount as
will, after giving effect to all other contingent and fixed liabilities of such
Guarantor and after giving effect to any collections from or payments made by or
on behalf of any other Guarantor in respect of the obligations of such other
Guarantor under its Guarantee or pursuant to its contribution obligations under
the Indenture, result in the obligations of such Guarantor under its Guarantee
not constituting a fraudulent conveyance or fraudulent transfer under federal or
state law. Each Guarantor that makes a payment or distribution under a Guarantee
shall be entitled to a contribution from each other Guarantor in a pro rata
amount based on the Adjusted Net Assets of each Guarantor.
Each Guarantor may consolidate with or merge into or sell its assets to the
Company or another Guarantor without limitation. Upon the sale or disposition of
a Guarantor (or all or substantially all of its assets) to a Person which is not
a Guarantor, which sale or disposition is otherwise in compliance with the
Indenture (including the covenant described under 'Repurchase at the Option of
Holders--Sales of Assets and Subsidiary Stock'), such Guarantor shall be deemed
released from all its obligations under the Indenture and its Subsidiary
Guarantee and such Subsidiary Guarantee shall terminate; provided, however, that
any such termination shall occur only to the extent that all obligations of such
Guarantor under the New Senior Secured Facilities and all of its guarantees of,
and under all of its pledges of assets or other security interests which secure,
any other Indebtedness of the Company and the other Guarantors shall also
terminate upon such release, sale or transfer.
Subsequent to the Issue Date, separate financial information for the
Guarantors will not be provided except to the extent required by Regulation S-X
under the Securities Act.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control. The Indenture provides that upon the occurrence of a
Change of Control each holder will have the right to require the Company to
repurchase all or any part of such holder's Notes at a purchase price in cash
equal to 101% of the principal amount thereof plus accrued and unpaid interest,
if any, to the date of purchase (subject to the right of holders of record on
the relevant record date to receive interest due on the relevant Interest
Payment Date).
The Indenture provides that within 30 days following any Change of Control,
the Company shall mail a notice to each holder with a copy to the Trustee
stating: (i) that a Change of Control has occurred and that such holder has the
right to require the Company to purchase such holder's Notes at a purchase price
in cash equal to 101% of the principal amount thereof plus accrued and unpaid
interest, if any, to the date of purchase (subject to the right of holders of
record on a record date to receive interest on the relevant Interest Payment
Date), (ii) the repurchase date (which shall be no earlier than 30 days nor
later than 60 days from the date such notice is mailed); and (iii) the
procedures determined by the Company, consistent with the Indenture, that a
holder must follow in order to have its Notes purchased.
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to this covenant. To the
extent that the provisions of any securities laws or regulations conflict with
provisions of the Indenture, the Company will comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations described in the Indenture by virtue thereof.
The definition of 'Change of Control' includes, among other transactions, a
disposition of all or substantially all of the property and assets of the
Company and its Subsidiaries including a transaction permitted under the 'Merger
and Consolidation' covenant. With respect to the disposition of property or
assets, the phrase 'all or substantially all' as used in the Indenture varies
according to the facts and circumstances of the subject transaction, has no
clearly established meaning under New York law (which is the choice of law under
the Indenture) and is subject to judicial interpretation. Accordingly, in
certain circumstances there may be a degree of uncertainty in ascertaining
whether a particular transaction would
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involve a disposition of 'all or substantially all' of the property or assets of
a Person, and therefore it may be unclear as to whether a Change of Control has
occurred and whether the Company is required to make an offer to repurchase the
Notes as described above.
The occurrence of certain of the events that would constitute a Change of
Control would constitute a default under the New Senior Secured Facilities.
Future senior indebtedness of the Company and its Subsidiaries may also contain
prohibitions of certain events that would constitute a Change of Control or
require such senior indebtedness to be repurchased upon a Change of Control.
Moreover, the exercise by the holders of their right to require the Company to
repurchase the Notes could cause a default under such senior indebtedness, even
if the Change of Control itself does not, due to the financial effect of such
repurchase of the Company. Finally, the Company's ability to pay cash to the
holders upon a repurchase may be limited by the Company's then existing
financial resources. There can be no assurance that sufficient funds will be
available when necessary to make any required repurchases. Even if sufficient
funds were otherwise available, the terms of the New Senior Secured Facilities
may prohibit the Company's prepayment of Notes prior to their scheduled
maturity. Consequently, if the Company is not able to prepay the Indebtedness
under the New Senior Secured Facilities and any other senior indebtedness
containing similar restrictions or obtain requisite consents, as described
above, the Company will be unable to fulfill its repurchase obligations if
holders of Notes exercise their repurchase rights following a Change of Control,
thereby resulting in a default under the Indenture.
The existence of a Holder's right to require the Company to repurchase such
Holder's Notes upon the occurrence of a Change of Control may deter a third
party from seeking to acquire the Company in a transaction that would constitute
a Change of Control.
Sales of Assets and Subsidiary Stock. The Indenture provides that the
Company shall not, and shall not permit any of its Restricted Subsidiaries to,
make any Asset Disposition unless (i) the Company or such Restricted Subsidiary
receives consideration at the time of such Asset Disposition at least equal to
the fair market value, as determined in good faith by the Company's Board of
Directors (including as to the value of all non-cash consideration), of the
shares and assets subject to such Asset Disposition, (ii) at least 75% of the
consideration thereof received by the Company or such Restricted Subsidiary is
in the form of cash or Cash Equivalents and (iii) an amount equal to 100% of the
Net Available Cash from such Asset Disposition is applied by the Company (or
such Restricted Subsidiary, as the case may be) (A) first, (x) to the extent the
Company or any Restricted Subsidiary elects (or is required by the terms of any
senior secured indebtedness), to prepay, repay or purchase senior secured
Indebtedness or (y) to the investment in or acquisition of Additional Assets
within 180 days from the later of the date of such Asset Disposition or the
receipt of such Net Available Cash; (B) second, within 180 days from the receipt
of such Net Available Cash, to the extent of the balance of such Net Available
Cash after application in accordance with clause (A), to make an offer to
purchase Notes at 100% of their principal amount plus accrued and unpaid
interest, if any, thereon; (C) third, within 180 days after the later of the
application of Net Available Cash in accordance with clauses (A) and (B) and the
date that is one year from the receipt of such Net Available Cash, to the extent
of the balance of such Net Available Cash after application in accordance with
clauses (A) and (B), to prepay, repay or repurchase Indebtedness (other than
Preferred Stock) of a Wholly-Owned Subsidiary (in each case other than
Indebtedness owed to the Company); and (D) fourth, to the extent of the balance
of such Net Available Cash after application in accordance with clauses (A), (B)
and (C), to (x) the prepayment, repayment or purchase of Indebtedness of the
Company (other than Indebtedness owing to any Affiliate or Subsidiary of the
Company or the repurchase of Disqualified Capital Stock) or Indebtedness of any
Subsidiary (other than Indebtedness owed to the Company or any of its
Subsidiaries or Affiliates or the repurchase of Disqualified Stock) or (y) any
other purpose otherwise permitted under the Indenture, in each case within the
later of 45 days after the application of Net Available Cash in accordance with
clauses (A), (B) and (C) or the date that is one year from the receipt of such
Net Available Cash; provided, however, that, in connection with any prepayment,
repayment or purchase of Indebtedness pursuant to clause (A), (B), (C) or (D)
above, the Company or such Restricted Subsidiary shall retire such Indebtedness
and shall cause the related loan commitment (if any) to be permanently reduced
in an amount equal to the principal
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amount so prepaid, repaid or purchased. Notwithstanding the foregoing
provisions, the Company and its Restricted Subsidiaries shall not be required to
apply any Net Available Cash in accordance herewith except to the extent that
the aggregate Net Available Cash from all Asset Dispositions which are not
applied in accordance with this covenant at any time exceed $5 million. The
Company shall not be required to make an offer to purchase Notes pursuant to
this covenant if the Net Available Cash available therefor (after application of
the proceeds as provided in clauses (A) and (B)) is less than $5 million for any
particular Asset Disposition (which lesser amounts shall be carried forward for
purposes of determining whether an offer is required with respect to the Net
Available Cash from any subsequent Asset Disposition).
For the purposes of this covenant, the following will be deemed to be cash:
(x) the assumption by the transferee of senior indebtedness of the Company or
senior indebtedness of any Restricted Subsidiary of the Company and the release
of the Company or such Restricted Subsidiary from all liability on such senior
indebtedness in connection with such Asset Disposition and (y) securities
received by the Company or any Restricted Subsidiary of the Company from the
transferee that are promptly (and in any event within 60 days) converted by the
Company or such Restricted Subsidiary into cash.
In the event of an Asset Disposition that requires the purchase of Notes
pursuant to clause (iii) (B) of the first paragraph of '--Sales of Assets and
Subsidiary Stock', the Company will be required to purchase Notes tendered
pursuant to an offer by the Company for the Notes at a purchase price of 100% of
their principal amount plus accrued and unpaid interest, if any, to the purchase
date in accordance with the procedures (including prorating in the event of
oversubscription) set forth in the Indenture. If the aggregate purchase price of
the Notes tendered pursuant to the offer is less than the Net Available Cash
allotted to the purchase of the Notes, the Company will apply the remaining Net
Available Cash in accordance with clauses (iii) (C) or (D) of the first
paragraph of '--Sales of Assets and Subsidiary Stock' as permitted under the
Indenture.
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to the Indenture. To the
extent that the provisions of any securities laws or regulations conflict with
provisions of this covenant, the Company will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under the Indenture by virtue thereof.
CERTAIN COVENANTS
The Indenture contains certain covenants including, among others, the
following:
Limitation on Indebtedness.
(a) The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, Incur any Indebtedness; provided, however, that the
Company may Incur Indebtedness if on the date thereof the Consolidated
Coverage Ratio would be greater than 2.0:1.
(b) Notwithstanding the foregoing paragraph (a), the Company may Incur
the following Indebtedness:
(i) Indebtedness Incurred pursuant to the New Senior Secured
Facilities (including, without limitation, any renewal, extension,
refunding, restructuring, replacement or refinancing thereof referred to
in the definition thereof), provided, however, that the aggregate
principal amount of all Indebtedness Incurred pursuant to this clause
(i) does not exceed $110 million at any time outstanding less the
aggregate principal amount thereof repaid with the net proceeds of Asset
Dispositions (to the extent, in the case of such repayment of revolving
credit indebtedness, the commitment to advance loans has been
terminated);
(ii) Indebtedness represented by Capitalized Lease Obligations,
mortgage financings or purchase money obligations, in each case Incurred
for the purpose of financing all or any part of
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the purchase price or cost of construction or improvement of property
used in a Permitted Business or Incurred to refinance any such purchase
price or cost of construction or improvement, in each case Incurred no
later than 365 days after the date of such acquisition or the date of
completion of such construction or improvement; provided, however, that
the principal amount of any Indebtedness Incurred pursuant to this
clause (ii) shall not exceed $3 million at any time outstanding;
(iii) Indebtedness of the Company owing to and held by any
Wholly-Owned Subsidiary or Indebtedness of a Restricted Subsidiary owing
to and held by the Company or any Wholly-Owned Subsidiary; provided,
however, that any subsequent issuance or transfer of any Capital Stock
or any other event which results in any such Wholly-Owned Subsidiary
ceasing to be a Wholly-Owned Subsidiary or any subsequent transfer of
any such Indebtedness (except to the Company or any Wholly-Owned
Subsidiary) shall be deemed, in each case, to constitute the Incurrence
of such Indebtedness by the issuer thereof;
(iv) Indebtedness represented by (w) the Notes, (x) the Guarantees,
(y) Existing Indebtedness and (z) any Refinancing Indebtedness Incurred
in respect of any Indebtedness described in this clause (iv) or Incurred
pursuant to paragraph (a) above;
(v) (A) Indebtedness of a Restricted Subsidiary Incurred and
outstanding on the date on which such Restricted Subsidiary was acquired
by the Company (other than Indebtedness Incurred in anticipation of, or
to provide all or any portion of the funds or credit support utilized to
consummate the transaction or series of related transactions pursuant to
which such Restricted Subsidiary became a Subsidiary or was otherwise
acquired by the Company); provided, however, that at the time such
Restricted Subsidiary is acquired by the Company, the Company would have
been able to Incur $1.00 of additional Indebtedness pursuant to
paragraph (a) above after giving effect to the Incurrence of such
Indebtedness pursuant to this clause (v) and (B) Refinancing
Indebtedness Incurred by a Restricted Subsidiary in respect of
Indebtedness Incurred by such Restricted Subsidiary pursuant to this
clause (v);
(vi) Indebtedness (A) in respect of performance bonds, bankers'
acceptances and surety or appeal bonds provided by the Company or any of
its Restricted Subsidiaries to their customers in the ordinary course of
their business, (B) in respect of performance bonds or similar
obligations of the Company or any of its Restricted Subsidiaries for or
in connection with pledges, deposits or payments made or given in the
ordinary course of business in connection with or to secure statutory,
regulatory or similar obligations, including obligations under health,
safety or environmental obligations and (C) arising from Guarantees to
suppliers, lessors, licensees, contractors, franchises or customers of
obligations (other than Indebtedness) incurred in the ordinary course of
business;
(vii) Indebtedness under Currency Agreements and Interest Rate
Agreements; provided, however, that in the case of Currency Agreements
and Interest Rate Agreements, such Currency Agreements and Interest Rate
Agreements are entered into for bona fide hedging purposes of the
Company or its Restricted Subsidiaries (as determined in good faith by
the Board of Directors of the Company) and correspond in terms of
notional amount, duration, currencies and interest rates as applicable,
to Indebtedness of the Company or its Restricted Subsidiaries Incurred
without violation of the Indenture or to business transactions of the
Company or its Restricted Subsidiaries on customary terms entered into
in the ordinary course of business;
(viii) Indebtedness arising from agreements providing for
indemnification, adjustment of purchase price or similar obligations, or
from Guarantees or letters of credits, surety bonds or performance bonds
securing any obligations of the Company or any of its Restricted
Subsidiaries pursuant to such agreements, in each case Incurred in
connection with the disposition of any business assets or Restricted
Subsidiary of the Company (other than Guarantees of Indebtedness
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or other obligations incurred by any Person acquiring all or any portion
of such business assets or Restricted Subsidiary of the Company for the
purpose of financing such acquisition) in a principal amount not to
exceed the gross proceeds actually received by the Company or any of its
Restricted Subsidiaries in connection with such disposition; provided,
however, that the principal amount of any Indebtedness incurred pursuant
to this clause (viii) when taken together with all Indebtedness incurred
pursuant to this clause (viii) and then outstanding, shall not exceed $1
million;
(ix) Indebtedness consisting of (A) Guarantees by the Company (so
long as the Company could have incurred such Indebtedness directly
without violation of the Indenture) and (B) Guarantees by a Restricted
Subsidiary of senior indebtedness incurred by the Company without
violation of the Indenture (so long as such Restricted Subsidiary could
have incurred such Indebtedness directly without violation of the
Indenture);
(x) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument issued by
the Company or its Subsidiaries drawn against insufficient funds in the
ordinary course of business in an amount not to exceed $500,000 at any
time, provided that such Indebtedness is extinguished within two
business days of its incurrence; and
(xi) Indebtedness (other than Indebtedness described in clauses
(i)-(x)) in a principal amount which, when taken together with the
principal amount of all other Indebtedness Incurred pursuant to this
clause (xi) and then outstanding, will not exceed $5 million (it being
understood that any Indebtedness Incurred under this clause (xi) shall
cease to be deemed Incurred or outstanding for purposes of this clause
(xi) (but shall be deemed to be Incurred for purposes of paragraph (a))
from and after the first date on which the Company or its Restricted
Subsidiaries could have Incurred such Indebtedness under the foregoing
paragraph (a) without reliance upon this clause (xi).
(c) The Company will not permit any Unrestricted Subsidiary to Incur
any Indebtedness other than Non-Recourse Debt.
Limitation on Restricted Payments. (a) The Company shall not, and shall
not permit any of its Restricted Subsidiaries, directly or indirectly, to (i)
declare or pay any dividend or make any distribution on or in respect of its
Capital Stock (including any payment in connection with any merger or
consolidation involving the Company or any of its Restricted Subsidiaries)
except (A) dividends or distributions payable in its Capital Stock (other than
Disqualified Stock) or in options, warrants or other rights to purchase such
Capital Stock, and (B) dividends or distributions payable to the Company or a
Wholly-Owned Subsidiary of the Company, (ii) purchase, redeem, retire or
otherwise acquire for value any Capital Stock of the Company or any Restricted
Subsidiary of the Company held by Persons other than the Company or another
Restricted Subsidiary of the Company (in either case, other than in exchange for
its Capital Stock (other than Disqualified Stock)), (iii) purchase, repurchase,
redeem, defease or otherwise acquire or retire for value, prior to scheduled
maturity, scheduled repayment or scheduled sinking fund payment, any
Subordinated Obligations or (iv) make any Investment (other than a Permitted
Investment) in any Person (any such dividend, distribution, purchase,
redemption, repurchase, defeasance, other acquisition, retirement or Investment
as described in preceding clauses (i) through (iv) being referred to as a
'Restricted Payment'); if at the time the Company or such Restricted Subsidiary
makes such Restricted Payment:
(1) a Default shall have occurred and be continuing (or would result
therefrom); or
(2) the Company is not able to incur an additional $1.00 of
Indebtedness pursuant to paragraph (a) under 'Limitation on Indebtedness';
or
(3) the aggregate amount of such Restricted Payment and all other
Restricted Payments declared or made subsequent to the Issue Date would
exceed the sum of (A) 50% of the Consolidated Net Income accrued during the
period (treated as one accounting period) from the first day of the fiscal
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quarter beginning on or after the Issue Date to the end of the most recent
fiscal quarter ending prior to the date of such Restricted Payment as to
which financial results are available (but in no event ending more than 135
days prior to the date of such Restricted Payment) (or, in case such
Consolidated Net Income shall be a deficit, minus 100% of such deficit);
(B) the aggregate net proceeds received by the Company from the issue or
sale of its Capital Stock (other than Disqualified Stock) or other capital
contributions subsequent to the Issue Date (other than net proceeds
received from an issuance or sale of such Capital Stock to a Subsidiary of
the Company or an employee stock ownership plan or similar trust);
provided, however, that the value of any non-cash net proceeds shall be as
determined by the Board of Directors in good faith, except that in the
event the value of any non-cash net proceeds shall be $1 million or more,
the value shall be as determined in writing by an independent investment
banking firm of nationally recognized standing; (C) the amount by which
Indebtedness of the Company is reduced on the Company's balance sheet upon
the conversion or exchange (other than by a Restricted Subsidiary of the
Company) subsequent to the Issue Date of any Indebtedness of the Company
Incurred subsequent to the Issue Date which is convertible or exchangeable
for Capital Stock of the Company (less the amount of any cash, or other
property, distributed by the Company upon such conversion or exchange); (D)
the amount equal to the net reduction in Investments (other than Permitted
Investments) made after the Issue Date by the Company or any of its
Restricted Subsidiaries in any Person resulting from (i) repurchases or
redemptions of such Investments by such Person, proceeds realized upon the
sale of such Investment to an unaffiliated purchaser, repayments of loans
or advances or other transfers of assets by such Person to the Company or
any Restricted Subsidiary of the Company or (ii) the redesignation of
Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case
as provided in the definition of 'Investment') not to exceed, in the case
of any Unrestricted Subsidiary, the amount of Investments previously
included in the calculation of the amount of Restricted Payments; provided,
however, that no amount shall be included under this Clause (D) to the
extent it is already included in Consolidated Net Income; and (E) $5.0
million.
(b) The provisions of the foregoing paragraph shall not prohibit:
(i) any purchase or redemption of Capital Stock or Subordinated
Obligations of the Company made by exchange for, or out of the proceeds
of the substantially concurrent sale of, Capital Stock of the Company
(other than Disqualified Stock and other than Capital Stock issued or
sold to a Subsidiary or an employee stock ownership plan or similar
trust); provided, however, that (A) such purchase or redemption shall be
excluded in the calculation of the amount of Restricted Payments and (B)
the Net Cash Proceeds from such sale shall be excluded from clause (3)
(B) of the foregoing paragraph;
(ii) any purchase or redemption of Subordinated Obligations of the
Company made by exchange for, or out of the proceeds of the
substantially concurrent sale of, Subordinated Obligations of the
Company in compliance with the 'Limitation on Indebtedness' covenant;
provided, however, that such purchase or redemption shall be excluded in
the calculation of the amount of Restricted Payments;
(iii) any purchase or redemption of Subordinated Obligations from
Net Available Cash to the extent permitted under 'Repurchase at the
Option of Holders--Sales of Assets and Subsidiary Stock' above;
(iv) dividends paid within 60 days after the date of declaration if
at such date of declaration such dividend would have complied with this
provision; provided, however, that such dividend shall be included in
the calculation of the amount of Restricted Payments; and
(v) payments to Bollore Technologies S.A., which payments shall not
exceed $500,000 in any six month period and shall not exceed $2.5
million in the aggregate.
provided, however, that no Default or Event of Default shall have occurred or be
continuing at the time of such payment or as a result thereof.
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For purposes of determining compliance with the foregoing covenant,
Restricted Payments may be made with cash or non-cash assets, provided that any
Restricted Payment made other than in cash shall be valued at the fair market
value (determined, subject to the additional requirements of the immediately
succeeding proviso, in good faith by the Board of Directors) of the assets so
utilized in making such Restricted Payment, provided, further, that (i) in the
case of any Restricted Payment made with Capital Stock or Indebtedness, such
Restricted Payment shall be deemed to be made in an amount equal to the greater
of the fair market value thereof and the liquidation preference (if any) or
principal amount of the capital stock or indebtedness, as the case may be, so
utilized, and (ii) in the case of any Restricted Payment made with non-cash
assets in an aggregate amount in excess of $1 million, a written opinion as to
the fairness of the valuation thereof (as determined by the Company) for
purposes of determining compliance with the 'Limitation on Restricted Payments'
covenant in the Indenture shall be issued by an independent investment banking
firm of national standing.
Limitation on Liens. The Indenture provides that the Company will not, and
will not permit any Restricted Subsidiary to, directly or indirectly, create,
incur, assume or suffer to exist any Liens except for Permitted Liens.
Limitation on Distributions from Restricted Subsidiaries. The Company
shall not, and shall not permit any of its Restricted Subsidiaries to, create or
permit to exist or become effective any consensual encumbrance or restriction on
the ability of any such Restricted Subsidiary to:
(i) pay dividends or make any other distributions on its Capital
Stock or pay any Indebtedness or other obligation owed to the Company;
(ii) make any loans or advances to the Company; or
(iii) transfer any of its property or assets to the Company;
except (in each case) for such encumbrances or restrictions existing under or by
reason of:
(a) any encumbrance or restriction pursuant to an agreement in effect
at or entered into on the Issue Date, including the New Senior Secured
Facilities;
(b) any encumbrance or restriction with respect to such a Restricted
Subsidiary pursuant to an agreement relating to any Indebtedness issued by
such Restricted Subsidiary on or prior to the date on which such Restricted
Subsidiary was acquired by the Company and outstanding on such date (other
than indebtedness issued as anticipation of, or to provide all or any
portion of the funds or credit support utilized to consummate, the
transaction or series of related transactions pursuant to which such
Restricted Subsidiary became a Restricted Subsidiary of the Company or was
acquired by the Company);
(c) any encumbrance or restriction with respect to such a Restricted
Subsidiary pursuant to an agreement evidencing Indebtedness Incurred
without violation of the Indenture or effecting a refinancing of
Indebtedness issued pursuant to an agreement referred to in clauses (a) or
(b) or this clause (c) or contained in any amendment to an agreement
referred to in clauses (a) or (b) or this clause (c); provided, however,
that the encumbrances and restrictions with respect to such Restricted
Subsidiary contained in any of such agreement, refinancing agreement or
amendment, taken as a whole, are no less favorable to holders of the Notes
in any material respect, as determined in good faith by the Board of
Directors of the Company, than encumbrances and restrictions with respect
to such Restricted Subsidiary contained in agreements in effect at, or
entered into on, the Issue Date;
(d) in the case of clause (iii), any encumbrance or restriction (A)
that restricts in a customary manner the subletting, assignment or transfer
of any property or asset that is a lease, license, conveyance or contract
or similar property or asset, (B) by virtue of any transfer of, agreement
to
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transfer, option or right with respect to, or Lien on, any property or
assets of the Company or any Restricted Subsidiary not otherwise prohibited
by the Indenture, (C) that is included in a licensing agreement to the
extent such restrictions limit the transfer of the property subject to such
licensing agreement or (D) arising or agreed to in the ordinary course of
business and that does not, individually or in the aggregate, detract from
the value of property or assets of the Company or any of its Subsidiaries
in any manner material to the Company or any such Restricted Subsidiary;
(e) in the case of clause (iii) above, restrictions contained in
security agreements, mortgages or similar documents securing Indebtedness
of a Restricted Subsidiary to the extent such restrictions restrict the
transfer of the property subject to such security agreements;
(f) in the case of clause (iii) above, any instrument governing or
evidencing Indebtedness of a Person acquired by the Company or any
Restricted Subsidiary of the Company at the time of such acquisition, which
encumbrance or restriction is not applicable to any Person, or the
properties or assets of any Person, other than the Person so acquired;
provided, however, that such Indebtedness is not incurred in connection
with or in contemplation of such acquisition.
(g) any restriction with respect to such a Restricted Subsidiary
imposed pursuant to an agreement entered into for the sale or disposition
of all or substantially all the Capital Stock or assets of such Restricted
Subsidiary pending the closing of such sale or disposition; and
(h) encumbrances or restrictions arising or existing by reason of
applicable law.
Limitation on Affiliate Transactions. The Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, enter into
or conduct any transaction or series of related transactions (including the
purchase, sale, lease or exchange of any property or the rendering of any
service) with or for the benefit of any Affiliate of the Company, other than a
Wholly-Owned Subsidiary (an 'Affiliate Transaction') unless: (i) the terms of
such Affiliate Transaction are no less favorable to the Company or such
Restricted Subsidiary, as the case may be, than those that could be obtained at
the time of such transaction in arm's length dealings with a Person who is not
such an Affiliate; (ii) in the event such Affiliate Transaction involves an
aggregate amount in excess of $1 million, the terms of such transaction have
been approved by a majority of the members of the Board of Directors of the
Company and by a majority of the disinterested members of such Board, if any
(and such majority or majorities, as the case may be, determines that such
Affiliate Transaction satisfies the criteria in (i) above); and (iii) in the
event such Affiliate Transaction involves an aggregate amount in excess of $2
million, the Company has received a written opinion from an independent
investment banking firm of nationally recognized standing that such Affiliate
Transaction is fair to the Company or such Restricted Subsidiary, as the case
may be, from a financial point of view.
The foregoing paragraph shall not apply to (i) any Restricted Payment
permitted to be made pursuant to the covenant described under 'Limitation on
Restricted Payments,' (ii) any issuance of securities, or other payments, awards
or grants in cash, securities or otherwise pursuant to, or the funding of,
employment arrangements, or any stock options and stock ownership plans for the
benefit of employees, officers and directors, consultants and advisors approved
by the Board of Directors of the Company, (iii) loans or advances to employees
in the ordinary course of business of the Company or any of its Restricted
Subsidiaries in aggregate amount outstanding not to exceed $900,000 at any time,
(iv) any transaction between Wholly-Owned Subsidiaries, (v) indemnification
agreements with, and the payment of fees and indemnities to, directors, officers
and employees of the Company and its Restricted Subsidiaries, in each case in
the ordinary course of business, (vi) transactions pursuant to agreements in
existence on the Issue Date which are (x) described in the Offering Memorandum
or (y) otherwise, in the aggregate, immaterial to the Company and its Restricted
Subsidiaries taken as a whole, (vii) any employment, non-competition or
confidentiality agreements entered into by the Company or any of its Restricted
Subsidiaries with its employees in the ordinary course of business and (viii)
the issuance of Capital Stock of the Company (other than Disqualified Stock).
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Limitation on Issuances of Capital Stock of Restricted Subsidiaries. The
Company will not permit any of its Restricted Subsidiaries to issue any Capital
Stock to any Person (other than to the Company or a Wholly-Owned Subsidiary of
the Company) or permit any Person (other than the Company or a Wholly-Owned
Subsidiary of the Company) to own any Capital Stock of a Restricted Subsidiary
of the Company, if in either case as a result thereof such Restricted Subsidiary
would no longer be a Restricted Subsidiary of the Company; provided, however,
that this provision shall not prohibit (x) the Company or any of its Restricted
Subsidiaries from selling, leasing or otherwise disposing of 100% of the Capital
Stock of any Restricted Subsidiary in accordance with 'Repurchase at Option of
Holders-Sales of Assets and Subsidiary Stock' or (y) the designation of a
Restricted Subsidiary as an Unrestricted Subsidiary in compliance with the
Indenture.
SEC Reports. The Company will file with the Trustee and provide to the
holders of the Notes, within 15 days after it files them with the Commission,
copies of the annual reports and of the information, documents and other reports
(or copies of such portions of any of the foregoing as the Commission may by
rules and regulations prescribe) which the Company files with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act. In the event that the
Company is not required to file such reports with the Commission pursuant to the
Exchange Act, the Company will nevertheless deliver such Exchange Act
information to the holders of the Notes within 15 days after it would have been
required to file it with the Commission.
Merger and Consolidation. The Company shall not consolidate with or merge
with or into, or convey, transfer or lease all or substantially all of its
assets to, any Person, unless: (i) the resulting, surviving or transferee Person
(the 'Successor Company') shall be a corporation, partnership, trust or limited
liability company organized and existing under the laws of the United States of
America, any State thereof or the District of Columbia and the Successor Company
(if not the Company) shall expressly assume, by supplemental indenture, executed
and delivered to the Trustee, in form satisfactory to the Trustee, all the
obligations of the Company under the Notes and the Indenture; (ii) immediately
after giving effect to such transaction (and treating any Indebtedness that
becomes an obligation of the Successor Company or any Subsidiary of the
Successor Company as a result of such transaction as having been incurred by the
Successor Company or such Restricted Subsidiary at the time of such
transaction), no Default or Event of Default shall have occurred and be
continuing; (iii) immediately after giving effect to such transaction, the
Successor Company would be able to incur at least an additional $1.00 of
Indebtedness pursuant to paragraph (a) of 'Limitation on Indebtedness'; (iv) the
Consolidated Net Worth of the resulting, surviving, or transferee corporation is
not less than that of the Company immediately prior to the transaction and (v)
the Company shall have delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that such consolidation, merger or transfer and
such supplemental indenture (if any) comply with the Indenture.
The Successor Company will succeed to, and be substituted for, and may
exercise every right and power of, the Company under the Indenture, but, in the
case of a lease of all or substantially all its assets, the Company will not be
released from the obligation to pay the principal of and interest on the Notes.
Notwithstanding the foregoing clauses (ii) and (iii), any Restricted
Subsidiary of the Company may consolidate with, merge into or transfer all or
part of its properties and assets to the Company.
EVENTS OF DEFAULT
Each of the following constitutes an Event of Default under the Indenture:
(i) a default in any payment of interest on any Note when due, continued for 30
days, (ii) a default in the payment of principal of any Note when due at its
Stated Maturity, upon optional redemption, upon required repurchase, upon
declaration or otherwise, (iii) the failure by the Company to comply with its
obligations under the 'Merger and Consolidation' covenant described under
'Certain Covenants' above, (iv) the failure by the Company to comply for 30 days
after notice with any of its obligations under the covenants described under
'Redemption at the Option of Holders' above or under covenants described under
'Certain Covenants'
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above (in each case, other than a failure to purchase Notes which shall
constitute an Event of Default under clause (ii) above), other than '--Merger
and Consolidation,' (v) the failure by the Company or any Guarantor to comply
for 60 days after notice with its other agreements contained in the Indenture,
(vi) Indebtedness of the Company or any Restricted Subsidiary is not paid within
any applicable grace period after final maturity or is accelerated by the
holders thereof because of a default and the total amount of such Indebtedness
unpaid or accelerated exceeds $5 million and such default shall not have been
cured or such acceleration rescinded after a 10-day period, (vii) certain events
of bankruptcy, insolvency or reorganization of the Company or a Significant
Subsidiary (the 'bankruptcy provisions'), (viii) any judgment or decree for the
payment of money in excess of $5 million (to the extent not covered by
insurance) is rendered against the Company or a Significant Subsidiary and such
judgment or decree shall remain undischarged or unstayed for a period of 60 days
after such judgment becomes final and non-appealable (the 'judgment default
provision') or (ix) any Subsidiary Guarantee by a Significant Subsidiary ceases
to be in full force and effect (except as contemplated by the terms of the
Indenture) or any Guarantor that is a Significant Subsidiary denies or
disaffirms its obligations under the Indenture or its Subsidiary Guarantee and
such Default continues for 10 days. However, a default under clause (iv) or (v)
will not constitute an Event of Default until the Trustee or the holders of 25%
in principal amount of the outstanding Notes notify the Company of the default
and the Company does not cure such default within the time specified in clause
(iv) or (v) after receipt of such notice.
If an Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in principal amount of the outstanding Notes by notice to the
Company may declare the principal of and accrued and unpaid interest, if any, on
all the Notes to be due and payable. Upon such a declaration, such principal and
accrued and unpaid interest shall be due and payable immediately. If an Event of
Default relating to certain events of bankruptcy, insolvency or reorganization
of the Company occurs, the principal of and accrued and unpaid interest on all
the Notes will become and be immediately due and payable without any declaration
or other act on the part of the Trustee or any holders. Under certain
circumstances, the holders of a majority in principal amount of the outstanding
Notes may rescind any such acceleration with respect to the Notes and its
consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, if an Event of Default occurs and is continuing, the Trustee will be
under no obligation to exercise any of the rights or powers under the Indenture
at the request or direction of any of the holders unless such holders have
offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal, premium (if any) or interest when due, no holder may pursue any
remedy with respect to the Indenture or the Notes unless (i) such holder has
previously given the Trustee notice that an Event of Default is continuing, (ii)
holders of at least 25% in principal amount of the outstanding Notes have
requested the Trustee to pursue the remedy, (iii) such holders have offered the
Trustee reasonable security or indemnity against any loss, liability or expense,
(iv) the Trustee has not complied with such request within 60 days after the
receipt of the request and the offer of security or indemnity and (v) the
holders of a majority in principal amount of the outstanding Notes have not
given the Trustee a direction that, in the reasonable opinion of the Trustee, is
inconsistent with such request within such 60-day period. Subject to certain
restrictions, the holders of a majority in principal amount of the outstanding
Notes are given the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or of exercising any trust or
power conferred on the Trustee. The Trustee, however, may refuse to follow any
direction that conflicts with law or the Indenture or that the Trustee
determines is unduly prejudicial to the rights of any other holder or that would
involve the Trustee in personal liability. Prior to taking any action under the
Indenture, the Trustee shall be entitled to indemnification satisfactory to it
in its sole discretion against all losses and expenses caused by taking or not
taking such action.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each holder notice of the Default
within 60 days after it occurs. Except in the case of a Default in the payment
of principal of, premium (if any) or interest on any Note, the Trustee may
withhold notice if and so long as its board of directors, a committee of its
board of directors or a committee of its
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Trust officers in good faith determines that withholding notice is in the
interests of the Noteholders. In addition, the Company is required to deliver to
the Trustee, within 90 days after the end of each fiscal year, a certificate
indicating whether the signers thereof know of any Default that occurred during
the previous year. The Company also is required to deliver to the Trustee,
within 30 days after the occurrence thereof, written notice of any events which
would constitute certain Defaults.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the
consent of the holders of a majority in principal amount of the Notes then
outstanding and any past default or compliance with any provisions may be waived
with the consent of the holders of a majority in principal amount of the Notes
then outstanding. However, without the consent of each holder of an outstanding
Note affected, no amendment may, among other things, (i) reduce the amount of
Notes whose holders must consent to an amendment, (ii) reduce the stated rate of
or extend the stated time for payment of interest on any Note, (iii) reduce the
principal of or extend the Stated Maturity of any Note, (iv) reduce the premium
payable upon the redemption or repurchase of any Note or change the time at
which any Note may be redeemed as described under 'Optional Redemption' above,
(v) make any Note payable in money other than that stated in the Note, (vi)
impair the right of any holder to receive payment of principal of and interest
on such holder's Notes on or after the due dates therefor or to institute suit
for the enforcement of any payment on or with respect to such holder's Notes or
(vii) make any change in the amendment provisions which require each holder's
consent or in the waiver provisions.
Without the consent of any holder, the Company and the Trustee may amend
the Indenture to cure any ambiguity, omission, defect or inconsistency, to
provide for the assumption by a successor corporation, partnership, trust or
limited liability company of the obligations of the Company under the Indenture,
to provide for uncertificated Notes in addition to or in place of certificated
Notes (provided that the uncertificated Notes are issued in registered form for
purposes of Section 163(f) of the Code, or in a manner such that the
uncertificated Notes are described in Section 163(f)(2)(B) of the Code), to add
further Guarantees with respect to the Notes, to secure the Notes, to add to the
covenants of the Company for the benefit of the holders or to surrender any
right or power conferred upon the Company, to make any change that does not
adversely affect the rights of any holder or to comply with any requirement of
the Commission in connection with the qualification of the Indenture under the
Trust Indenture Act.
The consent of the holders is not necessary under the Indenture to approve
the particular form of any proposed amendment. It is sufficient if such consent
approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to the holders a notice briefly describing such amendment.
However, the failure to give such notice to all the holders or any defect
therein, will not impair or affect the validity of the amendment.
DEFEASANCE
The Company at any time may terminate all its obligations under the Notes
and the Indenture ('legal defeasance'), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the Notes, to replace mutilated, destroyed, lost or
stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. The Company at any time may terminate its obligations under covenants
described under 'Certain Covenants' (other than 'Merger and Consolidation'), the
operation of the cross acceleration provision, the bankruptcy provisions with
respect to Significant Subsidiaries, the judgment default provision and the
Subsidiary Guarantee provision described under 'Events of Default' above and the
limitations contained in clauses (iii) and (iv) under 'Certain Covenants--Merger
and Consolidation' above ('covenant defeasance').
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes
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may not be accelerated because of an Event of Default with respect thereto. If
the Company exercises its covenant defeasance option, payment of the Notes may
not be accelerated because of an Event of Default specified in clause (iv),
(vi), (vii) (with respect only to Significant Subsidiaries), (viii) or (ix)
under 'Events of Default' above or because of the failure of the Company to
comply with clause (iii) or (iv) under 'Certain Covenants--Merger and
Consolidation' above.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the 'defeasance trust') with the Trustee money or U.S.
Government Obligations for the payment of principal, premium (if any) and
interest on the Notes to redemption or maturity, as the case may be, and must
comply with certain other conditions, including delivery to the Trustee of an
Opinion of Counsel to the effect that holders of the Notes will not recognize
income, gain or loss for United States federal income tax purposes as a result
of such deposit and defeasance and will be subject to United States federal
income tax on the same amount and in the same manner and at the same times as
would have been the case if such deposit and defeasance had not occurred (and,
in the case of legal defeasance only, such Opinion of Counsel must be based on a
ruling of the Internal Revenue Service or other change in applicable United
States federal income tax law).
CONCERNING THE TRUSTEE
United States Trust Company of New York is the Trustee under the Indenture
and has been appointed by the Company as Registrar and Paying Agent with regard
to the Notes.
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim a security or otherwise. The Trustee is permitted to engage in other
transactions; however, if it acquires any conflicting interest (as defined) it
must eliminate such conflict or resign.
The holders of a majority in aggregate principal amount of the then
outstanding Notes issued under the Indenture have the right to direct the time,
method and place of conducting any proceeding for exercising any remedy
available to the Trustee. The Indenture provides that in case an Event of
Default shall occur (which shall not be cured) the Trustee will be required, in
the exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any of the holders of the Notes issued thereunder unless they
shall have offered to the Trustee security and indemnity satisfactory to it.
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
'Additional Assets' means (i) any property or assets (other than
Indebtedness and Capital Stock) in a Permitted Business; (ii) the Capital Stock
of a Person that becomes a Restricted Subsidiary as a result of the acquisition
of such Capital Stock by the Company or a Restricted Subsidiary of the Company;
or (iii) Permitted Investments of the type and in the amounts described in
clause (viii) of the definition thereof; provided, however, that, in the case of
clause (ii), such Restricted Subsidiary is primarily engaged in a Permitted
Business.
'Adjusted Net Assets' of a Guarantor at any date shall mean the lesser of
the amount by which (x) the fair value of the property of such Guarantor exceeds
the total amount of liabilities, including, without limitation, the probable
liability of such Guarantor with respect to its contingent liabilities (after
giving effect to all other fixed and contingent liabilities incurred or assumed
on such date), but excluding liabilities
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under the Subsidiary Guarantee, of such Guarantor at such date and (y) the
present fair salable value of the assets of such Guarantor at such date exceeds
the amount that will be required to pay the probable liability of such Guarantor
on its debts (after giving effect to all other fixed and contingent liabilities
incurred or assumed on such date and after giving effect to any collection from
any Subsidiary by such Guarantor in respect of the obligations of such
Subsidiary under the Subsidiary Guarantee), excluding debt in respect of the
Subsidiary Guarantee, as they become absolute and matured.
'Affiliate' of any specified person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
'control' when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
'controlling' and 'controlled' have meanings correlative to the foregoing.
'Asset Disposition' means any sale, lease, transfer, issuance or other
disposition (or series of related sales, leases, transfers, issuances or
dispositions that are part of a common plan) of shares of Capital Stock of (or
any other equity interests in) a Restricted Subsidiary (other than directors'
qualifying shares) or of any other property or other assets (each referred to
for the purposes of this definition as a 'disposition') by the Company or any of
its Restricted Subsidiaries (including any disposition by means of a merger,
consolidation or similar transaction) other than (i) a disposition by a
Restricted Subsidiary to the Company or by the Company or a Restricted
Subsidiary to a Wholly-Owned Subsidiary, (ii) a disposition of inventory in the
ordinary course of business, (iii) a disposition of obsolete or worn out
equipment or equipment that is no longer useful in the conduct of the business
of the Company and its Restricted Subsidiaries and that is disposed of in each
case in the ordinary course of business, (iv) dispositions of property for net
proceeds which, when taken collectively with the net proceeds of any other such
dispositions under this clause (iv) that were consummated since the beginning of
the calendar year in which such disposition is consummated, do not exceed $1
million, and (v) transactions permitted under 'Certain Covenants--Merger and
Consolidation' above. Notwithstanding anything to the contrary contained above,
a Restricted Payment made in compliance with the 'Limitation on Restricted
Payments' covenant shall not constitute an Asset Disposition except for purposes
of determinations of the Consolidated Coverage Ratio (as defined).
'Attributable Indebtedness' in respect of a Sale/Leaseback Transaction
means, as at the time of determination, the present value (discounted at the
interest rate borne by the Notes, compounded annually) of the total obligations
of the lessee for rental payments during the remaining term of the lease
included in such Sale/Leaseback Transaction (including any period for which such
lease has been extended).
'Average Life' means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the product of the numbers of years from the date of determination to the
dates of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to Preferred Stock multiplied by the
amount of such payment by (ii) the sum of all such payments.
'Capitalized Lease Obligations' means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP, and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date such lease may be terminated without penalty.
'Capital Stock' of any Person means any and all shares, partnership or
other equity interests, rights to purchase, warrants, options, participations or
other equivalents of or interests in (however designated) equity of such Person,
including any Preferred Stock, but excluding any debt securities convertible
into such equity.
'Cash Equivalents' means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof,
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(iii) certificates of deposit, time deposits and eurodollar time deposits with
maturities of one year or less from the date of acquisition, bankers'
acceptances with maturities not exceeding one year and overnight bank deposits,
in each case with any commercial bank having capital and surplus in excess of
$500 million, (iv) repurchase obligations for underlying securities of the types
described in clauses (ii) and (iii) entered into with any financial institution
meeting the qualifications specified in clause (iii) above, (v) commercial paper
rated A-1 or the equivalent thereof by Moody's or S&P and in each case maturing
within one year after the date of acquisition, (vi) investment funds investing
95% of their assets in securities of the types described in clauses (i)-(v)
above, (vii) readily marketable direct obligations issued by any state of the
United States of America or any political subdivision thereof having one of the
two highest rating categories obtainable form either Moody's or S&P and (viii)
Indebtedness or preferred stock issued by Persons with a rating of 'A' or higher
from S&P or 'A2' or higher from Moody's.
'Change of Control' means (i) any sale, lease, exchange or other transfer
(in one transaction or a series of related transactions) of all or substantially
all of the assets of the Company and its Subsidiaries; or (ii) a majority of the
Board of Directors of the Company or of any direct or indirect holding company
thereof shall consist of Persons who are not Continuing Directors of the
Company, as the case may be; or (iii) the acquisition by any Person or group of
related Persons (other than the Management Group) for purposes of Section 13(d)
of the Exchange Act, of the power, directly or indirectly, to vote or direct the
voting of securities having more than 50% of the ordinary voting power for the
election of directors of the Company or of any direct or indirect holding
company thereof.
'Consolidated Cash Flow' for any period means the Consolidated Net Income
for such period, plus the following to the extent deducted in calculating such
Consolidated Net Income: (i) income tax expense, (ii) Consolidated Interest
Expense, (iii) depreciation expense, (iv) amortization expense, and (v) all
other non-cash items reducing Consolidated Net Income (excluding any non-cash
item to the extent it represents an accrual of or reserve for cash disbursements
for any subsequent period prior to the Stated Maturity of the Notes or
amortization of a prepaid cash expense that was paid in a prior period) and
less, to the extent added in calculating Consolidated Net Income, non-cash items
(excluding such non-cash items to the extent they represent an accrual for cash
receipts reasonably expected to be received prior to the Stated Maturity of the
Notes), in each case for such period. Notwithstanding the foregoing, the income
tax expense, depreciation expense and amortization expense of a Subsidiary of
the Company shall be included in Consolidated Cash Flow only to the extent (and
in the same proportion) that the net income of such Subsidiary was included in
calculating Consolidated Net Income.
'Consolidated Coverage Ratio' as of any date of determination means the
ratio of (i) the aggregate amount of Consolidated Cash Flow for the period of
the most recent four consecutive fiscal quarters ending prior to the date of
such determination and as to which financial statements are available to (ii)
Consolidated Interest Expense for such four fiscal quarters; provided, however,
that (A) if the Company or any of its Restricted Subsidiaries has incurred any
Indebtedness since the beginning of such period and through the date of
determination of the Consolidated Coverage Ratio that remains outstanding or if
the transaction giving rise to the need to calculate Consolidated Coverage Ratio
is an incurrence of Indebtedness, or both, Consolidated Cash Flow and
Consolidated Interest Expense for such period shall be calculated after giving
effect on a pro forma basis to (1) such Indebtedness as if such Indebtedness had
been incurred on the first day of such period (provided that if such
Indebtedness is incurred under a revolving credit facility (or similar
arrangement or under any predecessor revolving credit or similar arrangement)
only that portion of such Indebtedness that constitutes the one year projected
average balance of such Indebtedness (as determined in good faith by the Board
of Directors of the Company) shall be deemed outstanding for purposes of this
calculation), and (2) the discharge of any other Indebtedness repaid,
repurchased, defeased or otherwise discharged with the proceeds of such new
Indebtedness as if such discharge had occurred on the first day of such period,
(B) if since the beginning of such period any Indebtedness of the Company or any
of its Restricted Subsidiaries has been repaid, repurchased, defeased or
otherwise discharged (other than Indebtedness under a revolving credit or
similar arrangement unless such revolving credit Indebtedness has been
permanently repaid and has not been replaced), Consolidated Interest Expense for
such period shall be
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calculated after giving pro forma effect thereto as if such Indebtedness had
been repaid, repurchased, defeased or otherwise discharged on the first day of
such period, (C) if since the beginning of such period the Company or any of its
Restricted Subsidiaries shall have made any Asset Disposition or if the
transaction giving rise to the need to calculate the Consolidated Coverage Ratio
is an Asset Disposition, Consolidated Cash Flow for such period shall be reduced
by an amount equal to the Consolidated Cash Flow (if positive) attributable to
the assets which are the subject of such Asset Disposition for such period or
increased by an amount equal to the Consolidated Cash Flow (if negative)
attributable thereto for such period, and Consolidated Interest Expense for such
period shall be (1) reduced by an amount equal to the Consolidated Interest
Expense attributable to any Indebtedness of the Company or any of its Restricted
Subsidiaries repaid, repurchased, defeased or otherwise discharged with respect
to the Company and its continuing Restricted Subsidiaries in connection with
such Asset Disposition for such period (or, if the Capital Stock of any
Restricted Subsidiary of the Company is sold, the Consolidated Interest Expense
for such period directly attributable to the Indebtedness of such Restricted
Subsidiary to the extent the Company and its continuing Restricted Subsidiaries
are no longer liable for such Indebtedness after such sale) and (2) increased by
interest income attributable to the assets which are the subject of such Asset
Disposition for such period, (D) if since the beginning of such period the
Company or any of its Restricted Subsidiaries (by merger or otherwise) shall
have made an Investment in any Restricted Subsidiary of the Company (or any
Person which becomes a Restricted Subsidiary of the Company as a result thereof)
or an acquisition of assets occurring in connection with a transaction causing a
calculation to be made hereunder which constitutes all or substantially all of
an operating unit of a business, Consolidated Cash Flow and Consolidated
Interest Expense for such period shall be calculated after giving pro forma
effect thereto (including the incurrence of any Indebtedness) as if such
Investment or acquisition occurred on the first day of such period and (E) if
since the beginning of such period any Person (that subsequently became a
Restricted Subsidiary of the Company or was merged with or into the Company or
any Restricted Subsidiary of the Company since the beginning of such period)
shall have made any Asset Disposition, Investment or acquisition of assets that
would have required an adjustment pursuant to clause (C) or (D) above if made by
the Company or a Restricted Subsidiary of the Company during such period,
Consolidated Cash Flow and Consolidated Interest Expense for such period shall
be calculated after giving pro forma effect thereto as if such Asset
Disposition, Investment or acquisition occurred on the first day of such period.
If any Indebtedness bears a floating rate of interest and is being given pro
forma effect, the interest expense on such Indebtedness shall be calculated as
if the rate in effect on the date of determination had been the applicable rate
for the entire period (taking into account any Interest Rate Agreement
applicable to such Indebtedness if such Interest Rate Agreement has a remaining
term in excess of 12 months).
'Consolidated Interest Expense' means, for any period, the total interest
expense of the Company and its Restricted Subsidiaries determined in accordance
with GAAP, plus, to the extent not included in such interest expense (i)
interest expense attributable to Capitalized Lease Obligations, (ii)
amortization of debt discount, (iii) capitalized interest, (iv) non-cash
interest expense, (v) commissions, discounts and other fees and charges owed
with respect to letters of credit and bankers' acceptance financing, (vi)
interest actually paid by the Company or any such Restricted Subsidiary under
any Guarantee of Indebtedness or other obligation of any other Person, (vii) net
payments (whether positive or negative) pursuant to Interest Rate Agreements,
(viii) the cash contributions to any employee stock ownership plan or similar
trust to the extent such contributions are used by such plan or trust to pay
interest or fees to any Person (other than the Company) in connection with
Indebtedness Incurred by such plan or trust and (ix) cash and Disqualified Stock
dividends in respect of all Preferred Stock of Subsidiaries and Disqualified
Stock of the Company held by Persons other than the Company or a Wholly-Owned
Subsidiary and less (a) to the extent included in such interest expense, the
amortization of capitalized debt issuance costs and (b) interest income.
Notwithstanding the foregoing, the Consolidated Interest Expense with respect to
any Restricted Subsidiary of the Company, that was not a Wholly-Owned
Subsidiary, shall be included only to the extent (and in the same proportion)
that the net income of such Restricted Subsidiary was included in calculating
Consolidated Net Income.
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'Consolidated Net Income' means, for any period, the consolidated net
income (loss) of the Company and its consolidated Subsidiaries determined in
accordance with GAAP prior to the payment of dividends on the Senior PIK
Preferred Stock; provided, however, that there shall not be included in such
Consolidated Net Income: (i) any net income (loss) of any person acquired by the
Company or any of its Restricted Subsidiaries in a pooling of interests
transaction for any period prior to the date of such acquisition, (ii) any net
income of any Restricted Subsidiary of the Company if such Restricted Subsidiary
is subject to restrictions, directly or indirectly, on the payment of dividends
or the making of distributions by such Restricted Subsidiary, directly or
indirectly, to the Company (other than restrictions in effect on the Issue Date
with respect to a Restricted Subsidiary of the Company and other than
restrictions that are created or exist in compliance with the 'Limitation on
Restrictions on Distributions from Restricted Subsidiaries' covenant), (iii) any
gain or loss realized upon the sale or other disposition of any assets of the
Company or its consolidated Restricted Subsidiaries (including pursuant to any
Sale/Leaseback Transaction) which are not sold or otherwise disposed of in the
ordinary course of business and any gain or loss realized upon the sale or other
disposition of any Capital Stock of any Person, (iv) any extraordinary gain or
loss, (v) the cumulative effect of a change in accounting principles, (vi) the
net income of any Person, other than a Restricted Subsidiary, except to the
extent of the lesser of (A) dividends or distributions paid to the Company or
any of its Restricted Subsidiaries by such Person and (B) the net income of such
Person (but in no event less than zero), and the net loss of such Person (other
than an Unrestricted Subsidiary) shall be included only to the extent of the
aggregate Investment of the Company or any of its Restricted Subsidiaries in
such Person and (vii) any non-cash expenses attributable to grants or exercises
of employee stock options. Notwithstanding the foregoing, for the purpose of the
covenant described under 'Certain Covenants--Limitation on Restricted Payments'
only, there shall be excluded from Consolidated Net Income any dividends,
repayments of loans or advances or other transfers of assets from Unrestricted
Subsidiaries to the Company or a Restricted Subsidiary to the extent such
dividends, repayments or transfers increase the amount of Restricted Payments
permitted under such covenant.
'Consolidated Net Worth' means the total of the amounts shown on the
balance sheet of the Company and its consolidated Restricted Subsidiaries,
determined on a consolidated basis in accordance with GAAP, as of the end of the
most recent fiscal quarter of the Company ending prior to the taking of any
action for the purpose of which the determination is being made and for which
financial statements are available (but in no event ending more than 135 days
prior to the taking of such action), as (i) the par or stated value of all
outstanding Capital Stock of the Company plus (ii) paid in capital or capital
surplus relating to such Capital Stock plus (iii) any retained earnings or
earned surplus less (A) any accumulated deficit and (B) any amounts attributable
to Disqualified Stock.
'Continuing Director' of any Person means, as of the date of determination,
any Person who (i) was a member of the Board of Directors of such Person on the
date of the Indenture or (ii) was nominated for election or elected to the Board
of Directors of such Person with the affirmative vote of a majority of the
Continuing Directors of such Person who were members of such Board of Directors
at the time of such nomination or election.
'Currency Agreement' means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement as to which such
Person is a party or a beneficiary.
'Default' means any event which is, or after notice or passage of time or
both would be, an Event of Default.
'Disqualified Stock' means any Capital Stock which, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event (other than an event which
would constitute a Change of Control), (i) matures (excluding any maturity as
the result of an optional redemption by the issuer thereof) 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 the
final stated maturity of the Notes, or (ii) is convertible into or exchangeable
(unless at the sole option
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of the issuer thereof) for (a) debt securities or (b) any Capital Stock referred
to in (i) above, in each case at any time prior to the final stated maturity of
the Notes.
'Existing Indebtedness' means Indebtedness of the Company or its Restricted
Subsidiaries in existence on the Issue Date, plus interest accrued thereon,
after application of the net proceeds of the sale of the Notes as described in
this Offering Memorandum.
'Equity Offering' means an offering for cash by the Company of its common
stock, or options, warrants or rights with respect to its common stock.
'GAAP' means generally accepted accounting principles in the United States
of America as in effect as of the date of the Indenture, including those set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession. All ratios and computations based on GAAP contained in
the Indenture shall be computed in conformity with GAAP.
'Guarantee' means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness of such other Person (whether arising by virtue of partnership
arrangements, or by agreement to keep-well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (ii) entered into for purposes of assuring in any
other manner the obligee of such Indebtedness of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or in part);
provided, however, that the term 'Guarantee' shall not include endorsements for
collection or deposit in the ordinary course of business. The term 'Guarantee'
used as a verb has a corresponding meaning.
'Guarantor' means each Subsidiary of the Company in existence on the Issue
Date and each Subsidiary (other than Unrestricted Subsidiaries) created or
acquired by the Company after the Issue Date.
'Incur' means issue, assume, guarantee, incur or otherwise become liable
for; provided, however, that any indebtedness or Capital Stock of a Person
existing at the time such person becomes a Restricted Subsidiary (whether by
merger, consolidation, acquisition or otherwise) shall be deemed to be incurred
by such Restricted Subsidiary at the time it becomes a Restricted Subsidiary.
'Indebtedness' means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of indebtedness of such Person for borrowed money, (ii) the principal
of and premium (if any) in respect of obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments, (iii) all obligations of
such Person in respect of letters of credit or other similar instruments
(including reimbursement obligations with respect thereto) (other than
obligations with respect to letters of credit securing obligations (other than
obligations described in clauses (i), (ii) and (v)) entered into in the ordinary
course of business of such Person to the extent that such letters of credit are
not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed
no later than the third business day following receipt by such Person of a
demand for reimbursement following payment on the letter of credit), (iv) all
obligations of such Person to pay the deferred and unpaid purchase price of
property or services (except trade payables and accrued expenses incurred in the
ordinary course of business), which purchase price is due more than six months
after the date of placing such property in service or taking delivery and title
thereto or the completion of such services, (v) all Capitalized Lease
Obligations and all Attributable Indebtedness of such Person, (vi) all
Indebtedness of other Persons secured by a Lien on any asset of such Person,
whether or not such Indebtedness is assumed by such Person, (vii) all
Indebtedness of other Persons to the extent Guaranteed by such Person, (viii)
the amount of all obligations of such Person with respect to the redemption,
repayment or other repurchase of any Disqualified Stock other than the Senior
PIK Preferred Stock or, with respect to any Restricted Subsidiary of the
Company, any Preferred Stock of such Restricted Subsidiary to the extent such
obligation arises on or before the Stated
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Maturity of the Notes (but excluding, in each case, accrued dividends) and (ix)
to the extent not otherwise included in this definition, obligations under
Currency Agreements and Interest Rate Agreements. The amount of Indebtedness of
any Person at any date shall be the outstanding principal amount of all
unconditional obligations as described above, as such amount would be reflected
on a balance sheet prepared in accordance with GAAP, and the maximum liability
of such Person, upon the occurrence of the contingency giving rise to the
obligation, of any contingent obligations described above at such date.
'Interest Rate Agreement' means with respect to any Person any interest
rate protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement as to which such Person is party or a beneficiary.
'Investment' in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts payable on the balance sheet of such Person) or other
extension of credit (including by way of Guarantee or similar arrangement, but
excluding any debt or extension of credit represented by a bank deposit other
than a time deposit) or capital contribution to (by means of any transfer of
cash or other property to others or any payment for property or services for the
account or use of others), or any purchase or acquisition of Capital Stock,
Indebtedness or other similar instruments issued by such Person. For purposes of
the 'Limitation on Restricted Payments' covenant, (i) 'Investment' shall include
the portion (proportionate to the Company's equity interest in a Restricted
Subsidiary to be designated as an Unrestricted Subsidiary) of the fair market
value of the net assets of such Restricted Subsidiary of the Company at the time
that such Restricted Subsidiary is designated an Unrestricted Subsidiary;
provided, however, that upon a redesignation of such Subsidiary as a Restricted
Subsidiary, the Company shall be deemed to continue to have a permanent
'Investment' in an Unrestricted Subsidiary in an amount (if positive) equal to
(x) the Company's 'Investment' in such Subsidiary at the time of such
redesignation less (y) the portion (proportionate to the Company's equity
interest in such Subsidiary) of the fair market value of the net assets of such
Subsidiary at the time that such Subsidiary is so redesignated a Restricted
Subsidiary; and (ii) any property transferred to or from an Unrestricted
Subsidiary shall be valued at its fair market value at the time of such
transfer, in each case as determined in good faith by the Board of Directors and
evidenced by a resolution of such Board of Directors certified in an Officers'
Certificate to the Trustee.
'Issue Date' means the date on which the Notes are originally issued.
'Lien' means any security interest, encumbrance, lien or charge of any kind
(including any conditional sale or other title retention agreement or lease in
the nature thereof).
'Management Group' means Thomas F. Helms, Jr. and other members of senior
management of the Company.
'Net Available Cash' from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise, but only as and when
received, therefrom in each case net of (i) all legal, title and recording tax
expenses, commissions and other fees and expenses incurred, and all Federal,
state, foreign and local taxes required to be paid or accrued as a liability
under GAAP, as a consequence of such Asset Disposition, (ii) all payments made
on any Indebtedness which is secured by any assets subject to such Asset
Disposition, in accordance with the terms of any Lien upon such assets, or which
must by its terms, or in order to obtain a necessary consent to such Asset
Disposition or by applicable law, be repaid out of the proceeds from such Asset
Disposition, (iii) all distributions and other payments required to be made to
any Person owning a beneficial interest in assets subject to sale or minority
interest holders in Subsidiaries or joint ventures as a result of such Asset
Disposition, (iv) the deduction of appropriate amounts to be provided by the
seller as a reserve, in accordance with GAAP, against any liabilities associated
with the assets disposed of in such Asset Disposition, provided, however, that
upon any reduction in such reserves (other than to the extent resulting from
payments of the respective reserved liabilities), Net Available Cash shall be
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increased by the amount of such reduction to reserves, and retained by the
Company or any Restricted Subsidiary of the Company after such Asset Disposition
and (v) any portion of the purchase price from an Asset Disposition placed in
escrow (whether as a reserve for adjustment of the purchase price, for
satisfaction of indemnities in respect of such Asset Disposition or otherwise in
connection with such Asset Disposition) provided, however, that upon the
termination of such escrow, Net Available Cash shall be increased by any portion
of funds therein released to the Company or any Restricted Subsidiary.
'Net Cash Proceeds,' with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result of such issuance or sale.
'New Senior Secured Facilities' means the Credit Agreement, dated as of
June 25, 1997, among the Company as the borrower, certain guarantors, National
Westminster Bank plc, and any other financial institutions from time to time
party thereto, together with the related documents thereto (including, without
limitation, any guarantee agreements, pledge agreements and security documents),
in each case as such agreements may be amended (including any amendment and
restatement thereof), supplemented or otherwise modified from time to time,
including any agreement extending the maturity of, refinancing, replacing or
otherwise restructuring (including by way of adding Subsidiaries of the Company
as additional borrowers or guarantors thereunder) all or any portion of the
Indebtedness under such agreement or any successor or replacement agreement and
whether by the same or any other agent, lender or group of lenders.
'Non-Recourse Debt' means Indebtedness (i) as to which neither the Company
nor any Restricted Subsidiary (a) provides any guarantee or credit support of
any kind (including any undertaking, guarantee, indemnity, agreement or
instrument that would constitute Indebtedness) or (b) is directly or indirectly
liable (as a guarantor, general partner or otherwise) and (ii) no default with
respect to which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any Restricted Subsidiary to declare a default under such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity.
'Permitted Business' means any business which is the same as or related,
ancillary or complementary to any of the businesses of the Company and its
Restricted Subsidiaries on the date of the Indenture.
'Permitted Investment' means an Investment by the Company or any of its
Restricted Subsidiaries in (i) a Wholly-Owned Subsidiary of the Company;
provided, however, that the primary business of such Wholly-Owned Subsidiary is
a Permitted Business; (ii) another Person if as a result of such Investment such
other Person becomes a Wholly-Owned Subsidiary of the Company or is merged or
consolidated with or into, or transfers or conveys all or substantially all its
assets to, the Company or a Wholly-Owned Subsidiary of the Company; provided,
however, that in each case such Person's primary business is a Permitted
Business; (iii) Temporary Cash Investments; (iv) receivables owing to the
Company or any of its Restricted Subsidiaries, created or acquired in the
ordinary course of business and payable or dischargeable in accordance with
customary trade terms; (v) payroll, travel and similar advances to cover matters
that are expected at the time of such advances ultimately to be treated as
expenses for accounting purposes and that are made in the ordinary course of
business; (vi) loans and advances to employees made in the ordinary course of
business consistent with past practices of the Company or such Restricted
Subsidiary; (vii) stock, obligations or securities received in settlement of
debts created in the ordinary course of business and owing to the Company or any
of its Restricted Subsidiaries or in satisfaction of judgments or claims; (viii)
a Person engaged in a Permitted Business or a loan or advance to a Restricted
Subsidiary the proceeds of which are used solely to make an investment in a
Person engaged in a Permitted Business or a Guarantee by the Company of
Indebtedness of any Person in which such Investment has been made provided,
however, that no Permitted Investments may be made pursuant to this clause
(viii) to the extent the amount thereof would, when taken together with all
other Permitted Investments made pursuant to this clause (viii), exceed $5
million in the aggregate (plus, to the extent not previously reinvested, any
return of capital realized on
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Permitted Investments made pursuant to this clause (viii), or any release or
other cancellation of any Guarantee constituting such Permitted Investment);
(ix) Persons to the extent such Investment is received by the Company or any
Restricted Subsidiary as consideration for Asset Dispositions effected in
compliance with the covenant described under 'Repurchase at the Option of
Holders-Sales of Assets and Subsidiary Stock'; (x) prepayments and other credits
to suppliers made in the ordinary course of business consistent with the past
practices of the Company and its Restricted Subsidiaries; and (xi) Investments
in connection with pledges, deposits, payments or performance bonds made or
given in the ordinary course of business in connection with or to secure
statutory, regulatory or similar obligations, including obligations under
health, safety or environmental obligations.
'Permitted Liens' means (a) Liens granted by the Company and the Guarantors
which secure Indebtedness to the extent the Indebtedness is incurred pursuant to
clause (i) of paragraph (b) under the 'Limitation on Incurrence of Indebtedness'
covenant; (b) Liens in favor of the Company; (c) Liens on property of a Person
existing at the time such Person is merged into or consolidated with the Company
or any Restricted Subsidiary thereof; provided that such Liens were in existence
prior to the contemplation of such acquisition and do not extend to any assets
of the Company or its Restricted Subsidiaries other than those acquired in
connection with such merger or consolidation; (d) Liens to secure the
performance of obligations, surety or appeal bonds, performance bonds or other
obligations of a like nature incurred in the ordinary course of business; (e)
Liens existing on the Issuance Date; (f) Liens in respect of extensions,
renewals, refundings or refinancings of any Indebtedness secured by the Liens
referred to in clauses (a), (b), (c) and (e) above and (h) below; provided that
the Liens in connection with such renewal, extensions, renewals, refundings or
refinancing shall be limited to all or part of the specific property which was
subject to the original Lien; (g) 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; (h) any Lien
securing purchase money obligations incurred in connection with the purchase of
real or personal property provided that (A) at the time such Lien attached to
the real or personal property of the Company or Guarantor, the Company shall be
permitted to Incur at least $1.00 of additional Indebtedness pursuant to the
first paragraph of the 'Limitation on Incurrence of Indebtedness' covenant and
(B) such Liens do not extend to any property (other than the property so
purchased) owned by the Company or its Restricted Subsidiaries and is not
incurred more than 30 days after the incurrence of such Indebtedness secured by
such Lien; (i) Liens to secure Capitalized Lease Obligations (except in respect
of Sale and Leaseback Transactions) on real or personal property of the Company
to the extent consummated in compliance with the Indenture; provided that (A) at
the time such Lien attaches to the real or personal property of the Company or
Guarantor, the Company shall be permitted to Incur at least $1.00 of additional
indebtedness pursuant to the first paragraph of the 'Limitation on Incurrence of
Indebtedness' covenant and (B) such Liens do not extend to or cover any property
of the Company of any of its Subsidiaries other than the property subject to
such Capitalized Lease Obligation; and (j) Liens incurred in the ordinary course
of business of the Company or any Restricted Subsidiary thereof with respect to
obligations that do not exceed $2 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 the
business by the Company or such Restricted Subsidiary.
'Person' means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision hereof or any other entity.
'Preferred Stock,' as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
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A 'Public Market' exists at any time with respect to the common stock of
the Company if (i) the common stock of the Company is then registered with the
Securities and Exchange Commission pursuant to Section 12(b) or 12(g) of the
Exchange Act and traded either on a national securities exchange or in the
National Association of Securities Dealers Automated Quotation System and (ii)
at least 15% of the total issued and outstanding common stock of the Company, as
applicable, has been distributed prior to such time by means of an effective
registration statement under the Securities Act.
'Qualified Capital Stock' of any Person shall mean any Capital Stock of
such Person which is not Disqualified Stock.
'Refinancing Indebtedness' means Indebtedness that refunds, refinances,
replaces, renews, repays or extends (including pursuant to any defeasance or
discharge mechanism) (collectively, 'refinances,' and 'refinanced' shall have a
correlative meaning) any Indebtedness existing on the date of the Indenture or
Incurred in compliance with the Indenture (including Indebtedness of the Company
that refinances Indebtedness of any Restricted Subsidiary and Indebtedness of
any Restricted Subsidiary that refinances Indebtedness of another Restricted
Subsidiary) including Indebtedness that refinances Refinancing Indebtedness;
provided, however, that (i) the Refinancing Indebtedness has a Stated Maturity
no earlier than the earlier of (A) the first anniversary of the Stated Maturity
of the Notes and (B) the Stated Maturity of the Indebtedness being refinanced,
(ii) the Refinancing Indebtedness has an Average Life at the time such
Refinancing Indebtedness is Incurred that is equal to or greater than the lesser
of (A) the Average Life of the Notes and (B) the Average Life of the
Indebtedness being refinanced (iii) the Refinancing Indebtedness is subordinated
to the Notes on the same terms as the Indebtedness being refinanced if such
Indebtedness is subordinate to the Notes and, (iv) the Refinancing Indebtedness
is in an aggregate principal amount (or if issued with original issue discount,
an aggregate issue price) that is equal to (or 101% of, in the case of a
refinancing of the Notes in connection with a Change of Control) or less than
the sum of the aggregate principal amount (or if issued with original issue
discount, the aggregate acreted value) then outstanding of the Indebtedness
being refinanced (plus the amount of any premium required to be paid in
connection therewith and reasonable fees and expenses therewith) provided,
further, that Refinancing Indebtedness shall not include Indebtedness of a
Subsidiary which refinances Indebtedness of the Company.
'Restricted Subsidiary' means any Subsidiary of the Company other an
Unrestricted Subsidiary.
'Sale/Leaseback Transaction' means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Subsidiary leases it
from such Person.
'Secured Indebtedness' means any Indebtedness of the Company or a Guarantor
secured by a Lien.
'Senior PIK Preferred Stock' means the 12% senior preferred stock of the
Company.
'Significant Subsidiary' means any Restricted Subsidiary that would be a
'Significant Subsidiary' of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
'Stated Maturity' means, with respect to any security, the date specified
in such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision.
'Subordinated Obligation' means any Indebtedness of the Company (whether
outstanding on the Issue Date or thereafter Incurred) which is subordinate or
junior in right of payment to the Notes pursuant to a written agreement.
'Subsidiary' of any Person incorporated in the United States means any
corporation, association, partnership or other business entity organized in the
United States of which more than 50% of the total voting power of shares of
Capital Stock or other interests (including partnership interests) entitled
(without regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by (i) such Person, (ii) such Person and one or more
Subsidiaries of such Person or (iii) one or more Subsidiaries of such Person.
Unless otherwise specified herein, each reference to a Subsidiary shall refer to
a Subsidiary of the Company.
'Subsidiary Guarantee' means the Guarantee of the Notes by a Guarantor.
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'Temporary Cash Investments' means any of the following: (i) any Investment
in direct obligations of the United States of America or any agency thereof or
obligations Guaranteed by the United States of America or any agency thereof,
(ii) Investments in time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized by
the United States of America having capital surplus and undivided profits
aggregating in excess of $250 million (or the foreign currency equivalent
thereof) and whose long-term debt, or whose parent holding company's long-term
debt, is rated 'A' (or such similar equivalent rating) or higher by at least one
nationally recognized statistical rating organization (as defined in Rule 436
under the Securities Act), (iii) repurchase obligations with a term of not more
than 30 days for underlying securities of the types described in clause (i)
above entered into with a bank meeting the qualifications described in clause
(ii) above, (iv) Investments in commercial paper, maturing not more than 180
days after the date of acquisition, issued by a corporation (other than an
Affiliate of the Company) organized and in existence under the laws of the
United States of America or any foreign country recognized by the United States
of America with a rating at the time as of which any investment therein is made
of 'P-1' (or higher) according to Moody's Investors Service, Inc. or 'A-1' (or
higher) according to Standard and Poor's Ratings Group, (v) Investments in
securities with maturities of six months or less from the date of acquisition
issued or fully guaranteed by any state, commonwealth or territory of the United
States of America, or by any political subdivision or taxing authority thereof,
and rated at least 'A' by Standard & Poor's Ratings Group or 'A' by Moody's
Investors Service, Inc. and (vi) Investments in mutual funds whose investment
guidelines restrict such funds' investments to those satisfying the provisions
of clauses (i) through (v) above.
'Unrestricted Subsidiary' means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
the Company (including any newly acquired or newly formed Subsidiary of the
Company) to be an Unrestricted Subsidiary unless such Subsidiary or any of its
Subsidiaries owns any Capital Stock or Indebtedness of, or owns or holds any
Lien on any property of, the Company or any Restricted Subsidiary of the Company
that is not a Subsidiary of the Subsidiary to be so designated; provided,
however, each Subsidiary to be so designated and each of its Subsidiaries has
not at the time of designation, and does not thereafter, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable with respect
to any Indebtedness pursuant to which the lender has recourse to any of the
assets of the Company or any of its Restricted Subsidiaries and either (A) the
Subsidiary to be so designated has total consolidated assets of $10,000 or less
or (B) if such Subsidiary has consolidated assets greater than $10,000, then
such designation would be permitted under 'Limitation on Restricted Payments.'
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided, however, that immediately after giving effect
to such designation (x) the Company could Incur $1.00 of additional Indebtedness
under clause (a) of 'Limitation on Indebtedness' and (y) no Default shall have
occurred and be continuing. Any such designation by the Board of Directors shall
be evidenced to the Trustee by promptly filing with the Trustee a copy of the
Board Resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing provisions.
'Voting Stock' of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
directors.
'Wholly-Owned Subsidiary' means a Restricted Subsidiary of the Company, at
least 99% of the Capital Stock of which (other than directors' qualifying
shares) is owned by the Company or another Wholly-Owned Subsidiary.
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DESCRIPTION OF OTHER INDEBTEDNESS
DESCRIPTION OF NEW SENIOR SECURED FACILITIES
The Company entered into a Credit Agreement (the 'Credit Agreement') with
National Westminster Bank plc as agent (the 'Agent'), providing for the Term
Facility and the Revolver (the Revolver together with the Term Facility, the
'New Senior Secured Facilities'). The Term Facility shall be subject to
scheduled quarterly principal payments commencing September 30, 1997 and
continuing over the five-year period following the closing date. The Revolver
includes a letter of credit sublimit of $10 million and terminates five years
from the closing date. The Company used the Term Facility to provide certain
funding necessary to consummate the Acquisition, to refinance certain existing
debt of National Tobacco and LLC, and to redeem equity in LLC. The Revolver will
be used for working capital and general corporate purposes. This information
relating to the Credit Agreement is qualified in its entirety by reference to
the complete text of the documents entered into in connection therewith. The
following is a description of the general terms of the Credit Agreement.
Indebtedness under the New Senior Secured Facilities has been guaranteed by
each of National Tobacco, National Tobacco Finance Corporation and NAOC, and
each of their current and future direct and indirect subsidiaries, if any.
Indebtedness under the Credit Agreement is secured by a first perfected lien on
substantially all the present and after acquired assets and property of the
Company and each of its direct and indirect subsidiaries. The collateral also
includes a first priority lien on all equity interests and intercompany notes
held by the Company, National Tobacco, National Tobacco Finance Corporation and
NAOC and each of their respective subsidiaries.
Each advance under the New Senior Secured Facilities will bear interest per
annum, at the Company's option, as follows: (i) the higher of (a) the prime rate
plus 2.0% or (b) the Federal Funds Rate plus 2.5% or (ii) the Administrative
Agent's LIBOR rate plus 3.0% ('LIBOR Borrowing'), subject to limitations on the
amount of LIBOR Borrowing. In addition, the Credit Agreement provides for
mandatory repayment, subject to certain exceptions, of loans under the New
Senior Secured Facilities upon a Change of Control (as defined in the Credit
Agreement) or with 100% of the net proceeds of asset sales, certain equity and
debt issuances, and 80% of the excess cash flow for each fiscal year.
The Revolver may be repaid and reborrowed. The Company is required to pay
the lenders under the Credit Agreement a commitment fee equal to 1/2 of 1% per
annum, payable on a quarterly basis, on the undrawn and unused portion of the
Revolver. The Company also is required to pay to the lenders participating in
the Revolver letter of credit fees equal to 3% per annum of the face amount of
letters of credit issued under the Revolver and to the lender issuing a letter
of credit a facing fee of 0.25% per annum on the average daily stated amount of
each outstanding letter of credit issued by such lender and its customary
administrative, amendment, payment and negotiation charges in connection with
such letters of credit.
The Credit Agreement requires the Company to meet certain financial tests,
including minimum interest coverage, maximum leverage ratio, fixed charge
coverage and minimum consolidated EBITDA. The Credit Agreement also contains
covenants which, among other things, limit the incurrence of additional
indebtedness, dividends, transactions with affiliates, asset sales,
acquisitions, mergers, prepayments of other indebtedness, liens and encumbrances
and other matters customarily restricted in such agreements.
The Credit Agreement contains customary events of default, including
payment defaults, breach of representations and warranties, covenant defaults,
cross-acceleration, cross-defaults to certain other indebtedness, certain events
of bankruptcy and insolvency, ERISA, judgment defaults and impairment of
security.
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DESCRIPTION OF CAPITAL STOCK
The following summary of all material provisions regarding the capital
stock of the Company does not purport to be exhaustive and is qualified in its
entirety by reference to the detailed provisions of the Company's Charter and
the Company's by-laws.
The Company's authorized capital stock consists of 1,500,000 shares of
common stock, par value $.01 per share ('Common Stock'), which are divided
equally into voting and non-voting Common Stock, and 18,000,000 shares of
preferred stock, par value $.01 per share ('Preferred Stock') divided into two
classes consisting of twelve million shares of 12% Senior Payment-In-Kind
Preferred Stock (the 'Old Preferred Stock') and six million shares of 12% Senior
Exchange Payment-In-Kind Preferred Stock (the 'New Preferred Stock' and,
together with the Old Preferred Stock, the 'Senior Preferred Stock'). The
Company had outstanding 528,241 shares of voting Common Stock, currently
exercisable options to purchase 10,309 shares of voting Common Stock, options to
purchase an aggregate of 20,619 shares of Common Stock which are not currently
exercisable, warrants to purchase in the aggregate 63,490 shares of Common Stock
(representing approximately 10.0% of the Common Stock of the Company on a fully
diluted basis), including warrants to purchase 44,440 shares of Common Stock
issued as part of the Units and warrants to purchase 19,050 shares of Common
Stock issued to persons affiliated with the initial purchases of the Units, and
1,360,000 shares of Senior Preferred Stock (see 'The Exchange Offering,' 'Recent
Transactions,' 'Plan of Distribution').
COMMON STOCK
Voting Rights. Holders of voting Common Stock are entitled to one vote per
share on all matters that are submitted to holders of Common Stock for a vote.
Holders of non-voting Common Stock will not be entitled to vote on any matters
submitted to stockholders, except as otherwise may be required by law. All
shares of non-voting Common Stock currently are convertible by the holders
thereof, upon 61 days' prior notice (or lesser notice in certain circumstances),
into voting Common Stock. All shares of voting Common Stock are also convertible
by the holders thereof upon ten days' prior notice (or automatically in certain
circumstances) into non-voting Common Stock.
Under Delaware law, the affirmative vote of the holders of a majority of
the outstanding shares of any class of Common Stock which is entitled to vote is
required to approve any amendment to the Restated and Certificate of
Incorporation of the Company which would increase or decrease the aggregate
number of authorized shares of such class, increase or decrease the par value of
the shares of such class, or modify or change the powers, preferences or special
rights of the shares of any class so as to affect such class adversely.
Other Provisions. Subject to the rights of any Preferred Stock, the
holders of Common Stock are entitled to receive such dividends, if any, as may
be declared from time to time by the Board of Directors in its discretion from
funds legally available therefor, and upon liquidation or dissolution are
entitled to receive all assets available for distribution to the stockholders.
REGISTRATION, TAG-ALONG AND DRAG-ALONG RIGHTS
The Company, the Existing Stockholders (as defined below) and NatWest
entered into the Common Stock Registration Rights and Stockholders' Agreement,
dated as of June 25, 1997 (the 'Common Stock Registration Rights Agreement')
with respect to the shares of Common Stock (and other securities, if any)
issuable upon exercise of the Warrants ('Registrable Securities'). The Common
Stock Registration Rights Agreement provides that NatWest and persons to whom
Registrable Securities are transferred (collectively, 'Holders') will have the
registration rights and other rights and obligations with respect to the
Registrable Securities described below.
Registration Rights. Holders of Registrable Securities will have the right
to include such Registrable Securities in any registration statement under the
Securities Act filed by the Company for the account of any of its holders of
Common Stock (other than a registration statement on Form S-8) (a 'Piggy-Back
Registration'). In the case of a Piggy-Back Registration, the number of
Registrable Securities and other
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shares of Common Stock requested to be included therein by the holders thereof
is subject to reduction on a pro rata basis to the extent that the Company or
the selling securityholders are advised by the managing underwriter therefor
that the total number of shares proposed to be included therein is such as to
materially and adversely affect the success of the offering.
The Common Stock Registration Rights Agreement will include customary
covenants on the part of the Company and will provide that the Company will
indemnify the Holders of Registrable Securities included in any registration
statement and any underwriter with respect thereto against certain liabilities.
Tag-Along Rights. In the event of any proposed transfer, sale or other
disposition (collectively, a 'Transfer') of Common Stock by any of the Existing
Stockholders in any transaction, or a series of related transactions involving
shares of Common Stock aggregating at least 15% of the shares of Common Stock
then owned by the Existing Stockholders to a person (such other person being
hereinafter referred to as the 'proposed purchaser'), other than pursuant to an
Exempt Transfer (as defined below), each of the Holders of Warrants or the
Warrant Shares (i.e., shares of Common Stock issuable upon the exercise of
Warrants) shall have the right to require the Existing Stockholders to cause the
proposed purchaser to purchase from each of them a number of Warrant Shares
(and/or Warrants exercisable for a number of Warrant Shares) owned by such
Holder equal to the total number of shares of Common Stock to be sold by the
Existing Stockholders to the proposed purchaser (collectively, the 'Transfer
Shares') multiplied by a fraction, the numerator of which is the number of
Warrant Shares (including the number of Warrant Shares issuable upon the
exercise of Warrants) owned by such Holder, and the denominator of which is the
total number of shares of Common Stock and Warrant Shares (including the number
of Warrant Shares issuable upon the exercise of Warrants) owned by the Existing
Stockholders and by all of the Holders of Warrant Shares and Warrants. Any
Warrants or Warrant Shares purchased from the Holders pursuant to such provision
shall be paid for at the same price per security and upon the same terms and
conditions of such proposed transfer by such Existing Stockholders; provided
that the price per Warrant to be paid by the proposed purchaser shall equal the
price proposed to be paid per share of Common Stock for which such Warrant is
exercisable less the exercise price of such Warrant. The Company shall notify,
or cause to be notified, each Holder in writing of each such proposed transfer
at least 15 days prior to the date thereof. Such notice shall set forth (i) the
name of the proposed purchaser and the number of shares of Common Stock proposed
to be transferred, (ii) the name and address of the proposed purchaser, (iii)
the proposed amount of consideration and terms and conditions of payment offered
by such proposed purchaser (if the proposed consideration is not cash, the
notice shall describe the terms of the proposed consideration) and (iv) that
either the proposed purchaser has been informed of the 'tag-along right' and has
agreed to purchase Warrants or Warrant Shares in accordance with the terms of
the Common Stock Registration Rights Agreement or that the selling Existing
Stockholder will make such purchase.
The tag-along right may be exercised by any Holder by delivery of a written
notice to the Company (the 'Tag-Along Notice'), within 5 days following their
receipt to the notice specified in the preceding paragraph. The Tag-Along Notice
shall state the amount of Warrants or Warrant Shares that such Holder or holder
proposes to include in such transfer to the proposed purchaser determined as
aforesaid. Failure to provide a Tag-Along Notice within 5-day notice period
shall be deemed to constitute an election by such holder not to exercise its
tag-along rights.
In the event that the proposed purchaser does not purchase Warrants or
Warrant Shares from the Holders on the same terms and conditions as purchased
from the Existing Stockholder, then the Existing Stockholder making such
Transfer shall purchase such Warrants or Warrant Shares if the transfer occurs.
Tag-along rights shall terminate upon the effectiveness of any registration
statement filed with the Commission with respect to shares of Common Stock in an
initial public offering or subsequent public offering if, after giving effect so
such offering, at least 50% of the Company's Common Stock on a fully-diluted
basis would be held by persons unaffiliated with the Company and without
restriction on transfer under the Securities Act.
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As used herein, the term 'Exempt Transfer' shall mean a transfer by a
Existing Stockholder to certain affiliates or family members of such Existing
Stockholder or to the Company or another Existing Stockholder.
As used herein 'Existing Stockholders' shall mean the holders of Common
Stock on the Issue Date or any of their permitted transferees.
Drag-Along Rights. In the event of any proposed Transfer of Common Stock
by any of the Existing Stockholders in any transaction, or a series of related
transactions involving shares of Common Stock aggregating at least 51% of the
shares of Common Stock then owned by the Existing Stockholders to a person (such
other person being hereinafter referred to as the 'proposed purchaser'), other
than pursuant to an Exempt Transfer (as defined above), the Existing
Stockholders shall have the right to require each Holder of Warrants and Warrant
Shares to Transfer to the proposed purchaser a number of Warrant Shares (and/or
Warrants exercisable for a number of Warrant Shares) owned by such Holder equal
to the total number of Warrant Shares (including the number of Warrant Shares
issuable upon the exercise of Warrants) owned by such Holder multiplied by a
fraction, the numerator of which is the number of shares of Common Stock to be
sold by the Existing Stockholders to the proposed purchaser and the denominator
of which is the total number of shares of Common Stock then owned by the
Existing Stockholders. Any Warrants or Warrant Shares purchased from the Holders
pursuant to such provision shall be paid for at the same price per security and
upon the same terms and conditions of such proposed transfer by such Existing
Stockholders; provided that the price per Warrant to be paid by the proposed
purchaser shall equal the price proposed to be paid per share of Common Stock
for which such Warrant is exercisable less the exercise price of such Warrant.
The Company shall notify, or cause to be notified, each Holder in writing of
each such proposed transfer at least 15 days prior to the date thereof. Such
notice shall set forth (i) the name of the proposed purchaser and the number of
shares of Common Stock proposed to be transferred, (ii) the name and address of
the proposed purchaser, (iii) the proposed amount of consideration and terms and
conditions of payment offered by such proposed purchaser (if the proposed
consideration is not cash, the notice shall describe the terms of the proposed
consideration) and (iv) that either the proposed purchaser has been informed of
the 'drag-along right' and has agreed to purchase Warrants or Warrant Shares in
accordance with the terms hereon.
In the event that the proposed purchaser does not purchase Warrants and
Registrable Securities from the Holders on the same terms and conditions as
purchased from the Existing Stockholder, then the Existing Stockholder making
such Transfer shall purchase such Warrants and Shares if the transfer occurs.
Drag-along rights shall terminate upon the effectiveness of any
registration statement filed with the Commission with respect to shares of
Common Stock in an initial public offering or subsequent public offering if,
after giving effect so such offering, at least 50% of the Company's Common Stock
on a fully-diluted basis would be held by persons unaffiliated with the Company
and without restriction on transfer under the Securities Act.
Registration Requirements
The Company is not obligated to commence an exchange offer pursuant to an
effective registration statement or (except as described above) cause the
Warrants or the Common Stock issuable upon their exercise to be registered under
the Securities Act.
PREFERRED STOCK
Upon the consummation of the Exchange Offer, the only outstanding preferred
stock will be shares of the New Preferred Stock and any untendered shares of Old
Preferred Stock. See 'Description of Senior PIK Preferred Stock'.
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SECTION 203 OF THE DELAWARE LAW
Section 203 of the Delaware General Corporation Law prohibits a
publicly-held Delaware corporation from engaging in a 'business combination'
with an 'interested stockholder' for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless:
(i) prior to the date of the business combination, the transaction is approved
by the board of directors of the corporation; (ii) upon consummation of the
transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owns at least 85% of the outstanding
voting stock; or (iii) on or after such date the business combination is
approved by the board of directors and by the affirmative vote of at least
66 2/3% of the outstanding voting stock which is not owned by the interested
stockholder. A 'business combination' includes mergers, asset sales and other
transactions resulting in a financial benefit to the interested stockholder. An
'interested stockholder' is a person who, together with affiliates and
associates, owns (or within three years, did own) 15% or more of the
corporation's voting stock.
DIRECTORS' LIABILITY
The Company has included in its Charter and Bylaws provisions to: (i)
eliminate the personal liability of its directors for monetary damages resulting
from breaches of their fiduciary duty (provided that such provisions do not
eliminate liability for breaches of the duty of loyalty, acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, violations under Section 174 of the Delaware General Corporation Law, or
for any transaction from which the director derived an improper personal
benefit); and (ii) indemnify its directors and officers to the fullest extent
permitted by Section 145 of the Delaware General Corporation Law, including
circumstances in which indemnification is otherwise discretionary. The Company
believes that these provisions are necessary to attract and retain qualified
persons as directors and officers.
In addition, the Company has obtained liability insurance for each director
and officer for certain losses arising from claims or charges made against them
while acting in their capacities as directors or officers for the Company.
WARRANTS
Upon the consummation of the Offering, Warrants to purchase approximately
7.0% of the Common Stock will be issued to the purchasers of the Units. See
'Description of Warrants.' The Warrant Agreement governing the Warrants contains
antidilution provisions which entitle the Warrant holders to receive their pro
rata share of any stock splits or dividends payable on any Common Stock.
DESCRIPTION OF NEW PREFERRED STOCK
The following summary of all material provisions does not purport to be an
exhaustive description of the New Preferred Stock and is subject to the detailed
provisions of, and qualified in its entirety by reference to, the provisions of
the Certificate of Designation relating thereto (including the definitions
contained therein). Definitions relating to certain capitalized terms are set
forth under 'Description of Notes--Certain Definitions' and throughout this
description provided that the determination of Consolidated Net Income shall be
after the payment of dividends on the New Preferred Stock. Capitalized terms
that are used but not otherwise defined herein have the meanings assigned to
them in the Certificate of Designation for the New Preferred Stock (the
'Certificate of Designation'), and such definitions are incorporated herein by
reference.
GENERAL
The number of shares constituting the series of preferred stock which is
herein referred to as the New Preferred Stock is 6,000,000, each with a
liquidation preference of $25.00. Such number of shares of the New Preferred
Stock as may be necessary to be publicly offered in exchange for the Old
Preferred Stock as contemplated by the Preferred Stock Registration Rights
Agreement shall be initially issued with additional
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shares reserved for issuance as payment-in-kind dividends. See '--Dividends'
below. The New Preferred Stock, when issued, will be fully paid and
nonassessable, and the holders thereof will not have any subscription or
preemptive rights.
RANKING
The New Preferred Stock ranks, with respect to dividend distributions and
distributions upon the liquidation, winding-up or dissolution of the Company,
pari passu with the Old Preferred Stock and senior to all classes of common
stock of the Company, and to each other class of capital stock or series of
preferred stock established after the date of this Memorandum other than as
permitted in the following sentence (collectively, 'Junior Securities'). The
Company may not issue any class or series of capital stock ranking senior to or
on a parity with the Senior Preferred Stock with respect to dividend
distributions or distributions upon liquidation, winding-up or dissolution of
the Company without the approval of the holders of at least a majority of the
shares of Senior Preferred Stock then outstanding, voting or consenting, as the
case may be, together as one class; provided, however, that the Company can
issue additional shares of Senior Preferred Stock to satisfy dividend payments
on outstanding shares of Senior Preferred Stock; and provided further, however,
that the Company can issue shares of preferred stock ranking on a parity with
the Senior Preferred Stock if after giving effect thereto the Consolidated
Coverage Ratio is greater than 1.7 to 1.
DIVIDENDS
Holders of the Senior Preferred Stock will be entitled to receive, when, as
and if declared by the board of directors of the Company, out of funds legally
available therefor, dividends on the Senior Preferred Stock at a rate per annum
equal to 12% of the liquidation preference per share of Senior Preferred Stock,
payable quarterly; provided that so long as a Triggering Event (as defined
below) shall have occurred and be continuing, additional dividends will
accumulate on the Senior Preferred Stock at a rate per annum equal to no more
than 2% of the liquidation preference per share of the Senior Preferred Stock,
payable quarterly (any such increase is an 'Additional Dividend'). All dividends
will be cumulative whether or not earned or declared on a daily basis from the
Issue Date and will be payable quarterly in arrears on March 15, June 15,
September 15 and December 15 of each year, commencing on September 15, 1997, to
holders of record on the March 1, June 1, September 1 and December 1 immediately
preceding the relevant dividend payment date. Dividends may be paid, at the
Company's option, on any dividend payment date occurring on or prior to June 15,
2002 either in cash or by the issuance of additional shares of Senior Preferred
Stock (including fractional shares) having an aggregate liquidation preference
equal to the amount of such dividends. In the event, that on or prior to June
15, 2002 dividends are declared and paid through the issuance of additional
shares of Senior Preferred Stock, as provided in the previous sentence, such
dividends shall be deemed paid in full and will not accumulate. After June 15,
2002, dividends must be paid in cash. The Indenture restricts the Company's
ability to pay cash dividends on its Capital Stock and will prohibit such
payments in certain instances and other future agreements may provide similar
restrictions. See 'Description of Notes.'
Unpaid dividends accumulating after June 15, 2002 on the Senior Preferred
Stock for any past dividend period and dividends in connection with any optional
redemption may be declared and paid at any time, without reference to any
regular dividend payment date, to holders of record on such date, not more than
forty-five days prior to the payment thereof, as may be fixed by the board of
directors of the Company.
REDEMPTION
Optional Redemption. At any time and from time to time on or prior to June
15, 2000, the Company may, subject to certain requirements, redeem up to 35% of
the Senior Preferred Stock out of Net Cash Proceeds of one or more Equity
Offerings by the Company so long as there is a Public Market as at the time of
such redemption, at a redemption price equal to 112% of the liquidation
preference thereof, plus, without duplication, an amount in cash equal to all
accumulated and unpaid dividends (including an amount in cash equal to a
prorated dividend for the period from the immediately preceding dividend payment
date to the redemption date). After June 15, 2000 and prior to June 15, 2002,
the Senior Preferred Stock is not
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redeemable. On or after June 15, 2002, the Senior Preferred Stock will be
redeemable, at the Company's option, in whole at any time or in part from time
to time, at the following redemption prices (expressed as a percentage of
liquidation preference) if redeemed during the twelve-month period commencing on
June 15 of the applicable year set forth below plus, without duplication, an
amount in cash equal to all accumulated and unpaid dividends (including an
amount in cash equal to a prorated dividend for the period from the immediately
preceding dividend payment date to the redemption date):
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ----------------------------------- ----------
<S> <C>
2002............................... 106.000%
2003............................... 104.000%
2004............................... 102.000%
2005 and thereafter................ 100.000%
</TABLE>
Mandatory Redemption. The Senior Preferred Stock will be subject to
mandatory redemption (subject to contractual and other restrictions with respect
thereto and to the legal availability of funds therefor) in whole on June 15,
2007 at a price equal to the liquidation preference thereof, plus, without
duplication, all accumulated and unpaid dividends to the date of redemption.
In the event of redemption of fewer than all of the outstanding shares of
Senior Preferred Stock, the Senior Preferred Stock will be redeemed on a pro
rata basis. The Senior Preferred Stock will be redeemable upon not less than 30
nor more than 60 days, prior written notice, mailed by first class mail to a
holder's last address as it shall appear on the register maintained by the
Transfer Agent of the Senior Preferred Stock. On and after any redemption date,
dividends will cease to accrue on the Senior Preferred Stock or Portions thereof
called for redemption unless the Company shall fail to redeem any such Senior
Preferred Stock.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding-up of
the Company, holders of the Senior Preferred Stock will initially be entitled to
be paid, out of the assets of the Company available for distribution, $25.00 per
share, plus an amount in cash equal to accumulated and unpaid dividends thereon
to the date fixed for liquidation, dissolution or winding-up (including an
amount equal to a prorated dividend for the period from the immediately
preceding dividend payment date to the date fixed for liquidation, dissolution
or winding-up), before any distribution is made on any Junior Securities. If
upon any voluntary or involuntary liquidation, dissolution or winding-up of the
Company, the amounts payable with respect to the Senior Preferred Stock are not
paid in full, the holders of the Senior Preferred Stock will share equally and
ratably in any distribution of assets of the Company first in proportion to the
full liquidation preference to which each is entitled until such preferences are
paid in full, and then in proportion to their respective amounts of accumulated
but unpaid dividends.
VOTING RIGHTS
Holders of the Senior Preferred Stock have no voting rights with respect to
general corporate matters, except as provided by Delaware Law or as set forth in
the Certificate of Designation. The Certificate of Designation provides that if
(i) after June 15, 2002, any dividends on the New Preferred Stock required to be
paid in cash are in arrears and unpaid or (ii) the Company fails to redeem the
New Preferred Stock on or before June 15, 2007 or fails to discharge any
redemption obligation with respect to the New Preferred Stock or (iii) the
Company fails to make a Change of Control offer if such an offer is required by
the provisions set forth under '--Change of Control' below or fails to purchase
shares of New Preferred Stock from holders who elect to have such shares
purchased pursuant to the Change of Control Offer or (iv) a breach or violation
of any of the provisions described under the caption '--Certain Covenants'
occurs and the breach or violation continues for a period of 60 days or more
after the Company receives notice thereof specifying the default from the
holders of at least 25% of the shares of New Preferred Stock then outstanding or
(v) the Company fails to pay at the final stated maturity (giving effect to any
extensions thereof) the principal amount of any Indebtedness of the Company or
any Restricted Subsidiary of the
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Company, or the final stated maturity of any such Indebtedness is accelerated,
if the aggregate principal amount of such Indebtedness, together with the
aggregate principal amount of any other such Indebtedness in default for failure
to pay principal at the final stated maturity giving effect to any extensions
thereof) or which has been accelerated, aggregates $5,000,000 or more at any
time, in each case, after a 20-day period during which such default shall not
have been cured or such acceleration rescinded, then the number of directors
constituting the board of directors of the Company will be adjusted to permit
the holders of a majority of the then outstanding shares of Senior Preferred
Stock, voting separately and as a class, to elect two directors to the board of
directors of the Company. Such voting rights will continue until such time as,
in the case of a dividend default, all accumulated and unpaid dividends on the
New Preferred Stock are paid in full in cash and, in all other cases, any
failure, breach or default giving rise to such voting rights is remedied, cured
or waived by the holders of at least a majority of the shares of New Preferred
Stock then outstanding, at which time the term of any directors elected pursuant
to the provisions of this paragraph shall terminate. Each such event described
in clauses (i) through (v) above is referred to herein as a 'Triggering Event.'
In addition, the Certificate of Designation provides that the Company will
not authorize any additional shares of Senior Preferred Stock or any class or
series of capital stock ranking prior to the Senior Preferred Stock with respect
to dividend distributions or distributions upon liquidation, winding-up or
dissolution without the affirmative vote or consent of holders of at least a
majority of the shares of Senior Preferred Stock of the Company then outstanding
which are entitled to vote thereon, voting or consenting, as the case may be, as
one class or on parity with the Senior Preferred Stock, unless after giving
effect to the issuance of any such preferred stock the Consolidated Coverage
Ratio is greater than 1.7 to 1. The Certificate of Designation also provides
that the Company may not amend the Certificate of Designation so as to affect
adversely the specified rights, preferences, privileges or voting rights of the
holders of shares of Senior Preferred Stock, without the affirmative vote or
consent of the holders of at least a majority of the then outstanding shares of
Senior Preferred Stock which are entitled to vote thereon, voting or consenting,
as the case may be, as one class.
Under Delaware law, holders of New Preferred Stock are entitled to vote as
a class upon a proposed amendment to the certificate of incorporation of the
Company, whether or not entitled to vote thereon by the certificate of
incorporation, if the amendment would increase or decrease the par value of the
shares of such class, or alter or change the powers, preferences, or special
rights of the shares of such class so as to affect them adversely.
CHANGE OF CONTROL OFFER
Within 20 days of the occurrence of a Change of Control, the Company shall
make an offer to purchase (the 'Change of Control Offer') the outstanding New
Preferred Stock at a purchase price equal to 101% of the liquidation preference
thereof plus, without duplication, an amount in cash equal to all accumulated
and unpaid dividends thereon (including (x) any Additional Dividends and (y) an
amount in cash equal to a prorated dividend for the period from the immediately
preceding dividend payment date to the Change of Control Payment Date (such
applicable purchase price being hereinafter referred to as the 'Change of
Control Purchase Price')) in accordance with the procedures set forth in this
covenant.
Within 20 days of the occurrence of a Change of Control, the Company also
shall (i) cause a notice of the Change of Control to be sent at least once to
the Dow Jones News Service or similar business news service in the United States
and (ii) send by first-class mail, postage prepaid, to each holder of New
Preferred Stock, at the address appearing on the stock books of the Company, a
notice stating:
(1) that the Change of Control Offer is being made pursuant to this
covenant and that all New Preferred Stock tendered will be accepted for
payment, and otherwise subject to the terms and conditions set forth
herein;
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(2) the Change of Control Purchase Price and the purchase date (which
shall be a Business Day no earlier than 20 Business Days from the date such
notice is mailed (the 'Change of Control Payment Date'));
(3) that any New Preferred Stock not tendered will continue to
accumulate dividends;
(4) that, unless the Company defaults in the payment of the Change of
Control Purchase Price, any New Preferred Stock accepted for payment
pursuant to the Change of Control Offer shall cease to accumulate dividends
after the Change of Control Payment Date;
(5) that holders accepting the offer to have their New Preferred Stock
purchased pursuant to a Change of Control Offer will be required to
surrender their certificates representing New Preferred Stock to the
Company at the address specified in the notice prior to the close of
business on the Business Day preceding the Change of Control Payment Date;
(6) that holders will be entitled to withdraw their acceptance if the
Company receives, not later than the close of business on the third
Business Day preceding the Change of Control Payment Date, a telegram,
telex, facsimile transmission or letter setting forth the name of the
holder, the number of shares of New Preferred Stock delivered for purchase,
and a statement that such holder is withdrawing his election to have such
New Preferred Stock purchased;
(7) that holders whose New Preferred Stock is being purchased only in
part will be issued new certificates representing the number of shares of
New Preferred Stock equal to the unpurchased portion of the certificates
surrendered; and
(8) any other procedures that a holder must follow to accept a Change
of Control Offer or effect withdrawal of such acceptance.
On the Change of Control Payment Date, the Company shall accept for payment
the New Preferred Stock tendered pursuant to the Change of Control Offer and
promptly mail to each holder of New Preferred Stock so accepted payment in an
amount equal to the purchase price for such New Preferred Stock certificate
equal to any unpurchased shares represented by a certificate surrendered.
In the event that a Change of Control occurs and the holders of New
Preferred Stock exercise their right to require the Company to purchase New
Preferred Stock, if such purchase constitutes a 'tender offer' for purposes of
Rule 14e-1 under the Exchange Act at that time, the Company will comply with the
requirements of Rule 14e-1 as then in effect with respect to such repurchase
and, in the event of a conflict between the requirements of the Exchange Act and
of the Certificate of Designations, the provisions of the Exchange Act shall
govern.
Prior to the mailing of the notice referred to above, but in any event
within 20 days following the date on which a Change of Control occurs, the
Company covenants that, if the purchase of the New Preferred Stock would violate
or constitute a default or be prohibited under the Indenture, the New Secured
Credit Facilities or any other instrument governing Indebtedness outstanding at
the time, then the Company will, to the extent needed to permit such purchase of
New Preferred Stock, either (i) repay in full all Indebtedness under the
Indenture, the New Secured Credit Facilities or any such other instrument, as
the case may be, or (ii) obtain the requisite consents under the Indenture, the
New Secured Credit Facilities or any such other instrument, as the case may be,
to permit the redemption of the New Preferred Stock as provided above. The
Company will first comply with the covenant in the preceding sentence before it
will be required to redeem New Preferred Stock pursuant to the provisions
described above.
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CERTAIN COVENANTS
The Certificate of Designation contains certain covenants including, among
others, the following:
Limitation on Indebtedness.
(a) The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, Incur any Indebtedness; provided, however, that the Company may
Incur Indebtedness if on the date thereof the Consolidated Coverage Ratio would
be greater than 1.7:1.0.
(b) Notwithstanding the foregoing paragraph (a), the Company may Incur the
following Indebtedness:
(i) Indebtedness Incurred pursuant to the New Senior Secured
Facilities (including, without limitation, any renewal, extension,
refunding, restructuring, replacement or refinancing thereof referred to in
the definition thereof), provided, however, that the aggregate principal
amount of all Indebtedness Incurred pursuant to this clause (i) does not
exceed $150 million at any time outstanding less the aggregate principal
amount thereof repaid with the net proceeds of Asset Dispositions (to the
extent, in the case of a repayment of revolving credit indebtedness, the
commitment to advance loans has been terminated);
(ii) Indebtedness represented by Capitalized Lease Obligations,
mortgage financings or purchase money obligations, in each case Incurred
for the purpose of financing all or any part of the purchase price or cost
of construction or improvement of property used in a Permitted Business or
Incurred to refinance any such purchase price or cost of construction or
improvement, in each case Incurred no later than 365 days after the date of
such acquisition or the date of completion of such construction or
improvement; provided, however, that the principal amount of any
Indebtedness Incurred pursuant to this clause (ii) shall not exceed $5
million at any time outstanding;
(iii) Indebtedness of the Company owing to and held by any
Wholly-Owned Subsidiary or Indebtedness of a Restricted Subsidiary owing to
and held by the Company or any Wholly-Owned Subsidiary; provided, however,
that any subsequent issuance or transfer of any Capital Stock or any other
event which results in any such Wholly-Owned Subsidiary ceasing to be a
Wholly-Owned Subsidiary or any subsequent transfer of any such Indebtedness
(except to the Company or any Wholly-Owned Subsidiary) shall be deemed, in
each case, to constitute the Incurrence of such Indebtedness by the issuer
thereof;
(iv) Indebtedness represented by (v) the Notes, (w) the New Senior
Secured Facilities, (x) the Subsidiary Guarantees, (y) Existing
Indebtedness and (z) any Refinancing Indebtedness Incurred in respect of
any Indebtedness described in this clause (iv) or Incurred pursuant to
paragraph (a) above;
(v) (A) Indebtedness of a Restricted Subsidiary Incurred and
outstanding on the date on which such Restricted Subsidiary was acquired by
the Company (other than Indebtedness Incurred in anticipation of, or to
provide all or any portion of the funds or credit support utilized to
consummate the transaction or series of related transactions pursuant to
which such Restricted Subsidiary became a Subsidiary or was otherwise
acquired by the Company); provided, however, that at the time such
Restricted Subsidiary is acquired by the Company, the Company would have
been able to incur $1.00 of additional Indebtedness pursuant to paragraph
(a) above after giving effect to the Incurrence of such Indebtedness
pursuant to this clause (v) and (B) Refinancing Indebtedness Incurred by a
Restricted Subsidiary in respect of Indebtedness Incurred by such
Restricted Subsidiary pursuant to this clause (v);
(vi) Indebtedness (A) in respect of performance bonds, bankers'
acceptances and surety or appeal bonds provided by the Company or any of
its Restricted Subsidiaries to their customers in the ordinary course of
their business, (B) in respect of performance bonds or similar obligations
of the Company or any of its Restricted Subsidiaries for or in connection
with pledges, deposits or payments made or given in the ordinary course of
business in connection with or to secure statutory, regulatory or similar
obligations, including obligations under health, safety or environmental
obligations and (C) arising
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from Guarantees to suppliers, lessors, licensees, contractors, franchises
or customers of obligations (other than Indebtedness) incurred in the
ordinary course of business;
(vii) Indebtedness under Currency Agreements and Interest Rate
Agreements; provided, however, that in the case of Currency Agreements and
Interest Rate Agreements, such Currency Agreements and Interest Rate
Agreements are entered into for bona fide hedging purposes of the Company
or its Restricted Subsidiaries (as determined in good faith by the Board of
Directors of the Company) and correspond in terms of notional amount,
duration, currencies and interest rates as applicable, to Indebtedness of
the Company or its Restricted Subsidiaries Incurred without violation of
the Indenture or to business transactions of the Company or its Restricted
Subsidiaries on customary terms entered into in the ordinary course of
business;
(viii) Indebtedness arising from agreements providing for
indemnification, adjustment of purchase price or similar obligations, or
from Guarantees or letters of credit, surety bonds or performance bonds
securing any obligations of the Company or any of its Restricted
Subsidiaries pursuant to such agreements, in each case Incurred in
connection with the disposition of any business assets or Restricted
Subsidiary of the Company (other than Guarantees of Indebtedness or other
obligations incurred by any Person acquiring all or any portion of such
business assets or Restricted Subsidiary of the Company for the purpose of
financing such acquisition) in a principal amount not to exceed the gross
proceeds actually received by the Company or any of its Restricted
Subsidiaries in connection with such disposition; provided, however, that
the principal amount of any Indebtedness incurred pursuant to this clause
(viii) when taken together with all Indebtedness incurred pursuant to this
clause (viii) and then outstanding, shall not exceed $1 million;
(ix) Indebtedness consisting of (A) Guarantees by the Company without
violation of the Indenture and (B) Guarantees by a Restricted Subsidiary of
senior indebtedness incurred by the Company without violation of the
Indenture (so long as such Restricted Subsidiary could have incurred such
Indebtedness directly without violation of the Indenture);
(x) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument drawn against
insufficient funds in the ordinary course of business in an amount not to
exceed $500,000 at any time, provided that such Indebtedness is
extinguished within two business days of its incurrence; and
(xi) Indebtedness (other than Indebtedness described in clauses (i) -
(x)) in a principal amount which, when taken together with the principal
amount of all other Indebtedness Incurred pursuant to this clause (xi) and
then outstanding, will not exceed $10 million (it being understood that any
Indebtedness Incurred under this clause (xi) shall cease to be deemed
Incurred or outstanding for purposes of this clause (xi) (but shall be
deemed to be Incurred for purposes of paragraph (a)) from and after the
first date on which the Company or its Restricted Subsidiaries could have
Incurred such Indebtedness under the foregoing paragraph (a) without
reliance upon this clause (xi).
(c) The Company will not permit any Unrestricted Subsidiary to Incur any
Indebtedness other than Non-Recourse Debt.
Limitation on Restricted Payments. The Company shall not, and shall not
permit any of its Restricted Subsidiaries, directly or indirectly, to (i)
declare or pay any dividend or make any distribution on or in respect of its
Capital Stock (including any payment in connection with any merger or
consolidation involving the Company or any of its Restricted Subsidiaries)
except (A) dividends or distributions payable in its Capital Stock (other than
Disqualified Capital Stock) or in options, warrants or other rights to purchase
such Capital Stock, (B) dividends or distributions payable to the Company or a
Wholly-Owned Subsidiary of the Company and (C) dividends (in cash or additional
shares of New Preferred Stock), (ii) purchase, redeem, retire or otherwise
acquire for value any Capital Stock of the Company (other than the New Preferred
Stock) or any Restricted Subsidiary of the Company held by Persons other than
the Company or another Restricted Subsidiary of the Company (in either case,
other than in exchange for its Capital Stock (other than Disqualified Stock)),
(iii) purchase, repurchase, redeem, defease or otherwise
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acquire or retire for value, prior to scheduled maturity, scheduled repayment or
scheduled sinking fund payment, any Subordinated Obligations or (iv) make any
Investment (other than a Permitted Investment) in any Person (any such dividend,
distribution, purchase, redemption, repurchase, defeasance, other acquisition,
retirement or Investment as described in preceding clauses (i) through (iv)
being referred to as a 'Restricted Payment'); if at the time the Company or such
Restricted Subsidiary makes such Restricted Payment:
(1) The Company shall have paid a dividend, on the most recent
dividend payment date, by the issuance of additional New Preferred Stock;
or
(2) a Triggering Event shall have occurred and be continuing (or would
result therefrom); or
(3) the Company is not able to incur an additional $1.00 of
Indebtedness pursuant to paragraph (a) under 'Limitation on Indebtedness';
or
(4) the aggregate amount of such Restricted Payment and all other
Restricted Payments declared or made subsequent to the Issue Date would
exceed the sum of (A) 50% of the Consolidated Net Income accrued during the
period (treated as one accounting period) from the first day of the fiscal
quarter beginning on or after the Issue Date to the end of the most recent
fiscal quarter ending prior to the date of such Restricted Payment as to
which financial results are available (but in no event ending more than 135
days prior to the date of such Restricted Payment) (or, in case such
Consolidated Net Income shall be a deficit, minus 100% of such deficit);
(B) the aggregate net proceeds received by the Company from the issue or
sale of its Capital Stock (other than Disqualified Stock) or other capital
contributions subsequent to the Issue Date (other than net proceeds
received from an issuance or sale of such Capital Stock to a Subsidiary of
the Company or an employee stock ownership plan or similar trust);
provided, however, that the value of any non-cash net proceeds shall be as
determined by the Board of Directors in good faith, except that in the
event the value of any non-cash net proceeds shall be $1 million or more,
the value shall be as determined in writing by an independent investment
banking firm of nationally recognized standing; (C) the amount by which
Indebtedness of the Company is reduced on the Company's balance sheet upon
the conversion or exchange (other than by a Restricted Subsidiary of the
Company) subsequent to the Issue Date of any Indebtedness of the Company
Incurred subsequent to the Issue Date which is convertible or exchangeable
for Capital Stock of the Company (less the amount of any cash, or other
property, distributed by the Company upon such conversion or exchange); (D)
the amount equal to the net reduction in Investments (other than Permitted
Investments) made after the Issue Date by the Company or any of its
Restricted Subsidiaries in any Person resulting from (i) repurchases or
redemptions of such Investments by such Person, proceeds realized upon the
sale of such Investment to an unaffiliated purchaser, repayments of loans
or advances or other transfers of assets by such Person to the Company or
any Restricted Subsidiary of the Company or (ii) the redesignation of
Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case
as provided in the definition of 'Investment') not to exceed, in the case
of any Unrestricted Subsidiary, the amount of Investments previously
included in the calculation of the amount of Restricted Payments; provided,
however, that no amount shall be included under this Clause (D) to the
extent it is already included in Consolidated Net Income; and (E) $10.0
million.
The provisions of the foregoing paragraph shall not prohibit:
(i) any purchase or redemption of Capital Stock or Subordinated
Obligations of the Company made by exchange for, or out of the proceeds of
the substantially concurrent sale of, Capital Stock of the Company (other
than Disqualified Stock and other than Capital Stock issued or sold to a
Subsidiary or an employee stock ownership plan or similar trust); provided,
however, that (A) such purchase or redemption shall be excluded in the
calculation of the amount of Restricted Payments and (B) the Net Cash
Proceeds from such sale shall be excluded from clause (3) (B) of the
foregoing paragraph;
(ii) any purchase or redemption of Subordinated Obligations of the
Company made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Subordinated Obligations of the Company in compliance
with the 'Limitation on Indebtedness' covenant; provided, however, that
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such purchase or redemption shall be excluded in the calculation of the
amount of Restricted Payments;
(iii) any purchase or redemption of Subordinated Obligations from Net
Available Cash to the extent permitted under 'Repurchase at the Option of
Holders--Sales of Assets and Subsidiary Stock' above;
(iv) dividends paid within 60 days after the date of declaration if at
such date of declaration such dividend would have complied with this
provision; provided, however, that such dividend shall be included in the
calculation of the amount of Restricted Payments; and
(v) payments to Bollore Technologies, S.A. which payments shall not
exceed $500,000 in any six month period and shall not exceed $2.5 million
in the aggregate.
provided, however, that no Triggering Event shall have occurred or be continuing
at the time of such payment or as a result thereof.
For purposes of determining compliance with the foregoing covenant,
Restricted Payments may be made with cash or non-cash assets, provided that any
Restricted Payment made other than in cash shall be valued at the fair market
value (determined, subject to the additional requirements of the immediately
succeeding proviso, in good faith by the Board of Directors) of the assets so
utilized in making such Restricted Payment, provided, further, that (i) in the
case of any Restricted Payment made with Capital Stock or Indebtedness, such
Restricted Payment shall be deemed to be made in an amount equal to the greater
of the fair market value thereof and the liquidation preference (if any) or
principal amount of the capital stock or indebtedness, as the case may be, so
utilized, and (ii) in the case of any Restricted Payment in an aggregate amount
in excess of $1 million, a written opinion as to the fairness of the valuation
thereof (as determined by the Company) for purposes of determining compliance
with the 'Limitation on Restricted Payments' covenant in the Indenture shall be
issued by an independent investment banking firm of national standing.
Limitation on Distributions from Restricted Subsidiaries. The Company
shall not, and shall not permit any of its Restricted Subsidiaries to, create or
permit to exist or become effective any consensual encumbrance or restriction on
the ability of any such Restricted Subsidiary to:
(i) pay dividends or make any other distributions on its Capital Stock
or pay any Indebtedness or other obligation owed to the Company;
(ii) make any loans or advances to the Company; or
(iii) transfer any of its property or assets to the Company;
except (in each case) for such encumbrances or restrictions existing under or by
reason of:
(a) any encumbrance or restriction pursuant to an agreement in effect
at or entered into on the Issue Date, including the New Senior Secured
Facilities;
(b) any encumbrance or restriction with respect to such a Restricted
Subsidiary pursuant to an agreement relating to any Indebtedness issued by
such Restricted Subsidiary on or prior to the date on which such Restricted
Subsidiary was acquired by the Company and outstanding on such date (other
than indebtedness issued as anticipation of, or to provide all or any
portion of the funds or credit support utilized to consummate, the
transaction or series of related transactions pursuant to which such
Restricted Subsidiary became a Restricted Subsidiary of the Company or was
acquired by the Company);
(c) any encumbrance or restriction with respect to such a Restricted
Subsidiary pursuant to an agreement evidencing Indebtedness Incurred
without violation of the Indenture or effecting a refinancing of
Indebtedness issued pursuant to an agreement referred to in clauses (a) or
(b) or this clause (c) or contained in any amendment to an agreement
referred to in clauses (a) or (b) or this clause (c); provided, however,
that the encumbrances and restrictions with respect to such Restricted
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Subsidiary contained in any of such agreement, refinancing agreement or
amendment, taken as a whole, are no less favorable to holders of the Notes
in any material respect, as determined in good faith by the Board of
Directors of the Company, than encumbrances and restrictions with respect
to such Restricted Subsidiary contained in agreements in effect at, or
entered into on, the Issue Date;
(d) in the case of clause (iii), any encumbrance or restriction (A)
that restricts in a customary manner the subletting, assignment or transfer
of any property or asset that is a lease, license, conveyance or contract
or similar property or asset, (B) by virtue of any transfer of, agreement
to transfer, option or right with respect to, or Lien on, any property or
assets of the Company or any Restricted Subsidiary not otherwise prohibited
by the Indenture, (C) that is included in a licensing agreement to the
extent such restrictions limit the transfer of the property subject to such
licensing agreement or (D) arising or agreed to in the ordinary course of
business and that does not, individually or in the aggregate, detract from
the value of property or assets of the Company or any of its Subsidiaries
in any manner material to the Company or any such Restricted Subsidiary;
(e) in the case of clause (iii) above, restrictions contained in
security agreements, mortgages or similar documents securing Indebtedness
of a Restricted Subsidiary to the extent such restrictions restrict the
transfer of the property subject to such security agreements;
(f) in the case of clause (iii) above, any instrument governing or
evidencing Indebtedness of a Person acquired by the Company or any
Restricted Subsidiary of the Company at the time of such acquisition, which
encumbrance or restriction is not applicable to any Person, or the
properties of assets of any Person, other than the Person so acquired;
provided, however,that such Indebtedness is not incurred in connection with
or in contemplation of, such acquisition.
(g) any restriction with respect to such a Restricted Subsidiary
imposed pursuant to an agreement entered into for the sale or disposition
of all or substantially all the Capital Stock or assets of such Restricted
Subsidiary pending the closing of such sale or disposition; and
(h) encumbrances or restrictions arising or existing by reason of
applicable law.
Limitation on Affiliate Transactions. The Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, enter into
or conduct any transaction or series of related transactions (including the
purchase, sale, lease or exchange of any property or the rendering of any
service) with or for the benefit of any Affiliate of the Company, other than a
Wholly-Owned Subsidiary (an 'Affiliate Transaction') unless: (i) the terms of
such Affiliate Transaction are no less favorable to the Company or such
Restricted Subsidiary, as the case may be, than those that could be obtained at
the time of such transaction in arm's length dealings with a Person who is not
such an Affiliate; (ii) in the event such Affiliate Transaction involves an
aggregate amount in excess of $1 million, the terms of such transaction have
been approved by a majority of the members of the Board of Directors of the
Company and by a majority of the disinterested members of such Board, if any
(and such majority or majorities, as the case may be, determines that such
Affiliate Transaction satisfies the criteria in (i) above); and (iii) in the
event such Affiliate Transaction involves an aggregate amount in excess of $2
million, the Company has received a written opinion from an independent
investment banking firm of nationally recognized standing that such Affiliate
Transaction is fair to the Company or such Restricted Subsidiary, as the case
may be, from a financial point of view.
The foregoing paragraph shall not apply to (i) any Restricted Payment
permitted to be made pursuant to the covenant described under 'Limitation on
Restricted Payments,' (ii) any issuance of securities, or other payments, awards
or grants in cash, securities or otherwise pursuant to, or the funding of,
employment arrangements, or any stock options and stock ownership plans for the
benefit of employees, officers and directors, consultants and advisors approved
by the Board of Directors of the Company, (iii) loans or advances to employees
in the ordinary course of business of the Company or any of its Restricted
Subsidiaries in aggregate amount outstanding not to exceed $1,500,000 at any
time, (iv) any transaction between Wholly-Owned Subsidiaries, (v)
indemnification agreements with, and the payment of fees and indemnities to,
directors, officers and employees of the Company and its Restricted
Subsidiaries, in each
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case in the ordinary course of business, (vi) transactions pursuant to
agreements in existence on the Issue Date which are (x) described in the
Offering Memorandum or (y) otherwise, in the aggregate, immaterial to the
Company and its Restricted Subsidiaries taken as a whole, (vii) any employment,
non-competition or confidentiality agreements entered into by the Company or any
of its Restricted Subsidiaries with its employees in the ordinary course of
business and (viii) the issuance of Capital Stock of the Company (other than
Disqualified Stock).
Limitation on Preferred Stock of Restricted Subsidiaries. Company will not
permit any Restricted Subsidiary of the Company to issue any Preferred Stock
(except Preferred Stock to the Company or a Restricted Subsidiary) or permit any
person (other than Company or a Restricted Subsidiary) to hold any such
Preferred Stock unless the Company or Restricted Subsidiary would be entitled to
incur or assume Indebtedness under the covenant described under 'Limitation on
Additional Indebtedness' in the aggregate principal amount equal to the
aggregate liquidation value of the Preferred Stock to be issued.
SEC Reports. The Company will provide to the holders of the New Preferred
Stock, within 15 days after it files them with the Commission, copies of the
annual reports and of the information, documents and other reports (or copies of
such portions of any of the foregoing as the Commission may by rules and
regulations prescribe) which the Company files with the Commission pursuant to
Section 13 or 15(d) of the Exchange Act. In the event that the Company is not
required to file such reports with the Commission pursuant to the Exchange Act,
the Company will nevertheless deliver such Exchange Act information to the
holders of the New Preferred Stock within 15 days after it would have been
required to file it with the Commission.
Merger and Consolidation. The Company shall not consolidate with or merge
with or into, or convey, transfer or lease all or substantially all of its
assets to, any Person, unless: (i) the resulting, surviving or transferee Person
(the 'Successor Company') shall be a corporation, partnership, trust or limited
liability company organized and existing under the laws of the United States of
America, any State thereof or the District of Columbia and the Successor Company
(if not the Company) shall expressly assume, all the obligations of the Company
under the New Preferred Stock; (ii) immediately after giving effect to such
transaction (and treating any Indebtedness that becomes an obligation of the
Successor Company or any Subsidiary of the Successor Company as a result of such
transaction as having been incurred by the Successor Company or such Restricted
Subsidiary at the time of such transaction), no Default or Event of Default
shall have occurred and be continuing; (iii) immediately after giving effect to
such transaction, the Successor Company would be able to incur at least an
additional $1.00 of Indebtedness pursuant to paragraph (a) of 'Description of
Notes--Limitation on Indebtedness'; and (iv) the Consolidated Net Worth of the
resulting, surviving, or transferee corporation is not less than that of the
Company immediately prior to the transaction.
Notwithstanding the foregoing clauses (ii) and (iii), any Restricted
Subsidiary of the Company may consolidate with, merge into or transfer all or
part of its properties and assets to the Company.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Securities for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Securities. 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 Securities received in
exchange for Unregistered Securities, where such Exchange Securities were
acquired as a result of market-making activities or other trading activities.
The Company has agreed that for a period of 180 days after the Expiration Date,
it will make this Prospectus, as amended or supplemented, available to any
broker-dealer for use in connection with any such resale. In addition, until
, 1997, all dealers effecting transactions in the Exchange
Securities may be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of Exchange
Securities by broker-dealers. Exchange Securities received by broker-dealers for
their own account pursuant to the Exchange Offer may
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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 Securities, 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 commission or concessions from any such broker-dealer and/or the
purchasers of any such Exchange Securities. Any broker-dealer that resells
Exchange Securities that were received by it for its own account pursuant to the
Exchange Offer and any broker or dealer that participates in a distribution of
such Exchange Securities may be deemed to be an 'underwriter' within the meaning
of the Securities Act and any profit on any such resale of Exchange Securities
and any commissions or concessions received by any such persons may be deemed to
be underwriting compensations under the Securities Act. The Letters of
Transmittal state that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
'underwriter' within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
pursuant to a Letter of Transmittal.
CERTAIN U.S. FEDERAL TAX CONSIDERATIONS
U.S. HOLDERS
The following discussion summarizes certain material United States federal
income tax considerations generally applicable to the purchase, ownership and
disposition of New Notes and New Preferred Stock to a holder that is a citizen
or resident of the United States, a corporation, partnership or other entity
created or organized under the laws of the United States or any state thereof or
the District of Columbia or an estate or trust the income of which is subject to
United States federal income taxation regardless of source (a 'U.S. Holder').
This summary is based on the United States federal income tax laws, regulations,
rulings and decisions now in effect, all of which are subject to change,
possibly on a retroactive basis. This summary does not address the tax
consequences applicable to investors that may be subject to special tax rules,
such as banks, thrifts, real estate investment trusts, regulated investment
companies, insurance companies, dealers in securities or currencies, tax-exempt
investors or persons that hold New Notes or New Preferred Stock as a position in
a 'straddle,' as part of a 'synthetic security' or 'hedge,' as part of a
'conversion transaction' or other integrated investment. This summary also does
not address the tax consequences to persons that have a functional currency
other than the U.S. dollar or the tax consequences to shareholders, partners or
beneficiaries of a U.S. Holder of New Notes or New Preferred Stock. Further, it
does not include any description of any alternative minimum tax consequences,
estate tax consequences or the tax laws of any state or local government or of
any foreign government that may be applicable to the New Notes or New Preferred
Stock. The discussion assumes that the New Notes and New Preferred Stock will be
held as capital assets within the meaning of section 1221 of the Internal
Revenue Code of 1986, as amended (the 'Code'). Certain proposed tax legislation,
if enacted in substantially the same form as proposed, may affect some of the
federal income tax consequences discussed herein. See '--Proposed Legislation.'
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH REGARD TO
THE APPLICATION OF THE TAX CONSIDERATIONS DISCUSSED BELOW TO THEIR PARTICULAR
SITUATIONS AS WELL AS THE APPLICATION OF ANY STATE, LOCAL, FOREIGN OR OTHER TAX
LAWS.
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NEW NOTES
EXCHANGE OFFER
The exchange of Old Notes for New Notes pursuant to the Exchange Offer
should not be a taxable exchange for federal income tax purposes. As a result,
there should be no federal income tax consequences to U.S. Holders exchanging
Old Notes for New Notes pursuant to the Exchange Offer. A U.S. Holder should
have the same adjusted basis and holding period in the New Note as it had in the
Old Note immediately before the Exchange Offer.
STATED INTEREST
Interest on a New Note will be taxable to a U.S. Holder as ordinary
interest income at the time it accrues or is received in accordance with such
holder's method of accounting for tax purposes. Further, the Company is
obligated to pay additional interest to the holders under certain circumstances
as described above under 'The Exchange Offer.' Such additional interest should
be taxable to U.S. Holders at the time it accrues or is received in accordance
with such holder's method of accounting.
MARKET DISCOUNT
If a New Note is acquired at a 'market discount', some or all of any gain
realized upon a sale or other disposition or payment at maturity, or some or all
of a partial principal payment, of such New Note may be treated as ordinary
income, as described below. For this purpose, 'market discount' is the excess
(if any) of the stated redemption price at maturity over the purchase price,
subject to a statutory de minimis exception. Unless a U.S. Holder has elected to
include the market discount in income as it accrues (as described below), any
gain realized on any subsequent disposition of such New Note (other than in
connection with certain nonrecognition transactions), on payment at maturity, or
on any partial principal payment with respect to such New Note, will be treated
as ordinary income to the extent of the market discount that accrued during the
period such New Note was held.
The amount of market discount treated as having accrued will be determined
either (i) on a ratable basis by multiplying the market discount times a
fraction, the numerator of which is the number of days the New Note was held by
the U.S. Holder and the denominator of which is the total number of days after
the date such U.S. Holder acquired the New Note up to and including the date of
its maturity or (ii) if the U.S. Holder so elects, on a constant interest rate
method.
A U.S. Holder of a New Note acquired at a market discount may elect to
include market discount in income currently, through the use of either the
ratable inclusion method or the elective constant interest method. Once made,
the election to include market discount in income currently applies to all Notes
and other obligations held by the U.S. Holder that are purchased at a market
discount during the taxable year for which the election is made and all
subsequent taxable years of the U.S. Holder, unless the Internal Revenue Service
(the 'Service') consents to a revocation of the election. If an election is made
to include market discount in income currently, the basis of the New Note in the
hands of the U.S. Holder will be increased by the market discount thereon as it
is included in income.
Unless a U.S. Holder who acquires a New Note at a market discount elects to
include market discount in income currently (as described above), such U.S.
Holder may be required to defer deductions for any interest paid or accrued on
indebtedness allocable to such New Notes in any amount not exceeding the
deferred income until such income is realized.
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BOND PREMIUM
If a U.S. Holder purchases a New Note and immediately after the purchase
the adjusted basis of the New Note to such holder exceeds the sum of all amounts
of principal payable on the instrument after the purchase date, the New Note
will have 'bond premium.' A U.S. Holder may elect to amortize such bond premium
over the remaining term of such Note (or, in certain circumstances, until an
earlier call date).
If bond premium is amortized, the amount of interest that must be included
in the U.S. Holder's income for each period ending on an interest payment date
or at the stated maturity, as the case may be, will be reduced by the portion of
premium allocable to such period based on the New Note's yield to maturity. If
such an election to amortize bond premium is not made, a U.S. Holder must
include the full amount of each interest payment in income in accordance with
its regular method of accounting and will receive a tax benefit from the premium
only in computing such holder's gain or loss upon the sale or other disposition
or payment of the principal of the New Note.
An election to amortize premium will apply to amortizable bond premium on
all Notes and other bonds, the interest on which is includible in the U.S.
Holder's gross income, held at the beginning of the U.S. Holder's first taxable
year to which the election applies or are thereafter acquired, and may be
revoked only with the consent of the Service.
SALE, EXCHANGE OR REDEMPTION OF THE EXCHANGE NOTES
Upon the disposition of a New Note by sale, exchange or redemption, a U.S.
Holder will generally recognize gain or loss equal to the difference between (i)
the amount realized on the disposition (other than amounts attributable to
accrued interest) and (ii) the U.S. Holder's tax basis in the New Note. A U.S.
Holder's tax basis in an New Note generally will equal its cost (net of accrued
interest) to the U.S. Holder, increased by amounts includible in income as
market discount (if the holder elects to include market discount in income on a
current basis) and reduced by any amortized bond premium and any payments (other
than interest) made on such New Note.
Such gain or loss (except to the extent that the market discount rules
otherwise provide) will generally constitute capital gain or loss and will be
long-term capital gain or loss if the U.S. Holder shall have held such New Note
for longer than one year at the time of a sale or exchange.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Under the Code, a U.S. Holder of New Note may be subject, under certain
circumstances, to information reporting and/or backup withholding at a 31% rate
with respect to cash payments in respect of interest or the gross proceeds from
dispositions thereof. This withholding applies only if the holder (i) fails to
furnish its social security or other taxpayer identification number ('TIN')
within a reasonable time after a request therefor, (ii) furnishes an incorrect
TIN, (iii) fails to report interest properly, or (iv) fails, under certain
circumstances, to provide a certified statement, signed under penalty of
perjury, that the TIN provided is its correct number and that it is not subject
to backup withholding. Any amount withheld from a payment to a U.S. Holder under
the backup withholding rules is allowable as a credit against (and may entitle
such holder to a refund of) such holder's U.S. federal income tax liability,
provided that the required information is furnished to the Service. Certain
persons are exempt from backup withholding, including corporations and financial
institutions. Holders of New Notes should consult their tax advisors as to their
qualification for exemption from withholding and the procedure for obtaining
such exemption.
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NEW PREFERRED STOCK
EXCHANGE OFFER
The exchange of Old Preferred Stock for New Preferred Stock pursuant to the
Exchange Offer should not be a taxable exchange for federal income tax purposes.
As a result, there should be no federal income tax consequences to U.S. Holders
exchanging Old Preferred Stock for New Preferred Stock pursuant to the Exchange
Offer. A U.S. Holder should have the same adjusted basis and holding period in
the New Preferred Stock as it had in the Old Preferred Stock immediately before
the Exchange Offer.
DISTRIBUTIONS ON NEW PREFERRED STOCK
Distributions on the New Preferred Stock, whether paid in cash, in
additional shares of New Preferred Stock or as constructive distributions (as
discussed below under 'Redemption Premium'), will be taxable as ordinary income
to the extent that the amount of cash or the fair market value of any New
Preferred Stock distributed does not exceed the Company's current or accumulated
earnings and profits (as determined for federal income tax purposes). To the
extent that the amount of distributions paid on the New Preferred Stock exceeds
such current or accumulated earnings and profits, such distributions will be
treated first as a return of capital, thus reducing the U.S. Holder's adjusted
tax basis in the New Preferred Stock. The amount of any such excess distribution
that is greater than the U.S. Holder's adjusted tax basis in the New Preferred
Stock will be taxed as capital gain, and will be long-term capital gain if the
U.S. Holder's holding period for the New Preferred Stock or Common Stock exceeds
one year. There can be no assurance that the Company will have sufficient
earnings and profits (as determined for federal income tax purposes) to cause
distributions on the New Preferred Stock to be treated as dividends for federal
income tax purposes. For purposes of the remainder of this discussion, the term
'dividend' refers to a distribution taxed as ordinary income as described above,
unless the context indicates otherwise.
A U.S. Holder's initial tax basis in any additional shares of New Preferred
Stock distributed by the Company will be equal to the fair market value of such
additional shares on their date of distribution. A U.S. Holder's holding period
for such additional shares will commence with their distribution and will not
include his holding period for the shares of New Preferred Stock with respect to
which the additional shares were distributed.
Dividends received by a corporate U.S. Holder will be eligible for the 70%
dividends-received deduction under section 243 of the Code, subject to the
limitations contained in sections 246 and 246A of the Code. Under section 246(c)
of the Code, the 70% dividends-received deduction will not be available with
respect to New Preferred Stock which is held for 45 days or less (90 days in the
case of a dividend attributable to a period or periods aggregating more than 366
days), including the day of disposition, but excluding the day of acquisition or
any day which is more than 45 days (or 90 days) after the date on which the New
Preferred Stock becomes ex-dividend. The length of time that a shareholder is
deemed to have held stock for these purposes is reduced for periods during which
the shareholder's risk of loss with respect to the stock is diminished by reason
of the existence of certain options, contracts to sell, short sales or other
similar transactions. Section 246(c) of the Code also denies the
dividends-received deduction to the extent that a corporate taxpayer is under an
obligation, with respect to substantially similar or related property, to make
payments corresponding to the dividend received. Under section 246(b) of the
Code, the aggregate dividends-received deductions allowed may not exceed 70% of
the taxable income (with certain adjustments) of the corporate shareholder.
Moreover, under section 246A of the Code, to the extent that a corporate
shareholder incurs indebtedness 'directly attributable' to an investment in the
New Preferred Stock, the dividends-received deduction is proportionately
reduced. Legislation has been proposed which, if enacted, would affect the
availability of the dividends-received deduction for dividends on the New
Preferred Stock. See '--Proposed Legislation.'
Section 1059 of the Code requires a corporate shareholder to reduce its tax
basis (but not below zero) in the New Preferred Stock by the 'non-taxed portion'
of any 'extraordinary dividend' if the U.S. Holder
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has not held its stock for more than two years as of the date the amount or
payment of such dividends is announced, declared or agreed to. If any part of
the non-taxed portion of an extraordinary dividend has not been applied to
reduce basis as a result of the limitation on reducing basis below zero, the
amount thereof will be treated as gain from the sale or exchange of stock when
such stock is disposed of or sold. Generally, the non-taxed portion of an
extraordinary dividend is the amount for which a deduction is allowed under
section 243 of the Code (relating to the dividends-received deduction). An
'extraordinary dividend' on the New Preferred Stock would include a dividend
that (i) equals or exceeds 5% of the U.S. Holder's adjusted tax basis in the New
Preferred Stock, treating all dividends having ex-dividend dates within an
85-day period as one dividend or (ii) exceeds 20% of the U.S. Holder's adjusted
tax basis in the New Preferred Stock, treating all dividends having ex-dividend
dates within a 365-day period as one dividend. In determining whether a dividend
paid is an extraordinary dividend, a U.S. Holder may elect to use the fair
market value of the stock rather than its basis for purposes of applying the 5%
(or 20%) threshold if the U.S. Holder is able to establish, to the satisfaction
of the Secretary of the Treasury, such fair market value as of the day before
the ex-dividend date. An extraordinary dividend also would include any amount
treated as a dividend in the case of a redemption of the New Preferred Stock
that is non-pro rata as to all shareholders, without regard to the period the
U.S. Holder held the stock. Legislation has been proposed that would require a
corporate U.S. Holder to immediately recognize gain under section 1059 of the
Code, instead of deferring such gain until the ultimate sale or exchange of such
stock, to the extent that, but for the foregoing rule, such U.S. Holder's tax
basis would have been reduced below zero. It is not certain whether the proposed
legislation will be enacted or, if enacted, will be enacted as originally
proposed.
Special rules apply with respect to 'qualified preferred dividends.' A
qualified preferred dividend is any fixed dividend payable with respect to
preferred stock which (i) provides for fixed preferred dividends payable no less
often than annually and (ii) is not in arrears as to dividends when acquired,
provided the actual rate of return on such stock, as determined under section
1059(e)(3) of the Code, does not exceed 15%. Where a qualified preferred
dividend exceeds the 5% (or 20%) threshold for extraordinary dividend status
described above, (i) the extraordinary dividend rules will not apply if the
holder holds the stock for more than five years, and (ii) if the holder disposes
of the stock before it has been held for five years, the aggregate reduction in
basis cannot exceed the excess of the qualified preferred dividends paid on such
stock during the period held by the holder over the qualified preferred
dividends which would have been paid during such period on the basis of the
stated rate of return, as determined under section 1059(e)(3) of the Code. The
length of time that a holder is deemed to have held stock for purposes of
section 1059 of the Code is determined under principles similar to those
contained in section 246(c) of the Code discussed above.
REDEMPTION PREMIUM
If the redemption price of redeemable preferred stock exceeds its issue
price by more than a de minimis amount, such excess may be treated as a
constructive distribution of additional stock on such preferred stock, over the
term of the preferred stock, using a constant yield method. For purposes of this
rule, if the redemption price at maturity exceeds the issue price by an amount
that equals or exceeds the product of (i) 1/4 of 1% of the redemption price and
(ii) the number of complete years to maturity, such preferred stock will be
deemed to have an excessive redemption price. Based on the Company's allocation
of the initial offering price of the Units between the Old Preferred Stock and
the Warrants, the issue price of the New Preferred Stock is $23.71 per share,
although such determination is not binding on the IRS. As a result, the New
Preferred Stock is deemed to have been issued with more than a de minimis amount
of redemption premium. Under section 305(c) of the Code, such premium must be
taken into account as a series of constructive distributions under principles
similar to the principles of the original issue discount provisions of the Code.
i.e., using a constant yield method over the term of the New Preferred Stock. In
addition, because the issue price of the New Preferred Stock distributed in lieu
of payments of cash dividends will be equal to its fair market value at the time
of distribution, it is possible, depending on its fair market value at that
time, that such New Preferred Stock will be issued with a redemption premium
large enough for the
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redemption premium to be considered a constructive distribution over the
remaining term of the New Preferred Stock under the above rules. In such event,
as noted above, U.S. Holders would be required to include such premium in income
as a distribution over some period in advance of receiving the cash attributable
to such income and such New Preferred Stock might trade separately, which might
adversely affect the liquidity of the New Preferred Stock.
Pursuant to recently issued regulations (the 'section 305(c) Regulations'),
constructive distributions on the New Preferred Stock may arise due to its
optional redemption provisions only if, based on all of the facts and
circumstances as of the date the New Preferred Stock was issued, an optional
redemption was more likely than not to occur. Even if redemption were more
likely than not to occur, however, constructive distribution treatment would not
result if the redemption premium were solely in the nature of a penalty for
premature redemption. For this purpose, a penalty for premature redemption is a
premium paid as a result of changes in economic or market condition over which
neither the issuer nor the U.S. Holder has control, such as changes in
prevailing dividend rates. The section 305(c) Regulations provide a safe harbor
pursuant to which constructive distribution treatment will not result from an
issuer call right if the issuer and the U.S. Holder are unrelated, there are no
arrangements that effectively require the issuer to redeem the stock and
exercise of the option to redeem would not reduce the yield of the stock.
Although the Company believes that the optional redemption would not be treated
as more likely than not to be exercised under these rules, that the redemption
premium is in the nature of a penalty for premature redemption or that the safe
harbor would apply, this determination cannot be made with certainty at this
time. Moreover, the right to require a redemption upon the occurrence of a
contingency (such as a Change of Control) could under certain circumstances
result in constructive distributions, although the Company does not believe that
such result should apply to the New Preferred Stock. No assurance can be given
as to the treatment of the optional redemption premium or Change of Control
premium with respect to the New Preferred Stock under the section 305(c)
Regulations.
The legislative history of section 305(c) of the Code authorizes the
Service to write regulations that, under appropriate circumstances, would treat
dividends accruing on preferred stock as part of the redemption price of such
stock (in which case a U.S. Holder may be treated as having received
constructive distributions on such preferred stock under the rules described
above). One such circumstance identified in the legislative history is if, at
the time of issuance, the issuer had no intention of paying dividends currently
on the preferred stock as they accrue. The preamble to the section 305(c)
Regulations state that, because of the complexity of the issue, such regulations
do not provide rules for those unpaid accumulated dividends, although the IRS
and Treasury will consider the issue. Accordingly, no assurance can be given
that regulations will not be issued that would require unpaid dividends on the
New Preferred Stock to be included in the redemption price in a manner that
would produce constructive distributions to a U.S. Holder.
REDEMPTION, SALE OR EXCHANGE OF THE NEW PREFERRED STOCK
A redemption of shares of the New Preferred Stock for cash or a sale of New
Preferred Stock that does not qualify for nonrecognition treatment pursuant to
the Code will be a taxable event to a U.S. Holder.
A redemption of shares of the New Preferred Stock for cash will be treated
as a dividend to the extent of the Company's current or accumulated earnings and
profits (as determined for federal income tax purposes), unless the redemption
(i) results in a 'complete termination' of the shareholder's stock interest in
the Company under section 302(b)(2) of the Code, (ii) is 'substantially
disproportionate' with respect to the shareholder under section 302(b)(2) of the
Code or (iii) is 'not essentially equivalent to a dividend' with respect to the
shareholder under section 302(b)(1) of the Code. In determining whether any of
these tests have been met, the shareholder must take into account not only stock
which such shareholder actually owns, but also stock which such shareholder
constructively owns within the meaning of section 318 of the Code (including
Common Stock of the Company which may be acquired pursuant to Warrants). A
distribution to a shareholder will be 'not essentially equivalent to a dividend'
if it results in a 'meaningful reduction' in the shareholder's stock interest in
the Company. If, as a result of a redemption for cash of the
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New Preferred Stock, a shareholder of the Company whose relative stock interest
in the Company is minimal and who exercises no control over corporate affairs
suffers a reduction in his proportionate interest in the Company (including any
ownership of Common Stock and any shares constructively owned), that shareholder
should be regarded as having suffered a meaningful reduction in his interest in
the Company.
If the redemption is not treated as a distribution taxable as a dividend,
the redemption of the New Preferred Stock for cash would result in taxable gain
or loss equal to the difference between the amount of cash received and the U.S.
Holder's adjusted tax basis in the New Preferred Stock redeemed. Such gain or
loss would be capital gain or loss and would be long-term capital gain or loss
if the holding period for the New Preferred Stock exceeded one year.
If a redemption of New Preferred Stock is treated as a distribution that is
taxable as a dividend, the amount of the distribution will be measured by the
amount of cash received by the U.S. Holder. The U.S. Holder's adjusted tax basis
in the redeemed New Preferred Stock will be transferred to any remaining stock
in the Company. Under section 1059 of the Code, the term 'extraordinary
dividend' includes any redemption of stock that is treated as a dividend and
that is non-pro rata as to all stockholders, including U.S. Holders of common
stock, irrespective of the holding period. Consequently, to the extent a
redemption of New Preferred Stock for cash constitutes a dividend, it will
constitute an 'extraordinary dividend' to a corporate U.S. Holder. See
'--Distributions on New Preferred Stock.'
PROPOSED LEGISLATION
Congress currently is considering certain proposed tax law changes. Among
these proposed tax law changes are several items that, if enacted into law
substantially as proposed, would affect the tax treatment of corporate U.S.
Holders of New Preferred Stock and Common Stock. In particular, these proposals
would provide that the 70% dividends-received deduction would not be available
with respect to stock which is held for 45 days or less (90 days in the case of
a dividend attributable to a period or periods aggregating more than 366 days)
during the 90-day period (180-day period in the case of dividends attributable
to a more than 366-day period) beginning 45 days (or 90 days) after the date on
which the stock becomes ex-dividend, effective for stock issued more than 30
days after the date of enactment of such legislation. Further, these proposals
would also require the immediate recognition of gain under section 1059 of the
Code (relating to extraordinary dividends) as discussed above, generally
effective for distributions after September 13, 1995. Further, the Clinton
Administration has proposed to reduce the benefits of the dividends-received
deduction. It cannot be predicted with certainty whether such proposed
legislation or proposals will be enacted or, if enacted, what the effective date
or dates would be. Corporate U.S. Holders of New Preferred Stock are urged to
consult their own tax advisors regarding the possible effects of this proposed
legislation.
BACKUP WITHHOLDING
A U.S. Holder of the New Preferred Stock may be subject to backup
withholding at a rate of 31% with respect to dividends on New Preferred Stock
and gross proceeds upon sale or retirement of the New Preferred Stock unless
such U.S. Holder: (i) is a corporation or other exempt recipient and, when
required, demonstrates that fact; or (ii) provides a correct taxpayer
identification number, certifies, when required, that such U.S. Holder is not
subject to backup withholding, and otherwise complies with applicable
requirements of the backup withholding rules. Backup withholding is not an
additional tax; any amounts so withheld are creditable against the U.S. Holder's
federal income tax, provided the required information is provided to the IRS.
NON-U.S. HOLDERS
The following discussion is limited to the U.S. federal income tax
consequences relevant to a holder of a New Note that is not (i) a citizen or
resident of the United States, (ii) a corporation organized under the laws of
the United States or any political subdivision thereof or therein or (iii) an
estate or trust, the income
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of which is subject to U.S. federal income tax regardless of the source (a
'Non-U.S. Holder'). For taxable years beginning after December 31, 1996, a trust
that holds the New Notes will be a U.S. Holder if a court within the United
States is able to exercise primary supervision of the administration of the
trust and one or more U.S. fiduciaries have the authority to control all
substantial decisions of the trust.
The discussion does not consider all aspects of U.S. federal income and
estate taxation that may be relevant to the purchase, ownership or disposition
of the New Notes by a particular Non-U.S. Holder in light of such Holder's
personal circumstances, including holding the New Notes through a partnership.
For example, persons who are partners in foreign partnerships and beneficiaries
of foreign trusts or estates who are subject to U.S. federal income tax because
of their own status, such as United States residents or foreign persons engaged
in a trade or business in the United States, may be subject to U.S. federal
income tax even though the entity is not subject to income tax on the
disposition of its New Note.
For purposes of the following discussion, interest and gain on the sale,
exchange or other disposition of the New Note will be considered 'U.S. trade or
business income' if such income or gain is (i) effectively connected with the
conduct of a U.S. trade or business or (ii) in the case of a treaty resident,
attributable to a U.S. permanent establishment (or to a fixed base) in the
United States.
Persons considering the purchase of New Notes should consult their own tax
advisors concerning the application of United States federal income tax laws, as
well as the laws of any state, local, or other taxing jurisdiction applicable to
their particular situations.
STATED INTEREST
Generally, any interest paid to a Non-U.S. Holder of a New Note that is not
U.S. trade or business income will not be subject to United States tax if the
interest qualifies as 'portfolio interest.' Generally, interest on the New Notes
will qualify as portfolio interest if (i) the Non-U.S. Holder does not actually
or constructively own 10% or more of the total voting power of all voting stock
of the Company and is not a 'controlled foreign corporation' with respect to
which the Company is a 'related person' within the meaning of the Code, (ii) the
beneficial owner, under penalty of perjury, certifies that the beneficial owner
is not a United States person and such certificate provides the beneficial
owner's name and address, and (iii) the Non-U.S. Holder is not a bank receiving
interest on an extension of credit made persuant to a loan agreement entered
into in the ordinary course of its trade or business.
The gross amount of payments to a Non-U.S. Holder of interest that do not
qualify for the portfolio interest exception and that are not U.S. trade or
business income will be subject to withholding of U.S. federal income tax at the
rate of 30%, unless a U.S. income tax treaty applies to reduce or eliminate
withholding. U.S. trade or business income will be taxed on a net basis at
regular U.S. rates rather than the 30% gross rate. To claim the benefit of a tax
treaty or to claim exemption from withholding because the income is U.S. trade
or business income, the Non-U.S. Holder must provide a properly executed Form
1001 or 4224 (or such successor forms as the IRS designates), as applicable,
prior to the payment of interest. These forms must be periodically updated.
Under proposed regulations, the Forms 1001 and 4224 will be replaced by Form
W-8. Also under proposed regulations, a Non-U.S. Holder who is claiming the
benefits of a treaty may be required to obtain a U.S. taxpayer identification
number and to provide certain documentary evidence issued by foreign
governmental authorities to prove residence in the foreign country. Certain
special procedures are provided in the proposed regulations for payments through
qualified intermediaries.
SALE, EXCHANGE OR REDEMPTION OF NEW NOTES
Except as described below and subject to the discussion concerning backup
withholding, any gain realized by a Non-U.S. Holder on the sale, exchange or
redemption of a New Note generally will not be subject to U.S. federal income
tax, unless (i) such gain is U.S. trade or business income, (ii) subject to
certain exceptions, the Non-U.S. Holder is an individual who holds the New Note
as a capital asset and is present in the United States for 183 days or more in
the taxable year of the disposition, or (iii) the Non-U.S.
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Holder is subject to tax pursuant to the provisions of U.S. tax law applicable
to certain U.S. expatriates (including certain former citizens or residents of
the United States).
FEDERAL ESTATE TAX
New Notes held (or treated as held) by an individual who is a Non-U.S.
Holder at the time of his or her death will not be subject to U.S. federal
estate tax provided that the individual does not actually or constructively own
10% or more of the total voting power of all voting stock of the Company and
income on the New Notes was not U.S. trade or business income.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company must report annually to the IRS and to each Non-U.S. Holder any
interest that is subject to withholding or that is exempt from U.S. withholding
tax pursuant to a tax treaty or the portfolio interest exception. Copies of
these information returns may also be made available under the provisions of a
specific treaty or agreement to the tax authorities of the country in which the
Non-U.S. Holder resides.
The regulations provide that backup withholding and information reporting
will not apply to payments of principal on the New Notes by the Company to a
Non-U.S. Holder, if the Holder certifies as to its non-U.S. status under
penalties of perjury or otherwise establishes an exemption (provided that
neither the Company nor its paying agent has actual knowledge that the holder is
a United States person or that the conditions of any other exemption are not, in
fact, satisfied).
The payment of the proceeds from the disposition of New Notes to or through
the United States office of any broker, U.S. or foreign, will be subject to
information reporting and possible backup withholding unless the owner certifies
as its non-U.S. status under penalties of perjury or otherwise establishes an
exemption, provided that the broker does not have actual knowledge that the
Holder is a U.S. person or that the conditions of any other exemptions are not,
in fact, satisfied. The payment of the proceeds from the disposition of a New
Note to or through a non-U.S. office of a non-U.S. broker that is not a U.S.
related person will not be subject to information reporting or backup
withholding. For this purpose, a 'U.S. related person' is (i) a 'controlled
foreign corporation' for federal income tax purposes or (ii) a foreign person
50% or more of whose gross income from all sources for the three-year period
ending with the close of its taxable year preceding the payment (or for such
part of the period that the broker has been in existence) is derived from
activities that are effectively connected with the conduct of a United States
trade or business.
In the case of the payment of proceeds from the disposition of New Notes to
or through a non-U.S. office of a broker that is either a U.S. person or a U.S.
related person, the regulations require information reporting on the payment
unless the broker has documentary evidence in its files that the owner is a Non-
U.S. Holder and the broker has no knowledge to the contrary. Backup withholding
will not apply to payments made through foreign offices of a broker that is a
U.S. person or a U.S. related person (absent actual knowledge that the payee is
a U.S. person). Proposed regulations contain similar rules.
Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be allowed as a refund of or a credit against such Non-U.S.
Holder's U.S. federal income tax liability, provided that the requisite
procedures are followed.
THE FOREGOING IS FOR GENERAL INFORMATIONAL PURPOSES ONLY. INVESTORS SHOULD
CONSULT THEIR OWN TAX ADVISORS BEFORE INVESTING.
BOOK-ENTRY; DELIVERY AND FORM
The Unregistered Securities were each issued as single, permanent global
certificates in definitive, fully registered form (the 'Unregistered Global
Securities'). Except for Exchange Securities issued to Non-Global Purchasers (as
defined below), the Exchange Securities will each initially be issued in the
form of one or more global certificates (collectively, the 'Exchange Global
Certificates'). The Unregistered
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Global Securities were deposited on the date of the closing of the Old Notes
Offering and the concurrent offering of the Units, and the Exchange Global
Certificates will be deposited on the date of closing of the Exchange Offer
with, or on behalf of, the Depository and registered in the name of a nominee of
DTC.
Securities (i) originally purchased by or transferred to foreign purchasers
or Accredited Investors who are not QIBs or (ii) held by QIBs who elect to take
physical delivery of their certificates instead of holding their interest
through Global Securities (and which are thus ineligible to trade through DTC)
(collectively referred to herein as the 'Non-Global Purchasers') will be issued
in registered certificated form ('Certificated Securities'). Upon the transfer
to a QIB of any Certificated Security initially issued to a Non-Global
Purchaser, such Certificated Security will, unless the transferee requests
otherwise or such Global Security has previously been exchanged in whole for
Certificated Securities, be exchanged for an interest in such Global Security.
'Global Securities' means the Unregistered Global Securities or the Exchange
Global Securities, as the case may be.
THE GLOBAL SECURITIES
The Company expects that pursuant to procedures established by DTC (i) upon
the issuance of the Global Securities, DTC or its custodian will credit, on its
internal system, the principal amount of Notes or shares of Senior Preferred
Stock as the case may be, of the individual beneficial interest represented by
such Global Security to the respective accounts for persons who have accounts
with DTC and (ii) ownership of beneficial interests in the Global Securities
will be shown on, and the transfer of such ownership will be effected only
through, records maintained by DTC or its nominee (with respect to interests of
persons who have accounts with DTC ('Participants')) and the records of
Participants (with respect to interests of persons other than Participants).
Ownership of beneficial interests in the Global Securities will be limited to
Participants or persons who hold interests through Participants. QIBs may hold
their interests in the Global Securities directly through DTC, if they are
Participants in such system, or indirectly through organizations which are
Participants in such system.
So long as DTC or its nominee is the registered owner or holder of any of
the Global Securities, DTC or such nominee, as the case may be, will be
considered the sole owner or holder of the Note or Senior Preferred Stock
represented by the applicable Global Security for all purposes under the
Indenture or Certificate of Designation, as the case may be. No beneficial owner
of an interest in the Global Securities will be able to transfer that interest
except in accordance with DTC's procedures, in addition to those provided for
under the Indenture or Certificate of Designation, as the case may be.
Payments on the Global Securities will be made to DTC or its nominee, as
the case may be, as the registered owner thereof. None of the Company, the
Trustee or the Transfer 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 Security or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interest.
The Company expects that DTC or its nominee, upon receipt of any payment in
respect of a Global Security, will credit Participants' accounts with payments
in amounts proportionate to their respective beneficial interests in the
applicable Global Security as shown on the records of DTC or its nominee. The
Company also expects that payments by Participants to owners of beneficial
interests in the Global Securities held through such Participants will be
governed by standing instructions and customary practice, as is now the case
with securities held for the accounts of customers registered in the names of
nominees for such customers. Such payments will be the responsibility of such
Participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in clearinghouse funds. If a
holder requires physical delivery of a Certificated Security for any reason,
including to sell such Note or Senior Preferred Stock (collectively and
individually, the 'Securities') to persons in states which require physical
delivery of Certificated Securities, or to pledge
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such securities, such holder must transfer its interest in the applicable Global
Security in accordance with the normal procedures of DTC.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Securities (including the presentation of the Securities
for exchange as described below) only at the direction of one or more
Participants to whose account the DTC interests in the Global Securities are
credited and only in respect of such portion of the Securities as to which such
Participant or Participants has or have given such direction. However, if there
is an Event of Default under the Indenture, DTC will exchange the Global
Securities representing Notes for Certificated Securities, which it will
distribute to its Participants.
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 facilitate the clearance and settlement of
securities transactions between Participants through electronic book-entry
changes in accounts of its Participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Securities among Participants of DTC, it is
under no obligation to perform such procedures, and such procedures may be
discontinued at any time. None of the Company, the Initial Purchasers or any
other person will have any responsibility for the performance by DTC or its
Participants or indirect participants of their respective obligations under the
rules and procedures governing their operations.
CERTIFICATED SECURITIES
If DTC is at any time unwilling or unable to continue as depositary for the
Global Securities and a successor depositary is not appointed by the Company
within 90 days, Certificated Securities will be issued in exchange for the
Global Securities.
LEGAL PROCEEDINGS
National Tobacco has been named as a defendant in a purported class action
filed on June 30, 1997 in the 33rd Judicial District Court in the State of
Louisiana, Parish of Allen, entitled Doyle v. United States Tobacco Company, et
al. The petition named as defendants the Partnership, three other manufacturers
of smokeless tobacco products and a subsidiary of one of the manufacturers. The
action has been removed to the United States District Court for the Western
District of Louisiana, Alexandria Division.
The petition alleges that the plaintiff, Doyle, has been addicted to
tobacco products and, as a result of this addiction, has sustained alleged
tobacco-related illnesses. The petition defines the proposed class, in part, as
'[a]ll Louisiana residents or former Louisiana residents who are or who were
smokeless tobacco users' of products manufactured by the defendants and 'who
desire to participate in a program designed to assist them in the cessation of
using smokeless tobacco products and/or to monitor the medical condition of
class members to ascertain whether they may be suffering from diseases caused
by, contributed to, or exacerbated by the habit of smokeless tobacco use.'
The petition seeks an order certifying the proposed class, and the
establishment of a medical monitoring fund to monitor the health of the
plaintiffs and class members for those diseases and health risks associated with
the use of smokeless tobacco products as well as recovery of costs associated
with seeking mental health counseling and/or psychiatric care to assist in
breaking the nicotine addiction.
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The Company intends to defend this action vigorously.
LEGAL MATTERS
Certain legal matters in connection with the offering and sale of the Notes
and the Units will be passed upon for the Company by Weil, Gotshal & Manges LLP,
New York, New York.
INDEPENDENT PUBLIC ACCOUNTANTS
NATIONAL TOBACCO AND THE COMPANY
The financial statements of National Tobacco as of December 31, 1995 and
1996 and for the periods indicated in the years ended December 31, 1994, 1995
and 1996, included in this Registration Statement, have been included herein in
reliance on the report of Coopers & Lybrand L.L.P., independent accountants,
which includes an explanatory paragraph concerning National Tobacco's adoption
of Statement of Financial Accounting Standards No. 106, 'Employers' Accounting
for Postretirement Benefits Other than Pensions,' given on the authority of that
firm as experts in auditing and accounting. With respect to the unaudited
interim financial information of the Company as of and for the six months ended
June 30, 1996 and 1997 included in this Registration Statement, the independent
accountants have reported that they have applied limited procedures in
accordance with professional standards for a review of such information.
However, their separate report included in the Registration Statement states
that they did not audit and they do not express an opinion on that interim
financial information. Accordingly, the degree of reliance on their report on
such information should be restricted in light of the limited nature of the
review procedures applied. The accountants are not subject to the liability
provisions of Section 11 of the Securities Act of 1933 for their report on the
unaudited interim financial information because that report is not a 'report' or
a 'part' of the registration statement prepared or certified by the accountants
within the meaning of Sections 7 and 11 of the Act.
NAOC
The financial statements of NATC Holdings USA, Inc. as of December 31, 1995
and 1996 and for the periods indicated in the years ended December 31, 1994,
1995 and 1996, included in this Registration Statement, have been included
herein in reliance on the report of Coopers & Lybrand L.L.P., independent
accountants, given on the authority of that firm as experts in auditing and
accounting. With respect to the unaudited interim financial information of NATC
Holdings USA, Inc. as of March 31, 1997 and for the three months ended March 31,
1996 and 1997, included in this Registration Statement, the independent
accountants have reported that they have applied limited procedures in
accordance with professional standards for a review of such information.
However, their separate report included in the Registration Statement states
that they did not audit and they do not express an opinion on that interim
financial information. Accordingly, the degree of reliance on their report on
such information should be restricted in light of the limited nature of the
review procedures applied. The accountants are not subject to the liability
provisions of Section 11 of the Securities Act of 1933 for their report on the
unaudited interim financial information because that report is not a 'report' or
a 'part' of the registration statement prepared or certified by the accountants
within the meaning of Sections 7 and 11 of the Act.
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NATIONAL TOBACCO (PREDECESSOR OF NORTH ATLANTIC TRADING COMPANY, INC.)
AND NATC
INDEX TO FINANCIAL STATEMENTS
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NATIONAL TOBACCO (PREDECESSOR OF NORTH ATLANTIC TRADING COMPANY, INC.)
AUDITED FINANCIAL STATEMENTS:
Report of Independent Accountants................................... F-2
Balance Sheets as of December 31, 1995 and 1996..................... F-3
Statements of Operations for the years ended December 31, 1994 and
1995 and the periods from January 1, 1996 to May 17, 1996 and
from May 17, 1996 (inception) to December 31, 1996............... F-4
Statements of Cash Flows for the years ended December 31, 1994 and
1995 and the periods from January 1, 1996 to May 17, 1996 and
from May 17, 1996 (inception) to December 31, 1996............... F-5
Statements of Changes in Equity for the years ended December 31,
1994 and 1995 and the periods from January 1, 1996 to May 17,
1996 and from May 17, 1996 (inception) to December 31, 1996...... F-7
Notes to Financial Statements....................................... F-8
NORTH ATLANTIC TRADING COMPANY, INC.
UNAUDITED INTERIM FINANCIAL STATEMENTS:*
Review Report of Independent Accountants............................ F-23
Unaudited Condensed Balance Sheet as of June 30, 1997............... F-24
Unaudited Condensed Statements of Operations for the periods from
January 1, 1996 to May 17, 1996, May 18, 1996 to June 30, 1996
and the six months ended June 30, 1997........................... F-25
Unaudited Condensed Statements of Changes in Equity for the periods
from January 1, 1996 to May 17, 1996, May 18, 1996 to June 30,
1996 and the six months ended June 30, 1997...................... F-26
Unaudited Condensed Statements of Cash Flows for the periods from
January 1, 1996 to May 17, 1996, May 18, 1996 to June 30, 1996
and the six months ended June 30, 1997........................... F-27
Notes to Unaudited Condensed Financial Statements................... F-28
NATC
AUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Accountants................................... F-34
Consolidated Balance Sheets as of December 31, 1995 and 1996........ F-35
Consolidated Statements of Operations for the years
ended December 31, 1994, 1995 and 1996........................... F-36
Consolidated Statements of Cash Flows for the years ended December
31, 1994,
1995 and 1996.................................................... F-37
Consolidated Statements of Changes in Stockholder's Equity for the
years ended December 31, 1994, 1995 and 1996..................... F-38
Notes to Consolidated Financial Statements.......................... F-39
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS:
Review Report of Independent Accountants............................ F-46
Unaudited Consolidated Condensed Balance Sheet as of March 31,
1997............................................................. F-47
Unaudited Consolidated Condensed Statements of Operations for the
three months ended March 31, 1996 and 1997....................... F-48
Unaudited Consolidated Condensed Statements of Cash Flows for the
three months ended March 31, 1996 and 1997....................... F-49
Unaudited Consolidated Statement of Changes in Stockholder's Equity
for the three months ended March 31, 1996 and 1997............... F-50
Notes to Unaudited Consolidated Condensed Financial Statements...... F-51
</TABLE>
- ------------------
* All of the Company's subsidiaries are wholly-owned and guarantee the debt of
the Company on a full, unconditional, and joint and several basis; therefore,
the financial statements of the guarantor subsidiaries have been omitted.
F-1
<PAGE>
NATIONAL TOBACCO (PREDECESSOR OF NORTH ATLANTIC TRADING COMPANY, INC.)
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders
NTC Holding, LLC
We have audited the accompanying consolidated balance sheet of NTC Holding,
LLC and Subsidiaries (the Holding Company), a limited liability company, as of
December 31, 1996, and the related consolidated statements of operations,
changes in equity, and cash flows for the period from May 17, 1996 (inception)
to December 31, 1996. Additionally, we have audited the accompanying balance
sheet of National Tobacco Company, L.P. (the Predecessor), a limited
partnership, as of December 31, 1995, and the related statements of operations,
changes in equity and cash flows for the years ended December 31, 1994 and 1995,
and for the period from January 1, 1996 to May 17, 1996. These financial
statements are the responsibility of the Holding Company's and the Predecessor's
management. Our responsibility is to express an opinion on the financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the Holding
Company and its subsidiaries as of December 31, 1996, and the consolidated
results of their operations and their cash flows for the period from May 17,
1996 (inception) to December 31, 1996 and the financial position of the
Predecessor as of December 31, 1995, and the results of its operations and its
cash flows for the years ended December 31, 1994 and 1995 and for the period
from January 1, 1996 to May 17, 1996 in conformity with generally accepted
accounting principles.
As explained in Note 14, effective January 1, 1995, the Predecessor adopted
Statement of Financial Accounting Standards No. 106, 'Employers' Accounting for
Postretirement Benefits Other than Pensions.'
COOPERS & LYBRAND L.L.P.
Louisville, Kentucky
January 24, 1997
F-2
<PAGE>
NATIONAL TOBACCO (PREDECESSOR OF NORTH ATLANTIC TRADING COMPANY, INC.)
BALANCE SHEETS
<TABLE>
<CAPTION>
The Predecessor The Holding Company
----------------- -------------------
December 31, December 31,
1995 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Current assets:
Cash............................................ $ 127,569 $ 2,208,644
Accounts receivable............................. 3,224,816 3,532,820
Inventories..................................... 38,850,303 42,019,760
Other current assets............................ 966,899 3,412,138
----------------- -------------------
Total current assets.............................. 43,169,587 51,173,362
----------------- -------------------
Property, plant and equipment, at cost............ 11,733,195 10,039,972
Less accumulated depreciation..................... (3,857,566) (1,033,976)
----------------- -------------------
7,875,629 9,005,996
Goodwill, net..................................... 27,182,471 31,447,830
Deferred financing costs and other assets, net.... 2,288,809 4,926,192
----------------- -------------------
Total assets...................................... $80,516,496 $96,553,380
----------------- -------------------
----------------- -------------------
LIABILITIES AND EQUITY:
Current liabilities:
Accounts payable................................ $ 576,904 $ 448,895
Accrued expenses................................ 5,571,308 3,753,845
Current portion of notes payable
and long-term debt........................... 27,085,553 21,720,219
----------------- -------------------
Total current liabilities......................... 33,233,765 25,922,959
Notes payable and long-term debt.................. 21,696,236 48,976,228
Other long-term liabilities....................... 5,115,501 5,846,387
----------------- -------------------
Total liabilities................................. 60,045,502 80,745,574
----------------- -------------------
Preferred interests............................... ---- 2,737,441
Warrants.......................................... ---- 8,195,246
Equity:
Contributed equity.............................. 10,955,760 4,492,347
Warrants........................................ 684,200 ----
Undistributed profits........................... 9,082,662 382,772
Amount related to minimum pension liability..... (251,628) ----
----------------- -------------------
Total equity...................................... 20,470,994 4,875,119
----------------- -------------------
Total liabilities and equity...................... $80,516,496 $96,553,380
----------------- -------------------
----------------- -------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
NATIONAL TOBACCO (PREDECESSOR OF NORTH ATLANTIC TRADING COMPANY, INC.)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
The Holding
Company
-----------------
The Predecessor Period From
------------------------------------------------------- May 17
Year Ended December 31, Period From (Inception) to
------------------------------------ January 1 to December 31,
1994 1995 May 17, 1996 1996
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Net sales.......................... $51,375,538 $52,630,355 $19,810,335 $36,125,952
Cost of sales...................... 21,871,958 20,491,189 7,847,161 15,406,711
----------------- ----------------- ----------------- -----------------
Gross profit..................... 29,503,580 32,139,166 11,963,174 20,719,241
Selling, general and administrative
expenses......................... 18,395,142 19,663,054 7,904,081 13,551,412
Amortization of intangible
assets........................... 1,037,894 972,969 364,861 504,294
----------------- ----------------- ----------------- -----------------
Operating income................. 10,070,544 11,503,143 3,694,232 6,663,535
Interest expense and financing
costs............................ 6,833,731 7,238,906 2,452,982 6,398,223
Management fee expense............. 300,000 300,000 113,953
----
Other expense (income)............. (2,875,324) 1,335,759 (4,927) (117,460)
----------------- ----------------- ----------------- -----------------
Income before cumulative effect
of accounting change........... 5,812,137 2,628,478 1,132,224 382,772
Cumulative effect of accounting
change........................... ---- 123,171 ---- ----
----------------- ----------------- ----------------- -----------------
Net income (1)................... $5,812,137 $2,505,307 $1,132,224 $382,772
----------------- ----------------- ----------------- -----------------
----------------- ----------------- ----------------- -----------------
Supplemental unaudited financial
data:
Historical income before income
taxes and cumulative effect of
accounting change.............. $5,812,137 $2,628,478 $1,132,224 $382,772
Pro forma income tax
expense (2).................... 2,324,855 1,051,391 452,890 153,109
----------------- ----------------- ----------------- -----------------
Pro forma income before
cumulative effect of accounting
change......................... 3,487,282 1,577,087 679,334 229,663
Historical cumulative effect of
accounting change, net of
income tax benefit of $49,268.. ---- 73,903 ---- ----
----------------- ----------------- ----------------- -----------------
Pro forma net income............. $3,487,282 $1,503,184 $679,334 $229,663
----------------- ----------------- ----------------- -----------------
----------------- ----------------- ----------------- -----------------
</TABLE>
- ------------------
(1) The Holding Company and the Predecessor were a limited liability company and
a partnership, respectively, for federal and state income tax purposes
through the consummation of this offering and accordingly did not incur any
federal or state income taxes during these periods.
(2) Pro forma income taxes have been calculated using an effective tax rate of
40% (34% federal and 6% state).
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
NATIONAL TOBACCO (PREDECESSOR OF NORTH ATLANTIC TRADING COMPANY, INC.)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
The Holding
Company
------------------
The Predecessor Period From
------------------------------------------------------------ May 17
Year Ended December 31, Period From (Inception) to
--------------------------------------- January 1 to December 31,
1994 1995 May 17, 1996 1996
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................. $ 5,812,137 $ 2,505,307 $ 1,132,224 $ 382,772
Adjustments to reconcile net income to
net
cash provided by operating
activities:
Depreciation......................... 1,038,012 1,073,066 453,893 1,033,976
Amortization of intangible assets.... 1,037,894 972,969 364,861 504,294
Amortization of deferred financing
costs.............................. 893,719 909,097 257,670 1,139,299
Deferred interest.................... 883,548 682,493 ---- 555,455
Preferred interest................... ---- ---- ---- 237,441
Accrued transaction costs............ ---- 880,676 ---- ----
Change in accrued pension
liabilities........................ (102,715) 13,973 ---- 127,542
Change in accrued asbestos removal
costs.............................. (812,069) (169,183) ---- ----
Change in accrued postretirement
liabilities........................ (2,267,372) 442,502 110,121 63,987
Changes in operating assets and
liabilities:
Accounts receivable................ (365,666) 673,012 (335,160) 27,156
Inventories--Lancaster Leaf
Tobacco.......................... 1,515,607 2,136,918 (512,376) (109,130)
Inventories--other................. 772,917 (3,946,834) (386,426) 3,275,985
Other current assets............... (165,925) 52,359 (646,997) 115,783
Accounts payable................... (172,144) 41,949 1,260,325 (1,388,335)
Borrowings under inventory
financing agreement.............. 6,965,592 10,077,188 2,796,991 5,286,136
Payments on borrowings under
inventory financing agreement.... (8,481,199) (7,940,270) (2,284,614) (4,400,394)
Accrued expenses and other
liabilities.................... 367,541 308,421 (738,146) (179,796)
------------------ ------------------ ------------------ ------------------
Net cash provided by operating
activities..................... 6,919,877 8,713,643 1,472,366 6,672,171
------------------ ------------------ ------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of business, net of cash
acquired of $597,010................. ---- ---- ---- (72,145,337)
Capital expenditures................... (354,979) (239,253) (143,748) (155,765)
------------------ ------------------ ------------------ ------------------
Net cash used in investing
activities..................... (354,979) (239,253) (143,748) (72,301,102)
------------------ ------------------ ------------------ ------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
NATIONAL TOBACCO (PREDECESSOR OF NORTH ATLANTIC TRADING COMPANY, INC.)
STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
Company
------------------
The Predecessor Period From
------------------------------------------------------------ May 17
Year Ended December 31, Period From (Inception) to
--------------------------------------- January 1 to December 31,
1994 1995 May 17, 1996 1996
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt associated with the
acquisition, net of amount allocated
to warrants of $7,895,244............ ---- ---- ---- 57,554,756
Payments on revolving loans............ ---- ---- ---- (450,000)
Payments on term loans................. ---- ---- ---- (4,250,000)
Payments on subordinated notes payable ---- ---- ---- (204,772)
Payments on working capital loan....... (52,015,756) (53,544,973) (19,022,566) ----
Payments on other notes payable and
long-term debt..................... (6,901,954) (8,732,084) (2,010,761) ----
Proceeds from capital contribution..... ---- ---- ---- 4,492,347
Proceeds from subordinated notes
payable.............................. ---- 163,668 41,104 ----
Proceeds from working capital loan..... 52,076,576 53,065,780 20,055,821 ----
Proceeds from preferred interest....... ---- ---- ---- 2,500,000
Proceeds from warrants................. ---- ---- ---- 8,195,244
Increase in intangible assets.......... (238,307) ---- (340,572) ----
------------------ ------------------ ------------------ ------------------
Net cash provided by (used in)
financing activities........... (7,079,441) (9,047,609) (1,276,974) 67,837,575
------------------ ------------------ ------------------ ------------------
Net increase (decrease) in cash........ (514,543) (573,219) 51,644 2,208,644
Cash, beginning of period.............. 1,215,331 700,788 127,569 ----
------------------ ------------------ ------------------ ------------------
Cash, end of period.................... $ 700,788 $ 127,569 $ 179,213 $ 2,208,644
------------------ ------------------ ------------------ ------------------
------------------ ------------------ ------------------ ------------------
Supplemental disclosure of cash flow
information:
Cash paid during the year for
interest........................... $ 5,391,649 $ 5,604,176 $ 2,013,102 $ 2,870,907
------------------ ------------------ ------------------ ------------------
------------------ ------------------ ------------------ ------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
NATIONAL TOBACCO (PREDECESSOR OF NORTH ATLANTIC TRADING COMPANY, INC.)
STATEMENTS OF CHANGES IN EQUITY
<TABLE>
<CAPTION>
Amount Related
to Minimum
Contributed Undistributed Pension Total
Equity Warrants Profits Liability Equity
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
THE PREDECESSOR:
Beginning balance,
December 31, 1993...... $10,955,760 $684,200 $765,218 $(233,152) $12,172,026
Net income............... ---- ---- 5,812,137 ---- 5,812,137
Change in amount related
to minimum pension
liability.............. ---- ---- ---- (277,890) (277,890)
----------------- -------------- ----------------- --------------- -----------------
Ending balance, December
31, 1994............... 10,955,760 684,200 6,577,355 (511,042) 17,706,273
Net income............... ---- ---- 2,505,307 ---- 2,505,307
Change in amount related
to minimum pension
liability.............. ---- ---- ---- 259,414 259,414
----------------- -------------- ----------------- --------------- -----------------
Ending balance, December
31, 1995............... 10,955,760 684,200 9,082,662 (251,628) 20,470,994
Net income............... ---- ---- 1,132,225 ---- 1,132,225
----------------- -------------- ----------------- --------------- -----------------
Ending balance, May 17,
1996................... $10,955,760 $684,200 $10,214,887 $(251,628) $21,603,219
----------------- -------------- ----------------- --------------- -----------------
----------------- -------------- ----------------- --------------- -----------------
THE HOLDING COMPANY:
Beginning balance, May
17, 1996 (inception)... ---- ---- ---- ---- ----
Equity contributions..... $4,492,347 ---- ---- ---- $4,492,347
Net income............... ---- ---- $382,772 ---- $382,772
----------------- -------------- ----------------- --------------- -----------------
Ending balance, December
31, 1996............... $4,492,347 ---- $382,772 ---- $4,875,119
----------------- -------------- ----------------- --------------- -----------------
----------------- -------------- ----------------- --------------- -----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE>
NATIONAL TOBACCO (PREDECESSOR OF NORTH ATLANTIC TRADING COMPANY, INC.)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF BUSINESS AND BASIS OF PRESENTATION:
National Tobacco Company, L.P. (a limited partnership), was formed and acquired
the smokeless tobacco division of Lorillard, Inc. in 1988. On April 14, 1992,
the general partner and majority owner and certain limited partners sold their
partnership interest to a new general partner. Accordingly, the April 1992
transaction was accounted for as the formation of a new entity, National Tobacco
Company, L.P. (the Predecessor).
Certain members of management of the Predecessor formed NTC Holding, LLC (the
Holding Company), a limited liability company with a finite life expiring
December 31, 2100, and caused the Holding Company to form National Tobacco
Finance Corporation (the Finance Corporation), a wholly-owned subsidiary of the
Holding Company. As described below, on May 17, 1996, National Tobacco Company,
L.P. (the Partnership) was recapitalized and the Holding Company acquired a 99%
limited partnership interest in the Partnership and the Finance Corporation
became the sole general partner and owner of the remaining 1% interest of the
Partnership. Accordingly, the May 17, 1996 transaction was accounted for as the
formation of a new entity. The Finance Corporation has no operations, assets or
liabilities, other than its 1% investment in the Partnership, which amounted to
approximately $311,000 as of December 31, 1996. References to the Company in the
notes to financial statements refer to both the Predecessor and the Partnership.
On May 17, 1996, the Partnership obtained new long-term debt financing, as more
fully described in Note 9, the proceeds of which were used to recapitalize the
Partnership. Under this recapitalization, substantially all of the existing
long-term debt was paid in full and the partnership interests of the general
partner and certain limited partners were acquired. Additionally, the interests
of the remaining limited partners were acquired, the proceeds of which were used
to purchase a portion of the membership interests in the Holding Company. The
Holding Company then contributed the proceeds from the sale of membership
interests to the Partnership in exchange for partnership interests in the
Partnership. Additionally, the proceeds from the subordinated debt and the sale
of warrants and preferred interests by the Holding Company, as more fully
described in Note 9, were also contributed to the Partnership in exchange for
limited partnership interests in the Partnership, which proceeds were used by
the Partnership to repay existing long-term debt and increase working capital.
The Holding Company then contributed capital in an amount equal to 1% of the
aggregate partnership interests in the Partnership to the Finance Corporation in
exchange for all of the capital stock of the Finance Corporation. The Finance
Corporation then immediately contributed such capital to the Partnership in
exchange for a 1% general partnership interest. As a result, the Partnership is
wholly-owned by the Holding Company. Accordingly, this transaction was accounted
for as the formation of a new entity under the purchase method of accounting.
F-8
<PAGE>
NATIONAL TOBACCO (PREDECESSOR OF NORTH ATLANTIC TRADING COMPANY, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND NATURE OF BUSINESS AND BASIS OF PRESENTATION (CONTINUED):
The following is information related to the acquisition:
<TABLE>
<CAPTION>
Fair Value Reduction to
of Assets Historical Basis
Acquired and for the Former Carrying Value
Liabilities Assumed Partners Continuing of Assets and
and Incurred on in the Holding Liabilities at
Acquisition Date Company Acquisition Date
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net assets acquired:
Cash.............................................. $ 597,010 ---- $ 597,010
Accounts receivable............................... 3,559,976 ---- 3,559,976
Inventories....................................... 48,020,000 $ (2,919,359) 45,100,641
Other current assets.............................. 3,613,896 ---- 3,613,896
Property, plant and equipment..................... 11,080,000 (1,195,793) 9,884,207
Goodwill.......................................... 31,952,125 ---- 31,952,125
Loan costs........................................ 5,700,000 ---- 5,700,000
Accounts payable.................................. (1,837,229) ---- (1,837,229)
Accrued liabilities............................... (3,167,508) ---- (3,167,508)
Other long-term liabilities....................... (5,654,954) ---- (5,654,954)
Borrowings under inventory financing agreement.... (16,772,377) ---- (16,772,377)
Subordinated note payable to former general
partner......................................... (204,772) ---- (204,772)
Capital leases.................................... (28,668) ---- (28,668)
------------------- ------------------- ------------------
Net assets acquired............................. 76,857,499 (4,115,152) 72,742,347
------------------- ------------------- ------------------
Proceeds from term loans, including amount allocated
to warrants of $1,250,828......................... 45,000,000 ---- 45,000,000
Proceeds from revolving loans....................... 450,000 ---- 450,000
Proceeds from subordinated notes, including amount
allocated to warrants of $6,644,416............... 20,000,000 ---- 20,000,000
Proceeds from warrants.............................. 300,000 ---- 300,000
Proceeds from preferred interest.................... 2,500,000 ---- 2,500,000
------------------- ------------------- ------------------
Total proceeds.................................. 68,250,000 ---- 68,250,000
------------------- ------------------- ------------------
Management's rollover and new interests............. 8,607,499 (4,115,152) 4,492,347
------------------- ------------------- ------------------
Total equity.................................... $ 8,607,499 $ (4,115,152) $ 4,492,347
------------------- ------------------- ------------------
------------------- ------------------- ------------------
</TABLE>
The following table presents unaudited pro forma results of operations data as
if the May 17, 1996 transactions described above had occurred on January 1,
1995.
<TABLE>
<CAPTION>
Period From
January 1, 1996
Year ended to
December 31, 1995 May 17, 1996
-------------------- ---------------
<S> <C> <C>
Net sales .................................................................. $ 52,630 $19,810
Income before cumulative effect of account change .......................... (1,472) (1,717)
---------- ---------------
Net income ................................................................. (1,595) (1,717)
---------- ---------------
---------- ---------------
</TABLE>
The pro forma data includes adjustments to remove historical amortization of
goodwill and historical interest expense and deferred financing costs and
adjustments to record the amortization of goodwill and the interest expense and
deferred financing costs associated with the transactions. The pro forma data is
not necessarily indicative of the results of operations as they would have been
had the transactions occurred on the assumed date.
F-9
<PAGE>
NATIONAL TOBACCO (PREDECESSOR OF NORTH ATLANTIC TRADING COMPANY, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND NATURE OF BUSINESS AND BASIS OF PRESENTATION (CONTINUED):
The Company manufactures and distributes chewing tobacco products under the
brand names BEECH-NUT, BEECH-NUT WINTERGREEN, BEECH-NUT SPEARMINT, HAVANA
BLOSSOM and TROPHY. The Holding Company and the Finance Corporation have no
operations. The Company's customers consist primarily of distributors and retail
establishments within the United States. The Company sells to these customers on
open account and generally does not require collateral.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CONSOLIDATION: The consolidated financial statements of the Holding Company
include the consolidated accounts of the Holding Company, the Finance
Corporation and the Partnership. All intercompany accounts have been eliminated.
REVENUE RECOGNITION: The Company recognizes revenues and the related costs upon
shipment of product to the customer.
INVENTORIES: Inventories are stated at the lower of cost or market. Cost is
determined on the last-in, first-out (LIFO) method.
Leaf tobacco is included in current assets in accordance with standard industry
practice, notwithstanding the fact that such tobaccos are carried longer than
one year for the purpose of curing. Accordingly, the debt associated with this
inventory is included in current portion of notes payable and long-term debt.
FIXED ASSETS: Fixed assets are stated at cost less accumulated depreciation.
Depreciation is provided using the straight-line method over the estimated
useful lives of the related assets (4 to 7 years for machinery, equipment and
furniture and 25 years for buildings).
Expenditures for repairs and maintenance are charged to expense as incurred. The
costs of major renewals and betterments are capitalized and depreciated over
their estimated useful lives. Upon disposition of fixed assets, the costs and
related accumulated depreciation amounts are relieved and any resulting gain or
loss is reflected in operations during the period of disposition.
GOODWILL: The excess of purchase price over fair value of net assets acquired
is amortized over 40 years using the straight-line method.
The Company periodically reviews the appropriateness of the remaining life of
its intangible assets considering whether any events have occurred or conditions
have developed which may indicate that the remaining life or the amortization
method requires adjustment. After reviewing the appropriateness of the remaining
life and the pattern of usage of the intangible assets, the Company then
assesses the overall recoverability of intangible assets by determining if the
unamortized balance can be recovered through undiscounted future operating cash
flows. Absent any unfavorable findings, the Company continues to amortize its
intangible assets based on the existing estimated life.
DEFERRED FINANCING COSTS: Deferred financing costs are amortized over the terms
of the related debt obligations using the interest method.
INCOME TAXES: The Company is a partnership; therefore, no provision for income
taxes has been made since earnings or losses are reported by the partners on
their individual income tax returns.
ADVERTISING AND PROMOTION: Advertising and promotion costs are expensed as
incurred.
RISKS AND UNCERTAINTIES: Smokeless tobacco companies, like other manufacturers
and sellers of tobacco products, are subject to regulation at the federal, state
and local levels. Such regulations include labeling
F-10
<PAGE>
NATIONAL TOBACCO (PREDECESSOR OF NORTH ATLANTIC TRADING COMPANY, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
requirements, limitations on advertising, and prohibition of sales to minors.
The trend in recent years has been toward increased regulation of the tobacco
industry. There can be no assurance as to the ultimate content, timing or effect
of any regulation of tobacco products by any federal, state or local legislative
or regulatory body, nor can there be any assurance that any such legislation or
regulation would not have a material adverse effect on the Company's financial
position, results of operations or cash flows.
The tobacco industry has experienced and is experiencing significant product
liability litigation. Most tobacco liability lawsuits have been brought against
manufacturers and sellers of cigarettes for injuries allegedly caused by smoking
or by exposure to smoke. However, several lawsuits have been brought against
manufacturers and sellers of smokeless tobacco for injuries to health allegedly
caused by use of smokeless tobacco. Typically, such claims assert that use of
smokeless tobacco is addictive and causes oral cancer. There can be no assurance
that the Company will not sustain losses in connection with such lawsuits and
that such losses will not have a material adverse effect on the Company's
financial position, results of operations or cash flows.
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
disclosed of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
Significant estimates made by the Company include accrued pension costs and
accrued postretirement benefits. Accrued pension costs and postretirement
benefits involve the use of actuarial assumptions, including the selection of
discount rates (see Notes 10 and 11). It is reasonably possible that the
Company's estimates for such items could change in the near term.
RECLASSIFICATIONS: Certain income statement amounts for the periods presented
have been reclassified to conform to current presentation with no effect on net
income of the periods.
3. CONCENTRATION OF CREDIT RISK:
At December 31, 1995 and 1996, the Company had bank deposits in excess of
federally insured limits of approximately $392,000 and $2,529,000, respectively.
The Company sells its products to distributors and retail establishments
throughout the United States. The Company performs periodic credit evaluations
of its customers and generally does not require collateral on trade receivables.
Historically, the Company has not experienced significant credit losses.
4. INVENTORIES:
The reduction of LIFO inventory quantities decreased earnings of the Company by
approximately $1,079,000, $146,000, $455,000 and $1,515,000 for the years ended
December 31, 1994 and 1995 and for the periods from January 1, 1996 to May 17,
1996 and from May 17, 1996 (inception) to December 31, 1996, respectively.
F-11
<PAGE>
NATIONAL TOBACCO (PREDECESSOR OF NORTH ATLANTIC TRADING COMPANY, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INVENTORIES (CONTINUED):
The components of inventories at December 31 are as follows:
<TABLE>
<CAPTION>
The Predecessor The Holding Company
----------------- -------------------
1995 1996
---------------------------------------
<S> <C> <C>
Raw materials....................................................... $ 1,488,566 $ 1,510,315
Leaf tobacco........................................................ 33,967,031 36,825,352
Finished goods...................................................... 3,173,982 3,438,644
Supplies............................................................ 220,724 245,449
----------------- -------------------
$ 38,850,303 $ 42,019,760
----------------- -------------------
----------------- -------------------
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment at December 31 consists of:
<TABLE>
<CAPTION>
The Predecessor The Holding Company
----------------- -------------------
1995 1996
---------------------------------------
<S> <C> <C>
Land................................................................ $ 733,478 $ 653,894
Buildings and improvements.......................................... 3,447,408 3,053,681
Machinery and equipment............................................. 7,105,933 5,149,085
Furniture and fixtures.............................................. 307,772 1,183,312
Capitalized leases.................................................. 138,604 ----
----------------- -------------------
$ 11,733,195 $ 10,039,972
----------------- -------------------
----------------- -------------------
</TABLE>
6. GOODWILL:
Goodwill at December 31 consist of:
<TABLE>
<CAPTION>
The Predecessor The Holding Company
----------------- -------------------
1995 1996
---------------------------------------
<S> <C> <C>
Excess of purchase price over fair value of net assets acquired, net
of accumulated amortization of $2,782,652 and $504,294 at December
31, 1995 and 1996, respectively................................... $ 27,182,471 $ 31,447,830
----------------- -------------------
----------------- -------------------
</TABLE>
7. DEFERRED FINANCING COSTS AND OTHER ASSETS:
Deferred financing costs and other assets at December 31 consist of:
<TABLE>
<CAPTION>
The Predecessor The Holding Company
----------------- -------------------
1995 1996
---------------------------------------
<S> <C> <C>
Loan costs, net of accumulated amortization of $1,914,868 and
$773,808 at December 31, 1995 and 1996, respectively.............. $ 792,400 $ 4,926,192
Contingent interest costs, net of accumulated amortization of
$393,870 (see Note 9)............................................. 1,099,555 ----
Organizational expenses, net of accumulated amortization of
$768,410.......................................................... 350,797 ----
Intangible pension asset............................................ 46,057 ----
----------------- -------------------
$ 2,288,809 $ 4,926,192
----------------- -------------------
----------------- -------------------
</TABLE>
F-12
<PAGE>
NATIONAL TOBACCO (PREDECESSOR OF NORTH ATLANTIC TRADING COMPANY, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. ACCRUED EXPENSES:
Accrued expenses at December 31 consist of:
<TABLE>
<CAPTION>
The Predecessor The Holding Company
----------------- -------------------
1995 1996
---------------------------------------
<S> <C> <C>
Accrued vacation, wages and benefits................................ $ 1,327,046 $ 1,405,458
Accrued interest.................................................... 1,797,793 1,315,127
Current unfunded pension liability (see Note 13).................... 763,532 650,000
Other accrued expenses.............................................. 802,261 383,260
Transaction fees.................................................... 880,676 ----
----------------- -------------------
$ 5,571,308 $ 3,753,845
----------------- -------------------
----------------- -------------------
</TABLE>
9. NOTES PAYABLE AND LONG-TERM DEBT:
THE PREDECESSOR:
Notes payable and long-term debt at December 31, 1995 consist of:
<TABLE>
<S> <C>
Term loan, net of unamortized discount of $86,825................................ $ 15,461,134
Working capital loan............................................................. 1,917,857
Borrowings under inventory financing agreement................................... 16,290,366
Senior subordinated notes payable to limited partner, interest payable quarterly
at 13% and 16%................................................................. 7,746,459
Subordinated notes payable to former general partner and former and current
limited partners, interest payable semiannually at 15%......................... 7,162,875
Subordinated notes payable to general partner, interest payable semiannually at
7%............................................................................. 163,668
Capital leases................................................................... 39,430
------------------
48,781,789
Less current portion............................................................. 27,085,553
------------------
$ 21,696,236
------------------
------------------
</TABLE>
The Predecessor had a credit agreement with a group of lenders providing for a
term loan in the original face amount of $42,000,000 and working capital loan
commitments totaling $6,574,468 at December 31, 1995. The loans bore interest at
4% above the prime rate during 1995, for an effective rate of 12.5%.
In conjunction with the credit agreement, certain lenders received detachable
warrants to purchase a 5% Class B partnership interest for $10. The original
fair value of this interest of $684,200 was reflected as a discount which was
amortized over the life of the term loan using the interest method.
The term loan was payable in varying quarterly principal installments ranging
from $1,750,000 to $2,250,000 plus interest with a final payment of all
remaining principal and accrued interest due on April 14, 1997. Amounts
outstanding under the working capital loan were limited to 85% of eligible
receivables and 65% of eligible inventories. A mandatory annual prepayment was
required if the Predecessor had cash in excess of a specified amount, or if it
sold property or equipment. Additionally, the Predecessor could make
nonscheduled prepayments. No mandatory prepayments were required to be made
during 1995. The loans were collateralized by all assets of the Predecessor and
were guaranteed by the partners.
The Predecessor had an inventory financing agreement with a supplier that
purchased, stored and processed raw leaf tobacco for the Predecessor. Amounts
borrowed and related interest under this agreement were repayable as the
supplier shipped the leaf tobacco that collateralized the loan to the
Predecessor.
F-13
<PAGE>
NATIONAL TOBACCO (PREDECESSOR OF NORTH ATLANTIC TRADING COMPANY, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED):
Borrowings under the inventory financing agreement bore interest at the prime
rate plus 2% when prime was less than 10%, or prime plus 2.5% when prime was 10%
or greater (the effective rate was 10.5% at December 31, 1995). The loan was
guaranteed by the Predecessor's general and limited partners. The agreement
limited additional borrowings and substantial asset sales by the Predecessor.
The agreement also granted the supplier the exclusive right to process leaf
tobacco for the Predecessor until 2000. The Predecessor could terminate the
agreement without penalty if the supplier's price was uncompetitive; otherwise,
the Predecessor was required to pay a cancellation fee of $1,500,000.
The Predecessor had subordinated notes payable to certain Class A limited
partners in an original face amount of $7,500,000. The notes bore a stated
interest rate of 13% and were due October 15, 1998. The loan agreement permitted
deferral of the quarterly interest payments up to the March 31, 1993 payment
($246,459 was deferred during 1993). The deferred interest bore interest at 16%.
In addition to fixed interest, the note holders were entitled to receive a
contingent interest payment upon the occurrence of a 'triggering event,' as
defined (essentially the earlier of a sale or recapitalization of the
Predecessor, or April 14, 1997). The contingent interest amount was equal to 7%
of the 'common equity value' of the Predecessor, as defined, as of the
'triggering event' date. Contingent interest was paid in cash or notes and,
under certain circumstances, at the holder's option, as warrants to acquire an
aggregate 7% of Class B partnership interests. At December 31, 1995, the
Predecessor had recorded a liability for contingent interest, based on
calculations performed at that date, in the amount of $1,493,000 (see Note 10)
and a corresponding intangible asset in the same amount. The asset was amortized
over the life of the loan using the interest method (see Note 7).
The subordinated notes payable to the former general partner and former and
current limited partners (original face amount of $4,500,000) bore interest at
15% and were due April 14, 1999, or upon payment in full of all senior debt, if
earlier. Interest was payable semiannually on October 14 and April 14. On each
payment date through April 14, 1995, the Predecessor could, at its option, issue
notes for the accrued interest payable. Other than the principal amount, these
notes had identical terms to the original note. The Predecessor issued notes for
$682,492 for interest payments due in 1995. Subsequent to April 14, 1995, at
least two-thirds of the current interest was required to be paid in cash. No
interest deferral was permitted after April 14, 1997. At December 31, 1995,
approximately $907,000 of deferred interest notes were payable to limited
partners.
Certain notes and lending agreements contained covenants which required, among
other things, maintenance of specified ratios and partners' equity levels, and
limits on capital expenditures. The Predecessor was not in compliance with
certain of the covenants at December 31, 1995; however, the Predecessor
refinanced all of its long-term debt in the transactions described in Note 1.
Accordingly, the long-term portion of debt was not reclassified as current at
December 31, 1995.
F-14
<PAGE>
NATIONAL TOBACCO (PREDECESSOR OF NORTH ATLANTIC TRADING COMPANY, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED):
THE HOLDING COMPANY AND THE PARTNERSHIP:
Notes payable and long-term debt at December 31, 1996 consists of:
<TABLE>
<S> <C>
Tranche A term loans.............................................................. $ 26,250,000
Tranche B term loan, net of unamortized discount of $1,120,293.................... 13,379,707
Borrowings under inventory financing agreement.................................... 16,911,873
Deferred interest notes under inventory financing agreement....................... 49,472
Subordinated notes payable, net of unamortized discount of $6,409,461............. 14,096,521
Capital leases.................................................................... 8,874
-----------------
70,696,447
Less current portion.............................................................. 21,720,219
-----------------
$ 48,976,228
-----------------
-----------------
</TABLE>
The Partnership has a credit agreement (the Credit Agreement) with a group of
lenders for Tranche A term loans in the original face amount of $30,000,000,
Tranche B term loan in the original face amount of $15,000,000 and revolving
loan commitments in the amount of $8,000,000 (there were no revolving loans
outstanding at December 31, 1996). The Holding Company and the Finance
Corporation are guarantors of this Credit Agreement.
The Tranche A term loans bear interest at the higher of the principal lender's
base rate or the Federal Funds rate plus 0.5%, plus 2% (10.25% at December 31,
1996), payable quarterly beginning on June 30, 1996. The Partnership has the
option to convert the interest rate to a rate based on LIBOR plus 3% (8.5% at
December 31, 1996). As of December 31, 1996, the Tranche A term loans had been
converted to the LIBOR option under a contract expiring January 21, 1997.
Principal repayments are required in varying quarterly installments ranging from
$875,000 to $2,875,000 beginning on September 30, 1996 and ending on May 17,
2001.
The Tranche B term loan bears interest at the higher of the principal lender's
base rate or the Federal Funds rate plus 0.5%, plus 2.5% (10.75% at December 31,
1996), payable quarterly beginning on June 30, 1996. The Partnership has the
option to convert the interest rate to a rate based on LIBOR plus 3.5% (9.0% at
December 31, 1996). As of December 31, 1996, the Tranche B term loan had been
converted to the LIBOR option under a contract expiring January 21, 1997. The
effective rate (assuming the December 31, 1996 variable rate of 10.75%) over the
term of this loan, after considering the effect of the discount discussed below,
is 14%. Principal repayments are required in varying quarterly installments
ranging from $250,000 to $2,500,000 beginning on September 30, 1996 and ending
on May 17, 2002.
The revolving loans will be made from time to time as requested by the
Partnership in a maximum aggregate outstanding principal amount at any one time
not to exceed the lesser of $8,000,000 and the borrowing base amount in effect
at that time. The borrowing base amount is defined as 80% of eligible accounts
receivable, 60% of eligible finished goods inventory and 40% of eligible tobacco
inventory. The revolving loans bear interest at the higher of the principal
lender's base rate or the Federal Funds rate plus 0.5%, plus 2% (10.25% at
December 31, 1996). Principal and interest under the revolving loan commitments
is due in full on the earlier of May 16, 2001 or the date on which the principal
amount of all Tranche A and Tranche B term loans is repaid in full.
Under the Credit Agreement, the lenders have also extended letter of credit
commitments under which the lenders will issue letters of credit from time to
time in a maximum aggregate outstanding principal amount at any one time not to
exceed $3,000,000, provided that the aggregate outstanding principal amount of
all revolving loans and all letters of credit shall not at any one time exceed
the lesser of $8,000,000 and the
F-15
<PAGE>
NATIONAL TOBACCO (PREDECESSOR OF NORTH ATLANTIC TRADING COMPANY, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED):
borrowing base amount in effect at that time. A letter of credit in the amount
of $1,025,000 was outstanding at December 31, 1996. The Partnership pays
quarterly commitment fees of 0.5% of the unused portion of all revolving loans
and 3.0% on all letters of credit.
The Credit Agreement also requires mandatory prepayments if the Partnership has
excess cash flows or proceeds from the sale of fixed assets or additional debt
or equity interests as set forth in the Credit Agreement. In addition, the
Partnership may make voluntary unscheduled prepayments without penalty under the
provisions set forth in the Credit Agreement. As of December 31, 1996, the
Partnership had made $2,000,000 of voluntary prepayments on the Tranche A term
loans. The loans under the Credit Agreement are collateralized by all assets of
the Partnership.
The Partnership has an inventory financing agreement with a supplier that
purchases, stores and processes raw leaf tobacco for the Partnership. Amounts
borrowed under this agreement are repayable as the supplier ships the leaf
tobacco that collateralizes the loan to the Partnership.
Borrowings under the inventory financing agreement bear interest at the prime
rate plus 2% (10.25% at December 31, 1996), payable quarterly beginning on or
about June 30, 1996. Of the quarterly interest payments, interest of 1% is
payable in kind by issuing separate deferred interest notes to the supplier. The
deferred interest notes bear interest at prime plus 1% and all interest is
payable quarterly either in cash or in kind by issuing additional deferred
notes, at the Partnership's discretion. Deferred interest notes of $49,472 under
this agreement are included in notes payable and long-term debt as of December
31, 1996. All deferred interest notes, together with accrued interest thereon,
are due and payable in full on the earlier of May 17, 2003 or in the event of a
change in control or payment in full of the subordinated notes. The supplier has
a lien on all personal property of the Partnership. This lien is subordinated to
the interests of the lenders in the Credit Agreement described above, except as
it relates to leaf tobacco purchased under this agreement. The agreement limits
additional borrowings and substantial asset sales by the Partnership.
The agreement also grants the supplier the exclusive right to process leaf
tobacco for the Partnership until November 30, 2006. The Partnership can
terminate the agreement without penalty if the supplier's price is
uncompetitive; otherwise, the Partnership must pay a cancellation fee of
$5,000,000, increased each year, beginning January 1, 1997, by the percentage
increase in the Consumer Price Index (CPI). Beginning January 1, 2003, the
original termination fee of $5,000,000 will be reduced 25% each year, after
giving effect to the CPI increases described above.
The Holding Company has a subordinated credit agreement with certain lenders for
subordinated notes in the original face amount of $20,000,000. The subordinated
notes bear interest at 13.5% through May 31, 2001 and at 16.5% thereafter, until
maturity. The effective rate of these notes, after considering the effect of the
varying interest rates and the discount described below, is 26%. Interest of
8.2% is payable in cash quarterly beginning October 31, 1996. Interest in excess
of 8.2% is payable in kind by issuing separate deferred interest notes to the
subordinated note holders, quarterly, beginning October 31, 1996. The deferred
interest notes bear interest at the same rates as the subordinated notes;
however, all interest is payable quarterly in kind by the issuance of additional
deferred notes rather than in cash. Deferred interest notes of $505,983 are
included in the subordinated notes payable balance in the Holding Company's
balance sheet as of December 31, 1996. All subordinated notes and deferred
interest notes, together with accrued interest thereon, are due and payable in
full on May 17, 2003.
The subordinated credit agreement also requires mandatory prepayments if the
debt under the Credit Agreement has been paid and the Partnership has proceeds
from the sale of fixed assets or additional debt or equity interests as defined
in the agreement. The subordinated credit agreement requires mandatory
F-16
<PAGE>
NATIONAL TOBACCO (PREDECESSOR OF NORTH ATLANTIC TRADING COMPANY, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED):
redemptions of the subordinated notes if demanded by the holders of a majority
in aggregate principal amount of the subordinated notes upon a change of
control, or after the debt under the Credit Agreement referred to above has been
paid in full and the warrant issued to the Tranche B lender has been redeemed,
to the extent of 80% of excess cash flow, in each case at a prepayment price
equal to 101% of the principal being prepaid plus accrued interest. Under terms
of the agreement, the Holding Company may not make optional prepayments before
May 17, 1998, after which the Holding Company may prepay the principal amount of
subordinated and deferred interest notes at a prepayment price equal to 105% of
the principal being prepaid plus accrued interest. The prepayment price declines
by 1% each year to 101% of the principal being prepaid after May 16, 2002.
Certain notes and credit agreements contain covenants which require, among other
things, maintenance of specified financial ratios and partners' equity levels,
and limits on capital expenditures. The Holding Company and the Partnership were
in compliance with the covenants at December 31, 1996.
Scheduled maturities (exclusive of future mandatory prepayments, if any) of
Holding Company's and the Partnership's notes payable and long-term debt are as
follows:
<TABLE>
<S> <C>
Through December 31, 1997......................................................... $ 21,720,219
Through December 31, 1998......................................................... 5,500,000
Through December 31, 1999......................................................... 6,500,000
Through December 31, 2000......................................................... 9,750,000
Through December 31, 2001......................................................... 9,250,000
Thereafter........................................................................ 25,000,000
-----------------
77,720,219
Less unamortized discount......................................................... 7,529,754
-----------------
$ 70,696,447
-----------------
-----------------
</TABLE>
10. OTHER LONG-TERM LIABILITIES:
Other long-term liabilities at December 31 consist of:
<TABLE>
<CAPTION>
The Predecessor The Holding Company
----------------- -------------------
1995 1996
---------------------------------------
<S> <C> <C>
Postretirement benefits (see Note 12)............................... $ 3,100,000 $ 4,653,872
Noncurrent unfunded pension liability (see Note 11)................. 491,259 1,161,794
Contingent interest................................................. 1,493,425 ----
Other liabilities................................................... 30,817 30,721
----------------- -------------------
$ 5,115,501 $ 5,846,387
----------------- -------------------
----------------- -------------------
</TABLE>
At its inception on April 15, 1992, the Predecessor recorded a liability to
accrue the estimated costs of removing all asbestos from its manufacturing
facility. During 1994, management and an outside engineering consultant
determined the cost of removing the remaining asbestos to be approximately
$200,000. Thus, the remaining liability of approximately $1,012,000 was adjusted
to the new estimate of $200,000 at December 31, 1994. This reduction in the
liability of approximately $812,000 was treated as a change in
F-17
<PAGE>
NATIONAL TOBACCO (PREDECESSOR OF NORTH ATLANTIC TRADING COMPANY, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. OTHER LONG-TERM LIABILITIES (CONTINUED):
accounting estimate and recorded in other income in the statement of operations
for the year ended December 31, 1994. The remaining liability at December 31,
1995 and 1996 was approximately $31,000.
Manangement is of the opinion that there are no other environmental liabilities
as of December 31, 1996.
11. PREFERRED INTERESTS:
On May 17, 1996 (inception), the Holding Company issued mandatory redeemable
preferred interests in the Holding Company to the subordinated lenders for
$2,500,000. These preferred interests have no voting rights in the management of
the Holding Company, but do have certain consent rights, along with other equity
interests, to certain fundamental transactions under certain circumstances. The
preferred interest compounds, on a quarterly basis, for the first five years at
an annual rate of 14.5%, and thereafter at 17.5%, such return to be paid in the
form of an increase in the preferred interest accounts. The preferred interest
is mandatorily redeemable by the Holding Company on May 17, 2003 at the amount
of the preferred interest account balances on that date. The Holding Company may
redeem the preferred interest at any time after May 17, 1998 at a premium equal
to 105% of the preferred interest account balances on that date. The premium
percentage decreases by 1% each year to 101% of the preferred interest account
balances after May 17, 2002 through the redemption date. In the event of a
change in control, the Holding Company must offer to redeem the preferred
interest at 101% of the preferred interest account balances on that date. The
preferred interest account balance of $2,737,441 at December 31, 1996 has been
classified as a non equity item in the accompanying balance sheet and the
accrual of preferred interest of $237,441 from May 17, 1996 (inception) to
December 31, 1996 as interest expense in the accompanying statement of
operations.
12. WARRANTS
Under terms of the subordinated credit agreement and related agreements, the
lenders received warrants with an original fair value of $6,944,416, including
$300,000 allocated to warrants purchased with cash, to purchase a 38.86% Class A
membership interest in the equity of the Holding Company for $0.39. These
warrants are exercisable at any time after issuance, have weighted average
anti-dilution protection and expire on May 17, 2006. The remaining balance of
this interest at December 31, 1996 of $6,709,461, less $300,000 allocated to
warrants purchased with cash, has been reflected in the Holding Company's
statement of financial position as a loan discount which is being amortized over
the life of the subordinated notes under the interest method. The lenders also
received redeemable warrants to purchase an additional 5% Class A membership
interest in the equity of the Holding Company for $0.05, which have limited
rights. These warrants are exercisable at any time after May 17, 2001, have
weighted average anti-dilution protection and expire on May 17, 2006. The
redeemable warrants may be redeemed by the Holding Company at any time before
May 17, 2001 pro rata with the redemption of the subordinated notes, at a
redemption price equal to the exercise price, and are not redeemable thereafter.
The lender of the Tranche B term loan received detachable warrants with an
original fair value of $1,250,828 to purchase a 7% Class B membership interest
in the equity of the Holding Company for $100. The unamortized balance of this
interest at December 31, 1996 of $1,120,293 has been reflected in the
Partnership's balance sheet as a loan discount which is being amortized over the
life of the Tranche B term loan under the interest method.
All of the warrants described above have put rights which can be exercised under
certain conditions, including a change in control, an asset sale, a
reorganization of the Holding Company as a 'C' corporation, the filing of a
registration statement under the Securities Act of 1933, the repayment or
refinancing of the debt of the Holding Company and the Partnership, the
occurrence of an event of default,
F-18
<PAGE>
NATIONAL TOBACCO (PREDECESSOR OF NORTH ATLANTIC TRADING COMPANY, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
12. WARRANTS (CONTINUED):
or upon May 17, 2002. Under the put rights, the warrant holders may require the
Holding Company to purchase all or a portion of the warrant interests at their
market value as defined in the warrant agreement.
13. PENSION PLANS:
The Company has defined benefit pension plans covering substantially all of its
employees. Benefits for the hourly employees' plan are based on a stated benefit
per year of service, reduced by amounts earned in a previous plan. Benefits for
salaried employees are based on years of service and the employees' final
compensation.
The following table sets forth the plans' funded status and amounts recognized
in the Company's balance sheets and statements of operations.
<TABLE>
<CAPTION>
The Predecessor The Holding Company
----------------- -------------------
December 31, December 31,
1995 1996
---------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $4,713,024 and $5,472,269 in
1995 and 1996, respectively.................................... $ 4,889,442 $ 5,661,483
----------------- -------------------
----------------- -------------------
Projected benefit obligation........................................ $ 5,783,384 $ 6,754,067
Plan assets......................................................... 4,205,517 5,218,348
----------------- -------------------
Projected benefit obligation in excess of plan assets............... 1,577,867 1,535,719
Unrecognized net (gain) loss from past experience different than
assumed........................................................... (560,095) 276,075
Unrecognized prior service cost..................................... (60,646) ----
Recognition of minimum liability.................................... 297,665 ----
Amounts to be funded within one year (included in accrued
expenses)......................................................... (763,532) (650,000)
----------------- -------------------
Noncurrent unfunded pension liability (included in other long-term
liabilities)...................................................... $ 491,259 $ 1,161,794
----------------- -------------------
----------------- -------------------
</TABLE>
Net pension cost included the following components:
<TABLE>
<CAPTION>
The Holding Company
-------------------
The Predecessor Period From
--------------------------------------------------- May 17
Year Ended December 31, Period From (Inception) to
--------------------------------- January 1 to December 31,
1994 1995 May 17, 1996 1996
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Service cost................... $ 509,606 $ 514,884 $ 193,081 $ 508,759
Interest cost.................. 313,160 372,726 139,772 449,361
Return on plan assets.......... (207,139) (728,815) (273,305) (604,634)
Net amortization and
deferral..................... 40,300 544,976 204,366 284,984
--------------- --------------- --------------- -------------------
Net pension cost............. $ 655,927 $ 703,771 $ 263,914 $ 638,470
--------------- --------------- --------------- -------------------
--------------- --------------- --------------- -------------------
</TABLE>
F-19
<PAGE>
NATIONAL TOBACCO (PREDECESSOR OF NORTH ATLANTIC TRADING COMPANY, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
13. PENSION PLANS (CONTINUED):
The average discount rate and expected long-term rate of return on plan assets
was 7.5% for the periods presented. The rate of increase in future compensation
levels used in determining the actuarial present value of the projected benefit
obligation for the salary plan was 6% for the periods presented. The Company's
funding policy is to contribute annually amounts equal to or in excess of the
minimum funding requirements of the Employee Retirement Income Security Act of
1974. The plans' assets are primarily invested in bond and equity mutual funds.
The Company also sponsors a voluntary retirement savings plan (401(k)). Eligible
employees may elect to contribute up to 10% of their annual earnings subject to
certain limitations. The Company matches 50% of each eligible participant's
contribution not in excess of 6% of the participant's compensation for the plan
year. Company matching is subject to a vesting schedule. Additional
discretionary matching contributions by the Company are determined annually by
the Board of Directors. Expense related to this plan was approximately $130,000
for the period from May 17, 1996 (inception) to December 31, 1996.
14. POSTRETIREMENT BENEFIT PLANS:
The Company sponsors two defined benefit postretirement plans that cover both
salaried and hourly employees. One plan provides medical and dental benefits,
and the other provides life insurance benefits. The postretirement health care
plan is contributory, with retiree contributions adjusted annually; the life
insurance plan is noncontributory.
At its inception on April 15, 1992, the Predecessor recorded a liability related
to postretirement benefits of approximately $5,065,000. The Predecessor's policy
was to reduce the liability for payments included in the calculations of the
liability at the acquisition date and to expense postretirement benefits not
included in the liability as they were paid. Payments to retired employees under
these plans amounted to approximately $91,000 for the year ended December 31,
1994.
During 1994, the Predecessor made certain amendments to its postretirement
benefit plans, including altering employee service requirements for plan
eligibility and capping the amount of future cost increases to be absorbed by
the Predecessor. These amendments reduced the postretirement liability by
approximately $2,267,000. This reduction in the postretirement liability was
accounted for as a change in accounting estimate and included in other income in
the accompanying statement of operations. The remaining liability at December
31, 1994 of approximately $2,657,000 was recorded in other long-term
liabilities.
Effective January 1, 1995, the Predecessor adopted Statement of Financial
Accounting Standards (SFAS) No. 106, 'Employers' Accounting for Postretirement
Benefits Other Than Pensions.' Under SFAS No. 106, the Predecessor accrues the
cost of these benefits over employees' active service periods.
The Predecessor elected to recognize this change in accounting on the immediate
recognition basis. The adoption of SFAS No. 106 resulted in a one-time expense
totaling approximately $123,000.
F-20
<PAGE>
NATIONAL TOBACCO (PREDECESSOR OF NORTH ATLANTIC TRADING COMPANY, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
14. POSTRETIREMENT BENEFIT PLANS (CONTINUED):
The postretirement benefit expense included the following components:
<TABLE>
<CAPTION>
The Holding
Company
---------------
The Predecessor Period From
------------------------------- May 17
Year Ended Period From (Inception) to
December 31, January 1 to December 31,
1995 May 17, 1996 1996
-------------------------------------------------
<S> <C> <C> <C>
Service cost of benefits earned........................... $ 167,000 $ 68,563 $ 165,648
Interest cost on accumulated postretirement benefit
obligation.............................................. 219,000 100,852 194,606
Net amortization and deferral............................. ---- 44,873 ----
-------------- -------------- ---------------
Postretirement benefit expense............................ $ 386,000 $ 214,288 $ 360,254
-------------- -------------- ---------------
-------------- -------------- ---------------
</TABLE>
The postretirement benefit liability as of December 31, 1995 and 1996 included
the following components:
<TABLE>
<CAPTION>
The Predecessor The Holding Company
----------------- -------------------
1995 1996
---------------------------------------
<S> <C> <C>
Actuarial present value of accumulated postretirement benefit
obligation:
Retirees........................................................... $ 998,000 $ 1,443,963
Fully eligible active plan participants............................ 1,518,000 1,889,590
Other active plan participants..................................... 956,000 1,190,373
----------------- -------------------
3,472,000 4,523,926
Unrecognized net (gain) loss......................................... (372,000) 129,946
----------------- -------------------
Accrued postretirement benefit liability............................. $ 3,100,000 $ 4,653,872
----------------- -------------------
----------------- -------------------
</TABLE>
The assumed discount rate used to determine the accumulated postretirement
benefit obligation as of December 31, 1995 and 1996 was 7.0% and 7.5%,
respectively. As of December 31, 1995 and 1996, the assumed health care cost
trend rate for participants under age 65 was 10% and 9.5%, respectively; for
participants age 65 and over, the rate was 9% and 8.5%, respectively. The health
care cost trend rate was assumed to decline gradually to 5.5% for pre-age 65
costs and to 5% for post-age 65 costs over 27 years. A one-percentage-point
increase in the assumed health care cost trend rate would have increased the
accumulated postretirement benefit obligation as of December 31, 1995 and 1996
by $240,000 and $383,000, respectively, and the postretirement benefit expense
for the year ended December 31, 1995 and the periods from January 1, 1996 to May
17, 1996 and from May 17, 1996 (inception) to December 31, 1996 by $40,000,
$18,000, and $39,000, respectively.
15. DEFERRED COMPENSATION PLANS:
The Predecessor had deferred compensation agreements with certain employees.
Under these agreements, compensation was determined based on the growth of the
Predecessor's tax equity, subject to certain adjustments. Amounts earned under
these plans were to become vested over a five-year period. There were no amounts
earned or expense recorded related to these plans for the years ended December
31, 1994 or 1995 or the period from January 1, 1996 to May 17, 1996.
F-21
<PAGE>
NATIONAL TOBACCO (PREDECESSOR OF NORTH ATLANTIC TRADING COMPANY, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
16. LEASES:
The Company leases vehicles and office space under cancelable operating leases
and a computer under a capital lease. Total rent expense under the operating
leases was $759,000, $674,000, $337,000 and $426,000 for the years ended
December 31, 1994 and 1995 and the periods from January 1, 1996 to May 17, 1996
and from May 17, 1996 (inception) to December 31, 1996, respectively.
17. RESEARCH AND DEVELOPMENT EXPENSE:
Research and development expense was approximately $284,000, $318,000, $128,000
and $216,000 for the years ended December 31, 1994 and 1995 and the periods from
January 1, 1996 to May 17, 1996, and from May 17, 1996 (inception) to December
31, 1996, respectively.
18. RELATED PARTIES:
The general partner charged the Predecessor a management fee of $25,000 per
month; total management fee expense was $300,000 for the years ended December
31, 1994 and 1995. At December 31, 1995, $412,500 related to this management fee
was included in accrued liabilities. Additionally, the Predecessor reimbursed
the general partner for expenses incurred on behalf of the Predecessor of
approximately $50,000 in 1994 and 1995.
19. ABANDONED DEBT ISSUE COSTS:
Abandoned debt issue costs of approximately $352,000 and $1,561,000 were
included in other expense for the years ended December 31, 1994 and 1995,
respectively.
20. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following disclosure of the estimated fair value of financial instruments is
made in accordance with the requirements of Statement of Financial Accounting
Standards No. 107, Disclosure About Fair Value of Financial Instruments, as
amended by Statement of Financial Accounting Standards No. 126. The estimated
fair value amounts have been determined by the Company using the methods and
assumptions described below. However, considerable judgment is required to
interpret market data to develop estimates of fair value. Accordingly, the
estimates presented herein are not necessarily indicative of the amounts the
Company could realize in a current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts. The following methods and assumptions were used to
estimate the fair value of each class of financial instruments for which it is
practical to estimate that value:
CASH AND CASH EQUIVALENTS: Cash and cash equivalents are by definition
short-term and the carrying amount is a reasonable estimate of fair value.
LONG-TERM DEBT: All long-term debt is subject to variable rates. As such, the
fair value of long-term debt approximates its carrying value.
F-22
<PAGE>
REVIEW REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders
NTC Holding, LLC
We have reviewed the accompanying consolidated condensed balance sheet of
North Atlantic Trading Company, Inc. and Subsidiaries (the Company), as of June
30, 1997, and the related condensed consolidated statements of operations,
changes in equity, and cash flows for the six-month period ended June 30, 1997
for the Company, which prior to June 25, 1997 was know as NTC Holding, L.L.C.
and Subsidiaries. Additionally, we have reviewed the condensed statements of
operations, changes in equity and cash flows of National Tobacco Company, L.P.
(the Predecessor), a limited partnership, for the six-month period ended June
30, 1996. These condensed consolidated financial statements are the
responsibility of the Company's and the Predecessor's management.
We conducted reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the condensed consolidated financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying condensed financial statements in order for
them to be in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Louisville, Kentucky
August 27, 1997
F-23
<PAGE>
CONDENSED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT PAR VALUE)
(Unaudited)
<TABLE>
<CAPTION>
June 30,
1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Current assets:
Cash...................................................................................... $3,547
Accounts receivable....................................................................... 5,031
Inventories............................................................................... 52,909
Income taxes receivable................................................................... 4,725
Other current assets...................................................................... 2,854
-----------------
Total current assets................................................................... 69,066
-----------------
Property, plant and equipment, at cost...................................................... 10,613
Less accumulated depreciation and amortization.............................................. 1,934
-----------------
8,679
-----------------
Deferred income taxes....................................................................... 32,687
Deferred financing costs and other assets, net.............................................. 14,035
Goodwill, net............................................................................... 150,060
-----------------
Total assets........................................................................... $274,527
-----------------
-----------------
LIABILITIES AND EQUITY:
Current liabilities:
Accounts payable.......................................................................... $1,058
Accrued expenses.......................................................................... 8,059
Current portion of notes payable and long-term debt....................................... 10,750
-----------------
Total current liabilities.............................................................. 19,867
Notes payable and long-term debt............................................................ 230,000
Deferred income taxes....................................................................... 11,158
Other long-term liabilities................................................................. 5,846
-----------------
Total liabilities...................................................................... 266,871
-----------------
Preferred stock, mandatory redemption value of $34,000...................................... 32,371
-----------------
Stockholders' equity:
Common stock, voting, $.01 par value; authorized shares, 750,000;
issued and outstanding shares, 528,241................................................. 5
Common stock, nonvoting, $.01 par value; authorized shares, 750,000;
issued and outstanding shares, -0-..................................................... --
Warrants.................................................................................. 2,410
Additional paid-in-capital................................................................ 5,204
Accumulated deficit....................................................................... (32,334)
-----------------
Total stockholders' equity............................................................. (24,715)
-----------------
Total liabilities and stockholders' equity............................................. $274,527
-----------------
-----------------
</TABLE>
The accompanying notes are an integral part of the unaudited condensed financial
statements.
F-24
<PAGE>
CONDENSED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
<TABLE>
<CAPTION>
The The
Predecessor Company
------------ ------------------------------
Period from Period from Period from
January 1 to May 18 to January 1 to
May 17, 1996 June 30, 1996 June 30, 1997
------------ ------------- -------------
<S> <C> <C> <C>
Net sales.................................................................. $ 19,810 $ 8,376 $ 25,938
Cost of sales.............................................................. 7,847 2,974 9,300
------------ ------------- -------------
Gross profit............................................................. 11,963 5,402 16,638
Selling, general and administrative expenses............................... 8,018 2,804 11,591
Amortization of intangible assets.......................................... 365 331 468
------------ ------------- -------------
Operating income......................................................... 3,580 2,267 4,579
Interest expense and financing costs....................................... (2,453) (1,035) (5,194)
Financial advisory fee expense............................................. ---- ---- ----
Other income............................................................... 5 15 44
------------ ------------- -------------
Income (loss) before income taxes and extraordinary loss (1)............. 1,132 1,247 (571)
Income tax provision....................................................... ---- ---- 5,017
------------ ------------- -------------
Income (loss) before extraordinary loss.................................. 1,132 1,247 (5,588)
Extraordinary loss, net of income tax benefit of $3,224.................... ---- ---- (8,262)
------------ ------------- -------------
Net income (loss)........................................................ $ 1,132 $ 1,247 (13,850)
------------ -------------
------------ -------------
Preferred stock dividends.................................................. 58
-------------
Net loss applicable to common shares..................................... $ (13,908)
-------------
-------------
Net loss before extraordinary loss per common share........................ $ (10.69)
Extraordinary loss, net of income tax benefit of $3,224, per common
share.................................................................... (15.64)
-------------
Net loss per common share.................................................. $ (26.33)
-------------
-------------
Weighted average common shares outstanding................................. 528.2
Supplemental unaudited information:
Historical income (loss) before income taxes and extraordinary loss...... $ 1,132 $ 1,247 $ (571)
Pro forma income tax provision (benefit) (2)............................. 453 499 (228)
------------ ------------- -------------
Pro forma net income (loss) before extraordinary loss.................... 679 748 (343)
Extraordinary loss, net of income tax benefit of $3,224.................... ---- ---- (8,262)
------------ ------------- -------------
Pro forma net income (loss).............................................. 679 748 (8,605)
Preferred stock dividends.................................................. ---- ---- 58
------------ ------------- -------------
Pro forma net income (loss) applicable to common shares.................. $ 679 $ 748 $ (8,663)
------------ ------------- -------------
------------ ------------- -------------
Net loss before extraordinary loss, net of income tax benefit of $3,224,
per common share......................................................... $ (0.76)
Extraordinary loss, net of income tax benefit of $3,224, per common
share.................................................................... (15.64)
-------------
Pro forma net income (loss) per common share............................... $ 1.29 $ 1.42 $ (16.40)
------------ ------------- -------------
------------ ------------- -------------
Pro forma weighted average common shares outstanding....................... 528.2 528.2 528.2
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
- ------------------
(1) The Company and the Predecessor were a limited liability company and a
partnership, respectively, for federal and state income tax purposes through
June 25, 1997 and, accordingly, did not incur any federal or state income
taxes prior to such date.
(2) Pro forma income taxes have been calculated assuming the Company and the
Predecessor were subject to income taxes for the entire period for all
periods presented, using an effective rate of 40% (34% federal and 6%
state).
The accompanying notes are an integral part of the unaudited condensed financial
statements.
F-25
<PAGE>
CONDENSED STATEMENTS OF CHANGES IN EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
<TABLE>
<CAPTION>
Amount
Retained Related to
Common Common Additional Earnings Minimum
Stock, Stock, Paid-in Contributed (Accumulated Pension Total
Voting Nonvoting Warrants Capital Equity Deficit) Liability Equity
------ --------- -------- ---------- ----------- ------------ ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
THE PREDECESSOR:
Beginning balance, January 1,
1996........................ -- -- -- -- $10,956 $ 9,083 ($ 252) $ 19,787
Net income.................... -- -- -- -- -- 1,132 -- 1,132
------ --------- -------- ---------- ----------- ------------ ---------- --------
Ending balance, May 17,
1996........................ -- -- -- -- $10,956 $ 10,215 ($ 252) $ 20,919
------ --------- -------- ---------- ----------- ------------ ---------- --------
------ --------- -------- ---------- ----------- ------------ ---------- --------
THE COMPANY:
Beginning balance, May 17,
1996........................ -- -- -- -- -- -- -- --
Contributions of members...... -- -- -- -- $ 4,492 -- -- $ 4,492
Net income.................... -- -- -- -- -- $ 1,247 -- 1,247
------ --------- -------- ---------- ----------- ------------ ---------- --------
Ending balance, June 30,
1996........................ -- -- -- -- $ 4,492 $ 1,247 -- $ 5,739
------ --------- -------- ---------- ----------- ------------ ---------- --------
------ --------- -------- ---------- ----------- ------------ ---------- --------
Beginning balance, December
31, 1996.................... -- -- -- -- $ 4,492 $ 383 -- $ 4,875
Net income.................... -- -- -- -- -- (8,739) -- (8,739)
Distributions to warrant
holders..................... -- -- -- -- -- (18,809) -- (18,809)
Distribution to members....... -- -- -- -- (4,492) 27,165 -- 22,673
------ --------- -------- ---------- ----------- ------------ ---------- --------
Ending balance, June 25,
1997........................ -- -- -- -- -- -- -- --
------ --------- -------- ---------- ----------- ------------ ---------- --------
------ --------- -------- ---------- ----------- ------------ ---------- --------
Beginning balance, June 25,
1997........................ -- -- -- -- -- -- -- --
Issuance of common stock in
exchange for membership
interest.................... $ 5 -- -- $4,492 -- ($27,165) -- ($22,668)
Issuance of common stock...... -- -- -- 712 -- -- -- 712
Issuance of warrants.......... -- -- $2,410 -- -- -- -- 2,410
Net loss...................... -- -- -- -- -- (5,111) -- (5,111)
Preferred stock dividends..... -- -- -- -- -- (58) -- (58)
------ --------- -------- ---------- ----------- ------------ ---------- --------
Ending balance, June 30,
1997........................ $ 5 -- $2,410 $5,204 -- ($32,334) -- ($24,715)
------ --------- -------- ---------- ----------- ------------ ---------- --------
------ --------- -------- ---------- ----------- ------------ ---------- --------
</TABLE>
The accompanying notes are an integral part of the unaudited condensed financial
statements.
F-26
<PAGE>
CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
The
Predecessor The Company
------------- --------------------------------
Period from Period from Period from
January 1 to May 18 to January 1 to
May 17, 1996 June 30, 1996 June 30, 1997
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ 1,132 $ 1,247 $ (13,850)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation............................................ 454 210 900
Amortization of intangible assets....................... 365 104 468
Amortization of deferred financing costs................ 258 222 1,000
Recognition of deferred income taxes.................... ---- ---- 5,017
Extraordinary loss, net of income tax benefit of
$3,224................................................ ---- ---- 8,262
Changes in operating assets and liabilities:
Accounts receivable................................... (335) (1,781) (662)
Inventories--Lancaster Leaf Tobacco................... (512) (11) 2,715
Inventories--other.................................... (386) 1,068 (649)
Other current assets.................................. (647) 730 646
Accounts payable...................................... 1,262 (1,117) 295
Borrowings under inventory financing agreement ....... 2,797 42 6,565
Payments on borrowings under inventory financing
agreement........................................... (2,285) ---- (23,526)
Accrued expenses and other............................ (931) 492 (13,043)
------------- -------------- --------------
Net cash provided by (used in) operating
activities........................................ 1,172 1,206 (25,862)
------------- -------------- --------------
Cash flows from investing activities:
Acquisition of business, net of cash acquired of $597 and
$2,602, respectively.................................... (72,145) (156,818)
----
Capital expenditures...................................... (144) (55) (442)
------------- -------------- --------------
Net cash used in investing activities............... (144) (72,200) (157,260)
------------- -------------- --------------
Cash flows from financing activities:
Proceeds from revolving loans............................. ---- 450 1,550
Payments on revolving loans............................... ---- (450) (800)
Proceeds from senior notes................................ ---- ---- 155,000
Proceeds from term loans, net of discount of $1,251 at
June 30, 1996........................................... ---- 43,749 85,000
Payments on term loans.................................... ---- (205) (40,750)
Proceeds from working capital loan........................ 20,056 ---- ----
Payments on working capital loan.......................... (19,022) ---- ----
Proceeds from subordinated notes payable, net of discount
of $6,614 at June 30, 1996.............................. 13,356 576
Payments on subordinated notes payable.................... ---- ---- (21,082)
Payment on capital lease.................................. ---- ---- (9)
Payments on other notes payable and long-term debt........ (2,011) ---- ----
Proceeds from issuance of preferred stock and warrants.... ---- ---- 34,000
Proceeds from preferred interest.......................... ---- 2,500 ----
Proceeds from warrants.................................... ---- 8,196 ----
Redemption of warrants.................................... ---- ---- (27,000)
Increase in preferred interest............................ ---- ---- 198
Redemption of preferred interest.......................... ---- ---- (2,935)
Capital contributions..................................... ---- 4,492 712
------------- -------------- --------------
Net cash provided by (used in) financing
activities........................................ (977) 72,087 184,460
------------- -------------- --------------
Net increase (decrease) in cash............................. 51 1,093 1,338
Cash, beginning of period................................... 128 ---- 2,209
------------- -------------- --------------
Cash, end of period......................................... $ 179 $ 1,093 $ 3,547
------------- -------------- --------------
------------- -------------- --------------
Supplemental disclosure of cash flow information:
Cash paid during the period for interest.................. $ 2,013 $ 1,993 $ 5,211
------------- -------------- --------------
------------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of the unaudited condensed financial
statements.
F-27
<PAGE>
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
accruals and reserves) considered necessary for a fair presentation have been
included. Operating results for the interim periods are not necessarily
indicative of the results that may be realized for the full year. These
unaudited condensed consolidated financial statements should be read in
conjunction with the financial statements of the Holding Company and the
Predecessor for the years ended December 31, 1995 and 1996, as defined below.
On May 17, 1996, certain members of management and partners of National Tobacco
Company, L.P. (the Partnership, and, for periods prior to May 17, 1996, the
Predecessor), a limited partnership, formed NTC Holding, LLC (the Holding
Company), a limited liability company, and caused the Holding Company to form
National Tobacco Finance Corporation (the Finance Corporation), a wholly-owned
subsidiary of the Holding Company. The Holding Company then acquired a 99%
limited partnership interest in the Partnership and the Finance Corporation
became the sole general partner and owner of the remaining 1% interest of the
Partnership. Concurrent with the above transactions, on May 17, 1996 the
Partnership was recapitalized in a transaction accounted for as the formation of
a new entity under the purchase method of accounting. The above transactions
have been fully described in the consolidated financial statements of the
Holding Company as of December 31, 1996.
On June 25, 1997, certain members of management and holders of membership
interests in the Holding Company formed a corporation named North Atlantic
Trading Company, Inc. (the Company). The Company then acquired the membership
interests in the Holding Company and the Holding Company transferred all of its
assets, including its limited partnership interest in the Partnership and all of
the capital stock of the Finance Corporation, and its rights under the Stock
Purchase Agreement described in Note 2. The Company then formed North Atlantic
Operating Company, Inc. (NAOC), a Delaware Corporation and wholly-owned
subsidiary of the Company, to which the Company transferred its rights under the
Stock Purchase Agreement. NAOC then exercised its rights under the Stock
Purchase Agreement, acquiring all of the outstanding capital stock of NATC
Holdings USA, Inc. (NATC), a holding company. NATC and its wholly-owned
subsidiary were then merged into NAOC.
As described in Notes 4 and 6, on June 25, 1997, the Company obtained new
financing in the form of $155.0 million in 11% Senior Notes due 2004, $34.0
million in 12% Senior PIK Preferred Stock, and $85.8 million under a new Senior
Secured Credit Facility. The proceeds of such financing were used to repay all
of the outstanding debt of the Holding Company and the Partnership, finance the
acquisition described below, repay outstanding debt and other assumed
liabilities of NATC, and pay the transaction costs associated with the financing
and acquisition.
2. ACQUISITION:
On April 17, 1997, the Holding Company entered into an agreement to purchase all
of the outstanding capital stock of NATC (the Stock Purchase Agreement),
subsequently transferring its rights thereunder to the Company which transferred
such rights to NAOC. On June 25, 1997, NAOC exercised its rights under the Stock
Purchase Agreement, acquiring all of the outstanding capital stock of NATC for a
preliminary purchase price of approximately $162.6 million, including the
following: $91.1 million for the purchase of NATC stock and stock options ($0.6
million of which has been included in accrued expenses to be paid after
closing), $63.0 million for the payment at debt and certain other liabilities of
NATC, and $8.5 million in transaction fees and expenses ($2.5 million at which
has been included in accrued expenses to be paid at the closing). This
acquisition was accounted for using the purchase method of accounting under
which the preliminary purchase price has been allocated to tangible assets with
a fair value of $48.0 million and assumed liabilities of 167.0 million, with the
excess of 119.0 million being recorded as goodwill which is being amortized over
25 years. The results of operations of NATC have been included in the Company's
condensed consolidated statement of operations since the date of acquisition.
F-28
<PAGE>
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITION (CONTINUED):
Following is a preliminary allocation of the purchase price to the fair value of
the net assets acquired (in thousands):
<TABLE>
<S> <C>
Cash....................................................................... $ 2,602
Accounts receivable........................................................ 836
Inventory.................................................................. 12,956
Other current assets....................................................... 74
Income tax receivable...................................................... 1,515
Deferred income taxes...................................................... 29,599
Fixed assets............................................................... 131
Other assets............................................................... 248
Accounts payable........................................................... (312)
Accrued expenses........................................................... (4,256)
Deferred income taxes...................................................... (3,052)
Debt assumed............................................................... (159,421)
-----------------
Amount allocated to goodwill.......................................... $ (119,080)
-----------------
-----------------
</TABLE>
The following unaudited pro forma results of operations assume the
acquisition occurred on January 1, 1996 (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
SIX MONTHS YEAR
ENDED ENDED
JUNE 30, DECEMBER 31,
1997 1996
---------- ------------
<S> <C> <C>
Net Sales................................................................. $ 43,444 $102,075
Net income (loss) before extraordinary loss............................... (1,327) 3,695
Extraordinary loss, net of income tax benefit of $3,224................... (8,262) (8,262)
---------- ------------
Net loss.................................................................. (9,589) (4,567)
Preferred stock dividends................................................. 2,468 4,325
---------- ------------
Net loss applicable to common shares...................................... $(12,057) $ (8,892)
---------- ------------
---------- ------------
Net income (loss) before extraordinary loss, net of income tax benefit of
$3,224, per common share................................................ $ (2.51) $ 7.00
Extraordinary loss, net of income tax benefit of $3,224, per common
share................................................................... $ (15.64) $ (15.64)
Net loss per common share................................................. $ (22.83) $ (16.83)
Weighted average common shares outstanding................................ 528.2 528.2
</TABLE>
This pro forma financial information is not necessarily indicative of the
operating results that would have occurred had the acquisition been consummated
as of January 1, 1996, nor is it necessarily indicative of future operating
results.
3. EXTRAORDINARY LOSS:
Upon the repayment of the Company's debt as described in Note 1, the
Company recorded an extraordinary loss of $11.5 million (net of tax benefit of
$3.2 million), for the write-off of deferred financing fees of $4.4 million and
debt discount of $7.1 million, respectively.
F-29
<PAGE>
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. INVENTORIES
The components of inventories at June 30, 1997 are as follows (in
thousands):
<TABLE>
<S> <C>
Raw materials and work in process.............................. $ 1,467
Leaf tobacco................................................... 34,052
Finished goods - tobacco....................................... 4,417
Finished goods - cigarette papers.............................. 12,781
Other.......................................................... 192
-------
$52,909
-------
-------
</TABLE>
5. NOTES PAYABLE AND LONG-TERM DEBT:
Notes payable and long-term debt at June 30, 1997 consists of (in
thousands):
<TABLE>
<S> <C>
Senior notes.................................................. $155,000
Borrowings under credit agreement:
Term........................................................ 85,000
Revolver.................................................... 750
--------
240,750
Less current portion.......................................... (10,750)
--------
$230,000
--------
--------
</TABLE>
On June 25, 1997, the Company issued $155.0 million of 11% Senior Notes due
2004 (the Notes). The Notes are unsecured senior obligations of the Company
which mature on June 15, 2004. The Notes bear interest at 11% per annum, payable
semiannually on June 15 and December 15, commencing on December 15, 1997, to
holders of record at the close of business on the June 1 or December 1
immediately preceding the interest payment date.
The Notes have no mandatory redemption requirements; however, they are
redeemable at the option of the Company at a redemption price of 105.0%,
102.75%, or 100.0%, plus accrued interest, on or after June 15, 2001, 2002, and
2003 and thereafter, respectively. In addition, in the event of a change in
control of the Company, as defined, the holders have the right to require the
Company to repurchase the Notes at a purchase price of 101.0% plus accrued
interest.
The Company has filed an Exchange Offer Registration Statement (the
Registration) with the Securities and Exchange Commission under which the
holders of the Notes will, upon the effective date of the Registration, have the
right to exchange the Notes for registered notes with substantially identical
terms. In the event that the Registration or, alternatively, a Shelf
Registration Statement is not effective within 120 days of the original issuance
of the Notes, the rate of interest on the Notes will increase by 0.5% per annum
for the first 30 days following the 91st day and an additional 0.5% per annum at
the beginning of each subsequent 30-day period.
On June 25, 1997, the Company entered into a Credit Agreement (the Credit
Agreement) with a lender which provided borrowings of $85.0 million under a term
facility and a revolver with available credit of up to $25 million, including a
letter of credit sublimit of $10.0 million. The borrowings under the term
facility are subject to quarterly principal payments commencing on September 30,
1997 and continuing over the five-year period through the maturity date of June
25, 2002, while the revolver may be repaid and reborrowed as necessary, with any
unpaid amounts due and payable upon its termination date of June 25, 2002.
Borrowings under the term facility and revolver bear interest, per annum,
at the Company's option, at the higher of the prime rate plus 2.0%, the federal
funds rate plus 2.5% or the lender's LIBOR rate plus 3.0%, subject to
limitations on the amount of borrowings at the LIBOR option. In addition, the
Company must pay a quarterly
F-30
<PAGE>
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. NOTES PAYABLE AND LONG-TERM DEBT:--(CONTINUED)
commitment fee of 0.5% to 1.0% per annum of the unused portion of the revolver.
The Company must also pay letter of credit fees equal to 3.0% per annum on the
face amount of letters of credit issued under the revolver and a facing fee of
0.25% per annum on the average daily stated amount of each letter of credit
issued.
The Notes and the Credit Agreement include cross default provisions and
covenants which require the Company to meet certain financial tests, including
minimum interest coverage, maximum leverage ratio, fixed charges coverage and
minimum earnings before interest, taxes, depreciation and amortization, and
limit the incurrence of additional indebtedness, dividends, transactions with
affiliates, asset sales, acquisitions, mergers, prepayments of indebtedness,
liens and encumbrances, and other matters.
All of the Company's subsidiaries are wholly-owned and guarantee the debt
of the Company on a full, unconditional, and joint and several basis; therefore,
the financial statements of the guarantor subsidiaries have been omitted.
6. INCOME TAXES:
The Company and the Predecessor were a limited liability company and a
partnership, respectively, for federal and state income tax purposes through
June 25, 1997 and, accordingly, did not incur any income taxes prior to such
date. Upon the occurrence of the transactions described in Note l, the Company
became a taxable corporation and recorded a one-time income tax provision of
$5.0 million in the statement of operations for the six-month period ended June
30, 1997. This change was necessary to record the Company's deferred tax assets
and liabilities of $3.2 million and $8.1 million, respectively, which had not
previously been recorded due to its non-taxable status. The differed taxes are
the result of differences between the book and tax basis of assets and
liabilities such as inventory and accrued pension and postretirement benefit
liabilities.
7. MANDATORILY REDEEMABLE PREFERRED STOCK:
On June 25, 1997, the Company authorized 12 million shares and issued 1.36
million shares of 12% Senior Payment-In-Kind Preferred Stock (the Preferred
Stock). Each share of Preferred Stock has a par value of $.01 and a liquidation
preference of $25, for a total liquidation value of $34.0 million. Prior to June
15, 2002, holders of the Preferred Stock are entitled to receive dividends at an
annual rate of 12% of the liquidation preference, payable quarterly in cash or
by the issuance of additional shares of Preferred Stock having an aggregate
liquidation preference equal to the amount of the dividends, at the Company's
option. Following June 15, 2002, dividends must be paid in cash. Dividends,
including the discount accretion described in Note 7, for the period from June
25, 1997 through June 30, 1997 were $58,000, which has been recorded as an
increase in the carrying value of the Preferred Stock.
Prior to June 15, 2000, the Company may, subject to certain restrictions,
redeem up to 35% of the Preferred Stock out of the net cash proceeds from any
one or more public equity offerings of the Company, for 112% of the liquidation
preference plus all accumulated and unpaid dividends. The Preferred Stock is not
redeemable from June 16, 2001 to June 15, 2002. The Preferred Stock is then
redeemable, at the Company's option, on or after the following dates at the
indicated redemption prices (expressed as a percentage of the liquidation
preference) plus all accumulated and unpaid dividends: June 15, 2002 - 106%;
June 15, 2003 - 104%; June 15, 2004 - 102%; and June 15, 2005 - 100%. The
Preferred Stock is mandatorily redeemable on June 15, 2007 at a price equal to
the liquidation preference plus all accumulated and unpaid dividends. The
Preferred Stock is also redeemable, at the option of the holders, upon a change
in control of the Company, as defined, at a price equal to 101% of the
liquidation preference plus all accumulated and unpaid dividends.
F-31
<PAGE>
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. WARRANTS:
On June 25, 1997, the holders of the Preferred Stock were issued warrants,
with an original fair value of $1.69 million, to purchase 44,440 shares of
common stock of the Company for $0.01 per share, exercisable immediately. The
original fair value of these warrants has been recorded in equity, with a
corresponding amount recorded as a discount on the carrying value of the
Preferred Stock. This discount is being accreted under the interest method over
the 10-year term of the Preferred Stock as a part of the annual dividend
requirement. Accretion of the discount was $2,000 for the period from June 25,
1997 through June 30, 1997 and has been recorded as an increase in the carrying
value of the Preferred Stock.
Persons affiliated with the initial purchases of the Preferred Stock were
also issued warrants, with an original fair value of $0.72 million, to purchase
19,050 shares of common stock of the Company for $0.01 per share, exercisable
immediately. The original fair value of these warrants has been recorded in
equity, with a corresponding amount capitalized and recorded as deferred
financing costs to be amortized over the terms of the financing described in
Notes 4 and 6.
9. SHARE INCENTIVE PLAN:
On June 25, 1997 the Company began a share incentive plan covering certain
key employees which provides for the issuance of stock options to purchase
common stock and other stock related benefits. As of June 30, 1997, no benefits
other than the stock options described below had been granted under the plan.
Stock options are issued at the fair value of the underlying stock on the
date of grant and become exercisable one-third on the date of grant and an
additional one-third on each annual anniversary of the date of grant thereafter
until fully exercisable. The stock options expire ten years after the date of
grant. The Company has granted stock options for 30,928 shares at a weighted
average exercise price of $18.19 per share, of which stock options for 10,309
shares were exercisable at June 30, 1997.
As permitted by Statement of Financial Accounting Standards (SFAS) No. 123,
'Accounting for Stock-Based Compensation,' the Company follows the provisions of
APB Opinion 25 and related Interpretations for its stock options. Therefore,
compensation cost has not been recognized for stock options issued, and if such
compensation cost had been determined based on the fair value of the awards on
the grant date consistent with the pro forma provisions of SFAS No. 123, there
would not have been a material impact on the Company's net loss or net loss per
common share.
F-32
<PAGE>
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. CONTINGENCY:
The Partnership has been named as a defendant in a purported class action
filed on June 30, 1997 in the 33rd Judicial District Court in the State of
Louisiana, Parish of Allen, entitled Doyle v. United States Tobacco Company, et
al. The Partnership has not been served with the petition. The petition named as
defendants the Partnership, three other manufacturers of smokeless tobacco
products and one subsidiary of another defendant.
The petition alleges that plaintiff 'has been addicted to tobacco products
for forty (40) years' and that, as a result of this 'addiction' and use of
tobacco products, the plaintiff has 'lost all his teeth and the nicotine-laced
tobacco products have contributed to his heart and cardiovascular health
problems.' The petition defines the purported class, in part, as '[a]ll
Louisiana residents or former Louisiana residents who are or who were smokeless
tobacco users' of products manufactured by the defendants and 'who desire to
participate in a program designed to assist them in the cessation of using
smokeless tobacco products and/or to monitor the medical condition of class
members to ascertain whether they may be suffering from diseases caused by,
contributed to, or exacerbated by the habit of smokeless tobacco use.' The
petition further alleges that 'on the basis of information and belief . . . the
class clearly consists of thousands of persons.' Finally, the petition states
that plaintiffs 'represent that no individual claim within the class will exceed
$75,000.'
The petition seeks an order certifying the purported class, and the
'establishment of a medical monitoring fund to monitor the health of the
plaintiffs and class members for those diseases and health risks associated with
the use of smokeless tobacco products' as well as recovery of 'costs associated
with seeking mental health counseling and/or psychiatric care to assist in
breaking the nicotine addiction.'
The Company intends to defend this action vigorously.
F-33
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
NATC Holdings USA, Inc.
We have audited the accompanying consolidated balance sheets of NATC
Holdings USA, Inc. as of December 31, 1995 and 1996, and the related
consolidated statements of operations, changes in stockholder's equity and cash
flows for the years ended December 31, 1994, 1995, and 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 consolidated financial position of NATC Holdings
USA, Inc. as of December 31, 1995 and 1996, and the consolidated results of its
operations and its cash flows for the years ended December 31, 1994, 1995, and
1996, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Raleigh, North Carolina
April 29, 1997
F-34
<PAGE>
NATC HOLDINGS USA, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
--------------------------
(Dollars in thousands, except par value amounts) 1995 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents.......................................................... $ 3,693 $ 8,766
Accounts receivable................................................................ 1,270 1,004
Inventory.......................................................................... 6,563 5,287
Other current assets............................................................... 101 94
----------- -----------
Total current assets................................................................. 11,627 15,151
----------- -----------
Deferred income taxes................................................................ 1,233 1,191
Fixed assets, net.................................................................... 148 141
Intangible assets, net............................................................... 41,357 45,096
Deferred financing costs, net........................................................ 3,694 2,800
Other assets, net.................................................................... 400 306
----------- -----------
Total assets......................................................................... $ 58,459 $ 64,685
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY:
Current liabilities:
Current maturities of long-term debt............................................... $ 4,918 $ 6,124
Accounts payable, trade............................................................ 552 588
Payable to United States Tobacco Company........................................... 2,400 3,010
Accrued interest................................................................... 770 682
Accrued expenses................................................................... 384 1,057
Income taxes payable............................................................... 1,015 1,838
----------- -----------
Total current liabilities............................................................ 10,039 13,299
----------- -----------
Long-term debt, less current maturities.............................................. 31,982 25,859
----------- -----------
Commitments and contingencies (Note 8)............................................... ---- ----
Stockholder's equity:
Class A voting common stock, $.01 par value; 50,000 shares authorized, 20,300
shares issued; 13,634 and 13,334 shares outstanding at December 31, 1995 and
1996, respectively.............................................................. ---- ----
Class B non voting common stock, $.01 par value; 50,000 shares authorized; none
issued and outstanding.......................................................... ---- ----
Additional paid-in capital......................................................... 7,725 7,725
Retained earnings.................................................................. 16,363 25,707
Treasury stock, 6,666 and 6,966 shares at cost at
December 31, 1995 and 1996, respectively........................................ (7,500) (7,905)
----------- -----------
Total stockholder's equity before note receivable, officer........................... 16,588 25,527
Note receivable, officer............................................................. 150 ----
----------- -----------
Total stockholder's equity........................................................... 16,438 25,527
----------- -----------
Total liabilities and stockholder's equity........................................... $ 58,459 $ 64,685
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-35
<PAGE>
NATC HOLDINGS USA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
(Dollars in thousands, except per share data) 1994 1995 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales..................................................... $40,218 $42,546 $46,139
Cost of goods sold............................................ 14,432 15,503 16,453
------------- ------------- -------------
Gross profit............................................. 25,786 27,043 29,686
Operating expenses:
Selling, general and administrative......................... 3,400 4,004 3,980
Amortization of intangible assets........................... 4,379 4,710 5,078
------------- ------------- -------------
Income from operations................................... 18,007 18,329 20,628
Other expenses:
Interest expense............................................ 4,471 4,967 4,976
Litigation settlement....................................... ---- 285 ----
Financial advisory fee and other expenses................... 305 654 1,178
------------- ------------- -------------
Income before provision for income taxes and
extraordinary loss..................................... 13,231 12,423 14,474
Provision for income taxes.................................... 5,435 4,301 5,130
------------- ------------- -------------
Income before extraordinary loss......................... 7,796 8,122 9,344
Extraordinary loss from early extinguishment of debt, net of
income tax benefit of $411.................................. ---- 762 ----
------------- ------------- -------------
Net income............................................... $7,796 $7,360 $9,344
------------- ------------- -------------
------------- ------------- -------------
Earnings per common share:
Income before extraordinary loss......................... $384.04 $513.24 $698.25
Extraordinary loss....................................... ---- (48.15) ----
Net income............................................... $384.04 $465.09 $698.25
Weighted average number of common shares outstanding
(000).................................................. 20.3 15.8 13.4
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-36
<PAGE>
NATC HOLDINGS USA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
(Dollars in thousands) 1994 1995 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................................... $7,796 $7,360 $9,344
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation.................................................. 45 58 62
Amortization of intangible assets............................. 4,379 4,710 5,078
Amortization of deferred financing costs...................... 734 971 1,013
Deferred income taxes......................................... (1,065) (168) 42
Write-off of deferred financing costs......................... ---- 964 ----
Changes in operating assets and liabilities:
Accounts receivable........................................... (518) 28 266
Inventory..................................................... 146 (3,290) 1,276
Other current assets.......................................... 298 (6) (23)
Accounts payable, trade....................................... ---- ---- (172)
Accrued interest and expenses................................. (458) (274) 585
Income taxes payable.......................................... 450 565 823
Other......................................................... (255) 5 (26)
------------- ------------- -------------
Net cash provided by operating activities................... 11,552 10,923 18,268
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Royalty payments to United States Tobacco Company ............... (7,394) (7,208) (7,998)
Capital expenditures............................................. (94) (88) (55)
------------- ------------- -------------
Net cash used in investing activities....................... (7,488) (7,296) (8,053)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings of long-term debt....................... ---- 16,000 ----
Repayment of long-term debt...................................... (7,128) (8,472) (4,917)
Acquisition of treasury stock.................................... ---- (7,500) (225)
Payments for deferred financing costs............................ ---- (2,826) ----
------------- ------------- -------------
Net cash used in financing activities....................... (7,128) (2,798) (5,142)
------------- ------------- -------------
Increase (decrease) in cash and cash equivalents ........... (3,064) 829 5,073
Cash and cash equivalents at beginning of year..................... 5,928 2,864 3,693
------------- ------------- -------------
Cash and cash equivalents at end of year........................... $2,864 $3,693 $8,766
------------- ------------- -------------
------------- ------------- -------------
Supplemental disclosure of cash paid during the year:
Cash paid for interest........................................... $4,011 $4,105 $4,224
Cash paid for income taxes....................................... $5,755 $3,279 $4,265
</TABLE>
Non-cash financing activities:
During 1996, the Company acquired 300 shares of its common stock from an
officer of the Company for $405. The Company offset $180 of the purchase price
by reducing the officers note receivable and accrued interest on that note
receivable, which amounted to $150 and $30, respectively.
The accompanying notes are an integral part of the consolidated financial
statements.
F-37
<PAGE>
NATC HOLDINGS USA, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
Class A Class A
Voting Voting Additional Note
(Dollars in Common Common Paid-in Retained Treasury Receivable,
thousands) Shares Stock Capital Earnings Stock Officer Total
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1993............... 20,300 ---- $7,725 $1,207 ---- $(150) $8,782
Net income........... ---- 7,796 ---- 7,796
------------ ------------ ------------ ------------- ------------- ------------ -------------
Balance, December 31,
1994............... 20,300 ---- 7,725 9,003 ---- (150) 16,578
Net income........... ---- ---- ---- 7,360 ---- ---- 7,360
Repurchase of Company
Class A Voting
Common Stock....... (6,666) ---- ---- ---- $(7,500) ---- (7,500)
------------ ------------ ------------ ------------- ------------- ------------ -------------
Balance, December 31,
1995............... 13,634 ---- 7,725 16,363 (7,500) (150) 16,438
Net income........... ---- ---- ---- 9,344 ---- ---- 9,344
Repurchase of Company
Class A Voting
Common Stock....... (300) ---- ---- ---- (405) 150 (255)
------------ ------------ ------------ ------------- ------------- ------------ -------------
Balance, December 31,
1996............... 13,334 ---- $7,725 $25,707 $(7,905) ---- $25,527
------------ ------------ ------------ ------------- ------------- ------------ -------------
------------ ------------ ------------ ------------- ------------- ------------ -------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-38
<PAGE>
NATC HOLDINGS USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
NATC Holdings USA, Inc. and its wholly-owned subsidiary North Atlantic Trading
Company, Inc. (collectively, the 'Company') are engaged primarily in the
distribution of cigarette paper in the United States and Canada. The Company is
a wholly-owned subsidiary of NATC Holding Company Ltd.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of NATC Holdings USA, Inc. and its wholly-owned subsidiary North
Atlantic Trading Company, Inc. All significant intercompany balances and
transactions have been eliminated in consolidation.
REVENUE RECOGNITION: The Company recognizes revenues and the related costs upon
shipment of product to the customer.
CASH AND CASH EQUIVALENTS: For purposes of the financial statements, the
Company considers cash equivalents to be highly liquid investments with
maturities of three months or less.
The Company maintains a significant portion of its cash and cash equivalents at
one financial institution.
INVENTORIES: Inventories consisting primarily of finished goods are stated at
the lower of cost or market. Cost is determined on an average cost basis.
FIXED ASSETS: Fixed assets, consisting primarily of furniture, fixtures and
office equipment, are stated at cost less accumulated depreciation. Depreciation
is provided using an accelerated method over the estimated useful lives of the
related assets, generally three to seven years.
Expenditures for repairs and maintenance are charged to expense as incurred. The
costs of major renewals and betterments are capitalized and depreciated over
their estimated useful lives. Upon disposition of fixed assets, the cost and
related accumulated depreciation amounts are relieved and any resulting gain or
loss is reflected in operations.
Depreciation expense included in the accompanying statements of income was
$45,000, $58,000, and $62,000 for the years ended December 31, 1994, 1995, and
1996, respectively.
INTANGIBLE ASSETS: Intangible assets consist primarily of prepaid royalties, a
covenant not to compete, a customer list and contingent royalty payments. Such
amounts are amortized over the estimated useful lives of the related assets,
generally five to twenty-five years, using the straight-line method (Note 4).
The Company periodically reviews the appropriateness of the remaining life
of its intangible assets considering whether any events have occurred or
conditions have developed which may indicate that the remaining life or the
amortization method requires adjustment. After reviewing the appropriateness of
the remaining life and the pattern of usage of the intangible assets, the
Company then assesses the overall recoverability of intangible assets by
determining if the unamortized balance can be recovered through undiscounted
future operating cash flows. Absent any unfavorable findings, the Company
continues to amortize its intangible assets based on the existing estimated
life.
DEFERRED FINANCING COSTS: Deferred financing costs consist of amounts paid in
connection with the Company's debt refinancing in 1995 and interest rate cap
agreements, which are amortized over the terms of the related debt obligations
and interest rate cap agreements, (three to seven years) using the straight-line
method.
INCOME TAXES: Deferred income taxes are determined based on temporary
differences between the financial statement and tax basis of assets and
liabilities, using enacted tax rates expected to be in effect
F-39
<PAGE>
NATC HOLDINGS USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
during the years in which the differences are expected to reverse. The Company's
temporary differences relate principally to intangibles, fixed assets and
inventory.
ADVERTISING AND PROMOTION: Advertising and promotion costs are expensed as
incurred. Advertising expense was approximately $495,000, $795,000, and $541,000
for the years ended December 31, 1994, 1995 and 1996.
EARNINGS PER SHARE: The number of shares used in computing earnings per common
share includes the weighted average number of shares of common stock outstanding
during the period. In February 1997, the Financial Accounting Standards Board
issued Statements of Financial Standards No. 128, 'Earnings per Share' ('SFAS
No. 128'). SFAS No. 128 is designed to improve the earnings per share
information provided in financial statements by simplifying the existing
computational guidelines, revising the disclosure requirements, and increasing
comparability of earnings per share on an international basis. This
pronouncement is effective for periods beginning after December 15, 1997, and
would not have had an impact on the Company's earnings per share as previously
reported.
RISKS AND UNCERTAINTIES: The sellers of tobacco products, are subject to
regulation at the federal, state and local levels. The trend in recent years has
been toward increased regulation of the tobacco industry. There can be no
assurance as to the ultimate content, timing or effect of any regulation of
tobacco products by any federal, state or local legislative or regulatory body,
nor can there be any assurance that any such legislation or regulation would not
have a material adverse effect on the Company's financial position, results of
operations or cash flows.
Most tobacco liability lawsuits have been brought against manufacturers and
sellers of cigarettes for injuries allegedly caused by smoking or by exposure to
smoke. No such cases have been brought against the Company, but there can be no
assurance that the Company will not be sued in the future or, if sued, that such
lawsuits will not have a material adverse effect on the Company's financial
position, results of operations or cash flows.
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 dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
3. FIXED ASSETS:
Fixed assets at December 31, 1995 and 1996 consist of the following (in
thousands):
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Furniture and fixtures....................................................... $129 $136
Computer and office equipment................................................ 146 194
----------- -----------
275 330
Less accumulated depreciation................................................ 127 189
----------- -----------
$148 $141
----------- -----------
----------- -----------
</TABLE>
F-40
<PAGE>
NATC HOLDINGS USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. INTANGIBLE ASSETS:
Intangible assets at December 31, 1995 and 1996 consist of the following (in
thousands):
<TABLE>
<CAPTION>
1995 1996
-------------- --------------
<S> <C> <C>
Royalty payments...................................................... $36,308 $45,124
Covenant not-to-compete............................................... 15,000 15,000
Customer list......................................................... 2,235 2,235
-------------- --------------
53,543 62,359
Less accumulated amortization......................................... 12,186 17,263
-------------- --------------
$41,357 $45,096
-------------- --------------
-------------- --------------
</TABLE>
Amortization expense charged to operations in the accompanying statements of
operations was approximately $4,379,000, $4,710,000 and $5,078,000 for the years
ended December 31, 1994, 1995 and 1996, respectively.
5. DEFERRED FINANCING COSTS:
Deferred financing costs at December 31, 1995 and 1996 consist of the following
(in thousands):
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Debt refinancing costs................................................... $4,757 $4,757
Interest rate cap agreements............................................. 258 99
------------ ------------
5,015 4,856
Less accumulated amortization............................................ 1,321 2,056
------------ ------------
$3,694 $2,800
------------ ------------
------------ ------------
</TABLE>
The amortization of deferred financing costs charged to operations, and included
in interest expense in the accompanying statements of operations, was
approximately $660,000, $833,000 and $894,000 for the years ended December 31,
1994, 1995 and 1996, respectively.
6. ACQUISITION:
On March 31, 1993, the Company acquired certain assets and assumed certain
liabilities relating to the cigarette paper business (the 'Business') of United
States Tobacco Company ('UST'), including inventory and a license to use their
trade name in the United States and Canada. The total purchase price including
costs of the transaction was approximately $44,400,000. In addition, the Company
is obligated to pay UST additional consideration during the ten-year period
immediately following the acquisition date equal to 30% of the annual gross
profits attributable to the product sales of the Business. These contingent
royalty payments are being capitalized as additional purchase consideration and
amortized over the remaining life assigned to this intangible asset. For the
years ended December 31, 1994 and 1995, and 1996 approximately $7,394,000,
$8,134,000, and $8,816,000 respectively, of such royalties were capitalized. At
December 31, 1995 and 1996, the amount payable to UST for contingent royalties
was $2,400,000 and $3,010,000, respectively.
The funds used to acquire the Business were provided by proceeds from the
issuance of common stock and long-term debt financing. The acquisition has been
accounted for under the purchase method.
F-41
<PAGE>
NATC HOLDINGS USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. LONG-TERM DEBT:
Long-term debt at December 31, 1995 and 1996 consists of the following (in
thousands):
<TABLE>
<CAPTION>
1995 1996
-------------- --------------
<S> <C> <C>
Term loan (NationsBank)............................................... $14,400 $9,483
Note Purchase Agreement............................................... 22,500 22,500
-------------- --------------
36,900 31,983
Less current maturities............................................... 4,918 6,124
-------------- --------------
$31,982 $25,859
-------------- --------------
-------------- --------------
</TABLE>
On April 28, 1995, the Company altered its existing debt obligations.
NationsBank, pursuant to a credit agreement, provided the Company with a term
loan in the principal amount of $16,000,000 and a $2,000,000 working capital
facility. The Company used the proceeds of the term loan to satisfy the
obligation outstanding with Banque Nationale de Paris ('BNP') and to redeem
common shares from minority stockholders of the Company. In addition, the
Company amended and restated the terms and conditions of its Note Purchase
Agreement. The Company has recorded an extraordinary loss of $762,000 (net of
income tax benefit of $411,000), consisting of fees paid to BNP and the
write-off of deferred financing costs, related to the early extinguishment of
debt with BNP.
The Term Loan is payable in quarterly installments of $800,000 commencing July
1995, with the balance due April 30, 2000, and is collateralized by
substantially all of the Company's assets. In addition, the Company is required,
under the terms of the agreement, to reduce its outstanding borrowings by an
amount equal to 40% of excess cash flows, as defined, for the fiscal year ending
December 31, 1995 and 60% of excess cash flows, as defined, for each fiscal year
thereafter, in two equal payments on April 30 and on October 31 of each such
fiscal year. Working capital advances are payable in full on or before April 15
and October 15 of each calendar year. During a period of at least thirty
consecutive days commencing on April 15 and October 15 of each calendar year, no
amounts can be outstanding under the working capital note. As of December 31,
1996, the Company had $2,000,000 of unused borrowings under the working capital
facility. Outstanding borrowings are subject to interest at the Libor Rate as
defined (London Interbank Offered Rate plus margin of 3.25%, 9.097% as of
December 31, 1996). The credit agreement contains various covenants which, among
other things, require the Company to maintain specific levels of net worth,
leverage, interest coverage, fixed charge coverage, and limits capital
expenditures, as defined.
Borrowings under the Note Purchase Agreement are payable in full on April 30,
2000 and bear interest at 14.0% per annum. The notes are subordinate to the Term
Loan, and are collateralized by a second lien on substantially all of the
Company assets. The note purchase agreement contains various covenants which,
among other things, requires the Company to maintain specific levels of interest
coverage, as defined. Aggregate maturities of long-term debt in each of the
years subsequent to December 31, 1996 are as follows (in thousands):
<TABLE>
<S> <C>
1997......................................................................... $ 6,124
1998......................................................................... 3,200
1999......................................................................... 159
2000......................................................................... 22,500
--------------
$31,983
--------------
--------------
</TABLE>
During 1993, the Company entered into a three-year interest rate cap agreement
whereby the Company will effectively pay the lesser of Libor plus 3%, or 8% on
the first $9,000,000 of borrowings under the Term Loan. This agreement
terminated during 1996.
F-42
<PAGE>
NATC HOLDINGS USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. LONG-TERM DEBT (CONTINUED):
During 1995, the Company entered into a three-year interest rate cap agreement
whereby the Company will effectively pay the lesser of the rate stated above or
10.50% on borrowings under the Term Loan.
8. COMMITMENTS AND CONTINGENCIES:
During November 1992, the Company entered into an exclusive licensing agreement
with Bollore Technologies S.A. ('Bollore'), whereby Bollore will be the
exclusive supplier of finished product to the Company for 20 years, renewable in
20 year increments and at specified prices through December 2001.
Pursuant to the Credit Agreement with NationsBank dated April 28, 1995, the
Company is obligated to pay an annual working capital facility fee of $10,000
each year.
During 1995, the Company settled a lawsuit in the amount of $285,000 related to
the funding of the acquisition of the Business.
The Company's tax returns are currently under examination by the IRS for the
years ending December 31, 1993, 1994 and 1995. In the opinion of management,
adequate provision has been made for all income taxes and interest, and any
liability that may arise for prior periods, as a result of the examination, will
not have a material effect on the financial condition or results of operations
of the Company.
9. INCOME TAXES:
The components of the income tax provision (benefit) for the years ended
December 31, 1994, 1995 and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Current:
Federal............................................ $ 5,460 $4,281 $4,872
State.............................................. 1,040 188 216
-------------- -------------- --------------
6,500 4,469 5,088
-------------- -------------- --------------
Deferred:
Federal............................................ (1,007) (159) 40
State.............................................. (58) (9) 2
-------------- -------------- --------------
(1,065) (168) 42
-------------- -------------- --------------
$ 5,435 $4,301 $5,130
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
Reconciliation of expected income tax at the statutory federal rate with income
tax expense for the years ended December 31, 1994, 1995 and 1996 is as follows
(in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
Income tax at statutory rates applied to pretax income... $4,499 $4,214 $4,921
State taxes, net of federal tax benefit.................. 131 123 143
Other.................................................... 805 (36) 66
------------- ------------- -------------
Total............................................... $5,435 $4,301 $5,130
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
F-43
<PAGE>
NATC HOLDINGS USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES (CONTINUED):
The significant components of the Company's deferred income tax asset as of
December 31, 1995 and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Inventory................................................................. $ 129 $ 168
Depreciation of fixed assets.............................................. (8) (5)
Amortization of intangible assets......................................... 1,112 1,028
------------ ------------
$1,233 $1,191
------------ ------------
------------ ------------
</TABLE>
10. RELATED PARTY TRANSACTIONS:
The Company and Drake, Goodwin and Graham ('DGG'), a company related through
common ownership, have a financial advisory agreement which was amended in 1995.
Pursuant to the amended financial advisory agreement the Company pays an annual
financial advisory fee of $500,000 to DGG.
During the years ended December 31, 1994, 1995 and 1996 the Company paid DGG
$291,000, $376,000 and $673,000, respectively, for the financial advisory fee
above and other expenses.
In connection with the refinancing during 1995, the Company paid an investment
banking fee to Drake, Goodwin Corporation, a related company, of $1,000,000,
which was capitalized and is included in deferred financing costs.
11. CONCENTRATION OF CREDIT RISK:
Historically, the Company has experienced bad debts of less than 1/10th of 1% of
net sales. For the years ended December 31, 1994, 1995 and 1996 the Company's
top customer accounted for approximately 12% of net sales. The Company performs
ongoing credit evaluations of these customers' financial conditions and
generally requires no collateral from its customers.
12. EMPLOYEE BENEFIT PLAN:
In July 1996 the Company adopted a 401(k) plan for all employees who have
completed three months of service and are 21 years of age.
The Company is required to make matching contributions equal to 25% of the first
6% of employee contributions. In addition, the Company can make discretionary
contributions. During the year ended December 31, 1996, the Company recorded
expenses under this plan of $6,102.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following disclosure of the estimated fair value of financial instruments is
made in accordance with the requirements of Statement of Financial Accounting
Standards No. 107, Disclosure About Fair Value of Financial Instruments, as
amended by Statement of Financial Accounting Standards No. 126. The estimated
fair value amounts have been determined by the Company using the methods and
assumptions described below. However, considerable judgment is required to
interpret market data to develop estimates of fair value. Accordingly, the
estimates presented herein are not necessarily indicative of the amounts the
Company could realize in a current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts. The following methods and assumptions were used to
estimate the fair value of each class of financial instruments for which it is
practical to estimate that value:
F-44
<PAGE>
NATC HOLDINGS USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED):
CASH AND CASH EQUIVALENTS: Cash and cash equivalents are by definition
short-term and the carrying amount is a reasonable estimate of fair value.
LONG-TERM DEBT: The fair value of long term debt has been estimated by
discounting the future cash flows using the current rates offered for debt
issues with similar characteristics.
At December 31, 1996 the estimated fair value and carrying value of long-term
debt is $32,221,000 and $31,983,000, respectively.
14. SUBSEQUENT EVENT:
On June 25, 1997, 100% of the outstanding common stock of NATC Holdings, USA,
Inc. was sold to NTC Holding, L.L.C. for an aggregate purchase price of $162.6
million.
F-45
<PAGE>
REVIEW REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
NATC Holdings USA, Inc.
We have reviewed the accompanying consolidated condensed balance sheet of
NATC Holdings USA, Inc. as of March 31, 1997, and the related consolidated
condensed statements of operations, stockholder's equity and cash flows for the
three-month periods ended March 31, 1996 and 1997. These consolidated condensed
financial statements are the responsibility of the management of NATC Holdings
USA, Inc.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the consolidated condensed financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying consolidated condensed financial statements
in order for them to be in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Raleigh, North Carolina
April 29, 1997
F-46
<PAGE>
NATC HOLDINGS USA, INC.
CONSOLIDATED CONDENSED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
March 31,
(Dollars in thousands, except par value amounts) 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Current assets:
Cash and cash equivalents......................................................................... $ 7,611
Accounts receivable............................................................................... 2,036
Inventory......................................................................................... 4,310
Other current assets.............................................................................. 99
----------
Total current assets................................................................................ 14,056
----------
Deferred income taxes............................................................................... 1,191
Fixed assets, net................................................................................... 155
Intangible assets, net.............................................................................. 45,793
Deferred financing costs, net....................................................................... 2,583
Other assets, net................................................................................... 300
----------
Total assets........................................................................................ $64,078
----------
----------
LIABILITIES AND STOCKHOLDER'S EQUITY:
Current liabilities:
Current maturities of long-term debt.............................................................. $ 6,124
Accounts payable, trade........................................................................... 396
Payable to United States Tobacco Company.......................................................... 2,027
Accrued interest.................................................................................. 1,451
Accrued expenses.................................................................................. 340
Income taxes payable.............................................................................. 1,321
----------
Total current liabilities........................................................................... 11,659
----------
Long-term debt, less current maturities............................................................. 25,058
----------
Commitments and contingencies (Note 3).............................................................. ----
Stockholder's equity:
Class A voting common stock, $.01 par value; 50,000 shares authorized, 20,300 shares issued;
13,334 shares outstanding at March 31, 1997.................................................... ----
Class B non voting common stock, $.01 par value; 50,000 shares authorized; none issued and
outstanding.................................................................................... ----
Additional paid-in capital........................................................................ 7,725
Retained earnings................................................................................. 27,541
Treasury stock, 6,666 shares at cost at March 31, 1997............................................ (7,905)
----------
Total stockholder's equity.......................................................................... 27,361
----------
Total liabilities and stockholder's equity.......................................................... $64,078
----------
----------
</TABLE>
The accompanying notes are an integral part of the unaudited consolidated
condensed financial statements.
F-47
<PAGE>
NATC HOLDINGS USA, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
(Dollars in thousands, except per share data) 1996 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales....................................................................... $ 12,439 $ 10,244
Cost of goods sold.............................................................. 4,572 3,386
------------ ------------
Gross profit............................................................... 7,867 6,858
Operating expenses:
Selling, general and administrative........................................... 927 1,159
Amortization of intangible assets............................................. 1,230 1,330
------------ ------------
Income from operations..................................................... 5,710 4,369
Other expenses:
Interest expense.............................................................. 1,321 1,151
Financial advisory fee and other expenses..................................... 219 481
------------ ------------
Income before provision for income taxes................................... 4,170 2,737
Provision for income taxes...................................................... 1,460 903
------------ ------------
Net income................................................................. $ 2,710 $ 1,834
------------ ------------
------------ ------------
Earnings per common share....................................................... $ 174.50 $ 137.54
Weighted average number of common shares outstanding (000)...................... 15.5 13.3
</TABLE>
The accompanying notes are an integral part of the unaudited consolidated
condensed financial statements.
F-48
<PAGE>
NATC HOLDINGS USA, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------
(Dollars in thousands) 1996 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................................................... $2,710 $1,834
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation................................................................ 21 16
Amortization of intangible assets........................................... 1,230 1,330
Amortization of deferred financing costs.................................... 232 223
Changes in operating assets and liabilities:
Accounts receivable......................................................... (3,637) (1,032)
Inventory................................................................... 2,845 977
Other current assets........................................................ 31 (5)
Accounts payable, trade........................................................ (59) (193)
Accrued interest and expenses............................................... 792 52
Income taxes payable........................................................ 1,008 (517)
------------- -------------
Net cash provided by operating activities................................. 5,173 2,685
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Royalty payments to United States Tobacco Company.............................. (2,400) (3,010)
Capital expenditures........................................................... (10) (30)
------------- -------------
Net cash used in investing activities..................................... (2,410) (3,040)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt.................................................... (800) (800)
Acquisition of treasury stock.................................................. (225) ----
------------- -------------
Net cash used in financing activities..................................... (1,025) (800)
------------- -------------
Increase (decrease) in cash and cash equivalents.......................... 1,738 (1,155)
Cash and cash equivalents at beginning of year................................... 3,693 8,766
------------- -------------
Cash and cash equivalents at end of year......................................... $5,431 $7,611
------------- -------------
------------- -------------
Supplemental disclosure of cash paid during the year:
Cash paid for interest......................................................... $338 $220
Cash paid for income taxes..................................................... $2,252 $1,498
Non-cash financing activities:
During 1996, the Company acquired 300 shares of its common stock from an
officer of the Company for $405. The Company offset $180 of the purchase price
by reducing the officers note receivable and accrued interest on that note
receivable, which amounted to $150 and $30, respectively.
</TABLE>
The accompanying notes are an integral part of the unaudited consolidated
condensed financial statements.
F-49
<PAGE>
NATC HOLDINGS USA, INC.
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Class A Class A
Voting Voting Additional Note
(Dollars in Common Common Paid-in Retained Treasury Receivable,
thousands) Shares Stock Capital Earnings Stock Officer Total
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1995............... 13,634 $---- $7,725 $16,363 $(7,500) $(150) $16,438
Net income........... ---- ---- ---- 2,710 ---- ---- 2,710
Repurchase of Company
Class A Voting
Common Stock....... (300) ---- ---- ---- (405) 150 (255)
------------ ------------ ------------ ------------- ------------- ------------ -------------
Balance, March 31,
1996............... 13,334 $---- $7,725 $19,073 $(7,905) $---- $18,893
------------ ------------ ------------ ------------- ------------- ------------ -------------
------------ ------------ ------------ ------------- ------------- ------------ -------------
Balance, December 31,
1996............... 13,334 $---- $7,725 $25,707 $(7,905) $---- $25,527
Net income........... ---- ---- ---- 1,834 ---- ---- 1,834
------------ ------------ ------------ ------------- ------------- ------------ -------------
Balance, March 31,
1997............... 13,334 $---- $7,725 $27,541 $(7,905) $---- $27,361
------------ ------------ ------------ ------------- ------------- ------------ -------------
------------ ------------ ------------ ------------- ------------- ------------ -------------
</TABLE>
The accompanying notes are an integral part of the unaudited consolidated
condensed financial statements.
F-50
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The accompanying unaudited consolidated condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
accruals and reserves) considered necessary for a fair presentation have been
included. Operating results for the interim periods are not necessarily
indicative of the results that may be realized for the full year. These
unaudited consolidated condensed financial statements should be read in
conjunction with the consolidated financial statements of the Company for the
years ended December 31, 1995 and 1996, respectively.
2. NOTES PAYABLE AND LONG-TERM DEBT:
Notes payable and long-term debt at March 31, 1997 consist of
the following (in thousands):
<TABLE>
<S> <C>
Term loan (NationsBank)........................................................................... $ 8,682
Note purchase agreement........................................................................... 22,500
------------
31,182
Less current maturities........................................................................... 6,124
------------
$25,058
------------
------------
</TABLE>
3. SUBSEQUENT EVENT:
On June 25, 1997, 100% of the outstanding Common Stock of NATC Holdings,
USA, Inc. was sold to NTC Holding, L.L.C. for an aggregage purchase price of
$162.6 million.
F-51
<PAGE>
------------------------------------------------------
------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATION, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE EXCHANGE OFFER COVERED BY THIS PROSPECTUS. IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE UNREGISTERED SECURITIES
IN ANY JURISDICTION WHERE, OR TO ANY PERSON WHOM, IT IS UNLAWFUL TO MAKE SUCH
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 THERE HAS NOT BEEN ANY CHANGE IN THE INFORMATION SET FORTH IN
THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information........................... 4
Forward-Looking Statements...................... 5
Certain Market Information...................... 5
Trademarks...................................... 5
Prospectus Summary.............................. 7
Summary of Historical and Unaudited
Pro Forma Financial Data...................... 22
Risk Factors.................................... 25
Use of Proceeds................................. 33
Capitalization.................................. 34
Unaudited Pro Forma Condensed Consolidated
Financial Statements.......................... 35
Selected Financial Data......................... 40
Selected Consolidated Financial Data............ 42
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 44
Business........................................ 54
Management...................................... 68
Certain Relationships and Related
Transactions.................................. 75
Recent Transactions............................. 76
Principal Stockholders.......................... 78
The Exchange Offer.............................. 80
Description of Notes............................ 89
Description of Other Indebtedness............... 113
Description of Capital Stock.................... 114
Description of New Preferred Stock.............. 117
Plan of Distribution............................ 127
Certain U.S. Federal Tax Considerations......... 128
Book-Entry; Delivery and Form................... 136
Legal Proceedings............................... 138
Legal Matters................................... 139
Independent Public Accountants.................. 139
Index to Financial Statements................... F-1
</TABLE>
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
$155,000,000 SENIOR NOTES
136,000,000 SHARES OF
SENIOR PIK PREFERRED STOCK
NORTH ATLANTIC
TRADING COMPANY, INC.
OFFER TO EXCHANGE
11% SENIOR NOTES DUE 2004, SERIES B
FOR
11% SENIOR NOTES DUE 2004, SERIES A
12% SENIOR EXCHANGE
PAYMENT-IN-KIND PREFERRED STOCK
FOR
12% SENIOR
PAYMENT-IN-KIND PREFERRED STOCK
------------------------------
PROSPECTUS
------------------------------
SEPTEMBER , 1997
------------------------------------------------------
------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
North Atlantic Trading Company, Inc. (the 'Registrant') is a Delaware
corporation. Subsection (b)(7) of Section 102 of the Delaware General
Corporation Law (the 'DGCL'), enables a corporation in its original certificate
of incorporation or an amendment thereto to eliminate or limit the personal
liability of a director to the corporation or its stockholders for monetary
damages for violations of the director's fiduciary duty, except (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the
DGCL (providing for liability of directors for unlawful payment of dividends or
unlawful stock purchases or redemptions) or (iv) for any transaction from which
a director derived an improper personal benefit. Article 5 of the Registrant's
Certificate of Incorporation has eliminated the personal liability of directors
to the fullest extent permitted by law.
Subsection (a) of Section 145 of the DGCL empowers a corporation to
indemnify any director, officer, employee or agent or former director, officer,
employee or agent who was or is a party or is threatened to be made a party to
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that such person is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred in connection with such action,
suit or proceeding; provided that such director, officer, employee or agent
acted in good faith in a manner reasonably believed to be in, or not opposed to,
the best interests of the corporation, and, with respect to any criminal action
or proceeding, provided further that such director, officer, employee or agent
had no reasonable cause to believe his conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any
director, officer, employee or agent, or former director, officer, employee or
agent, 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 acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred in connection with
the defense or settlement of such action or suit provided that such director,
officer, employee or agent acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interests of the corporation,
except that no indemnification may be made in respect of any claim, issue or
matter as to which such director, officer, employee or agent shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all of the circumstances of the case, such director, officer, employee
or agent is fairly and reasonably entitled to indemnity for such expenses which
the Court of Chancery or such other court shall deem proper.
Section 145 further provides that to the extent a director, officer,
employee or agent of a corporation has been successful on the merits in defense
of any action, suit or proceeding referred to in subsections (a) and (b) or in
the defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection therewith; that indemnification and advancement of expenses
provided for, by, or granted pursuant to, Section 145 shall not be deemed
exclusive of any other rights to which the indemnified party may be entitled;
and that the corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against
II-1
<PAGE>
any liability asserted against him or incurred by him in any such capacity, or
arising out of his status as such, whether or not the corporation would have the
power to indemnify him against such liabilities under Section 145.
Article 5 of the Registrant's Certificate of Incorporation states that the
corporation shall indemnify any person who was or is a party or is threatened to
be made a party to, or testifies in, any threatened, pending, or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative in nature, 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, employee benefit plan, trust or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding to the full extent permitted
by law, and the corporation may adopt by-laws or enter into agreements with any
such person for the purpose of providing such indemnification.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ---------------------------------------------------------------------------------------------
<S> <C> <C>
3.1 (a)(i) -- Restated Certificate of Incorporation of North Atlantic Trading Company, Inc., filed June 25,
1997.**
3.1 (a)(ii) -- Certificate of Amendment of Certificate of Incorporation of North Atlantic Trading Company,
Inc., filed June 25, 1997.**
3.1 (a)(iii) -- Certificate of Amendment of Certificate of Incorporation of North Atlantic Trading Company,
Inc., filed July 21, 1997.**
3.1 (b)(i) -- Certificate of Incorporation of North Atlantic Operating Company, Inc., filed June 9, 1997.**
3.1 (b)(ii) -- Certificate of Amendment of Certificate of Incorporation of North Atlantic Operating Company,
Inc., filed June 17, 1997.**
3.1 (c) -- Restated Certificate of Incorporation of National Tobacco Finance Corporation, filed April
24, 1996.**
3.1 (d) -- Amended and Restated Certificate of Limited Partnership of National Tobacco Company, L.P.,
filed May 17, 1996.**
3.2 (a) -- Bylaws of North Atlantic Trading Company, Inc.***
3.2 (b) -- Bylaws of North Atlantic Operating Company, Inc.***
3.2 (c) -- Bylaws of National Tobacco Finance Corporation.***
3.2 (d)(i) -- Third Amended and Restated Agreement of Limited Partnership of National Tobacco Company,
L.P., effective May 17, 1996.**
3.2 (d)(ii) -- Amendment No. 1 to Third Amended and Restated Agreement of Limited Partnership of National
Tobacco Company, L.P., effective June 25, 1997.**
3.3 (a) -- Certificate of Designation of 12% Senior Payment-In-Kind Preferred Stock of North Atlantic
Trading Company, Inc., filed June 25, 1997.**
3.3 (b) -- Certificate of Designation of 12% Senior Exchange Payment-In-Kind Preferred Stock of North
Atlantic Trading Company, Inc., filed July 22, 1997.**
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ---------------------------------------------------------------------------------------------
<S> <C> <C>
4.1 -- Indenture, dated as of June 25, 1997, among North Atlantic Trading Company, Inc., as issuer,
National Tobacco Company, L.P., North Atlantic Operating Company, Inc. and National Tobacco
Finance Corporation, as guarantors, and United States Trust Company of New York, as trustee.*
4.2 -- Form of Notes (included in Exhibit 4.1).*
5 -- Opinion of Weil, Gotshal & Manges LLP.*
9 -- Exchange and Stockholders' Agreement, dated as of June 25, 1997, by and between North
Atlantic Trading Company, Inc. and those stockholders signatory thereto.**
10.1 -- Third Amended and Restated Purchasing and Processing Agreement, dated as of June 25, 1997,
between National Tobacco Company, L.P. and Lancaster Leaf Tobacco Company of Pennsylvania.**
10.2 -- Amended and Restated Distribution and License Agreement, dated as of November 30, 1992,
between Bollore Technologies, S.A. and North Atlantic Trading Company, Inc., a Delaware
corporation and predecessor to North Atlantic Operating Company, Inc. [United States]+
10.3 -- Amended and Restated Distribution and License Agreement, dated as of November 30, 1992,
between Bollore Technologies, S.A. and North Atlantic Trading Company, Inc., a Delaware
corporation and predecessor to North Atlantic Operating Company, Inc. [Asia]+
10.4 -- Amended and Restated Distribution and License Agreement, dated as of November 30, 1992,
between Bollore Technologies, S.A. and North Atlantic Trading Company, Inc., a Delaware
corporation and predecessor to North Atlantic Operating Company, Inc. [Canada]+
10.5 -- Restated Amendment, dated as of June 25, 1997, between Bollore Technologies, S.A. and North
Atlantic Operating Company, Inc.+
10.6 -- Registration Rights Agreement, dated as of June 25, 1997, by and among North Atlantic Trading
Company, Inc. and the subsidiary guarantors named therein and NatWest Capital Markets Limited
and CIBC Wood Gundy Securities Corp., as initial purchase.*
10.7 -- Preferred Stock Registration Rights Agreement, dated as of June 25, 1997, among North
Atlantic Trading Company, Inc. and NatWest Capital Markets Limited, as initial purchaser.*
10.8 -- Common Stock Registration Rights and Stockholders' Agreement, dated as of June 25, 1997,
among North Atlantic Trading Company, Inc. and NatWest Capital Markets Limited, as initial
purchaser.*
10.9 -- Purchase Agreement, dated as of June 18, 1997, among North Atlantic Trading Company, Inc. and
certain of its subsidiaries, as guarantors, and NatWest Capital Markets Limited and CIBC Wood
Gundy Securities Corp., as initial purchasers.*
10.10 -- Purchase Agreement, dated as of June 18, 1997, between North Atlantic Trading Company, Inc.
and NatWest Capital Markets Limited, as initial purchaser.*
10.11 -- Unit Agreement, dated as of June 25, 1997, between North Atlantic Trading Company, Inc. and
United States Trust Company of New York.*
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ---------------------------------------------------------------------------------------------
<S> <C> <C>
10.12 -- Warrant Agreement, dated as of June 25, 1997, between North Atlantic Trading Company, Inc.
and United States Trust Company of New York, as warrant agent.*
10.13 -- Stock Purchase Agreement, dated as of March 17, 1997, between NATC Holding Company, Ltd. and
NTC Holding, LLC.**
10.14 -- Assignment and Assumption, dated as of June 25, 1997, between NTC Holding, LLC and North
Atlantic Trading Company, Inc.**
10.15 -- Assignment and Assumption of Stock Purchase Agreement, dated as of June 25, 1997, between
North Atlantic Trading Company, Inc. and North Atlantic Operating Company, Inc.**
10.16 -- 1997 Share Incentive Plan of North Atlantic Trading Company, Inc.*
10.17 -- Employment Agreement, dated May 17, 1996, between North Atlantic Trading Company, Inc. and
Thomas F. Helms, Jr.**
10.18(a) -- Employment Agreement, dated April 14, between North Atlantic Trading Company, Inc. and David
I. Brunson.**
10.18(b) -- Employment Agreement, dated April 23, 1997, between North Atlantic Trading Company, Inc. and
David I. Brunson.**
10.18(c) -- Nonqualified Stock Option Agreement, dated as of June 25, 1997, between North Atlantic
Trading Company, Inc. and David I. Brunson.*
10.18(d) -- Amendment No. 1, dated and effective September 2, 1997, to the Nonqualified Stock Option Agreement,
dated as of June 25, 1997, between North Atlantic Trading Company, Inc. and David I. Brunson.*
10.19 -- Employment Agreement, dated January 1, 1997, between North Atlantic Trading Company, Inc. and
Jay Martin.**
10.20 -- Consulting Agreement, dated as of June 25, 1997, between North Atlantic Trading Company, Inc.
and Jack Africk.**
10.21 -- Credit Agreement, dated as of June 25, 1997, among North Atlantic Trading Company, Inc., the
various lending institution referenced therein, Gleacher NatWest, Inc., as arranging agent,
and National Westminster Bank plc, as agent.**
10.22 -- Subsidiary Guaranty, dated as of June 25, 1997, made by North Atlantic Operating Company,
Inc., National Tobacco Finance Corporation and National Tobacco Company, L.P. in favor of
National Westminster Bank plc, as administrative agent for certain lending institutions.**
10.23 -- Security Agreement, dated as of June 25, 1997, among North Atlantic Trading Company, Inc.,
North Atlantic Operating Company, Inc., National Tobacco Finance Corporation, National
Tobacco Company, L.P., and National Westminster Bank plc, as collateral agent for certain
secured creditors.**
10.24 -- Pledge Agreement, dated as of June 25, 1997, made by North Atlantic Trading Company, Inc.,
North Atlantic Operating Company, Inc., National Tobacco Finance Corporation and National
Tobacco Company, L.P., in favor of National Westminster Bank plc, as collateral agent for
certain secured creditors.**
10.25 -- National Tobacco Company Management Bonus Program.*
12 -- Ratio of Earnings to Fixed Charges.**
15 (a) -- Letter re Unaudited Interim Financial Information.*
15 (b) -- Letter re Unaudited Interim Financial Information.*
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ---------------------------------------------------------------------------------------------
<S> <C> <C>
21 -- Subsidiaries of Registrants.***
23.1 (a) -- Consent of Coopers & Lybrand L.L.P.*
23.1 (b) -- Consent of Coopers & Lybrand L.L.P.*
23.2 -- Consent of Weil, Gotshal & Manges LLP (included in Exhibit 5).*
24 -- Power of Attorney (included on signature pages).***
25 -- Statement of Eligibility on Form T-1 of United States Trust Company of New York.***
27.1 -- Financial Data Schedule.*
27.2 -- Financial Data Schedule.***
99.1 -- Form of Letter of Transmittal (New Preferred Stock).**
99.2 -- Form of Letter of Transmittal (New Notes).**
99.3 -- Form of Notice of Guaranteed Delivery (New Preferred Stock).**
99.4 -- Form of Notice of Guaranteed Delivery (New Notes).**
</TABLE>
- ------------------
* Filed herewith.
** Refiled as executed or otherwise revised and marked to show changes from
the preliminary filing.
*** Previously filed.
+ Refiled as executed and marked to show changes from the preliminary filing.
Portions of this agreement have been omitted pursuant to a request for
confidential treatment pursuant to Rule 406 under the Securities Act of
1933, as amended, and have been filed confidentially with the Securities and
Exchange Commission.
(B) SCHEDULES
All schedules are omitted as the required information is presented in the
Registrant's consolidated financial statements or related notes or such
schedules are not applicable.
ITEM 22. UNDERTAKINGS.
Insofar as indemnification for liabilities arising 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 Registrant hereby undertakes to respond to requests for information
that is incorporated by reference into the prospectus pursuant to Item 4, 10(b),
11, or 13 of this form, within one business day of receipt of such request, and
to send the incorporated documents by first class mail or other equally prompt
means. This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding to
the request.
The 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.
The Registrant hereby undertakes:
II-5
<PAGE>
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 perecent change
in the maximum aggregate offering price set forth in the 'Calculation of
Registration Fee' table in the effective registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(4) If the registrant is a foreign private issuer, to file a
post-effective amendment to the registration statement to include any
financial statements required by Rule 3-19 of this chapter at the start of
any delayed offering or throughout a continuous offering. Financial
statements and information otherwise required by Section 10 (a)(3) of the
Act need not be furnished, provided, that the registrant includes in the
prospectus, by means of a post-effective amendment, financial statements
required pursuant to this paragraph (a)(4) and other information necessary
to ensure that all other information in the prospectus is at least as
current as the date of those financial statements. Notwithstanding the
foregoing, with respect to registration statements on Form F-3, a
post-effective amendment need not be filed to include financial statements
and information required by Section 10(a)(3) of the Act or Rule 3-19 of
this chapter if such financial statements and information are contained in
periodic reports filed with or furnished to the Commission by the
registrant pursuant to section 13 or section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the Form F-3.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
North Atlantic Trading Company, Inc., has duly caused this Amendment to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, State of New York.
Date: September 3, 1997 NORTH ATLANTIC TRADING COMPANY, INC.
By: /s/ THOMAS F. HELMS, JR.
------------------------------
Thomas F. Helms, Jr.
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to the Registration Statement has been signed by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- -------------------------------------------- -------------------------------------------- ------------------
<S> <C> <C>
/s/ THOMAS F. HELMS, JR. Chairman of the Board, September 3, 1997
- -------------------------------------------- President and Chief Executive Officer
Thomas F. Helms, Jr. (Principal Executive Officer)
/s/ DAVID I. BRUNSON Director, Executive Vice President-- Finance September 3, 1997
- -------------------------------------------- and Administration, Chief Financial Officer
David I. Brunson (Principal Financial
and Accounting Officer)
* Director September 3, 1997
- --------------------------------------------
Maurice R. Langston
* Director September 3, 1997
- --------------------------------------------
Alan R. Minsterketter
* Director September 3, 1997
- --------------------------------------------
Arnold Sheiffer
* Director September 3, 1997
- --------------------------------------------
Mark F. Secrest
</TABLE>
* By David I. Brunson, as Attorney-in-Fact.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
North Atlantic Operating Company, Inc., has duly caused this Amendment
to the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, State of New York.
Date: September 3, 1997 NORTH ATLANTIC OPERATING COMPANY, INC.
By: /s/ THOMAS F. HELMS, JR.
---------------------------
Thomas F. Helms, Jr.
President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to the Registration Statement has been signed by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- -------------------------------------------- -------------------------------------------- -------------------
<C> <S> <C>
/s/ THOMAS F. HELMS, JR. Director and President September 3, 1997
- -------------------------------------------- (Principal Executive Officer)
Thomas F. Helms, Jr.
/s/ DAVID I. BRUNSON Director and Chief Financial September 3, 1997
- -------------------------------------------- Officer (Principal Financial and
David I. Brunson Accounting Officer)
</TABLE>
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
National Tobacco Finance Corporation has duly caused this Amendment to the
Registration Statement to be signed on its behalf, and as general partner on
behalf of National Tobacco Company, L.P., by the undersigned, thereunto duly
authorized, in the City of New York, State of New York.
Date: September 3, 1997 NATIONAL TOBACCO FINANCE CORPORATION
By: /s/ THOMAS F. HELMS, JR.
----------------------------------
Thomas F. Helms, Jr.
President
NATIONAL TOBACCO COMPANY, L.P.
By: National Tobacco Finance Corporation,
General Partner
By: /s/ THOMAS F. HELMS, JR.
----------------------------------
Thomas F. Helms, Jr.
Director
By: /s/ DAVID I. BRUNSON
----------------------------------
David I. Brunson
Director
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to the Registration Statement has been signed by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- -------------------------------------------- -------------------------------------------- -------------------
<S> <C> <C>
/s/ THOMAS F. HELMS, JR. Director and President September 3, 1997
- -------------------------------------------- (Principal Executive Officer)
Thomas F. Helms, Jr.
/s/ DAVID I. BRUNSON Director and Chief Financial Officer September 3, 1997
- -------------------------------------------- (Principal Financial Officer)
David I. Brunson
</TABLE>
II-9
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ---------------------------------------------------------------------------------------------
<S> <C> <C>
3.1 (a)(i) -- Restated Certificate of Incorporation of North Atlantic Trading Company, Inc., filed June 25,
1997.**
3.1 (a)(ii) -- Certificate of Amendment of Certificate of Incorporation of North Atlantic Trading Company,
Inc., filed June 25, 1997.**
3.1 (a)(iii) -- Certificate of Amendment of Certificate of Incorporation of North Atlantic Trading Company,
Inc., filed July 21, 1997.**
3.1 (b)(i) -- Certificate of Incorporation of North Atlantic Operating Company, Inc., filed June 9, 1997.**
3.1 (b)(ii) -- Certificate of Amendment of Certificate of Incorporation of North Atlantic Operating Company,
Inc., filed June 17, 1997.**
3.1 (c) -- Restated Certificate of Incorporation of National Tobacco Finance Corporation, filed April
24, 1996.**
3.1 (d) -- Amended and Restated Certificate of Limited Partnership of National Tobacco Company, L.P.,
filed May 17, 1996.**
3.2 (a) -- Bylaws of North Atlantic Trading Company, Inc.***
3.2 (b) -- Bylaws of North Atlantic Operating Company, Inc.***
3.2 (c) -- Bylaws of National Tobacco Finance Corporation.***
3.2 (d)(i) -- Third Amended and Restated Agreement of Limited Partnership of National Tobacco Company,
L.P., effective May 17, 1996.**
3.2 (d)(ii) -- Amendment No. 1 to Third Amended and Restated Agreement of Limited Partnership of National
Tobacco Company, L.P., effective June 25, 1997.***
3.3 (a) -- Certificate of Designation of 12% Senior Payment-In-Kind Preferred Stock of North Atlantic
Trading Company, Inc., filed June 25, 1997.**
3.3 (b) -- Certificate of Designation of 12% Senior Exchange Payment-In-Kind Preferred Stock of North
Atlantic Trading Company, Inc., filed July 22, 1997.**
4.1 -- Indenture, dated as of June 25, 1997, among North Atlantic Trading Company, Inc., as issuer,
National Tobacco Company, L.P., North Atlantic Operating Company, Inc. and National Tobacco
Finance Corporation, as guarantors, and United States Trust Company of New York, as trustee.*
4.2 -- Form of Notes (included in Exhibit 4.1).*
5 -- Opinion of Weil, Gotshal & Manges LLP.*
9 -- Exchange and Stockholders' Agreement, dated as of June 25, 1997, by and between North
Atlantic Trading Company, Inc. and those stockholders signatory thereto.**
10.1 -- Third Amended and Restated Purchasing and Processing Agreement, dated as of June 25, 1997,
between National Tobacco Company, L.P. and Lancaster Leaf Tobacco Company of Pennsylvania.**
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ---------------------------------------------------------------------------------------------
<S> <C> <C>
10.2 -- Amended and Restated Distribution and License Agreement, dated as of November 30, 1992,
between Bollore Technologies, S.A. and North Atlantic Trading Company, Inc., a Delaware
corporation and predecessor to North Atlantic Operating Company, Inc. [United States]+
10.3 -- Amended and Restated Distribution and License Agreement, dated as of November 30, 1992,
between Bollore Technologies, S.A. and North Atlantic Trading Company, Inc., a Delaware
corporation and predecessor to North Atlantic Operating Company, Inc. [Asia]+
10.4 -- Amended and Restated Distribution and License Agreement, dated as of November 30, 1992,
between Bollore Technologies, S.A. and North Atlantic Trading Company, Inc., a Delaware
corporation and predecessor to North Atlantic Operating Company, Inc. [Canada]+
10.5 -- Restated Amendment, dated as of June 25, 1997, between Bollore Technologies, S.A. and North
Atlantic Operating Company, Inc.+
10.6 -- Registration Rights Agreement, dated as of June 25, 1997, by and among North Atlantic Trading
Company, Inc. and the subsidiary guarantors named therein and NatWest Capital Markets Limited
and CIBC Wood Gundy Securities Corp., as initial purchase.*
10.7 -- Preferred Stock Registration Rights Agreement, dated as of June 25, 1997, among North
Atlantic Trading Company, Inc. and NatWest Capital Markets Limited, as initial purchaser.*
10.8 -- Common Stock Registration Rights and Stockholders' Agreement, dated as of June 25, 1997,
among North Atlantic Trading Company, Inc. and NatWest Capital Markets Limited, as initial
purchaser.*
10.9 -- Purchase Agreement, dated as of June 18, 1997, among North Atlantic Trading Company, Inc. and
certain of its subsidiaries, as guarantors, and NatWest Capital Markets Limited and CIBC Wood
Gundy Securities Corp., as initial purchasers.*
10.10 -- Purchase Agreement, dated as of June 18, 1997, between North Atlantic Trading Company, Inc.
and NatWest Capital Markets Limited, as initial purchaser.*
10.11 -- Unit Agreement, dated as of June 25, 1997, between North Atlantic Trading Company, Inc. and
United States Trust Company of New York.*
10.12 -- Warrant Agreement, dated as of June 25, 1997, between North Atlantic Trading Company, Inc.
and United States Trust Company of New York, as warrant agent.*
10.13 -- Stock Purchase Agreement, dated as of March 17, 1997, between NATC Holding Company, Ltd. and
NTC Holding, LLC.**
10.14 -- Assignment and Assumption, dated as of June 25, 1997, between NTC Holding, LLC and North
Atlantic Trading Company, Inc.**
10.15 -- Assignment and Assumption of Stock Purchase Agreement, dated as of June 25, 1997, between
North Atlantic Trading Company, Inc. and North Atlantic Operating Company, Inc.**
10.16 -- 1997 Share Incentive Plan of North Atlantic Trading Company, Inc.*
10.17 -- Employment Agreement, dated May 17, 1996, between North Atlantic Trading Company, Inc. and
Thomas F. Helms, Jr.**
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ---------------------------------------------------------------------------------------------
<S> <C> <C>
10.18(a) -- Employment Agreement, dated April 14, between North Atlantic Trading Company, Inc. and David
I. Brunson.**
10.18(b) -- Employment Agreement, dated April 23, 1997, between North Atlantic Trading Company, Inc. and
David I. Brunson.**
10.18(c) -- Nonqualified Stock Option Agreement, dated as of June 25, 1997, between North Atlantic
Trading Company, Inc. and David I. Brunson.*
10.18(d) -- Amendment No. 1, dated and effective September 2, 1997, to the Nonqualified Stock Option Agreement,
dated as of June 25, 1997, between North Atlantic Trading Company, Inc. and David I. Brunson.*
10.19 -- Employment Agreement, dated January 1, 1997, between North Atlantic Trading Company, Inc. and
Jay Martin.**
10.20 -- Consulting Agreement, dated as of June 25, 1997, between North Atlantic Trading Company, Inc.
and Jack Africk.**
10.21 -- Credit Agreement, dated as of June 25, 1997, among North Atlantic Trading Company, Inc., the
various lending institution referenced therein, Gleacher NatWest, Inc., as arranging agent,
and National Westminster Bank plc, as agent.**
10.22 -- Subsidiary Guaranty, dated as of June 25, 1997, made by North Atlantic Operating Company,
Inc., National Tobacco Finance Corporation and National Tobacco Company, L.P. in favor of
National Westminster Bank plc, as administrative agent for certain lending institutions.**
10.23 -- Security Agreement, dated as of June 25, 1997, among North Atlantic Trading Company, Inc.,
North Atlantic Operating Company, Inc., National Tobacco Finance Corporation, National
Tobacco Company, L.P., and National Westminster Bank plc, as collateral agent for certain
secured creditors.**
10.24 -- Pledge Agreement, dated as of June 25, 1997, made by North Atlantic Trading Company, Inc.,
North Atlantic Operating Company, Inc., National Tobacco Finance Corporation and National
Tobacco Company, L.P., in favor of National Westminster Bank plc, as collateral agent for
certain secured creditors.*
10.25 -- National Tobacco Company Management Bonus Program.*
12 -- Ratio of Earnings to Fixed Charges.*
15 (a) -- Letter re Unaudited Interim Financial Information.*
15 (b) -- Letter re Unaudited Interim Financial Information.*
21 -- Subsidiaries of Registrants.***
23.1 (a) -- Consent of Coopers & Lybrand L.L.P.*
23.1 (b) -- Consent of Coopers & Lybrand L.L.P.*
23.2 -- Consent of Weil, Gotshal & Manges LLP (included in Exhibit 5).*
24 -- Power of Attorney (included on signature pages).***
25 -- Statement of Eligibility on Form T-1 of United States Trust Company of New York.***
27.1 -- Financial Data Schedule.*
27.2 -- Financial Data Schedule.***
99.1 -- Form of Letter of Transmittal (New Preferred Stock).**
99.2 -- Form of Letter of Transmittal (New Notes).**
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ---------------------------------------------------------------------------------------------
<S> <C> <C>
99.3 -- Form of Notice of Guaranteed Delivery (New Preferred Stock).**
99.4 -- Form of Notice of Guaranteed Delivery (New Notes).**
</TABLE>
- ------------------
* Filed herewith.
** Refiled as executed or otherwise revised and marked to show changes from
the preliminary filing.
*** Previously filed.
+ Refiled as executed and marked to show changes from the preliminary filing.
Portions of this agreement have been omitted pursuant to a request for
confidential treatment pursuant to Rule 406 under the Securities Act of
1933, as amended, and have been filed confidentially with the Securities and
Exchange Commission.
<PAGE>
RESTATED
CERTIFICATE OF INCORPORATION
OF
NORTH ATLANTIC TRADING ACQUISITION COMPANY, INC.
------------------
The present name of the corporation is North Atlantic Trading
Acquisition Company, Inc. (the "Corporation"). The original Certificate of
Incorporation of the Corporation (the "Original Certificate of Incorporation")
was filed with the Secretary of State of the State of Delaware on May 19, 1997.
The Corporation has not received any payment for its stock. This Restated
Certificate of Incorporation of the Corporation (the "Certificate of
Incorporation"), which both amends and restates the provisions of the Original
Certificate of Incorporation, was duly adopted by the Board of the Corporation
in accordance with the provisions of Sections 241 and 245 of the General
Corporation Law of the State of Delaware (as from time to time in effect, the
"GCL").
ARTICLE 1.
NAME
The name of the corporation is North Atlantic Trading
Acquisition Company, Inc. (the "Corporation").
ARTICLE 2.
REGISTERED OFFICE
The address of the registered office of the Corporation in
the State of Delaware is 1209 Orange Street, City of Wilmington, County of New
Castle, State of Delaware 19801. The name of the registered agent of the
Corporation in the State of Delaware at such address is The Corporation Trust
Company.
<PAGE>
ARTICLE 3.
PURPOSES
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 Delaware.
ARTICLE 4.
CAPITAL STOCK
4.1 Total Authorization. The Corporation shall have authority
to issue Thirteen Million Five Hundred Thousand (13,500,000) shares of capital
stock which shall be divided into classes of voting common stock, non-voting
common stock and preferred stock as follows:
(a) Seven Hundred Fifty Thousand (750,000) shares of voting
common stock, par value $.01 per share ("Voting Common Stock").
(b) Seven Hundred Fifty Thousand (750,000) shares of
non-voting common stock, par value $.01 per share ("Non-Voting Common Stock";
and together with the Voting Common Stock, the "Common Stock").
(c) Twelve Million (12,000,000) shares of preferred stock,
par value $.01 per share ("Preferred Stock").
4.2 General Provisions. Except as otherwise required by law,
and except as provided in this Article 4 as to (i) the voting powers and (ii)
certain rights of conversion and the qualifications or restrictions thereof,
all shares of each class of Common Stock shall be of equal rank and shall be
identical in all respects. Except as otherwise provided by law, the shares of
stock of the Corporation, regardless of class, may be issued by the Corporation
from time to time in such amounts, for such consideration and for such
corporate purposes as the Board of Directors may from time to time determine.
4.3 Voting Powers.
4.3.1 General. Subject to the provisions of applicable law or
of the By-laws with respect to the closing of the transfer books or the fixing
of a record date for the determination of stockholders entitled to vote, and
except as otherwise provided by law or by the resolution or resolutions
providing for the issue of any
2
<PAGE>
series of Preferred Stock, the holders of outstanding shares of Voting Common
Stock shall exclusively possess the voting power for the election of directors
and for all other purposes, each holder of record of shares of Voting Common
Stock being entitled to one vote for each share of Voting Common Stock standing
in his name on the books of the Corporation.
4.3.2 Non-Voting Common Stock. The holders of Non-Voting
Common Stock shall not have or be entitled to any voting rights or powers,
either general or special, except as required by law.
4.3.3 Increase in Common Stock. The authorized number of
shares of any class of Common Stock may be increased or decreased (but not
below the number of shares then outstanding) upon the affirmative vote of the
holders of a majority in voting power of the outstanding Voting Common Stock
entitled to vote (irrespective of the provisions of Section 242(b)(2) of the
GCL (or any successor provision thereto)) without the necessity for any
separate class vote thereon by the holders of any class of Common Stock.
4.3.4 Optional Conversion. Subject to and upon compliance
with the provisions of the second paragraph of this Section 4.3.4, shares of
Common Stock may be converted as follows: (i) upon sixty-one (61) days' prior
written notice to the Corporation, any holder of shares of Non-Voting Common
Stock may convert all or any portion of such shares into an equal number of
shares of Voting Common Stock and (ii) upon ten (10) days' prior written notice
to the Corporation, any holder of shares of Voting Common Stock may convert all
or any portion of such shares into an equal number of shares of Non-Voting
Common Stock (each such conversion pursuant to clause (i) or (ii) above being
referred to as, an "Optional Conversion).
Each Optional Conversion shall be effected by the surrender
of the certificate or certificates representing the shares to be converted
("Surrendered Shares") at the principal office of the Corporation (or such
other office or agency of the Corporation as the Corporation may designate by
written notice to the holders of Surrendered Shares) at any time during its
usual business hours, together with written notice by the holder of such
Surrendered Shares, stating that such holder desires to convert the Surrendered
Shares, and specifying a stated number of the shares represented by such
certificate or certificates as described in clause (i) or (ii) of the preceding
paragraph of this Section 4.3.4 that such holder desires to convert (for
purposes of this Section 4.3.4, such Surrendered Shares being converted are
referred to as, the "Issued Shares"). Such notice shall also state the name or
names (with addresses) and denominations in which the certificate or
certificates for Issued Shares are to be issued and shall include instructions
for the delivery thereof. Promptly after
3
<PAGE>
such surrender, receipt of such written notice and the expiration of the
applicable notice period under clause (i) or (ii) of the preceding paragraph of
this Section, the Corporation will issue and deliver in accordance with the
surrendering holder's instructions the certificate or certificates evidencing
the Issued Shares issuable upon such conversion, and the Corporation will
deliver to the converting holder a certificate (which shall contain such
legends as were set forth on the surrendered certificate or certificates)
representing any shares which were represented by the certificate or
certificates that were delivered to the Corporation in connection with such
conversion, but which were not converted. Such conversion, to the extent
permitted by law, shall be deemed to have been effected as of the close of
business on the date on which such certificate or certificates shall have been
surrendered and such notice shall have been received by the Corporation, and at
such time the rights of the holder of the Surrendered Shares as such holder
shall cease and the person or persons in whose name or names the certificate or
certificates for the Surrendered Shares are to be issued upon such conversion
shall be deemed to have become the holder or holders of record of the
Surrendered Shares. Upon issuance of shares in accordance with this Section
4.3.4, such Surrendered Shares shall be duly authorized, validly issued, fully
paid and non-assessable.
4.3.5 Reservation of Shares. The Corporation shall at all
times reserve and keep available out of its authorized but unissued shares of
Voting Common Stock and Non-Voting Common Stock, solely for the purpose of
issuance upon the conversion or re-conversion of shares of Voting Common Stock
and NonVoting Common Stock, such number of shares of such class as are then
issuable upon the conversion of all outstanding shares of Voting Common Stock
and Non-Voting Common Stock.
4.3.6 Stock Splits; Adjustments. If the Corporation shall in
any manner subdivide (by stock split, stock dividend or otherwise) or combine
(by reverse stock split or otherwise) the outstanding shares of any class of
Common Stock, then the outstanding shares of all other classes of Common Stock
shall be subdivided or combined, as the case may be, to the same extent, share
and share alike, and effective provision shall be made for the protection of
the conversion rights hereunder.
In case of any reorganization, reclassification or change of
shares of any class of Common Stock (other than a change in par value or from
par to no par value as a result of a subdivision or combination), or in case of
any consolidation of the Corporation with one or more corporations or a merger
of the Corporation with another corporation (other than a consolidation or
merger in which the Corporation is the resulting or surviving corporation and
which does not result in any reclassification or change of outstanding shares
of any class of Common Stock), each holder of any
4
<PAGE>
shares of any class of Common Stock shall have the right at any time
thereafter, to convert such shares into the kind and amount of shares of stock
and other securities and properties (including cash) receivable upon such
reorganization, reclassification, change, consolidation or merger by a holder
of the number of shares of any class of Common Stock, as the case may be, which
might otherwise have been converted immediately prior to such reorganization,
reclassification, change consolidation or merger.
4.3.7 No Charge. The issuance of a certificate for shares of
any class of Common Stock upon conversion of shares of any other class of
Common Stock shall be made without charge to the holders of such shares for any
issuance tax in respect thereof or other cost incurred by the Corporation in
connection with such conversion and the related issuance of shares of Common
Stock; provided, however, that the Corporation shall not be required to pay any
tax which may be payable in respect of any transfer involved in the issuance
and delivery to the holder of the Common Stock converted.
4.4 Preferred Stock. Shares of Preferred Stock may be issued
from time to time in one or more series of any number of shares as may be
determined from time to time by the Board of Directors, provided that the
aggregate number of shares issued and not cancelled of any and all such series
shall not exceed the total number of shares of Preferred Stock authorized by
this Certificate of Incorporation.
Each series of Preferred Stock shall be distinctly
designated. Except in respect of the particulars fixed for series by the Board
of Directors as permitted hereby, all shares shall be alike in every
particular, except that shares of any one series issued at different times may
differ as to the dates from which dividends thereon shall be cumulative. The
voting powers, if any, of each such series and the preferences and relative,
participating, optional and other special rights of each such series and the
qualifications, limitations and restrictions thereof, if any, may differ from
those of any and all other series at any time outstanding; and the Board of
Directors is hereby expressly granted authority to fix, in the resolution or
resolutions providing for the issue of a particular series of Preferred Stock,
the voting powers, if any, of each such series and the designations,
preferences and relative, participating, optional and other special rights of
each such series and the qualifications, limitations and restrictions thereof
to the full extent now or hereafter permitted by this Certificate of
Incorporation and the laws of the State of Delaware.
5
<PAGE>
ARTICLE 5.
INDEMNIFICATION
5.1 Director's Liability. A director of the Corporation shall
not be personally liable either to the Corporation or to any stockholder for
monetary damages for breach of fiduciary duty as a director, except (i) for any
breach of the director's duty of loyalty to the Corporation or its
stockholders, or (ii) for acts or omissions which are not in good faith or
which involve intentional misconduct or knowing violation of the law, or (iii)
for any matter in respect of which such director shall be liable under Section
174 of Title 8 of the General Corporation Law of the State of Delaware or any
amendment thereto or successor provision thereto, or (iv) for any transaction
from which the director shall have derived an improper personal benefit.
Neither amendment nor repeal of this Section 5.1 nor the adoption of any
provision of the Certificate of Incorporation inconsistent with this Section
5.1 shall eliminate or reduce the effect of this Section 5.1 in respect of any
matter occurring, or any cause of action, suit or claim that, but for this
Section 5.1, would accrue or arise, prior to such amendment, repeal or adoption
of an inconsistent provision.
5.2 Corporation's Power to Indemnify. The Corporation shall
have the power to indemnify any person who was or is a party or is threatened
to be made a party to, or testifies in, any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative in nature, 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, employee benefit plan, trust
or other enterprise, against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by such
person in connection with such action, suit or proceeding to the full extent
permitted by law, and the Corporation may adopt By-laws or enter into
agreements with any such person for the purpose of providing for such
indemnification.
IN WITNESS WHEREOF, the undersigned has duly executed this
Restated Certificate of Incorporation on this 25th day of June, 1997 and
affirms, under the penalties of perjuries, that the statements herein are true
and correct.
By: /s/ Thomas F. Helms, Jr.
--------------------------------
Thomas F. Helms, Jr.
President of North Atlantic
Trading Acquisition Company, Inc.
6
<PAGE>
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
NORTH ATLANTIC TRADING ACQUISITION COMPANY, INC.
THE UNDERSIGNED, being President of North Atlantic Trading Acquisition
Company, Inc. (the "Corporation"), hereby certifies that:
FIRST: The name of the Corporation is North Atlantic Trading Acquisition
Company, Inc.
SECOND: The Certificate of Incorporation of the Corporation was filed with
the Secretary of State of the State of Delaware on May[nb]19, 1997.
THIRD: Article First of said Certificate of Incorporation is hereby deleted
in its entirety and replaced with the following:
"FIRST: The name of the Corporation is North Atlantic Trading Company, Inc.
(the "Corporation")."
FOURTH: The foregoing amendment herein certified has been duly adopted in
accordance with the provisions of Section 241 of the General Corporation Law
of the State of Delaware.
IN WITNESS WHEREOF, Thomas F. Helms, Jr., President, has duly executed this
Certificate of Amendment this 25th day of June, 1997 and affirms, under the
penalties of perjury, that the statements herein are true.
/s/ Thomas F. Helms, Jr.
------------------------
Thomas F. Helms, Jr.
President
<PAGE>
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
NORTH ATLANTIC TRADING COMPANY, INC.
This Certificate of Amendment to the Certificate of Incorporation of North
Atlantic Trading Company, Inc. (the "Corporation") was duly adopted by the Board
of Directors and by written consent of a majority of stockholders of the
Corporation in accordance with the provisions of Sections 242 and 228 of the
General Corporation Law of the State of Delaware.
THE UNDERSIGNED, being President of the Corporation, hereby certifies that:
FIRST: The name of the Corporation is North Atlantic Trading Company, Inc.
SECOND: The Certificate of Incorporation of the Corporation was filed with
the Secretary of State of the State of Delaware on May 19, 1997.
THIRD: Section 4.1 of said Certificate of Incorporation is hereby deleted
in its entirety and replaced with the following:
"4.1 Total Authorization. The Corporation shall have authority to issue
Nineteen Million Five Hundred Thousand (19,500,000) shares of capital stock
which shall be divided into classes of voting common stock, non-voting common
stock and preferred stock as follows:
(a) Seven Hundred Fifty Thousand (750,000) shares of voting common stock,
par value $.O1 per share ("Voting Common Stock").
(b) Seven Hundred Fifty Thousand (750,000) shares of non-voting common
stock, par value $.0l per share ("Non-Voting Common Stock"; and together with
the Voting Common Stock, the "Common Stock").
(c) Twelve Million (12,000,000) shares of preferred stock, par value $.01
per share ("Non-Exchange Preferred Stock").
<PAGE>
(d) Six Million (6,000,000) shares of preferred stock, par value $.01 per
share ("Exchange Preferred Stock"; and together with Non-Exchange Preferred
Stock, the "Preferred Stock").
FOURTH: The foregoing amendment herein certified has been duly adopted by
written consent in accordance with the provisions of Sections 228 and 242 of the
General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, Thomas F. Helms, Jr., President, has duly executed this
Certificate of Amendment this 14th day of July, 1997 and affirms, under the
penalties of perjury, that the statements herein are true and correct.
/s/ Thomas F. Helms, Jr.
-------------------------
Thomas F. Helms, Jr.
President
2
<PAGE>
CERTIFICATE OF INCORPORATION
OF
North Atlantic
Finance Acquisition Company, Inc.
THE UNDERSIGNED, being a natural person for the purpose of
organizing a corporation under the General Corporation Law of the State of
Delaware, hereby certifies that:
FIRST: The name of the Corporation is North Atlantic Finance
Acquisition Company, Inc. (the "Corporation").
SECOND: The address of the registered office of the
Corporation in the State of Delaware is 1013 Centre Road, City of Wilmington,
County of New Castle, State of Delaware. The name of the registered agent of the
Corporation in the State of Delaware at such address is The Corporation Service
Company.
THIRD: The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware, as from time to time amended.
FOURTH: The total number of shares of capital stock which the
Corporation shall have authority to issue is 100, all of which shares shall be
Common Stock having a par value of $0.01.
FIFTH: The name and mailing address of the incorporator are
Dov Goldman, c/o Weil, Gotshal & Manges, 767 Fifth Avenue, New York, New York
10153.
SIXTH: In furtherance and not in limitation of the powers
conferred by law, subject to any limitations contained elsewhere in these
articles of incorporation, by-laws of the Corporation may be adopted, amended or
repealed by a majority of the board of directors of the Corporation, but any
by-laws adopted by the board of directors may be amended or repealed by the
stockholders entitled to vote thereon. Election of directors need not be by
written ballot.
1
<PAGE>
SEVENTH: (a) A director of the Corporation shall not be
personally liable either to the Corporation or to any stockholder for monetary
damages for breach of fiduciary duty as a director, except (i) for any breach of
the director's duty of loyalty to the Corporation or its stockholders, or (ii)
for acts or omissions which are not in good faith or which involve intentional
misconduct or knowing violation of the law, or (iii) for any matter in respect
of which such director shall be liable under Section 174 of Title 8 of the
General Corporation Law of the State of Delaware or any amendment thereto or
successor provision thereto, or (iv) for any transaction from which the director
shall have derived an improper personal benefit. Neither amendment nor repeal of
this paragraph (a) nor the adoption of any provision of the Certificate of
Incorporation inconsistent with this paragraph (a) shall eliminate or reduce the
effect of this paragraph (a) in respect of any matter occurring, or any cause of
action, suit or claim that, but for this paragraph (a) of this Article, would
accrue or arise, prior to such amendment, repeal or adoption of an inconsistent
provision.
(b) The Corporation shall have the power to indemnify any
person who was or is a party or is threatened to be made a party to, or
testifies in, any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative in nature, 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, employee benefit plan, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding to the full extent permitted by law, and the Corporation may
adopt By-laws or enter into agreements with any such person for the purpose of
providing for such indemnification.
IN WITNESS WHEREOF, the undersigned has duly executed this
Certificate of Incorporation on this 9th day of June, 1997.
/s/ Dov Goldman
-----------------
Dov Goldman
Sole Incorporator
2
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 04:00 PM 06/17/1997
971199971 - 2760360
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
NORTH ATLANTIC FINANCE ACQUISITION COMPANY, INC.
THE UNDERSIGNED, being the sole incorporator of North Atlantic Finance
Acquisition Company, Inc. (the "Corporation"), hereby certifies that:
FIRST: The name of the Corporation is North Atlantic Finance Acquisition
Company, Inc.
SECOND: The Certificate of Incorporation of the Corporation was filed with
the Secretary of State of the State of Delaware on June 9, 1997.
THIRD: Article First of said Certificate of Incorporation is hereby deleted
in its entirety and replaced with the following:
"FIRST: The name of the Corporation is North Atlantic Operating Company,
Inc. (the "Corporation")."
FOURTH: The Corporation has not received any payment for any of its stock
and the foregoing amendment herein certified has been duly adopted in accordance
with the provisions of Section 241 of the General Corporation Law of the State
of Delaware.
IN WITNESS WHEREOF, the undersigned has duly executed this Certificate of
Amendment this 17th day of June, 1997 and does hereby affirm, under the
penalties of perjury, that the statements contained herein have been examined by
him and are true and correct.
/s/ Dov Goldman
------------------------
Dov Goldman
Sole Incorporator
<PAGE>
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
NATIONAL TOBACCO FINANCE CORPORATION
National Tobacco Finance Corporation, a corporation organized and
existing under the laws of the State of Delaware, hereby certifies as follows:
1. The name of the corporation is National Tobacco Finance Corporation.
National Tobacco Finance Corporation was originally incorporated under the same
name, and the original Certificate of Incorporation of the corporation was filed
with the Secretary of State of the State of Delaware on October 25, 1995, and
the Amended and Restated Certificate of Incorporation was filed with the
Secretary of State of the State of Delaware on November 3, 1995.
2. Pursuant to Sections 242 and 245 of the General Corporation Law of
the State of Delaware, this Amended and Restated Certificate of Incorporation
restates and amends the provisions of the Certificate of Incorporation of this
corporation.
3. The text of the Certificate of Incorporation is hereby restated and
amended to read in its entirety as follows:
ARTICLE I
Name
The name of the corporation is National Tobacco Finance Corporation
(the "Corporation").
ARTICLE II
Registered Office and Registered Agent
The address of the registered office of the Corporation in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle
County, Delaware 19801. The name of the registered agent of the Corporation at
such address is The Corporation Trust Company.
ARTICLE III
Corporate Purpose
The nature of the business or purposes to be conducted or promoted by
the Corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of Delaware.
1
<PAGE>
ARTICLE IV
Capital Stock
The total number of shares of all classes of stock that the Corporation
shall have authority to issue is 100 shares, all of which shall be shares of
Common Stock, par value $.01 per share.
ARTICLE V
Directors
1. The number of directors of the corporation may be fixed by the
by-laws. The number of directors constituting the initial Board of Directors
shall be one (1), and the name and address of the person who is to serves as the
sole director until the first meeting of the shareholders, or until his
successor is elected and qualified is:
Name Address
Thomas F. Helms, Jr. 444 Park Avenue South
New York, NY 10016
2. Elections of directors of the Corporation need not be by
written ballot, except and to the extent provided in the By-laws of the
Corporation.
3. To the fullest extent permitted by the General Corporation Law as it
now exists and as it may hereafter be amended, no director of the Corporation
shall be personally liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director.
ARTICLE VI
By-laws
The directors of the Corporation shall have the power to adopt, amend
or repeal by-laws.
ARTICLE VII
Amendment
The Corporation reserves the right to amend, alter, change or repeal
any provision of this Certificate of Incorporation, in the manner now or
hereafter prescribed by law, and all rights conferred on stockholders in this
Certificate of Incorporation are subject to this reservation.
2
<PAGE>
ARTICLE VIII
Incorporator
The name and mailing address of the sole incorporator is as follows:
Name Mailing Address
---- ---------------
Jeffrey S. Hay NationsBank Corporate Center
100 North Tryon St.
Suite 2900
Charlotte, NC 28202-4011
IN WITNESS WHEREOF, this Amended and Restated Certificate of
Incorporation has been signed under the seal of the corporation this ____ day of
April, 1996.
NATIONAL TOBACCO FINANCE CORPORATION
By: /s/ Thomas F. Helms, Jr.
-------------------------
Thomas F. Helms, Jr.
President
ATTEST:
3
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF LIMITED PARTNERSHIP
OF
NATIONAL TOBACCO COMPANY, L.P.
THIS Amended and Restated Certificate of Limited Partnership of
National Tobacco Company, L.P. ("Partnership"), dated as of May 17, 1996, has
been duly executed and is being filed by the undersigned in accordance with the
provisions of 6 Del. C. ss.17-210, to amend and restate the original
Certificate of Limited Partnership of the Partnership, which was filed on
January 17, 1988, with the Secretary of State of the State (the "Certificate"),
to form a limited partnership under the Delaware Revised Uniform Limited
Partnership Act (6 Del. C. ss.17-101, et seq.).
The Certificate is hereby amended and restated in its entirety to read
as follows:
1. Name. The name of the limited partnership formed and continued
hereby is National Tobacco Company, L.P.
2. Registered Office. The address of the registered office of the
Partnership in the State of Delaware is c/o The Corporation Trust Company,
Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County,
Delaware 19801.
3. Registered Agent. The name and address of the registered agent for
service of process on the Partnership in the State of Delaware is The
Corporation Trust Company, Corporation Trust Center, 1209 Orange Street,
Wilmington, New Castle County, Delaware 19801.
4. General Partner. The name and the business address of the sole
general partner of the Partnership is: National Tobacco Finance Corporation,
444 Park Avenue South, New York, New York 10016.
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Amended and
Restated Certificate of Limited Partnership.
NATIONAL TOBACCO FINANCE
CORPORATION
By: /s/ /Thomas F. Helms, Jr.
------------------------------
Thomas F. Helms, Jr.
President/Authorized Person
- 2 -
<PAGE>
- -------------------------------------------------------------------------------
THIRD AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP
OF
NATIONAL TOBACCO COMPANY, L.P.
dated May 17, 1996
- -------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Article Section Page
- ------- ------- ----
<S> <C> <C>
ARTICLE I ORGANIZATIONAL MATTERS..................................................................... 1
1.1 Continuation.................................................................. 1
1.2 Name.......................................................................... 1
1.3 Character of Business......................................................... 2
1.4 Principal Place of Business................................................... 2
1.5 Registered Office and Agent................................................... 2
1.6 Fiscal Year................................................................... 2
ARTICLE II CAPITAL CONTRIBUTIONS, WITHDRAWALS AND
CAPITAL ACCOUNTS........................................................................... 2
2.1 Capital Contributions to the Partnership...................................... 2
2.2 No Return of Capital Contributions............................................ 3
2.3 No Interest................................................................... 3
2.4 Capital Accounts.............................................................. 3
ARTICLE III RIGHTS AND OBLIGATIONS OF THE PARTNERS..................................................... 3
3.1 Management of Partnership..................................................... 3
3.2 Limitations on General Partner's Authority.................................... 3
3.3 Liability of Partners......................................................... 4
3.4 Other Activities of the Partner............................................... 4
3.5 Authorization................................................................. 4
ARTICLE IV EXCULPATION AND INDEMNITY.................................................................. 5
4.1 Exculpation................................................................... 5
4.2 Indemnity..................................................................... 5
ARTICLE V DISTRIBUTIONS AND ALLOCATIONS.............................................................. 6
5.1 Distributions................................................................. 6
5.2 Tax Advances.................................................................. 6
5.3 Allocations................................................................... 6
ARTICLE VI TRANSFERS OF PARTNERSHIP INTEREST.......................................................... 7
6.1 Transfers of Partnership Interest............................................. 7
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Article Section Page
- ------- ------- ----
<S> <C> <C>
ARTICLE VII GENERAL ACCOUNTING PROVISIONS AND REPORTS.................................................. 8
7.1 Books of Account; Tax Returns................................................. 8
7.2 Place Kept; Inspection........................................................ 8
7.3 Tax Matters Partner........................................................... 8
ARTICLE VIII AMENDMENTS AND WAIVERS..................................................................... 8
ARTICLE IX DISSOLUTION AND TERMINATION................................................................ 9
9.1 Dissolution................................................................... 9
9.2 Accounting on Dissolution..................................................... 9
9.3 Termination................................................................... 10
9.4 No Negative Capital Account Obligation........................................ 10
ARTICLE X MISCELLANEOUS.............................................................................. 10
10.1 Waiver of Partition........................................................... 10
10.2 Entire Agreement.............................................................. 10
10.3 Severability.................................................................. 10
10.4 Notices....................................................................... 11
10.5 Governing Laws................................................................ 11
10.6 Successors and Assigns........................................................ 11
10.7 Counterparts.................................................................. 11
10.8 Headings...................................................................... 11
10.9 Other Terms................................................................... 11
</TABLE>
ii
<PAGE>
National Tobacco Company, L.P.
Third Amended and Restated Agreement of Limited Partnership
This Third Amended and Restated Agreement of Limited Partnership (this
"Agreement") of National Tobacco Company, L.P., a Delaware limited partnership
(the "Partnership"), is made among National Tobacco Finance Corporation, a
Delaware corporation, as the sole general partner (the "General Partner"), and
NTC Holding, LLC, a Delaware limited liability company, as the sole limited
partner (the "Limited Partner"). The General Partner and the Limited Partner are
herein collectively referred to as the "Partners."
PREMISES:
The Partnership was formed by the filing of a certificate of limited
partnership on January 26, 1988 and, prior to the date hereof, was governed by
the Delaware Revised Uniform Limited Partnership Act, as from time to time
amended (the "Delaware Act"), and the provisions of that certain Amended and
Restated Agreement of Limited Partnership of National Tobacco Company, L.P.
dated April 26, 1988, as amended and restated on March 4, 1992 and April 14,
1992, and amended on May 17, 1996 (as amended, the "Prior Agreement"). The
General Partner and the Limited Partner now desire to amend and restate the
Prior Agreement in its entirety as follows.
ARTICLE I
ORGANIZATIONAL MATTERS
1.1 Continuation. The General Partner and the Limited Partner hereby
continue the Partnership without dissolution as a limited partnership pursuant
to the provisions of this Agreement and the Delaware Act, and the rights and
obligations of the Partners and the administration and termination of the
Partnership shall be governed by this Agreement and the Delaware Act. The
General Partner and Limited Partner have been admitted as general partner of the
Partnership and limited partner of the Partnership respectively, immediately
prior to the withdrawal of the partners of the Partnership under the Prior
Agreement.
1.2 Name. The name of the Partnership is National Tobacco
Company, L.P. The General Partner may change the name of the Partnership and may
cause the
1
<PAGE>
Partnership to adopt or use trade or fictitious names appropriate to the
accomplishment of its business purpose.
1.3 Character of Business. The purposes of the Partnership shall be (i)
to operate the business of National Tobacco Company, L.P., and (ii) to engage or
participate in any other lawful business activities (as determined by the
General Partner) in which limited partnerships formed in the State of Delaware
may engage or participate.
1.4 Principal Place of Business. The principal place of business of the
Partnership shall be located at 444 Park Avenue South, New York, New York 10016.
The General Partner may from time to time change the principal place of business
of the Partnership. In addition, in its discretion, the General Partner may
establish additional places of business for the Partnership.
1.5 Registered Office and Agent.
(a) The name of the registered agent of the Partnership in the
State of Delaware upon whom process may be served is The Corporation Trust
Company, whose address is Corporation Trust Center, 1209 Orange Street,
Wilmington, Delaware 19801.
(b) The address of the registered office of the Partnership in
the State of Delaware is Corporation Trust Center, 1209 Orange Street,
Wilmington, Delaware 19801.
1.6 Fiscal Year. The fiscal year of the Partnership shall end on
December 31 of each calendar year unless, for United States federal income tax
purposes, another fiscal year is elected. The Partnership shall have the same
fiscal year for United States federal income tax purposes and for accounting
purposes.
ARTICLE II
CAPITAL CONTRIBUTIONS, WITHDRAWALS AND CAPITAL ACCOUNTS
2.1 Capital Contributions to the Partnership. The Partners shall
make capital contributions to the Partnership in the amounts set forth on
Schedule I to this Agreement. Such capital contributions shall be made from time
to time as the General Partner and the Limited Partner may approve for any other
purpose. The General
2
<PAGE>
Partner shall contribute an amount of capital to the Partnership and shall from
time to time make additional capital contributions to the extent required to
cause its aggregate capital contributions to equal at least one percent (1%) of
the aggregate capital contributions of all Partners. The foregoing capital
contribution commitments of the Partners are solely for the benefit of the
Partners, as among themselves, and to the fullest extent permitted by law may
not be enforced by any creditor, receiver or trustee of the Partnership or by
any other person.
2.2 No Return of Capital Contributions. No Partner is entitled to
a withdrawal or return of its capital contributions. Instead, each Partner shall
look solely to distributions from the Partnership for such purpose.
2.3 No Interest. No Partner shall be entitled to interest on its
capital contributions, and any interest actually received by reason of
investment of any part of the Partnership's funds shall be included in the
Partnership's property.
2.4 Capital Accounts. The Partnership shall maintain for each Partner a
separate capital account (a "Capital Account") in accordance with Section 704(b)
of the Internal Revenue Code of 1986, as amended (the "Code"), and Section
1.704-1(b) of the regulations promulgated by the United States Department of
Treasury with respect to the Code (the "Regulations").
ARTICLE III
RIGHTS AND OBLIGATIONS OF THE PARTNERS
3.1 Management of Partnership. The management, control and direction of
the Partnership and its operations, business and affairs shall be vested
exclusively in the General Partner, which shall have the right, power and
authority, acting solely by itself and without the necessity of approval by the
Limited Partner or any other person, to carry out any and all the purposes of
the Partnership and to perform or refrain from performing any and all acts that
the General Partner may deem necessary, desirable, appropriate or incidental
thereto, subject only to the limitations contained in the Act and such further
limitations as are expressly stated in this Agreement.
3.2 Limitations on General Partner's Authority. Notwithstanding
the grant of authority to the General Partner pursuant to Section 3.1, none of
the following actions shall be approved by the General Partner or any officer of
the Partnership, without first
3
<PAGE>
having obtained the prior written consent of the Limited Partner, pursuant to
the terms of the Operating Agreement of the Limited Partner thereof:
(a) Mergers or consolidations involving the Partnership,
whether or not the Partnership is the surviving entity;
(b) Sale of all or substantially all of the assets of the
Partnership (whether effected by sale of assets, equity exchange or otherwise);
(c) Subject to Section 17-802 of the Act, dissolution of
the Partnership; or
(d) Admit a new partner under Section 6.1.
Except as specifically set forth in this Section 3.2, the Limited Partner shall
not participate in the management, control or direction of the Partnership's
operations, business or affairs, transact any business for the Partnership, or
have the power to act for or on behalf of or to bind the Partnership, such
powers being vested solely and exclusively in the General Partner.
3.3 Liability of Partners. The General Partner shall be personally
liable for the debts and obligations of the Partnership if (but solely to the
extent) required by applicable law; provided, however, that all such debts and
obligations shall be paid or discharged first with the property of the
Partnership (including insurance proceeds) before the General Partner shall be
obligated to pay or discharge any such debt or obligation with its personal
assets. Notwithstanding the preceding sentence, the General Partner shall not be
personally liable for any debts or obligations which are nonrecourse or which,
under the terms thereof, do not create or impose such liability. Except as
otherwise required by law, the Limited Partner shall not be personally liable
for any of the debts or obligations of the Partnership.
3.4 Other Activities of the Partner. Neither this Agreement nor any
principle of law or equity shall preclude or limit, in any respect, the right of
any Partner or any affiliate thereof to engage in or derive profit or
compensation from any activities or investments, nor give any other Partner any
right to participate or share in such activities or investments or any profit or
compensation derived therefrom.
3.5 Authorization. The Partnership, and the General Partner on
behalf of the Partnership, may enter into and perform the Loan Documents (as
defined in the
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Operating Agreement of the Limited Partner (the "Operating Agreement")) and the
Operating Agreement of the Limited Partner the agreements relating thereto or in
connection therewith without any further act, vote or approval of any partner of
the Partnership notwithstanding any other provision of this Agreement, the
Delaware Act or other applicable law, rule or regulation. The General Partner is
hereby authorized to enter into the agreements described in the preceding
sentence on behalf of the Partnership, but such authorization shall not be
deemed a restriction on the power of the General Partner to enter into other
agreements on behalf of the Partnership.
ARTICLE IV
EXCULPATION AND INDEMNITY
4.1 Exculpation. Neither the General Partner nor any affiliate of the
General Partner, nor any officer, director, employee, agent, stockholder or
partner of the General Partner or any of its affiliates, shall be liable,
responsible or accountable in damages or otherwise to the Partnership or any
Partner by reason of, or arising from, the operations, business or affairs of,
or any action taken or failure to act on behalf of, the Partnership, except to
the extent that any of the foregoing is determined, by a final, nonappealable
order of a court of competent jurisdiction, to have been primarily caused by the
gross negligence, willful misconduct or bad faith of the person claiming
exculpation.
4.2 Indemnity. The Partnership shall indemnify the General Partner,
each affiliate of the General Partner, and each officer, director, stockholder,
partner, manager, member, employee or agent of the General Partner or any of its
affiliates, against any claim, loss, damage, liability or expense (including
attorneys' fees, court costs and costs of investigation and appeal) suffered or
incurred by any such indemnitee by reason of, or arising from, the operations,
business or affairs of, or any action taken or failure to act on behalf of, the
Partnership, except to the extent any of the foregoing is determined by a final,
nonapplicable order of a court of competent jurisdiction to have been primarily
caused by the gross negligence, willful misconduct or bad faith of the person
claiming indemnification. Unless a determination has been made (by a final,
nonappealable order of a court of competent jurisdiction) that indemnification
is not required, the Partnership shall, upon the request of any indemnitee,
advance or promptly reimburse such indemnitee's costs of investigation,
litigation or appeal, including reasonable attorneys' fees; provided, however,
that the affected indemnitee shall, as a condition of such indemnitee's right to
receive such advances and reimbursements, undertake in writing to repay promptly
the Partnership for all such
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advancements or reimbursements if a court of competent jurisdiction determines
that such indemnitee is not entitled to indemnification under this Section 4.2.
ARTICLE V
DISTRIBUTIONS AND ALLOCATIONS
5.1 Distributions. Subject to Section 5.2 and the restrictions imposed
by the Credit Agreement dated as of May 17, 1996 (the "Credit Agreement") among
the Partnership, the lenders named therein and Societe Generale, as the same may
be amended, supplemented or otherwise modified from time to time (and all
agreements and instruments entered into or issued pursuant to such agreement and
any agreement relating to the renewal, extension, refunding, restructuring,
replacement or refinancing thereof) (the "Loan Documents"), distributions of the
Partnership shall be made only upon the approval of the General Partner acting
in its sole discretion, to the Partners in proportion to their partnership
percentage interests as set forth on Schedule I to this Agreement ("Percentage
Interests"). Notwithstanding anything to the contrary herein provided, no
distribution hereunder shall be permitted to the extent prohibited by law.
5.2 Tax Advances. After the close of each fiscal quarter, the General
Partner shall, to the extent of available cash, distribute cash to the Partners
in proportion to and to the extent of their respective Tax Distributions (as
defined in the Operating Agreement of the Limited Partner) which, in the case of
the Limited Partner, such amount shall be equal to the aggregate Tax
Distributions of all the members of the Limited Partner; provided, however, that
distributions under this Section 5.2 shall be treated as advance distributions
under Section 5.1, with the result that distributions otherwise made under
Section 5.1 to the Partners shall be reduced by the amount of advances made
pursuant to this Section 5.2.
5.3 Allocations.
(a) Except as otherwise provided in this Section 5.3, for
purposes of computing Partners' Capital Accounts and for United States federal
income tax purposes, items of Partnership income, gain, loss, deduction and
credit for each fiscal year of the Partnership shall be allocated among the
Partners in proportion to their Percentage Interests.
(b) It is the intent of the Partners that the Partners'
Capital Accounts be maintained in accordance with the provisions of Section
704(b) of the Code and the
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Regulations thereunder and that items of Partnership income, gain, loss,
deduction and credit for each fiscal year of the Partnership be allocated among
the Partners in compliance with such provisions. Accordingly, there are hereby
included in this Agreement such provisions governing the allocation of items of
Partnership income, gain, loss, deduction and credit as may be necessary to
provide that the Partnership's allocation provisions (i) contain a "qualified
income offset" within the meaning of Section 1.704-l(b)(2)(ii)(d) of the
Regulations, and (ii) comply with all provisions relating to the allocation of
"nonrecourse deductions", "partner nonrecourse deductions" and "minimum gain
chargeback", as such terms are defined in Section 1.704-2 of the Regulations.
The General Partner shall direct the Partnership's accountants to make all
necessary adjustments in each Partner's Capital Account as required by this
Section 5.3 and the rules of Section 704(b) of the Code and the Regulations
thereunder.
(c) Solely for tax purposes, in determining each Partner's
allocable share of the taxable income or loss of the Partnership, depreciation,
depletion, amortization and gain or loss with respect to any property
contributed to the capital of the Partnership, or with respect to Partnership
property which is revalued pursuant to Section 1.704-1(b)(2)(iv)(f) of the
Regulations, shall be allocated among the Partners so as to take account of any
variation between the adjusted basis of such property to the Partnership for
federal income tax purposes and the fair market value of such property on the
date of contribution or revaluation in the manner provided under Section 704(c)
of the Code and Section 1.704-3 of the Regulations.
ARTICLE VI
TRANSFERS OF PARTNERSHIP INTEREST
6.1 Transfers of Partnership Interest.
(a) Except for the pledge of the partnership interests as
contemplated in the Credit Agreement or the Pledge Agreements (as defined in the
Credit Agreement) (including without limitation, the remedies thereunder), no
Partner may sell, assign, give, transfer or otherwise dispose of (hereinafter
"Transfer") any or all of its partnership interest as a General Partner or
Limited Partner ("Interest"), in whole or in part, to any other person or
entity. Any attempted Transfer in violation of the preceding sentence shall be
null and void ab initio and of no force and effect. Any purported Transfer shall
not be enforceable against the Partnership or its Partners and the purported
transferee shall not become a substitute or additional Partner of the
Partnership.
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(b) Except for the pledge of the partnership interests as
contemplated in the Credit Agreement or the Pledge Agreement (including without
limitation, the remedies thereunder), no Person that is not a Partner of the
Partnership as of the date hereof shall be admitted as a Partner of the
Partnership, or have any other rights of a Partner under the Delaware Act or
this Agreement.
ARTICLE VII
GENERAL ACCOUNTING PROVISIONS AND REPORTS
7.1 Books of Account; Tax Returns. The General Partner shall prepare
and file all United States federal, state and local income and other tax returns
required to be filed by the Partnership and shall keep or cause to be kept
complete and appropriate records and books of account in which shall be entered
all such transactions and other matters relative to the Partnership's
operations, business and affairs as are usually entered into records and books
of account that are maintained by persons engaged in business of like character
or are required by the Delaware Act. Except as otherwise expressly provided
herein, such books and records shall be maintained in accordance with the basis
utilized in preparing the Partnership's United States federal income tax
returns, which returns, if allowed by applicable law, may in the discretion of
the General Partner be prepared on either a cash basis or accrual basis.
7.2 Place Kept; Inspection. The books and records shall be maintained
at the principal place of business of the Partnership, and all such books and
records shall be available for inspection and copying at the reasonable request,
and at the expense, of any Partner during the ordinary business hours of the
Partnership.
7.3 Tax Matters Partner. The General Partner shall be the tax matters
Partner of the Partnership and, in such capacity, shall exercise all rights
conferred, and perform all duties imposed, upon a tax matters partner under
Sections 6221 through 6233 of the Code, and the regulations promulgated
thereunder.
ARTICLE VIII
AMENDMENTS AND WAIVERS
This Agreement may be modified or amended, or any provision hereof
waived, only with the written consent of the General Partner and the Limited
Partner, provided, however, that this Agreement shall be amended by deleting
clause (e) of Section 9.1 as
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of the date that Societe Generale, as agent under the Credit Agreement, delivers
to the General Partner an opinion of independent counsel, which opinion shall be
reasonably acceptable to independent counsel to the General Partner, that such
deletion will not affect the characterization of the Partnership as a
partnership for federal income tax purposes.
ARTICLE IX
DISSOLUTION AND TERMINATION
9.1 Dissolution. The Partnership shall be dissolved and its
affairs wound up upon the first to occur of the following events:
(a) the election of the General Partner to dissolve the
Partnership at any time with the consent of the Limited Partner;
(b) the sale, transfer or other disposition of
substantially all of the assets of the Partnership or the merger or
consolidation of the Partnership with or into any other entity;
(c) the bankruptcy or the dissolution of the General Partner
unless within ninety (90) days after such event, all the remaining Partners
consent in writing to continue the business of the Partnership and to the
appointment effective as of the date of such event of one or more additional
general partners of the Partnership.
(d) the entry of a decree of judicial dissolution
pursuant to Section 17-802 of the Delaware Act; or
(e) the effectiveness of a Transfer of an Interest to the
Lenders pursuant to an exercise of remedies under the Credit Agreement or the
Pledge Agreements unless within ninety (90) days after the effectiveness of such
Transfer not less than a majority in interest of the Partners (including the
Lenders as transferees of such Interest) consent in writing to continue the
business of the Partnership.
9.2 Accounting on Dissolution. Following the dissolution of the
Partnership pursuant to Section 9.1 of this Agreement, the books of the
Partnership shall be closed, and a proper accounting of the Partnership's
assets, liabilities and operations shall be made by the General Partner, all as
of the most recent practicable date.
9
9.3 Termination. As expeditiously as practicable, but in no event later
than one year after the dissolution of the Partnership pursuant to Section 9.1
of this Agreement, the General Partner shall cause the Partnership to pay (or
make reasonable provision for the payment) of all liabilities of the Partnership
and (i) establish a reserve fund (which may be in the form of cash or other
property, as the General Partner shall determine) for any and all other
liabilities, including contingent, conditional or unmatured liabilities, of the
Partnership in an amount determined by the General Partner to be appropriate for
such purposes or (ii) otherwise make adequate provision for such other
liabilities. To the extent that cash required for the foregoing purposes is not
otherwise available, the General Partner may sell property, if any, of the
Partnership for cash. Thereafter, all remaining cash or other property, if any,
of the Partnership shall be distributed to the Partners in accordance with the
positive balances in their respective Capital Accounts, after giving effect to
all contributions, distributions and allocations for all periods. At the time
final distributions are made in accordance with this Section 9.3, the legal
existence of the Partnership shall cease upon filing a certificate of
cancellation to the certificate of limited partnership.
9.4 No Negative Capital Account Obligation. Notwithstanding any other
provision of this Agreement, in no event shall any Partner who has a negative
Capital Account upon final distribution of all cash and other property of the
Partnership be required to restore such negative account to zero.
ARTICLE X
MISCELLANEOUS
10.1 Waiver of Partition. Each Partner hereby irrevocably waives
any and all rights that it may have to maintain an action for partition of any
of the Partnership's property.
10.2 Entire Agreement. This Agreement constitutes the entire agreement
among the Partners with respect to the subject matter hereof and supersedes any
prior agreement or understanding among them with respect to such subject matter.
10.3 Severability. If any provision of this Agreement, or the
application of such provision to any person or circumstance, shall be held
invalid under the applicable law of any jurisdiction, the remainder of this
Agreement or the application of such provision to other persons or circumstances
or in other jurisdictions shall not be affected thereby. Also, if any provision
of this Agreement is invalid or unenforceable
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under any applicable law, then such provision shall be deemed inoperative to the
extent that it may conflict therewith and shall be deemed modified to conform
with such law. Any provision hereof that may prove invalid or unenforceable
under any law shall not affect the validity or enforceability of any other
provision hereof.
10.4 Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
sent by overnight courier, hand delivered, mailed (first class registered mail
or certified mail, postage prepaid), or sent by telex or telecopy if to the
Partners, at the addresses or telex or facsimile numbers set forth on Schedule I
hereto, and if to the Partnership, at the address of its principal place of
business referred to in Section 1.4 of this Agreement, or to such other address
as the Partnership or any Partner shall have last designated by notice to the
Partnership and all other parties hereto in accordance with this Section 10.4.
Notices sent by hand delivery shall be deemed to have been given when received;
notices mailed in accordance with the foregoing shall be deemed to have been
given three days following the date so mailed; notices sent by telex or telecopy
shall be deemed to have been given when electronically confirmed; and notices
sent by overnight courier shall be deemed to have been given on the next
business day following the date so sent.
10.5 Governing Laws. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Delaware
(without regard to principles of conflicts of laws).
10.6 Successors and Assigns. Except as otherwise specifically provided,
this Agreement shall be binding upon and inure to the benefit of the Partners
and their respective successors and permitted assigns.
10.7 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall constitute one and the same instrument.
10.8 Headings. The section and article headings in this Agreement are
for convenience of reference only, and shall not be deemed to alter or affect
the meaning or interpretation of any provision hereof.
10.9 Other Terms. All references to "Articles" and "Sections"
contained in this Agreement are, unless specifically indicated otherwise,
references to articles, sections, subsections and paragraphs of this Agreement.
Whenever in this Agreement the singular number is used, the same shall include
the plural where appropriate (and
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vice versa), and words of any gender shall include each other gender where
appropriate. As used in this Agreement, the following words or phrases shall
have the meanings indicated: (i) "or" shall mean "and/or"; (ii) "day" shall mean
a calendar day; (iii) "including" or "include" shall mean "including without
limitation"; and (iv) "law" or "laws" shall mean statutes, regulations, rules,
judicial orders, and other legal pronouncements having the effect of law.
Whenever any provision of this Agreement requires or permits the General Partner
to take or omit to take any action, or make or omit to make any decision, unless
the context clearly requires otherwise, such provision shall be interpreted to
authorize an action taken or omitted, or a decision made or omitted, by the
General Partner acting alone and in good faith.
IN WITNESS WHEREOF, the undersigned Partners have executed this
instrument effective as of May 17, 1996.
General Partner:
NATIONAL TOBACCO FINANCE
CORPORATION
By: /s/ Thomas F. Helms, Jr.
------------------------
Name: Thomas F. Helms, Jr.
Title: President
Limited Partner:
NTC HOLDING, LLC
By: /s/ Thomas F. Helms, Jr.
------------------------
Name: Thomas F. Helms, Jr.
Title: Manager
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<PAGE>
AMENDMENT NO. 1 TO THE THIRD AMENDED AND
RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF NATIONAL TOBACCO COMPANY, L.P.
AMENDMENT NO. 1 dated and effective as of June 25, 1997, to
the Third Amended and Restated Agreement of Limited Partnership (the
"Partnership Agreement"), dated as of May 17, 1996, of National Tobacco Company,
L.P., a Delaware limited partnership, among National Tobacco Finance
Corporation, a Delaware corporation, as the sole general partner (the "General
Partner"), and NTC Holding, LLC, a Delaware limited liability company, as the
sole limited partner (the "Limited Partner"). Capitalized terms used but not
otherwise defined herein shall have the meanings respectively assigned to them
in the Partnership Agreement.
The undersigned parties to the Partnership Agreement hereby
agree as follows:
1. Section 3.5 of the Partnership Agreement is hereby
amended in its entirety to read as follows:
The Partnership, and the General Partner on behalf of
the Partnership, may enter into and perform each of the
agreements required to be executed and delivered by the
Partnership pursuant to the Credit Agreement (the "Credit
Agreement"), dated as of June 25, 1997, among North Atlantic
Trading Acquisition Company, Inc. ("Parent"), the various
lending institutions named therein ("Lenders"), Gleacher
NatWest, as arranging agent, and National Westminster Bank
plc, as administrative agent ("Administrative Agent"), in each
case in the form of, and with such terms, conditions and
provisions as are contained in, the Exhibits attached to the
Credit Agreement (as the same may be amended, supplemented or
otherwise modified from time to time), including the Senior
Guaranties, the Pledge Agreements, and the Security Agreements
(as those terms are defined in the Credit Agreement; and,
together with the Credit Agreement, the "Loan Documents"). The
Partnership, and the General Partner on behalf of the
Partnership, are further authorized to enter into and perform
the Indenture, dated as of June 25, 1997, among Parent, as
issuer, United States Trust Company of New York, as trustee,
and certain subsidiaries of Parent signatory thereto
(including the Partnership and the General Partner), as
guarantors (as amended, supplemented or otherwise modified
from time to time,
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the "Indenture"), pursuant to which the Partnership and the
General Partner guarantee all of the Parent's obligations
thereunder. The General Partner is hereby authorized to enter
into the agreements described in the preceding two sentences
on behalf of the Partnership, but such authorization shall not
be deemed a restriction on the power of the General Partner to
enter into any other agreement on behalf of the Partnership.
2. The first sentence of Section 5.1 is hereby amended
in its entirety to read as follows:
Subject to Section 5.2 and to the restrictions
imposed by the Loan Documents and the Indenture (and any
agreements or instruments entered into or issued pursuant to
such agreements or relating to the renewal, extension,
refunding, restructuring, replacement or refinancing thereof),
distributions of the Partnership shall be made only upon
approval of the General Partner acting in its sole discretion,
to the Partners in proportion to their partnership percentage
interests as set forth on Schedule I to this Agreement
("Percentage Interests").
3. The first sentence of Section 6.1(a) of the
Partnership Agreement is hereby amended in its entirety to read as follows:
Except for (i) the pledge of the partnership
interests as contemplated in the Credit Agreement or the
Pledge Agreements (including, without limitation, the remedies
thereunder) and (ii) the transfer by the Limited Partner of
its entire limited partnership interest to Parent, as
successor in interest to the Limited Partner, no Partner may
sell, assign, give, transfer or otherwise dispose of
(hereinafter, "Transfer") any or all of its partnership
interest as a General Partner or Limited Partner ("Interest"),
in whole or in part, to any other person or entity.
4. Section 6.1(b) is hereby amended in its entirety
to read as follows:
Except for (i) the pledge of the Interests as
contemplated in the Credit Agreement or the Pledge Agreements
(including, without limitation, the remedies thereunder) and
(ii) except for the transfer by the Limited Partner of its
entire limited partnership
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interest to Parent, as successor in interest to Limited
Partner, no Person that is not a Partner of the Partnership as
of the date hereof shall be admitted as a Partner of the
Partnership, or have any other rights of a Partner under the
Delaware Act or this Agreement.
5. Section 9.1(e) is hereby amended in its entirety
to read as follows:
the effectiveness of a Transfer of an Interest to the
Administrative Agent, for the benefit of the Lenders, pursuant
to an exercise of remedies under the Credit Agreement or the
Pledge Agreements, unless within ninety (90) days after the
effectiveness of such Transfer not less than a majority in
interest of the Partners (including the Administrative Agent
as the transferee of such Interest) consent in writing to
continue the business of the Partnership.
6. Except as expressly amended hereby, all provisions
of the Partnership Agreement are hereby ratified, confirmed and approved and
remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment as of the date first above written.
GENERAL PARTNER:
NATIONAL TOBACCO FINANCE CORPORATION
By: /s/ Thomas F. Helms, Jr.
--------------------------
Thomas F. Helms, Jr.
President
LIMITED PARTNER:
NTC HOLDING, LLC
By: /s/ Thomas F. Helms, Jr.
-------------------------
Thomas F. Helms, Jr.
Manager and President
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CERTIFICATE OF DESIGNATION OF THE POWERS,
PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL AND OTHER SPECIAL RIGHTS OF 12%
SENIOR PAYMENT-IN-KIND PREFERRED STOCK,
AND QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS THEREOF
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
North Atlantic Trading Acquisition Company, Inc. (the
"Corporation"), a corporation organized and existing under the General
Corporation Law of the State of Delaware, does hereby certify that, pursuant to
authority conferred upon the board of directors of the Corporation (the "Board
of Directors") by its Certificate of Incorporation, as amended (hereinafter
referred to as the "Certificate of Incorporation"), and pursuant to the
provisions of Section 151 of the General Corporation Law of the State of
Delaware, said Board of Directors, duly approved and adopted the following
resolution (the "Resolution"):
RESOLVED, that, pursuant to the authority vested in the Board
of Directors by its Certificate of Incorporation, the Board of
Directors does hereby create, authorize and provide for the issuance of
12% Senior Payment-In-Kind Preferred Stock, par value $.01 per share,
with a stated value of $25.00 per share, consisting of 12,000,000
shares, having the designations, preferences, relative, participating,
optional and other special rights and the qualifications, limitations
and restrictions thereof that are set forth in the Certificate of
Incorporation and in this Resolution as follows:
(a) Designation. There is hereby created out of the authorized
and unissued shares of Preferred Stock of the Corporation a class of Preferred
Stock designated as the "12% Senior Payment-In-Kind Preferred Stock." The number
of shares constituting such class shall be 12,000,000 and are referred to herein
as the "Senior Preferred Stock." 1,360,000 shares of Senior Preferred Stock
shall be initially issued with an additional 10,649,000 shares reserved for
issuance in accordance with paragraph (c)(i) hereof. The liquidation preference
of the Senior Preferred Stock shall be $25.00 per share.
(b) Liquidation Preference. The Senior Preferred Stock shall,
with respect to dividends and distributions upon liquidation, winding-up and
dissolution of the Corporation, rank (i) senior to all classes of Common Stock
of the Corporation and to each other class of Capital Stock of the Corporation
or series of Preferred Stock of the Corporation hereafter created other than as
permitted in the following sentence (collectively, referred to as "Junior
Stock"). The Corporation may not issue any class or series of Capital Stock that
ranks (x) on a parity with the Senior Preferred Stock as to dividends and
distributions upon liquidation, winding-up and dissolution (collectively,
referred to as "Parity Stock") that was not approved by the Holders in
accordance with paragraph (f)(ii)(A) hereof (to the extent such approval is
required) or (y) senior to the Senior Preferred Stock as to dividends and
distributions upon liquidation, winding-up and dissolution of the Corporation
(collectively referred to as "Senior Stock") that was not approved by the
Holders in accordance with paragraph (f)(ii)(B) hereof.
<PAGE>
(c) Dividends.
(i) Beginning on the Issue Date, the Holders of the
outstanding shares of Senior Preferred Stock shall be entitled to
receive, when, as and if declared by the Board of Directors, out of
funds legally available therefor, dividends (the "Regular Dividends")
on each share of Senior Preferred Stock, at a rate per annum equal to
12% of the liquidation preference per share of the Senior Preferred
Stock, payable quarterly; provided that so long as a Triggering Event
shall have occurred and be continuing, additional dividends will
accumulate on the Senior Preferred Stock at a rate per annum of 2% of
the liquidation preference per share of the Senior Preferred Stock,
payable quarterly; and provided further, that the Regular Dividend rate
per annum is subject to increase as provided for in clause (vi) below.
All Regular Dividends shall be cumulative, whether or not earned or
declared, on a daily basis from the date of issuance of the Senior
Preferred Stock and shall be payable quarterly in arrears on each
Regular Dividend Payment Date, commencing on the first Regular Dividend
Payment Date after the Issue Date. Regular Dividends (including
Additional Dividends, if any) accumulating on or prior to June 15, 2002
may be paid, at the Corporation's option, either in cash or by the
issuance of additional shares of Senior Preferred Stock (including
fractional shares) having an aggregate liquidation preference equal to
the amount of such Regular Dividends (but not less than $1.00). In the
event that on or prior to June 15, 2002 Regular Dividends are declared
and paid through the issuance of additional shares of Senior Preferred
Stock as provided in the previous sentence, such Regular Dividends
shall be deemed paid in full and shall not accumulate. Regular
Dividends accumulating after June 15, 2002 must be paid in cash. Each
Regular Dividend shall be payable, out of funds legally available
therefor, to the Holders of record as they appear on the stock books of
the Corporation on the Regular Dividend Record Date immediately
preceding the related Regular Dividend Payment Date.
(ii) All Regular Dividends paid with respect to shares of the
Senior Preferred Stock pursuant to paragraph (c)(i) shall be paid pro
rata to the Holders entitled thereto.
(iii) Regular Dividends accruing after June 15, 2002 on the
Senior Preferred Stock for any past Dividend Period and Regular
Dividends in connection with any optional redemption pursuant to
paragraph (e)(i) may be declared and paid at any time, without
reference to any Regular Dividend Payment Date, to Holders of record on
such date, not more than forty-five (45) days prior to the payment
thereof, as may be fixed by the Board of Directors of the Corporation.
(iv) So long as any share of the Senior Preferred Stock is
outstanding, the Corporation shall not declare, pay or set apart for
payment any dividend on any Junior Stock or Parity Stock or make any
payment on account of, or set apart for payment money for a sinking or
other similar fund for, the purchase, redemption or other retirement
of, any Junior Stock or Parity Stock or any warrants, rights, calls or
options exercisable for or convertible into any Junior Stock or Parity
Stock whether in cash, obligations or shares of the Corporation or
other property, and shall not permit any corporation or other entity
directly or indirectly controlled by the Corporation to purchase or
redeem any Junior Stock or Parity Stock or any such warrants, rights,
calls or options unless full cumulative dividends determined in
accordance herewith on the Senior Preferred Stock have been paid (or
are deemed paid) in full and in Section 1(ii) hereof.
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(v) Regular Dividends payable on the Senior Preferred Stock
for any period less than a year shall be computed on the basis of a
360-day year of twelve 30-day months and the actual number of days
elapsed in the period for which payable. The amount of Additional
Dividends will be determined consistent with the preceding sentence and
by multiplying the applicable Additional Dividends by a fraction, the
numerator of which is the number of days (not to exceed 90) such rate
was applicable during any Dividend Period and the denominator of which
is 360.
(vi) Additional Dividends shall become due and payable with
respect to the Senior Preferred Stock as set forth in the Registration
Rights Agreement.
(d) Liquidation Preference.
(i) In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the
Corporation, the Holders of shares of Senior Preferred Stock then
outstanding shall be entitled to be paid out of the assets of the
Corporation available for distribution to its stockholders an amount in
cash equal to the liquidation preference for each share outstanding,
plus, without duplication, (x) an amount in cash equal to accumulated
and unpaid Regular Dividends and Additional Dividends thereon to the
date fixed for liquidation, dissolution or winding up (including an
amount equal to a prorated Regular Dividend for the period from the
last Dividend Payment Date to the date fixed for liquidation,
dissolution or winding up) before any distribution is made on Junior
Stock. Except as provided in the preceding sentence, Holders of Senior
Preferred Stock shall not be entitled to any distribution in the event
of any liquidation, dissolution or winding up of the affairs of the
Corporation. If the assets of the Corporation are not sufficient to pay
in full the liquidation payments payable to the Holders of outstanding
shares of the Senior Preferred Stock and all Parity Stock, then the
holders of all such shares shall share equally and ratably in such
distribution of assets in proportion to the full liquidation preference
to which each is entitled until such preferences are paid in full, and
then in proportion to their respective amounts of accumulated but
unpaid dividends.
(ii) For the purposes of this paragraph (d), neither the
sale, conveyance, exchange or transfer (for cash, shares of stock,
securities or other consideration) of all or substantially all of the
property or assets of the Corporation nor the consolidation or merger
of the Corporation with or into one or more entities shall be deemed to
be a liquidation, dissolution or winding up of the affairs of the
Corporation.
(e) Redemption.
(i) Optional Redemption. Up to 35% of the Senior Preferred
Stock will be redeemable, at the Corporation's option, at any time or
in part from time to time, on or prior to June 15, 2000 out of the Net
Cash Proceeds of one or more Equity Offerings by the Corporation so
long as there is a Public Market as at the time of such redemption, at
a redemption price equal to 112% of the liquidation preference thereof,
plus, without duplication, an amount in cash equal to all accumulated
and unpaid dividends (including but not limited to an amount in cash
equal to a prorated dividend for the period from the immediately
preceding Dividend Payment Date to the redemption date). After June 15,
2000 and prior to June 15, 2002, the Senior Preferred Stock is not
redeemable. On or after June 15, 2002, the Senior Preferred
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Stock will be redeemable, at the Corporation's option, in whole at any
time or in part from time to time, at the following redemption prices
(expressed as a percentage of liquidation preference) if redeemed
during the twelve-month period commencing on June 15 of the applicable
year set forth below plus, without duplication, an amount in cash equal
to all accumulated and unpaid dividends (including, but not limited, to
an amount in cash equal to a prorated dividend for the period from the
immediately preceding dividend payment date to the Redemption Date):
Year Percentage
---- ----------
2002 106.000%
2003 104.000%
2004 102.000%
2005 and thereafter 100.000%
(ii) Mandatory Redemption. The Senior Preferred Stock will be
subject to mandatory redemption, subject to contractual and other
restrictions with respect thereto and to the legal availability
of funds therefor, in the manner provided in paragraph (e)(iii)
hereof, in whole on June 15, 2007 at a redemption price equal to
the liquidation preference thereof, plus, without duplication,
all accumulated and unpaid dividends to the date of redemption.
(iii) Procedures for Redemption. (A) At least thirty (30) days
and not more than sixty (60) days prior to the date fixed for any
redemption of the Senior Preferred Stock, written notice (the
"Redemption Notice") shall be given by first class mail, postage
prepaid, to each Holder of record on the record date fixed for
such redemption of the Senior Preferred Stock at such Holder's
address as it appears on the stock books of the Corporation,
provided that no failure to give such notice nor any deficiency
therein shall affect the validity of the procedure for the
redemption of any shares of Senior Preferred Stock to be redeemed
except as to the Holder or Holders to whom the Corporation has
failed to give said notice or except as to the Holder or Holders
whose notice was defective. The Redemption Notice shall state:
(1) whether the redemption is pursuant to
paragraph (e)(i) or (e)(ii) hereof;
(2) the redemption price;
(3) whether all or less than all the outstanding
shares of the Senior Preferred Stock are to be redeemed and the
total number of shares of the Senior Preferred Stock being
redeemed;
(4) the date fixed for redemption;
(5) that the Holder is to surrender to the
Corporation, in the manner, at the place or places and at the
price designated, his certificate or certificates representing
the shares of Senior Preferred Stock to be redeemed; and
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(6) that dividends on the shares of the Senior
Preferred Stock to be redeemed shall cease to accumulate on
such Redemption Date unless the Corporation defaults in the
payment of the redemption price.
(B) Each Holder of Senior Preferred Stock shall surrender the
certificate or certificates representing such shares of Senior
Preferred Stock to the Corporation, duly endorsed (or otherwise in
proper form for transfer, as determined by the Corporation), in the
manner and at the place designated in the Redemption Notice, and on the
Redemption Date the full redemption price for such shares shall be
payable in cash to the Person whose name appears on such certificate or
certificates as the owner thereof, and each surrendered certificate
shall be canceled and retired. In the event that less than all of the
shares represented by any such certificate are redeemed, a new
certificate shall be issued representing the unredeemed shares.
(C) On and after the Redemption Date, unless the Corporation
defaults in the payment in full of the applicable redemption price,
dividends on the Senior Preferred Stock called for redemption shall
cease to accumulate on the Redemption Date, and all rights of the
Holders of redeemed shares shall terminate with respect thereto on the
Redemption Date, other than the right to receive the redemption price;
provided, however, that if a notice of redemption shall have been given
as provided in paragraph (iii)(A) above and the funds necessary for
redemption (including an amount in cash in respect of all dividends
that will accumulate to the Redemption Date) shall have been
irrevocably deposited in trust for the equal and ratable benefit for
the Holders of the shares to be redeemed, then, at the close of
business on the day on which such funds are segregated and set aside,
the Holders of the shares to be redeemed shall cease to be stockholders
of the Corporation and shall be entitled only to receive the redemption
price.
(f) Voting Rights.
(i) The Holders of Senior Preferred Stock, except as
otherwise required under Delaware law or as set forth in paragraphs
(ii), (iii) and (iv) below, shall not be entitled or permitted to vote
on any matter required or permitted to be voted upon by the
stockholders of the corporation.
(ii) (A) So long as any shares of the Senior Preferred Stock
are outstanding, the Corporation shall not authorize or issue any class
of Parity Stock without the affirmative vote or consent of Holders of
at least a majority of the then outstanding shares of Senior Preferred
Stock, Exchange Preferred Stock and Private Exchange Preferred Stock,
voting or consenting, as the case may be, as one class, given in person
or by proxy, either in writing or by resolution adopted at an annual or
special meeting; provided, however, that no such vote or consent shall
be necessary in connection with (i) issuance of additional shares of
Senior Preferred Stock pursuant to the provisions of paragraph (c) of
this Certificate of Designation, or (ii) the authorization and issuance
of that number of shares of Exchange Preferred Stock and/or the Private
Exchange Preferred Stock not in excess of 10,649,000 shares less the
sum of (x) that number of shares of Senior Preferred Stock not
exchanged in the Exchange Offer and/or Private Exchange Offer and (y)
that number of shares of Senior Preferred Stock payable as dividends on
such other shares of Senior Preferred Stock referred to in clause (x),
assuming accumulation of the maximum number of Additional Dividends
payable and assuming
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a Triggering Event had occurred and would remain continuing until June
15, 2007; and provided further, however, that the Corporation may issue
Parity Stock if after giving effect to such issuance the Consolidated
Coverage Ratio is greater than 1.7 to 1.
(B) So long as any shares of the Senior Preferred Stock are
outstanding, the Corporation shall not authorize or issue any class of
Senior Stock without the affirmative vote or consent of Holders of at
least a majority of the outstanding shares of Senior Preferred Stock,
Exchange Preferred Stock and Private Exchange Preferred Stock, voting
or consenting, as the case may be, as one class, given in person or by
proxy, either in writing or by resolution adopted at an annual or
special meeting.
(C) So long as any shares of the Senior Preferred Stock are
outstanding, the Corporation shall not amend this Certificate of
Designation so as to affect adversely the specified rights,
preferences, privileges or voting rights of holders of shares of Senior
Preferred Stock without the affirmative vote or consent of Holders of
at least a majority of the issued and outstanding shares of (x) Senior
Preferred Stock, Exchange Preferred Stock and Private Exchange
Preferred Stock, voting or consenting, as the case may be, as one
class, given in person or by proxy, either in writing or by resolution
adopted at an annual or special meeting, if a corresponding amendment
is to be made to the certificate of designation governing the Exchange
Preferred Stock and Private Exchange Preferred Stock which amendment,
together with such amendment to this Certificate of Designation,
affects the Senior Preferred Stock, Exchange Preferred Stock and
Private Exchange Preferred Stock identically in all material respects
(a "Corresponding Amendment") or (y) Senior Preferred Stock, voting or
consenting, as the case may be, as one class, given in person or by
proxy, either in writing or by resolution adopted at an annual or
special meeting, if such amendment is not a Corresponding Amendment.
Notwithstanding the foregoing clauses (B) and (C), any
Restricted Subsidiary of the Corporation may consolidate with, merge
into or transfer all or part of its properties and assets to the
Corporation.
For purposes of the foregoing, the transfer (by lease,
assignment, sale or otherwise, in a single transaction or series of
related transactions) of all or substantially all of the properties or
assets of one or more Subsidiaries of the Corporation, the Capital
Stock of which constitutes all or substantially all of the properties
and assets of the Corporation shall be deemed to be the transfer of all
or substantially all of the properties and assets of the Corporation.
(iii) (A) If (i) after June 15, 2002, dividends on the Senior
Preferred Stock required to be paid in cash are in arrears and unpaid
or (ii) the Corporation fails to redeem the Senior Preferred Stock on
or before March 15, 2007 or fails to discharge any redemption
obligation with respect to the Senior Preferred Stock or (iii) the
Corporation fails to make a Change of Control Offer if such an offer is
required by the provisions set forth under paragraph (h)(i) hereof or
fails to purchase shares of Senior Preferred Stock from holders who
elect to have such shares purchased pursuant to the Change of Control
Offer or (iv) a breach or violation of any of the provisions described
under paragraph (l) hereof occurs and the breach or violation continues
for a period of 60 days or more after the Corporation receives notice
thereof specifying the default from the holders of at least 25% of the
shares of Senior
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Preferred Stock, Exchange Preferred Stock and Private Exchange
Preferred Stock then outstanding or (v) the Corporation fails to pay at
the final stated maturity (giving effect to any extensions thereof) the
principal amount of any Indebtedness of the Corporation or any
Restricted Subsidiary of the Corporation, or the final stated maturity
of any such Indebtedness is accelerated, if the aggregate principal
amount of such Indebtedness, together with the aggregate principal
amount of any other such Indebtedness in default for failure to pay
principal at the final stated maturity giving effect to any extensions
thereof) or which has been accelerated, aggregates $5,000,000 or more
at any time, in each case, after a 20-day period during which such
default shall not have been cured or such acceleration rescinded, then
the number of directors constituting the board of directors of the
Corporation will be adjusted to permit the holders of a majority of the
then outstanding shares of Senior Preferred Stock, Exchange Preferred
Stock and Private Exchange Preferred Stock, voting together and as a
class, to elect two directors to the board of directors of the
Corporation. Such voting rights will continue until such time as, in
the case of a dividend default, all accumulated and unpaid dividends on
the Senior Preferred Stock are paid in full in cash and, in all other
cases, any failure, breach or default giving rise to such voting rights
is remedied, cured or waived by the holders of at least a majority of
the shares of Senior Preferred Stock, Exchange Preferred Stock and
Private Exchange Preferred Stock then outstanding, at which time the
term of any directors elected pursuant to the provisions of this
paragraph shall terminate. Each such event described in clauses (i)
through (v) above is referred to herein as a "Triggering Event."
(B) The right of the Holders of Senior Preferred Stock,
Exchange Preferred Stock and Private Exchange Preferred Stock voting
together as a separate class to elect members of the Board of Directors
as set forth in subparagraph (f)(iii)(A) above shall continue until
such time as (x) in the event such right arises due to a failure to pay
a dividend, all accumulated dividends that are in arrears on the Senior
Preferred Stock, Exchange Preferred Stock and Private Exchange
Preferred Stock are paid in full in cash; and (y) in all other cases,
the failure, breach or default giving rise to such Triggering Event is
remedied, cured or waived by the holders of at least a majority of the
shares of Senior Preferred Stock, Exchange Preferred Stock and Private
Exchange Preferred Stock then outstanding, at which time (1) the
special right of the Holders of Senior Preferred Stock, Exchange
Preferred Stock and Private Exchange Preferred Stock so to vote as a
class for the election of directors and (2) the term of office of the
directors elected by the Holders of the Senior Preferred Stock,
Exchange Preferred Stock and Private Exchange Preferred Stock shall
each terminate and the directors elected by the holders of Common Stock
or Capital Stock (other than the Senior Preferred Stock, Exchange
Preferred Stock and Private Exchange Preferred Stock) shall constitute
the entire Board of Directors. At any time after voting power to elect
directors shall have become vested and be continuing in the Holders of
Senior Preferred Stock, Exchange Preferred Stock and Private Exchange
Preferred Stock pursuant to paragraph (f)(iii) hereof, or if vacancies
shall exist in the offices of directors elected by the Holders of
Senior Preferred Stock, Exchange Preferred Stock and Private Exchange
Preferred Stock, a proper officer of the Corporation may, and upon the
written request of the Holders of record of at least twenty-five
percent (25%) of the shares of Senior Preferred Stock, Exchange
Preferred Stock and Private Exchange Preferred Stock then outstanding
addressed to the secretary of the Corporation shall, call a special
meeting of the Holders of the Senior Preferred Stock, Exchange
Preferred Stock and Private Exchange Preferred Stock, for the purpose
of electing directors which such Holders are entitle to elect. If such
meeting shall not be called by a proper officer of the Corporation
within twenty (20) days after personal service of said written request
upon the
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secretary of the Corporation, or within twenty (20) days after mailing
the same within the United States by certified mail, addressed to the
secretary of the Corporation at its principal executive offices, then
the Holders of record of at least twenty-five percent (25%) of the
outstanding shares of Senior Preferred Stock, Exchange Preferred Stock
and Private Exchange Preferred Stock may designate in writing one of
their number to call such meeting at the expense of the Corporation,
and such meeting may be called by the Person so designated upon the
notice required for the annual meetings of stockholders of the
Corporation and shall be held at the place for holding the annual
meetings of stockholders. Any Holder of Senior Preferred Stock,
Exchange Preferred Stock or Private Exchange Preferred Stock so
designated shall have, and the Corporation shall provide, access to the
lists of stockholders to be called pursuant to the provisions hereof.
(C) At any meeting held for the purpose of electing directors
at which the Holders of Senior Preferred Stock, Exchange Preferred
Stock and Private Exchange Preferred Stock shall have the right, voting
together as a separate class, to elect directors as aforesaid, the
presence in person or by proxy of the Holders of at least a majority of
the outstanding shares of Senior Preferred Stock, Exchange Preferred
Stock and Private Exchange Preferred Stock entitled to vote thereat
shall be required to constitute a quorum of such Senior Preferred
Stock, Exchange Preferred Stock and Private Exchange Preferred Stock.
(D) Any vacancy occurring in the office of a director elected
by the Holders of Senior Preferred Stock, Exchange Preferred Stock and
Private Exchange Preferred Stock may be filled by the remaining
director elected by the Holders of Senior Preferred Stock, Exchange
Preferred Stock and Private Exchange Preferred Stock unless and until
such vacancy shall be filled by the Holders of Senior Preferred Stock,
Exchange Preferred Stock and Private Exchange Preferred Stock.
(iv) In any case in which the Holders of Senior Preferred
Stock shall be entitled to vote pursuant to this paragraph (f) or
pursuant to Delaware law, each Holder of Senior Preferred Stock
entitled to vote with respect to such matter shall be entitled to one
vote for each share of Senior Preferred Stock held.
(g) Mergers and Consolidations. The Corporation shall not
consolidate with or merge with or into, or convey, transfer or lease all or
substantially all of its assets to, any Person, unless: (A) the resulting,
surviving or transferee Person (the "Successor Corporation") shall be a
corporation, partnership, trust or limited liability company organized and
existing under the laws of the United States of America, any State thereof or
the District of Columbia and the Successor Corporation (if not the Corporation)
shall expressly assume, all the obligations of the Corporation under the Senior
Preferred Stock; (B) immediately after giving effect to such transaction (and
treating any Indebtedness that becomes an obligation of the Successor
Corporation or any Subsidiary of the Successor Corporation as a result of such
transaction as having been incurred by the Successor Corporation or such
Restricted Subsidiary at the time of such transaction), no Triggering Event
shall have occurred and be continuing; (C) immediately after giving effect to
such transaction, the Successor Corporation would be able to incur at least an
additional $1.00 of Indebtedness pursuant to paragraph (K)(i); and (D) the
Consolidated Net Worth of the resulting, surviving, or transferee corporation is
not less than that of the Corporation immediately prior to the transaction.
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(h) Change of Control.
(i) Within 20 days of the occurrence of a Change of
Control, the Corporation shall make an offer to purchase (the "Change
of Control Offer") the outstanding Senior Preferred Stock at a purchase
price equal to 101% of the liquidation preference thereof plus, without
duplication, an amount in cash equal to all accumulated and unpaid
Regular Dividends (including Additional Dividends, if any) thereon
(including an amount in cash equal to a prorated Regular Dividend for
the period from the immediately preceding Regular Dividend Payment Date
to the Change of Control Payment Date) (such applicable purchase price
being hereinafter referred to as the "Change of Control Purchase
Price") in accordance with the procedures set forth in this paragraph
(h).
(ii) Within 20 days of the occurrence of a Change of Control,
the Corporation also shall (i) cause a notice of the Change of Control
to be sent at least once to the Dow Jones News Service or similar
business news service in the United States and (ii) send by first-class
mail, postage prepaid, to each holder of Senior Preferred Stock, at the
address appearing on the stock books of the Corporation, a notice
stating:
(1) that the Change of Control Offer is being made
pursuant to this paragraph (h) and that all Senior Preferred
Stock tendered will be accepted for payment, and otherwise
subject to the terms and conditions set forth herein;
(2) the Change of Control Purchase Price and the
purchase date (which shall be a Business Day no earlier than
20 Business Days from the date such notice is mailed (the
"Change of Control Payment Date"));
(3) that any Senior Preferred Stock not tendered
will continue to accumulate dividends;
(4) that, unless the Corporation defaults in the
payment of the Change of Control Purchase Price, any Senior
Preferred Stock accepted for payment pursuant to the Change of
Control offer shall cease to accumulate dividends after the
Change of Control Payment Date;
(5) that holders accepting the offer to have their
Senior Preferred Stock purchased pursuant to a Change of
Control Offer will be required to surrender their certificates
representing Senior Preferred Stock to the Corporation at the
address specified in the notice prior to the close of business
on the Business Day preceding the Change of Control Payment
Date;
(6) that holders will be entitled to withdraw their
acceptance if the Corporation receives, not later than the
close of business on the third Business Day preceding the
Change of Control Payment Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the holder,
the number of shares of Senior Preferred Stock delivered for
purchase, and a statement that such holder is withdrawing his
election to have such Senior Preferred Stock purchased;
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(7) that holders whose Senior Preferred Stock is
being purchased only in part will be issued new certificates
representing the number of shares of Senior Preferred Stock
equal to the unpurchased portion of the certificates
surrendered; and
(8) any other procedures that a holder must follow to
accept a Change of Control Offer or effect withdrawal of such
acceptance.
(iii) In the event that a Change of Control occurs and the
holders of Senior Preferred Stock exercise their right to require the
Corporation to purchase Senior Preferred Stock, if such purchase
constitutes a "tender offer" for purposes of Rule 14e-1 under the
Exchange Act at that time, the Corporation will comply with the
requirements of Rule 14e-1 as then in effect with respect to such
repurchase.
(iv) On the Change of Control Payment Date, the Corporation
shall (A) accept for payment the shares of Senior Preferred Stock
validly tendered pursuant to the Change of Control Offer, (B) promptly
mail to the Holders of shares so accepted the Change of Control
Purchase Price therefor and (C) cancel and retire each surrendered
Certificate and execute a new Senior Preferred Stock certificate equal
to any unpurchased shares represented by a certificate surrendered.
Unless the Corporation defaults in the payment for the shares of Senior
Preferred Stock tendered pursuant to the Change of Control Offer,
dividends shall cease to accrue with respect to the shares of Senior
Preferred Stock tendered and all rights of Holders of such tendered
shares shall terminate, except for the right to receive payment
therefor, on the Change of Control Payment Date.
(v) Prior to the mailing of the notice referred to in
paragraph (g)(ii), but in any event within 20 days following the date
on which a Change of Control occurs, the Corporation covenants that, if
the purchase of the Senior Preferred Stock would violate or constitute
a default or be prohibited under the Indenture, the New Secured Credit
Facilities or any other instrument governing Indebtedness outstanding
at the time, then the Corporation will, to the extent needed to permit
such purchase of Senior Preferred Stock, either (i) repay in full all
Indebtedness under the Indenture, the New Senior Secured Facilities or
any such other instrument, as the case may be, or (ii) obtain the
requisite consents under the Indenture, the or any such other
instrument, as the case may be, to permit the redemption of the Senior
Preferred Stock as provided above. The Corporation will first comply
with the covenant in the preceding sentence before it will be required
to redeem Senior Preferred Stock pursuant to the provisions described
above.
(i) Conversion or Exchange. The Holders of shares of Senior
Preferred Stock shall not have any rights hereunder to convert such shares into
or exchange such shares for shares of any other class or classes or of any other
series of any class or classes of Capital Stock of the Corporation other than
the Exchange Preferred Stock and the Private Exchange Preferred Stock as
provided in the Registration Rights Agreement dated as of the date hereof.
(j) Reissuance of Senior Preferred Stock. Shares of Senior
Preferred Stock that have been issued and reacquired in any manner, including
shares purchased or redeemed or exchanged, shall (upon compliance with any
applicable provisions of the laws of Delaware) have the status of authorized and
unissued shares of Preferred Stock undesignated as to series and may be
redesignated
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and reissued as part of any series of Preferred Stock, provided that any
issuance of such shares of Preferred Stock must be in compliance with the terms
hereof.
(k) Business Day. If any payment, redemption or exchange
shall be required by the terms hereof to be made on a day that is not a Business
Day, such payment, redemption or exchange shall be made on the immediately
succeeding Business Day.
(l) Certain Additional Provisions.
(i) Limitation on Indebtedness. The Corporation will not,
and will not permit any Restricted Subsidiary of the Corporation to,
directly or indirectly, incur any Indebtedness provided that the
Corporation may incur Indebtedness if on the date thereof the
Consolidated Coverage Ratio would be greater than 1.7 to 1.0.
Notwithstanding the foregoing paragraph, the Corporation may
Incur the following Indebtedness:
(A) Indebtedness Incurred pursuant to the New Senior
Secured Facilities (including, without limitation, any
renewal, extension, refunding, restructuring, replacement or
refinancing thereof referred to in the definition thereof),
provided, however, that the aggregate principal amount of all
Indebtedness Incurred pursuant to this clause (i) does not
exceed $150 million at any time outstanding less the aggregate
principal amount thereof repaid with the net proceeds of Asset
Dispositions (to the extent, in the case of a repayment of
revolving credit indebtedness, the commitment to advance loans
has been terminated);
(B) Indebtedness represented by Capitalized Lease
Obligations, mortgage financings or Purchase Money
Indebtedness, in each case Incurred for the purpose of
financing all or any part of the purchase price or cost of
construction or improvement of property used in a Permitted
Business or Incurred to refinance any such purchase price or
cost of construction or improvement, in each case Incurred no
later than 365 days after the date of such acquisition or the
date of completion of such construction or improvement;
provided, however, that the principal amount of any
Indebtedness Incurred pursuant to this clause (B) shall not
exceed $5 million at any time outstanding;
(C) Indebtedness of the Corporation owing to and held
by any Wholly-Owned Subsidiary or Indebtedness of a Restricted
Subsidiary owing to and held by the Corporation or any
Wholly-Owned Subsidiary; provided, however, that any
subsequent issuance or transfer of any Capital Stock or any
other event which results in any such Wholly-Owned Subsidiary
ceasing to be a Wholly-Owned Subsidiary or any subsequent
transfer of any such Indebtedness (except to the Corporation
or any Wholly-Owned Subsidiary) shall be deemed, in each case,
to constitute the incurrence of such Indebtedness by the
issuer thereof;
(D) Indebtedness represented by (t) the Notes, (u)
the Exchange Notes, (v) the Private Exchange Notes, (w) the
New Senior Secured Facilities, (x) the Subsidiary Guarantees,
(y) Existing Indebtedness and (z) any Refinancing Indebtedness
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Incurred in respect of any Indebtedness described in this
clause (D) or Incurred pursuant to paragraph (i) above;
(E) (a) Indebtedness of a Restricted Subsidiary
Incurred and outstanding on the date on which such Restricted
Subsidiary was acquired by the Corporation (other than
Indebtedness Incurred in anticipation of, or to provide all or
any portion of the funds or credit support utilized to
consummate the transaction or series of related transactions
pursuant to which such Restricted Subsidiary became a
Subsidiary or was otherwise acquired by the Corporation);
provided, however, that at the time such Restricted Subsidiary
is acquired by the Corporation, the Corporation would have
been able to incur $1.00 of additional Indebtedness pursuant
to this paragraph (k)(i) after giving effect to the Incurrence
of such Indebtedness pursuant to this clause (E) and (b)
Refinancing Indebtedness Incurred by a Restricted Subsidiary
in respect of Indebtedness Incurred by such Restricted
Subsidiary pursuant to this clause (E);
(F) Indebtedness (a) in respect of performance bonds,
bankers' acceptances and surety or appeal bonds provided by
the Corporation or any of its Restricted Subsidiaries to their
customers in the ordinary course of their business, (b) in
respect of performance bonds or similar obligations of the
Corporation or any of its Restricted Subsidiaries for or in
connection with pledges, deposits or payments made or given in
the ordinary course of business in connection with or to
secure statutory, regulatory or similar obligations, including
obligations under health, safety or environmental obligations
and (c) arising from Guarantees to suppliers, lessors,
licensees, contractors, franchises or customers of obligations
(other than Indebtedness) incurred in the ordinary course of
business;
(G) Indebtedness under Currency Agreements and
Interest Rate Agreements; provided, however, that in the case
of Currency Agreements and Interest Rate Agreements, such
Currency Agreements and Interest Rate Agreements are entered
into for bona fide hedging purposes of the Corporation or its
Restricted Subsidiaries (as determined in good faith by the
Board of Directors of the Corporation) and correspond in terms
of notional amount, duration, currencies and interest rates as
applicable, to Indebtedness of the Corporation or its
Restricted Subsidiaries Incurred without violation of the
Indenture or to business transactions of the Corporation or
its Restricted Subsidiaries on customary terms entered into in
the ordinary course of business;
(H) Indebtedness arising from agreements providing
for indemnification, adjustment of purchase price or similar
obligations, or from Guarantees or letters of credits, surety
bonds or performance bonds securing any obligations of the
Corporation or any of its Restricted Subsidiaries pursuant to
such agreements, in each case Incurred in connection with the
disposition of any business assets or Restricted Subsidiary of
the Corporation (other than Guarantees of Indebtedness or
other obligations incurred by any Person acquiring all or any
portion of such business assets or Restricted Subsidiary of
the Corporation for the purpose of financing such acquisition)
in a principal amount not to exceed the gross proceeds
actually received by the Corporation or any of its Restricted
Subsidiaries in connection with such disposition; provided,
however, that the principal amount of any Indebtedness
incurred
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pursuant to this clause (H) when taken together with all
Indebtedness incurred pursuant to this clause (H) and then
outstanding, shall not exceed $1 million;
(I) Indebtedness consisting of (a) Guarantees by the
Corporation without violation of the Indenture and (b)
Guarantees by a Restricted Subsidiary of senior indebtedness
incurred by the Corporation without violation of the Indenture
(so long as such Restricted Subsidiary could have incurred
such Indebtedness directly without violation of the
Indenture);
(J) Indebtedness arising from the honoring by a bank
or other financial institution of a check, draft or similar
instrument drawn against insufficient funds in the ordinary
course of business in an amount not to exceed $500,000 at any
time, provided that such Indebtedness is extinguished within
two business days of its incurrence; and
(K) Indebtedness (other than Indebtedness described
in clauses (A) - (J)) in a principal amount which, when taken
together with the principal amount of all other Indebtedness
Incurred pursuant to this clause (K) and then outstanding,
will not exceed $10 million (it being understood that any
Indebtedness Incurred under this clause (K) shall cease to be
deemed Incurred or outstanding for purposes of this clause (K)
(but shall be deemed to be Incurred for purposes of paragraph
(i)) from and after the first date on which the Corporation or
its Restricted Subsidiaries could have Incurred such
Indebtedness under the foregoing paragraph (i) without
reliance upon this clause (K).
In addition, the Corporation will not permit any
Unrestricted Subsidiary to Incur any Indebtedness other than
Non-Recourse Debt.
(ii) Limitation on Restricted Payments. The Corporation shall
not, and shall not permit any of its Restricted Subsidiaries, directly
or indirectly, to (i) declare or pay any dividend or make any
distribution on or in respect of its Capital Stock (including any
payment in connection with any merger or consolidation involving the
Corporation or any of its Restricted Subsidiaries) except (A) dividends
or distributions payable in its Capital Stock (other than Disqualified
Stock) or in options, warrants or other rights to purchase such Capital
Stock, and (B) dividends or distributions payable to the Corporation or
a Wholly-Owned Subsidiary of the Corporation and (C) dividends (in cash
or additional shares of Senior Preferred Stock) (ii) purchase, redeem,
retire or otherwise acquire for value any Capital Stock of the
Corporation (other than the Senior Preferred Stock) or any Restricted
Subsidiary of the Corporation held by Persons other than the
Corporation or another Restricted Subsidiary of the Corporation (in
either case, other than in exchange for its Capital Stock (other than
Disqualified Stock)), (iii) purchase, repurchase, redeem, defease or
otherwise acquire or retire for value, prior to scheduled maturity,
scheduled repayment or scheduled sinking fund payment, any Subordinated
Obligations or (iv) make any Investment (other than a Permitted
Investment) in any Person (any such dividend, distribution, purchase,
redemption, repurchase, defeasance, other acquisition, retirement or
Investment as described in preceding clauses (i) through (iv) being
referred to as a "Restricted Payment"); if at the time the Corporation
or such Restricted Subsidiary makes such Restricted Payment:
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(1) The Corporation shall have paid a dividend, on
the most recent dividend payment date, by the issuance of
additional Senior Preferred Stock; or
(2) a Triggering Event shall have occurred and be
continuing (or would result therefrom); or
(3) the Corporation is not able to incur an
additional $1.00 of Indebtedness pursuant to paragraph (a)
under paragraph (l)(i); or
(4) the aggregate amount of such Restricted Payment
and all other Restricted Payments declared or made subsequent
to the Issue Date would exceed the sum of (A) 50% of the
Consolidated Net Income accrued during the period (treated as
one accounting period) from the first day of the fiscal
quarter beginning on or after the Issue Date to the end of the
most recent fiscal quarter ending prior to the date of such
Restricted Payment as to which financial results are available
(but in no event ending more than 135 days prior to the date
of such Restricted Payment) (or, in case such Consolidated Net
Income shall be a deficit, minus 100% of such deficit); (B)
the aggregate net proceeds received by the Corporation from
the issue or sale of its Capital Stock (other than
Disqualified Stock) or other capital contributions subsequent
to the Issue Date (other than net proceeds received from an
issuance or sale of such Capital Stock to a Subsidiary of the
Corporation or an employee stock ownership plan or similar
trust); provided, however, that the value of any non-cash net
proceeds shall be as determined by the Board of Directors in
good faith, except that in the event the value of any non-cash
net proceeds shall be $1 million or more, the value shall be
as determined in writing by an independent investment banking
firm of nationally recognized standing; (C) the amount by
which Indebtedness of the Corporation is reduced on the
Corporation's balance sheet upon the conversion or exchange
(other than by a Restricted Subsidiary of the Corporation)
subsequent to the Issue Date of any Indebtedness of the
Corporation Incurred subsequent to the Issue Date which is
convertible or exchangeable for Capital Stock of the
Corporation (less the amount of any cash, or other property,
distributed by the Corporation upon such conversion or
exchange); (D) the amount equal to the net reduction in
Investments (other than Permitted Investments) made after the
Issue Date by the Corporation or any of its Restricted
Subsidiaries in any Person resulting from (i) repurchases or
redemptions of such Investments by such Person, proceeds
realized upon the sale of such Investment to an unaffiliated
purchaser, repayments of loans or advances or other transfers
of assets by such Person to the Corporation or any Restricted
Subsidiary of the Corporation or (ii) the redesignation of
Unrestricted Subsidiaries as Restricted Subsidiaries (valued
in each case as provided in the definition of "Investment")
not to exceed, in the case of any Unrestricted Subsidiary, the
amount of Investments previously included in the calculation
of the amount of Restricted Payments; provided, however, that
no amount shall be included under this clause (D) to the
extent it is already included in Consolidated Net Income; and
(E) $10.0 million.
The provisions of the foregoing paragraph shall not prohibit:
(1) any purchase or redemption of Capital Stock or
Subordinated Obligations of the Corporation made by exchange for, or
out of the proceeds of the substantially concurrent
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sale of, Capital Stock of the Corporation (other than Disqualified
Stock and other than Capital Stock issued or sold to a Subsidiary or an
employee stock ownership plan or similar trust); provided, however,
that (A) such purchase or redemption shall be excluded in the
calculation of the amount of Restricted Payments and (B) the Net Cash
Proceeds from such sale shall be excluded from clause (3) (B) of the
foregoing paragraph;
(2) any purchase or redemption of Subordinated Obligations
of the Corporation made by exchange for, or out of the proceeds of the
substantially concurrent sale of, Subordinated Obligations of the
Corporation in compliance with paragraph (l)(i); provided, however,
that such purchase or redemption shall be excluded in the calculation
of the amount of Restricted Payments;
(3) any purchase or redemption of Subordinated Obligations
from Net Available Cash to the extent permitted under Section 4.10 of
the Indenture;
(4) dividends paid within 60 days after the date of
declaration if at such date of declaration such dividend would have
complied with this provision; provided, however, that such dividend
shall be included in the calculation of the amount of Restricted
Payments;
(5) payments to Bollore Technologies S.A. which payments
shall not exceed $500,000 in any six month period and shall not
exceed $2.5 million in the aggregate.
provided, however, that no Triggering Event shall have occurred or be
continuing at the time of such payment or as a result thereof.
For purposes of determining compliance with the foregoing
covenant, Restricted Payments may be made with cash or non-cash assets,
provided that any Restricted Payment made other than in cash shall be
valued at the fair market value (determined, subject to the additional
requirements of the immediately succeeding proviso, in good faith by
the Board of Directors) of the assets so utilized in making such
Restricted Payment, provided, further that (i) in the case of any
Restricted Payment made with capital stock or Indebtedness, such
Restricted Payment shall be deemed to be made in an amount equal to the
greater of the fair market value thereof and the liquidation preference
(if any) or principal amount of the capital stock or indebtedness, as
the case may be, so utilized, and (ii) in the case of any Restricted
Payment in an aggregate amount in excess of $1 million, a written
opinion as to the fairness of the valuation thereof (as determined by
the Corporation) for purposes of determining compliance with paragraph
(l)(ii) shall be issued by an independent investment banking firm of
national standing.
(iii) Limitation on Restrictions on Distributions from
Restricted Subsidiaries. The Corporation shall not, and shall not
permit any of its Restricted Subsidiaries to, create or permit to exist
or become effective any consensual encumbrance or restriction on the
ability of any such Restricted Subsidiary to:
(A) pay dividends or make any other
distributions on its Capital Stock or pay any Indebtedness
or other obligation owed to the Corporation;
(B) make any loans or advances to the
Corporation; or
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(C) transfer any of its property or assets to
the Corporation;
except (in each case) for such encumbrances or restrictions existing
under or by reason of:
(a) any encumbrance or restriction pursuant to an
agreement in effect at or entered into on the Issue Date, including
the New Senior Secured Facilities;
(b) any encumbrance or restriction with respect to such a
Restricted Subsidiary pursuant to an agreement relating to any
Indebtedness issued by such Restricted Subsidiary on or prior to the
date on which such Restricted Subsidiary was acquired by the
Corporation and outstanding on such date (other than indebtedness
issued in anticipation of, or to provide all or any portion of the
funds or credit support utilized to consummate, the transaction or
series of related transactions pursuant to which such Restricted
Subsidiary became a Restricted Subsidiary of the Corporation or was
acquired by the Corporation);
(c) any encumbrance or restriction with respect to such a
Restricted Subsidiary pursuant to an agreement evidencing Indebtedness
Incurred without violation of the Indenture or effecting a refinancing
of Indebtedness issued pursuant to an agreement referred to in clauses
(a) or (b) or this clause (c) or contained in any amendment to an
agreement referred to in clauses (a) or (b) or this clause (c);
provided, however, that the encumbrances and restrictions with respect
to such Restricted Subsidiary contained in any of such agreement,
refinancing agreement or amendment, taken as a whole, are no less
favorable to holders of the Senior Preferred Stock in any material
respect, as determined in good faith by the Board of Directors of the
Corporation, than encumbrances and restrictions with respect to such
Restricted Subsidiary contained in agreements in effect at, or entered
into on, the Issue Date;
(d) in the case of clause (C) above, any encumbrance or
restriction (A) that restricts in a customary manner the subletting,
assignment or transfer of any property or asset that is a lease,
license, conveyance or contract or similar property or asset, (B) by
virtue of any transfer of, agreement to transfer, option or right with
respect to, or Lien on, any property or assets of the Corporation or
any Restricted Subsidiary not otherwise prohibited by the Indenture,
(C) that is included in a licensing agreement to the extent such
restrictions limit the transfer of the property subject to such
licensing agreement or (D) arising or agreed to in the ordinary course
of business and that does not, individually or in the aggregate,
detract from the value of property or assets of the Corporation or any
of its Subsidiaries in any manner material to the Corporation or any
such Restricted Subsidiary;
(e) in the case of clause (C) above, restrictions contained in
security agreements, mortgages or similar documents securing
Indebtedness of a Restricted Subsidiary to the extent such restrictions
restrict the transfer of the property subject to such security
agreements;
(f) in the case of clause (C) above, any instrument governing
or evidencing Indebtedness of a Person acquired by the Corporation or
any Restricted Subsidiary of the Corporation at the time of such
acquisition, which encumbrance or restriction is not applicable to any
Person, or the properties of assets of any Person, other than the
Person so acquired; provided, however, that such Indebtedness is not
incurred in connection with or in contemplation of, such acquisition.
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(g) any restriction with respect to such a Restricted
Subsidiary imposed pursuant to an agreement entered into for the sale
or disposition of all or substantially all the Capital Stock or assets
of such Restricted Subsidiary pending the closing of such sale or
disposition; and
(h) encumbrances or restrictions arising or existing by
reason of applicable law.
(iv) Limitation on Affiliate Transactions. The Corporation
will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, enter into or conduct any transaction or series
of related transactions (including the purchase, sale, lease or
exchange of any property or the rendering of any service) with or for
the benefit of any Affiliate of the Corporation, other than a
Wholly-Owned Subsidiary (an "Affiliate Transaction") unless: (i) the
terms of such Affiliate Transaction are no less favorable to the
Corporation or such Restricted Subsidiary, as the case may be, than
those that could be obtained at the time of such transaction in arm's
length dealings with a Person who is not such an Affiliate; (ii) in the
event such Affiliate Transaction involves an aggregate amount in excess
of $1 million, the terms of such transaction have been approved by a
majority of the members of the Board of Directors of the Corporation
and by a majority of the disinterested members of such Board, if any
(and such majority or majorities, as the case may be, determines that
such Affiliate Transaction satisfies the criteria in (i) above); and
(iii) in the event such Affiliate Transaction involves an aggregate
amount in excess of $2 million, the Corporation has received a written
opinion from an independent investment banking firm of nationally
recognized standing that such Affiliate Transaction is fair to the
Corporation or such Restricted Subsidiary, as the case may be, from a
financial point of view.
The foregoing paragraph shall not apply to (i) any Restricted
Payment permitted to be made pursuant to paragraph (l)(ii) hereof, (ii)
any issuance of securities, or other payments, awards or grants in
cash, securities or otherwise pursuant to, or the funding of,
employment arrangements, or any stock options and stock ownership plans
for the benefit of employees, officers and directors, consultants and
advisors approved by the Board of Directors of the Corporation, (iii)
loans or advances to employees in the ordinary course of business of
the Corporation or any of its Restricted Subsidiaries in aggregate
amount outstanding not to exceed $1,500,000 at any time, (iv) any
transaction between Wholly-Owned Subsidiaries, (v) indemnification
agreements with, and the payment of fees and indemnities to, directors,
officers and employees of the Corporation and its Restricted
Subsidiaries, in each case in the ordinary course of business, (vi)
transactions pursuant to agreements in existence on the Issue Date
which are (x) described in the Corporation's offering memorandum dated
June 18, 1997 or (y) otherwise, in the aggregate, immaterial to the
Corporation and its Restricted Subsidiaries taken as a whole, (vii) any
employment, non-competition or confidentiality agreements entered into
by the Corporation or any of its Restricted Subsidiaries with its
employees in the ordinary course of business and (viii) the issuance of
Capital Stock of the Corporation (other than Disqualified Stock).
(v) Limitation on Preferred Stock of Restricted
Subsidiaries. The Corporation will not permit any of its Restricted
Subsidiaries to issue any Preferred Stock (except Preferred Stock to
the Corporation or a Restricted Subsidiary) or permit any person (other
than Corporation or a Restricted Subsidiary) to hold any such Preferred
Stock unless the Corporation or Restricted Subsidiary would be entitled
to incur or assume Indebtedness under
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the covenant described under paragraph (l)(i) in the aggregate
principal amount equal to the aggregate liquidation value of the
Preferred Stock to be issued.
(m) SEC Reports. The Corporation will provide to the holders
of the Senior Preferred Stock, within 15 days after it files them with the
Commission, copies of the annual reports and of the information, documents and
other reports (or copies of such portions of any of the foregoing as the
Commission may by rules and regulations prescribe) which the Corporation files
with the Commission pursuant to Section 13 or 15(d) of the Exchange Act. In the
event that the Corporation is not required to file such reports with the
Commission pursuant to the Exchange Act, the Corporation will nevertheless
deliver such Exchange Act information to the holders of the Senior Preferred
Stock within 15 days after it would have been required to file it with the
Commission.
(n) Definitions. As used in this Certificate of Designation,
the following terms shall have the following meanings (with terms defined in the
singular having comparable meanings when used in the plural and vice versa),
unless the context otherwise requires:
"Additional Dividends" has the meaning set forth in the Registration
Rights Agreement.
"Affiliate" of any specified person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Affiliate Transaction" shall have the meaning ascribed to it in
paragraph l(iv) hereof.
"Asset Disposition" means any sale, lease, transfer, issuance or other
disposition (or series of related sales, leases, transfers, issuances or
dispositions that are part of a common plan) of shares of Capital Stock of (or
any other equity interests in) a Restricted Subsidiary (other than directors'
qualifying shares) or of any other property or other assets (each referred to
for the purposes of this definition as a "disposition") by the Corporation or
any of its Restricted Subsidiaries (including any disposition by means of a
merger, consolidation or similar transaction) other than (i) a disposition by a
Restricted Subsidiary to the Corporation or by the Corporation or a Restricted
Subsidiary to a Wholly-Owned Subsidiary, (ii) a disposition of inventory in the
ordinary course of business, (iii) a disposition of obsolete or worn out
equipment or equipment that is no longer useful in the conduct of the business
of the Corporation and its Restricted Subsidiaries and that is disposed of in
each case in the ordinary course of business, (iv) dispositions of property for
net proceeds which, when taken collectively with the net proceeds of any other
such dispositions under this clause (iv) that were consummated since the
beginning of the calendar year in which such disposition is consummated, do not
exceed $1 million, and (v) transactions permitted under paragraph (g) above.
Notwithstanding anything to the contrary contained above, a Restricted Payment
made in compliance with the "Limitation on Restricted Payments" covenant shall
not constitute an Asset Disposition except for purposes of determinations of the
Consolidated Coverage Ratio (as defined) and the Leverage Ratio (as defined).
"Attributable Indebtedness" in respect of a Sale/Leaseback Transaction
means, as at the time of determination, the present value (discounted at the
interest rate borne by the Notes, compounded annually) of the total obligations
of the lessee for rental payments during the remaining term of the
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<PAGE>
lease included in such Sale/Leaseback Transaction (including any period for
which such lease has been extended).
"Average Life" means, as of the date of determination, with respect to
any Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the
sum of the products of the number of year from the date of determination to the
dates of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such payment by (ii) the sum of all such payments.
"Board of Directors" shall have the meaning ascribed to it in the first
paragraph of this Certificate of Designation.
"Business Day" means any day except a Saturday, a Sunday, or any day on
which banking institutions in New York, New York are required or authorized by
law or other governmental action to be closed.
"Capital Stock" of any Person means any and all shares, partnership or
other equity interests, rights to purchase, warrants, options, participations or
other equivalents of or interests in (however designated) equity of such Person,
including any Preferred Stock, but excluding any debt securities convertible
into such equity.
"Capitalized Lease Obligations" means an obligation that is required to
be classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP, and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date such lease may be terminated without penalty.
"Certificate of Designation" means this Certificate of Designation
creating the Senior Preferred Stock.
"Change of Control" means (i) any sale, lease, exchange or other
transfer (in one transaction or a series of related transactions) of all or
substantially all of the assets of the Corporation and its Subsidiaries; or (ii)
a majority of the Board of Directors of Holding or the Corporation or of any
direct or indirect holding company thereof shall consist of Persons who are not
Continuing Directors of Holding or the Corporation, as the case may be; or (iii)
the acquisition by any Person or group of related Persons (other than the
Management Group) for purposes of Section 13(d) of the Exchange Act, of the
power, directly or indirectly, to vote or direct the voting of securities having
more than 50% of the ordinary voting power for the election of directors of
Holding or the Corporation or of any direct or indirect holding company thereof.
"Change of Control Offer" shall have the meaning ascribed to it in
paragraph (h)(i) hereof.
"Change of Control Payment Date" shall have the meaning ascribed to it
in paragraph (h)(ii)(2) hereof.
"Change of Control Purchase Price" shall have the meaning ascribed to
it in paragraph (h)(i) hereof.
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"Common Stock" of any Person means all Capital Stock of such Person
that is generally entitled to (i) vote in the election of directors of such
Person or (ii) if such Person is not a corporation, vote or otherwise
participate in the selection of the governing body, partners, managers or others
that will control the management and policies of such Person.
""Consolidated Cash Flow" for any period means the Consolidated Net
Income for such period, plus the following to the extent deducted in calculating
such Consolidated Net Income: (i) income tax expense, (ii) Consolidated Interest
Expense, (iii) depreciation expense, (iv) amortization expense, and (v) all
other non-cash items reducing Consolidated Net Income (excluding any non-cash
item to the extent it represents an accrual of or reserve for cash disbursements
for any subsequent period prior to the Stated Maturity of the Notes or
amortization of a prepaid cash expense that was paid in a prior period) and
less, to the extent added in calculating Consolidated Net Income, non-cash items
(excluding such non-cash items to the extent they represent an accrual for cash
receipts reasonably expected to be received prior to the Stated Maturity of the
Notes), in each case for such period. Notwithstanding the foregoing, the income
tax expense, depreciation expense and amortization expense of a Subsidiary of
the Corporation shall be included in Consolidated Cash Flow only to the extent
(and in the same proportion) that the net income of such Subsidiary was included
in calculating Consolidated Net Income.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of Consolidated Cash Flow for the period of
the most recent four consecutive fiscal quarters ending prior to the date of
such determination and as to which financial statements are available to (ii)
Consolidated Interest Expense for such four fiscal quarters; provided, however,
that (A) if the Corporation or any of its Restricted Subsidiaries has incurred
any Indebtedness since the beginning of such period and through the date of
determination of the Consolidated Coverage Ratio that remains outstanding or if
the transaction giving rise to the need to calculate Consolidated Coverage Ratio
is an incurrence of Indebtedness, or both, Consolidated Cash Flow and
Consolidated Interest Expense for such period shall be calculated after giving
effect on a pro forma basis to (1) such Indebtedness as if such Indebtedness had
been incurred on the first day of such period (provided that if such
Indebtedness is incurred under a revolving credit facility (or similar
arrangement or under any predecessor revolving credit or similar arrangement)
only that portion of such Indebtedness that constitutes the one year projected
average balance of such Indebtedness (as determined in good faith by the Board
of Directors of the Corporation) shall be deemed outstanding for purposes of
this calculation), and (2) the discharge of any other Indebtedness repaid,
repurchased, defeased or otherwise discharged with the proceeds of such new
Indebtedness as if such discharge had occurred on the first day of such period,
(B) if since the beginning of such period any Indebtedness of the Corporation or
any of its Restricted Subsidiaries has been repaid, repurchased, defeased or
otherwise discharged (other than Indebtedness under a revolving credit or
similar arrangement unless such revolving credit Indebtedness has been
permanently repaid and has not been replaced), Consolidated Interest Expense for
such period shall be calculated after giving pro forma effect thereto as if such
Indebtedness had been repaid, repurchased, defeased or otherwise discharged on
the first day of such period, (C) if since the beginning of such period the
Corporation or any of its Restricted Subsidiaries shall have made any Asset
Disposition or if the transaction giving rise to the need to calculate the
Consolidated Coverage Ratio is an Asset Disposition, Consolidated Cash Flow for
such period shall be reduced by an amount equal to the Consolidated Cash Flow
(if positive) attributable to the assets which are the subject of such Asset
Disposition for such period or increased by an amount equal to the Consolidated
Cash Flow (if negative) attributable thereto for such period, and Consolidated
Interest Expense for such period shall be (1) reduced by an amount equal to the
Consolidated Interest Expense attributable to any Indebtedness
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of the Corporation or any of its Restricted Subsidiaries repaid, repurchased,
defeased or otherwise discharged with respect to the Corporation and its
continuing Restricted Subsidiaries in connection with such Asset Disposition for
such period (or, if the Capital Stock of any Restricted Subsidiary of the
Corporation is sold, the Consolidated Interest Expense for such period directly
attributable to the Indebtedness of such Restricted Subsidiary to the extent the
Corporation and its continuing Restricted Subsidiaries are no longer liable for
such Indebtedness after such sale) and (2) increased by interest income
attributable to the assets which are the subject of such Asset Disposition for
such period, (D) if since the beginning of such period the Corporation or any of
its Restricted Subsidiaries (by merger or otherwise) shall have made an
Investment in any Restricted Subsidiary of the Corporation (or any Person which
becomes a Restricted Subsidiary of the Corporation as a result thereof) or an
acquisition of assets occurring in connection with a transaction causing a
calculation to be made hereunder which constitutes all or substantially all of
an operating unit of a business, Consolidated Cash Flow and Consolidated
Interest Expense for such period shall be calculated after giving pro forma
effect thereto (including the incurrence of any Indebtedness) as if such
Investment or acquisition occurred on the first day of such period and (E) if
since the beginning of such period any Person (that subsequently became a
Restricted Subsidiary of the Corporation or was merged with or into the
Corporation or any Restricted Subsidiary of the Corporation since the beginning
of such period) shall have made any Asset Disposition, Investment or acquisition
of assets that would have required an adjustment pursuant to clause (C) or (D)
above if made by the Corporation or a Restricted Subsidiary of the Corporation
during such period, Consolidated Cash Flow and Consolidated Interest Expense for
such period shall be calculated after giving pro forma effect thereto as if such
Asset Disposition, Investment or acquisition occurred on the first day of such
period. If any Indebtedness bears a floating rate of interest and is being given
pro forma effect, the interest expense on such Indebtedness shall be calculated
as if the rate in effect on the date of determination had been the applicable
rate for the entire period (taking into account any Interest Rate Agreement
applicable to such Indebtedness if such Interest Rate Agreement has a remaining
term in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total
interest expense of the Corporation and its Restricted Subsidiaries determined
in accordance with GAAP, plus, to the extent not included in such interest
expense (i) interest expense attributable to Capitalized Lease Obligations, (ii)
amortization of debt discount, (iii) capitalized interest, (iv) non-cash
interest expense, (v) commissions, discounts and other fees and charges owed
with respect to letters of credit and bankers' acceptance financing, (vi)
interest actually paid by the Corporation or any such Restricted Subsidiary
under any Guarantee of Indebtedness or other obligation of any other Person,
(vii) net payments (whether positive or negative) pursuant to Interest Rate
Agreements, (viii) the cash contributions to any employee stock ownership plan
or similar trust to the extent such contributions are used by such plan or trust
to pay interest or fees to any Person (other than the Corporation) in connection
with Indebtedness Incurred by such plan or trust and (ix) case and Disqualified
Stock dividends in respect of all Preferred Stock of Subsidiaries and
Disqualified Stock of the Corporation held by Persons other than the Corporation
or a Wholly-Owned Subsidiary and less (a) to the extent included in such
interest expense, the amortization of capitalized debt issuance costs and (b)
interest income. Notwithstanding the foregoing, the Consolidated Interest
Expense with respect to any Restricted Subsidiary of the Corporation, that was
not a Wholly-Owned Subsidiary, shall be included only to the extent (and in the
same proportion) that the net income of such Restricted Subsidiary was included
in calculating Consolidated Net Income.
"Consolidated Net Income" means, for any period, the consolidated net
income (loss) of the Corporation and its consolidated Subsidiaries determined
prior to payment of dividends on the Preferred
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Stock Exchanged Preferred Stock and Private Exchange Preferred Stock in
accordance with GAAP; provided, however, that there shall not be included in
such Consolidated Net income: (i) any net income (loss) of any person acquired
by the Corporation or any of its Restricted Subsidiaries in a pooling of
interests transaction for any period prior to the date of such acquisition, (ii)
any net income of any Restricted Subsidiary of the Corporation if such
Restricted Subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to the Corporation (other than restrictions
in effect on the Issue Date with respect to a Restricted Subsidiary of the
Corporation and other than restrictions that are created or exist in compliance
with this certificate, (iii) any gain or loss realized upon the sale or other
disposition of any assets of the Corporation or its consolidated Restricted
Subsidiaries (including pursuant to any Sale/Leaseback Transaction) which are
not sold or otherwise disposed of in the ordinary course of business and any
gain or loss realized upon the sale or other disposition of any Capital Stock of
any Person, (iv) any extraordinary gain or loss, (v) the cumulative effect of a
change in accounting principles, (vi) the net income of any Person, other than a
Restricted Subsidiary, except to the extent of the lesser of (A) dividends or
distributions paid to the Corporation or any of its Restricted Subsidiaries by
such Person and (B) the net income of such Person (but in no event less than
zero), and the net loss of such Person (other than an Unrestricted Subsidiary)
shall be included only to the extent of the aggregate Investment of the
Corporation or any of its Restricted Subsidiaries in such Person and (vii) any
non-cash expenses attributable to grants or exercises of employee stock options.
Notwithstanding the foregoing, Consolidated Net Income for any period shall be
reduced by the aggregate amount of dividends paid during such period pursuant to
clause (v) of paragraph (b) of paragraph (K)(ii) and for the purpose of
paragraph (K)(ii) only, there shall be excluded from Consolidated Net Income any
dividends, repayments of loans or advances or other transfers of assets from
Unrestricted Subsidiaries to the Corporation or a Restricted Subsidiary to the
extent such dividends, repayments or transfers increase the amount of Restricted
Payments permitted under such covenant.
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of the Corporation and its consolidated Restricted Subsidiaries,
determined on a consolidated basis in accordance with GAAP, as of the end of the
most recent fiscal quarter of the Corporation ending prior to the taking of any
action for the purpose of which the determination is being made and for which
financial statements are available (but in no event ending more than 135 days
prior to the taking of such action), as (i) the par or stated value of all
outstanding Capital Stock of the Corporation plus (ii) paid in capital or
capital surplus relating to such Capital Stock plus (iii) any retained earnings
or earned surplus less (A) any accumulated deficit and (B) any amounts
attributable to Disqualified Stock.
"Continuing Director" of any Person means, as of the date of
determination, any Person who (i) was a member of the Board of Directors of such
Person on the date of the Indenture or (ii) was nominated for election or
elected to the Board of Directors of such Person with the affirmative vote of a
majority of the Continuing Directors of such Person who were members of such
Board of Directors at the time of such nomination or election.
"Corresponding Amendment" shall have the meaning ascribed to it in
paragraph (f)(ii)(C) hereof.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap, agreement or other similar agreement to which Person is
a party or a beneficiary.
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"Disqualified Stock" means any Capital Stock which, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event (other than an event which
would constitute a Change of Control), (i) matures (excluding any maturity as
the result of an optional redemption by the issuer thereof) 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 the
final stated maturity of the Notes, or (ii) is convertible into or exchangeable
(unless at the sole option of the issuer thereof) for (a) debt securities or (b)
any Capital Stock referred to in (i) above, in each case at any time prior to
the final stated maturity of the Senior Preferred Stock.
"Dividend Period" means the Initial Dividend Period and, thereafter,
each quarterly dividend period.
"Equity Offerings" means an offering for cash by the Corporation of its
Common Stock or option warrants or rights with respect to its Common Stock.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder,
"Exchange Notice" shall have the meaning ascribed to it in paragraph
(g) hereof.
"Exchange Offer" means a registered offer to exchange any and all
shares of the Senior Preferred Stock for a like number of shares (with a
liquidation preference equal to that of the surrendered shares) of another
series of the Corporation's senior exchangeable preferred stock that has terms
identical in all material respects to the Senior Preferred Stock except that the
Exchange Preferred Stock shall have been registered pursuant to an effective
registration statement under the Securities Act and the certificates therefor
shall contain no restrictive legends thereon.
"Exchange Preferred Stock" means the series of the Corporation's senior
exchangeable preferred stock publicly offered in exchange for the Senior
Preferred Stock as contemplated by the Registration Rights Agreement and having
terms identical in all material respects to the Senior Preferred Stock.
"Existing Indebtedness" means Indebtedness of the Corporation or its
Restricted Subsidiaries in existence and outstanding on the Issue Date.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect as of the date of the Indenture, including those
set forth in the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession. All ratios and computations based on GAAP contained in
the Indenture shall be computed in conformity with GAAP.
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness of any other Person
and any obligation, direct or indirect, contingent or otherwise, of such Person
(i) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Indebtedness of such other Person (whether arising by virtue of
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partnership arrangements, or by agreement to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of assuring
in any other manner the obligee of such Indebtedness of the payment thereof or
to protect such obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Guarantor" means each Subsidiary of the Corporation in existence on
the Issue Date and each Subsidiary (other than Unrestricted Subsidiaries)
created or acquired by the Corporation after the Issue Date.
"Holder" means a holder of shares of Senior Preferred Stock, Exchange
Preferred Stock or Private Exchange Preferred Stock, as the context requires, as
reflected in the stock books of the Corporation.
"Incur" means issue, assume, guarantee, incur or otherwise become
liable for; provided, however, that any indebtedness or Capital Stock of a
Person existing at the time such person becomes a Restricted Subsidiary (whether
by merger, consolidation, acquisition or otherwise) shall be deemed to be
incurred by such Restricted Subsidiary at the time it becomes a Restricted
Subsidiary.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of indebtedness of such Person for borrowed money, (ii) the principal
of and premium (if any) in respect of obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments, (iii) all obligations of
such Person in respect of letters of credit or other similar instruments
(including reimbursement obligations with respect thereto) (other than
obligations with respect to letters of credit securing obligations (other than
obligations described in clauses (i), (ii) and (v)) entered into in the ordinary
course of business of such Person to the extent that such letters of credit are
not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed
no later than the third business day following receipt by such Person of a
demand for reimbursement following payment on the letter of credit), (iv) all
obligations of such Person to pay the deferred and unpaid purchase price of
property or services (except trade payables and accrued expenses incurred in the
ordinary course of business), which purchase price is due more than six months
after the date of placing such property in service or taking delivery and title
thereto or the completion of such services, (v) all Capitalized Lease
Obligations and all Attributable Indebtedness of such Person, (vi) all
Indebtedness of other Persons secured by a Lien on any asset of such Person,
whether or not such Indebtedness is assumed by such Person, (vii) all
Indebtedness of other Persons to the extent Guaranteed by such Person, (viii)
the amount of all obligations of such Person with respect to the redemption,
repayment or other repurchase of any Disqualified Stock other than the Senior
Preferred Stock or, with respect to any Restricted Subsidiary of the
Corporation, any Preferred Stock of such Restricted Subsidiary to the extent
such obligation arises on or before the stated maturity of such Preferred Stock
(but excluding, in each case, accrued dividends) and (ix) to the extent not
otherwise included in this definition, obligations under Currency Agreements and
Interest Rate Agreements. The amount of Indebtedness of any Person at any date
shall be the outstanding principal amount of all unconditional obligations as
described above, as such amount would be reflected on a balance sheet prepared
in accordance with GAAP, and the maximum liability of such Person, upon the
occurrence of the contingency giving rise to the obligation, of any contingent
obligations described above at such date.
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"Initial Dividend Period" means the dividend period commencing on the
Issue Date and ending on the first Regular Dividend Payment Date to occur
thereafter.
"Indenture" means the Indenture dated as of June 25, 1997, by, and
among the Corporation, the Subsidiary Guarantors and United States Trust Company
of New York as Trustee.
"Interest Rate Agreement" means with respect to any Person any interest
rate protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement as to which such Person is party or a beneficiary.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts payable on the balance sheet of such Person) or other
extension of credit (including by way of Guarantee or similar arrangement, but
excluding any debt or extension of credit represented by a bank deposit other
than a time deposit) or capital contribution to (by means of any transfer of
cash or other property to others or any payment for property or services for the
account or use of others), or any purchase or acquisition of Capital Stock,
Indebtedness or other similar instruments issued by such Person. For purposes of
the paragraph (k)(2), (i) "Investment" shall include the portion (proportionate
to the Corporation's equity interest in a Restricted Subsidiary to be designated
as an Unrestricted Subsidiary) of the fair market value of the net assets of
such Restricted Subsidiary of the Corporation at the time that such Restricted
Subsidiary is designated an Unrestricted Subsidiary; provided, however, that
upon a redesignation of such Subsidiary as a Restricted Subsidiary, the
Corporation shall be deemed to continue to have a permanent "Investment" in an
Unrestricted Subsidiary in an amount (if positive) equal to (x) the
Corporation's "Investment" in such Subsidiary at the time of such redesignation
less (y) the portion (proportionate to the Corporation's equity interest in such
Subsidiary) of the fair market value of the net assets of such Subsidiary at the
time that such Subsidiary is so redesignated a Restricted Subsidiary; and (ii)
any property transferred to or from an Unrestricted Subsidiary shall be valued
at its fair market value at the time of such transfer, in each case as
determined in good faith by the Board of Directors and evidenced by a resolution
of such Board of Directors certified in an officers' certificate.
"Issue Date" means the date on which the Preferred Stock are
originally issued.
"Junior Stock" shall have the meaning ascribed to it in paragraph (b)
hereof.
"Lien" means any security interest, charge or encumbrance of any kind
(including any conditional sale or other title retention agreement, any lease in
the nature thereof.
"Net Available Cash" from an Asset Disposition means cash payments
received (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only as
and when received, therefrom in each case net of (i) all legal, title and
recording tax expenses, commissions and other fees and expenses incurred, and
all Federal, state, foreign and local taxes required to be paid or accrued as a
liability under GAAP, as a consequence of such Asset Disposition, (ii) all
payments made on any Indebtedness which is secured by any assets subject to such
Asset Disposition, in accordance with the terms of any Lien upon such assets, or
which must by its terms, or in order to obtain a necessary consent to such Asset
Disposition or by applicable law, be repaid out of the proceeds from such Asset
Disposition, (iii) all distributions and other payments required to be made to
any Person owning a beneficial interest in assets subject to sale or
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minority interest holders in Subsidiaries or joint ventures as a result of such
Asset Disposition, (iv) the deduction of appropriate amounts to be provided by
the seller as a reserve, in accordance with GAAP, against any liabilities
associated with the assets disposed of in such Asset Disposition, provided,
however, that upon any reduction in such reserves (other than to the extent
resulting from payments of the respective reserved liabilities), Net Available
Cash shall be increased by the amount of such reduction to reserves, and
retained by the Corporation or any Restricted Subsidiary of the Corporation
after such Asset Disposition and (v) any portion of the purchase price from an
Asset Disposition placed in escrow (whether as a reserve for adjustment of the
purchase price, for satisfaction of indemnities in respect of such Asset
Disposition or otherwise in connection with such Asset Disposition); provided,
however, that upon the termination of such escrow, Net Available Cash shall be
increased by any portion of funds therein released to the Corporation or any
Restricted Subsidiary.
"Net Cash Proceeds" with respect to any issuance or sale of Capital
Stock, means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result of such issuance or sale.
"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person determined in accordance with GAAP.
"New Senior Secured Facilities" means Indebtedness of the Corporation
and its Restricted Subsidiaries under a revolving credit facility in an
aggregate principal amount not greater than $25 million (including a letter of
credit sublimit of $10 million) and $85,000,000 aggregate principal amount of
Senior Secured Floating Rate Notes.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the
Corporation nor any Restricted Subsidiary (a) provides any guarantee or credit
support of any kind (including any undertaking, guarantee, indemnity, agreement
or instrument that would constitute Indebtedness) or (b) is directly or
indirectly liable (as a guarantor, general partner or otherwise) and (ii) no
default with respect to which (including any rights that the holders thereof may
have to take enforcement action against an Unrestricted Subsidiary) would permit
(upon notice, lapse of time or both) any holder of any other Indebtedness of the
Corporation or any Restricted Subsidiary to declare a default under such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity.
"Notes" means the $155,000,000 aggregate principal amount of 11% Senior
Notes due 2004 issued by the Corporation on the Issue Date.
"Note Indenture" means the indenture governing the Notes.
"Parity Stock" shall have the meaning ascribed to it in paragraph (b)
hereof.
"Permitted Business" means any business which is the same as or
related, ancillary or complementary to any of the businesses of the Corporation
and its Restricted Subsidiaries on the Issue Date.
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"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision hereof or any other entity.
"Preferred Stock," as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"Private Exchange Preferred Stock" means a series of the Corporation's
senior exchangeable preferred stock contemplated by the Registration Rights
Agreement issued under the same certificate of designation as the Exchange
Preferred Stock and having terms identical in all material respects to the
Senior Preferred Stock.
A "Public Market" exists at any time with respect to the common stock
of Holding or the Corporation if (i) the common stock of Holding or the
Corporation is then registered with the Securities and Exchange Commission
pursuant to Section 12(b) or 12(g) of the Exchange Act and traded either on a
national securities exchange or in the National Association of Securities
Dealers Automated Quotation System and (ii) at least 15% of the total issued and
outstanding common stock of Holding or the Corporation, as applicable, has been
distributed prior to such time by means of an effective registration statement
under the Securities Act.
"Purchase Money Indebtedness" means any Indebtedness incurred in the
ordinary course of business by a Person to finance the cost (including the cost
of construction) of an item of property, the principal amount of which
Indebtedness does not exceed the sum of (i) 100% of such cost and (ii)
reasonable fees and expenses of such Person incurred in connection therewith.
"Redemption Date", with respect to any shares of Senior Preferred
Stock, means the date on which such shares of Senior Preferred Stock are
redeemed by the Corporation.
"Redemption Notice" shall have the meaning ascribed to it in
paragraph (e)(iii) hereof.
"Refinancing Indebtedness" means Indebtedness that refunds, refinances,
replaces, renews, repays or extends (including pursuant to any defeasance or
discharge mechanism) (collectively, "refinances," and "refinanced" shall have a
correlative meaning) any Indebtedness existing on the date of the Indenture or
Incurred in compliance with the Indenture (including Indebtedness of the
Corporation that refinances Indebtedness of any Restricted Subsidiary and
Indebtedness of any Restricted Subsidiary that refinances Indebtedness of
another Restricted Subsidiary) including Indebtedness that refinances
Refinancing Indebtedness; provided, however, that (i) the Refinancing
Indebtedness has a Stated Maturity no earlier than the earlier of (A) the first
anniversary of the Stated Maturity of the Notes and (B) the Stated Maturity of
the Indebtedness being refinanced, (ii) the Refinancing Indebtedness has an
Average Life at the time such Refinancing Indebtedness is Incurred that is equal
to or greater than the lesser of (A) the Average Life of the Notes and (B) the
Average Life of the Indebtedness being refinanced, (iii) the Refinancing
Indebtedness is subordinated to the Notes on the same terms as the Indebtedness
being refinanced if such Indebtedness is subordinate to the Notes and, (iv) the
Refinancing Indebtedness is in an aggregate principal amount (or if issued with
original issue discount, an aggregate issue price) that is equal to (or 101% of,
in the case of a refinancing of the Notes in connection with a Change of
Control) or less than the sum of the aggregate principal amount
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(or if issued with original issue discount, the aggregate accredited value) then
outstanding of the Indebtedness being refinanced (plus the amount of any premium
required to be paid in connection therewith and reasonable fees and expenses
therewith) provided, further, that Refinancing Indebtedness shall not include
Indebtedness of a Subsidiary which refinances Indebtedness of the Corporation.
"Registration Rights Agreement" means the Preferred Stock Registration
Rights Agreement dated as of the Issue Date among the Corporation and NatWest
Capital Markets Limited.
"Regular Dividend Payment Date" means March 15, June 15, September 15
and December 15 of each year.
"Regular Dividend Record Date" means March 1, June 1, September 1 and
December 1 of each year.
"Regular Dividends" shall have the meaning ascribed to it in
paragraph (c)(i) hereof.
"Restricted Payment" shall have the meaning ascribed to it in
paragraph (l)(ii) hereof.
"Restricted Subsidiary" means any Subsidiary of the Corporation other
than an Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property
now owned or hereafter acquired whereby the Corporation or a Restricted
Subsidiary transfers such property to a Person and the Corporation or a
Subsidiary leases it from such Person.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Senior Preferred Stock" shall have the meaning ascribed to it in
paragraph (a) hereof.
"Senior Stock" shall have the meaning ascribed to it in paragraph (b)
hereof.
"Subordinated Obligations" means any Indebtedness of the Corporation
(whether outstanding on the Issue Date or thereafter Incurred) which is
subordinate or junior in right of payment to the Notes pursuant to a written
agreement.
"Subsidiary" of any Person incorporated in the United States means any
corporation, association, partnership or other business entity organized in the
United States of which more than 50% of the total voting power of shares of
Capital Stock or other interests (including partnership interests) entitled
(without regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by (i) such Person, (ii) such Person and one or more
Subsidiaries of such Person or (iii) one or more Subsidiaries of such Person.
Unless otherwise specified herein, each reference to a Subsidiary shall refer to
a Subsidiary of the Corporation.
"Subsidiary Guarantees" means the guarantees of the Notes by the
Subsidiary Guarantors (as such term is defined in the Indenture).
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"Successor Corporation" shall have the meaning ascribed to it in
paragraph (f)(iii) hereof.
"Triggering Event" shall have the meaning ascribed to it in paragraph
(f)(iv) hereof.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Corporation
that at the time of determination shall be designated an Unrestricted Subsidiary
by the Board of Directors in the manner provided below and (ii) any Subsidiary
of an Unrestricted Subsidiary. The Board of Directors may designate any
Subsidiary of the Corporation (including any newly acquired or newly formed
Subsidiary of the Corporation) to be an Unrestricted Subsidiary unless such
Subsidiary or any of its Subsidiaries owns any Capital Stock or Indebtedness of,
or owns or holds any Lien on any property of, the Corporation or any Restricted
Subsidiary of the Corporation that is not a Subsidiary of the Subsidiary to be
so designated; provided, however, each Subsidiary to be so designated and each
of its Subsidiaries has not at the time of designation, and does not thereafter,
create, incur, issue, assume, guarantee or otherwise become directly or
indirectly liable with respect to any Indebtedness pursuant to which the lender
has recourse to any of the assets of the Corporation or any of its Restricted
Subsidiaries and either (A) the Subsidiary to be so designated has total
consolidated assets of $10,000 or less or (B) if such Subsidiary has
consolidated assets greater than $10,000, then such designation would be
permitted under "Limitation on Restricted Payments." The Board of Directors may
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided,
however, that immediately after giving effect to such designation (x) the
Corporation could Incur $1.00 of additional Indebtedness under clause (l)(i)(a)
and (y) no Triggering Event shall have occurred and be continuing. Any such
designation by the Board of Directors shall be evidenced to the Trustee by
promptly filing with the Trustee a copy of the Board Resolution giving effect to
such designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.
"Wholly-Owned Subsidiary" means a Restricted Subsidiary of the
Corporation, at least 99% of Capital Stock of which (other than directors'
qualifying shares) is owned by the Corporation or another Wholly-Owned
Subsidiary.
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IN WITNESS WHEREOF, said North Atlantic Trading Company, Inc., has
caused this Certificate of Designation to be signed by Thomas F. Helms, Jr. its
President and Chief Executive Officer, this 25th day of June, 1997.
NORTH ATLANTIC TRADING ACQUISITION COMPANY, INC.
By: /s/ Thomas F. Helms, Jr.
---------------------------
Name: Thomas F. Helms, Jr.
Title: President
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CERTIFICATE OF DESIGNATION OF THE POWERS,
PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL AND OTHER SPECIAL RIGHTS OF 12%
SENIOR EXCHANGE PAYMENT-IN-KIND PREFERRED STOCK,
AND QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS THEREOF
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
North Atlantic Trading Company, Inc. (the "Corporation"), a
corporation organized and existing under the General Corporation Law of the
State of Delaware, does hereby certify that, pursuant to authority conferred
upon the board of directors of the Corporation (the "Board of Directors") by its
Certificate of Incorporation, as amended (hereinafter referred to as the
"Certificate of Incorporation"), and pursuant to the provisions of Section 151
of the General Corporation Law of the State of Delaware, said Board of
Directors, duly approved and adopted the following resolution (the
"Resolution"):
RESOLVED, that, pursuant to the authority vested in the Board
of Directors by its Certificate of Incorporation, the Board of
Directors does hereby create, authorize and provide for the issuance of
12% Senior Exchange Payment-In-Kind Preferred Stock, par value $.01 per
share, with a stated value of $25.00 per share, consisting of 6,000,000
shares, having the designations, preferences, relative, participating,
optional and other special rights and the qualifications, limitations
and restrictions thereof that are set forth in the Certificate of
Incorporation and in this Resolution as follows:
(a) Designation. There is hereby created out of the authorized
and unissued shares of the Corporation's class of Exchange Preferred Stock (as
defined in the Certificate of Incorporation) a series of Preferred Stock
designated as the "12% Senior Exchange Payment-In-Kind Preferred Stock." The
number of shares constituting such series shall be 6,000,000 and are referred to
herein as the "Senior Exchange Preferred Stock." Such number of shares of Senior
Exchange Preferred Stock as may be necessary to be publicly offered in exchange
for the Senior Preferred Stock as contemplated by the Registration Rights
Agreement shall be initially issued with the additional shares reserved for
issuance in accordance with paragraph (c)(i) hereof.
(b) Rank. The Senior Exchange Preferred Stock shall, with
respect to dividends and distributions upon liquidation, winding-up and
dissolution of the Corporation, rank senior to all classes of Common Stock of
the Corporation and to each other class of Capital Stock of the Corporation or
series of Preferred Stock of the Corporation hereafter created other than as
permitted in the following sentence (collectively, referred to as "Junior
Stock"). The Corporation may not issue any class or series of Capital Stock that
ranks (x) on a parity with the Senior Exchange Preferred Stock as to dividends
and distributions upon liquidation, winding-up and dissolution (collectively,
referred to as "Parity Stock") that was not approved by the Holders in
accordance with paragraph (f)(ii)(A) hereof (to the extent such approval is
required) or (y) senior to the Senior Exchange Preferred Stock as to dividends
and distributions upon liquidation, winding-up and dissolution of the
Corporation (collectively referred to as "Senior Stock") that was not approved
by the Holders in accordance with paragraph (f)(ii)(B) hereof.
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(c) Dividends.
(i) Beginning on the Issue Date, the Holders of the
outstanding shares of Senior Exchange Preferred Stock shall be entitled
to receive, when, as and if declared by the Board of Directors, out of
funds legally available therefor, dividends (the "Regular Dividends")
on each share of Senior Exchange Preferred Stock, at a rate per annum
equal to 12% of the liquidation preference per share of the Senior
Exchange Preferred Stock, payable quarterly; provided that so long as a
Triggering Event shall have occurred and be continuing, additional
dividends will accumulate on the Senior Exchange Preferred Stock at a
rate per annum of 2% of the liquidation preference per share of the
Senior Exchange Preferred Stock, payable quarterly; and provided
further, that the Regular Dividend rate per annum is subject to
increase as provided for in clause (vi) below. All Regular Dividends
shall be cumulative, whether or not earned or declared, on a daily
basis from the date of issuance of the Senior Exchange Preferred Stock
and shall be payable quarterly in arrears on each Regular Dividend
Payment Date, commencing on the first Regular Dividend Payment Date
after the Issue Date. Regular Dividends (including Additional
Dividends, if any) accumulating on or prior to June 15, 2002 may be
paid, at the Corporation's option, either in cash or by the issuance of
additional shares of Senior Exchange Preferred Stock (including
fractional shares) having an aggregate liquidation preference equal to
the amount of such Regular Dividends (but not less than $1.00). In the
event that on or prior to June 15, 2002 Regular Dividends are declared
and paid through the issuance of additional shares of Senior Exchange
Preferred Stock as provided in the previous sentence, such Regular
Dividends shall be deemed paid in full and shall not accumulate.
Regular Dividends accumulating after June 15, 2002 must be paid in
cash. Each Regular Dividend shall be payable, out of funds legally
available therefor, to the Holders of record as they appear on the
stock books of the Corporation on the Regular Dividend Record Date
immediately preceding the related Regular Dividend Payment Date.
(ii) All Regular Dividends paid with respect to shares of
the Senior Exchange Preferred Stock pursuant to paragraph (c)(i)
shall be paid pro rata to the Holders entitled thereto.
(iii) Regular Dividends accruing after June 15, 2002 on the
Senior Exchange Preferred Stock for any past Dividend Period and
Regular Dividends in connection with any optional redemption pursuant
to paragraph (e)(i) may be declared and paid at any time, without
reference to any Regular Dividend Payment Date, to Holders of record on
such date, not more than forty-five (45) days prior to the payment
thereof, as may be fixed by the Board of Directors of the Corporation.
(iv) So long as any share of the Senior Exchange Preferred
Stock is outstanding, the Corporation shall not declare, pay or set
apart for payment any dividend on any Junior Stock or Parity Stock or
make any payment on account of, or set apart for payment money for a
sinking or other similar fund for, the purchase, redemption or other
retirement of, any Junior Stock or Parity Stock or any warrants,
rights, calls or options exercisable for or convertible into any Junior
Stock or Parity Stock whether in cash, obligations or shares of the
Corporation or other property, and shall not permit any corporation or
other entity directly or indirectly controlled by the Corporation to
purchase or redeem any Junior Stock or Parity Stock or any such
warrants, rights, calls or options unless full cumulative dividends
determined in
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accordance herewith on the Senior Exchange Preferred Stock have been
paid (or are deemed paid) in full.
(v) Regular Dividends payable on the Senior Exchange
Preferred Stock for any period less than a year shall be computed on
the basis of a 360-day year of twelve 30-day months and the actual
number of days elapsed in the period for which payable. The amount of
Additional Dividends will be determined consistent with the preceding
sentence and by multiplying the applicable Additional Dividends by a
fraction, the numerator of which is the number of days (not to exceed
90) such rate was applicable during any Dividend Period and the
denominator of which is 360.
(vi) Additional Dividends shall become due and payable with
respect to the Senior Exchange Preferred Stock as set forth in the
Registration Rights Agreement.
(d) Liquidation Preference.
(i) The liquidation preference of the Senior Exchange
Preferred Stock shall be $25.00 per share. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
affairs of the Corporation, the Holders of shares of Senior Exchange
Preferred Stock then outstanding shall be entitled to be paid out of
the assets of the Corporation available for distribution to its
stockholders an amount in cash equal to the liquidation preference for
each share outstanding, plus, without duplication, (x) an amount in
cash equal to accumulated and unpaid Regular Dividends and Additional
Dividends thereon to the date fixed for liquidation, dissolution or
winding up (including an amount equal to a prorated Regular Dividend
for the period from the last Dividend Payment Date to the date fixed
for liquidation, dissolution or winding up) before any distribution is
made on Junior Stock. Except as provided in the preceding sentence,
Holders of Senior Exchange Preferred Stock shall not be entitled to any
distribution in the event of any liquidation, dissolution or winding up
of the affairs of the Corporation. If the assets of the Corporation are
not sufficient to pay in full the liquidation payments payable to the
Holders of outstanding shares of the Senior Exchange Preferred Stock
and all Parity Stock, then the holders of all such shares shall share
equally and ratably in such distribution of assets in proportion to the
full liquidation preference to which each is entitled until such
preferences are paid in full, and then in proportion to their
respective amounts of accumulated but unpaid dividends.
(ii) For the purposes of this paragraph (d), neither the
sale, conveyance, exchange or transfer (for cash, shares of stock,
securities or other consideration) of all or substantially all of the
property or assets of the Corporation nor the consolidation or merger
of the Corporation with or into one or more entities shall be deemed to
be a liquidation, dissolution or winding up of the affairs of the
Corporation.
(e) Redemption.
(i) Optional Redemption. Up to 35% of the aggregate
liquidation value of the Senior Exchange Preferred Stock will be
redeemable, at the Corporation's option, at any time or in part from
time to time, on or prior to June 15, 2000 out of the Net Cash Proceeds
of one or more Equity Offerings by the Corporation so long as there is
a Public Market at the time of such redemption, at a redemption price
equal to 112% of the liquidation preference thereof,
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plus, without duplication, an amount in cash equal to all accumulated
and unpaid dividends (including but not limited to an amount in cash
equal to a prorated dividend for the period from the immediately
preceding Dividend Payment Date to the redemption date). After June 15,
2000 and prior to June 15, 2002, the Senior Exchange Preferred Stock is
not redeemable. On or after June 15, 2002, the Senior Exchange
Preferred Stock will be redeemable, at the Corporation's option, in
whole at any time or in part from time to time, at the following
redemption prices (expressed as a percentage of liquidation preference)
if redeemed during the twelve-month period commencing on June 15 of the
applicable year set forth below plus, without duplication, an amount in
cash equal to all accumulated and unpaid dividends (including, but not
limited, to an amount in cash equal to a prorated dividend for the
period from the immediately preceding dividend payment date to the
Redemption Date):
Year Percentage
2002 106.000%
2003 104.000%
2004 102.000%
2005 and thereafter 100.000%
(ii) Mandatory Redemption. The Senior Exchange Preferred
Stock will be subject to mandatory redemption, subject to contractual
and other restrictions with respect thereto and to the legal
availability of funds therefor, in the manner provided in
paragraph(e)(iii) hereof, in whole on June 15, 2007 at a redemption
price equal to the liquidation preference thereof, plus, without
duplication, all accumulated and unpaid dividends to the date of
redemption.
(iii) Procedures for Redemption. (A) At least thirty (30)
days and not more than sixty (60) days prior to the date fixed for any
redemption of the Senior Exchange Preferred Stock, written notice
(the "Redemption Notice") shall be given by first class mail, postage
prepaid, to each Holder of record on the record date fixed for such
redemption of the Senior Exchange Preferred Stock at such Holder's
address as it appears on the stock books of the Corporation, provided
that no failure to give such notice nor any deficiency therein shall
affect the validity of the procedure for the redemption of any shares
of Senior Exchange Preferred Stock to be redeemed except as to the
Holder or Holders to whom the Corporation has failed to give said
notice or except as to the Holder or Holders whose notice was
defective. The Redemption Notice shall state:
(1) whether the redemption is pursuant to
paragraph (e)(i) or (e)(ii) hereof;
(2) the redemption price;
(3) whether all or less than all the outstanding shares
of the Senior Exchange Preferred Stock are to be redeemed and the
total number of shares of the Senior Exchange Preferred Stock
being redeemed;
(4) the date fixed for redemption;
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(5) that the Holder is to surrender to the Corporation,
in the manner, at the place or places and at the price
designated, his certificate or certificates representing the
shares of Senior Exchange Preferred Stock to be redeemed; and
(6) that dividends on the shares of the Senior Exchange
Preferred Stock to be redeemed shall cease to accumulate on such
Redemption Date unless the Corporation defaults in the payment of
the redemption price.
(B) Each Holder of Senior Exchange Preferred Stock shall
surrender the certificate or certificates representing such shares of
Senior Exchange Preferred Stock to the Corporation, duly endorsed (or
otherwise in proper form for transfer, as determined by the
Corporation), in the manner and at the place designated in the
Redemption Notice, and on the Redemption Date the full redemption price
for such shares shall be payable in cash to the Person whose name
appears on such certificate or certificates as the owner thereof, and
each surrendered certificate shall be canceled and retired. In the
event that less than all of the shares represented by any such
certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares.
(C) On and after the Redemption Date, unless the Corporation
defaults in the payment in full of the applicable redemption price,
dividends on the Senior Exchange Preferred Stock called for redemption
shall cease to accumulate on the Redemption Date, and all rights of the
Holders of redeemed shares shall terminate with respect thereto on the
Redemption Date, other than the right to receive the redemption price;
provided, however, that if a notice of redemption shall have been given
as provided in paragraph (iii)(A) above and the funds necessary for
redemption (including an amount in cash in respect of all dividends
that will accumulate to the Redemption Date) shall have been
irrevocably deposited in trust for the equal and ratable benefit of the
Holders of the shares to be redeemed, then, at the close of business on
the day on which such funds are segregated and set aside, the Holders
of the shares to be redeemed shall cease to be stockholders of the
Corporation and shall be entitled only to receive the redemption price.
(f) Voting Rights.
(i) The Holders of Senior Exchange Preferred Stock, except
as otherwise required under Delaware law or as set forth in paragraphs
(ii), (iii) and (iv) below, shall not be entitled or permitted to vote
on any matter required or permitted to be voted upon by the
stockholders of the Corporation.
(ii) (A) So long as any shares of the Senior Exchange
Preferred Stock are outstanding, the Corporation shall not authorize or
issue any class of Parity Stock without the affirmative vote or consent
of Holders of at least a majority of the then outstanding shares of
Senior Exchange Preferred Stock and Senior Preferred Stock, voting or
consenting, as the case may be, as one class, given in person or by
proxy, either in writing or by resolution adopted at an annual or
special meeting; provided, however, that no such vote or consent shall
be necessary in connection with (i) issuance of additional shares of
Senior Exchange Preferred Stock pursuant to the provisions of paragraph
(c) of this Certificate of Designation, or pursuant to the provisions
of paragraph (c) of the certificate of designation governing the Senior
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Preferred Stock; and provided further, however, that the Corporation
may issue Parity Stock if after giving effect to such issuance the
Consolidated Coverage Ratio is greater than 1.7 to 1.
(B) So long as any shares of the Senior Exchange Preferred
Stock are outstanding, the Corporation shall not authorize or issue any
class of Senior Stock without the affirmative vote or consent of
Holders of at least a majority of the outstanding shares of Senior
Exchange Preferred Stock and Senior Preferred Stock, voting or
consenting, as the case may be, as one class, given in person or by
proxy, either in writing or by resolution adopted at an annual or
special meeting.
(C) So long as any shares of the Senior Exchange Preferred
Stock are outstanding, the Corporation shall not amend this Certificate
of Designation so as to affect adversely the specified rights,
preferences, privileges or voting rights of holders of shares of Senior
Exchange Preferred Stock without the affirmative vote or consent of
Holders of at least a majority of the issued and outstanding shares of
(x) Senior Exchange Preferred Stock and Senior Preferred Stock, voting
or consenting, as the case may be, as one class, given in person or by
proxy, either in writing or by resolution adopted at an annual or
special meeting, if a corresponding amendment is to be made to the
certificate of designation governing the Senior Preferred Stock which
amendment, together with such amendment to this Certificate of
Designation, affects the Senior Exchange Preferred Stock and Senior
Preferred Stock identically in all material respects (a "Corresponding
Amendment") or (y) Senior Exchange Preferred Stock, voting or
consenting, as the case may be, as one class, given in person or by
proxy, either in writing or by resolution adopted at an annual or
special meeting, if such amendment is not a Corresponding Amendment.
Notwithstanding the foregoing clauses (B) and (C), any
Restricted Subsidiary of the Corporation may consolidate with, merge
into or transfer all or part of its properties and assets to the
Corporation.
For purposes of the foregoing, the transfer (by lease,
assignment, sale or otherwise, in a single transaction or series of
related transactions) of all or substantially all of the properties or
assets of one or more Subsidiaries of the Corporation, the Capital
Stock of which constitutes all or substantially all of the properties
and assets of the Corporation, shall be deemed to be the transfer of
all or substantially all of the properties and assets of the
Corporation.
(iii) (A) If (i) after June 15, 2002, dividends on the
Senior Exchange Preferred Stock required to be paid in cash are in
arrears and unpaid or (ii) the Corporation fails to redeem the Senior
Exchange Preferred Stock on or before March 15, 2007 or fails to
discharge any redemption obligation with respect to the Senior
Exchange Preferred Stock or (iii) the Corporation fails to make a
Change of Control Offer if such an offer is required by the
provisions set forth under paragraph (h)(i) hereof or fails to
purchase shares of Senior Exchange Preferred Stock from holders who
elect to have such shares purchased pursuant to the Change of Control
Offer or (iv) a breach or violation of any of the provisions
described under paragraph (l) hereof occurs and the breach or
violation continues for a period of 60 days or more after the
Corporation receives notice thereof specifying the default from the
holders of at least 25% of the shares of Senior Exchange Preferred
Stock and Senior Preferred Stock then outstanding or (v) the
Corporation fails to pay at the final Stated Maturity (giving effect to
any
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extensions thereof) the principal amount of any Indebtedness of the
Corporation or any Restricted Subsidiary of the Corporation, or the
final Stated Maturity of any such Indebtedness is accelerated, if the
aggregate principal amount of such Indebtedness, together with the
aggregate principal amount of any other such Indebtedness in default
for failure to pay principal at the final Stated Maturity giving effect
to any extensions thereof) or which has been accelerated, aggregates
$5,000,000 or more at any time, in each case, after a 20-day period
during which such default shall not have been cured or such
acceleration rescinded, then the number of directors constituting the
board of directors of the Corporation will be adjusted to permit the
holders of a majority of the then outstanding shares of Senior Exchange
Preferred Stock and Senior Preferred Stock, voting together and as a
class, to elect two directors to the Board of Directors of the
Corporation. Such voting rights will continue until such time as, in
the case of a dividend default, all accumulated and unpaid dividends on
the Senior Exchange Preferred Stock are paid in full in cash and, in
all other cases, any failure, breach or default giving rise to such
voting rights is remedied, cured or waived by the holders of at least a
majority of the shares of Senior Exchange Preferred Stock and Senior
Preferred Stock then outstanding, at which time the term of any
directors elected pursuant to the provisions of this paragraph shall
terminate. Each such event described in clauses (i) through (v) above
is referred to herein as a "Triggering Event."
(B) The right of the Holders of Senior Exchange Preferred
Stock and Senior Preferred Stock voting together as a separate class to
elect members of the Board of Directors as set forth in subparagraph
(f)(iii)(A) above shall continue until such time as (x) in the event
such right arises due to a failure to pay a dividend, all accumulated
dividends that are in arrears on the Senior Exchange Preferred Stock
and Senior Preferred Stock are paid in full in cash; and (y) in all
other cases, the failure, breach or default giving rise to such
Triggering Event is remedied, cured or waived by the holders of at
least a majority of the shares of Senior Exchange Preferred Stock and
Senior Preferred Stock then outstanding, at which time (1) the special
right of the Holders of Senior Exchange Preferred Stock and Senior
Preferred Stock so to vote as a class for the election of directors and
(2) the term of office of the directors elected by the Holders of the
Senior Exchange Preferred Stock and Senior Preferred Stock shall each
terminate and the directors elected by the holders of Common Stock or
Capital Stock (other than the Senior Exchange Preferred Stock and
Senior Preferred Stock) shall constitute the entire Board of Directors.
At any time after voting power to elect directors shall have become
vested and be continuing in the Holders of Senior Exchange Preferred
Stock and Senior Preferred Stock pursuant to paragraph (f)(iii) hereof,
or if vacancies shall exist in the offices of directors elected by the
Holders of Senior Exchange Preferred Stock and Senior Stock, a proper
officer of the Corporation may, and upon the written request of the
Holders of record of at least twenty-five percent (25%) of the shares
of Senior Exchange Preferred Stock and Senior Preferred Stock then
outstanding addressed to the secretary of the Corporation shall, call a
special meeting of the Holders of the Senior Exchange Preferred Stock
and Senior Preferred Stock, for the purpose of electing directors which
such Holders are entitle to elect. If such meeting shall not be called
by a proper officer of the Corporation within twenty (20) days after
personal service of said written request upon the secretary of the
Corporation, or within twenty (20) days after mailing the same within
the United States by certified mail, addressed to the secretary of the
Corporation at its principal executive offices, then the Holders of
record of at least twenty-five percent (25%) of the outstanding shares
of Senior Exchange Preferred Stock and Senior Preferred Stock may
designate in writing one of their number to call such meeting at the
expense of the Corporation, and such meeting may be called by the
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Person so designated upon the notice required for the annual meetings
of stockholders of the Corporation and shall be held at the place for
holding the annual meetings of stockholders. Any Holder of Senior
Exchange Preferred Stock and Senior Preferred Stock so designated shall
have, and the Corporation shall provide, access to the lists of
stockholders to be called pursuant to the provisions hereof.
(C) At any meeting held for the purpose of electing
directors at which the Holders of Senior Exchange Preferred Stock and
Senior Preferred Stock shall have the right, voting together as a
separate class, to elect directors as aforesaid, the presence in
person or by proxy of the Holders of at least a majority of the
outstanding shares of Senior Exchange Preferred Stock and Senior
Preferred Stock entitled to vote thereat shall be required to
constitute a quorum of such Senior Exchange Preferred Stock and
Senior Preferred Stock.
(D) Any vacancy occurring in the office of a director
elected by the Holders of Senior Exchange Preferred Stock and Senior
Preferred Stock may be filled by the remaining director elected by
the Holders of Senior Exchange Preferred Stock and Senior Preferred
Stock unless and until such vacancy shall be filled by the Holders of
Senior Exchange Preferred Stock and Senior Preferred Stock.
(iv) In any case in which the Holders of Senior Exchange
Preferred Stock shall be entitled to vote pursuant to this paragraph
(f) or pursuant to Delaware law, each Holder of Senior Exchange
Preferred Stock entitled to vote with respect to such matter shall be
entitled to one vote for each share of Senior Exchange Preferred Stock
held.
(g) Mergers and Consolidations. The Corporation shall not
consolidate with or merge with or into, or convey, transfer or lease all or
substantially all of its assets to, any Person, unless: (A) the resulting,
surviving or transferee Person (the "Successor Corporation") shall be a
corporation, partnership, trust or limited liability company organized and
existing under the laws of the United States of America, any State thereof or
the District of Columbia and the Successor Corporation (if not the Corporation)
shall expressly assume, all the obligations of the Corporation with respect to
the Senior Exchange Preferred Stock; (B) immediately after giving effect to such
transaction (and treating any Indebtedness that becomes an obligation of the
Successor Corporation or any Subsidiary of the Successor Corporation as a result
of such transaction as having been incurred by the Successor Corporation or such
Restricted Subsidiary at the time of such transaction), no Triggering Event
shall have occurred and be continuing; (C) immediately after giving effect to
such transaction, the Successor Corporation would be able to incur at least an
additional $1.00 of Indebtedness pursuant to paragraph (l)(i); and (D) the
Consolidated Net Worth of the resulting, surviving, or transferee corporation is
not less than that of the Corporation immediately prior to the transaction.
(h) Change of Control.
(i) Within 20 days of the occurrence of a Change of
Control, the Corporation shall make an offer to purchase (the "Change
of Control Offer") the outstanding Senior Exchange Preferred Stock at
a purchase price equal to 101% of the liquidation preference thereof
plus, without duplication, an amount in cash equal to all accumulated
and unpaid Regular Dividends (including Additional Dividends, if any)
thereon (including an amount in cash equal to a prorated Regular
Dividend for the period from the immediately preceding Regular
Dividend Payment Date to the Change of Control Payment Date) (such
applicable
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purchase price being hereinafter referred to as the "Change of Control
Purchase Price") in accordance with the procedures set forth in this
paragraph (h).
(ii) Within 20 days of the occurrence of a Change of
Control, the Corporation also shall (i) cause a notice of the Change
of Control to be sent at least once to the Dow Jones News Service or
similar business news service in the United States and (ii) send by
first-class mail, postage prepaid, to each holder of Senior Exchange
Preferred Stock, at the address appearing on the stock books of the
Corporation, a notice stating:
(1) that the Change of Control Offer is being made
pursuant to this paragraph (h) and that all Senior Exchange
Preferred Stock tendered will be accepted for payment, and
otherwise subject to the terms and conditions set forth
herein;
(2) the Change of Control Purchase Price and the
purchase date (which shall be a Business Day no earlier than
20 Business Days from the date such notice is mailed (the
"Change of Control Payment Date"));
(3) that any Senior Exchange Preferred Stock not
tendered will continue to accumulate dividends;
(4) that, unless the Corporation defaults in the
payment of the Change of Control Purchase Price, any Senior
Exchange Preferred Stock accepted for payment pursuant to the
Change of Control offer shall cease to accumulate dividends
after the Change of Control Payment Date;
(5) that holders accepting the offer to have their
Senior Exchange Preferred Stock purchased pursuant to a Change
of Control Offer will be required to surrender their
certificates representing Senior Exchange Preferred Stock to
the Corporation at the address specified in the notice prior
to the close of business on the Business Day preceding the
Change of Control Payment Date;
(6) that holders will be entitled to withdraw their
acceptance if the Corporation receives, not later than the
close of business on the third Business Day preceding the
Change of Control Payment Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the holder,
the number of shares of Senior Exchange Preferred Stock
delivered for purchase, and a statement that such holder is
withdrawing his election to have such Senior Exchange
Preferred Stock purchased;
(7) that holders whose Senior Exchange Preferred
Stock is being purchased only in part will be issued new
certificates representing the number of shares of Senior
Exchange Preferred Stock equal to the unpurchased portion of
the certificates surrendered; and
(8) any other procedures that a Holder must follow to
accept a Change of Control Offer or effect withdrawal of such
acceptance.
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(iii) In the event that a Change of Control occurs and the
holders of Senior Exchange Preferred Stock exercise their right to
require the Corporation to purchase Senior Exchange Preferred Stock, if
such purchase constitutes a "tender offer" for purposes of Rule 14e-1
under the Exchange Act at that time, the Corporation will comply with
the requirements of Rule 14e-1 as then in effect with respect to such
repurchase.
(iv) On the Change of Control Payment Date, the Corporation
shall (A) accept for payment the shares of Senior Exchange Preferred
Stock validly tendered pursuant to the Change of Control Offer, (B)
promptly mail to the Holders of shares so accepted the Change of
Control Purchase Price therefor and (C) cancel and retire each
surrendered certificate and execute a new Senior Exchange Preferred
Stock certificate equal to any unpurchased shares represented by a
certificate surrendered. Unless the Corporation defaults in the payment
for the shares of Senior Exchange Preferred Stock tendered pursuant to
the Change of Control Offer, dividends shall cease to accrue with
respect to the shares of Senior Exchange Preferred Stock tendered and
all rights of Holders of such tendered shares shall terminate, except
for the right to receive payment therefor, on the Change of Control
Payment Date.
(v) Prior to the mailing of the notice referred to in
paragraph (g)(ii), but in any event within 20 days following the date
on which a Change of Control occurs, the Corporation covenants that, if
the purchase of the Senior Exchange Preferred Stock would violate or
constitute a default or be prohibited under the Indenture, the New
Secured Credit Facilities or any other instrument governing
Indebtedness outstanding at the time, then the Corporation will, to the
extent needed to permit such purchase of Senior Exchange Preferred
Stock, either (i) repay in full all Indebtedness under the Indenture,
the New Senior Secured Facilities or any such other instrument, as the
case may be, or (ii) obtain the requisite consents under the Indenture,
the or any such other instrument, as the case may be, to permit the
redemption of the Senior Preferred Stock as provided above. The
Corporation will first comply with the covenant in the preceding
sentence before it will be required to redeem Senior Exchange Preferred
Stock pursuant to the provisions described above.
(i) Conversion or Exchange. The Holders of shares of Senior
Exchange Preferred Stock shall not have any rights hereunder to convert such
shares into or exchange such shares for shares of any other class or classes or
of any other series of any class or classes of Capital Stock of the Corporation.
(j) Reissuance of Senior Preferred Stock. Shares of Senior
Exchange Preferred Stock that have been issued and reacquired in any manner,
including shares purchased or redeemed or exchanged, shall (upon compliance with
any applicable provisions of the laws of Delaware) have the status of authorized
and unissued shares of Preferred Stock undesignated as to series and may be
redesignated and reissued as part of any series of Preferred Stock, provided
that any issuance of such shares of Preferred Stock must be in compliance with
the terms hereof.
(k) Business Day. If any payment, redemption or exchange
shall be required by the terms hereof to be made on a day that is not a
Business Day, such payment, redemption or exchange shall be made on the
immediately succeeding Business Day.
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(l) Certain Additional Provisions.
(i) Limitation on Indebtedness. The Corporation will not,
and will not permit any Restricted Subsidiary of the Corporation to,
directly or indirectly, incur any Indebtedness provided that the
Corporation may incur Indebtedness if on the date thereof the
Consolidated Coverage Ratio would be greater than 1.7 to 1.0.
Notwithstanding the foregoing paragraph, the Corporation may
Incur the following Indebtedness:
(A) Indebtedness Incurred pursuant to the New Senior
Secured Facilities (including, without limitation, any
renewal, extension, refunding, restructuring, replacement or
refinancing thereof referred to in the definition thereof);
provided, however, that the aggregate principal amount of all
Indebtedness Incurred pursuant to this clause (i) does not
exceed $150 million at any time outstanding less the aggregate
principal amount thereof repaid with the net proceeds of Asset
Dispositions (to the extent, in the case of a repayment of
revolving credit indebtedness, the commitment to advance loans
has been terminated);
(B) Indebtedness represented by Capitalized Lease
Obligations, mortgage financings or Purchase Money
Indebtedness, in each case Incurred for the purpose of
financing all or any part of the purchase price or cost of
construction or improvement of property used in a Permitted
Business or Incurred to refinance any such purchase price or
cost of construction or improvement, in each case Incurred no
later than 365 days after the date of such acquisition or the
date of completion of such construction or improvement;
provided, however, that the principal amount of any
Indebtedness Incurred pursuant to this clause (B) shall not
exceed $5 million at any time outstanding;
(C) Indebtedness of the Corporation owing to and held
by any Wholly-Owned Subsidiary or Indebtedness of a Restricted
Subsidiary owing to and held by the Corporation or any
Wholly-Owned Subsidiary; provided, however, that any
subsequent issuance or transfer of any Capital Stock or any
other event which results in any such Wholly-Owned Subsidiary
ceasing to be a Wholly-Owned Subsidiary or any subsequent
transfer of any such Indebtedness (except to the Corporation
or any Wholly-Owned Subsidiary) shall be deemed, in each case,
to constitute the incurrence of such Indebtedness by the
issuer thereof;
(D) Indebtedness represented by (t) the Notes, (u)
the Exchange Notes, (v) the Private Exchange Notes, (w) the
New Senior Secured Facilities, (x) the Subsidiary Guarantees,
(y) Existing Indebtedness and (z) any Refinancing Indebtedness
Incurred in respect of any Indebtedness described in this
clause (D) or Incurred pursuant to the first sentence of
paragraph (l)(i) above;
(E) (a) Indebtedness of a Restricted Subsidiary
Incurred and outstanding on the date on which such Restricted
Subsidiary was acquired by the Corporation (other than
Indebtedness Incurred in anticipation of, or to provide all or
any portion of the funds or credit support utilized to
consummate the transaction or series of related
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transactions pursuant to which such Restricted Subsidiary
became a Subsidiary or was otherwise acquired by the
Corporation); provided, however, that at the time such
Restricted Subsidiary is acquired by the Corporation, the
Corporation would have been able to incur $1.00 of additional
Indebtedness pursuant to this paragraph (l)(i) after giving
effect to the Incurrence of such Indebtedness pursuant to this
clause (E) and (b) Refinancing Indebtedness Incurred by a
Restricted Subsidiary in respect of Indebtedness Incurred by
such Restricted Subsidiary pursuant to this clause (E);
(F) Indebtedness (a) in respect of performance bonds,
bankers' acceptances and surety or appeal bonds provided by
the Corporation or any of its Restricted Subsidiaries to their
customers in the ordinary course of their business, (b) in
respect of performance bonds or similar obligations of the
Corporation or any of its Restricted Subsidiaries for or in
connection with pledges, deposits or payments made or given in
the ordinary course of business in connection with or to
secure statutory, regulatory or similar obligations, including
obligations under health, safety or environmental obligations
and (c) arising from Guarantees to suppliers, lessors,
licensees, contractors, franchisees or customers of
obligations (other than Indebtedness) incurred in the ordinary
course of business;
(G) Indebtedness under Currency Agreements and
Interest Rate Agreements; provided, however, that in the case
of Currency Agreements and Interest Rate Agreements, such
Currency Agreements and Interest Rate Agreements are entered
into for bona fide hedging purposes of the Corporation or its
Restricted Subsidiaries (as determined in good faith by the
Board of Directors of the Corporation) and correspond in terms
of notional amount, duration, currencies and interest rates as
applicable, to Indebtedness of the Corporation or its
Restricted Subsidiaries Incurred without violation of the
Indenture or to business transactions of the Corporation or
its Restricted Subsidiaries on customary terms entered into in
the ordinary course of business;
(H) Indebtedness arising from agreements providing
for indemnification, adjustment of purchase price or similar
obligations, or from Guarantees or letters of credits, surety
bonds or performance bonds securing any obligations of the
Corporation or any of its Restricted Subsidiaries pursuant to
such agreements, in each case Incurred in connection with the
disposition of any business assets or Restricted Subsidiary of
the Corporation (other than Guarantees of Indebtedness or
other obligations incurred by any Person acquiring all or any
portion of such business assets or Restricted Subsidiary of
the Corporation for the purpose of financing such acquisition)
in a principal amount not to exceed the gross proceeds
actually received by the Corporation or any of its Restricted
Subsidiaries in connection with such disposition; provided,
however, that the principal amount of any Indebtedness
incurred pursuant to this clause (H) when taken together with
all Indebtedness incurred pursuant to this clause (H) and then
outstanding, shall not exceed $1 million;
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(I) Indebtedness consisting of (a) Guarantees by the
Corporation without violation of the Indenture and (b)
Guarantees by a Restricted Subsidiary of senior Indebtedness
Incurred by the Corporation without violation of the Indenture
(so long as such Restricted Subsidiary could have Incurred
such Indebtedness directly without violation of the
Indenture);
(J) Indebtedness arising from the honoring by a bank
or other financial institution of a check, draft or similar
instrument drawn against insufficient funds in the ordinary
course of business in an amount not to exceed $500,000 at any
time, provided that such Indebtedness is extinguished within
two business days of its incurrence; and
(K) Indebtedness (other than Indebtedness described
in clauses (A) - (J)) in a principal amount which, when taken
together with the principal amount of all other Indebtedness
Incurred pursuant to this clause (K) and then outstanding,
will not exceed $10 million (it being understood that any
Indebtedness Incurred under this clause (K) shall cease to be
deemed Incurred or outstanding for purposes of this clause (K)
(but shall be deemed to be Incurred for purposes of paragraph
(i)) from and after the first date on which the Corporation or
its Restricted Subsidiaries could have Incurred such
Indebtedness under the foregoing paragraph (i) without
reliance upon this clause (K).
In addition, the Corporation will not permit any
Unrestricted Subsidiary to Incur any Indebtedness other than
Non-Recourse Debt.
(ii) Limitation on Restricted Payments. The Corporation
shall not, and shall not permit any of its Restricted Subsidiaries,
directly or indirectly, to (i) declare or pay any dividend or make any
distribution on or in respect of its Capital Stock (including any
payment in connection with any merger or consolidation involving the
Corporation or any of its Restricted Subsidiaries) except (A) dividends
or distributions payable in its Capital Stock (other than Disqualified
Stock) or in options, warrants or other rights to purchase such Capital
Stock, and (B) dividends or distributions payable to the Corporation or
a Wholly-Owned Subsidiary of the Corporation and (C) dividends (in cash
or additional shares) of Senior Exchange Preferred Stock and Senior
Preferred Stock), (ii) purchase, redeem, retire or otherwise acquire
for value any Capital Stock of the Corporation (other than the Senior
Exchange Preferred Stock and Senior Preferred Stock) or any Restricted
Subsidiary of the Corporation held by Persons other than the
Corporation or another Restricted Subsidiary of the Corporation (in
either case, other than in exchange for its Capital Stock (other than
Disqualified Stock)), (iii) purchase, repurchase, redeem, defease or
otherwise acquire or retire for value, prior to scheduled maturity,
scheduled repayment or scheduled sinking fund payment, any Subordinated
Obligations or (iv) make any Investment (other than a Permitted
Investment) in any Person (any such dividend, distribution, purchase,
redemption, repurchase, defeasance, other acquisition, retirement or
Investment as described in preceding clauses (i) through (iv) being
referred to as a "Restricted Payment"); if at the time the Corporation
or such Restricted Subsidiary makes such Restricted Payment:
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(1) The Corporation shall have paid a dividend, on
the most recent dividend payment date, by the issuance of
additional Senior Exchange Preferred Stock; or
(2) a Triggering Event shall have occurred and be
continuing (or would result therefrom); or
(3) the Corporation is not able to incur an
additional $1.00 of Indebtedness pursuant to the first
sentence of paragraph (l)(i); or
(4) the aggregate amount of such Restricted Payment
and all other Restricted Payments declared or made subsequent
to the Issue Date would exceed the sum of (A) 50% of the
Consolidated Net Income accrued during the period (treated as
one accounting period) from the first day of the fiscal
quarter beginning on or after the Issue Date to the end of the
most recent fiscal quarter ending prior to the date of such
Restricted Payment as to which financial results are available
(but in no event ending more than 135 days prior to the date
of such Restricted Payment) (or, in case such Consolidated Net
Income shall be a deficit, minus 100% of such deficit); (B)
the aggregate net proceeds received by the Corporation from
the issue or sale of its Capital Stock (other than
Disqualified Stock) or other capital contributions subsequent
to the Issue Date (other than net proceeds received from an
issuance or sale of such Capital Stock to a Subsidiary of the
Corporation or an employee stock ownership plan or similar
trust); provided, however, that the value of any non-cash net
proceeds shall be as determined by the Board of Directors in
good faith, except that in the event the value of any non-cash
net proceeds shall be $1 million or more, the value shall be
as determined in writing by an independent investment banking
firm of nationally recognized standing; (C) the amount by
which Indebtedness of the Corporation is reduced on the
Corporation's balance sheet upon the conversion or exchange
(other than by a Restricted Subsidiary of the Corporation)
subsequent to the Issue Date of any Indebtedness of the
Corporation Incurred subsequent to the Issue Date which is
convertible or exchangeable for Capital Stock of the
Corporation (less the amount of any cash, or other property,
distributed by the Corporation upon such conversion or
exchange); (D) the amount equal to the net reduction in
Investments (other than Permitted Investments) made after the
Issue Date by the Corporation or any of its Restricted
Subsidiaries in any Person resulting from (i) repurchases or
redemptions of such Investments by such Person, proceeds
realized upon the sale of such Investment to an unaffiliated
purchaser, repayments of loans or advances or other transfers
of assets by such Person to the Corporation or any Restricted
Subsidiary of the Corporation or (ii) the redesignation of
Unrestricted Subsidiaries as Restricted Subsidiaries (valued
in each case as provided in the definition of "Investment")
not to exceed, in the case of any Unrestricted Subsidiary, the
amount of Investments previously included in the calculation
of the amount of Restricted Payments; provided, however, that
no amount shall be included under this clause (D) to the
extent it is already included in Consolidated Net Income; and
(E) $10.0 million.
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The provisions of the foregoing paragraph shall not prohibit:
(1) any purchase or redemption of Capital Stock or
Subordinated Obligations of the Corporation made by exchange for, or
out of the proceeds of the substantially concurrent sale of, Capital
Stock of the Corporation (other than Disqualified Stock and other than
Capital Stock issued or sold to a Subsidiary or an employee stock
ownership plan or similar trust); provided, however, that (A) such
purchase or redemption shall be excluded in the calculation of the
amount of Restricted Payments and (B) the Net Cash Proceeds from such
sale shall be excluded from clause (3) (B) of the foregoing paragraph;
(2) any purchase or redemption of Subordinated Obligations
of the Corporation made by exchange for, or out of the proceeds of the
substantially concurrent sale of, Subordinated Obligations of the
Corporation in compliance with paragraph (l)(i); provided, however,
that such purchase or redemption shall be excluded in the calculation
of the amount of Restricted Payments;
(3) any purchase or redemption of Subordinated Obligations
from Net Available Cash to the extent permitted under Section 4.10 of
the Indenture;
(4) dividends paid within 60 days after the date of
declaration if at such date of declaration such dividend would have
complied with this provision; provided, however, that such dividend
shall be included in the calculation of the amount of Restricted
Payments;
(5) payments to Bollore Technologies, S.A. which payments
shall not exceed $500,000 in any six month period and shall not
exceed $2.5 million in the aggregate.
provided, however, that no Triggering Event shall have occurred or be
continuing at the time of such payment or as a result thereof.
For purposes of determining compliance with the foregoing
covenant, Restricted Payments may be made with cash or non-cash assets,
provided that any Restricted Payment made other than in cash shall be
valued at the fair market value (determined, subject to the additional
requirements of the immediately succeeding proviso, in good faith by
the Board of Directors) of the assets so utilized in making such
Restricted Payment, provided, further that (i) in the case of any
Restricted Payment made with Capital Stock or Indebtedness, such
Restricted Payment shall be deemed to be made in an amount equal to the
greater of the fair market value thereof and the liquidation preference
(if any) or principal amount of the Capital Stock or Indebtedness, as
the case may be, so utilized, and (ii) in the case of any Restricted
Payment in an aggregate amount in excess of $1 million, a written
opinion as to the fairness of the valuation thereof (as determined by
the Corporation) for purposes of determining compliance with paragraph
(l)(ii) shall be issued by an independent investment banking firm of
national standing.
(iii) Limitation on Restrictions on Distributions from
Restricted Subsidiaries. The Corporation shall not, and shall not
permit any of its Restricted Subsidiaries to, create or permit to exist
or become effective any consensual encumbrance or restriction on the
ability of any such Restricted Subsidiary to:
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(A) pay dividends or make any other distributions
on its Capital Stock or pay any Indebtedness or other
obligation owed to the Corporation;
(B) make any loans or advances to the Corporation; or
(C) transfer any of its property or assets to the
Corporation;
except (in each case) for such encumbrances or restrictions existing
under or by reason of:
(a) any encumbrance or restriction pursuant to an
agreement in effect at or entered into on the Issue Date, including
the New Senior Secured Facilities;
(b) any encumbrance or restriction with respect to such a
Restricted Subsidiary pursuant to an agreement relating to any
Indebtedness issued by such Restricted Subsidiary on or prior to the
date on which such Restricted Subsidiary was acquired by the
Corporation and outstanding on such date (other than indebtedness
issued in anticipation of, or to provide all or any portion of the
funds or credit support utilized to consummate, the transaction or
series of related transactions pursuant to which such Restricted
Subsidiary became a Restricted Subsidiary of the Corporation or was
acquired by the Corporation);
(c) any encumbrance or restriction with respect to such a
Restricted Subsidiary pursuant to an agreement evidencing Indebtedness
Incurred without violation of the Indenture or effecting a refinancing
of Indebtedness issued pursuant to an agreement referred to in clauses
(a) or (b) or this clause (c) or contained in any amendment to an
agreement referred to in clauses (a) or (b) or this clause (c);
provided, however, that the encumbrances and restrictions with respect
to such Restricted Subsidiary contained in any of such agreement,
refinancing agreement or amendment, taken as a whole, are no less
favorable to holders of the Senior Preferred Stock in any material
respect, as determined in good faith by the Board of Directors of the
Corporation, than encumbrances and restrictions with respect to such
Restricted Subsidiary contained in agreements in effect at, or entered
into on, the Issue Date;
(d) in the case of clause (C) above, any encumbrance or
restriction (A) that restricts in a customary manner the subletting,
assignment or transfer of any property or asset that is a lease,
license, conveyance or contract or similar property or asset, (B) by
virtue of any transfer of, agreement to transfer, option or right with
respect to, or Lien on, any property or assets of the Corporation or
any Restricted Subsidiary not otherwise prohibited by the Indenture,
(C) that is included in a licensing agreement to the extent such
restrictions limit the transfer of the property subject to such
licensing agreement or (D) arising or agreed to in the ordinary course
of business and that does not, individually or in the aggregate,
detract from the value of property or assets of the Corporation or any
of its Subsidiaries in any manner material to the Corporation or any
such Restricted Subsidiary;
(e) in the case of clause (C) above, restrictions
contained in security agreements, mortgages or similar documents
securing Indebtedness of a Restricted Subsidiary to the extent such
restrictions restrict the transfer of the property subject to such
security agreements;
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(f) in the case of clause (C) above, any instrument
governing or evidencing Indebtedness of a Person acquired by the
Corporation or any Restricted Subsidiary of the Corporation at the
time of such acquisition, which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person,
other than the Person so acquired; provided, however, that such
Indebtedness is not incurred in connection with or in contemplation
of, such acquisition.
(g) any restriction with respect to such a Restricted
Subsidiary imposed pursuant to an agreement entered into for the sale
or disposition of all or substantially all the Capital Stock or assets
of such Restricted Subsidiary pending the closing of such sale or
disposition; and
(h) encumbrances or restrictions arising or existing by
reason of applicable law.
(iv) Limitation on Affiliate Transactions. The Corporation
will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, enter into or conduct any transaction or series
of related transactions (including the purchase, sale, lease or
exchange of any property or the rendering of any service) with or for
the benefit of any Affiliate of the Corporation, other than a
Wholly-Owned Subsidiary (an "Affiliate Transaction") unless: (i) the
terms of such Affiliate Transaction are no less favorable to the
Corporation or such Restricted Subsidiary, as the case may be, than
those that could be obtained at the time of such transaction in arm's
length dealings with a Person who is not such an Affiliate; (ii) in the
event such Affiliate Transaction involves an aggregate amount in excess
of $1 million, the terms of such transaction have been approved by a
majority of the members of the Board of Directors of the Corporation
and by a majority of the disinterested members of such Board, if any
(and such majority or majorities, as the case may be, determines that
such Affiliate Transaction satisfies the criteria in (i) above); and
(iii) in the event such Affiliate Transaction involves an aggregate
amount in excess of $2 million, the Corporation has received a written
opinion from an independent investment banking firm of nationally
recognized standing that such Affiliate Transaction is fair to the
Corporation or such Restricted Subsidiary, as the case may be, from a
financial point of view.
The foregoing paragraph shall not apply to (i) any
Restricted Payment permitted to be made pursuant to paragraph (l)(ii)
hereof, (ii) any issuance of securities, or other payments, awards or
grants in cash, securities or otherwise pursuant to, or the funding of,
employment arrangements, or any stock options and stock ownership plans
for the benefit of employees, officers and directors, consultants and
advisors approved by the Board of Directors of the Corporation, (iii)
loans or advances to employees in the ordinary course of business of
the Corporation or any of its Restricted Subsidiaries in aggregate
amount outstanding not to exceed $1,500,000 at any time, (iv) any
transaction between Wholly-Owned Subsidiaries, (v) indemnification
agreements with, and the payment of fees and indemnities to, directors,
officers and employees of the Corporation and its Restricted
Subsidiaries, in each case in the ordinary course of business, (vi)
transactions pursuant to agreements in existence on the Issue Date
which are (x) described in the Corporation's offering memorandum dated
June 18, 1997 or (y) otherwise, in the aggregate, immaterial to the
Corporation and its Restricted Subsidiaries taken as a whole, (vii) any
employment, non-competition or confidentiality agreements entered into
by the Corporation or any of its Restricted Subsidiaries with its
employees in the ordinary
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course of business and (viii) the issuance of Capital Stock of the
Corporation (other than Disqualified Stock).
(v) Limitation on Preferred Stock of Restricted
Subsidiaries. The Corporation will not permit any of its Restricted
Subsidiaries to issue any Preferred Stock (except Preferred Stock to
the Corporation or a Restricted Subsidiary) or permit any person (other
than Corporation or a Restricted Subsidiary) to hold any such Preferred
Stock unless the Corporation or Restricted Subsidiary would be entitled
to incur or assume Indebtedness under the covenant described under
paragraph (l)(i) in the aggregate principal amount equal to the
aggregate liquidation value of the Preferred Stock to be issued.
(m) SEC Reports. The Corporation will provide to the holders
of the Senior Exchange Preferred Stock, within 15 days after it files them with
the Commission, copies of the annual reports and of the information, documents
and other reports (or copies of such portions of any of the foregoing as the
Commission may by rules and regulations prescribe) which the Corporation files
with the Commission pursuant to Section 13 or 15(d) of the Exchange Act. In the
event that the Corporation is not required to file such reports with the
Commission pursuant to the Exchange Act, the Corporation will nevertheless
deliver such Exchange Act information to the holders of the Senior Exchange
Preferred Stock within 15 days after it would have been required to file it with
the Commission.
(n) Definitions. As used in this Certificate of Designation,
the following terms shall have the following meanings (with terms defined in the
singular having comparable meanings when used in the plural and vice versa),
unless the context otherwise requires:
"Additional Dividends" has the meaning set forth in the Registration
Rights Agreement.
"Affiliate" of any specified person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Affiliate Transaction" shall have the meaning ascribed to it in
paragraph l(iv) hereof.
"Asset Disposition" means any sale, lease, transfer, issuance or other
disposition (or series of related sales, leases, transfers, issuances or
dispositions that are part of a common plan) of shares of Capital Stock of (or
any other equity interests in) a Restricted Subsidiary (other than directors'
qualifying shares) or of any other property or other assets (each referred to
for the purposes of this definition as a "disposition") by the Corporation or
any of its Restricted Subsidiaries (including any disposition by means of a
merger, consolidation or similar transaction) other than (i) a disposition by a
Restricted Subsidiary to the Corporation or by the Corporation or a Restricted
Subsidiary to a Wholly-Owned Subsidiary, (ii) a disposition of inventory in the
ordinary course of business, (iii) a disposition of obsolete or worn out
equipment or equipment that is no longer useful in the conduct of the business
of the Corporation and its Restricted Subsidiaries and that is disposed of in
each case in the ordinary course of business, (iv) dispositions of property for
net proceeds which, when taken collectively with the net proceeds of any other
such dispositions under this clause (iv) that were consummated since the
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beginning of the calendar year in which such disposition is consummated, do not
exceed $1 million, and (v) transactions permitted under paragraph (g) above.
Notwithstanding anything to the contrary contained above, a Restricted Payment
made in compliance with the "Limitation on Restricted Payments" covenant shall
not constitute an Asset Disposition except for purposes of determinations of the
Consolidated Coverage Ratio (as defined) and the Leverage Ratio (as defined).
"Attributable Indebtedness" in respect of a Sale/Leaseback Transaction
means, as at the time of determination, the present value (discounted at the
interest rate borne by the Notes, compounded annually) of the total obligations
of the lessee for rental payments during the remaining term of the lease
included in such Sale/Leaseback Transaction (including any period for which such
lease has been extended).
"Average Life" means, as of the date of determination, with respect to
any Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the
sum of the products of the number of years from the date of determination to the
dates of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such payment by (ii) the sum of all such payments.
"Board of Directors" shall have the meaning ascribed to it in the first
paragraph of this Certificate of Designation.
"Business Day" means any day except a Saturday, a Sunday, or any day on
which banking institutions in New York, New York are required or authorized by
law or other governmental action to be closed.
"Capital Stock" of any Person means any and all shares, partnership or
other equity interests, rights to purchase, warrants, options, participations or
other equivalents of or interests in (however designated) equity of such Person,
including any Preferred Stock, but excluding any debt securities convertible
into such equity.
"Capitalized Lease Obligations" means an obligation that is required to
be classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP, and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date such lease may be terminated without penalty.
"Certificate of Designation" means this Certificate of Designation
creating the Senior Exchange Preferred Stock.
"Change of Control" means (i) any sale, lease, exchange or other
transfer (in one transaction or a series of related transactions) of all or
substantially all of the assets of the Corporation and its Subsidiaries; or (ii)
a majority of the Board of Directors of the Corporation or of any direct or
indirect holding company thereof shall consist of Persons who are not Continuing
Directors of the Corporation, as the case may be; or (iii) the acquisition by
any Person or group of related Persons (other than the Management Group) for
purposes of Section 13(d) of the Exchange Act, of the power, directly or
indirectly, to vote or direct the voting of securities having more than 50% of
the ordinary voting power for the election of directors of the Corporation or of
any direct or indirect holding company thereof.
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"Change of Control Offer" shall have the meaning ascribed to it in
paragraph (h)(i) hereof.
"Change of Control Payment Date" shall have the meaning ascribed to it
in paragraph (h)(ii)(2) hereof.
"Change of Control Purchase Price" shall have the meaning ascribed to
it in paragraph (h)(i) hereof.
"Common Stock" of any Person means all Capital Stock of such Person
that is generally entitled to (i) vote in the election of directors of such
Person or (ii) if such Person is not a corporation, vote or otherwise
participate in the selection of the governing body, partners, managers or others
that will control the management and policies of such Person.
"Consolidated Cash Flow" for any period means the Consolidated Net
Income for such period, plus the following to the extent deducted in calculating
such Consolidated Net Income: (i) income tax expense, (ii) Consolidated Interest
Expense, (iii) depreciation expense, (iv) amortization expense, and (v) all
other non-cash items reducing Consolidated Net Income (excluding any non-cash
item to the extent it represents an accrual of or reserve for cash disbursements
for any subsequent period prior to the Stated Maturity of the Notes or
amortization of a prepaid cash expense that was paid in a prior period) and
less, to the extent added in calculating Consolidated Net Income, non-cash items
(excluding such non-cash items to the extent they represent an accrual for cash
receipts reasonably expected to be received prior to the Stated Maturity of the
Notes), in each case for such period. Notwithstanding the foregoing, the income
tax expense, depreciation expense and amortization expense of a Subsidiary of
the Corporation shall be included in Consolidated Cash Flow only to the extent
(and in the same proportion) that the net income of such Subsidiary was included
in calculating Consolidated Net Income.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of Consolidated Cash Flow for the period of
the most recent four consecutive fiscal quarters ending prior to the date of
such determination and as to which financial statements are available to (ii)
Consolidated Interest Expense for such four fiscal quarters; provided, however,
that (A) if the Corporation or any of its Restricted Subsidiaries has incurred
any Indebtedness since the beginning of such period and through the date of
determination of the Consolidated Coverage Ratio that remains outstanding or if
the transaction giving rise to the need to calculate Consolidated Coverage Ratio
is an incurrence of Indebtedness, or both, Consolidated Cash Flow and
Consolidated Interest Expense for such period shall be calculated after giving
effect on a pro forma basis to (1) such Indebtedness as if such Indebtedness had
been incurred on the first day of such period (provided that if such
Indebtedness is incurred under a revolving credit facility (or similar
arrangement or under any predecessor revolving credit or similar arrangement)
only that portion of such Indebtedness that constitutes the one year projected
average balance of such Indebtedness (as determined in good faith by the Board
of Directors of the Corporation) shall be deemed outstanding for purposes of
this calculation), and (2) the discharge of any other Indebtedness repaid,
repurchased, defeased or otherwise discharged with the proceeds of such new
Indebtedness as if such discharge had occurred on the first day of such period,
(B) if since the beginning of such period any Indebtedness of the Corporation or
any of its Restricted Subsidiaries has been repaid, repurchased, defeased or
otherwise discharged (other than Indebtedness under a revolving credit or
similar arrangement unless such revolving credit Indebtedness has been
permanently repaid and has not been replaced), Consolidated Interest Expense
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for such period shall be calculated after giving pro forma effect thereto as if
such Indebtedness had been repaid, repurchased, defeased or otherwise discharged
on the first day of such period, (C) if since the beginning of such period the
Corporation or any of its Restricted Subsidiaries shall have made any Asset
Disposition or if the transaction giving rise to the need to calculate the
Consolidated Coverage Ratio is an Asset Disposition, Consolidated Cash Flow for
such period shall be reduced by an amount equal to the Consolidated Cash Flow
(if positive) attributable to the assets which are the subject of such Asset
Disposition for such period or increased by an amount equal to the Consolidated
Cash Flow (if negative) attributable thereto for such period, and Consolidated
Interest Expense for such period shall be (1) reduced by an amount equal to the
Consolidated Interest Expense attributable to any Indebtedness of the
Corporation or any of its Restricted Subsidiaries repaid, repurchased, defeased
or otherwise discharged with respect to the Corporation and its continuing
Restricted Subsidiaries in connection with such Asset Disposition for such
period (or, if the Capital Stock of any Restricted Subsidiary of the Corporation
is sold, the Consolidated Interest Expense for such period directly attributable
to the Indebtedness of such Restricted Subsidiary to the extent the Corporation
and its continuing Restricted Subsidiaries are no longer liable for such
Indebtedness after such sale) and (2) increased by interest income attributable
to the assets which are the subject of such Asset Disposition for such period,
(D) if since the beginning of such period the Corporation or any of its
Restricted Subsidiaries (by merger or otherwise) shall have made an Investment
in any Restricted Subsidiary of the Corporation (or any Person which becomes a
Restricted Subsidiary of the Corporation as a result thereof) or an acquisition
of assets occurring in connection with a transaction causing a calculation to be
made hereunder which constitutes all or substantially all of an operating unit
of a business, Consolidated Cash Flow and Consolidated Interest Expense for such
period shall be calculated after giving pro forma effect thereto (including the
incurrence of any Indebtedness) as if such Investment or acquisition occurred on
the first day of such period and (E) if since the beginning of such period any
Person (that subsequently became a Restricted Subsidiary of the Corporation or
was merged with or into the Corporation or any Restricted Subsidiary of the
Corporation since the beginning of such period) shall have made any Asset
Disposition, Investment or acquisition of assets that would have required an
adjustment pursuant to clause (C) or (D) above if made by the Corporation or a
Restricted Subsidiary of the Corporation during such period, Consolidated Cash
Flow and Consolidated Interest Expense for such period shall be calculated after
giving pro forma effect thereto as if such Asset Disposition, Investment or
acquisition occurred on the first day of such period. If any Indebtedness bears
a floating rate of interest and is being given pro forma effect, the interest
expense on such Indebtedness shall be calculated as if the rate in effect on the
date of determination had been the applicable rate for the entire period (taking
into account any Interest Rate Agreement applicable to such Indebtedness if such
Interest Rate Agreement has a remaining term in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total
interest expense of the Corporation and its Restricted Subsidiaries determined
in accordance with GAAP, plus, to the extent not included in such interest
expense (i) interest expense attributable to Capitalized Lease Obligations, (ii)
amortization of debt discount, (iii) capitalized interest, (iv) non-cash
interest expense, (v) commissions, discounts and other fees and charges owed
with respect to letters of credit and bankers' acceptance financing, (vi)
interest actually paid by the Corporation or any such Restricted Subsidiary
under any Guarantee of Indebtedness or other obligation of any other Person,
(vii) net payments (whether positive or negative) pursuant to Interest Rate
Agreements, (viii) the cash contributions to any employee stock ownership plan
or similar trust to the extent such contributions are used by such plan or trust
to pay interest or fees to any Person (other than the Corporation) in connection
with Indebtedness Incurred by such plan or trust and (ix) cash and Disqualified
Stock dividends in respect of all Preferred Stock of Subsidiaries and
Disqualified Stock of the Corporation held by Persons other than the
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Corporation or a Wholly-Owned Subsidiary and less (a) to the extent included in
such interest expense, the amortization of capitalized debt issuance costs and
(b) interest income. Notwithstanding the foregoing, the Consolidated Interest
Expense with respect to any Restricted Subsidiary of the Corporation, that was
not a Wholly-Owned Subsidiary, shall be included only to the extent (and in the
same proportion) that the net income of such Restricted Subsidiary was included
in calculating Consolidated Net Income.
"Consolidated Net Income" means, for any period, the consolidated net
income (loss) of the Corporation and its consolidated Subsidiaries determined
prior to payment of dividends on the Senior Exchange Preferred Stock and Senior
Preferred Stock in accordance with GAAP; provided, however, that there shall not
be included in such Consolidated Net Income: (i) any net income (loss) of any
person acquired by the Corporation or any of its Restricted Subsidiaries in a
pooling of interests transaction for any period prior to the date of such
acquisition, (ii) any net income of any Restricted Subsidiary of the Corporation
if such Restricted Subsidiary is subject to restrictions, directly or
indirectly, on the payment of dividends or the making of distributions by such
Restricted Subsidiary, directly or indirectly, to the Corporation (other than
restrictions in effect on the Issue Date with respect to a Restricted Subsidiary
of the Corporation and other than restrictions that are created or exist in
compliance with this Certificate of Designation, (iii) any gain or loss realized
upon the sale or other disposition of any assets of the Corporation or its
consolidated Restricted Subsidiaries (including pursuant to any Sale/Leaseback
Transaction) which are not sold or otherwise disposed of in the ordinary course
of business and any gain or loss realized upon the sale or other disposition of
any Capital Stock of any Person, (iv) any extraordinary gain or loss, (v) the
cumulative effect of a change in accounting principles, (vi) the net income of
any Person, other than a Restricted Subsidiary, except to the extent of the
lesser of (A) dividends or distributions paid to the Corporation or any of its
Restricted Subsidiaries by such Person and (B) the net income of such Person
(but in no event less than zero), and the net loss of such Person (other than an
Unrestricted Subsidiary) shall be included only to the extent of the aggregate
Investment of the Corporation or any of its Restricted Subsidiaries in such
Person and (vii) any non-cash expenses attributable to grants or exercises of
employee stock options. Notwithstanding the foregoing, Consolidated Net Income
for any period shall be reduced by the aggregate amount of dividends paid during
such period pursuant to clause (i) of paragraph (l)(ii) and for the purpose of
paragraph (l)(ii) only, there shall be excluded from Consolidated Net Income any
dividends, repayments of loans or advances or other transfers of assets from
Unrestricted Subsidiaries to the Corporation or a Restricted Subsidiary to the
extent such dividends, repayments or transfers increase the amount of Restricted
Payments permitted under such covenant.
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of the Corporation and its consolidated Restricted Subsidiaries,
determined on a consolidated basis in accordance with GAAP, as of the end of the
most recent fiscal quarter of the Corporation ending prior to the taking of any
action for the purpose of which the determination is being made and for which
financial statements are available (but in no event ending more than 135 days
prior to the taking of such action), as (i) the par or stated value of all
outstanding Capital Stock of the Corporation plus (ii) paid in capital or
capital surplus relating to such Capital Stock plus (iii) any retained earnings
or earned surplus less (A) any accumulated deficit and (B) any amounts
attributable to Disqualified Stock.
22
<PAGE>
"Continuing Director" of any Person means, as of the date of
determination, any Person who (i) was a member of the Board of Directors of such
Person on the date of the Indenture or (ii) was nominated for election or
elected to the Board of Directors of such Person with the affirmative vote of a
majority of the Continuing Directors of such Person who were members of such
Board of Directors at the time of such nomination or election.
"Corporation" shall have the meaning ascribed to it in the first
paragraph of this Certificate of Designation.
"Corresponding Amendment" shall have the meaning ascribed to it in
paragraph (f)(ii)(C) hereof.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap, agreement or other similar agreement to which Person is
a party or a beneficiary.
"Disqualified Stock" means any Capital Stock which, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event (other than an event which
would constitute a Change of Control), (i) matures (excluding any maturity as
the result of an optional redemption by the issuer thereof) 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 the
final Stated Maturity of the Notes, or (ii) is convertible into or exchangeable
(unless at the sole option of the issuer thereof) for (a) debt securities or (b)
any Capital Stock referred to in (i) above, in each case at any time prior to
the final Stated Maturity of the Senior Exchange Preferred Stock.
"Dividend Period" means the Initial Dividend Period and, thereafter,
each quarterly dividend period.
"Equity Offerings" means an offering for cash by the Corporation of its
Common Stock or option warrants or rights with respect to its Common Stock.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder,
"Existing Indebtedness" means Indebtedness of the Corporation or its
Restricted Subsidiaries in existence and outstanding on the Issue Date.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect as of the date of the Indenture, including those
set forth in the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession. All ratios and computations based on GAAP contained in
the Indenture shall be computed in conformity with GAAP.
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness of any other Person
and any obligation, direct or indirect, contingent or otherwise, of such Person
(i) to purchase or pay (or advance or supply funds for the
23
<PAGE>
purchase or payment of) such Indebtedness of such other Person (whether arising
by virtue of partnership arrangements, or by agreement to keep-well, to purchase
assets, goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of assuring
in any other manner the obligee of such Indebtedness of the payment thereof or
to protect such obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Holder" means a holder of shares of Senior Exchange Preferred Stock or
Senior Preferred Stock, as the context requires, as reflected in the stock books
of the Corporation.
"Incur" means issue, assume, guarantee, incur or otherwise become
liable for; provided, however, that any indebtedness or Capital Stock of a
Person existing at the time such person becomes a Restricted Subsidiary (whether
by merger, consolidation, acquisition or otherwise) shall be deemed to be
incurred by such Restricted Subsidiary at the time it becomes a Restricted
Subsidiary.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of indebtedness of such Person for borrowed money, (ii) the principal
of and premium (if any) in respect of obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments, (iii) all obligations of
such Person in respect of letters of credit or other similar instruments
(including reimbursement obligations with respect thereto) (other than
obligations with respect to letters of credit securing obligations (other than
obligations described in clauses (i), (ii) and (v)) entered into in the ordinary
course of business of such Person to the extent that such letters of credit are
not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed
no later than the third business day following receipt by such Person of a
demand for reimbursement following payment on the letter of credit), (iv) all
obligations of such Person to pay the deferred and unpaid purchase price of
property or services (except trade payables and accrued expenses incurred in the
ordinary course of business), which purchase price is due more than six months
after the date of placing such property in service or taking delivery and title
thereto or the completion of such services, (v) all Capitalized Lease
Obligations and all Attributable Indebtedness of such Person, (vi) all
Indebtedness of other Persons secured by a Lien on any asset of such Person,
whether or not such Indebtedness is assumed by such Person, (vii) all
Indebtedness of other Persons to the extent Guaranteed by such Person, (viii)
the amount of all obligations of such Person with respect to the redemption,
repayment or other repurchase of any Disqualified Stock other than the Senior
Exchange Preferred Stock and the Senior Preferred Stock or, with respect to any
Restricted Subsidiary of the Corporation, any Preferred Stock of such Restricted
Subsidiary to the extent such obligation arises on or before the Stated Maturity
of such Preferred Stock (but excluding, in each case, accrued dividends) and
(ix) to the extent not otherwise included in this definition, obligations under
Currency Agreements and Interest Rate Agreements. The amount of Indebtedness of
any Person at any date shall be the outstanding principal amount of all
unconditional obligations as described above, as such amount would be reflected
on a balance sheet prepared in accordance with GAAP, and the maximum liability
of such Person, upon the occurrence of the contingency giving rise to the
obligation, of any contingent obligations described above at such date.
"Initial Dividend Period" means the dividend period commencing on the
Issue Date and ending on the first Regular Dividend Payment Date to occur
thereafter.
24
<PAGE>
"Indenture" means the Indenture dated as of June 25, 1997, by, and
among the Corporation, the Subsidiary Guarantors and United States Trust Company
of New York as Trustee.
"Interest Rate Agreement" means with respect to any Person any interest
rate protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement as to which such Person is party or a beneficiary.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts payable on the balance sheet of such Person) or other
extension of credit (including by way of Guarantee or similar arrangement, but
excluding any debt or extension of credit represented by a bank deposit other
than a time deposit) or capital contribution to (by means of any transfer of
cash or other property to others or any payment for property or services for the
account or use of others), or any purchase or acquisition of Capital Stock,
Indebtedness or other similar instruments issued by such Person. For purposes of
the paragraph (l)(iv), (i) "Investment" shall include the portion (proportionate
to the Corporation's equity interest in a Restricted Subsidiary to be designated
as an Unrestricted Subsidiary) of the fair market value of the net assets of
such Restricted Subsidiary of the Corporation at the time that such Restricted
Subsidiary is designated an Unrestricted Subsidiary; provided, however, that
upon a redesignation of such Subsidiary as a Restricted Subsidiary, the
Corporation shall be deemed to continue to have a permanent "Investment" in an
Unrestricted Subsidiary in an amount (if positive) equal to (x) the
Corporation's "Investment" in such Subsidiary at the time of such redesignation
less (y) the portion (proportionate to the Corporation's equity interest in such
Subsidiary) of the fair market value of the net assets of such Subsidiary at the
time that such Subsidiary is so redesignated a Restricted Subsidiary; and (ii)
any property transferred to or from an Unrestricted Subsidiary shall be valued
at its fair market value at the time of such transfer, in each case as
determined in good faith by the Board of Directors and evidenced by a resolution
of such Board of Directors certified in an officers' certificate.
"Issue Date" means the date on which the Preferred Stock are
originally issued.
"Junior Stock" shall have the meaning ascribed to it in paragraph (b)
hereof.
"Lien" means any security interest, charge or encumbrance of any kind
(including any conditional sale or other title retention agreement, any lease in
the nature thereof.
"Net Available Cash" from an Asset Disposition means cash payments
received (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only as
and when received, therefrom in each case net of (i) all legal, title and
recording tax expenses, commissions and other fees and expenses incurred, and
all Federal, state, foreign and local taxes required to be paid or accrued as a
liability under GAAP, as a consequence of such Asset Disposition, (ii) all
payments made on any Indebtedness which is secured by any assets subject to such
Asset Disposition, in accordance with the terms of any Lien upon such assets, or
which must by its terms, or in order to obtain a necessary consent to such Asset
Disposition or by applicable law, be repaid out of the proceeds from such Asset
Disposition, (iii) all distributions and other payments required to be made to
any Person owning a beneficial interest in assets subject to sale or minority
interest holders in Subsidiaries or joint ventures as a result of such Asset
Disposition, (iv) the deduction of appropriate amounts to be provided by the
seller as a reserve, in accordance with GAAP, against any liabilities associated
with the assets disposed of in such Asset Disposition, provided,
25
<PAGE>
however, that upon any reduction in such reserves (other than to the extent
resulting from payments of the respective reserved liabilities), Net Available
Cash shall be increased by the amount of such reduction to reserves, and
retained by the Corporation or any Restricted Subsidiary of the Corporation
after such Asset Disposition and (v) any portion of the purchase price from an
Asset Disposition placed in escrow (whether as a reserve for adjustment of the
purchase price, for satisfaction of indemnities in respect of such Asset
Disposition or otherwise in connection with such Asset Disposition); provided,
however, that upon the termination of such escrow, Net Available Cash shall be
increased by any portion of funds therein released to the Corporation or any
Restricted Subsidiary.
"Net Cash Proceeds" with respect to any issuance or sale of Capital
Stock, means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result of such issuance or sale.
"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person determined in accordance with GAAP.
"New Senior Secured Facilities" means Indebtedness of the Corporation
and its Restricted Subsidiaries under a revolving credit facility in an
aggregate principal amount not greater than $25 million (including a letter of
credit sublimit of $10 million) and $85,000,000 aggregate principal amount of
senior secured floating rate notes.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the
Corporation nor any Restricted Subsidiary (a) provides any guarantee or credit
support of any kind (including any undertaking, guarantee, indemnity, agreement
or instrument that would constitute Indebtedness) or (b) is directly or
indirectly liable (as a guarantor, general partner or otherwise) and (ii) no
default with respect to which (including any rights that the holders thereof may
have to take enforcement action against an Unrestricted Subsidiary) would permit
(upon notice, lapse of time or both) any holder of any other Indebtedness of the
Corporation or any Restricted Subsidiary to declare a default under such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its Stated Maturity.
"Notes" means the $155,000,000 aggregate principal amount of 11% Senior
Notes due 2004 issued by the Corporation on the Issue Date.
"Parity Stock" shall have the meaning ascribed to it in paragraph (b)
hereof.
"Permitted Business" means any business which is the same as or
related, ancillary or complementary to any of the businesses of the Corporation
and its Restricted Subsidiaries on the Issue Date.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision hereof or any other entity.
26
<PAGE>
"Preferred Stock," as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
A "Public Market" exists at any time with respect to the common stock
of the Corporation if (i) the common stock of the Corporation is then registered
with the Securities and Exchange Commission pursuant to Section 12(b) or 12(g)
of the Exchange Act and traded either on a national securities exchange or in
the National Association of Securities Dealers Automated Quotation System and
(ii) at least 15% of the total issued and outstanding common stock of the
Corporation, as applicable, has been distributed prior to such time by means of
an effective registration statement under the Securities Act.
"Purchase Money Indebtedness" means any Indebtedness incurred in the
ordinary course of business by a Person to finance the cost (including the cost
of construction) of an item of property, the principal amount of which
Indebtedness does not exceed the sum of (i) 100% of such cost and (ii)
reasonable fees and expenses of such Person incurred in connection therewith.
"Redemption Date", with respect to any shares of Senior Exchange
Preferred Stock or Senior Preferred Stock, means the date on which such shares
are redeemed by the Corporation.
"Redemption Notice" shall have the meaning ascribed to it in
paragraph (e)(iii) hereof.
"Refinancing Indebtedness" means Indebtedness that refunds, refinances,
replaces, renews, repays or extends (including pursuant to any defeasance or
discharge mechanism) (collectively, "refinances," and "refinanced" shall have a
correlative meaning) any Indebtedness existing on the date of the Indenture or
Incurred in compliance with the Indenture (including Indebtedness of the
Corporation that refinances Indebtedness of any Restricted Subsidiary and
Indebtedness of any Restricted Subsidiary that refinances Indebtedness of
another Restricted Subsidiary) including Indebtedness that refinances
Refinancing Indebtedness; provided, however, that (i) the Refinancing
Indebtedness has a Stated Maturity no earlier than the earlier of (A) the first
anniversary of the Stated Maturity of the Notes and (B) the Stated Maturity of
the Indebtedness being refinanced, (ii) the Refinancing Indebtedness has an
Average Life at the time such Refinancing Indebtedness is Incurred that is equal
to or greater than the lesser of (A) the Average Life of the Notes and (B) the
Average Life of the Indebtedness being refinanced, (iii) the Refinancing
Indebtedness is subordinated to the Notes on the same terms as the Indebtedness
being refinanced if such Indebtedness is subordinate to the Notes and, (iv) the
Refinancing Indebtedness is in an aggregate principal amount (or if issued with
original issue discount, an aggregate issue price) that is equal to (or 101% of,
in the case of a refinancing of the Notes in connection with a Change of
Control) or less than the sum of the aggregate principal amount (or if issued
with original issue discount, the aggregate accredited value) then outstanding
of the Indebtedness being refinanced (plus the amount of any premium required to
be paid in connection therewith and reasonable fees and expenses therewith)
provided, further, that Refinancing Indebtedness shall not include Indebtedness
of a Subsidiary which refinances Indebtedness of the Corporation.
"Registration Rights Agreement" means the Preferred Stock Registration
Rights Agreement dated as of the Issue Date among the Corporation and NatWest
Capital Markets Limited.
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<PAGE>
"Regular Dividend Payment Date" means March 15, June 15, September 15
and December 15 of each year.
"Regular Dividend Record Date" means March 1, June 1, September 1 and
December 1 of each year.
"Regular Dividends" shall have the meaning ascribed to it in
paragraph (c)(i) hereof.
"Restricted Payment" shall have the meaning ascribed to it in
paragraph (l)(ii) hereof.
"Restricted Subsidiary" means any Subsidiary of the Corporation other
than an Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property
now owned or hereafter acquired whereby the Corporation or a Restricted
Subsidiary transfers such property to a Person and the Corporation or a
Subsidiary leases it from such Person.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Senior Exchange Preferred Stock" shall have the meaning ascribed to in
paragraph (a) hereof, such stock being the series publicly offered in exchange
for the Senior Preferred Stock as contemplated by the Registration Rights
Agreement and having terms identical in all material respects to the Senior
Preferred Stock.
"Senior Preferred Stock" shall have the meaning ascribed to it in
paragraph (a) of the Corporation's certificate of designation, dated as of June
25, 1997, governing the 12% Senior Payment-In-Kind Preferred Stock.
"Senior Stock" shall have the meaning ascribed to it in paragraph (b)
hereof.
"Stated Maturity" means, with respect to any security, the date
specified in such security as the fixed date on which the payment of principal
of such security is due and payable, including pursuant to any mandatory
redemption provision.
"Subordinated Obligations" means any Indebtedness of the Corporation
(whether outstanding on the Issue Date or thereafter Incurred) which is
subordinate or junior in right of payment to the Notes pursuant to a written
agreement.
"Subsidiary" of any Person incorporated in the United States means any
corporation, association, partnership or other business entity organized in the
United States of which more than 50% of the total voting power of shares of
Capital Stock or other interests (including partnership interests) entitled
(without regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by (i) such Person, (ii) such Person and one or more
Subsidiaries of such Person or (iii) one or more Subsidiaries of such Person.
Unless otherwise specified herein, each reference to a Subsidiary shall refer to
a Subsidiary of the Corporation.
28
<PAGE>
"Subsidiary Guarantees" means the guarantees of the Notes by the
Subsidiary Guarantors (as such term is defined in the Indenture).
"Successor Corporation" shall have the meaning ascribed to it in
paragraph (g) hereof.
"Triggering Event" shall have the meaning ascribed to it in paragraph
(f)(iii) hereof.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Corporation
that at the time of determination shall be designated an Unrestricted Subsidiary
by the Board of Directors in the manner provided below and (ii) any Subsidiary
of an Unrestricted Subsidiary. The Board of Directors may designate any
Subsidiary of the Corporation (including any newly acquired or newly formed
Subsidiary of the Corporation) to be an Unrestricted Subsidiary unless such
Subsidiary or any of its Subsidiaries owns any Capital Stock or Indebtedness of,
or owns or holds any Lien on any property of, the Corporation or any Restricted
Subsidiary of the Corporation that is not a Subsidiary of the Subsidiary to be
so designated; provided, however, each Subsidiary to be so designated and each
of its Subsidiaries has not at the time of designation, and does not thereafter,
create, incur, issue, assume, guarantee or otherwise become directly or
indirectly liable with respect to any Indebtedness pursuant to which the lender
has recourse to any of the assets of the Corporation or any of its Restricted
Subsidiaries and either (A) the Subsidiary to be so designated has total
consolidated assets of $10,000 or less or (B) if such Subsidiary has
consolidated assets greater than $10,000, then such designation would be
permitted under "Limitation on Restricted Payments." The Board of Directors may
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided,
however, that immediately after giving effect to such designation (x) the
Corporation could Incur $1.00 of additional Indebtedness under the first
sentence of paragraph (l)(i) and (y) no Triggering Event shall have occurred and
be continuing. Any such designation by the Board of Directors shall be evidenced
to the Trustee by promptly filing with the Trustee a copy of the Board
Resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing provisions.
"Wholly-Owned Subsidiary" means a Restricted Subsidiary of the
Corporation, at least 99% of Capital Stock of which (other than directors'
qualifying shares) is owned by the Corporation or another Wholly-Owned
Subsidiary.
29
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IN WITNESS WHEREOF, said North Atlantic Trading Company, Inc., has
caused this Certificate of Designation to be signed by Thomas F. Helms, Jr.
its President and Chief Executive Officer, this 22nd day of July, 1997.
NORTH ATLANTIC TRADING COMPANY, INC.
By: /s/ Thomas F. Helms, Jr.
---------------------------------------
Name: Thomas F. Helms, Jr.
Title: President and Chief Executive Officer
30
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- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
---------------------------------
NORTH ATLANTIC TRADING ACQUISITION COMPANY, INC.
as Issuer,
NATIONAL TOBACCO COMPANY, L.P.
NORTH ATLANTIC OPERATING COMPANY, INC.
and
NATIONAL TOBACCO FINANCE CORPORATION,
as Guarantors
and
UNITED STATES TRUST COMPANY OF NEW YORK
as Trustee
$155,000,000
11% SENIOR NOTES DUE 2004, SERIES A
11% SENIOR NOTES DUE 2004, SERIES B
---------------------------------
--------------------
INDENTURE
Dated as of June 25, 1997
--------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
CROSS-REFERENCE TABLE*
Trust Indenture
Act Section Indenture Section
310(a)(1)............................................... 7.10
(a)(2)............................................... 7.10
(a)(3)............................................... N.A.
(a)(4)............................................... N.A.
(a)(5)............................................... 7.10
(b).................................................. 7.10
(c).................................................. N.A.
311(a).................................................. 7.11
(b).................................................. 7.11
(c).................................................. N.A.
312(a).................................................. 2.05
(b).................................................. 11.03
(c).................................................. 11.03
313(a).................................................. 7.06
(b)(1)............................................... 7.06
(b)(2)............................................... 7.06
(c).................................................. 7.06
(d).................................................. 7.06
314(a).................................................. 4.04
(b).................................................. N.A.
(c)(1)............................................... 11.05
(c)(2)............................................... 11.05
(c)(3)............................................... N.A.
(d).................................................. N.A.
(e).................................................. 11.05
(f).................................................. N.A.
315(a).................................................. 7.01
(b).................................................. 7.05
(c).................................................. 7.01
(d).................................................. 6.05;7.01
(e).................................................. 6.11
316(a).................................................. 1.01
(a)(1)(A)............................................ 6.02
<PAGE>
(a)(1)(B)............................................ 6.04
(a)(2)............................................... N.A.
(b).................................................. 6.07
(c).................................................. 2.19
317(a)(1)............................................... 6.08
(a)(2)............................................... 6.09
(b).................................................. 2.04
318(a).................................................. 11.01
(b).................................................. N.A.
(c).................................................. 11.01
- -----------------------
*This Cross-Reference Table is not part of the Indenture.
N.A. means not applicable.
(2)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE............................................................... 1
SECTION 1.01. DEFINITIONS................................................................................ 1
SECTION 1.02. OTHER DEFINITIONS.......................................................................... 21
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.......................................... 22
SECTION 1.04. RULES OF CONSTRUCTION...................................................................... 22
ARTICLE 2 THE SECURITIES........................................................................................... 23
SECTION 2.01. FORM AND DATING............................................................................ 23
SECTION 2.02. EXECUTION AND AUTHENTICATION............................................................... 24
SECTION 2.03. REGISTRAR AND PAYING AGENT................................................................. 24
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST........................................................ 25
SECTION 2.05. SECURITYHOLDER LISTS....................................................................... 25
SECTION 2.06. TRANSFER AND EXCHANGE...................................................................... 25
SECTION 2.07. REPLACEMENT SECURITIES..................................................................... 26
SECTION 2.08. OUTSTANDING SECURITIES..................................................................... 27
SECTION 2.09. TREASURY SECURITIES........................................................................ 27
SECTION 2.10. TEMPORARY SECURITIES....................................................................... 27
SECTION 2.11. CANCELLATION............................................................................... 28
SECTION 2.12. DEFAULTED INTEREST......................................................................... 28
SECTION 2.13. CUSIP NUMBER............................................................................... 28
SECTION 2.14. DEPOSIT OF MONEYS.......................................................................... 28
SECTION 2.15. RESTRICTIVE LEGENDS........................................................................ 29
SECTION 2.16. BOOK-ENTRY PROVISIONS FOR GLOBAL SECURITY.................................................. 31
SECTION 2.17. SPECIAL TRANSFER PROVISIONS................................................................ 32
SECTION 2.18. PERSONS DEEMED OWNERS...................................................................... 34
SECTION 2.19. RECORD DATE................................................................................ 34
ARTICLE 3 REDEMPTION............................................................................................... 35
SECTION 3.01. NOTICES TO TRUSTEE......................................................................... 35
SECTION 3.02. SELECTION OF SECURITIES TO BE REDEEMED..................................................... 35
SECTION 3.03. NOTICE OF REDEMPTION....................................................................... 36
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION............................................................. 37
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE................................................................ 37
</TABLE>
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<TABLE>
<S> <C>
SECTION 3.06. SECURITIES REDEEMED IN PART................................................................ 37
SECTION 3.07. OPTIONAL REDEMPTION........................................................................ 38
SECTION 3.08. MANDATORY REDEMPTION....................................................................... 38
SECTION 3.09. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS........................................ 38
ARTICLE 4 COVENANTS................................................................................................ 41
SECTION 4.01. PAYMENT OF SECURITIES...................................................................... 41
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY............................................................ 41
SECTION 4.03. SEC REPORTS................................................................................ 42
SECTION 4.04. COMPLIANCE CERTIFICATES.................................................................... 42
SECTION 4.05. TAXES...................................................................................... 44
SECTION 4.06. STAY, EXTENSION AND USURY LAWS............................................................. 44
SECTION 4.07. LIMITATION ON RESTRICTED PAYMENTS.......................................................... 44
SECTION 4.08. LIMITATION ON DISTRIBUTIONS FROM RESTRICTED SUBSIDIARIES................................... 47
SECTION 4.09. LIMITATION ON INCURRENCE OF INDEBTEDNESS................................................... 48
SECTION 4.10. LIMITATION ON ASSET DISPOSITIONS........................................................... 51
SECTION 4.11. LIMITATION ON TRANSACTIONS WITH AFFILIATES................................................. 53
SECTION 4.12. LIMITATION ON LIENS........................................................................ 54
SECTION 4.13. CORPORATE EXISTENCE........................................................................ 54
SECTION 4.14. CHANGE OF CONTROL.......................................................................... 55
SECTION 4.15. LIMITATION ON CAPITAL STOCK OF SUBSIDIARIES................................................ 56
SECTION 4.16. COMPANY TO CAUSE CERTAIN SUBSIDIARIES TO BECOME GUARANTORS................................. 56
SECTION 4.17. LIMITATION ON BUSINESS..................................................................... 57
SECTION 4.18. FURTHER INSTRUMENTS AND ACTS............................................................... 57
ARTICLE 5 SUCCESSORS............................................................................................... 57
SECTION 5.01. LIMITATIONS ON MERGER, CONSOLIDATION OR SALE OF ASSETS..................................... 57
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED.......................................................... 58
ARTICLE 6 DEFAULTS AND REMEDIES.................................................................................... 58
SECTION 6.01. EVENTS OF DEFAULT.......................................................................... 58
SECTION 6.02. ACCELERATION............................................................................... 61
SECTION 6.03. OTHER REMEDIES............................................................................. 61
SECTION 6.04. WAIVER OF PAST DEFAULTS.................................................................... 61
</TABLE>
(ii)
<PAGE>
<TABLE>
<S> <C>
SECTION 6.05. CONTROL BY MAJORITY........................................................................ 62
SECTION 6.06. LIMITATION ON SUITS........................................................................ 62
SECTION 6.07. RIGHTS OF SECURITYHOLDERS TO RECEIVE PAYMENT............................................... 63
SECTION 6.08. COLLECTION SUIT BY TRUSTEE................................................................. 63
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM........................................................... 63
SECTION 6.10. PRIORITIES................................................................................. 64
SECTION 6.11. UNDERTAKING FOR COSTS...................................................................... 64
ARTICLE 7 TRUSTEE.................................................................................................. 65
SECTION 7.01. DUTIES OF TRUSTEE.......................................................................... 65
SECTION 7.02. RIGHTS OF TRUSTEE.......................................................................... 66
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE............................................................... 67
SECTION 7.04. TRUSTEE'S DISCLAIMER....................................................................... 67
SECTION 7.05. NOTICE OF DEFAULTS......................................................................... 67
SECTION 7.06. REPORTS BY TRUSTEE TO SECURITYHOLDERS...................................................... 68
SECTION 7.07. COMPENSATION AND INDEMNITY................................................................. 68
SECTION 7.08. REPLACEMENT OF TRUSTEE..................................................................... 69
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC........................................................... 70
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.............................................................. 70
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE COMPANY...................................... 71
ARTICLE 8 DISCHARGE OF INDENTURE................................................................................... 71
SECTION 8.01. DISCHARGE OF LIABILITY ON SECURITIES; DEFEASANCE........................................... 71
SECTION 8.02. CONDITIONS TO DEFEASANCE................................................................... 72
SECTION 8.03. APPLICATION OF TRUST MONEY................................................................. 74
SECTION 8.04. REPAYMENT TO THE COMPANY................................................................... 74
SECTION 8.05. INDEMNITY FOR GOVERNMENT OBLIGATIONS....................................................... 74
SECTION 8.06. REINSTATEMENT.............................................................................. 75
ARTICLE 9 AMENDMENTS............................................................................................... 75
SECTION 9.01. WITHOUT CONSENT OF SECURITYHOLDERS......................................................... 75
SECTION 9.02. WITH CONSENT OF SECURITYHOLDERS............................................................ 76
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT........................................................ 78
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS.......................................................... 78
SECTION 9.05. NOTATION ON OR EXCHANGE OF SECURITIES...................................................... 79
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC............................................................ 79
ARTICLE 10 SUBSIDIARY GUARANTEE OF SECURITIES...................................................................... 79
</TABLE>
(iii)
<PAGE>
<TABLE>
<S> <C>
SECTION 10.01. SUBSIDIARY GUARANTEE...................................................................... 79
SECTION 10.02. EXECUTION AND DELIVERY OF SUBSIDIARY GUARANTEE............................................ 81
SECTION 10.03. SUBSIDIARY GUARANTEE UNCONDITIONAL, ETC................................................... 81
SECTION 10.04. LIMITATION OF GUARANTOR'S LIABILITY....................................................... 82
SECTION 10.05. CONTRIBUTION.............................................................................. 83
SECTION 10.06. RELEASE................................................................................... 83
SECTION 10.07. ADDITIONAL GUARANTORS..................................................................... 83
SECTION 10.08. GUARANTORS MAY CONSOLIDATE, ETC., ON CERTAIN TERMS........................................ 84
SECTION 10.09. SUCCESSORS AND ASSIGNS.................................................................... 84
SECTION 10.10. WAIVER OF STAY, EXTENSION OR USURY LAWS................................................... 85
ARTICLE 11 MISCELLANEOUS........................................................................................... 85
SECTION 11.01. TRUST INDENTURE ACT CONTROLS.............................................................. 85
SECTION 11.02. NOTICES................................................................................... 85
SECTION 11.03. COMMUNICATION BY SECURITYHOLDERS WITH OTHER SECURITYHOLDERS............................... 86
SECTION 11.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT........................................ 87
SECTION 11.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION............................................. 87
SECTION 11.06. RULES BY TRUSTEE AND AGENTS............................................................... 88
SECTION 11.07. LEGAL HOLIDAYS............................................................................ 88
SECTION 11.08. NO RECOURSE AGAINST OTHERS................................................................ 88
SECTION 11.09. DUPLICATE ORIGINALS....................................................................... 88
SECTION 11.10. GOVERNING LAW............................................................................. 88
SECTION 11.11. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS............................................. 88
SECTION 11.12. SUCCESSORS................................................................................ 89
SECTION 11.13. SEVERABILITY.............................................................................. 89
SECTION 11.14. COUNTERPART ORIGINALS..................................................................... 89
SECTION 11.15. TABLE OF CONTENTS, HEADINGS, ETC.......................................................... 89
</TABLE>
(iv)
<PAGE>
EXHIBIT A - FORM OF INITIAL SECURITY WITH SUBSIDIARY
GUARANTEE
EXHIBIT B - FORM OF EXCHANGE SECURITY WITH SUBSIDIARY
GUARANTEE
EXHIBIT C - FORM OF CERTIFICATE TO BE DELIVERED IN
CONNECTION WITH TRANSFERS TO NON-QIB
ACCREDITED INVESTORS
EXHIBIT D - FORM OF CERTIFICATE TO BE DELIVERED IN
CONNECTION WITH TRANSFERS PURSUANT TO
REGULATION S
(v)
<PAGE>
INDENTURE, dated as of June 25, 1997, among North Atlantic
Trading Acquisition Company, Inc., a Delaware corporation (the "Company"),
National Tobacco Company, L.P., a Delaware corporation ("National Tobacco"),
North Atlantic Operating Company, Inc., a Delaware corporation ("NATC"), and
National Tobacco Finance Corporation, a Delaware corporation ("NTFC"), each of
National Tobacco, NATC and NTFC as Guarantors (as defined) of the Company's
obligations hereunder, and United States Trust Company of New York, a banking
corporation organized and existing under the laws of the State of New York, as
Trustee (as defined).
The Company has duly authorized the creation of an issue of
11% Senior Notes due 2004, Series A (the "Initial Securities") and 11% Senior
Notes due 2004, Series B (the "Exchange Securities,") and, to provide therefor,
the Company and the Guarantors have duly authorized the execution and delivery
of this Indenture. All things necessary to make the Securities (as defined),
when duly issued and executed by the Company, and authenticated and delivered
hereunder, the valid obligations of the Company and the Guarantors, and to make
this Indenture a valid and binding agreement of the Company and the Guarantors,
have been done.
The Company, the Guarantors and the Trustee agree as follows
for the benefit of each other and for the equal and ratable benefit of the
Holders of the Securities:
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
SECTION 1.01. DEFINITIONS.
"Acquired Indebtedness" of any specified Person means
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Restricted Subsidiary of such specified Person,
but excluding any Indebtedness incurred in connection with, or in contemplation
of, such merger or such other Person becoming a Restricted Subsidiary of such
specified Person.
"Additional Assets" means (i) any property or assets (other
than Indebtedness and Capital Stock) in a Permitted Business; (ii) the Capital
Stock of a Person that becomes a Restricted Subsidiary as a result of the
acquisition of such Capital Stock by the Company or a Restricted Subsidiary of
the Company; or (iii) Permitted Investments of the type and
<PAGE>
in the amounts described in clause (viii) of the definition thereof; provided,
however, that, in the case of clause (ii), such Restricted Subsidiary is
primarily engaged in a Permitted Business.
"Adjusted Net Assets" of a Guarantor at any date shall mean
the lesser of the amount by which (x) the fair value of the property of such
Guarantor exceeds the total amount of liabilities, including, without
limitation, the probable liability of such Guarantor with respect to its
contingent liabilities (after giving effect to all other fixed and contingent
liabilities incurred or assumed on such date), but excluding liabilities under
the Subsidiary Guarantee of such Guarantor at such date and (y) the present
fair salable value of the assets of such Guarantor at such date exceeds the
amount that will be required to pay the probable liability of such Guarantor on
its debts (after giving effect to all other fixed and contingent liabilities
incurred or assumed on such date and after giving effect to any collection from
any Subsidiary by such Guarantor in respect of the obligations of such
Subsidiary under the Subsidiary Guarantee), excluding debt in respect of the
Subsidiary Guarantee, as they become absolute and matured.
"Affiliate" means, with respect to any Person, any other
Person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, such Person.
The definition of Affiliate as contained in the preceding sentence, and the
term "control" (including the terms "controlling," "controlled by" and "under
common control with") as used therein, shall be construed in a manner
consistent with the definitions of "affiliate" and "control" contained in Rule
405 promulgated under the Securities Act, as such rule is in effect on the
Issue Date. For purposes of this definition, "control" when used with respect
to any Person means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Asset Disposition" means any sale, lease, transfer, issuance
or other disposition (or series of related sales, leases, transfers, issuances
or dispositions that are part of a common plan) of shares of Capital Stock of
(or any other equity interests in) a Restricted Subsidiary (other than
directors' qualifying shares) or of any other property or other assets (each
referred to for the purposes of this definition as a "disposition") by the
Company or any of its Restricted Subsidiaries (including any disposition by
means of a merger, consolidation or similar transaction) other than (i) a
disposition by a Restricted Subsidiary to the Company or by the Company or a
Restricted Subsidiary to a Wholly-Owned Subsidiary, (ii) a disposition of
inventory in the ordinary course of business, (iii) a disposition of obsolete
or worn out equipment or equipment that is no longer useful in the conduct of
the business of the Company and its Restricted Subsidiaries and that is
disposed of in each case in the ordinary course of business, (iv) dispositions
of property for net
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<PAGE>
proceeds which, when taken collectively with the net proceeds of any other such
dispositions under this clause (iv) that were consummated since the beginning
of the calendar year in which such disposition is consummated, do not exceed $1
million, and (v) transactions permitted under Section 5.01. Notwithstanding
anything to the contrary contained above, a Restricted Payment made in
compliance with Section 4.07 shall not constitute an Asset Disposition except
for purposes of determinations of the Consolidated Coverage Ratio.
"Attributable Indebtedness" in respect of a Sale and
Leaseback Transaction means, as at the time of determination, the present value
(discounted at the interest rate borne by the Notes, compounded annually) of
the total obligations of the lease for 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).
"Average Life" means, as of the date of determination, with
respect to any Indebtedness or Preferred Stock, the quotient obtained by
dividing (i) the sum of the products of the number of years from the date of
determination to the dates of each successive scheduled principal payment of
such Indebtedness or redemption or similar payment with respect to such
Preferred Stock multiplied by the amount of such payment by (ii) the sum of all
such payments.
"Bankruptcy Code" means Title 11, U.S. Code or any similar
Federal, state or foreign law for the relief of debtors.
"Board of Directors" means, with respect to any Person, the
Board of Directors of such Person or any committee of the Board of Directors of
such Person duly authorized, with respect to any particular matter, to exercise
the power of the Board of Directors of such Person.
"Board Resolution" means, with respect to any Person, a copy
of a resolution certified by the Secretary or an Assistant Secretary of such
Person to have been duly adopted by the Board of Directors of such Person and
to be in full force and effect on the date of such certification, and delivered
to the Trustee.
"Business Day" means a day that is not a Legal Holiday.
"Capitalized Lease Obligation" means an obligation that is
required to be classified and accounted for as a capitalized lease for
financial reporting purposes in accordance with GAAP, and the amount of
Indebtedness represented by such obligation shall be the capitalized amount of
such obligation determined in accordance with GAAP, and the Stated Maturity
thereof shall be the date of the last payment of rent or any other
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<PAGE>
amount due under such lease prior to the first date such lease may be
terminated without penalty.
"Capital Stock" of any Person means any and all shares,
partnership or other equity interests, rights to purchase, warrants, options,
participations or other equivalents of or interests in (however designated)
equity of such Person, including any Preferred Stock, but excluding any debt
securities convertible into such equity.
"Cash Equivalents" means (i) United States dollars, (ii)
securities issued or directly and fully guaranteed or insured by the United
States government or any agency or instrumentality thereof, (iii) certificates
of deposit, time deposits and eurodollar time deposits with maturities of one
year or less from the date of acquisition, bankers' acceptances with maturities
not exceeding one year and overnight bank deposits, in each case with any
commercial bank having capital and surplus in excess of $500 million, (iv)
repurchase obligations for underlying securities of the types described in
clauses (ii) and (iii) entered into with any financial institution meeting the
qualifications specified in clause (iii) above, (v) commercial paper rated
"A-1" or the equivalent thereof by Moody's or S&P and in each case maturing
within one year after the date of acquisition, (vi) investment funds investing
95% of their assets in securities of the types described in clauses (i)-(v)
above, (vii) readily marketable direct obligations issued by any state of the
United States of America or any political subdivision thereof having one of the
two highest rating categories obtainable from either Moody's or S&P and (viii)
Indebtedness or Preferred Stock issued by Persons with a rating of "A" or
higher from S&P or "A2" or higher from Moody's.
"Change of Control" means (i) any sale, lease, exchange or
other transfer (in one transaction or a series of related transactions) of all
or substantially all of the assets of the Company and its Subsidiaries; or (ii)
a majority of the Board of Directors of the Company or of any direct or
indirect holding company thereof shall consist of Persons who are not
Continuing Directors of the Company, as the case may be; or (iii) the
acquisition by any Person or group of related Persons (other than the
Management Group) for purposes of Section 13(d) of the Exchange Act, of the
power, directly or indirectly, to vote or direct the voting of securities
having more than 50% of the ordinary voting power for the election of directors
of the Company or of any direct or indirect holding company thereof.
"Commission" means the U.S. Securities and Exchange
Commission or its successor.
"Company" means North Atlantic Trading Acquisition Company,
Inc., a Delaware corporation, until a successor replaces it in accordance with
Article 5 hereof and thereafter means the successor.
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<PAGE>
"Consolidated Cash Flow" for any period means the
Consolidated Net Income for such period, plus the following to the extent
deducted in calculating such Consolidated Net Income: (i) income tax expense,
(ii) Consolidated Interest Expense, (iii) depreciation expense, (iv)
amortization expense and (v) all other non-cash items reducing Consolidated Net
Income (excluding any non-cash item to the extent it represents an accrual of
or reserve for cash disbursements for any subsequent period prior to the Stated
Maturity of the Securities or amortization of a prepaid cash expense that was
paid in a prior period) and less, to the extent added in calculating
Consolidated Net Income, non-cash items (excluding such non-cash items to the
extent they represent an accrual for cash receipts reasonably expected to be
received prior to the Stated Maturity of the Securities), in each case for such
period. Notwithstanding the foregoing, the income tax expense, depreciation
expense and amortization expense of a Subsidiary of the Company shall be
included in Consolidated Cash Flow only to the extent (and in the same
proportion) that the net income of such Subsidiary was included in calculating
Consolidated Net Income.
"Consolidated Coverage Ratio" as of any date of determination
means the ratio of (i) the aggregate amount of Consolidated Cash Flow for the
period of the most recent four consecutive fiscal quarters ending prior to the
date of such determination and as to which financial statements are available
to (ii) Consolidated Interest Expense for such four fiscal quarters; provided,
however, that (A) if the Company or any of its Restricted Subsidiaries has
incurred any Indebtedness since the beginning of such period and through the
date of determination of the Consolidated Coverage Ratio that remains
outstanding or if the transaction giving rise to the need to calculate
Consolidated Coverage Ratio is an incurrence of Indebtedness, or both,
Consolidated Cash Flow and Consolidated Interest Expense for such period shall
be calculated after giving effect on a pro forma basis to (1) such Indebtedness
as if such Indebtedness had been incurred on the first day of such period
(provided that if such Indebtedness is incurred under a revolving credit
facility (or similar arrangement or under any predecessor revolving credit or
similar arrangement) only that portion of such Indebtedness that constitutes
the one year projected average balance of such Indebtedness (as determined in
good faith by the Board of Directors of the Company) shall be deemed
outstanding for purposes of this calculation), and (2) the discharge of any
other Indebtedness repaid, repurchased, defeased or otherwise discharged with
the proceeds of such new Indebtedness as if such discharge had occurred on the
first day of such period, (B) if since the beginning of such period any
Indebtedness of the Company or any of its Restricted Subsidiaries has been
repaid, repurchased, defeased or otherwise discharged (other than Indebtedness
under a revolving credit or similar arrangement unless such revolving credit
Indebtedness has been permanently repaid and has not been replaced),
Consolidated Interest Expense for such period shall be calculated after giving
pro forma effect thereto as if such Indebtedness had been repaid, repurchased,
defeased or otherwise discharged on the first day of such period, (C) if since
the beginning of such period the Company or any of its Restricted Subsidiaries
shall have made any Asset Disposition or if the transaction giving rise to the
need to calculate the Consolidated Coverage Ratio is an
-5-
<PAGE>
Asset Disposition, Consolidated Cash Flow for such period shall be reduced by
an amount equal to the Consolidated Cash Flow (if positive) attributable to the
assets which are the subject of such Asset Disposition for such period or
increased by an amount equal to the Consolidated Cash Flow (if negative)
attributable thereto for such period, and Consolidated Interest Expense for
such period shall be (1) reduced by an amount equal to the Consolidated
Interest Expense attributable to any Indebtedness of the Company or any of its
Restricted Subsidiaries repaid, repurchased, defeased or otherwise discharged
with respect to the Company and its continuing Restricted Subsidiaries in
connection with such Asset Disposition for such period (or, if the Capital
Stock of any Restricted Subsidiary of the Company is sold, the Consolidated
Interest Expense for such period directly attributable to the Indebtedness of
such Restricted Subsidiary to the extent the Company and its continuing
Restricted Subsidiaries are no longer liable for such Indebtedness after such
sale) and (2) increased by interest income attributable to the assets which are
the subject of such Asset Disposition for such period, (D) if since the
beginning of such period the Company or any of its Restricted Subsidiaries (by
merger or otherwise) shall have made an Investment in any Restricted Subsidiary
of the Company (or any Person which becomes a Restricted Subsidiary of the
Company as a result thereof) or an acquisition of assets occurring in
connection with a transaction causing a calculation to be made hereunder which
constitutes all or substantially all of an operating unit of a business,
Consolidated Cash Flow and Consolidated Interest Expense for such period shall
be calculated after giving pro forma effect thereto (including the incurrence
of any Indebtedness) as if such Investment or acquisition occurred on the first
day of such period and (E) if since the beginning of such period any Person
(that subsequently became a Restricted Subsidiary of the Company or was merged
with or into the Company or any Restricted Subsidiary of the Company since the
beginning of such period) shall have made any Asset Disposition, Investment or
acquisition of assets that would have required an adjustment pursuant to clause
(C) or (D) above if made by the Company or a Restricted Subsidiary of the
Company during such period, Consolidated Cash Flow and Consolidated Interest
Expense for such period shall be calculated after giving pro forma effect
thereto as if such Asset Disposition, Investment or acquisition occurred on the
first day of such period. If any Indebtedness bears a floating rate of interest
and is being given pro forma effect, the interest expense on such Indebtedness
shall be calculated as if the rate in effect on the date of determination had
been the applicable rate for the entire period (taking into account any
Interest Rate Agreement applicable to such Indebtedness if such Interest Rate
Agreement has a remaining term in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the
total interest expense of the Company and its Restricted Subsidiaries
determined in accordance with GAAP, plus, to the extent not included in such
interest expense (i) interest expense attributable to Capitalized Lease
Obligations, (ii) amortization of debt discount, (iii) capitalized interest,
(iv) non-cash interest expense, (v) commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance
financing,
-6-
<PAGE>
(vi) interest actually paid by the Company or any such Restricted Subsidiary
under any Guarantee of Indebtedness or other obligation of any other Person,
(vii) net payments (whether positive or negative) pursuant to Interest Rate
Agreements, (viii) the cash contributions to any employee stock ownership plan
or similar trust to the extent such contributions are used by such plan or
trust to pay interest or fees to any Person (other than the Company) in
connection with Indebtedness Incurred by such plan or trust and (ix) cash and
Disqualified Stock dividends in respect of all Preferred Stock of Subsidiaries
and Disqualified Stock of the Company held by Persons other than the Company or
a Wholly-Owned Subsidiary and less (a) to the extent included in such interest
expense, the amortization of capitalized debt issuance costs and (b) interest
income. Notwithstanding the foregoing, the Consolidated Interest Expense with
respect to any Restricted Subsidiary of the Company, that was not a
Wholly-Owned Subsidiary, shall be included only to the extent (and in the same
proportion) that the net income of such Restricted Subsidiary was included in
calculating Consolidated Net Income.
"Consolidated Net Income" means, for any period, the
consolidated net income (loss) of the Company and its consolidated Subsidiaries
determined in accordance with GAAP prior to the payment of dividends on the
Senior PIK Preferred Stock; provided, however, that there shall not be included
in such Consolidated Net Income: (i) any net income (loss) of any person
acquired by the Company or any of its Restricted Subsidiaries in a pooling of
interests transaction for any period prior to the date of such acquisition,
(ii) any net income of any Restricted Subsidiary of the Company if such
Restricted Subsidiary is subject to restrictions, directly or indirectly, on
the payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to the Company (other than restrictions in
effect on the Issue Date with respect to a Restricted Subsidiary of the Company
and other than restrictions that are created or exist in compliance with the
"Limitation on Restrictions on Distributions from Restricted Subsidiaries"
covenant), (iii) any gain or loss realized upon the sale or other disposition
of any assets of the Company or its consolidated Restricted Subsidiaries
(including pursuant to any Sale and Leaseback Transaction) which are not sold
or otherwise disposed of in the ordinary course of business and any gain or
loss realized upon the sale or other disposition of any Capital Stock of any
Person, (iv) any extraordinary gain or loss, (v) the cumulative effect of a
change in accounting principles, (vi) the net income of any Person, other than
a Restricted Subsidiary, except to the extent of the lesser of (A) dividends or
distributions paid to the Company or any of its Restricted Subsidiaries by such
Person and (B) the net income of such Person (but in no event less than zero),
and the net loss of such Person (other than an Unrestricted Subsidiary) shall
be included only to the extent of the aggregate Investment of the Company or
any of its Restricted Subsidiaries in such Person and (vii) any non-cash
expenses attributable to grants or exercises of employee stock options.
Notwithstanding the foregoing, for the purpose of Section 4.07 only, there
shall be excluded from Consolidated Net Income any dividends, repayments of
loans or advances or other transfers of assets from Unrestricted Subsidiaries
to the Company or a Restricted Subsidiary to the extent such
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<PAGE>
dividends, repayments or transfers increase the amount of Restricted Payments
permitted under such covenant.
"Consolidated Net Worth" means the total of the amounts shown
on the balance sheet of the Company and its consolidated Restricted
Subsidiaries, determined on a consolidated basis in accordance with GAAP, as of
the end of the most recent fiscal quarter of the Company ending prior to the
taking of any action for the purpose of which the determination is being made
and for which financial statements are available (but in no event ending more
than 135 days prior to the taking of such action), as (i) the par or stated
value of all outstanding Capital Stock of the Company plus (ii) paid in capital
or capital surplus relating to such Capital Stock plus (iii) any retained
earnings or earned surplus less (A) any accumulated deficit and (B) any amounts
attributable to Disqualified Stock.
"Continuing Director" of any Person means, as of the date of
determination, any Person who (i) was a member of the Board of Directors of
such Person on the date of the Indenture or (ii) was nominated for election or
elected to the Board of Directors of such Person with the affirmative vote of a
majority of the Continuing Directors of such Person who were members of such
Board of Directors 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 11.02 or such other address as to
which the Trustee may give notice to the Company.
"Currency Agreement" means in respect of a Person any foreign
exchange contract, currency swap agreement or other similar agreement as to
which such Person is a party or a beneficiary.
"Default" means any event that is or with the passing of time
or giving of notice or both would be an Event of Default.
"Depository" means The Depository Trust Company, its nominees
and successors.
"DGG" means Drake, Goodwin & Graham.
"Disqualified Stock" means any Capital Stock which, by its
terms (or by the terms of any security into which it is convertible or for
which it is exchangeable), or upon the happening of any event (other than an
event which would constitute a Change of Control), (i) matures (excluding any
maturity as the result of an optional redemption by the issuer thereof) 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 the final Stated Maturity of the Securities, or (ii) is convertible
into or
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<PAGE>
exchangeable (unless at the sole option of the issuer thereof) for (a) debt
securities or (b) any Capital Stock referred to in (i) above, in each case at
any time prior to the final Stated Maturity of the Securities.
"Equity Interests" means Capital Stock and all warrants,
options or other rights to acquire Capital Stock (but excluding any debt
security that is convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means an offering for cash by the Company
of its common stock, or options, warrants or rights with respect to its common
stock.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission promulgated
thereunder.
"Exchange Offer" means the registration by the Company and
the Guarantors under the Securities Act pursuant to a registration statement of
the offer by the Company and the Guarantors to each Securityholder of the
Initial Securities to exchange all the Initial Securities held by such
Securityholder for the Exchange Securities in an aggregate principal amount
equal to the aggregate principal amount of the Initial Securities held by such
Securityholder, all in accordance with the terms and conditions of the
Registration Rights Agreement.
"Exchange Securities" has the meaning set forth in the
preamble to this Indenture.
"Existing Indebtedness" means Indebtedness of the Company and
its Restricted Subsidiaries (other than Indebtedness under the New Credit
Facility) in existence on the Issue Date.
"GAAP" means generally accepted accounting principles in the
United States of America as in effect as of the date the Indemnity including
those 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. All rates and computations
based on GAAP hereunder shall be computed in conformity with GAAP.
"Guarantee" means any obligation, contingent or otherwise, of
any Person directly or indirectly guaranteeing any Indebtedness of any other
Person and any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness of such other
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Person (whether arising by virtue of partnership arrangements, or by agreement
to keepwell, to purchase assets, goods, securities or services, to take-or-pay,
or to maintain financial statement conditions or otherwise) or (ii) entered
into for purposes of assuring in any other manner the obligee of such
Indebtedness of the payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part); provided, however, that the term
"Guarantee" shall not include endorsements for collection or deposit in the
ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning.
"Guarantor" means each Subsidiary of the Company in existence
on the Issue Date and each Subsidiary (other than Unrestricted Subsidiaries)
created or acquired by the Company after the Issue Date.
"Incur" means issue, assume, guarantee, incur or otherwise
become liable for; provided, however, that any indebtedness or Capital Stock of
a Person existing at the time such person becomes a Restricted Subsidiary
(whether by merger, consolidation, acquisition or otherwise) shall be deemed to
be incurred by such Restricted Subsidiary at the time it becomes a Restricted
Subsidiary.
"Indebtedness" means, with respect to any Person on any date
of determination (without duplication), (i) the principal of and premium (if
any) in respect of indebtedness of such Person for borrowed money, (ii) the
principal of and premium (if any) in respect of obligations of such Person
evidenced by bonds, debentures, notes or other similar instruments, (iii) all
obligations of such Person in respect of letters of credit or other similar
instruments (including reimbursement obligations with respect thereto) (other
than obligations with respect to letters of credit securing obligations (other
than obligations described in clauses (i), (ii) and (v)) entered into in the
ordinary course of business of such Person to the extent that such letters of
credit are not drawn upon or, if and to the extent drawn upon, such drawing is
reimbursed no later than the third business day following receipt by such
Person of a demand for reimbursement following payment on the letter of
credit), (iv) all obligations of such Person to pay the deferred and unpaid
purchase price of property or services (except trade payables and accrued
expenses incurred in the ordinary course of business), which purchase price is
due more than six months after the date of placing such property in service or
taking delivery and title thereto or the completion of such services, (v) all
Capitalized Lease Obligations and all Attributable Indebtedness of such Person,
(vi) all Indebtedness of other Persons secured by a Lien on any asset of such
Person, whether or not such Indebtedness is assumed by such Person, (vii) all
Indebtedness of other Persons to the extent Guaranteed by such Person, (viii)
the amount of all obligations of such Person with respect to the redemption,
repayment or other repurchase of any Disqualified Stock other than the Senior
PIK Preferred Stock or, with respect to any Restricted Subsidiary of the
Company, any Preferred Stock of such Restricted Subsidiary to the extent such
obligation arises on or before the Stated Maturity of the Securities (but
excluding, in each case, accrued dividends) and (ix) to the extent not
otherwise included
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in this definition, obligations under Currency Agreements and Interest Rate
Agreements. The amount of Indebtedness of any Person at any date shall be the
outstanding principal amount of all unconditional obligations as described
above, as such amount would be reflected on a balance sheet prepared in
accordance with GAAP, and the maximum liability of such Person, upon the
occurrence of the contingency giving rise to the obligation, of any contingent
obligations described above at such date.
"Indenture" means this Indenture, as amended or supplemented
from time to time.
"Initial Purchasers" means NatWest Capital Markets Limited
and CIBC Wood Gundy Securities Corp.
"Initial Securities" has the meaning set forth in the
preamble to this Indenture.
"Institutional Accredited Investor" means an institution that
is an "accredited investor" as that term is defined in Rule 501(a)(1), (2), (3)
or (7) under the Securities Act.
"Interest Payment Date" means the Stated Maturity of an
installment of interest on the Securities.
"Interest Rate Agreement" means with respect to any Person
any interest rate protection agreement, interest rate future agreement,
interest rate option agreement, interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement, interest rate hedge agreement or
other similar agreement or arrangement as to which such Person is party or a
beneficiary.
"Investments" in any Person means any direct or indirect
advance, loan (other than advances to customers in the ordinary course of
business that are recorded as accounts payable on the balance sheet of such
Person) or other extension of credit (including by way of Guarantee or similar
arrangement, but excluding any debt or extension of credit represented by a
bank deposit other than a time deposit) or capital contribution to (by means of
any transfer of cash or other property to others or any payment for property or
services for the account or use of others), or any purchase or acquisition of
Capital Stock, Indebtedness or other similar instruments issued by such Person.
For purposes of Section 4.07, (i) "Investment" shall include the portion
(proportionate to the Company's equity interest in a Restricted Subsidiary to
be designated as an Unrestricted Subsidiary) of the fair market value of the
net assets of such Restricted Subsidiary of the Company at the time that such
Restricted Subsidiary is designated an Unrestricted Subsidiary; provided,
however, that upon a redesignation of such Subsidiary as a Restricted
Subsidiary, the Company shall be deemed to continue to have a permanent
"Investment" in an Unrestricted
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Subsidiary in an amount (if positive) equal to (x) the Company's "Investment"
in such Subsidiary at the time of such redesignation less (y) the portion
(proportionate to the Company's equity interest in such Subsidiary) of the fair
market value of the net assets of such Subsidiary at the time that such
Subsidiary is so redesignated a Restricted Subsidiary; and (ii) any property
transferred to or from an Unrestricted Subsidiary shall be valued at its fair
market value at the time of such transfer, in each case as determined in good
faith by the Board of Directors and evidenced by a resolution of such Board of
Directors certified in an Officers' Certificate to the Trustee.
"Issue Date" means the date on which the Initial Securities
are originally issued.
"Lien" means any security interest, charge or encumbrance of
any kind (including any conditional sale or other title retention agreement,
any lease in the nature thereof, and any agreement to give any security
interest).
"Management Group" means Thomas F. Helms, Jr. and other
members of senior management of the Company.
"Maturity Date" means June 15, 2004.
"NATC" has the meaning set forth in the preamble to this
Indenture.
"National Tobacco" has the meaning set forth in the preamble
to this Indenture.
"Net Available Cash" from an Asset Disposition means cash
payments received (including any cash payments received by way of deferred
payment of principal pursuant to a note or installment receivable or otherwise,
but only as and when received, therefrom in each case net of (i) all legal,
title and recording tax expenses, commissions and other fees and expenses
incurred, and all Federal, state, foreign and local taxes required to be paid
or accrued as a liability under GAAP, as a consequence of such Asset
Disposition, (ii) all payments made on any Indebtedness which is secured by any
assets subject to such Asset Disposition, in accordance with the terms of any
Lien upon such assets, or which must by its terms, or in order to obtain a
necessary consent to such Asset Disposition or by applicable law, be repaid out
of the proceeds from such Asset Disposition, (iii) all distributions and other
payments required to be made to any Person owning a beneficial interest in
assets subject to sale or minority interest holders in Subsidiaries or joint
ventures as a result of such Asset Disposition, (iv) the deduction of
appropriate amounts to be provided by the seller as a reserve, in accordance
with GAAP, against any liabilities associated with the assets disposed of in
such Asset Disposition, provided, however, that upon any reduction in such
reserves (other than to the extent
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resulting from payments of the respective reserved liabilities), Net Available
Cash shall be increased by the amount of such reduction to reserves, and
retained by the Company or any Restricted Subsidiary of the Company after such
Asset Disposition or otherwise in connection with such Asset Disposition)
provided, however, that upon the termination of such escrow, Net Available Cash
shall be increased by any portion of funds therein released to the Company or
any Restricted Subsidiary.
"Net Cash Proceeds," with respect to any issuance or sale of
Capital Stock, means the cash proceeds of such issuance or sale net of
attorneys' fees, accountants' fees, underwriters' or placement agents' fees,
discounts or commissions and brokerage, consultant and other fees actually
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result of such issuance or sale.
"Net Proceeds" from an Asset Disposition means cash payments
received (including any cash payments received by way of conversion into cash
of any note or other obligation received in connection with such Asset
Disposition or by way of deferred payment of principal pursuant to, or
liquidation of, any note or installment receivable or otherwise, but only as
and when received therefrom) in each case net of all legal, title and recording
tax expenses, commissions and other fees and expenses incurred, and all taxes
required to be accrued as a liability under GAAP, as a consequence of such
Asset Disposition and the amount of Indebtedness that is secured by the assets
subject to an Asset Disposition and is repaid with the proceeds thereof.
"New Senior Secured Facilities" means the Credit Agreement,
to be dated as of June 23, 1997, among the Company as borrower, certain
guarantors, National Westminster Bank plc, as agent, and any other financial
institutions from time to time party thereto, together with the related
documents thereto (including, without limitation, any guarantee agreements,
pledge agreements and security documents), in each case as such agreements may
be amended (including any amendment and restatement thereof), supplemented or
otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring (including by
way of adding Subsidiaries of the Company as additional borrowers or guarantors
thereunder) all or any portion of the Indebtedness under such agreement or any
successor or replacement agreement and whether by the same or any other agent,
lender or group of lenders.
"Non-Recourse Debt" means Indebtedness (i) as to which
neither the Company nor any Restricted Subsidiary (a) provides any guarantee or
credit support of any kind (including any undertaking, guarantee, indemnity,
agreement or instrument that would constitute Indebtedness) or (b) is directly
or indirectly liable (as a guarantor, general partner or otherwise) and (ii) no
default with respect to which (including any rights that the holders thereof
may have to take enforcement action against an Unrestricted Subsidiary) would
permit (upon notice, lapse of time or both) any holder of any other
Indebtedness of the
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Company or any Restricted Subsidiary to declare a default under such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its Stated Maturity.
"Non-U.S. Person" means a Person who is not a U.S. person, as
defined in Regulation S of the Securities Act.
"NTFC" has the meaning set forth in the preamble to this
Indenture.
"Obligations" means any principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other
liabilities payable under the documentation governing any Indebtedness.
"Offering Memorandum" means the Offering Memorandum dated
June __, 1997, pursuant to which the Initial Securities were offered, and any
supplements thereto.
"Officer" means the Chairman of the Board, the President,
Chief Financial Officer, any Senior Vice President, any Vice President, the
Treasurer, the Secretary or Assistant Secretary of the Company or, in the case
of a reference to Officers of any of the Guarantors or to an Officers'
Certificate to be delivered by or on behalf of any of the Guarantors, of such
Guarantor.
"Officers' Certificate" means a certificate signed by two
Officers of the Company or a Guarantor, as the case may be, and which complies
with the provisions of Section 11.04 hereof.
"Offshore Physical Securities" has the meaning provided in
Section 2.01.
"Opinion of Counsel" means a written opinion from legal
counsel who is acceptable to the Trustee, and which complies, if applicable,
with the provisions of Section 11.04 hereof. The counsel may be an employee of
or counsel to the Company or the Trustee.
"Permitted Businesses" means any business which is the same
as or related, ancillary or complementary to any of the businesses of the
Company and its Restricted Subsidiaries on the date of the Indenture.
"Permitted Investments" means an Investment by the Company or
any of its Restricted Subsidiaries in (i) a Wholly-Owned Subsidiary of the
Company; provided, however, that the primary business of such Wholly-Owned
Subsidiary is a Permitted Business; (ii) another Person if as a result of such
Investment such other Person becomes a Wholly-Owned Subsidiary of the Company
or is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Wholly-Owned
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Subsidiary of the Company; provided, however, that in each case such Person's
primary business is a Permitted Business; (iii) Temporary Cash Investments;
(iv) receivables owing to the Company or any of its Restricted Subsidiaries,
created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; (v) payroll, travel and
similar advances to cover matters that are expected at the time of such
advances ultimately to be treated as expenses for accounting purposes and that
are made in the ordinary course of business; (vi) loans and advances to
employees made in the ordinary course of business consistent with past
practices of the Company or such Restricted Subsidiary; (vii) stock,
obligations or securities received in settlement of debts created in the
ordinary course of business and owing to the Company or any of its Restricted
Subsidiaries or in satisfaction of judgments or claims; (viii) a Person engaged
in a Permitted Business or a loan or advance to a Restricted Subsidiary the
proceeds of which are used solely to make an investment in a Person engaged in
a Permitted Business or a Guarantee by the Company of Indebtedness of any
Person in which such Investment has been made; provided, however, that no
Permitted Investments may be made pursuant to this clause (viii) to the extent
the amount thereof would, when taken together with all other Permitted
Investments made pursuant to this clause (viii), exceed $5 million in the
aggregate (plus, to the extent not previously reinvested, any return of capital
realized on Permitted Investments made pursuant to this clause (viii), or any
release or other cancellation of any Guarantee constituting such Permitted
Investment); (ix) Persons to the extent such Investment is received by the
Company or any Restricted Subsidiary as consideration for Asset Dispositions
effected in compliance with Section 4.10 hereof; (x) prepayments and other
credits to suppliers made in the ordinary course of business consistent with
the past practices of the Company and its Restricted Subsidiaries; and (xi)
Investments in connection with pledges, deposits, payments or performance bonds
made or given in the ordinary course of business in connection with or to
secure statutory, regulatory or similar obligations, including obligations
under health, safety or environmental obligations.
"Permitted Liens" means (a) Liens granted by the Company and
the Guarantors which secure Indebtedness to the extent the Indebtedness is
incurred pursuant to Section 4.09(b)(i); (b) Liens in favor of the Company; (c)
Liens on property of a Person existing at the time such Person is merged into
or consolidated with the Company or any Restricted Subsidiary thereof; provided
that such Liens were in existence prior to the contemplation of such
acquisition and do not extend to any assets of the Company or its Restricted
Subsidiaries other than those acquired in connection with such merger or
consolidation; (d) Liens to secure the performance of obligations, surety or
appeal bonds, performance bonds or other obligations of a like nature incurred
in the ordinary course of business; (e) Liens existing on the Issue Date; (f)
Liens in respect of extensions, renewals, refundings or refinancings of any
Indebtedness secured by the Liens referred to in clauses (a), (b), (c) and (e)
above and (h) below; provided that the Liens in connection with such renewal,
extensions, renewals, refundings or refinancing shall be limited to all or part
of
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the specific property which was subject to the original Lien; (g) 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; (h) any Lien securing purchase money obligations
incurred in connection with the purchase of real or personal property; provided
that (A) at the time such Lien attached to the real or personal property of the
Company or Guarantor, the Company shall be permitted to Incur at least $1.00 of
additional Indebtedness pursuant to Section 4.09(a) hereof and (B) such Liens
do not extend to any property (other than the property so purchased) owned by
the Company or its Restricted Subsidiaries and is not incurred more than 30
days after the incurrence of such Indebtedness secured by such Lien; (i) Liens
to secure Capitalized Lease Obligations (except in respect of Sale and
Leaseback Transactions) on real or personal property of the Company to the
extent consummated in compliance with the Indenture; provided that (A) at the
time such Lien attaches to the real or personal property of the Company or
Guarantor, the Company shall be permitted to Incur at least $1.00 of additional
Indebtedness pursuant to Section 4.09(a) hereof and (B) such Liens do not
extend to or cover any property of the Company or any of its Subsidiaries other
than the property subject to such Capitalized Lease Obligation; and (j) Liens
incurred in the ordinary course of business of the Company or any Restricted
Subsidiary thereof with respect to obligations that do not exceed $2 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 the business by the Company or such Restricted
Subsidiary.
"Person" means any individual, corporation, partnership,
joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Physical Securities" has the meaning provided in Section
2.01.
"Preferred Stock" as applied to the Capital Stock of any
corporation, means Capital Stock of any class or classes (however designated)
which is preferred as to the payment of dividends, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"Private Placement Legend" has the meaning provided in
Section 2.15.
"Public Market" exists at any time with respect to the common
stock of the Company if (i) the common stock of the Company is then registered
with the Securities and
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Exchange Commission pursuant to Section 12(b) or 12(g) of the Exchange Act and
traded either on a national securities exchange or in the National Association
of Securities Dealers Automated Quotation System and (ii) at least 15% of the
total issued and outstanding common stock of the Company, as applicable, has
been distributed prior to such time by means of an effective registration
statement under the Securities Act.
"Qualified Capital Stock" shall mean any Capital Stock which
is not Disqualified Stock.
"Qualified Institutional Buyer" or "QIB" shall have the
meaning specified in Rule 144A under the Securities Act.
"Record Date" means the record dates specified in the
Securities, whether or not a Legal Holiday.
"Refinancing Indebtedness" means Indebtedness that refunds,
refinances, replaces, renews, repays or extends (including pursuant to any
defeasance or discharge mechanism) (collectively, "refinances," and refinanced"
shall have a correlative meaning) any Indebtedness existing on the date of the
Indenture or Incurred in compliance with the Indenture (including Indebtedness
of the Company that refinances Indebtedness of any Restricted Subsidiary and
Indebtedness of any Restricted Subsidiary that refinances Indebtedness of
another Restricted Subsidiary) including Indebtedness that refinances
Refinancing Indebtedness; provided, however, that (i) the Refinancing
Indebtedness has a Stated Maturity no earlier than the earlier of (A) the first
anniversary of the Stated Maturity of the Securities and (B) the Stated
Maturity of the Indebtedness being refinanced, (ii) the Refinancing
Indebtedness has an Average Life at the time such Refinancing Indebtedness is
Incurred that is equal to or greater than the lesser of (A) the Average Life of
the Securities and (B) the Average Life of the Indebtedness being refinanced,
(iii) the Refinancing Indebtedness is subordinated to the Securities on the
same terms as the Indebtedness being refinanced if such Indebtedness is
subordinate to the Securities and, (iv) the Refinancing Indebtedness is in an
aggregate principal amount (or if issued with original issue discount, an
aggregate issue price) that is equal to (or 101% of, in the case of a
refinancing of the Securities in connection with a Change of Control) or less
than the sum of the aggregate principal amount (or if issued with original
issue discount, the aggregate accreted value) then outstanding of the
Indebtedness being refinanced (plus the amount of any premium required to be
paid in connection therewith and reasonable fees and expenses therewith);
provided, further, that Refinancing Indebtedness shall not include Indebtedness
of a Subsidiary which refinances Indebtedness of the Company.
"Registration Rights Agreement" means the Registration Rights
Agreement dated June 25, 1997 among the Company, the Guarantors and the Initial
Purchasers for the
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benefit of themselves and the Securityholders, as the same may be amended or
modified from time to time in accordance with the terms thereof.
"Responsible Officer" when used with respect to the Trustee,
means any officer within the corporate trust department of the Trustee (or any
successor group of the Trustee) with direct responsibility for the
administration of 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 any Investment other than a
Permitted Investment.
"Restricted Payment" has the meaning provided in Section
4.07(a).
"Restricted Security" has the meaning assigned to such term
in Rule 144(a)(3) under the Securities Act.
"Restricted Subsidiary" of any Person means any Subsidiary of
such Person which at the time of determination is not an Unrestricted
Subsidiary.
"Sale and Leaseback Transaction" means an arrangement
relating to property now owned or hereafter acquired whereby the Company or a
Restricted Subsidiary transfers such property to a Person and the Company or a
Subsidiary leases it from such Person.
"Secured Indebtedness" means any Indebtedness of the Company
or a Guarantor secured by a Lien.
"Securities" means the Initial Securities and the Exchange
Securities treated as a single class of securities, as amended or supplemented
from time to time in accordance with the terms hereof, that are issued pursuant
to this Indenture.
"Securities Act" means the Securities Act of 1933, as
amended, and the rules and regulations of the Commission promulgated
thereunder.
"Securityholder" or "Holder" means a registered holder of one
or more Securities.
"Senior PIK Preferred Stock" means the 12% senior preferred
stock of the Company with a liquidation preference of $25 per share.
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"Significant Subsidiary" means any Restricted Subsidiary of
the Company which would be a "Significant Subsidiary" within the meaning
ascribed to such term in Rule 1-02 of Regulation S-X promulgated by the
Commission.
"Stated Maturity" means, with respect to any security, the
date specified in such security as the fixed date on which the payment of
principal of such security is due and payable, including pursuant to any
mandatory redemption provision.
"Subordinated Obligation" means any Indebtedness of the
Company (whether outstanding on the Issue Date or thereafter Incurred) which is
subordinate or junior in right of payment to the Securities pursuant to a
written agreement.
"Subsidiary" of any Person incorporated in the United States
means any corporation, association, partnership or other business entity
organized in the United States of which more than 50% of the total voting power
of shares of Capital Stock or other interests (including partnership interests)
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by (i) such Person, (ii) such Person and
one or more Subsidiaries of such Person or (iii) one or more Subsidiaries of
such Person provided, however, that NTC Equity II, Inc. and NTC Holdings LLC
shall be excluded from the delineation of Subsidiary. Unless otherwise
specified herein, each reference to a Subsidiary shall refer to a Subsidiary of
the Company.
"Subsidiary Guarantee" means each of the guarantees of the
respective Guarantors pursuant to Article 10 hereof, and shall include each
guarantee substantially in the form contained in Exhibits A and B hereto, as
such guarantee may be amended, modified or supplemented from time to time.
"Temporary Cash Investments" means any of the following: (i)
any Investment in direct obligations of the United States of America or any
agency thereof or obligations Guaranteed by the United States of America or any
agency thereof, (ii) Investments in time deposit accounts, certificates of
deposit and money market deposits maturing within 180 days of the date of
acquisition thereof issued by a bank or trust company which is organized under
the laws of the United States of America, any state thereof or any foreign
country recognized by the United States of America having capital surplus and
undivided profits aggregating in excess of $250 million (or the foreign
currency equivalent thereof) and whose long-term debt, or whose parent holding
company's long-term debt, is rated "A" (or such similar equivalent rating) or
higher by at least one nationally recognized statistical rating organization
(as defined in Rule 436 under the Securities Act), (iii) repurchase obligations
with a term of not more than 30 days for underlying securities of the types
described in clause (i) above entered into with a bank meeting the
qualifications described in clause (ii) above, (iv) Investments in commercial
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paper, maturing not more than 180 days after the date of acquisition, issued by
a corporation (other than an Affiliate of the Company) organized and in
existence under the laws of the United States of America or any foreign country
recognized by the United States of America with a rating at the time as of
which any investment therein is made of "P-1" (or higher) according to Moody's
Investors Service, Inc. or "A-1" (or higher) according to Standard and Poor's
Ratings Group, (v) Investments in securities with maturities of six months or
less from the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States of America, or by any political
subdivision or taxing authority thereof, and rated at least "A" by Standard &
Poor's Ratings Group or "A" by Moody's Investors Service, Inc. and (vi)
Investments in mutual funds whose investment guidelines restrict such funds'
investments to those satisfying the provisions of clauses (i) through (v)
above.
"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, except as provided in Section 9.03 hereof; provided, however,
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.
"Trustee" means United States Trust Company of New York, a
banking corporation organized and existing under the laws of the State of New
York, until a successor replaces it in accordance with Article 5 and thereafter
means the successor serving hereunder.
"Unrestricted Subsidiary" means (i) any Subsidiary of the
Company that at the time of determination shall be designated an Unrestricted
Subsidiary by the Board of Directors in the manner provided below and (ii) any
Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate
any Subsidiary of the Company (including any newly acquired or newly formed
Subsidiary of the Company) to be an Unrestricted Subsidiary unless such
Subsidiary or any of its Subsidiaries owns any Capital Stock or Indebtedness
of, or owns or holds any Lien on any property of, the Company or any Restricted
Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so
designated; provided, however, each Subsidiary to be so designated and each of
its Subsidiaries has not at the time of designation, and does not thereafter,
create, incur, issue, assume, guarantee or otherwise become directly or
indirectly liable with respect to any Indebtedness pursuant to which the lender
has recourse to any of the assets of the Company or any of its Restricted
Subsidiaries and either (A) the Subsidiary to be so designated has total
consolidated assets of $10,000 or less or (B) if such Subsidiary has
consolidated assets greater than $10,000, then such designation would be
permitted under Section 4.07 hereof. The Board of Directors may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however, that
immediately after giving effect to such designation (x) the Company could Incur
$1.00 of additional Indebtedness under Section 4.09(a) and (y)
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no Default shall have occurred and be continuing. Any such designation by the
Board of Directors shall be evidenced to the Trustee by promptly filing with
the Trustee a copy of the Board Resolution giving effect to such designation
and an Officers' Certificate certifying that such designation complied with the
foregoing provisions.
"U.S. Physical Securities" has the meaning provided in
Section 2.01.
"U.S. Government Obligations" means direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of the United States of America
is pledged and which are not callable at the issuer's option.
"Voting Stock" with respect to any Person means all classes
of Capital Stock of such Person then outstanding and normally entitled to vote
in elections of directors of such Person.
"Wholly-Owned Subsidiary" means a Restricted Subsidiary of
the Company, at least 99% of the Capital Stock of which (other than directors'
qualifying shares) is owned by the Company or another Wholly-Owned Subsidiary.
SECTION 1.02. OTHER DEFINITIONS.
Defined in
Term Section
"actual knowledge".......................................... 7.02
"Affiliate Transaction"..................................... 4.11
"Agent Members"............................................. 2.16
"Asset Disposition Offer"................................... 3.09
"Bankruptcy Law"............................................ 6.01
"covenant defeasance option"................................ 8.01
"Custodian"................................................. 6.01
"Declaration"............................................... 6.02
"Default Amount"............................................ 6.02
"Event of Default".......................................... 6.01
"Excess Proceeds"........................................... 4.10
"Funding Guarantor"........................................ 10.05
"Guaranteed Obligations"................................... 10.01
"judgment default provision"................................ 6.01
"legal defeasance option"................................... 8.01
"Legal Holiday"............................................ 11.07
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"Notice of Default"......................................... 6.01
"Offer Amount".............................................. 3.09
"Offer Period".............................................. 3.09
"Paying Agent".............................................. 2.03
"Payment Default"........................................... 6.01
"Registrar"................................................. 2.03
"Successor Company"......................................... 5.01
SECTION 1.03. 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 Securities and the
Subsidiary Guarantees;
"indenture security holder" means a Securityholder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the
Trustee;
"obligor" on the Securities means the Company, the Guarantors
and any successor obligor upon the Securities.
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 1.04. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(iii) "or" is not exclusive;
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(iv) words in the singular include the plural, and in the
plural include the singular; and
(v) provisions apply to successive events and transactions.
ARTICLE 2
THE SECURITIES
SECTION 2.01. FORM AND DATING.
The Initial Securities, the notation thereon relating to the
Subsidiary Guarantees and the Trustee's certificate of authentication thereon
shall be substantially in the form of Exhibit A hereto. The Exchange
Securities, the notation thereon relating to the Subsidiary Guarantees and the
Trustee's certificate of authentication thereon shall be substantially in the
form of Exhibit B hereto. The Securities may have notations, legends or
endorsements required by law, stock exchange rule or Depository rule or usage.
The Company, the Guarantors and the Trustee shall approve the form of the
Securities and any notation, legend or endorsement on them. Each Security shall
be dated the date of its authentication.
The terms and provisions contained in the forms of the
Securities and the Subsidiary Guarantees, annexed hereto as Exhibits A and B,
shall constitute, and are hereby expressly made, a part of this Indenture and,
to the extent applicable, the Company, the Guarantors and the Trustee, by their
execution and delivery of this Indenture, expressly agree to such terms and
provisions and to be bound thereby.
Securities offered and sold in reliance on Rule 144A shall be
issued initially in the form of one or more permanent global notes in
registered form, in substantially the form set forth in Exhibit A (the "Global
Note"), deposited with the Trustee, as custodian for the Depository, duly
executed by the Company and authenticated by the Trustee as hereinafter
provided. The aggregate principal amount of the Global Note may from time to
time be increased or decreased by adjustments made on the records of the
Trustee, as custodian for the Depository, as hereinafter provided.
Securities offered and sold in offshore transactions in
reliance on Regulation S shall be issued in the form of permanent certificated
Securities in registered form in substantially the form set forth in Exhibit A
(the "Offshore Physical Securities"). Securities offered and sold in reliance
on any other exemption from registration under the Securities Act other than as
described in the preceding paragraph shall be issued, and Securities offered
and sold in reliance on Rule 144A may be issued, in the form of permanent
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certificated Securities in registered form, in substantially the form set forth
in Exhibit A (the "U.S. Physical Securities"). The Offshore Physical Securities
and the U.S. Physical Securities are sometimes collectively herein referred to
as the "Physical Securities".
SECTION 2.02. EXECUTION AND AUTHENTICATION.
(a) Two Officers of the Company (each of whom shall, in each
case, have been duly authorized by all requisite corporate actions) shall sign
the Securities for the Company by manual or facsimile signature. The Company's
seal shall be reproduced on the Securities. If an Officer whose signature is on
a Security no longer holds that office at the time the Security is
authenticated, the Security shall nevertheless be valid. Each Guarantor shall
execute a Subsidiary Guarantee in the manner set forth in Section 10.02.
(b) A Security shall not be valid until authenticated by the
manual signature of the Trustee. The signature of the Trustee shall be
conclusive evidence that the Security has been authenticated under this
Indenture.
(c) The Trustee shall authenticate (i) Initial Securities for
original issue in the aggregate principal amount not to exceed $155,000,000,
and (ii) Exchange Securities from time to time for issue only in exchange for a
like principal amount of Initial Securities, in each case upon receipt of a
written order of the Company.
(d) The Trustee may appoint an authenticating agent
acceptable to the Company to authenticate Securities. Unless limited by the
terms of such appointment, an authenticating agent may authenticate Securities
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with the Company
or an Affiliate.
SECTION 2.03. REGISTRAR AND PAYING AGENT.
(a) The Company shall maintain an office or agency (which
shall be located in the Borough of Manhattan in the City of New York, State of
New York) where (i) Securities may be presented for registration of transfer or
for exchange ("Registrar"), (ii) Securities may be presented for payment
("Paying Agent") and (iii) notices and demands to or upon the Company in
respect of the Securities and this Indenture may be served. The Registrar shall
keep a register of the Securities and of their transfer and exchange. The
Company may appoint one or more co-registrars and one or more additional paying
agents. The term "Paying Agent" includes any additional paying agent. The
Company may change any Paying Agent, Registrar or co-registrar without prior
notice to any Securityholder. The Company shall notify the Trustee and the
Trustee shall notify the Securityholders of the name and address of any Agent
not a party to this Indenture. If the Company fails to
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appoint or maintain another entity as Registrar or Paying Agent, the Trustee
shall act as such. The Company or any Guarantor may act as Paying Agent,
Registrar or co-registrar. The Company shall enter into an appropriate agency
agreement with any Agent not a party to this Indenture, which shall incorporate
the provisions of the TIA. The agreement shall implement the provisions of this
Indenture that relate to such Agent. The Company shall notify the Trustee of
the name and address of any such Agent. If the Company fails to maintain a
Registrar or Paying Agent, or fails to give the foregoing notice, the Trustee
shall act as such, and shall be entitled to appropriate compensation in
accordance with Section 7.07 hereof.
(b) The Company initially appoints the Trustee as Registrar,
Paying Agent and agent for service of notices and demands in connection with
the Securities.
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.
The Company, the Guarantors or any other obligor on the
Securities shall require each Paying Agent other than the Trustee to agree in
writing that the Paying Agent shall hold in trust for the benefit of the
Securityholders or the Trustee all money held by the Paying Agent for the
payment of principal of, premium, if any, and interest on the Securities, and
shall notify the Trustee of any Default by the Company, any of the Guarantors
or any other obligor on the Securities 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, the Guarantors or any other obligor on
the Securities 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 delivered to
the Trustee. If the Company, the Guarantors or any other obligor on the
Securities acts as Paying Agent, it shall segregate and hold in a separate
trust fund for the benefit of the Securityholders all money held by it as
Paying Agent.
SECTION 2.05. SECURITYHOLDER LISTS.
The Trustee shall preserve in as current a form as is
reasonably practicable the most recent list available to it of the names and
addresses of Securityholders and shall otherwise comply with TIA ss. 312(a). If
the Trustee is not the Registrar, the Company, the Guarantors or any other
obligor on the Securities 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 Securityholders, including
the aggregate principal amount of the Securities held by each thereof, and the
Company, the Guarantors or any other obligor on the Securities shall otherwise
comply with TIA ss. 312(a).
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SECTION 2.06. TRANSFER AND EXCHANGE.
(a) Where Securities are presented to the Registrar or a
co-registrar with a request to register the transfer thereof or exchange them
for an equal principal amount of Securities of other denominations, the
Registrar shall register the transfer or make the exchange if its requirements
for such transactions are met; provided, that any Security presented or
surrendered for registration of transfer or exchange shall be duly endorsed or
accompanied by a written instruction of transfer in form satisfactory to the
Registrar and the Trustee duly executed by the Securityholder thereof or his
attorney duly authorized in writing. To permit registrations of transfer and
exchanges, the Company shall issue and the Trustee shall authenticate
Securities at the Registrar's request.
(b) The Company shall not be required (i) to issue, to
register the transfer of or to exchange Securities during a period beginning at
the opening of business on a Business Day 15 days before the day of any
selection of Securities for redemption under Section 3.02 hereof and ending at
the close of business on the day of selection, (ii) to register the transfer of
or exchange any Security so selected for redemption in whole or in part, except
the unredeemed portion of any Security being redeemed in part or (iii) to
register the transfer or exchange of a Security between the Record Date and the
next succeeding Interest Payment Date.
(c) No service charge shall be made for any registration of a
transfer or exchange (except as otherwise expressly permitted herein), but the
Company may require payment by the Securityholder of a sum sufficient to cover
any transfer tax or similar governmental charge payable in connection therewith
(other than such transfer tax or similar governmental charge payable upon
exchanges pursuant to Section 2.10, 3.06 or 9.05 hereof).
(d) Any Holder of the Global Note shall, by acceptance of
such Global Note, agree that transfers of beneficial interests in such Global
Note may be effected only through a book entry system maintained by the Holder
of such Global Note (or its agent), and that ownership of a beneficial interest
in the Global Note shall be required to be reflected in a book entry.
SECTION 2.07. REPLACEMENT SECURITIES.
(a) If any mutilated Security is surrendered to the Trustee,
or the Company and the Trustee receives evidence to its satisfaction of the
destruction, loss or theft of any Security, the Company shall issue and the
Trustee, upon receipt by it of the written order of the Company signed by two
Officers of the Company, shall authenticate a replacement Security if the
Trustee's requirements for replacements of Securities are met. If required by
the Trustee or the Company, an indemnity bond must be supplied by the
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Holder that is sufficient in the judgment of the Trustee and the Company to
protect the Company, the Guarantors, the Trustee, any Agent or any
authenticating agent from any loss which any of them may suffer if a Security
is replaced. The Company and the Trustee may charge a Securityholder for
reasonable out-of-pocket expenses in replacing a Security.
(b) Every replacement Security is an obligation of the
Company and each of the Guarantors.
SECTION 2.08. OUTSTANDING SECURITIES.
(a) The Securities outstanding at any time are all the
Securities authenticated by the Trustee except for those cancelled by the
Company or by the Trustee, those delivered to the Trustee for cancellation and
those described in this Section as not outstanding.
(b) If a Security is replaced pursuant to Section 2.07
hereof, it ceases to be outstanding unless the Trustee receives proof
satisfactory to it that the replaced Security is held by a bona fide purchaser.
(c) If the principal amount of any Security is considered
paid under Section 4.01 hereof, it ceases to be outstanding and interest on it
ceases to accrue.
(d) Subject to Section 2.09 hereof, a Security does not cease
to be outstanding because the Company or an Affiliate of the Company or a
Guarantor holds the Security.
SECTION 2.09. TREASURY SECURITIES.
In determining whether the Holders of the required principal
amount of Securities have concurred in any direction, waiver or consent,
Securities owned by the Company, the Guarantors, or any of their respective
Affiliates shall be considered as though not outstanding, except that for
purposes of determining whether the Trustee shall be protected in relying on
any such direction, waiver or consent, only Securities which a Responsible
Officer knows to be so owned shall be so considered.
SECTION 2.10. TEMPORARY SECURITIES.
Until definitive Securities are ready for delivery, the
Company may prepare and the Trustee shall authenticate temporary Securities.
Temporary Securities shall be substantially in the form of definitive
Securities but may have variations that the Company, the Guarantors and the
Trustee consider appropriate for temporary Securities. Without unreasonable
delay, the Company shall prepare and the Trustee, upon receipt of the written
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order of the Company signed by two Officers of the Company, shall authenticate
definitive Securities in exchange for temporary Securities. Until such
exchange, temporary Securities shall be entitled to the same rights, benefits
and privileges as definitive Securities.
SECTION 2.11. CANCELLATION.
The Company at any time may deliver Securities to the Trustee
for cancellation. The Registrar and Paying Agent shall forward to the Trustee
any Securities surrendered to them for registration of transfer, exchange or
payment. The Trustee shall cancel all Securities, if not already cancelled,
surrendered for registration of transfer, exchange, payment, replacement or
cancellation and shall destroy cancelled Securities (subject to the record
retention requirement of the Exchange Act), and deliver certification of their
destruction to the Company, unless by a written order, signed by two Officers
of the Company, the Company shall direct that cancelled Securities be returned
to it. The Company may not issue new Securities to replace Securities that it
has redeemed or 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
Securities, it 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 Securityholders on a subsequent special record date, which date shall
be at the earliest practicable date but in all events at least five Business
Days prior to the payment date, in each case at the rate provided in the
Securities and in Section 4.01 hereof. The Company shall, with the consent of
the Trustee, fix or cause to be fixed each such special record date and payment
date. At least 15 days before the special record date, the Company (or the
Trustee, in the name of and at the expense of the Company) shall mail to
Securityholders a notice that states the special record date, the related
payment date and the amount of such interest to be paid.
SECTION 2.13. CUSIP NUMBER.
The Company in issuing the Securities 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 Securityholders; provided that no
representation shall be deemed to be made by the Trustee as to the correctness
or accuracy of the CUSIP number printed in the notice or on the Securities, and
that reliance may be placed only on the other identification numbers printed on
the Securities. The Company shall promptly notify the Trustee of any change in
the CUSIP number.
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SECTION 2.14. DEPOSIT OF MONEYS.
Prior to 11:00 a.m. New York City time on each Interest
Payment Date and Maturity Date, the Company shall have deposited with the
Paying Agent in immediately available funds money sufficient to make cash
payments, if any, due on such Interest Payment Date or Maturity Date, as the
case may be, in a timely manner which permits the Paying Agent to remit payment
to the Securityholders on such Interest Payment Date or Maturity Date, as the
case may be.
SECTION 2.15. RESTRICTIVE LEGENDS.
Each Global Note and Physical Security that constitutes a
Restricted Security shall bear the following legend (the "Private Placement
Legend") unless otherwise agreed by the Company and the Securityholder thereof:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, UNITED STATES 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) OF REGULATION
D UNDER THE SECURITIES ACT) (AN "INSTITUTIONAL ACCREDITED INVESTOR")
OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN
OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE
SECURITIES ACT, (2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD
REFERRED TO IN RULE 144(k) UNDER THE SECURITIES ACT AS IN EFFECT WITH
RESPECT TO SUCH TRANSFER, RESELL OR OTHERWISE TRANSFER THIS SECURITY
EXCEPT (A) TO NORTH ATLANTIC TRADING ACQUISITION COMPANY, INC. 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 THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE A
SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS
RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE
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FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE), AND IF SUCH
TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES AT
THE TIME OF TRANSFER OF LESS THAN $250,000, AN OPINION OF COUNSEL
ACCEPTABLE TO NORTH ATLANTIC TRADING ACQUISITION COMPANY, INC. THAT
SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (D) OUTSIDE
THE UNITED STATES IN AN OFFSHORE TRANSACTION 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 (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL DELIVER TO EACH
PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO
THE EFFECT OF THIS LEGEND; PROVIDED THAT AN INITIAL INVESTOR THAT IS
AN INSTITUTIONAL ACCREDITED INVESTOR PURCHASING AS DESCRIBED IN CLAUSE
(I)(B) ABOVE SHALL NOT BE PERMITTED TO TRANSFER THIS NOTE TO AN
INSTITUTIONAL ACCREDITED INVESTOR. IN CONNECTION WITH ANY TRANSFER OF
THIS SECURITY WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER
MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF
RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO
THE TRUSTEE. IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED
INVESTOR, PURCHASING PURSUANT TO CLAUSE (2)(c) ABOVE, THE
SECURITYHOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE
AND NORTH ATLANTIC TRADING ACQUISITION COMPANY, INC. SUCH
CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM
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 "UNITED STATES
PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE
SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE
TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION
OF THE FOREGOING RESTRICTIONS;
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Each Global Note shall also bear the following legend on the
face thereof:
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN
DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A
WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY, OR BY ANY SUCH
NOMINEE OF THE DEPOSITARY, OR BY THE DEPOSITARY OR NOMINEE OF SUCH
SUCCESSOR DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR
A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. TRANSFERS OF THIS GLOBAL
SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO
NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S
NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET
FORTH IN THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO
THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE
& CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR
TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE
OF 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.
SECTION 2.16. BOOK-ENTRY PROVISIONS FOR GLOBAL SECURITY.
(a) The Global Note initially shall (i) be registered in the
name of the Depository or the nominee of such Depository, (ii) be delivered to
the Trustee as custodian for such Depository and (iii) bear legends as set
forth in Section 2.15.
Members of, or participants in, the Depository ("Agent
Members") shall have no rights under this Indenture with respect to any Global
Note held on their behalf by the Depository, or the Trustee as its custodian,
or under the Global Note, and the Depository may be treated by the Company, the
Trustee and any agent of the Company or the Trustee as the absolute owner of
the Global Note for all purposes whatsoever.
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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 Depository
or impair, as between the Depository and its Agent Members, the operation of
customary practices governing the exercise of the rights of a Holder of any
Note.
(b) Transfers of the Global Note shall be limited to
transfers in whole, but not in part, to the Depository, its successors or their
respective nominees. Interest of beneficial owners in the Global Note may be
transferred or exchanged for Physical Securities in accordance with the rules
and procedures of the Depository and the provisions of Section 2.17. In
addition, Physical Securities shall be transferred to all beneficial owners in
exchange for their beneficial interests in the Global Note if (i) the
Depository notifies the Company that it is unwilling or unable to continue as
Depository for the Global Note and a successor depository is not appointed by
the Company within 90 days of such notice or (ii) an Event of Default has
occurred and is continuing and the Registrar has received a written request
from the Depository to issue Physical Securities.
(c) In connection with any transfer or exchange of a portion
of the beneficial interest in the Global Note to beneficial owners pursuant to
paragraph (b) above, the Registrar shall (if one or more Physical Securities
are to be issued) reflect on its books and records the date and a decrease in
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 Physical Securities of like tenor and amount.
(d) In connection with the transfer of the entire Global Note
to beneficial owners pursuant to paragraph (b), the Global Note shall be deemed
to be surrendered to the Trustee for cancellation, and the Company shall
execute, and the Trustee shall authenticate and deliver, to each beneficial
owner identified by the Depository in exchange for its beneficial interest in
the Global Note, an equal aggregate principal amount of Physical Securities of
authorized denominations.
(e) Any Physical Security constituting a Restricted Security
delivered in exchange for an interest in the Global Note pursuant to paragraph
(b) or (c) above shall, except as otherwise provided by paragraphs (a)(i)(x)
and (c) of Section 2.17, bear the legend regarding transfer restrictions
applicable to the Physical Securities set forth in Section 2.15.
(f) The Holder of the Global Note may grant proxies and
otherwise authorize any Person, including Agent Members and Persons that may
hold interests through Agent Members, to take any action which a Securityholder
is entitled to take under this Indenture or the Securities.
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SECTION 2.17. SPECIAL TRANSFER PROVISIONS.
(a) Transfers to Non-QIB Institutional Accredited Investors
and Non- U.S. Persons. The following provisions shall apply with respect to the
registration of any proposed transfer of a Security constituting a Restricted
Security to any Institutional Accredited Investor which is not a QIB or to any
Non-U.S. Person:
(i) the Registrar shall register the transfer of any Security
constituting a Restricted Security, whether or not such Security bears
the Private Placement Legend, if (x) the requested transfer is after
June 25, 1999 or (y) (1) in the case of a transfer to an Institutional
Accredited Investor which is not a QIB (excluding Non-U.S.Persons),
the proposed transferee has delivered to the Registrar a certificate
substantially in the form of Exhibit C hereto or (2) in the case of a
transfer to a Non-U.S. Person, the proposed transferor has delivered
to the Registrar a certificate substantially in the form of Exhibit D
hereto; 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 certificate, if any, required by paragraph (i) above and
(y) instructions given in accordance with the Depository's and the
Registrar's procedures, whereupon (a) the Registrar shall reflect on
its books and records the date and (if the transfer does not involve a
transfer of outstanding Physical Securities) 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 (b) the Company shall execute and the Trustee shall
authenticate and deliver one or more Physical Securities of like tenor
and amount.
(b) Transfers to QIBs. The following provisions shall apply
with respect to the registration of any proposed transfer of a Security
constituting a Restricted Security to a QIB (excluding transfers to Non-U.S.
Persons):
(i) the Registrar shall register the transfer if such
transfer is being made by a proposed transferor who has checked the
box provided for on the form of Security stating, or has otherwise
advised the Company and the Registrar in writing, that the sale has
been effected in compliance with the provisions of Rule 144A to a
transferee who has signed the certification provided for on the form
of Security stating, or has otherwise advised the Company and the
Registrar in writing, that it is purchasing the Security for its own
account or an account with respect to which it exercises sole
investment discretion and that any such account is a QIB within the
meaning
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of Rule 144A, and it is aware that the sale to it is being made in
reliance on Rule 144A and acknowledges that it has received such
information regarding the Company as it has requested pursuant to Rule
144A or has determined not to request such information and that it is
aware that the transferor is relying upon its foregoing
representations in order to claim the exemption from registration
provided by Rule 144A; and
(ii) if the proposed transferee is an Agent Member and the
Securities to be transferred consist of Physical Securities which
after transfer are to be evidenced by an interest in the Global Note,
upon receipt by the Registrar of instructions given in accordance with
the Depository'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 Global Note in an amount equal to principal
amount of the Physical Securities to be transferred, and the Trustee
shall cancel the Physical Securities so transferred.
(c) Private Placement Legend. Upon the registration of the
transfer, exchange or replacement of Securities not bearing the Private
Placement Legend, the Registrar shall deliver Securities that do not bear the
Private Placement Legend. Upon the registration of the transfer, exchange or
replacement of Securities bearing the Private Placement Legend, the Registrar
shall deliver only Securities that bear the Private Placement Legend unless (i)
the circumstance contemplated by paragraph (a)(i)(x) of this Section 2.17
exists or (ii) there is delivered to the Registrar an Opinion of Counsel
reasonably satisfactory to the Company and the Trustee to the effect that
neither such legend nor the related restrictions on transfer are required in
order to maintain compliance with the provisions of the Securities Act.
(d) General. By its acceptance of any Security bearing the
Private Placement Legend, each Holder of such a Security acknowledges the
restrictions on transfer of such Security set forth in this Indenture and in
the Private Placement Legend and agrees that it will transfer such Security
only as provided in this Indenture.
The Registrar shall retain for at least two years copies of
all letters, notices and other written communications received pursuant to
Section 2.16 or this Section 2.17. The Company shall have the right to inspect
and make copies of all such letters, notices or other written communications at
any reasonable time upon the giving of reasonable written notice to the
Registrar.
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SECTION 2.18. PERSONS DEEMED OWNERS.
Prior to due presentment of a Security for registration of
transfer and subject to Section 2.12, the Company, the Trustee, any Paying
Agent, any Registrar and any co-registrar may deem and treat the Person in
whose name any Security shall be registered upon the register of Securities
kept by the Registrar as the absolute owner of such Security (whether or not
such Security shall be overdue and notwithstanding any notation of the
ownership or other writing thereon made by anyone other than the Company, any
Registrar or any co-registrar) for the purpose of receiving payments of
principal of or interest on such Security and for all other purposes; and none
of the Company, the Trustee, any Paying Agent, any Registrar or any
co-registrar shall be affected by any notice to the contrary.
SECTION 2.19. RECORD DATE.
The record date for purposes of determining the identity of
Securityholders entitled to vote or consent to any action by vote or consent
authorized or permitted under this Indenture shall be the later of (i) 30 days
prior to the first solicitation of such consent or (ii) the date of the most
recent list of Holders furnished to the Trustee, if applicable, pursuant to
Section 2.05 hereto.
ARTICLE 3
REDEMPTION
SECTION 3.01. NOTICES TO TRUSTEE.
(a) If the Company elects to redeem Securities pursuant to
the optional redemption provisions of Section 3.07 hereof, it shall furnish to
the Trustee, at least 30 days (unless a shorter period is acceptable to the
Trustee) but not more than 60 days before a redemption date, an Officers'
Certificate setting forth (i) the Section of this Indenture pursuant to which
the redemption shall occur, (ii) the redemption date, (iii) the principal
amount of Securities to be redeemed and (iv) the redemption price.
(b) If the Company is required to make an offer to redeem
Securities pursuant to the provisions of Sections 3.09 or 4.14 hereof, it shall
furnish to the Trustee at least 30 days but not more than 60 days before a
redemption date, an Officers' Certificate setting forth (i) the Section of this
Indenture pursuant to which the redemption shall occur, (ii) the redemption
date, (iii) the principal amount of Securities to be redeemed, (iv) the
redemption price and (v) further setting forth a statement to the effect that
(a) the Company or one of its Subsidiaries has effected an Asset Disposition
and the conditions set
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forth in Section 4.10 have been satisfied or (b) a Change of Control has
occurred and the conditions set forth in Section 4.14 have been satisfied, as
applicable.
SECTION 3.02. SELECTION OF SECURITIES TO BE REDEEMED.
(a) If less than all of the Securities are to be redeemed,
the Trustee shall select the Securities to be redeemed among the
Securityholders on a pro rata basis, by lot or in accordance with any other
method the Trustee considers fair and appropriate (and in such manner as
complies with applicable legal and stock exchange requirements, if any);
provided, however, that if a partial redemption is made with the proceeds of an
Equity Offering, selection of the Securities or portion thereof for redemption
shall be made by the Trustee only on a pro rata basis, unless such method is
otherwise prohibited. In the event of partial redemption by lot, the particular
Securities 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 Securities not previously called for redemption.
(b) The Trustee shall promptly notify the Company in writing
of the Securities selected for redemption and, in the case of any Security
selected for partial redemption, the principal amount thereof to be redeemed.
Securities may be redeemed in part in multiples of $1,000 principal amount
only. Except as provided in the preceding sentence, provisions of this
Indenture that apply to Securities called for redemption also apply to portions
of Securities called for redemption.
(c) In the event the Company is required to make an offer to
redeem Securities pursuant to Sections 3.09 and 4.10 hereof and the amount of
the Excess Proceeds from the Asset Disposition are not evenly divisible by
$1,000, the Trustee shall promptly refund to the Company any remaining Excess
Proceeds.
SECTION 3.03. NOTICE OF REDEMPTION.
(a) Subject to the provisions of Section 3.09 hereof, at
least 45 days (unless a shorter period is acceptable to the Trustee) before a
redemption date, the Company shall mail a notice of redemption by first class
mail, postage prepaid to each Holder whose Securities are to be redeemed at the
last address for such Holder then shown on the registry books.
The notice shall identify the Securities to be redeemed and
shall state:
(i) the redemption date;
(ii) the redemption price;
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(iii) if any Security is being redeemed in part, the portion
of the principal amount of such Security to be redeemed and that,
after the redemption date upon surrender of such Security, a new
Security or Securities in principal amount equal to the unredeemed
portion shall be issued;
(iv) the name and address of the Paying Agent;
(v) that Securities called for redemption must be
surrendered to the Paying Agent to collect the redemption price;
(vi) that, unless the Company defaults in making such
redemption payment, interest on Securities called for redemption
ceases to accrue on and after the redemption date;
(vii) the paragraph of the Securities and/or Section of this
Indenture pursuant to which the Securities called for redemption are
being redeemed; and
(viii) if fewer than all the Securities are to be redeemed,
the identification of the particular Securities (or portion thereof)
to be redeemed, as well as the aggregate principal amount of
Securities to be redeemed and the aggregate principal amount of
Securities to be outstanding after such partial redemption.
(b) At the Company's request, the Trustee shall give the
notice of redemption in the Company's name and at the Company's expense;
provided, however, that the Company shall have delivered to the Trustee at
least 45 days (unless a shorter period is acceptable to the Trustee) prior to
the proposed 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 3.04. EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed in accordance with
Section 3.03 hereof, Securities called for redemption become due and payable on
the redemption date at the redemption price plus accrued and unpaid interest,
if any.
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE.
(a) Prior to 11:00 a.m., New York City time, on the
redemption date, the Company shall deposit with the Trustee or with the Paying
Agent money sufficient to pay the redemption price of and accrued interest on
all Securities to be redeemed on that date. The Trustee or the Paying Agent
shall promptly return to the Company any money deposited with the Trustee or
the Paying Agent by the Company in excess of the amounts
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necessary to pay the redemption price of, and accrued interest on, all
Securities to be redeemed.
(b) On and after the redemption date, interest ceases to
accrue on the Securities or the portions of Securities called for redemption.
If a Security is redeemed on or after an interest Record Date but on or prior
to the related Interest Payment Date, then any accrued and unpaid interest
shall be paid to the Person in whose name such Security was registered at the
close of business on such record date. If any Security called for redemption
shall not be so paid upon surrender for redemption because of the failure of
the Company to comply with the preceding paragraph, interest shall be paid on
the unpaid principal, from the redemption date until such principal is paid
and, to the extent lawful, on any interest not paid on such unpaid principal,
in each case at the rate provided in the Securities and in Section 4.01 hereof.
SECTION 3.06. SECURITIES REDEEMED IN PART.
Upon surrender of a Security that is redeemed in part, the
Company shall issue and the Trustee shall authenticate for the Securityholder
at the expense of the Company a new Security equal in principal amount to the
unredeemed portion of the Security surrendered.
SECTION 3.07. OPTIONAL REDEMPTION.
(a) Except as provided in Section 3.07(b), the Company may
redeem all or any portion of the Securities at any time on or after June 15,
2001, at a redemption price equal to a percentage of the principal amount
thereof, as set forth in the immediately succeeding sentence, plus accrued and
unpaid interest to the redemption date. The redemption price as a percentage of
the principal amount shall be as follows, if the Securities are redeemed during
the period commencing on the dates set forth below, plus in each case, accrued
and unpaid interest to the date of redemption:
Annual Period Beginning Percentage
----------------------- ----------
June 15, 2001 105.500%
June 15, 2002 102.750%
June 15, 2003 and thereafter 100.000%
(b) At any time, or from time to time, on or prior to June
15, 2000, the Company may, at its option, use the net cash proceeds of one or
more Equity Offerings by the Company so long as there is a Public Market at the
time of such redemption at a redemption price equal to 35% of the principal
amount thereof, plus accrued and unpaid interest thereon, if any, to the date
of redemption; provided, however, that after any such
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redemption the aggregate principal amount of the Securities outstanding must
equal at least $100 million. In order to effect the foregoing redemption with
the proceeds of any Equity Offering, the Company shall make such redemption not
more than 60 days after the consummation of any such Equity Offering.
SECTION 3.08. MANDATORY REDEMPTION.
The Company is not required to make mandatory redemption or
sinking fund payments with respect to the Securities.
SECTION 3.09. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS.
(a) In the event that, pursuant to Section 4.10 hereof, the
Company shall commence an offer to all Securityholders to purchase Securities
(an "Asset Disposition Offer"), it shall follow the procedures specified below:
(i) The Asset Disposition Offer shall remain open for a
period of 30 Business Days following its commencement and no longer,
except to the extent that a longer period is required by applicable
law (the "Offer Period"). No later than five Business Days after the
termination of the Offer Period (the "Purchase Date"), the Company
shall purchase the principal amount of Securities required to be
purchased pursuant to Section 4.10 hereof (the "Offer Amount") or, if
less than the Offer Amount has been tendered, all Securities tendered
in response to the Asset Disposition Offer.
(ii) If the Purchase Date is on or after a Record Date and
on or before the related Interest Payment Date, any accrued interest
shall be paid to the Person under whose name a Security is registered
at the close of business on such Record Date, and no additional
interest shall be payable to holders who tender Securities pursuant to
the Asset Disposition Offer.
(iii) Upon the commencement of any Asset Disposition Offer,
the Company shall send, by first class mail, a notice to each
Securityholder, with a copy to the Trustee. The notice shall contain
all instructions and materials necessary to enable such holders to
tender Securities pursuant to the Asset Disposition Offer. The notice,
which shall govern the terms of the Asset Disposition Offer, shall
state:
(1) that the Asset Disposition Offer is being made
pursuant to this Section 3.09 and Section 4.10 hereof and
the length of time the Asset Disposition Offer shall remain
open;
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(2) the Offer Amount, the purchase price and the
Purchase Date;
(3) that any Security not tendered or accepted for
payment shall continue to accrue interest;
(4) that any Security accepted for payment pursuant
to the Asset Disposition Offer shall cease to accrue
interest after the Purchase Date;
(5) that Holders electing to have a Security
purchased pursuant to any Asset Disposition Offer shall be
required to surrender the Security, with the form entitled
"Option of Securityholder to Elect Purchase" on the reverse
of the Security completed, to the Company, a depositary, if
appointed by the Company, or a Paying Agent at the address
specified in the notice at least three days before the
Purchase Date;
(6) that Holders shall be entitled to withdraw
their election if the Company, depositary or Paying Agent,
as the case may be, receives, not later than the expiration
of the Offer Period, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder,
the principal amount of the Security the Holder delivered
for purchase and a statement that such Holder is withdrawing
his election to have the Security purchased;
(7) that, if the aggregate principal amount of
Securities surrendered by Holders exceeds the Offer Amount,
the Company shall select the Securities to be purchased on a
pro rata basis (with such adjustments as may be deemed
appropriate by the Company so that only Securities in
denominations of $1,000, or integral multiples thereof,
shall be purchased); and
(8) that Holders whose Securities were purchased
only in part shall be issued new Securities equal in
principal amount to the unpurchased portion of the
Securities surrendered.
(iv) On or before the Purchase Date, the Company shall, to
the extent lawful, accept for payment, on a pro rata basis to the
extent necessary, the Offer Amount of Securities or portions thereof
tendered pursuant to the Asset Disposition Offer or, if less than the
Offer Amount has been tendered, all Securities or portions thereof
tendered, and deliver to the Trustee an Officers' Certificate stating
that such Securities or portions thereof were accepted for payment by
the Company in accordance with the terms of this Section 3.09. The
Company, depositary or Paying Agent, as the case may be, shall
promptly (but in any case not later than five days after the Purchase
Date) mail or deliver to each tendering Holder an
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amount equal to the purchase price of the Security tendered by such
Holder and accepted by the Company for purchase, and the Company shall
promptly issue a new Security, and the Trustee shall authenticate and
mail or deliver such new Security to such Holder equal in principal
amount to any unpurchased portion of the Security surrendered. Any
Security not so accepted shall be promptly mailed or delivered by the
Company to the Holder thereof. The Company shall publicly announce the
results of the Asset Disposition Offer on the Purchase Date.
(b) Other than as specifically provided in this Section 3.09,
any redemption pursuant to this Section 3.09 shall be made pursuant to the
provisions of Sections 3.01 through 3.06 hereof.
ARTICLE 4
COVENANTS
SECTION 4.01. PAYMENT OF SECURITIES.
(a) The Company shall pay the principal of, premium, if any,
and interest on the Securities on the dates and in the manner provided in the
Securities and in this Indenture. Principal, premium, if any, and interest
shall be considered paid on the date due if the Paying Agent, if other than the
Company or a Guarantor, holds as of 11:00 a.m. New York City time on the due
date money deposited by the Company in immediately available funds and
designated for and sufficient to pay all principal, premium, if any, and
interest then due. Such Paying Agent shall return to the Company, no later than
five days following the date of payment, any money (including accrued interest
paid by the Company) that exceeds such amount of principal, premium, if any,
and interest paid on the Securities.
(b) The Company shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue principal at
the rate equal to 2% per annum in excess of the then applicable interest rate
on the Securities to the extent lawful; it shall pay interest (including
post-petition interest in any proceeding under any Bankruptcy Law) on overdue
installments of interest (without regard to any applicable grace period) at the
same rate to the extent lawful.
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY.
(a) The Company shall maintain in the Borough of Manhattan,
in 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
Securities may be surrendered for registration of transfer or exchange and
where notices and demands to or upon the
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Company in respect of the Securities and this Indenture may be served. The
Company shall give prior 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 Trust Office of the
Trustee.
(b) The Company may also from time to time designate one or
more other offices or agencies where the Securities may be presented or
surrendered for any or all such purposes and may from time to time rescind such
designations; provided, however, that no such designation or rescission shall
in any manner relieve the Company of its obligation to maintain an office or
agency in the Borough of Manhattan, in the City of New York for such purposes.
The Company shall give prior 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.
(c) The Company hereby designates the Corporate Trust Office
of the Trustee as one such office or agency of the Company in accordance with
Section 2.03.
SECTION 4.03. SEC REPORTS.
(a) Upon consummation of the Exchange Offer and the issuance
of the Exchange Securities, each of the Company and each Guarantor (at its own
expense) shall file with the Commission and shall furnish to the Trustee and
each Securityholder within 15 days after it files them with the Commission
copies of the quarterly and annual reports and of the information, documents,
and other reports (or copies of such portions of any of the foregoing as the
Commission may by rules and regulations prescribe) to be filed pursuant to
Section 13 or 15(d) of the Exchange Act (without regard to whether the Company
is subject to the requirements of such Section 13 or 15(d) of the Exchange
Act); provided, that prior to the consummation of the Exchange Offer and the
issuance of the Exchange Securities, the Company (at its own expense), will
mail to the Trustee and the Securityholders in accordance with paragraph (b) of
this Section 4.03 substantially the same information that would have been
required by the foregoing documents within 15 days of when any such document
would otherwise have been required to be filed with the Commission. Upon
qualification of this Indenture under the TIA, the Company and each of the
Guarantors shall also comply with the provisions of TIA ss. 314(a).
(b) At the Company's expense, the Company and each of the
Guarantors, as applicable, shall cause an annual report if furnished by it to
stockholders generally and each quarterly or other financial report if
furnished by it to stockholders generally to be filed with the Trustee and
mailed to the Securityholders at their addresses
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appearing in the register of Securities maintained by the Registrar at the time
of such mailing or furnishing to stockholders.
(c) The Company and each of the Guarantors shall provide to
any Securityholder any information reasonably requested by such Securityholder
concerning the Company and the Guarantors (including financial statements)
necessary in order to permit such Securityholder to sell or transfer Securities
in compliance with Rule 144A under the Securities Act.
SECTION 4.04. COMPLIANCE CERTIFICATES.
(a) Each of the Company and each Guarantor shall deliver to
the Trustee, within 90 days after the end of each fiscal year, an Officers'
Certificate signed by its principal executive officer, principal financial
officer or principal accounting officer stating that a review of the activities
of the Company and its Subsidiaries or such Guarantor, as the case may be,
during the preceding fiscal year has been made under the supervision of the
signing Officers with a view to determining whether each has kept, observed,
performed and fulfilled its Obligations under this Indenture, and further
stating, as to each such Officer signing such certificate, that to the best of
his or her knowledge each has kept, observed, performed and fulfilled each and
every covenant contained in this Indenture and is not in default in the
performance or observance of any of the terms, provisions and conditions of
this Indenture (or, if a Default or Event of Default shall have occurred,
describing all such Defaults or Events of Default of which he or she may have
knowledge and what action each is taking or proposes to take with respect
thereto).
(b) 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 4.03 above shall be
accompanied by a written statement of (x) 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 which would lead them to believe that the
Company has violated any provisions of Article 4, 5 or 6 of this Indenture
insofar as they relate to accounting matters 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 and (y) if
any Restricted Subsidiary's or Guarantor's financial statements are not
prepared on a consolidated basis with the Company's, such Restricted
Subsidiary's or Guarantor'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 which would lead them to believe that any of the Restricted
Subsidiaries or Guarantors is in Default under this Indenture or, if any such
Default has occurred, specifying the nature and period of existence thereof, it
being
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understood that such accountants shall not be liable directly or indirectly to
any Person for any failure to obtain knowledge of any such violation.
(c) The Company and each of the Guarantors shall, so long as
any of the Securities are outstanding, deliver to the Trustee, forthwith upon
any Officer becoming aware of (i) any Default or Event of Default or (ii) any
event of default under any other mortgage, indenture or instrument to which the
Company is a party, an Officers' Certificate specifying such Default, Event of
Default or event of default and what action the Company or such Guarantor, as
the case may be, is taking or proposes to take with respect thereto.
(d) The Company and each of the Guarantors shall also comply
with TIA ss. 314(a)(4).
SECTION 4.05. TAXES.
The Company and each of the Guarantors shall pay, and shall
cause each of their respective Subsidiaries to pay, prior to delinquency, all
material taxes, assessments, and governmental levies except as contested in
good faith and by appropriate proceedings.
SECTION 4.06. STAY, EXTENSION AND USURY LAWS.
Each of the Company and the Guarantors 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
(including, but not limited to, the payment of the principal of or interest on
the Securities); and the Company and each Guarantor (to the extent that they
may lawfully do so) hereby expressly waive all benefit or advantage of any such
law, and covenant that they 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 no such law has
been enacted.
SECTION 4.07. LIMITATION ON RESTRICTED PAYMENTS.
(a) The Company shall not, and shall not permit any of its
Restricted Subsidiaries, directly or indirectly, to (i) declare or pay any
dividend or make any distribution on or in respect of its Capital Stock
(including any payment in connection with any merger or consolidation involving
the Company or any of its Restricted Subsidiaries) except (A) dividends or
distributions payable in its Capital Stock (other than Disqualified Stock) or
in options, warrants or other rights to purchase such Capital Stock, and (B)
dividends or distributions payable to the Company or a Wholly-Owned Subsidiary
of the Company, (ii) purchase, redeem, retire or otherwise acquire for value
any Capital Stock
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of the Company or any Restricted Subsidiary of the Company (in either case
other than in exchange for its Capital Stock (other than Disqualified Stock)),
(iii) purchase, repurchase, redeem, defease or otherwise acquire or retire for
value, prior to scheduled maturity, scheduled repayment or scheduled sinking
fund payment, any Subordinated Obligations or (iv) make any Investment (other
than a Permitted Investment) in any Person (any such dividend, distribution,
purchase, redemption, repurchase, defeasance, other acquisition, retirement or
Investment as described in preceding clause (i) through (iv) being referred to
as a "Restricted Payment"); if at the time the Company or such Restricted
Subsidiary makes such Restricted Payment:
(1) a Default shall have occurred and be continuing (or would
result therefrom); or
(2) the Company is not able to incur an additional $1.00 of
Indebtedness pursuant to Section 4.09(a); or
(3) the aggregate amount of such Restricted Payment and all
other Restricted Payments declared or made subsequent to the Issue
Date would exceed the sum of (A) 50% of the Consolidated Net Income
accrued during the period (treated as one accounting period) from the
first day of the fiscal quarter beginning on or after the Issue Date
to the end of the most recent fiscal quarter ending prior to the date
of such Restricted Payment as to which financial results are available
(but in no event ending more than 135 days prior to the date of such
Restricted Payment) (or, in case such Consolidated Net Income shall be
a deficit, minus 100% of such deficit); (B) the aggregate net proceeds
received by the Company from the issue or sale of its Capital Stock
(other than Disqualified Stock) or other capital contributions
subsequent to the Issue Date (other than net proceeds received from an
issuance or sale of such Capital Stock to a Subsidiary of the Company
or an employee stock ownership plan or similar trust); provided,
however, that the value of any non-cash net proceeds shall be as
determined by the Board of Directors in good faith, except that in the
event the value of any non-cash net proceeds shall be $1 million or
more, the value shall be as determined in writing by an independent
investment banking firm of nationally recognized standing; (C) the
amount by which Indebtedness of the Company is reduced on the
Company's balance sheet upon the conversion or exchange (other than by
a Restricted Subsidiary of the Company) subsequent to the Issue Date
of any Indebtedness of the Company Incurred subsequent to the Issue
Date which is convertible or exchangeable for Capital Stock of the
Company (less the amount of any cash, or other property, distributed
by the Company upon such conversion or exchange); (D) the amount equal
to the net reduction in Investments (other than Permitted Investments)
made after the Issue Date by the Company or any of its Restricted
Subsidiaries in any Person resulting from (i) repurchases or
redemptions of such Investments by such Person, proceeds
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realized upon the sale of such Investment to an unaffiliated
purchaser, repayments of loans or advances or other transfers of
assets by such Person to the Company or any Restricted Subsidiary of
the Company or (ii) the redesignation of Unrestricted Subsidiaries as
Restricted Subsidiaries (valued in each case as provided in the
definition of "Investments") not to exceed, in the case of any
Unrestricted Subsidiary, the amount of Investments previously included
in the calculation of the amount of Restricted Payments; provided,
however, that no amount shall be included under this Clause (D) to the
extent it is already included in Consolidated Net Income; and (E) $5.0
million in the aggregate.
(b) The provisions of the foregoing paragraph shall not prohibit:
(i) any purchase or redemption of Capital Stock or
Subordinated Obligations of the Company made by exchange for,
or out of the proceeds of the substantially concurrent sale
of, Capital Stock of the Company (other than Disqualified
Stock and other than Capital Stock issued or sold to a
Subsidiary or an employee stock ownership plan or similar
trust); provided, however, that (A) such purchase or
redemption shall be excluded in the calculation of the amount
of Restricted Payments and (B) the Net Cash Proceeds from
such sale shall be excluded form clause (3)(B) of the
foregoing paragraph;
(ii) any purchase or redemption of Subordinated
Obligations of the Company made by exchange for, or out of
the proceeds of the substantially concurrent sale of,
Subordinated Obligations of the Company in compliance with
Section 4.09; provided, however, that such purchase or
redemption shall be excluded in the calculation of the amount
of Restricted Payments;
(iii) any purchase or redemption of Subordinated
Obligations from Net Available Cash to the extent permitted
under Section 4.10;
(iv) dividends paid within 60 days after the date of
declaration if at such date of declaration such dividend
would have complied with this provision; provided, however,
that such dividend shall be included in the calculation of
the amount of Restricted Payments; and
(v) payments to Bollore Technologies S.A., which
payments shall not exceed $500,000 in any six month period
and shall not exceed $2.5 million in the aggregate.
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provided, however, that no Default or Event of Default shall have occurred or
be continuing at the time of such payment or as a result thereof.
For purposes of determining compliance with the foregoing covenant,
Restricted Payments may be made with cash or non-cash assets, provided that any
Restricted Payment made other than in cash shall be valued at the fair market
value (determined, subject to the additional requirements of the immediately
succeeding proviso, in good faith by the Board of Directors) of the assets so
utilized in making such Restricted Payment, provided further, that (i) in the
case of any Restricted Payment made with Capital Stock or Indebtedness, such
Restricted Payment shall be deemed to be made in an amount equal to the greater
of the fair market value thereof and the liquidation preference (if any) or
principal amount of the capital stock or indebtedness, as the case may be, so
utilized, and (ii) in the case of any Restricted Payment made with non-cash
assets in an aggregate amount in excess of $1 million, a written opinion as to
the fairness of the valuation thereof (as determined by the Company) for
purposes of determining compliance with Section 4.07 hereof, shall be issued by
an independent investment banking firm of national standing.
SECTION 4.08. LIMITATION ON DISTRIBUTIONS FROM RESTRICTED SUBSIDIARIES.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, create or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any such Restricted Subsidiary to:
(i) pay dividends or make any other distributions on its
Capital Stock or pay any Indebtedness or other obligation owed to the
Company;
(ii) make any loans or advances to the Company; or
(iii) transfer any of its property or assets to the Company;
except (in each case) for such encumbrances or restrictions existing under or
by reason of:
(a) any encumbrance or restriction pursuant to an agreement
in effect at or entered into on the Issue Date, including the New
Senior Secured Facilities;
(b) any encumbrance or restriction with respect to such a
Restricted Subsidiary pursuant to an agreement relating to any
Indebtedness issued by such Restricted Subsidiary on or prior to the
date on which such Restricted Subsidiary was acquired by the Company
and outstanding on such date (other than indebtedness issued as
anticipation of, or to provide all or any portion of the funds or
credit support utilized to consummate, the transaction or series of
related transactions
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pursuant to which such Restricted Subsidiary became a Restricted
Subsidiary of the Company or was acquired by the Company);
(c) any encumbrance or restriction with respect to such a
Restricted Subsidiary pursuant to an agreement evidencing Indebtedness
Incurred without violation of the Indenture or effecting a refinancing
of Indebtedness issued pursuant to an agreement referred to in clauses
(a) or (b) or this clause (c) or contained in any amendment to an
agreement referred to in clauses (a) or (b) or this clause (c);
provided, however, that the encumbrances and restrictions with respect
to such Restricted Subsidiary contained in any of such agreement,
refinancing agreement or amendment, taken as a whole, are no less
favorable to holders of the Securities in any material respect, as
determined in good faith by the Board of Directors of the Company,
than encumbrances and restrictions with respect to such Restricted
Subsidiary contained in agreements in effect at, or entered into on,
the Issue Date;
(d) in the case of clause (iii) of this Section 4.08, any
encumbrance or restriction (A) that restricts in a customary manner
the subletting, assignment or transfer of any property or asset that
is a lease, license, conveyance or contract or similar property or
asset,(B) by virtue of any transfer of, agreement to transfer, option
or right with respect to, or Lien on, any property or assets of the
Company or any Restricted Subsidiary not otherwise prohibited by the
Indenture, (C) that is included in a licensing agreement to the extent
such restrictions limit the transfer of the property subject to such
licensing agreement or (D) arising or agreed to in the ordinary course
of business and that does not, individually or in the aggregate,
detract from the value of property or assets of the Company or any of
its Subsidiaries in any manner material to the Company or any such
Restricted Subsidiary;
(e) in the case of clause (iii) of this Section 4.08,
restrictions contained in security agreements, mortgages or similar
documents securing Indebtedness of a Restricted Subsidiary to the
extent such restrictions restrict the transfer of the property subject
to such security agreements;
(f) in the case of clause (iii) of this Section 4.08, any
instrument governing or evidencing Indebtedness of a Person acquired
by the Company or any Restricted Subsidiary of the Company at the time
of such acquisition, which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person,
other than the Person so acquired; provided, however, that such
Indebtedness is not incurred in connection with or in contemplation of
such acquisition;
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(g) any restriction with respect to such a Restricted
Subsidiary imposed pursuant to an agreement entered into for the sale
or disposition of all or substantially all the Capital Stock or assets
of such Restricted Subsidiary pending the closing of such sale or
disposition; and
(h) encumbrances or restrictions arising or existing by
reason of applicable law.
SECTION 4.09. LIMITATION ON INCURRENCE OF INDEBTEDNESS.
(a) The Company shall not, and shall not permit any of its
Restricted Subsidiaries to Incur any Indebtedness; provided, however, that the
Company may Incur Indebtedness if on the date thereof the Consolidated Coverage
Ratio would be greater than 2.0:1.
(b) Notwithstanding the foregoing, the Company may Incur the
following Indebtedness:
(i) Indebtedness Incurred pursuant to the New Senior Secured
Facilities (including, without limitation, any renewal, extension,
refunding, restructuring, replacement or refinancing thereof referred
to in the definition thereof), provided, however, that the aggregate
principal amount of all Indebtedness Incurred pursuant to this clause
(i) does not exceed $110 million at any time outstanding less the
aggregate principal amount thereof repaid with the net proceeds of
Asset Dispositions (to the extent, in the case of such repayment of
revolving credit indebtedness, the commitment to advance loans has
been terminated);
(ii) Indebtedness represented by Capitalized Lease
Obligations, mortgage financings or purchase money obligations, in
each case Incurred for the purpose of financing all or any part of the
purchase price or cost of construction or improvement of property used
in a Permitted Business or Incurred to refinance any such purchase
price or cost of construction or improvement, in each case Incurred no
later than 365 days after the date of such acquisition or the date of
completion of such construction or improvement; provided, however,
that the principal amount of any Indebtedness Incurred pursuant to
this clause (ii) shall not exceed $3 million at any time outstanding;
(iii) Indebtedness of the Company owing to and held by any
Wholly-Owned Subsidiary or Indebtedness of a Restricted Subsidiary
owing to and held by the Company or any Wholly-Owned Subsidiary;
provided, however, that any subsequent issuance or transfer of any
Capital Stock or any other event which
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results in any such Wholly-Owned Subsidiary ceasing to be a
Wholly-Owned Subsidiary or any subsequent transfer of any such
Indebtedness (except to the Company or any Wholly-Owned Subsidiary)
shall be deemed, in each case, to constitute the Incurrence of such
Indebtedness by the issuer thereof;
(iv) Indebtedness represented by (w) the Securities, (x) the
Guarantees, (y) Existing Indebtedness and (z) any Refinancing
Indebtedness Incurred in respect of any Indebtedness described in this
clause (iv) or Incurred pursuant to paragraph (a) above;
(v) (A) Indebtedness of a Restricted Subsidiary Incurred and
outstanding on the date on which such restricted Subsidiary was
acquired by the Company (other than Indebtedness Incurred in
anticipation of, or to provide all or any portion of the funds or
credit support utilized to consummate the transaction or series of
related transactions pursuant to which such Restricted Subsidiary
became a Subsidiary or was otherwise acquired by the Company);
provided, however, that at the time such Restricted Subsidiary is
acquired by the Company, the Company would have been able to Incur
$1.00 of additional Indebtedness pursuant to paragraph (a) above after
giving effect to the Incurrence of such Indebtedness pursuant to this
clause (v) and (B) Refinancing Indebtedness Incurred by a Restricted
Subsidiary in respect of Indebtedness Incurred by such Restricted
Subsidiary pursuant to this clause (v);
(vi) Indebtedness (A) in respect of performance bonds,
bankers' acceptances and surety or appeal bonds provided by the
Company or any of its Restricted Subsidiaries to their customers in
the ordinary course of their business, (B) in respect of performance
bonds or similar obligations of the Company or any of its Restricted
Subsidiaries for or in connection with pledges, deposits or payments
made or given in the ordinary course of business in connection with or
to secure statutory, regulatory or similar obligations, including
obligations under health, safety or environmental obligations and (C)
arising from Guarantees to suppliers, lessors, licensees, contractors,
franchises or customers of obligations (other than Indebtedness)
incurred in the ordinary course of business;
(vii) Indebtedness under Currency Agreements and Interest Rate
Agreements; provided, however, that in the case of Currency Agreements
and Interest Rate Agreements, such Currency Agreements and Interest
Rate Agreements are entered into for bona fide hedging purposes of the
Company or its Restricted Subsidiaries (as determined in good faith by
the Board of Directors of the Company) and correspond in terms of
notional amount, duration, currencies and interest rates as
applicable, to Indebtedness of the Company or its Restricted
Subsidiaries Incurred without violation of the Indenture or to
business transactions
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of the Company or its Restricted Subsidiaries on customary terms
entered into in the ordinary course of business;
(viii) Indebtedness arising from agreements providing for
indemnification, adjustment of purchase price or similar obligations,
or from Guarantees or letters of credits, surety bonds or performance
bonds securing any obligations of the Company or any of its Restricted
Subsidiaries pursuant to such agreements, in each case Incurred in
connection with the disposition of any business assets or Restricted
Subsidiary of the Company (other than Guarantees of Indebtedness or
other obligations incurred by any Person acquiring all or any portion
of such business assets or Restricted Subsidiary of the Company for
the purpose of financing such acquisition) in a principal amount not
to exceed the gross proceeds actually received by the Company or any
of its Restricted Subsidiaries in connection with such disposition;
provided, however, that the principal amount of any Indebtedness
incurred pursuant to this clause (viii) when taken together with all
Indebtedness incurred pursuant to this clause (viii) and then
outstanding, shall not exceed $1 million;
(ix) Indebtedness consisting of (A) Guarantees by the Company
(so long as the Company could have incurred such Indebtedness directly
without violation of this Indenture) and (B) Guarantees by a
Restricted Subsidiary of senior indebtedness incurred by the Company
without violation of the Indenture (so long as such Restricted
Subsidiary could have incurred such Indebtedness directly without
violation of this Indenture);
(x) Indebtedness arising from the honoring by a bank or
other financial institution of a check, draft or similar instrument
issued by the Company or its Subsidiaries drawn against insufficient
funds in the ordinary course of business in an amount not to exceed
$500,000 at any time, provided that such Indebtedness is extinguished
within two business days of its incurrence; and
(xi) Indebtedness (other than Indebtedness described in
clauses (i)-(x)) in a principal amount which, when taken together with
the principal amount of all other Indebtedness Incurred pursuant to
this clause (xi) and then outstanding, will not exceed $5 million (it
being understood that any Indebtedness Incurred under this clause (xi)
shall cease to be deemed Incurred or outstanding for purposes of this
clause (xi) (but shall be deemed to be Incurred for purposes of
paragraph (a)) from and after the first date on which the Company or
its Restricted Subsidiaries could have Incurred such Indebtedness
under the foregoing paragraph (a) without reliance upon this clause
(xi).
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(c) The Company will not permit any Unrestricted Subsidiary
to Incur any Indebtedness other than Non-Recourse Debt.
SECTION 4.10. LIMITATION ON ASSET DISPOSITIONS.
(a) The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, make any Asset Disposition unless:
(i) the Company or such Restricted Subsidiary receives
consideration at the time of such Asset Disposition at least equal to
the fair market value, as determined in good faith by the Company's
Board of Directors (including as to the value of all non-cash
consideration), of the shares and assets subject to such Asset
Disposition;
(ii) at least 75% of the consideration thereof received by
the Company or such Restricted Subsidiary is in the form of cash or
Cash Equivalents; and
(iii) an amount equal to 100% of the Net Available Cash from
such Asset Disposition is applied by the Company (or such Restricted
Subsidiary, as the case may be) (A) first, (x) to the extent the
Company or any Restricted Subsidiary elects (or is required by the
terms of any senior secured indebtedness), to prepay, repay or
purchase senior secured Indebtedness or (y) to the investment in or
acquisition of Additional Assets within 180 days from the later of the
date of such Asset Disposition or the receipt of such Net Available
Cash; (B) second, within 180 days from the receipt of such Net
Available Cash, to the extent of the balance of such Net Available
Cash after application in accordance with clause (A), to make an offer
to purchase Securities at 100% of their principal amount plus accrued
and unpaid interest, if any, thereon; (C) third, within 180 days after
the later of the application of Net Available Cash in accordance with
clauses (A) and (B) and the date that is one year from the receipt of
such Net Available Cash, to the extent of the balance of such Net
Available Cash after application in accordance with clauses (A) and
(B), to prepay, repay or repurchase Indebtedness (other than Preferred
Stock) of a Wholly-Owned Subsidiary (in each case other than
Indebtedness owed to the Company); and (D) fourth, to the extent of
the balance of such Net Available Cash after application in accordance
with clauses (A), (B) and (C), to (x) the prepayment, repayment or
purchase of Indebtedness of the Company (other than Indebtedness owing
to any Affiliate or Subsidiary of the Company or the repurchase of
Disqualified Capital Stock) or Indebtedness of any Subsidiary (other
than Indebtedness owed to the Company or any of its Subsidiaries or
Affiliates or the repurchase of Disqualified Stock) or (y) any other
purpose otherwise permitted under the Indenture, in each case within
the later of 45 days after the application of Net Available Cash in
accordance with clauses (A), (B) and (C) or the date that
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is one year from the receipt of such Net Available Cash; provided,
however, that, in connection with any prepayment, repayment or
purchase of Indebtedness pursuant to clause (A), (B), (C) or (D)
above, the Company or such Restricted Subsidiary shall retire such
Indebtedness and shall cause the related loan commitment (if any) to
be permanently reduced in an amount equal to the principal amount so
prepaid, repaid or purchased. Notwithstanding the foregoing
provisions, the Company and its Restricted Subsidiaries shall not be
required to apply any Net Available Cash in accordance herewith except
to the extent that the aggregate Net Available Cash from all Asset
Dispositions which are not applied in accordance with this covenant at
any time exceed $5 million. The Company shall not be required to make
an offer to purchase Securities pursuant to this covenant if the Net
Available Cash available therefor (after application of the proceeds
as provided in clauses (A) and (B)) is less than $5 million for any
particular Asset Disposition (which lesser amounts shall be carried
forward for purposes of determining whether an offer is required with
respect to the Net Available Cash form any subsequent Asset
Disposition). Any Net Proceeds from the Asset Disposition that are not
required to be applied or invested as provided in this clause (iii)
will be deemed to constitute "Excess Proceeds."
For the purposes of this covenant, the following will be deemed to be cash: (x)
the assumption by the transferee of senior indebtedness of the Company or
senior indebtedness of any Restricted Subsidiary of the Company and the release
of the Company or such Restricted Subsidiary from all liability on such senior
indebtedness in connection with such Asset Disposition and (y) securities
received by the Company or any Restricted Subsidiary of the Company from the
transferee that are promptly (and in any event within 60 days) converted by the
company or such Restricted Subsidiary into cash.
(b) In the event of an Asset Disposition that requires the
purchase of Securities pursuant to clause (iii)(B) of the first paragraph of
this Section 4.10, the Company will be required to purchase Securities tendered
pursuant to an offer by the Company for the Securities at a purchase price of
100% of their principal amount plus accrued and unpaid interest, if any, to the
purchase date in accordance with the procedures (including prorating in the
event of oversubscription) set forth in this Indenture. If the aggregate
purchase price of the Securities tendered pursuant to the offer is less than
the Net Available Cash allotted to the purchase of the Securities, the Company
will apply the remaining Net Available Cash in accordance with clauses (iii)(C)
or (D) of the first paragraph of this Section 4.10 as permitted under this
Indenture.
(c) The Company will comply, to the extent applicable, with
the requirements of Section 14(e) of the Exchange Act and any other securities
laws or regulations in connection with the repurchase of Securities pursuant to
this Indenture. To the extent that the provisions of any securities laws or
regulations conflict with provisions
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of this covenant, the Company will comply with the applicable securities laws
and regulations and will not be deemed to have breached its obligations under
this Indenture by virtue thereof.
SECTION 4.11. LIMITATION ON TRANSACTIONS WITH AFFILIATES.
The Company will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, enter into or conduct any
transaction or series of related transactions (including the purchase, sale,
lease or exchange of any property or the rendering of any service) with or for
the benefit of any Affiliate of the Company, other than a Wholly-Owned
Subsidiary (an"Affiliate Transaction") unless: (i) the terms of such Affiliate
Transaction are no less favorable to the Company or such Restricted Subsidiary,
as the case may be, than those that could be obtained at the time of such
transaction in arm's length dealings with a Person who is not such an
Affiliate; (ii) in the event such Affiliate Transaction involves an aggregate
amount in excess of $1 million, the terms of such transaction have been
approved by a majority of the members of the Board of Directors of the Company
and by a majority of the disinterested members of such Board, if any (and such
majority or majorities, as the case may be, determines that such Affiliate
Transaction satisfies the criteria in (i) above); and (iii) in the event such
Affiliate Transaction involves an aggregate amount in excess of $2 million, the
Company has received a written opinion from an independent investment banking
firm of nationally recognized standing that such Affiliate Transaction is fair
to the Company or such Restricted Subsidiary, as the case may be, from a
financial point of view.
The foregoing paragraph shall not apply to (i) any Restricted
Payment permitted to be made pursuant to Section 4.07, (ii) any issuance of
securities, or other payments, awards or grants in cash, securities or
otherwise pursuant to, or the funding of, employment arrangements, or any stock
options and stock ownership plans for the benefit of employees, officers and
directors, consultants and advisors approved by the Board of Directors of the
Company, (iii) loans or advances to employees in the ordinary course of
business of the Company or any of its Restricted Subsidiaries in aggregate
amount outstanding not to exceed $900,000 at any time, (iv) any transaction
between Wholly-Owned Subsidiaries, (v) indemnification agreements with, and the
payment of fees and indemnities to, directors, officers and employees of the
Company and its Restricted Subsidiaries, in each case in the ordinary course of
business, (vi) transactions pursuant to agreements in existence on the Issue
Date which are (x) described in the Offering Memorandum or (y) otherwise, in
the aggregate, immaterial to the Company and its Restricted Subsidiaries taken
as a whole, (vii) any employment, non-competition or confidentiality agreements
entered into by the Company or any of its Restricted Subsidiaries with its
employees in the ordinary course of business and (viii) the issuance of Capital
Stock of the Company (other than Disqualified Stock).
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SECTION 4.12. LIMITATION ON LIENS.
The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, create, incur, assume or suffer to exist
any Liens except for Permitted Liens.
SECTION 4.13. CORPORATE EXISTENCE.
Subject to Article 5 hereof, the Company shall do or cause to
be done all things necessary to preserve and keep in full force and effect its
corporate existence, and the corporate, partnership or other existence of each
Subsidiary, in accordance with the respective organizational documents (as the
same may be amended from time to time) of each Subsidiary and the rights
(charter and statutory), licenses and franchises of the Company and its
Subsidiaries; provided, however, that the Company shall not be required to
preserve any such right, license or franchise, or the corporate, partnership or
other existence of any Subsidiary, if the Board of Directors of the Company
shall determine that the preservation thereof is no longer desirable in the
conduct of the business of the Company and its Subsidiaries, taken as a whole,
and that the loss thereof is not adverse in any material respect to the
Securityholders.
SECTION 4.14. CHANGE OF CONTROL.
(a) Upon the occurrence of a Change of Control each
Securityholder will have the right to require the Company to repurchase all or
any part of such Securityholder's Securities at a purchase price in cash equal
to 101% of the principal amount thereof plus accrued and unpaid interest, if
any, to the date of purchase (subject to the right of Securityholders of record
on the relevant record date to receive interest due on the relevant Interest
Payment Date).
(b) Within 30 days following any Change of Control, the
Company shall mail a notice to each Securityholder with a copy to the Trustee
stating:
(i) that a Change of Control has occurred and that such
Securityholder has the right to require the Company to purchase such
Securityholder's Securities at a purchase price in cash equal to 101%
of the principal amount thereof plus accrued and unpaid interest, if
any, to the date of purchase (subject to the right of Securityholders
of record on a record date to receive interest on the relevant
Interest Payment Date),
(ii) the repurchase date (which shall be no earlier than 30
days nor later than 60 days from the date such notice is mailed); and
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(iii) the procedures determined by the Company, consistent
with the Indenture, that a Securityholder must follow in order to have
its Securities purchased.
The Company will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of the Indenture, the Company will comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations described in the Indenture by virtue thereof.
(c) Securityholders electing to have a Security repurchased
will be required to surrender the Security, with the form entitled "Option of
Securityholder to Elect Purchase" on the reverse of the Security completed, to
the Company at the address specified in the notice at least 10 Business Days
prior to the repurchase date. Securityholders will be entitled to withdraw
their election if the Trustee or the Company receives not later than three
Business Days prior to the repurchase date, a telegram, telex, facsimile
transmission or letter setting forth the name of the Securityholder, the
principal amount of the Security which was delivered for repurchase by the
Securityholder and a statement that such Securityholder is withdrawing his
election to have such Security purchased.
(d) On the repurchase date, all Securities repurchased by the
Company under this Section 4.14 shall be delivered by the Trustee for
cancellation, and the Company shall pay the repurchase price plus accrued and
unpaid interest, if any, to the Securityholders entitled thereto.
(e) The Company will to the extent applicable comply with any
tender offer rules under the Exchange Act which may then be applicable,
including Rule 14e-1, in connection with any offer required to be made by the
Company to repurchase the Securities as a result of a Change of Control. To the
extent that the provisions of any securities laws or regulations conflict with
the provisions of the Indenture relative to the Company's obligation to make an
offer to repurchase the Securities as a result of a Change of Control, the
Company will comply with the applicable securities laws and regulations and
will not be deemed to have breached its obligations under such provisions of
the Indenture by virtue thereof.
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SECTION 4.15. LIMITATION ON CAPITAL STOCK OF SUBSIDIARIES.
The Company will not permit any of its Restricted
Subsidiaries to issue any Capital Stock to any Person (other than to the
Company or a Wholly-Owned Subsidiary of the Company) or permit any Person
(other than the Company or a Wholly-Owned Subsidiary of the Company) to own any
Capital Stock of a Restricted Subsidiary of the Company, if in either case as a
result thereof such Restricted Subsidiary would no longer be a Restricted
Subsidiary of the Company; provided, however, that this provision shall not
prohibit (x) the Company or any of its Restricted Subsidiaries from selling,
leasing or otherwise disposing of 100% of the Capital Stock of any Restricted
Subsidiary in accordance with Section 4.10 and Section 5.01 hereof or (y) the
designation of a Restricted Subsidiary as an Unrestricted Subsidiary in
compliance with this Indenture.
SECTION 4.16. COMPANY TO CAUSE CERTAIN SUBSIDIARIES TO BECOME
GUARANTORS.
The Company shall not (i) permit any of its Restricted
Subsidiaries to incur, guarantee or secure through the granting of Liens any
Indebtedness (e cluding Acquired Indebtedness to the extent incurred as
permitted pursuant to clause (iv) of Section 4.09(b) hereof and secured, if
secured, by Permitted Liens of the type described in clause (c) of the
definition thereof which were in existence prior to the acquisition of the
respective Restricted Subsidiary) or (ii) pledge any intercompany notes
representing obligations of any of its Restricted Subsidiaries to secure the
payment of any Indebtedness, in either case unless such Restricted Subsidiary
is a Wholly-Owned Subsidiary which is a Guarantor or at such time becomes a
Guarantor by executing a supplemental indenture in which such Restricted
Subsidiary agrees to be bound by the terms of this Indenture as a Guarantor and
executes a Subsidiary Guarantee.
SECTION 4.17. LIMITATION ON BUSINESS.
The Company will not, and will not permit any of its
Restricted Subsidiaries to, engage substantially in any business other than the
Permitted Businesses.
SECTION 4.18. FURTHER INSTRUMENTS AND ACTS.
The Trustee shall not be bound to ascertain or inquire as to
the performance or observance of any covenants, conditions or agreements on the
part of the Company, except as otherwise set forth herein, but the Trustee may
require of the Company full information and advice as to the performance of the
covenants, conditions and agreements contained herein, and upon request of the
Trustee, the Company will execute and deliver such further instruments and do
such further acts as may be reasonably necessary or proper to carry out more
effectively the purposes of this Indenture.
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SECTION 4.19. CERTAIN SUBSIDIARIES.
The Company hereby covenants that (i) each of NTC Equity I,
Inc., NTC Equity II, Inc. and NTC Holdings LLC has no material assets and (ii)
the Company will not, and will not permit its Restricted Subsidiaries to
transfer, directly or indirectly, any assets to NTC Equity I, Inc., NTC Equity
II, Inc. or NTC Holdings, LLC.
ARTICLE 5
SUCCESSORS
SECTION 5.01. LIMITATIONS ON MERGER, CONSOLIDATION OR SALE OF
ASSETS.
The Company may not, in a single transaction or through a
series of related transactions, consolidate or merge with or into or sell,
assign, transfer, lease, convey or otherwise dispose of (or permit any of its
Restricted Subsidiaries to sell, assign, transfer, lease, convey or otherwise
dispose of) all or substantially all of the Company's and its Restricted
Subsidiaries' assets (determined on a consolidated basis for the Company and
its Restricted Subsidiaries taken as a whole) in one or more related
transactions to another Person unless:
(i) the resulting, surviving or transferee Person (the
"Successor Company") shall be a corporation, partnership, trust or
limited liability company organized and existing under the laws of the
United States of America, any State thereof or the District of
Columbia and the Successor Company (if not the Company) shall
expressly assume, by supplemental indenture, executed and delivered to
the Trustee, in form satisfactory to the Trustee, all the obligations
of the Company under the Securities and this Indenture;
(ii) immediately after giving effect to such transaction (and
treating any Indebtedness that becomes an obligation of the Successor
Company or any Subsidiary of the Successor Company as a result of such
transaction as having been incurred by the Successor Company or such
Restricted Subsidiary at the time of such transaction), no Default or
Event of Default shall have occurred and be continuing;
(iii) immediately after giving effect to such transaction, the
Successor Company would be able to incur at least an additional $1.00
of Indebtedness pursuant to Section 4.09(a);
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(iv) the Consolidated Net Worth of the resulting, surviving,
or transferee corporation is not less than that of the Company
immediately prior to the transaction; and
(v) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that
such consolidation, merger or transfer and such supplemental indenture
(if any) comply with this Indenture.
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED.
The Successor Company will succeed to, and be substituted
for, and may exercise every right and power of, the Company under this
Indenture, but, in the case of a lease of all or substantially all its assets,
the Company will not be released from the obligation to pay the principal of
and interest on the Securities.
Notwithstanding clauses (ii) and (iii), of Section 5.01, any
Restricted Subsidiary of the Company may consolidate with, merge into or
transfer all or part of its properties and assets to the Company.
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT.
(a) An "Event of Default" occurs if:
(i) there is a default in any payment of interest on any
Security when due, continued for 30 days;
(ii) there is a default in the payment of principal of any
Security when due at its Stated Maturity, upon optional redemption,
upon required repurchase, upon declaration or otherwise;
(iii) there is a failure by the Company to comply with its
obligations under Section 5.01 hereof;
(iv) there is failure by the Company to comply for 30 days
after notice with any of its obligations under Section 4.01, 4.03,
4.04, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.14, 4.15, 4.16, 4.17
or 5.01 hereof (in each case, other than
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a failure to purchase Securities which shall constitute an Event of
Default under clause (ii) above);
(v) there is a failure by the Company or any Guarantor to
comply for 60 days after notice with its other agreements contained in
this Indenture;
(vi) Indebtedness of the Company or any Restricted Subsidiary
is not paid within any applicable grace period after final maturity or
is accelerated by the holders thereof because of a default and the
total amount of such Indebtedness unpaid or accelerated exceeds $5
million and such default shall not have been cured or such
acceleration rescinded after a 10-day period;
(vii) any judgment or decree for the payment of money in
excess of $5 million (to the extent not covered by insurance) is
rendered against the Company or a Significant Subsidiary and such
judgment or decree shall remain undischarged or unstayed for a period
of 60 days after such judgment becomes final and non-appealable
(the"judgment default provision")
(viii) any Subsidiary Guarantee by a Significant Subsidiary
ceases to be in full force and effect (except as contemplated by the
terms of this Indenture) or any Guarantor that is a Significant
Subsidiary denies or disaffirms its obligations under this Indenture
or its Subsidiary Guarantee and such Default continues for 10 days.
(ix) the Company or any of its Significant Subsidiaries
pursuant to or within the meaning of any Bankruptcy Law:
(A) commences a voluntary case,
(B) consents to the entry of an order for relief
against it in an involuntary case,
(C) consents to the appointment of a Custodian of it
or for all or substantially all of its property,
(D) makes a general assignment for the benefit of its
creditors,
(E) consents to or acquiesces in the institution of a
bankruptcy or an insolvency proceeding against it, or
(F) takes any corporate action to authorize or effect
any of the foregoing;
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(x) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(A) is for relief against the Company or any of its
Significant Subsidiaries in an involuntary case,
(B) appoints a Custodian of the Company or any of its
Significant Subsidiaries or for all or substantially all of
the property of the Company or any of its Significant
Subsidiaries, or
(C) orders the liquidation of the Company or any of
its Significant Subsidiaries,
and the order or decree remains unstayed and in effect for 60
consecutive days; or
(b) The term "Bankruptcy Law" means Title 11, U.S. Code or
any similar Federal or state law for the relief of debtors. The term
"Custodian" means any receiver, trustee, assignee, liquidator or similar
official under any Bankruptcy Law.
(c) A Default under clause (iv) or (v) of Section 6.01(a)
hereof is not an Event of Default until the Trustee or the holders of 25% in
principal amount of the outstanding Securities notifies the Company or such
Guarantor, as the case may be, of the Default and the Company or such
Guarantor, as the case may be, does not cure such Default within the time
specified in such clause (iv) or (v) after receipt of the notice. The written
notice must specify the Default, demand that it be remedied and state that the
notice is a "Notice of Default."
SECTION 6.02. ACCELERATION.
If an Event of Default (other than an Event of Default
specified in clause (viii) or (ix) of Section 6.01(a) with respect to the
Company or any Guarantor) occurs and is continuing, the Trustee or the Holders
of not less than 25% in aggregate principal amount of the then outstanding
Securities by notice to the Company, may declare (a "Declaration") the unpaid
principal of, and any accrued and unpaid interest on, all the Securities to be
due and payable (the "Default Amount"). Upon any such Declaration the Default
Amount shall be due and payable immediately. If an Event of Default specified
in clause (ix) or (x) of Section 6.01(a) occurs with respect to the Company or
any of the Guarantors, the Default Amount shall ipso facto become and be
immediately due and payable without any Declaration or other act on the part of
the Trustee or any Securityholder. The Holders of a majority in aggregate
principal amount of the then outstanding Securities by written notice to the
Trustee may rescind any Declaration if all Events of Default then continuing
(other than any Events of Default with respect to the
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nonpayment of principal of or interest on any Security which has become due
solely as a result of such Declaration) have been cured, and may waive any
Default other than a Default with respect to a covenant or provision that
cannot be modified or amended without the consent of each Securityholder
pursuant to Section 9.02 hereof.
SECTION 6.03. OTHER REMEDIES.
(a) If an Event of Default occurs and is continuing, the
Trustee and the Securityholders may pursue any available remedy to collect the
payment of principal, premium, if any, or interest on the Securities or to
enforce the performance of any provision of the Securities or this Indenture.
(b) The Trustee may maintain a proceeding even if it does not
possess any of the Securities or does not produce any of them in the
proceeding. A delay or omission by the Trustee or any Securityholder in
exercising any right or remedy accruing upon an Event of Default shall not
impair the right or remedy or constitute a waiver of or acquiescence in the
Event of Default. All remedies are cumulative to the extent permitted by law.
SECTION 6.04. WAIVER OF PAST DEFAULTS.
Securityholders of not less than a majority in aggregate
principal amount of the then outstanding Securities by notice to the Trustee
may waive an existing Default or Event of Default and its consequences, except
a continuing Default or Event of Default in the payment of the principal,
premium, if any, or interest on any Security (other than principal, premium (if
any) or interest which has become due solely as a result of a Declaration) or a
Default or Event of Default that cannot be modified or amended without the
consent of the Holder of each outstanding Security affected. Upon any such
waiver, such Default shall cease to exist, and any Event of Default arising
therefrom shall be deemed to have been cured for every purpose of this
Indenture; but no such waiver shall extend to any subsequent or other Default
or impair any right consequent thereon.
SECTION 6.05. CONTROL BY MAJORITY.
Securityholders of a majority in principal amount of the
Securities then outstanding may direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee or exercising any trust
or power conferred on it. However, the Trustee may refuse to follow any
direction that conflicts with law or this Indenture, that the Trustee
determines may be unduly prejudicial to the rights of other Securityholders or
that may involve the Trustee in personal liability.
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SECTION 6.06. LIMITATION ON SUITS.
(a) A Securityholder may pursue a remedy with respect to this
Indenture or the Securities only if:
(i) the Securityholder has previously given to the Trustee
written notice of a continuing Event of Default;
(ii) the Holders of at least 25% in principal amount of the
then outstanding Securities make a written request to the Trustee to
pursue the remedy;
(iii) such Securityholder or Securityholders offer, and, if
requested, provide, to the Trustee indemnity satisfactory to the
Trustee against any loss, liability or expense;
(iv) 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
(v) during such 60-day period the Holders of a majority in
principal amount of the then outstanding Securities do not give the
Trustee, in the reasonable opinion of such Trustee, a direction
inconsistent with the request.
(b) A Securityholder may not use this Indenture to prejudice
the rights of another Securityholder or to obtain a preference or priority over
another Securityholder.
SECTION 6.07. RIGHTS OF SECURITYHOLDERS TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the
right of any Securityholder to receive payment of principal, premium, if any,
and interest on the Security, on or after the respective due dates expressed in
the Security, 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
consent of the Securityholder.
SECTION 6.08. COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 6.01(a)(i) or
(ii) or an acceleration pursuant to Section 6.02 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 or any Guarantor or any other obligor on the
Securities for the whole amount of principal, premium, if any, and accrued
interest remaining unpaid on the Securities and interest on overdue principal,
premium, if any, and, to the extent lawful, interest on overdue
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installments of interest and such further amount as shall be sufficient to
cover the costs and expenses of collection, including any advances made by the
Trustee and the reasonable compensation, expenses and disbursements of the
Trustee, its agents and counsel.
SECTION 6.09. 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 and counsel)
and the Securityholders allowed in any judicial proceedings relative to the
Company or any Guarantor (or any other obligor on the Securities), 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 Securityholder 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 Securityholders, 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 7.07 hereof. To the extent that the payment of any such compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel,
and any other amounts due the Trustee under Section 7.07 hereof out of the
estate in any such proceeding, shall be denied for any reason, payment of the
same shall be secured by a Lien on, and shall be paid out of, any and all
distributions, dividends, money, securities and other properties which the
Securityholders 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 Securityholder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Securityholder thereof, or to authorize the Trustee to
vote in respect of the claim of any Securityholder in any such proceeding.
SECTION 6.10. PRIORITIES.
(a) If the Trustee collects any money pursuant to this
Article, it shall pay out the money in the following order:
(i) First: to the Trustee, its agents and attorneys for
amounts due under Section 7.07, including payment of all compensation,
expenses and liabilities incurred, and all advances made, by the
Trustee and the costs and expenses of collection;
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(ii) Second: if the Securityholders are forced to proceed
against the Company directly without the Trustee, to the
Securityholders for their collection costs;
(iii) Third: to the Securityholders for amounts due and unpaid
on the Securities for principal, premium, if any, and interest,
ratably, without preference or priority of any kind, according to the
amounts due and payable on the Securities for principal, premium, if
any, and interest, respectively; and
(iv) Fourth: to the Company or, to the extent the Trustee
collects any amount pursuant to Article 10 hereof from any Guarantor,
to such Guarantor, or to such party as a court of competent
jurisdiction shall direct.
(b) The Trustee may fix a record date and payment date for
any payment to Securityholders.
SECTION 6.11. 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
Securityholder pursuant to Section 6.07 hereof, or a suit by Holders of more
than 10% in principal amount of the then outstanding Securities.
ARTICLE 7
TRUSTEE
SECTION 7.01. 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 their exercise as a
prudent person would exercise or use under the circumstances and in the conduct
of his own affairs.
(b) Except during the continuance of an Event of Default:
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(i) the Trustee undertakes to perform only those duties as
are specifically set forth in this Indenture and the duties of the
Trustee shall be determined solely by the express provisions of this
Indenture, 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 against the
Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon any certificates
or opinions furnished to the Trustee and conforming to the
requirements of this Indenture, but in the case of any such
certificates or opinions which by any provision hereof are
specifically required to be furnished to the Trustee, the Trustee
shall examine the same to determine whether or not they conform to the
requirements of this Indenture.
(c) Notwithstanding anything to the contrary herein
contained, 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 7.01;
(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 6.05 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 paragraphs (a), (b), and (c) of this Section 7.01.
(e) No provision of this Indenture shall require the Trustee
to expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder or in the exercise of any of its
rights or powers if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
(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.
Assets held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
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SECTION 7.02. RIGHTS OF TRUSTEE.
(a) The Trustee may conclusively rely 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 unless the Trustee has reason to believe such fact or matter is not
true.
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' 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
reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may
consult with counsel and the written advice of such counsel or any Opinion 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 agents and shall not be
responsible for the misconduct or negligence of any agent appointed with due
care.
(d) The Trustee shall not be liable for any action it takes
or omits to take in good faith which it believes to be authorized or within its
rights or powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture,
any demand, request, direction or notice from the Company or any Guarantor
shall be sufficient if signed by an Officer of the Company or any Guarantor.
(f) The permissive rights of the Trustee to do certain things
enumerated in this Indenture shall not be construed as a duty and the Trustee
shall not be answerable for other than its negligence or wilful default with
respect to such permissive rights.
(g) Except for (i) an Event of Default under 6.01(a)(i) or
(ii) hereof, or (ii) any other event of which the Trustee has "actual
knowledge," which event, with the giving of notice or the passage of time or
both, would constitute an Event of Default, the Trustee shall not be deemed to
have notice of any Default or Event of Default unless specifically notified in
writing of such event by the Company or the Securityholders of not less than
25% in aggregate principal amount of Securities outstanding; as used herein,
the term "actual knowledge" means the actual fact or statement of knowing,
without any duty to make any investigation with regard thereto.
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SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may
become the owner or pledgee of Securities and may otherwise deal with the
Company, any Guarantor or any Affiliate of the Company or any Guarantor with
the same rights it would have if it were not Trustee. Any Agent may do the same
with like rights. However, the Trustee is subject to Sections 7.10 and 7.11
hereof.
SECTION 7.04. TRUSTEE'S DISCLAIMER.
The Trustee shall not be responsible for and makes no
representation as to the validity or adequacy of this Indenture, the Securities
or the Subsidiary Guarantees, it shall not be accountable for the Company's use
of the proceeds from the Securities 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 Securities or the Subsidiary
Guarantees or any other document in connection with the sale of the Securities
or pursuant to this Indenture other than its certificate of authentication.
SECTION 7.05. NOTICE OF DEFAULTS.
If a Default or Event of Default occurs and is continuing and
if it is known to the Trustee, the Trustee shall mail to each Securityholder a
notice of the Default or Event of Default within 60 days after it occurs.
Except in the case of a Default in any payment of principal or interest on any
Security, the Trustee may withhold the notice if a committee of its officers in
good faith determines that withholding the notice is in the interest of the
Securityholders. In addition, the Company is required to deliver to the
Trustee, within 90 days after each fiscal year of the Company, a certificate
indicating whether the signers thereof know of any Default that occurred during
the previous year. The Company shall also deliver to the Trustee, within 30
days after the occurrence thereof, written notice of any events which would
constitute a Default.
SECTION 7.06. REPORTS BY TRUSTEE TO SECURITYHOLDERS.
(a) Within 60 days after each May 15 beginning with the May
15 following the date of this Indenture, the Trustee shall mail to the
Securityholders 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), (c) and (d).
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(b) A copy of each report at the time of its mailing to the
Securityholders shall be filed with the Commission and each stock exchange, if
any, on which the Securities are listed. The Company shall promptly notify the
Trustee if and when the Securities are listed on any stock exchange.
SECTION 7.07. COMPENSATION AND INDEMNITY.
(a) The Company and the each of the Guarantors, jointly and
severally, shall pay to the Trustee from time to time reasonable compensation
for its acceptance of this Indenture and services hereunder. The Trustee's
compensation shall not be limited by any law on compensation of a trustee of an
express trust. The Company and each of the Guarantors, jointly and severally,
shall reimburse the Trustee upon request for all reasonable disbursements,
advances and expenses incurred or made by it in addition to the compensation
for its services. Such expenses shall include the reasonable compensation,
disbursements and expenses of the Trustee's agents and counsel.
(b) The Company and each of the Guarantors, jointly and
severally, 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 the costs and
expenses of defending itself against any claim or liability in connection with
the exercise or performance of any of its powers or duties hereunder, except as
set forth below in subparagraph (d). The Trustee shall notify the Company and
each of the Guarantors promptly of any claim for which it may seek indemnity.
Failure by the Trustee to so notify the Company or any Guarantor shall not
relieve the Company or any of the Guarantors of their Obligations hereunder.
The Trustee may have separate counsel and the Company and each of the
Guarantors, jointly and severally, shall pay the reasonable fees and expenses
of such counsel. Neither the Company nor any Guarantor need pay for any
settlement made without its consent, which consent shall not be unreasonably
withheld.
(c) The obligations of the Company and each of the Guarantors
under this Section 7.07 shall survive the resignation or removal of the Trustee
and the satisfaction and discharge or termination of this Indenture.
(d) Notwithstanding subparagraphs (a) or (b) above, neither
the Company nor any Guarantor need reimburse any expense or indemnify against
any loss or liability incurred by the Trustee through its own negligence, bad
faith or willful misconduct.
(e) To secure the Company's and each of the Guarantor's
payment obligations in this Section, the Trustee shall have a Lien prior to the
Securities on all money or property held or collected by the Trustee, except
that held in trust to pay principal,
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premium, if any, and interest on particular Securities. Such Lien shall survive
the resignation or removal of the Trustee and the satisfaction and discharge of
this Indenture.
(f) When the Trustee incurs expenses or renders services
after an Event of Default specified in Section 6.01(viii) or (ix) hereof
occurs, the expenses and the compensation for such services (including the fees
and expenses of its agents and counsel) are intended to constitute expenses of
administration under any Bankruptcy Law.
SECTION 7.08. REPLACEMENT OF TRUSTEE.
(a) 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 7.08.
(b) The Trustee may resign at any time and be discharged from
the trust hereby created by so notifying the Company. The Securityholders of a
majority in principal amount of the then outstanding Securities may remove the
Trustee by so notifying the Trustee and the Company. The Company may remove the
Trustee if:
(i) the Trustee fails to comply with Section 7.10 hereof;
(ii) 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;
(iii) a Custodian, receiver or other public officer takes
charge of the Trustee or its property; or
(iv) the Trustee becomes incapable of acting.
(c) If the Trustee resigns or is removed or if a vacancy
exists in the office of Trustee for any reason, the Company shall notify each
Securityholder of such event and promptly appoint a successor Trustee. Within
one year after the successor Trustee takes office, the Holders of a majority in
principal amount of the then outstanding Securities may appoint a successor
Trustee to replace the successor Trustee appointed by the Company.
(d) 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 successor Trustee shall mail a notice of its
succession to each Securityholder. 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
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in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant to
this Section 7.08, the Company's and each of the Guarantor's obligations under
Section 7.07 hereof shall continue for the benefit of the retiring Trustee.
(e) If a successor Trustee does not take office within 60
days after the retiring Trustee resigns or is removed, the retiring Trustee,
the Company, any of the Guarantors or the Securityholders of at least 10% in
principal amount of the then outstanding Securities may petition any court of
competent jurisdiction for the appointment of a successor Trustee.
(f) If the Trustee after written request by any
Securityholder who has been a Securityholder for at least six months fails to
comply with Section 7.10, such Securityholder may petition any court of
competent jurisdiction for the removal of the Trustee and the appointment of a
successor Trustee.
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to another
corporation, the resulting, surviving or transferee corporation without any
further act shall, if such resulting, surviving or transferee corporation is
otherwise eligible hereunder, be the successor Trustee; provided, that such
corporation shall be otherwise qualified and eligible under this Article Seven.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.
(a) There shall at all times be a Trustee hereunder which
shall be a corporation organized and doing business under the laws of the
United States of America or any State or Territory thereof or the District of
Columbia authorized under such laws to exercise corporate trustee power, shall
be subject to supervision or examination by Federal, State, Territorial, or
District of Columbia authority and shall have a combined capital and surplus of
at least $100 million as set forth in its most recent published annual report
of condition.
(b) This Indenture shall always have a Trustee who satisfies
the requirements of TIA ss. 310(a)(1), (2) and (5). The Trustee shall comply
with TIA ss. 310(b).
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The provisions of TIA ss. 310 shall also apply to the Company and each of the
Guarantors, as obligor of the Securities.
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE COMPANY.
The Trustee shall comply with TIA ss. 311(a), excluding any
creditor relationship listed in TIA ss. 311(b). A Trustee who has resigned or
been removed shall be subject to TIA ss. 311(a) to the extent indicated
therein. The provisions of TIA ss. 311 shall apply to the Company and each of
the Guarantors as obligor on the Securities.
ARTICLE 8
DISCHARGE OF INDENTURE
SECTION 8.01. DISCHARGE OF LIABILITY ON SECURITIES; DEFEASANCE.
(a) When (i) the Company delivers to the Trustee all
outstanding Securities (other than Securities replaced pursuant to Section 2.07
hereof) canceled or for cancellation or (ii) all outstanding Securities have
become due and payable and the Company irrevocably deposits with the Trustee
funds sufficient to pay at maturity all outstanding Securities, including
interest thereon (other than Securities replaced pursuant to Section 2.07
hereof), and if in either case the Company pays all other sums payable
hereunder by the Company, then this Indenture shall, subject to Sections
8.01(e) and 8.06 hereof, cease to be of further effect. The Trustee shall
acknowledge satisfaction and discharge of this Indenture on demand of the
Company accompanied by an Officers' Certificate and an Opinion of Counsel and
at the cost and expense of the Company.
(b) Subject to Sections 8.01(e), 8.02 and 8.06 hereof, the
Company at any time may terminate (i) all its obligations under the Securities
and this Indenture ("legal defeasance option") or (ii) all obligations under
Sections 3.09, 4.04(a), (b) and (c), 4.07, 4.08, 4.09, 4.10, 4.12, 4.13, 4.14,
4.15, 4.16, 4.17 or 5.01(iii) and the operation of Sections 6.01(a)(iv),
6.01(a)(v) and 6.01(a)(vi) as well as (6.01(a)(ix) and 6.01(a)(x) hereof but
only with respect to Significant Subsidiaries) ("covenant defeasance option").
The Company may exercise its legal defeasance option notwithstanding its prior
exercise of its covenant defeasance option.
(c) If the Company exercises its legal defeasance option,
payment of the Securities may not be accelerated because of an Event of
Default. If the Company exercises its covenant defeasance option, payment of
the Securities may not be accelerated because of an Event of Default specified
in Section 6.01(a)(iv), 6.01(a)(vi), 6.01(a)(vii), 6.01(a)(viii) or 6.01(a)(ix)
(but only with respect to Significant Subsidiaries which is a
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Guarantor) or 6.01(a)(ix) hereof (but only with respect to Significant
Subsidiaries which is a Guarantor), or because of the failure of the Company or
the Guarantors to comply with Sections 5.01(iii) or 5.01(iv).
(d) Upon satisfaction of the conditions set forth herein and
upon request of the Company, the Trustee shall acknowledge in writing the
discharge of those obligations that the Company terminates.
(e) Notwithstanding clauses (a) and (b) above, the Company's
obligations in Sections 2.03, 2.04, 2.05, 2.06, 2.07, 7.07, 7.08, 8.01(d),
8.04, 8.05 and 8.06 hereof and the obligations of each Guarantor under Article
10 in respect thereof shall survive until the Securities have been paid in
full. Thereafter, the Company's obligations in Sections 7.07, 8.04 and 8.05
hereof and the obligations of Guarantors under Article 10 in respect thereof
shall survive.
SECTION 8.02. CONDITIONS TO DEFEASANCE.
(a) The Company may exercise its legal defeasance option or
its covenant defeasance option only if:
(i) the Company irrevocably deposits in trust with the
Trustee money or U.S. Government Obligations in amounts (including
interest, but without consideration of any reinvestment of such
interest) and maturities sufficient, but in the case of the legal
defeasance option only, not more than such amounts (as certified by a
nationally recognized firm of independent public accountants), to pay
and discharge at their Stated Maturity (or such earlier redemption
date as the Company shall have specified to the Trustee) the principal
of, premium, if any, and interest on all outstanding Securities to
maturity or redemption, as the case may be, and to pay all of the sums
payable by it hereunder; provided, that the Trustee shall have been
irrevocably instructed to apply such money or the proceeds of such
U.S. Government Obligations to the payment of said principal, premium,
if any, and interest with respect to the Securities;
(ii) in the case of the legal defeasance option only, 123
days pass after the deposit is made and during the 123 day period no
Default specified in Section 6.01(viii) or (ix) hereof with respect to
the Company or any Guarantor occurs which is continuing at the end of
the period;
(iii) no Default has occurred and is continuing on the date
of such deposit and after giving effect thereto;
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(iv) the deposit does not constitute a default under any
other agreement binding on the Company;
(v) the Company delivers to the Trustee an Opinion of
Counsel to the effect that the trust resulting from the deposit does
not constitute, or is qualified as, a regulated investment company
under the Investment Company Act of 1940, as amended;
(vi) in the case of the legal defeasance option, the Company
shall have delivered to the Trustee an Opinion of Counsel stating that
(x) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling, or (y) since the date 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 Securityholders will not recognize
income, gain or loss for Federal income tax purposes as a result of
such 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 defeasance had not occurred;
(vii) in the case of the covenant defeasance option, the
Company shall have delivered to the Trustee an Opinion of Counsel to
the effect that the Securityholders 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; and
(viii) the Company delivers to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all
conditions precedent to the defeasance and discharge of the Securities
as contemplated by this Article 8 have been complied with.
(b) In order to have money available on a payment date to pay
principal, premium, if any, or interest on the Securities, the U.S. Government
Obligations deposited pursuant to preceding clause (a) shall be payable as to
principal or interest at least one Business Day before such payment date in
such amounts as shall provide the necessary money. U.S. Government Obligations
shall not be callable at the issuer's option.
(c) Before or after a deposit, the Company may make
arrangements satisfactory to the Trustee for the redemption of Securities at a
future date in accordance with Article 3 hereof.
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SECTION 8.03. APPLICATION OF TRUST MONEY.
The Trustee shall hold in trust money or U.S. Government
Obligations deposited with it pursuant to this Article 8. It shall apply the
deposited money and the money from U.S. Government Obligations through the
Paying Agent and in accordance with this Indenture to the payment of principal,
premium, if any, and interest on the Securities.
SECTION 8.04. REPAYMENT TO THE COMPANY.
(a) The Trustee and the Paying Agent shall promptly pay to
the Company upon written request any excess money or securities held by them at
any time; provided, however, that the Trustee shall not pay any such excess to
the Company unless the amount remaining on deposit with the Trustee, after
giving effect to such transfer are sufficient to pay principal, premium, if
any, and interest on the outstanding Securities, which amount shall be
certified by independent public accountants.
(b) The Trustee and the Paying Agent shall pay to the Company
upon written request any money held by them for the payment of principal,
premium, if any, or interest that remains unclaimed for two years after the
date upon which such payment shall have become due; provided, however, that the
Company shall have either caused notice of such payment to be mailed to each
Securityholder entitled thereto no less than 30 days prior to such repayment or
within such period shall have published such notice in a financial newspaper of
widespread circulation published in the City of New York. After payment to the
Company, Securityholders entitled to the money must look to the Company and the
Guarantors for payment as general creditors unless an applicable abandoned
property law designates another Person, and all liability of the Trustee and
such Paying Agent with respect to such money shall cease.
SECTION 8.05. INDEMNITY FOR GOVERNMENT OBLIGATIONS.
The Company and the Guarantors, jointly and severally, shall
pay and shall indemnify the Trustee against any tax, fee or other charge
imposed on or assessed against deposited U.S. Government Obligations or the
principal and interest received on such U.S. Government Obligations.
SECTION 8.06. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any money
or U.S. Government Obligations in accordance with this Article 8 by reason of
any legal proceeding or by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, the Company's and each of the Guarantor's Obligations under this
Indenture and the Securities and the Subsidiary
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Guarantees shall be revived and reinstated as though no deposit had occurred
pursuant to this Article 8 until such time as the Trustee or Paying Agent is
permitted to apply all such money or U.S. Government Obligations in accordance
with this Article 8; provided, however, that if the Company or any Guarantor
has made any payment of principal of, premium, if any, or interest on any
Securities because of the reinstatement of its Obligations, the Company or any
of the Guarantors, as the case may be, shall be subrogated to the rights of the
Securityholders to receive such payment from the money or U.S. Government
Obligations held by the Trustee or Paying Agent.
ARTICLE 9
AMENDMENTS
SECTION 9.01. WITHOUT CONSENT OF SECURITYHOLDERS.
(a) Notwithstanding Section 9.02 of this Indenture, the
Company and the Trustee may amend or supplement this Indenture or the
Securities without the consent of any Securityholder:
(i) to cure any ambiguity, omission, defect or
inconsistency; provided, that such amendment or supplement does not,
as evidenced by an Opinion of Counsel delivered to the Trustee,
adversely affect the rights of any Securityholder in any respect;
(ii) to comply with Article 5 hereof;
(iii) to provide for uncertificated Securities in addition to
or in place of certificated Securities; provided, however, that the
uncertificated Securities are issued in registered form for purposes
of Section 163(f) of the Internal Revenue Code of 1986, as amended, or
in a manner such that the uncertificated Securities are described in
Section 163(f)(2)(B) of the Internal Revenue Code of 1986, as amended;
(iv) to add guarantees with respect to the Securities;
(v) to add to the covenants of the Company or the
Guarantors for the benefit of the Securityholders or to surrender any
right or power herein conferred upon the Company or the Guarantors;
(vi) to comply with requirements of the Commission in order
to effect or maintain the qualification of this Indenture under the
TIA;
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(vii) to make any change that does not, as evidenced by an
Opinion of Counsel delivered to the Trustee, adversely affect the
rights of any Securityholder in any respect; or
(viii) to evidence or provide for a replacement Trustee under
Section 7.08 hereof;
provided, that the Company has delivered to the Trustee an Opinion of Counsel
stating that any such amendment or supplement complies with the provisions of
this Section 9.01.
(b) Upon the request of the Company and the Guarantors
accompanied by Board Resolutions of their respective Boards of Directors
authorizing the execution of any such supplemental indenture, and upon receipt
by the Trustee of the documents described in Section 9.06 hereof, the Trustee
shall join with the Company and the Guarantors in the execution of any
supplemental indenture authorized or permitted by the terms of this Indenture
and to make any further appropriate agreements and stipulations which may be
therein contained, but the Trustee shall not be obligated to enter into such
supplemental indenture which affects its own rights, duties or immunities under
this Indenture or otherwise.
(c) After an amendment or supplement under this Section 9.01
becomes effective, the Company shall mail to all Securityholders a notice
briefly describing such amendment or supplement. The failure to give such
notice to all Securityholders, or any defect therein, shall not impair or
affect the validity of an amendment or supplement under this Section.
SECTION 9.02. WITH CONSENT OF SECURITYHOLDERS.
(a) The Company and the Trustee may amend or supplement this
Indenture or the Securities with the written consent of the Securityholders of
not less than a majority in aggregate principal amount of the Securities then
outstanding (including consents obtained in connection with a tender offer or
exchange offer for the Securities) and any existing Default and its
consequences (including, without limitation, an acceleration of the Securities)
or compliance with any provision of this Indenture or the Securities may be
waived with the consent of the Holders of a majority in principal amount of the
then outstanding Securities (including consents obtained in connection with a
tender offer or exchange offer for the Securities). Furthermore, subject to
Sections 6.04 and 6.07 hereof, the Holders of a majority in aggregate principal
amount of the Securities then outstanding (including consents obtained in
connection with a tender offer or exchange offer for the Securities) may waive
compliance in a particular instance by the Company with any provision of this
Indenture or the Securities. However, without the consent of each
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Securityholder affected, an amendment, supplement or waiver under this Section
9.02 may not (with respect to any Securities held by a non-consenting Holder):
(i) reduce the principal amount of Securities whose Holders
must consent to an amendment, supplement or waiver;
(ii) reduce the rate of or extend the time for payment of any
interest on any Security;
(iii) reduce the principal of or extend the Stated Maturity of
any Security or alter the redemption provisions (including without
limitation Sections 3.07, 3.09, 4.11 and 4.14 hereof) with respect
thereto;
(iv) reduce the premium payable upon the redemption or
repurchase of any Security or change the time at which any Security
may be redeemed in accordance with Section 3.07;
(v) make any Security payable in money other than that
stated in the Security;
(vi) make any change in Section 6.04 or 6.07 hereof or in
this Section 9.02(a); or
(vii) waive a Default or Event of Default in the payment of
principal of premium, if any, or interest on, or redemption payment
with respect to, any or Security (excluding any principal or interest
due solely as a result of the occurrence of a Declaration).
(b) Upon the request of the Company and the Guarantors
accompanied by Board Resolutions of their respective Boards of Directors
authorizing the execution of any such supplemental indenture, and upon the
filing with the Trustee of evidence satisfactory to the Trustee of the consent
of the Securityholders as aforesaid, and upon receipt by the Trustee of the
documents described in Section 9.06 hereof, the Trustee shall join with the
Company and the Guarantors in the execution of such supplemental indenture
unless such 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 supplemental
indenture.
(c) It shall not be necessary for the consent of the
Securityholders under this Section 9.02 to approve the particular form of any
proposed amendment, supplement or waiver, but it shall be sufficient if such
consent approves the substance thereof.
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(d) After an amendment, supplement or waiver under this
Section 9.02 becomes effective, the Company shall mail to all Securityholders 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 amendment, supplement or
waiver.
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment or supplement to this Indenture or the
Securities shall comply with the TIA as then in effect.
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS.
(a) Until an amendment, supplement or waiver becomes
effective, a consent to it by a Securityholder is a continuing consent by the
Securityholder and every subsequent Securityholder or portion of a Security
that evidences the same debt as the consenting Holder's Security, even if
notation of the consent is not made on any Security. However, any such
Securityholder or subsequent Securityholder may revoke the consent as to its
Security 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 Securityholder.
(b) The Company may fix a record date for determining which
Securityholders must consent to such amendment, supplement or waiver. If the
Company fixes a record date, the record date shall be fixed at (i) the later of
30 days prior to the first solicitation of such consent or the date of the most
recent list of Securityholders furnished to the Trustee prior to such
solicitation pursuant to Section 2.05 hereof, or (ii) such other date as the
Company shall designate.
SECTION 9.05. NOTATION ON OR EXCHANGE OF SECURITIES.
(a) Securities authenticated and delivered after the
execution of any supplemental indenture may bear a notation in form approved by
the Trustee as to any matter provided for in such amendment, supplement or
waiver on any Security thereafter authenticated. The Company in exchange for
all Securities may issue and the Trustee shall authenticate new Securities that
reflect the amendment, supplement or waiver.
(b) Failure to make the appropriate notation or issue a new
Security shall not affect the validity and effect of such amendment, supplement
or waiver.
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SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amendment, waiver or supplemental
indenture authorized pursuant to this Article 9 if the amendment, waiver or
supplemental indenture does not adversely affect the rights, duties,
liabilities or immunities of the Trustee. If it does, the Trustee may, but need
not, sign it. In signing or refusing to sign such amendment, waiver or
supplemental indenture, the Trustee shall be entitled to receive and, subject
to Section 7.01, shall be fully protected in relying upon, in addition to the
documents required by Section 11.04, an Officers' Certificate and an Opinion of
Counsel as conclusive evidence that such amendment, waiver or supplemental
indenture is authorized or permitted by this Indenture, that it is not
inconsistent herewith, and that it will be valid and binding upon the Company
in accordance with its terms.
ARTICLE 10
SUBSIDIARY GUARANTEE OF SECURITIES
SECTION 10.01. SUBSIDIARY GUARANTEE
(a) Each Guarantor hereby jointly and severally irrevocably
and unconditionally guarantees, as a primary obligor and not a surety, to each
Securityholder of a Security now or hereafter authenticated and delivered by
the Trustee and to the Trustee and its successors and assigns, irrespective of
the validity and enforceability of this Indenture, the Securities or the
Obligations of the Company hereunder or thereunder, (i) the due and punctual
payment of the principal, premium, if any, interest (including post-petition
interest in any proceeding under any Bankruptcy Law whether or not an allowed
claim in such proceeding) on overdue principal, premium, if any, and interest,
if lawful on such Security, and (ii) all other monetary Obligations payable by
the Company under this Indenture (including under Section 7.07 hereof) and the
Securities (all of the foregoing being hereinafter collectively called the
"Guaranteed Obligations"), when and as the same shall become due and payable,
whether by acceleration thereof, call for redemption or otherwise (including
amounts that would become due but for the operation of the automatic stay under
Section 362(a) of the Bankruptcy Code), in accordance with the terms of any
such Security and of this Indenture, subject, however, in the case of (i) and
(ii) above, to the limitations set forth in Section 10.04 hereof. Each
Guarantor hereby agrees that its Obligations hereunder shall be absolute and
unconditional, irrespective of, and shall be unaffected by, any failure to
enforce the provisions of any such Security or this Indenture, any waiver,
modification or indulgence granted to the Company with respect thereto, the
recovery of any judgment against the Company, any action to enforce the same,
by the Securityholders or the Trustee, the recovery of any judgment against the
Company, any action to enforce the same, or any other circumstances which may
otherwise constitute
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a legal or equitable discharge of a surety or guarantor. Each Guarantor hereby
waives diligence, presentment, filing of claims with a court in the event of a
merger or bankruptcy of the Company, any right to require a proceeding first
against the Company, the benefit of discussion, protest or notice with respect
to any such Security or the Indebtedness evidenced thereby and all demands
whatsoever, and covenants that this Subsidiary Guarantee shall not be
discharged as to any such Security except by payment in full of the principal
thereof, premium, if any, and all accrued interest thereon.
(b) Each Guarantor further agrees that this Subsidiary
Guarantee herein constitutes a guarantee of payment, performance and compliance
when due (and not a guarantee of collection) and waives any right to require
that any resort be had by any Securityholder or the Trustee to any Security
held for payment of the Guaranteed Obligations.
(c) Each Guarantor agrees that it shall not be entitled to,
and hereby irrevocably waives, any right of subrogation in relation to the
Securityholders or the Trustee in respect of any Guaranteed Obligations. Each
Guarantor further agrees that, as between such Guarantor, on the one hand, and
the Securityholders and the Trustee, on the other hand, (x) the maturity of the
Guaranteed Obligations may be accelerated as provided in Article 6 for the
purposes of such Guarantor's Subsidiary Guarantee herein, notwithstanding any
stay, injunction or other prohibition preventing such acceleration in respect
of the Guaranteed Obligations, and (y) in the event of any Declaration of
acceleration of such Guaranteed Obligations as provided in Article 6 hereof,
such Guaranteed Obligations (whether or not due and payable) shall forthwith
become due and payable by such Guarantor for the purpose of this Article 10.
(d) Each Guarantor also agrees to pay any and all costs and
expenses (including reasonable attorneys' fees) incurred by the Trustee or any
Securityholder in enforcing any rights under this Article 10.
(e) The Subsidiary Guarantee set forth in this Article 10
shall not be valid or become obligatory for any purpose with respect to a
Security until the certificate of authentication on such Security shall have
been signed by or on behalf of the Trustee.
SECTION 10.02. EXECUTION AND DELIVERY OF SUBSIDIARY GUARANTEE.
(a) To evidence each Guarantor's Subsidiary Guarantee set
forth in this Article 10, each Guarantor hereby agrees that a notation of such
Subsidiary Guarantee shall be placed on each Security authenticated and
delivered by the Trustee.
(b) This Indenture shall be executed on behalf of each
Guarantor, and an Officer of each Guarantor shall sign the notation of the
Subsidiary Guarantee on the
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Securities by manual or facsimile signature. If an Officer whose signature is
on this Indenture or the notation of Subsidiary Guarantee no longer holds that
office at the time the Trustee authenticates the Security on which the
Subsidiary Guarantee is endorsed, the Subsidiary Guarantee shall be valid
nevertheless. Each Guarantor hereby agrees that the Subsidiary Guarantee set
forth in Section 10.01 hereof shall remain in full force and effect
notwithstanding any failure to endorse on each Security a notation of the
Subsidiary Guarantee.
(c) The delivery of any Security by the Trustee, after the
authentication thereof hereunder, shall constitute due delivery of the
Subsidiary Guarantee set forth in this Indenture on behalf of each Guarantor.
SECTION 10.03. SUBSIDIARY GUARANTEE UNCONDITIONAL, ETC.
Upon failure of payment when due of any Guaranteed Obligation
for whatever reason, each Guarantor will be obligated to pay the same
immediately. Each Guarantor hereby agrees that its obligations hereunder shall
be continuing, absolute and unconditional, irrespective of: the recovery of any
judgment against the Company or any Guarantor; any extension, renewal,
settlement, compromise, waiver or release in respect of any obligation of the
Company under this Indenture or any Security, by operation of law or otherwise;
any modification or amendment of or supplement to this Indenture or any
Security; any change in the corporate existence, structure or ownership of the
Company, or any insolvency, bankruptcy, reorganization or other similar
proceeding affecting the Company or its assets or any resulting release or
discharge of any obligation of the Company contained in this Indenture or any
Security; the existence of any claim, set-off or other rights which any
Guarantor may have at any time against the Company, the Trustee, any
Securityholder or any other Person, whether in connection herewith or any
unrelated transactions; provided, that nothing herein shall prevent the
assertion of any such claim by separate suit or compulsory counterclaim; any
invalidity or unenforceability relating to or against the Company for any
reason of this Indenture or any Security, or any provision of applicable law or
regulation purporting to prohibit the payment by the Company of the principal,
premium, if any, or interest on any Security or any other Guaranteed
Obligation; or any other act or omission to act or delay of any kind by the
Company, the Trustee, any Securityholder or any other Person or any other
circumstance whatsoever which might, but for the provisions of this paragraph,
constitute a legal or equitable discharge of the Guarantors' obligations
hereunder. Each Guarantor hereby waives diligence, presentment, demand of
payment, filing of claims with a court in the event of insolvency or bankruptcy
of the Company, any right to require a proceeding first against the Company,
protest, notice and all demand whatsoever and covenants that this Subsidiary
Guarantee will not be discharged except by the complete performance of the
obligations contained in the Securities, this Indenture and in this Article 10.
Each Guarantor's obligations hereunder shall remain in full force and effect
until the Indenture
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shall have terminated and the principal of and interest on the Securities and
all other Guaranteed Obligations shall have been paid in full. If at any time
any payment of the principal of or interest on any Security or any other
payment in respect of any Guaranteed Obligation is rescinded or must be
otherwise restored or returned upon the insolvency, bankruptcy or
reorganization of the Company or otherwise, each Guarantor's obligations
hereunder with respect to such payment shall be reinstated as though such
payment had been due but not made at such time, and this Article 10, to the
extent theretofore discharged, shall be reinstated in full force and effect.
Each Guarantor irrevocably waives any and all rights to which it may be
entitled, by operation of law or otherwise, upon making any payment hereunder
to be subrogated to the rights of the payee against the Company with respect to
such payment or otherwise to be reimbursed, indemnified or exonerated by the
Company in respect thereof.
SECTION 10.04. LIMITATION OF GUARANTOR'S LIABILITY.
Each Guarantor and by its acceptance hereof each
Securityholder hereby confirms that it is the intention of all such parties
that the guarantee by such Guarantor pursuant to its Subsidiary Guarantee not
constitute a fraudulent transfer or conveyance for purposes of the Bankruptcy
Law, Federal and state fraudulent conveyance laws or other legal principles. To
effectuate the foregoing intention, the Securityholders and each Guarantor
hereby irrevocably agree that the obligations of such Guarantor under the
Subsidiary Guarantee shall be limited to the maximum amount as will, after
giving effect to all other contingent and fixed liabilities of such Guarantor
and after giving effect to any collections from or payments made by or on
behalf of any other Guarantor in respect of the obligations of such other
Guarantor under its Subsidiary Guarantee or pursuant to Section 10.05 hereof,
result in the obligations of such Guarantor under the Subsidiary Guarantee not
constituting such fraudulent transfer or conveyance under federal or state law.
SECTION 10.05. CONTRIBUTION.
In order to provide for just and equitable contribution among
the Guarantors, the Guarantors agree, inter se, that in the event any payment
or distribution is made by any Guarantor (a "Funding Guarantor") under the
Subsidiary Guarantee, such Funding Guarantor shall be entitled to a
contribution from all other Guarantors in a pro rata amount based on the
Adjusted Net Assets of each Guarantor (including the Funding Guarantor) for all
payments, damages and expenses incurred by that Funding Guarantor in
discharging the Company's obligations with respect to the Securities or any
other Guarantor's obligations with respect to the Subsidiary Guarantee.
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SECTION 10.06. RELEASE.
Upon the sale or disposition of all of the Equity Interests
of a Guarantor to an entity which is not the Company or a Subsidiary of the
Company, which is otherwise in compliance with this Indenture, such Guarantor
shall be deemed released from all its obligations under the Indenture without
any further action required on the part of the Trustee or any Securityholder;
provided, however, that any such termination shall occur if and only to the
extent that all Obligations of each Guarantor under all of its guarantees of,
and under all of its pledges of assets or other security interests which
secure, Indebtedness of the Company and the other Guarantors shall also
terminate upon such release, sale or transfer; provided further, that without
limiting the foregoing, any proceeds received by the Company or any Subsidiary
of the Company from such transaction shall be applied as provided in Section
4.10 and Section 3.09. The Trustee shall deliver an appropriate instrument
evidencing such release upon receipt of a request by the Company accompanied by
an Officers' Certificate certifying as to the compliance with this Section
10.06. Any Guarantor not so released remains liable for the full amount of
principal, premium, if any, and interest on the Securities as provided in this
Article 10.
SECTION 10.07. ADDITIONAL GUARANTORS.
Any Person that was not a Guarantor on the date of this
Indenture may become a Guarantor by executing and delivering to the Trustee (a)
a supplemental indenture in form and substance satisfactory to the Trustee,
which subjects such Person to the provisions (including, without limitation,
the representations and warranties in this Article 10 and Article 11) of this
Indenture as a Guarantor and (b) an Opinion of Counsel to the effect that such
supplemental indenture has been duly authorized and executed by such Person and
constitutes the legal, valid, binding and enforceable obligation of such Person
(subject to such customary exceptions concerning creditors' rights and
equitable principles as may be acceptable to the Trustee in its discretion).
The Subsidiary Guarantee of each Person described in this Section 10.07 shall
apply to all Securities theretofore executed and delivered, notwithstanding any
failure of such Securities to contain a notation of such Subsidiary Guarantee
thereon.
SECTION 10.08. GUARANTORS MAY CONSOLIDATE, ETC., ON CERTAIN TERMS.
(a) Nothing contained in this Indenture or in any of the
Securities shall prevent any consolidation or merger of a Guarantor with or
into the Company or another Guarantor that is a Wholly-Owned Subsidiary of the
Company or shall prevent any sale or conveyance of the property of a Guarantor
as an entirety or substantially as an entirety, to the Company or another
Guarantor that is a Wholly-Owned Subsidiary of the Company.
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Upon any such consolidation, merger, sale or conveyance, the Subsidiary
Guarantee given by such Guarantor shall no longer have any force or effect.
(b) Nothing contained in this Indenture or in any of the
Securities shall prevent any consolidation or merger of a Guarantor with or
into a corporation or corporations other than the Company or another Guarantor
(whether or not affiliated with the Guarantor), or successive consolidations or
mergers in which a Guarantor or its successor or successors shall be a party or
parties, or shall prevent any sale or conveyance of the property of a Guarantor
as an entirety or substantially as an entirety, to a corporation other than the
Company or another Guarantor (whether or not affiliated with the Guarantor);
provided, however, that, subject to Sections 10.06 and 10.08(a), (x) (i)
immediately after such transaction, and giving effect thereto, no Default or
Event of Default shall have occurred as a result of such transaction and be
continuing, or (ii) such transaction does not violate any covenants set forth
in this Indenture, and (y) (i) the respective transaction is treated as an
Asset Disposition for purposes of Section 4.10 and Section 3.09 hereof or (ii)
if the surviving corporation is not the Guarantor, each Guarantor hereby
covenants and agrees that, upon any such consolidation, merger, sale or
conveyance, the Subsidiary Guarantee set forth in this Article 10, and the due
and punctual performance and observance of all of the covenants and conditions
of this Indenture to be performed by such Guarantor, shall be expressly assumed
(in the event that the Guarantor is not the surviving corporation in the
merger), by supplemental indenture satisfactory in form to the Trustee of the
due and punctual performance of all of the covenants and conditions of this
Indenture to be performed by the Guarantor, such successor corporation shall
succeed to, and be substituted for, the Guarantor with the same effect as if it
had been named herein as a Guarantor.
SECTION 10.09. SUCCESSORS AND ASSIGNS.
This Article 10 shall be binding upon each Guarantor and its
successors and assigns and shall inure to the benefit of the successors and
assigns of the Trustee and the Securityholders and, in the event of any
transfer or assignment of rights by any Securityholder or the Trustee, the
rights and privileges conferred upon that party in this Indenture and in the
Securities shall automatically extend to and be vested in such transferee or
assignee, all subject to the terms and conditions of this Indenture.
SECTION 10.10. WAIVER OF STAY, EXTENSION OR USURY LAWS.
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Each Guarantor covenants (to the extent that it may lawfully
do so) that it will not at any time insist upon, plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay or extension law
or any usury law or other law that would prohibit or forgive each such
Guarantor from performing its Subsidiary Guarantee as contemplated herein,
wherever enacted, now or at any time hereafter in force, or which may affect
the covenants or the performance of this Indenture; and (to the extent that it
may lawfully do so) each such Guarantor hereby expressly waives all benefit or
advantage of any such law, and covenants that it will not hinder, delay or
impede the execution of any power herein granted to the Trustee, but will
suffer and permit the execution of every such power as though no such law had
been enacted.
ARTICLE 11
MISCELLANEOUS
SECTION 11.01. TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies or
conflicts with another provision which is required to be included in this
Indenture by the TIA, the required provision shall control. Until such time as
this Indenture becomes qualified under the TIA, the Company, the Guarantors and
the Trustee shall be deemed subject to and governed by the TIA as if the
Indenture were so qualified on the date hereof.
SECTION 11.02. NOTICES.
(a) Any notice or communication by the Company, any Guarantor
or the Trustee to the other is duly given if in writing and delivered in person
or mailed by first class mail (registered or certified, return receipt
requested), confirmed facsimile transmission or overnight air courier
guaranteeing next day delivery, to the other's address:
If to the Company or any of the Guarantors:
North Atlantic Trading Acquisition Company, Inc.
c/o National Tobacco Company, L.P.
257 Park Avenue South, 7th Floor
New York, NY 10010-7304
Attention: Chief Financial Officer
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<PAGE>
If to the Trustee:
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
Attention: Corporate Trust Administration
Facsimile Number: (212) 852-1625
(b) The Company or the Trustee, by notice to the other, may
designate additional or different addresses for subsequent notices or
communications.
(c) All notices and communications (other than those sent to
Securityholders) shall be deemed to have been duly given: at the time delivered
by hand, if personally delivered; five Business Days after being deposited in
the mail, postage prepaid, if mailed; when receipt acknowledged, if by
facsimile transmission; and the next Business Day after timely delivery to the
courier, if sent by overnight air courier guaranteeing next day delivery.
(d) Any notice or communication to a Securityholder shall be
mailed by first class mail, postage prepaid, 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 ss. 313(c), to the extent required by the
TIA. Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders.
(e) If a notice or communication is mailed to any Person in
the manner provided above within the time prescribed, it is duly given, whether
or not the addressee receives it.
(f) If the Company mails a notice or communication to
Securityholders, it shall mail a copy to the Trustee and each Agent at the same
time.
SECTION 11.03. COMMUNICATION BY SECURITYHOLDERS WITH OTHER
SECURITYHOLDERS.
Securityholders may communicate pursuant to TIA ss. 312(b)
with other Securityholders with respect to their rights under this Indenture or
the Securities. The Company, the Guarantors, the Trustee, the Registrar and
anyone else shall have the protection of TIA ss. 312(c).
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<PAGE>
SECTION 11.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company and/or any of
the Guarantors to the Trustee to take any action under this Indenture, the
Company and/or any of the Guarantors, as the case may be, shall furnish to the
Trustee:
(i) an Officer's Certificate in form and substance
reasonably satisfactory to the Trustee (which shall include the
statements set forth in Section 11.05 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 (except with regard to an authentication order
pursuant to Section 2.02(c) hereof, which shall require a certificate
of two Officers); and
(ii) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set
forth in Section 11.05 hereof) stating that, in the opinion of such
counsel, all such conditions precedent and covenants have been
satisfied.
SECTION 11.05. 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 ss. 314(a)(4)) shall include:
(i) a statement that the person making such certificate or
opinion has read such covenant or condition;
(ii) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(iii) a statement that, in the opinion of such person, he has
made such examination or investigation as is necessary to enable him
to express an informed opinion as to whether or not such covenant or
condition has been satisfied; and
(iv) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been satisfied.
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<PAGE>
SECTION 11.06. RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or at a
meeting of Securityholders. The Registrar or Paying Agent may make reasonable
rules and set reasonable requirements for its functions.
SECTION 11.07. LEGAL HOLIDAYS.
A "Legal Holiday" is a Saturday, a Sunday or a day on which
banking institutions in New York City, or at a place of payment are authorized
or obligated by law, regulation or executive order to remain closed. If a
payment date is a Legal Holiday at a place of payment, payment may be made at
that place on the next succeeding day that is not a Legal Holiday, and no
interest shall accrue for the intervening period.
SECTION 11.08. NO RECOURSE AGAINST OTHERS.
No past, present or future director, officer, employee,
agent, manager, stockholder or partner of the Company or its predecessors shall
have any liability for any Obligations of the Company under the Securities or
this Indenture or for any claim based on, in respect of, or by reason of such
Obligations or their creation. Each Securityholder by accepting a Security
waives and releases all such liability. This waiver and release are part of the
consideration for issuance of the Securities.
SECTION 11.09. DUPLICATE ORIGINALS.
The parties may sign any number of copies of this Indenture.
One signed copy is enough to prove this Indenture.
SECTION 11.10. GOVERNING LAW.
This Indenture and the Securities shall be governed by, and
construed in accordance with, the laws of the State of New York but without
giving effect to applicable principles of conflicts of law to the extent that
the application of the laws of another jurisdiction would be required thereby.
SECTION 11.11. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret another
indenture, loan or debt agreement of any of the Guarantors, the Company or
their respective Subsidiaries. Any such indenture, loan or debt agreement may
not be used to interpret this Indenture.
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<PAGE>
SECTION 11.12. SUCCESSORS.
All agreements of the Company and the Guarantors in this
Indenture and the Securities shall bind its successors. All agreements of the
Trustee in this Indenture shall bind its successor.
SECTION 11.13. SEVERABILITY.
In case any provision in this Indenture or in the Securities
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 11.14. COUNTERPART ORIGINALS.
This Indenture may be executed in any number of counterparts,
each of which so executed shall be an original, but all of them together
represent the same agreement.
SECTION 11.15. TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and Headings of
the Articles and Sections of this Indenture 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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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed as of the date first written above.
SIGNATURES
NORTH ATLANTIC TRADING
ACQUISITION COMPANY, INC.
By /s/ Thomas F. Helms, Jr.
-------------------------------
Name: Thomas F. Helms, Jr.
Title: President
NATIONAL TOBACCO COMPANY,
L.P.
By /s/ Thomas F. Helms, Jr.
-------------------------------
Name: Thomas F. Helms, Jr.
Title: President
NORTH ATLANTIC OPERATING
COMPANY, INC.
By /s/ Thomas F. Helms, Jr.
-------------------------------
Name: Thomas F. Helms, Jr.
Title: President
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<PAGE>
NATIONAL TOBACCO FINANCE
CORPORATION
By /s/ Thomas F. Helms, Jr.
-------------------------------
Name: Thomas F. Helms, Jr.
Title: President
UNITED STATES TRUST COMPANY
OF NEW YORK, as Trustee
By /s/ Christine C. Collins
-------------------------------
Name: Christine C. Collins
Title: Assistant Vice President
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<PAGE>
EXHIBIT A
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, UNITED STATES 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) OF REGULATION
D UNDER THE SECURITIES ACT) (AN "INSTITUTIONAL ACCREDITED INVESTOR")
OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN
OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE
SECURITIES ACT, (2) AGREES THAT IT WILL NOT WITHIN THE TIME PERIOD
REFERRED TO IN RULE 144(k) UNDER THE SECURITIES ACT AS IN EFFECT WITH
RESPECT TO SUCH TRANSFER, RESELL OR OTHERWISE TRANSFER THIS SECURITY
EXCEPT (A) TO NORTH ATLANTIC TRADING ACQUISITION COMPANY, INC. 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 THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE A
SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS
RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM OF
WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE), AND IF SUCH TRANSFER
IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES AS THE TIME OF
TRANSFER OF LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO
NORTH ATLANTIC TRADING ACQUISITION COMPANY, INC. THAT SUCH TRANSFER IS
IN COMPLIANCE WITH THE SECURITIES ACT, (D) OUTSIDE THE UNITED STATES
IN AN OFFSHORE TRANSACTION 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 (F)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS
SECURITY IS TRANSFERRED A
<PAGE>
EXHIBIT A
Page 2
NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND; PROVIDED THAT AN
INITIAL INVESTOR PURCHASING AS DESCRIBED IN CLAUSE (1)(B) ABOVE SHALL
NOT BE PERMITTED TO TRANSFER THIS NOTE TO AN INSTITUTIONAL ACCREDITED
INVESTOR. IN CONNECTION WITH ANY TRANSFER OF THIS SECURITY WITHIN THE
TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE
BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH
TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRUSTEE. IF THE PROPOSED
TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR PURCHASING PURSUANT
TO CLAUSE (2)(C) ABOVE, THE SECURITYHOLDER MUST, PRIOR TO SUCH
TRANSFER, FURNISH TO THE TRUSTEE AND NORTH ATLANTIC TRADING
ACQUISITION COMPANY, INC. SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER
INFORMATION AS EITHER OF THEM 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 "UNITED STATES PERSON" HAVE THE MEANINGS GIVEN TO
THEM BY REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS
A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER
OF THIS NOTE IN VIOLATION OF THE FOREGOING RESTRICTIONS.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN
DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A
WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY, OR BY ANY SUCH
NOMINEE OF THE DEPOSITARY, OR BY THE DEPOSITARY OR NOMINEE OF SUCH
SUCCESSOR DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR
A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. TRANSFERS OF THIS GLOBAL
SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO
NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S
NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET
FORTH IN THE INDENTURE. UNLESS THIS CERTIFICATE IS PRESENTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK
CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR
<PAGE>
EXHIBIT A
Page 3
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE
& CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR
TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE
OF 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.
<PAGE>
EXHIBIT A
Page 4
CUSIP No:
(Front of Security)
No. 1 $___________
NORTH ATLANTIC TRADING ACQUISITION COMPANY, INC.
11% Senior Notes due 2004, Series A
NORTH ATLANTIC TRADING ACQUISITION COMPANY, INC., a Delaware corporation
promises to pay to Cede & Co., as nominee of the Depository Trust Company, or
its registered assigns, the principal sum of $155,000,000 on June 15, 2004.
Interest Payment Dates: June 15 and December 15, commencing December 15, 1997.
Record Dates: June 1 and December 1 (whether or not a Business Day).
Additional provisions of this Security are set forth on the other side of this
Security.
Dated:
NORTH ATLANTIC TRADING
ACQUISITION COMPANY, INC.
By: ________________________
By: ________________________
TRUSTEE'S CERTIFICATE
OF AUTHENTICATION
This is one of the Securities referred
to in the within-mentioned Indenture
UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee
By:_________________________________
Authorized Officer
<PAGE>
EXHIBIT A
Page 5
(Reverse of Security)
11% SENIOR NOTE DUE 2004, Series A
Capitalized terms used herein have the meanings assigned to
them in the Indenture (as defined below) unless otherwise indicated.
1. Interest. North Atlantic Trading Acquisition Company,
Inc., a Delaware corporation (the "Company"), promises to pay interest on the
principal amount of this Security at the rate and in the manner specified
below. The Company shall pay, in cash, interest on the principal amount of this
Security at the rate per annum of 11%. The Company will pay interest
semiannually in arrears on June 15 and December 15 of each year (each an
"Interest Payment Date"), commencing December 15, 1997, or if any such day is
not a Business Day on the next succeeding Business Day. Interest will be
computed on the basis of a 360-day year consisting of twelve 30-day months.
Interest shall accrue from the most recent Interest Payment Date to which
interest has been paid or, if no interest has been paid, from the date of the
original issuance of the Securities. To the extent lawful, the Company shall
pay interest on overdue principal at the rate of 2% per annum in excess of the
then applicable interest rate on the Securities; it shall pay interest on
overdue installments of interest (without regard to any applicable grace
periods) at the same rate to the extent lawful. The rate of interest payable on
this Security shall be subject to the assessment of additional interest (the
"Additional Interest") as follows:
(i) if the Exchange Offer Registration Statement (as defined
below) or Shelf Registration Statement (as defined below) is not filed within
30 days following the Issue Date (the "Filing Date"), Additional Interest shall
accrue on the Securities over and above the stated interest at a rate of 0.50%
per annum for the first 60 days commencing on the 31st day after the Filing
Date, such Additional Interest rate increasing by an additional 0.50% per annum
at the beginning of each subsequent 30-day period;
(ii) if the Exchange Offer Registration Statement or Shelf
Registration Statement is not declared effective within 90 days following the
Filing Date, Additional Interest shall accrue on the Securities over and above
the stated interest at a rate of 0.50% per annum for the first 30 days
commencing on the 91st day after the Filing Date, such Additional Interest rate
increasing by an additional 0.50% per annum at the beginning of each subsequent
30-day period; or
(iii) if (A) the Company and the Guarantors have not
exchanged all Securities validly tendered in accordance with the terms of the
Exchange Offer on or prior to 120 days after the Filing Date or (B) the
Exchange Offer Registration Statement ceases to be effective at any time prior
to the time that the Exchange Offer is consummated or (C) if applicable, the
Shelf Registration Statement has been declared effective and such Shelf
<PAGE>
EXHIBIT A
Page 6
Registration Statement ceases to be effective at any time prior to the third
anniversary of the Issue Date (unless all the Securities have been sold
thereunder), then Additional Interest shall accrue on the Securities over and
above the stated interest at a rate of 0.50% per annum for the first 30 days
commencing on (x) the 121st day after the Filing Date with respect to the
Securities validly tendered and not exchanged by the Company, in the case of
(A) above, or (y) the day the Exchange Offer Registration Statement ceases to
be effective or usable for its intended purpose in the case of (B) above, or
(z) the day such Shelf Registration Statement ceases to be effective in the
case of (C) above, such Additional Interest rate increasing by an additional
0.50% per annum at the beginning of each subsequent 30-day period; provided,
however, that the Additional Interest rate on the Securities may not exceed in
the aggregate 2.0% per annum; and provided further, that (1) upon the filing of
the Exchange Offer Registration Statement or Shelf Registration Statement (in
the case of clause (i) above), (2) upon the effectiveness of the Exchange Offer
Registration Statement or Shelf Registration Statement (in the case of (ii)
above), or (3) upon the exchange of Exchange Securities for all Securities
tendered (in the case of clause (iii)(A) above), or upon the effectiveness of
the Exchange Offer Registration Statement which had ceased to remain effective
(in the case of clause (iii)(B) above), or upon the effectiveness of the Shelf
Registration Statement which had ceased to remain effective (in the case of
clause (iii)(C) above), Additional Interest on the Securities as a result of
such clause (or the relevant subclause thereof), as the case may be, shall
cease to accrue.
"Exchange Offer" shall mean the exchange offer by the Company
of Initial Securities for Exchange Securities pursuant to Section 2(a) of the
Registration Rights Agreement.
"Exchange Offer Registration Statement" shall mean an
exchange offer registration statement on Form S-4 (or, if applicable, on
another appropriate form) and all amendments and supplements to such
registration statement, in each case including the Offering Memorandum or
prospectus contained therein, all exhibits thereto and all material
incorporated by reference therein.
"Record Date" shall have the meaning provided on the front of
this Security.
"Shelf Registration Statement" shall mean a "shelf"
registration statement of the Company and the Guarantors pursuant to the
provisions of the Registration Rights Agreement which covers all of the Initial
Securities on an appropriate form under Rule 415 under the Securities Act, or
any similar rule that may be adopted by the Commission, and all amendments and
supplements to such registration statement, including post-effective
amendments, in each case including the Offering Memorandum contained therein,
all exhibits thereto and all material incorporated by reference therein.
<PAGE>
EXHIBIT A
Page 7
2. Method of Payment. The Company shall pay interest on the
Securities (except defaulted interest) to the Persons who are registered
Holders of Securities at the close of business on the Record Date immediately
preceding the Interest Payment Date, even if such Securities are cancelled
after such Record Date and on or before such Interest Payment Date.
Securityholders must surrender Securities to a Paying Agent to collect
principal payments. The Company shall pay principal, premium, if any, and
interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts ("U.S. Legal Tender"). However,
the Company may pay principal, premium, if any, and interest by its check
payable in such U.S. Legal Tender. The Company may deliver any such interest
payment to the Paying Agent or to a Securityholder at the Securityholder's
registered address.
3. Paying Agent and Registrar. Initially, the Trustee will
act as Paying Agent and Registrar. The Company may change any Paying Agent,
Registrar or co-registrar without prior notice to any Securityholder. The
Company or any Guarantor of the Company may act in any such capacity.
4. Indenture. The Company issued the Securities under an
Indenture, dated as of June 25, 1997 (the "Indenture"), among the Company, the
Guarantors and the Trustee. The terms of the Securities include those stated in
the Indenture and those made part of the Indenture by reference to the TIA as
in effect on the date the Indenture is qualified. The Securities are subject to
all such terms, and Securityholders are referred to the Indenture and the TIA
for a statement of such terms. The terms of the Indenture shall govern any
inconsistencies between the Indenture and the Securities. The Securities are
senior Obligations of the Company limited to $155,000,000 in aggregate
principal amount.
5.(a) Optional Redemption. Except as indicated in the next
succeeding paragraph, the Securities are not redeemable at the Company's option
prior to June 15, 2001. Thereafter, the Securities will be redeemable, at the
option of the Company, in whole or in part, at the redemption prices (expressed
as percentages of the principal amount of the Securities) set forth below, plus
accrued interest to the redemption date:
Annual Period Beginning Redemption Price
----------------------- ----------------
June 15, 2001.......................................... 105.500%
June 15, 2002.......................................... 102.750%
June 15, 2003 and thereafter........................... 100.000%
(b) Optional Redemption Upon Equity Offerings. At any time,
or from time to time, on or prior to June 15, 2000, the Company may, at its
option, use the Net Cash Proceeds of one or more Equity Offerings by the
Company so long as there is a Public Market at the time of such redemption, at
a redemption price equal to 35% of the principal
<PAGE>
EXHIBIT A
Page 8
amount thereof, plus accrued and unpaid interest thereon, if any, to the date
of redemption; provided, however, that after any such redemption, the aggregate
principal amount of the Securities outstanding must equal at least $100
million. In order to effect the foregoing redemption with the proceeds of any
Equity Offering, the Company shall make such redemption not more than 60 days
after the consummation of any such Equity Offering.
6. Mandatory Redemption. The Securities are not subject to
mandatory redemption or sinking fund payments.
7. Repurchase at Option of Securityholder. (a) If there is a
Change of Control, each Holder of Securities will have the right to require the
Company to repurchase all or any part of such Holder's Securities at a
repurchase price equal to 101% of the principal amount thereof, plus accrued
and unpaid interest, if any, to the date of repurchase (subject to the right of
Holders of record on the relevant record date to receive interest due on the
relevant Interest Payment Date). Within 30 days following any Change of
Control, the Company will mail a notice to each Securityholder stating (i) that
a Change of Control has occurred and that such Securityholder has the right to
require the Company to repurchase all or any part of such Securityholder's
Securities at a repurchase price in cash equal to 101% of the principal amount
thereof plus accrued and unpaid interest, if any, to the date of repurchase
(subject to the right of Holders of record on the relevant Record Date to
receive interest due on the relevant Interest Payment Date); (ii) the
circumstances and relevant facts regarding such Change of Control (including
information with respect to pro forma historical income, cash flow and
capitalization after giving effect to such Change of Control); (iii) the
repurchase date (which will be no earlier then 30 days nor later than 60 days
from the date such notice is mailed); and (iv) the procedures, determined by
the Company consistent with the Indenture, that a Securityholder must follow in
order to have its Securities repurchased. Securityholders that are subject to
an offer to repurchase may elect to have such Securities repurchased by
completing the form entitled "Option of Securityholder to Elect Purchase"
appearing below.
(b) If the Company or a Subsidiary consummates any Asset
Disposition, and when the aggregate amount of Excess Proceeds from such an
Asset Disposition exceeds $5 million, the Company shall be required to offer to
purchase the maximum principal amount of Securities, that is in an integral
multiple of $1,000, that may be purchased out of the Excess Proceeds at 100% of
the principal amount thereof, plus accrued and unpaid interest, if any, to the
date fixed for the closing of such offer in accordance with the procedures set
forth in the Indenture. If the aggregate principal amount of Securities
surrendered by Holders thereof exceeds the amount of Excess Proceeds, the
Securities to be redeemed shall be selected on a pro rata basis.
Securityholders that are the subject of an offer to purchase will receive an
Asset Disposition Offer from the Company prior to any related purchase date and
may elect to have such Securities purchased by completing the form entitled
"Option of Securityholder to Elect Purchase" appearing below.
<PAGE>
EXHIBIT A
Page 9
8. Notice of Redemption. Notice of redemption shall be mailed
at least 45 (unless a shorter period is acceptable to the Trustee) before the
redemption date to each Holder whose Securities are to be redeemed at its
registered address. Securities may be redeemed in part but only in whole
multiples of $1,000, unless all of the Securities held by a Securityholder are
to be redeemed. On and after the redemption date, interest ceases to accrue on
Securities or portions of them called for redemption.
9. Registration Rights. Pursuant to the Registration Rights
Agreement, and subject to certain terms and conditions stated therein, the
Company will be obligated to consummate an Exchange Offer pursuant to which the
Holders of the Initial Securities shall have the right to exchange this
Security for Exchange Securities, which have been registered under the
Securities Act, in like principal amount and having terms identical in all
material respect to the Initial Security.
10. Denominations, Transfer, Exchange. The Securities are in
registered form without coupons in denominations of $1,000 and integral
multiples of $1,000. The transfer of Securities may be registered and
Securities may be exchanged as provided in the Indenture. The Registrar and the
Trustee may require a Securityholder among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar need not exchange or register
the transfer of any Security or portion of a Security selected for redemption.
Also, it need not exchange or register the transfer of any Securities during a
period beginning at the opening of business on a Business Day 15 days before
the day of any selection of Securities to be redeemed and ending at the close
of business on the day of selection or during the period between a Record Date
and the corresponding Interest Payment Date.
11. Persons Deemed Owners. Prior to due presentment to the
Trustee for registration of the transfer of this Security, the Trustee, any
Agent and the Company may deem and treat the Person in whose name this Security
is registered as its absolute owner for the purpose of receiving payment of
principal of, premium, if any, and interest on this Security and for all other
purposes whatsoever, whether or not this Security is overdue, and neither the
Trustee, any Agent nor the Company shall be affected by notice to the contrary.
The registered Securityholder shall be treated as its owner for all purposes.
12. Amendments and Waivers. Subject to certain exceptions
provided in the Indenture, the Indenture or the Securities may be amended with
the consent of the Holders of a majority in principal amount of the then
outstanding Securities, and any existing Default or Event of Default (except a
payment default) may be waived with the consent of the Holders of a majority in
principal amount of the then outstanding Securities. Without the consent of any
Securityholder the Indenture or the Securities may be amended to, among other
things, cure any ambiguity, defect or inconsistency, to comply with the
requirements of the Commission in order to effect or maintain qualification of
the Indenture
<PAGE>
EXHIBIT A
Page 10
under the TIA or to make any change that does not adversely affect the rights
of any Securityholder.
13. Defaults and Remedies. If an Event of Default occurs and
is continuing, the Trustee or the Holders of at least 25% in principal amount
of the then outstanding Securities may declare the unpaid principal of, and any
accrued and unpaid interest on, all the Securities to be due and payable
immediately; provided, that in the case of an Event of Default arising from
certain events of bankruptcy or insolvency with respect to the Company or any
Guarantor, all outstanding Securities shall become due and payable immediately
without further action or notice. Securityholders may not enforce the Indenture
or the Securities except as provided in the Indenture. The Trustee may require
indemnity satisfactory to it before it enforces the Indenture or the
Securities. Subject to certain limitations, Holders of a majority in principal
amount of the then outstanding Securities may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Securityholders
notice of any continuing default (except a default in payment of principal or
interest) if it determines that withholding notice is in their interests. The
Company must furnish an annual compliance certificate to the Trustee.
14. Trustee Dealings with the Company. The Trustee under the
Indenture, in its individual or any other capacity may make loans to, accept
deposits from, and perform services for the Company, the Guarantors or any
Affiliate of the Company or the Guarantors, and may otherwise deal with the
Company, the Guarantors and their respective Affiliates as if it were not
Trustee.
15. Restrictive Covenants. The Indenture imposes certain
limitations on the ability of the Company and its Restricted Subsidiaries to,
among other things, incur additional Indebtedness, make payments in respect of
its Capital Stock or certain Indebtedness, enter into transactions with
Affiliates, create dividend or other payment restrictions affecting
Subsidiaries, merge or consolidate with any other Person, sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of its
assets or adopt a plan of liquidation. Such limitations are subject to a number
of important qualifications and exceptions provided for in the Indenture. The
Company must annually report to the Trustee on compliance with such
limitations.
16. Authentication. This Security shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating
agent.
17. Subsidiary Guarantee. Each Guarantor has jointly and
severally irrevocably and unconditionally guaranteed the payment of principal,
premium, if any, and interest (including interest on overdue principal and
overdue interest, if lawful) on the Securities; provided, however, each
Guarantor that makes a payment or distribution under
<PAGE>
EXHIBIT A
Page 11
a Subsidiary Guarantee shall be entitled to a contribution from each other
Guarantor in a pro rata amount based on the Adjusted Net Assets of each
Guarantor.
18. Defeasance. Subject to certain conditions provided for in
the Indenture, the Company at any time may terminate some or all of its
obligations under the Securities and the Indenture if the Company deposits with
the Trustee money or U.S. Government Obligations for the payment of principal,
premium (if any) and interest on the Securities to redemption or maturity, as
the case may be.
19. Governing Law. The Laws of the State of New York shall
govern this Security and the Indenture, without regard to principles of
conflict of laws.
20. Abbreviations. Customary abbreviations may be used in the
name of a Securityholder 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).
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 Securities and has directed the
Trustee to use CUSIP numbers in notices of redemption as a convenience to
Securityholders. No representation is made as to the accuracy of such numbers
either as printed on the Securities or as contained in any notice of redemption
and reliance may be placed only on the other identification numbers placed
thereon.
The Company will furnish to any Securityholder upon written
request and without charge a copy of the Indenture. Request may be made to:
North Atlantic Trading Acquisition Company, Inc.
c/o National Tobacco, L.P.
257 Park Avenue South, 7th Floor
New York, NY 10010-7304
Attn: Chief Financial Officer
<PAGE>
EXHIBIT A
Page 12
FORM OF NOTATION ON SECURITY
RELATING TO SUBSIDIARY GUARANTEE
SUBSIDIARY GUARANTEE
The Guarantors (as defined in the Indenture (the "Indenture")
referred to in the Security upon which this notation is endorsed and each
hereinafter referred to as a "Guarantor," which term includes any successor
Person under the Indenture) (i) have jointly and severally irrevocably and
unconditionally guaranteed as a primary obligor and not a surety (such
guarantee by each Guarantor being referred to herein as the "Subsidiary
Guarantee"), (a) the due and punctual payment of the principal, premium, if
any, and interest on the Securities, whether at Stated Maturity or interest
payment date, by acceleration, call for redemption or otherwise, (b) the due
and punctual payment of interest on the overdue principal of and interest, if
any, on the Securities, to the extent lawful, (c) the due and punctual
performance of all other monetary Obligations of the Company under the
Indenture and the Securities to the Securityholders or the Trustee, all in
accordance with the terms set forth in Article 10 of the Indenture and (d) in
case of any extension of time of payment or renewal of any Securities or any
such Obligations, the same will 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 and (ii) have agreed to pay any and all
costs and expenses (including reasonable attorneys' fees) incurred by the
Trustee or any Securityholder in enforcing any rights under this Subsidiary
Guarantee.
The Obligations of each Guarantor to the Securityholders of
Securities and to the Trustee pursuant to this Subsidiary Guarantee and the
Indenture are expressly set forth in Article 10 of the Indenture and reference
is hereby made to such Indenture for the precise terms of this Subsidiary
Guarantee.
No stockholder, officer, director or incorporator, as such,
past, present or future of any Guarantor shall have any liability under this
Subsidiary Guarantee by reason of his or its status as such stockholder,
officer, director or incorporator.
This is a continuing Subsidiary Guarantee and, except as
otherwise expressly provided for in Section 10.06 of the Indenture, shall
remain in full force and effect and shall be binding upon the Guarantor and its
successors and assigns until full and final payment of all of the Company's
Obligations under the Securities and the Indenture and shall inure to the
benefit of the successors and assigns of the Trustee and the Securityholders
and, in the event of any transfer or assignment of rights by any Securityholder
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. This is a Subsidiary Guarantee of
payment and not of collectability.
This Subsidiary Guarantee shall not be valid or obligatory
for any purpose until the certificate of authentication on the Security upon
which this Subsidiary Guarantee
<PAGE>
EXHIBIT A
Page 13
is noted shall have been executed by the Trustee under the Indenture by the
manual signature of one of its authorized officers.
THE TERMS OF ARTICLE 10 OF THE INDENTURE ARE
INCORPORATED HEREIN BY REFERENCE.
Capitalized terms used herein have the same meanings given in
the Indenture unless otherwise indicated.
Guarantors:
NATIONAL TOBACCO COMPANY, L.P.
By_______________________________
Name:
Title:
NORTH ATLANTIC OPERATING
COMPANY, INC.
By_______________________________
Name:
Title:
NATIONAL TOBACCO FINANCE
CORPORATION
By_______________________________
Name:
Title:
<PAGE>
EXHIBIT A
Page 14
ASSIGNMENT FORM
To assign this Security, fill in the form below: (I) or (we) assign
and transfer this Security to
- -------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint
--------------------------------------------------------
<PAGE>
EXHIBIT A
Page 15
agent to transfer this Security 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 Security)
Signature Guarantee:
__________________________
(Signatures must be guaranteed by an "eligible guarantor institution" meeting
the requirements of the Registrar, which requirements will include membership
or participation in the Securities Transfer Agents Medallion Program ("STAMP")
or such other "signature guarantee program" as may be determined by the
Registrar in addition to, or in substitution for, STAMP, all in accordance with
the Securities Exchange Act of 1934, as amended.)
<PAGE>
EXHIBIT A
Page 16
In connection with any transfer of this Security occurring
prior to the date which is the earlier of (i) the date of the declaration by
the Commission of the effectiveness of a registration statement under the
Securities Act of 1933, as amended (the "Securities Act") covering resales of
this Security (which effectiveness shall not have been suspended or terminated
at the date of the transfer) and (ii) June 25, 1999, the undersigned confirms
that it has not utilized any general solicitation or general advertising in
connection with the transfer and that this Security is being transferred:
Check One
(1) ___ to the Company or a subsidiary thereof; or
(2) ___ pursuant to and in compliance with Rule 144A under
the Securities Act; or
(3) ___ to an institutional "accredited investor" (as
defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act) that has furnished to the Trustee a
signed letter containing certain representations and
agreements (the form of which letter can be obtained
from the Trustee); or
(4) ___ outside the United States to a "foreign person" in
compliance with Rule 904 of Regulation S under the
Securities Act; or
(5) ___ pursuant to the exemption from registration provided
by Rule 144 under the Securities Act; or
(6) ___ pursuant to an effective registration statement
under the Securities Act; or
(7) ___ pursuant to another available exemption from the
registration requirements of the Securities Act.
Unless one of the boxes is checked, the Trustee will refuse to register any of
the Securities evidenced by this certificate in the name of any Person other
than the registered Securityholder thereof; provided that if box (3), (4), (5)
or (7) is checked, the Company or the Trustee may require, prior to registering
any such transfer of the Securities, in its sole discretion, such legal
opinions, certifications (including an investment letter in the case of box (3)
or (4)) and other information as the Trustee or the Company has reasonably
requested 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. If none of the foregoing boxes is checked, the Trustee or
Registrar shall not be obligated to register this Security in the name of any
person other than the Securityholder hereof unless and until the conditions to
any such transfer of registration set forth herein and in Section 2.17 of the
Indenture shall have been satisfied.
<PAGE>
EXHIBIT A
Page 17
Dated:__________________________ Signed:_____________________________________
(Sign exactly as name appears on
the other side of this Security)
Signature Guarantee:________________________________________________
__________________________
(Signatures must be guaranteed by an "eligible guarantor institution" meeting
the requirements of the Registrar, which requirements will include membership
or participation in the Securities Transfer Agents Medallion Program ("STAMP")
or such other "signature guarantee program" as may be determined by the
Registrar in addition to, or in substitution for, STAMP, all in accordance with
the Securities Exchange Act of 1934, as amended.)
TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing
this Security for its own account or an account with respect to which it
exercises sole investment discretion and that it and any such account is a
"qualified institutional buyer" within the meaning of Rule 144A under the
Securities Act and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding the
Company as the undersigned has requested pursuant to Rule 144A or has
determined not to request such information and that it is aware that the
transferor is relying upon the undersigned's foregoing representations in order
to claim the exemption from registration provided by Rule 144A.
Dated:_______________________ ____________________________________________
NOTICE: To be executed by an
executive officer
<PAGE>
EXHIBIT A
Page 18
OPTION OF SECURITYHOLDER TO ELECT PURCHASE
If you want to elect to have all or any part of this Security
purchased by the Company pursuant to Section 4.10 or Section 4.14 of the
Indenture check the appropriate box:
|_| Section 4.10 |_| Section 4.14
If you want to have only part of the Security purchased by
the Company pursuant to Section 4.10 or Section 4.14 of the Indenture, state
the amount you elect to have purchased:
$______________________
Date:_________________
Your Signature:_________________________________________________
(Sign exactly as your name appears on the face of this Security)
Signature Guarantee:
____________________________________
(Signatures must be guaranteed by an "eligible guarantor institution" meeting
the requirements of the Registrar, which requirements will include membership
or participation in the Securities Transfer Agents Medallion Program ("STAMP")
or such other "signature guarantee program" as may be determined by the
Registrar in addition to, or in substitution for, STAMP, all in accordance with
the Securities Exchange Act of 1934, as amended.)
<PAGE>
EXHIBIT B
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN
DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A
WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY, OR BY ANY SUCH
NOMINEE OF THE DEPOSITARY, OR BY THE DEPOSITARY OR NOMINEE OF SUCH
SUCCESSOR DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR
A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS
PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT
FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS
IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT
HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED
BY AN AUTHORIZED REPRESENTATIVE OF 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.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR
THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS
GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH
THE RESTRICTIONS SET FORTH IN THE INDENTURE.
<PAGE>
EXHIBIT B
Page 2
CUSIP No:
(Front of Security)
No. 1 $___________
NORTH ATLANTIC TRADING ACQUISITION COMPANY, INC.
11% Senior Note dues 2004, Series B
NORTH ATLANTIC TRADING ACQUISITION COMPANY, INC., a Delaware corporation,
promises to pay to Cede & Co., as nominee of the Depository Trust Company, or
its registered assigns, the principal sum of $155,000,000 on June 15, 2004.
Interest Payment Dates: June 15 and December 15, commencing December 15, 1997.
Record Dates: June 1 and December 1 (whether or not a Business Day).
Additional provisions of this Security are set forth on the other side of this
Security.
Dated:
NORTH ATLANTIC TRADING ACQUISITION
COMPANY, INC.
By: ________________________
Name:
Title:
By: ________________________
Name:
Title:
TRUSTEE'S CERTIFICATE
OF AUTHENTICATION
This is one of the Securities referred
to in the within-mentioned Indenture
United States Trust Company of New York, as Trustee
By:_____________________________
Authorized Officer
<PAGE>
EXHIBIT B
Page 3
(Reverse of Security)
11% SENIOR NOTES DUE 2004, SERIES B
Capitalized terms used herein have the meanings assigned to
them in the Indenture (as defined below) unless otherwise indicated.
1. Interest. North Atlantic Trading Acquisition Company,
Inc., a Delaware corporation (the "Company"), promises to pay interest on the
principal amount of this Security at the rate and in the manner specified
below. The Company shall pay, in cash, interest on the principal amount of this
Security at the rate per annum of 11%. The Company will pay interest
semiannually in arrears on June 15 and December 15 of each year (each an
"Interest Payment Date"), commencing December 15, 1997, or if any such day is
not a Business Day on the next succeeding Business Day. Interest will be
computed on the basis of a 360-day year consisting of twelve 30-day months.
Interest shall accrue from the most recent Interest Payment Date to which
interest has been paid or, if no interest has been paid, from the date of the
original issuance of the Securities. To the extent lawful, the Company shall
pay interest on overdue principal at the rate of 2% per annum in excess of the
then applicable interest rate on the Securities; it shall pay interest on
overdue installments of interest (without regard to any applicable grace
periods) at the same rate to the extent lawful.
2. Method of Payment. The Company shall pay interest on the
Securities (except defaulted interest) to the Persons who are registered
Securityholders at the close of business on the Record Date immediately
preceding the Interest Payment Date, even if such Securities are cancelled
after such Record Date and on or before such Interest Payment Date.
Securityholders must surrender Securities to a Paying Agent to collect
principal payments. The Company shall pay principal premium, if any, and
interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts ("U.S. Legal Tender"). However,
the Company may pay principal and interest by its check payable in such U.S.
Legal Tender. The Company may deliver any such interest payment to the Paying
Agent or to a Securityholder at the Securityholder's registered address.
3. Paying Agent and Registrar. Initially, the Trustee will
act as Paying Agent and Registrar. The Company may change any Paying Agent,
Registrar or co-registrar without prior notice to any Securityholder. The
Company, or any Guarantor of the Company may act in any such capacity.
<PAGE>
EXHIBIT B
Page 4
4. Indenture. The Company issued the Securities under an
Indenture, dated as of October 23, 1996 (the "Indenture"), among the Company,
the Guarantors and the Trustee. The terms of the Securities include those
stated in the Indenture and those made part of the Indenture by reference to
the TIA as in effect on the date the Indenture is qualified. The Securities are
subject to all such terms, and Securityholders are referred to the Indenture
and the TIA for a statement of such terms. The terms of the Indenture shall
govern any inconsistencies between the Indenture and the Securities. The
Securities are senior Obligations of the Company limited to $155,000,000 in
aggregate principal amount.
5. (a) Optional Redemption. Except as indicated in the next
succeeding paragraph, the Securities are not redeemable at the Company's option
prior to June 15, 2001. Thereafter, the Securities will be redeemable, at the
option of the Company, in whole or in part, at the redemption prices (expressed
as percentages of the principal amount of the Securities) set forth below, plus
accrued interest to the redemption date:
Annual Period Beginning Redemption Price
----------------------- ----------------
June 15, 2001.......................................... 105.500%
June 15, 2002.......................................... 102.750%
June 15, 2003 and thereafter........................... 100.000%
(b) Optional Redemption Upon Equity Offerings. At any time,
or from time to time, on or prior to June 15, 2000, the Company may, at its
option, use the Net Cash Proceeds of one or more Equity Offerings by the
Company so long as there is a Public Market at the time of such redemption, at
a redemption price equal to 35% of the principal amount thereof, plus accrued
and unpaid interest thereon, if any, to the date of redemption; provided,
however, that after any such redemption, the aggregate principal amount of the
Securities outstanding must equal at least $100 million. In order to effect the
foregoing redemption with the proceeds of any Equity Offering, the Company
shall make such redemption not more than 60 days after the consummation of any
such Equity Offering.
6. Mandatory Redemption. The Securities are not subject to
mandatory redemption or sinking fund payments.
7. Repurchase at Option of Securityholder. (a) If there is a
Change of Control, each Holder of Securities will have the right to require the
Company to repurchase all or any part of such Holder's Securities at a
repurchase price equal to 101% of the principal amount thereof, plus accrued
and unpaid interest, if any, to the date of repurchase (subject to the right of
Holders of record on the relevant Record Date to receive interest due on the
relevant Interest Payment Date). Within 30 days following any Change of
<PAGE>
EXHIBIT B
Page 5
Control, the Company will mail a notice to each Securityholder stating (i) that
a Change of Control has occurred and that such Securityholder has the right to
require the Company to repurchase all or any part of such Securityholder's
Securities at a repurchase price in cash equal to 101% of the principal amount
thereof plus accrued and unpaid interest, if any, to the date of repurchase
(subject to the right of Holders of record on the relevant Record Date to
receive interest due on the relevant Interest Payment Date); (ii) the
circumstances and relevant facts regarding such Change of Control (including
information with respect to pro forma historical income, cash flow and
capitalization after giving effect to such Change of Control; (iii) the
repurchase date (which will be no earlier then 30 days nor later than 60 days
from the date such notice is mailed); and (iv) the procedures, determined by
the Company consistent with the Indenture, that a Securityholder must follow in
order to have its Securities repurchased. Securityholders that are subject to
an offer to repurchase may elect to have such Securities repurchased by
completing the form entitled "Option of Securityholder to Elect Purchase"
appearing below.
(b) If the Company or a Subsidiary consummates any Asset
Disposition, and when the aggregate amount of Excess Proceeds from such an
Asset Disposition exceeds $5 million, the Company shall be required to offer to
purchase the maximum principal amount of Securities, that is in an integral
multiple of $1,000, that may be purchased out of the Excess Proceeds, at an
offer price in cash in an amount equal to 100% of the outstanding principal
amount thereof, plus accrued and unpaid interest, if any, to the date fixed for
the closing of such offer in accordance with the procedures set forth in the
Indenture. If the aggregate principal amount of Securities surrendered by
Holders thereof exceeds the amount of Excess Proceeds, the Securities to be
redeemed shall be selected on a pro rata basis. Securityholders that are the
subject of an offer to purchase will receive an Asset Disposition Offer from
the Company prior to any related purchase date and may elect to have such
Securities purchased by completing the form entitled "Option of Securityholder
to Elect Purchase" appearing below.
8. Notice of Redemption. Notice of redemption shall be mailed
at least 45 days (unless a shorter period is acceptable to the Trustee) before
the redemption date to each Holder whose Securities are to be redeemed at its
registered address. Securities may be redeemed in part but only in whole
multiples of $1,000, unless all of the Securities held by a Securityholder are
to be redeemed. On and after the redemption date, interest ceases to accrue on
Securities or portions of them called for redemption.
9. Denominations, Transfer, Exchange. The Securities are in
registered form without coupons in denominations of $1,000 and integral
multiples of $1,000. The transfer of Securities may be registered and
Securities may be exchanged as provided in the Indenture. The Registrar and the
Trustee may require a Securityholder among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees
<PAGE>
EXHIBIT B
Page 6
required by law or permitted by the Indenture. The Registrar need not exchange
or register the transfer of any Security or portion of a Security selected for
redemption. Also, it need not exchange or register the transfer of any
Securities during a period beginning on the opening of business on a Business
Day 15 days before the day of any selection of Securities to be redeemed and
ending on the close of business on the day of selection or during the period
between a Record Date and the corresponding Interest Payment Date.
10. Persons Deemed Owners. Prior to due presentment to the
Trustee for registration of the transfer of this Security, the Trustee, any
Agent and the Company may deem and treat the Person in whose name this Security
is registered as its absolute owner for the purpose of receiving payment of
principal of, premium, if any, and interest on this Security and for all other
purposes whatsoever, whether or not this Security is overdue, and neither the
Trustee, any Agent nor the Company shall be affected by notice to the contrary.
The registered Securityholder shall be treated as its owner for all purposes.
11. Amendments and Waivers. Subject to certain exceptions
provided in the Indenture, the Indenture or the Securities may be amended with
the consent of the Holders of a majority in principal amount of the then
outstanding Securities, and any existing default or Event of Default (except a
payment default) may be waived with the consent of the Holders of a majority in
principal amount of the then outstanding Securities. Without the consent of any
Securityholder the Indenture or the Securities may be amended to, among other
things, cure any ambiguity, defect or inconsistency, to comply with the
requirements of the Commission in order to effect or maintain qualification of
the Indenture under the TIA Securityholders or to make any change that does not
adversely affect the rights of any Securityholder.
12. Defaults and Remedies. If an Event of Default occurs and
is continuing, the Trustee or the Holders of at least 25% in principal amount
of the then outstanding Securities may declare the unpaid principal of, and any
accrued and unpaid interest on, all the Securities to be due and payable
immediately; provided, that in the case of an Event of Default arising from
certain events of bankruptcy or insolvency with respect to the Company or any
Guarantor, all outstanding Securities shall become due and payable immediately
without further action or notice. Securityholders may not enforce the Indenture
or the Securities except as provided in the Indenture. The Trustee may require
indemnity satisfactory to it before it enforces the Indenture or the
Securities. Subject to certain limitations, Holders of a majority in principal
amount of the then outstanding Securities may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Securityholders
notice of any continuing default (except a default in payment of principal or
interest) if it determines that withholding notice is in their interests. The
Company must furnish an annual compliance certificate to the Trustee.
<PAGE>
EXHIBIT B
Page 7
13. Trustee Dealings with the Company. The Trustee under the
Indenture, in its individual or any other capacity may make loans to, accept
deposits from, and perform services for the Company, the Guarantor or any
Affiliate of the Company or the Guarantor, and may otherwise deal with the
Company, the Guarantor and their respective Affiliates as if it were not
Trustee.
14. Restrictive Covenants. The Indenture imposes certain
limitations on the ability of the Company and its Restricted Subsidiaries to,
among other things, incur additional Indebtedness, make payments in respect of
its Capital Stock or certain Indebtedness, enter into transactions with
Affiliates, create dividend or other payment restrictions affecting
Subsidiaries, merge or consolidate with any other Person, sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of its
assets or adopt a plan of liquidation. Such limitations are subject to a number
of important qualifications and exceptions provided for in the Indenture. The
Company must annually report to the Trustee on compliance with such
limitations.
15. Authentication. This Security shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating
agent.
16. Subsidiary Guarantee. Each Guarantor has jointly and
severally irrevocably and unconditionally guaranteed the payment of principal,
premium, if any, and interest (including interest on overdue principal and
overdue interest, if lawful) on the Securities; provided, however, each
Guarantor that makes a payment or distribution under a Subsidiary Guarantee
shall be entitled to a contribution from each other Guarantor in a pro rata
amount based on the Adjusted Net Assets of each Guarantor.
17. Defeasance. Subject to certain conditions provided for in
the Indenture, the Company at any time may terminate some or all of its
obligations under the Securities and the Indenture if the Company deposits with
the Trustee money or U.S. Government Obligations for the payment of principal,
premium (if any) and interest on the Securities to redemption or maturity, as
the case may be.
18. Governing Law. The Laws of the State of New York shall
govern this Security and the Indenture, without regard to principles of
conflict of laws.
19. Abbreviations. Customary abbreviations may be used in the
name of a Securityholder 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).
<PAGE>
EXHIBIT B
Page 8
20. 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 Securities and has directed the
Trustee to use CUSIP numbers in notices of redemption as a convenience to
Securityholders. No representation is made as to the accuracy of such numbers
either as printed on the Securities or as contained in any notice of redemption
and reliance may be placed only on the other identification numbers placed
thereon.
The Company will furnish to any Securityholder upon written
request and without charge a copy of the Indenture. Request may be made to:
North Atlantic Trading Acquisition Company, Inc.
c/o National Tobacco, L.P.
257 Park Avenue South, 7th Floor
New York, NY 10010-7304
<PAGE>
EXHIBIT B
Page 9
FORM OF NOTATION ON SECURITY
RELATING TO SUBSIDIARY GUARANTEE
SUBSIDIARY GUARANTEE
The Guarantors (as defined in the Indenture (the "Indenture")
referred to in the Security upon which this notation is endorsed and each
hereinafter referred to as a "Guarantor," which term includes any successor
person under the Indenture) (i) have jointly and severally irrevocably and
unconditionally guaranteed as a primary obligor and not a surety, (such
guarantee by each Guarantor being referred to herein as the "Subsidiary
Guarantee") (a) the due and punctual payment of the principal, premium, if any,
and interest on the Securities, whether at Stated Maturity or interest payment
date, by acceleration, call for redemption or otherwise, (b) the due and
punctual payment of interest on the overdue principal of and interest, if any,
on the Securities, to the extent lawful, (c) the due and punctual performance
of all other monetary Obligations of the Company under the Indenture and the
Securities to the Securityholders or the Trustee, all in accordance with the
terms set forth in Article 10 of the Indenture and (d) in case of any extension
of time of payment or renewal of any Securities or any such Obligations, the
same will 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 and (ii) have agreed to pay any and all costs and expenses
(including reasonable attorneys' fees) incurred by the Trustee or any
Securityholder in enforcing any rights under this Subsidiary Guarantee.
The Obligations of each Guarantor to the Securityholders of
Securities and to the Trustee pursuant to this Subsidiary Guarantee and the
Indenture are expressly set forth in Article 10 of the Indenture and reference
is hereby made to such Indenture for the precise terms of this Subsidiary
Guarantee.
No stockholder, officer, director or incorporator, as such,
past, present or future of any Guarantor shall have any liability under this
Subsidiary Guarantee by reason of his or its status as such stockholder,
officer, director or incorporator.
This is a continuing Subsidiary Guarantee and, except as
otherwise expressly provided for in Section 10.06 of the Indenture, shall
remain in full force and effect and shall be binding upon the Guarantor and its
successors and assigns until full and final payment of all of the Company's
Obligations under the Securities and the Indenture and shall inure to the
benefit of the successors and assigns of the Trustee and the Securityholders
and, in the event of any transfer or assignment of rights by any Securityholder
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. This is a Subsidiary Guarantee of
payment and not of collectability.
This Subsidiary Guarantee shall not be valid or obligatory
for any purpose until the certificate of authentication on the Security upon
which this Subsidiary Guarantee
<PAGE>
EXHIBIT B
Page 10
is noted shall have been executed by the Trustee under the Indenture by the
manual signature of one of its authorized officers.
THE TERMS OF ARTICLE 10 OF THE INDENTURE ARE
INCORPORATED HEREIN BY REFERENCE.
Capitalized terms used herein have the same meanings given in
the Indenture unless otherwise indicated.
Guarantors:
NATIONAL TOBACCO COMPANY, L.P.
By_______________________________
Name:
Title:
NORTH ATLANTIC OPERATING
COMPANY, INC.
By_______________________________
Name:
Title:
NATIONAL TOBACCO FINANCE
CORPORATION
By_______________________________
Name:
Title:
<PAGE>
EXHIBIT B
Page 11
ASSIGNMENT FORM
To assign this Security, fill in the form below: (I) or (we) assign
and transfer this Security to
- -------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint
--------------------------------------------------------
<PAGE>
EXHIBIT B
Page 12
agent to transfer this Security 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 Security)
Signature Guarantee:
_________________________
(Signatures must be guaranteed by an "eligible guarantor institution" meeting
the requirements of the Registrar, which requirements will include membership
or participation in the Securities Transfer Agents Medallion Program ("STAMP")
or such other "signature guarantee program" as may be determined by the
Registrar in addition to, or in substitution for, STAMP, all in accordance with
the Securities Exchange Act of 1934, as amended.)
<PAGE>
EXHIBIT B
Page 13
OPTION OF SECURITYHOLDER TO ELECT PURCHASE
If you want to elect to have all or any part of this Security
purchased by the Company pursuant to Section 4.10 or Section 4.14 of the
Indenture check the appropriate box:
|_| Section 4.10 |_| Section 4.14
If you want to have only part of the Security purchased by
the Company pursuant to Section 4.10 or Section 4.14 of the Indenture, state
the amount you elect to have purchased:
$______________________
Date:_________________
Your Signature:_________________________________________________
(Sign exactly as your name appears on the face of this Security)
Signature Guarantee:
___________________________
(Signatures must be guaranteed by an "eligible guarantor institution" meeting
the requirements of the Registrar, which requirements will include membership
or participation in the Securities Transfer Agents Medallion Program ("STAMP")
or such other "signature guarantee program" as may be determined by the
Registrar in addition to, or in substitution for, STAMP, all in accordance with
the Securities Exchange Act of 1934, as amended.)
<PAGE>
Opinion of Weil, Gotshal & Manges LLP
September 3, 1997
North Atlantic Trading Company,Inc.
257 Park Avenue South
New York, New York 10010
Gentlemen:
We have acted as counsel to North Atlantic Trading Company,
Inc., a Delaware corporation (the "Company"), in connection with the
preparation and filing with the Securities and Exchange Commission of the
Company's Registration Statement on Form S-4, File No. 333-31931 (as amended,
the "Registration Statement"), under the Securities Act of 1933, as amended,
relating to $155,000,000 principal amount at maturity of the Company's 11%
Senior Notes due 2004, Series B (the "Notes") and 1,360,000 shares of the
Company's 12% Senior Exchange Payment-In-Kind Preferred Stock (the "Preferred
Stock").
In so acting, we have examined originals or copies, certified
or otherwise identified to our satisfaction, of the Registration Statement, the
Indenture dated as of June 25, 1997 (the "Indenture") between the Company, as
issuer, National Tobacco Company, L.P., North Atlantic Operating Company, Inc.
and National Tobacco Finance Corporation, as guarantors, and United States
Trust Company of New York, as trustee (the "Trustee"), pursuant to which the
Notes will be issued, the form of the Notes included as Exhibit 4.2 to the
Registration Statement, the Certificate of Designation of the Preferred Stock
(the "Certificate of Designation") and such corporate records, agreements,
documents and other instruments, and such certificates or comparable documents
of public officials and of officers and representatives of the Company, and
have made such inquiries of such officers and representatives as we have deemed
relevant and necessary as a basis for the opinion hereinafter set forth.
In such examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, the
conformity to original documents of documents submitted to us as certified or
photostatic copies and the authenticity of the originals of such latter
documents. As to all questions of fact material to this opinion that have not
been independently established, we have relied upon certificates or comparable
documents of officers and representatives of the Company.
Based on the foregoing, and subject to the qualifications
stated herein, we are of the opinion that:
<PAGE>
North Atlantic Trading Company, Inc.
August __, 1997
Page 2
1. The Notes are duly authorized, and, when duly executed on
behalf of the Company, authenticated by the Trustee and delivered in accordance
with the terms of the Indenture and as contemplated in the Registration
Statement, will constitute legal, valid and binding obligations of the Company,
enforceable against it in accordance with their terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally, and subject,
as to enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity).
2. The shares of Preferred Stock to be issued in accordance
with the Certificate of Designation and as contemplated in the Registration
Statement have been duly authorized and when issued as contemplated by the
Registration Statement will be validly issued, fully paid and nonassessable.
The opinion herein is limited to the laws of the State of New
York, the corporate laws of the State of Delaware and the federal laws of the
United States, and we express no opinion as to the effect on the matters
covered by this opinion of the laws of any other jurisdiction.
This opinion is rendered solely for your benefit in
connection with the transactions described above. This opinion may not be used
or relied upon by any other person and may not be disclosed, quoted, filed with
a governmental agency or otherwise referred to without our prior written
consent, except that we hereby consent to the use of this opinion as an exhibit
to the Registration Statement. We further consent to the reference to our name
under the caption "Legal Matters" in the prospectus which is a part of the
Registration Statement.
Very truly yours,
Weil, Gotshal & Manges LLP
<PAGE>
EXCHANGE
AND
STOCKHOLDERS' AGREEMENT
dated as of June 25, 1997
by and among
NORTH ATLANTIC TRADING COMPANY, INC.
(formerly named North Atlantic Trading Acquisition Company, Inc.)
and
THE STOCKHOLDERS NAMED HEREIN
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1
EXCHANGE AND PURCHASE OF MEMBERSHIP
INTERESTS FOR SHARES .................... 2
1.1 Exchange of Membership Interests for Shares ................. 2
1.2 Bollore Restrictions ........................................ 5
1.3 Indemnification ............................................. 7
1.4 Closing ..................................................... 8
1.5 Proceedings ................................................. 8
1.6 Delivery of Documents ....................................... 8
ARTICLE 2
MANAGEMENT ......................... 8
2.1 Board of Directors .......................................... 8
2.2 Transaction Approval ........................................ 9
ARTICLE 3
TRANSFERS OF SHARES .................... 10
3.1 General Restrictions ........................................ 10
3.2 Permitted Transfers ......................................... 10
ARTICLE 4
REPURCHASE OF SHARES .................... 11
4.1 Death of a Principal ........................................ 11
4.2 Termination, Bankruptcy or Transfer of Stockholders ......... 11
4.3 Repurchase Price, Closing and Terms of Payment .............. 12
4.4 No Right of Employment ...................................... 12
4.5 Prohibition of Repurchase ................................... 12
(i)
<PAGE>
ARTICLE 5
CERTAIN RIGHTS AND OBLIGATIONS TO TRANSFER SHARES ...... 13
5.1 Tag-Along Right ............................................... 13
5.3 Registration Rights ........................................... 14
ARTICLE 6
RESTRICTIVE ENDORSEMENTS ................... 15
6.1 Restrictive Endorsements ...................................... 15
ARTICLE 7
DEFINITIONS ......................... 16
ARTICLE 8
MISCELLANEOUS ........................ 20
8.1 Waiver of Default ............................................. 20
8.2 Amendment ..................................................... 21
8.3 No Third Party Rights ......................................... 21
8.4 Severability .................................................. 21
8.5 Binding Agreement ............................................. 21
8.6 Headings ...................................................... 21
8.7 Word Meanings ................................................. 21
8.8 Counterparts .................................................. 22
8.9 Entire Agreement .............................................. 22
8.10 Arbitration ................................................... 22
8.11 Governing Law; Consent to Jurisdiction and Venue .............. 23
SCHEDULE 1
SCHEDULE 2
ANNEX 1
(ii)
<PAGE>
EXCHANGE AND STOCKHOLDERS' AGREEMENT
THIS EXCHANGE AND STOCKHOLDERS' AGREEMENT is made and entered into as of
the 25th day of June, 1997, by and among NORTH ATLANTIC TRADING COMPANY, INC., a
Delaware corporation formerly named North Atlantic Trading Acquisition Company,
Inc. (the "Company"), and the Persons executing this Agreement on the signature
pages hereto and identified thereon as a stockholder (together with any Persons
who may hereafter become a stockholder party hereto as provided herein, the
"Stockholders" or, individually, a "Stockholder").
WHEREAS, on the date hereof, the Company is authorized to issue 13,500,000
shares of capital stock consisting of (i) 12,000,000 shares of Senior PIK
Preferred Stock, par value $.01 per share (the "Preferred Stock"), (ii) 750,000
shares of Voting Common Stock, par value $.01 per share (the "Voting Common
Stock"), and (iii) 750,000 shares of Non-Voting Common Stock, par value $.01 per
share (the "Non-Voting Common Stock" and, together with the Voting Common Stock,
the "Common Stock"); and
WHEREAS, certain of the Stockholders hold membership interests in NTC
Holding, LLC, a Delaware limited liability company ("LLC"), as set forth
opposite their respective names on Schedule 1 attached hereto and, on the date
hereof, wish to exchange (the "Exchange") such membership interests for the
respective numbers of shares of Voting Common Stock set forth or indicated
opposite their respective names on Part A. of Schedule 2 attached hereto; and
WHEREAS, certain of the Stockholders are purchasing shares of Common Stock
from the Company for cash on the date hereof (the "Purchase"), which
Stockholders and number of shares purchased are listed on Part B. of Schedule 2
attached hereto; and
WHEREAS, certain of the Stockholders hold options to purchase shares of
Common Stock, which Stockholders and number of shares subject to such options
are listed on Part C. of Schedule 2 attached hereto; and
WHEREAS, following the Exchange and the Purchase, to provide continuity of
management and ownership of the Company, the Stockholders desire to restrict the
transfer and provide for the purchase or sale of the shares of Common Stock or
<PAGE>
shares of Common Stock subject to options owned by them (collectively, the
"Shares") under certain conditions and to provide for certain other rights and
obligations with respect to the Shares, all in accordance with the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants and agreements hereinafter contained, the parties hereto, intending to
be legally bound, hereby agree as follows:
ARTICLE 1
EXCHANGE AND PURCHASE OF MEMBERSHIP
INTERESTS FOR SHARES
1.1 Exchange of Membership Interests for Shares.
(a) On the date hereof, (i) each of the Stockholders listed on Schedule 1
attached hereto (an "Exchanging Stockholder") hereby transfers and assigns to
the Company all of such Exchanging Stockholder's right, title and interest in
and to such Exchanging Stockholder's membership interests in the LLC as set
forth opposite such Exchanging Stockholder's name on Schedule 1 attached hereto
and (ii) the Company hereby agrees to issue and deliver to each Exchanging
Stockholder and/or such other Persons as are indicated on Schedule 1 hereto the
number of Shares set forth or indicated opposite such Exchanging Stockholder's
name on Part A. of Schedule 2 hereto in exchange for the transfer and assignment
of such Exchanging Stockholder's membership interests.
(b) On the date hereof, each of the Stockholders listed on Part B. of
Schedule 2 attached hereto identified as purchasing Shares from the Company (a
"Purchasing Stockholder") hereby purchases the number of Shares set forth
opposite such Purchasing Stockholder's name on Part B. of Schedule 2 identified
as being purchased from the Company, and shall pay to the Company the purchase
price therefor as set forth on Part B. of Schedule 2 by wire transfer of
immediately available funds to such account as shall be designated in writing by
the Company to such Purchasing Stockholder, and (ii) the Company hereby agrees
to issue and deliver to each Purchasing Stockholder the number of Shares set
forth opposite such Purchasing Stockholder's name on Part B. of Schedule 2
against delivery of the purchase price therefor.
2
<PAGE>
(c) Each of the Exchanging Stockholders and each of the Purchasing
Stockholders represents and warrants to the Company as follows:
(i) Such Stockholder has obtained, to the extent it deems necessary,
professional advice with respect to the risks inherent in the Exchange or
Purchase of the securities described in Section 1.1(a) or 1.1(b), as
applicable, and the suitability of the securities to be received by such
Stockholder pursuant to the Exchange or Purchase in light of such
Stockholder's financial condition and investment needs;
(ii) Such Stockholder, either alone or with the assistance of its own
professional advisor, has such knowledge and experience in financial and
business matters that such Stockholder is capable of evaluating the merits
and risks inherent in securities to be received by such Stockholder
pursuant to the Exchange or Purchase, as applicable, and such Stockholder
has the net worth to undertake such risk;
(iii) Such Stockholder is aware of the Company's business affairs and
financial condition, has reviewed the Offering Memorandum of the Company
dated June 18, 1997 with respect to the Company's sale of 11% Senior Notes
due 2004 or the Offering Memorandum of the Company dated June 18, 1997 with
respect to the Company's sale of Units consisting of Preferred Stock and
warrants to purchase Common Stock (either such Offering Memorandum being
referred to as the "Offering Memorandum"), and has acquired sufficient
additional information about the Company to reach an informed and
knowledgeable decision regarding the merits and risks of investing in the
securities to be received by such Stockholder pursuant to the Exchange or
Purchase, as applicable. Such Stockholder has had ample opportunity to ask
questions of the Company and its representatives and to seek independent
investment, tax, and legal advice prior to investing in the securities to
be received by such Stockholder pursuant to the Exchange or Purchase, as
applicable;
(iv) Such Stockholder believes that the securities to be received by
such Stockholder pursuant to the Exchange or Purchase, as applicable, are
suitable for such Stockholder based upon such Stockholder's investment
objectives and financial needs, and such Stockholder has adequate means for
providing its current financial needs and personal contingencies and has no
3
<PAGE>
need for liquidity of investment with respect to the securities to be
received by such Stockholder pursuant to the Exchange or the Purchase;
(v) Such Stockholder is in a financial position to hold the securities
to be received by such Stockholder pursuant to the Exchange or Purchase, as
applicable, for an indefinite period of time and such Stockholder is able
to bear the economic risk and withstand a complete loss of such
Stockholder's investment in the securities to be received by it pursuant to
the Exchange or the Purchase;
(vi) Such Stockholder is not acquiring any securities to be received
by such Stockholder pursuant to the Exchange or Purchase, as applicable,
with a view to any distribution thereof in a transaction that would violate
the Securities Act or the securities laws of any State of the United States
or any other applicable jurisdiction; and
(vii) Such Stockholder understands that the securities to be received
by such Stockholder pursuant to the Exchange or Purchase, as applicable,
will be issued by the Company without registration under the Securities Act
and without qualification and/or registration under applicable state
securities laws ("Blue Sky Laws") pursuant to exemptions from registration
and/or qualification contained in the Securities Act and in the Blue Sky
Laws. Such Stockholder understands that the securities must be held
indefinitely unless (A) subsequently registered and/or qualified under the
Securities Act and under the Blue Sky Laws unless exemptions from the
registration and/or qualification requirements under the Securities Act and
under the Blue Sky Laws are available in connection with any proposed
Transfer of the securities by such Stockholder and (B) the proposed
Transfer is permitted under the terms of this Agreement.
(d) Each Stockholder agrees that none of the securities of the Company to
be received by such Stockholder pursuant to the Exchange, the Purchase or the
exercise of options, as the case may be, nor any interest in any such
securities, will be resold or otherwise transferred by such Stockholder without
registration and/or qualification under the Securities Act and the Blue Sky Laws
unless such Stockholder first demonstrates to the satisfaction of the Company
that specific exemptions from such registration and/or qualification
requirements are available with respect to the proposed Transfer and, if
requested by the Company, such Stockholder provides the
4
<PAGE>
Company with an opinion of counsel satisfactory to the Company that the proposed
Transfer may be made without violation of the Securities Act or the Blue Sky
Laws.
(e) Each Exchanging Stockholder represents and warrants that the membership
interests being transferred by such Stockholder pursuant to the Exchange are
being transferred free and clear of any lien, pledge or encumbrance whatsoever.
1.2 Bollore Restrictions. In view of the obligations of the Company under
its distribution agreements Bollore Technologies, S.A., each of the Stockholders
agrees to the following provisions:
(a) Each of the Stockholders represents and warrants as follows:
(i) Neither such Stockholder, nor any of such Stockholder's
Affiliates, directly or indirectly, manufactures, sells, markets,
distributes or otherwise promotes cigarette paper booklets in the United
States (including the District of Columbia and its territories, possessions
and foreign military bases), Canada, Hong Kong, Singapore, Dubai, Qatar,
Oman or Jordan.
(ii) Neither such Stockholder, nor any of such Stockholder's
Affiliates, (x) directly or indirectly, owns any Equity Interest in any
Entity that, directly or indirectly manufactures, sells, markets
distributes or otherwise promotes cigarette paper or paper booklets in the
United States (including the District of Columbia and its territories,
possessions and foreign military bases), Canada, Hong Kong, Singapore,
Dubai, Qatar, Oman or Jordan); or (y) owns, directly or indirectly, 20% or
more of an Equity Interest in any other Entity which, directly or
indirectly, manufactures, sells, markets, distributes or otherwise promotes
the sale of cigarette booklets in the United States (including the District
of Columbia and its territories, possessions and foreign military bases),
Canada, Hong Kong, Singapore, Dubai, Qatar, Oman or Jordan; except for the
ownership of less than 10% of any Equity Interest of a company whose
securities are publicly traded on a national securities exchange or a
recognized over-the-counter or similar public market and less than 10% of
whose assets and revenues are derived from manufacturing, selling,
distributing, marketing or otherwise promoting cigarette paper booklets in
the United States (including the District of Columbia and its territories,
possessions and foreign military bases), Canada, Hong Kong, Singapore,
Dubai, Qatar, Oman or Jordan.
5
<PAGE>
(iii) Neither such Stockholder, nor any of such Stockholder's
Affiliates has the right to appoint a majority of the members of the Board
of Directors of any Entity that, directly or indirectly, manufactures,
sells, markets, distributes or otherwise promotes cigarette paper or paper
booklets in the United States (including the District of Columbia and its
territories, possessions and foreign military bases), Canada, Hong Kong,
Singapore, Dubai, Qatar, Oman or Jordan or the Parent of such Entity
(b) Each Stockholder covenants that such Stockholder shall not and shall
cause such Stockholder's Affiliates not to do the following:
(i) directly or indirectly take any actions that would make or cause
its representations and warranties set forth in Section 1.1(c) to become
untrue; and
(ii) transfer any Shares or any other Equity Interest in the Company
to any Entity which at the time of such transfer, (x) directly or
indirectly, manufactures, sells, markets, distributes or otherwise promotes
cigarette paper or cigarette paper booklets in the United States (including
the District of Columbia and its territories, possessions and foreign
military bases), Canada, Hong Kong, Singapore, Dubai, Qatar, Oman or
Jordan, other than a transfer of such Equity Interest pursuant to the
Securities Act of 1933, as amended, or Rule 144 promulgated thereunder
(provided that such offering is not being effected for the purpose of
transferring such Equity Interest to an Entity that, directly or
indirectly, manufactures, sells, markets or otherwise promotes cigarette
paper or paper booklets in the United States (including the District of
Columbia and its territories, possessions and foreign military bases),
Canada, Hong Kong, Singapore, Dubai, Qatar, Oman or Jordan); or (y) owns,
directly or indirectly, 20% or more of an Equity Interest in any other
Entity which, directly or indirectly, manufactures, sells, markets,
distributes or otherwise promotes the sale of cigarette paper or cigarette
paper booklets in the United States (including the District of Columbia and
its territories, possessions and foreign military bases), Canada, Hong
Kong, Singapore, Dubai, Qatar, Oman or Jordan or (z) or which serves as a
director or officer or has the right to appoint an officer or director of
the Board of Directors of any Entity that, directly or indirectly,
manufactures, sells, markets distributes or otherwise promotes cigarette
paper or cigarette paper booklets in the United States (including the
District of Columbia and its territories, possessions and foreign
6
<PAGE>
military bases), Canada, Hong Kong, Singapore, Dubai, Qatar, Oman or Jordan
or the Parent of such Entity.
(c) Each Stockholder covenants that such Stockholder shall certify in
writing within five (5) days after a request from the Company, that such
Stockholder is not in breach of any of its representations and warrants set
forth in Section 1.2(a).
(d) For Purposes of this Section 1.2, the following terms shall have the
respective meanings set forth below.
"Affiliate" shall mean an Entity that is (i) a director, (ii) a beneficial
holder or record holder, either directly or indirectly through one or more
Subsidiaries, of at least 20% of any class of Equity Interest of the Entity or
(iii) any spouse of the foregoing. For purposes of this definition "beneficial"
holder shall have the meaning set forth in Rule 13d-3 of the Securities and
Exchange Act of 1934.
"Entity" shall mean any person, corporation, partnership or other entity.
"Equity Interest" shall mean the ownership of any class of equity security
of an Entity (whether common or preferred and whether voting or non-voting), any
security that is convertible into any class of equity security of an Entity
(including, but not limited to, any warrant, option, convertible note or
contract right to acquire any equity security) or any partnership or other
equity ownership interest in an Equity.
"Parent" shall mean any Entity which owns directly or indirectly 50% or
more of the Equity Interests of any class of an Entity or of another Parent of
such Entity and/or has the ability to elect a majority of the directors of the
Entity or another Parent of such Entity.
1.3 Indemnification. Each Stockholder hereby agrees to indemnify the
Company and its officers, directors and agents, and hold them harmless from and
against any and all damages suffered and liabilities incurred by them (including
reasonable costs of investigation, defense, and attorneys' fees) arising out of
any breach by such Stockholder of any of the covenants or agreements or any
inaccuracy in the representations or warranties made by such Stockholder in this
Agreement.
7
<PAGE>
1.4 Closing. The closing of the Exchange and Purchase contemplated by
Section 1.1 (herein referred to as the "Closing") shall take place at the
offices of Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York, New York
10153, on the date hereof.
1.5 Proceedings. All proceedings taken and all documents executed and
delivered by the parties at the Closing shall be deemed taken and executed
simultaneously, and no proceeding shall be deemed taken nor any documents
executed or delivered until all have been taken, executed and delivered.
1.6 Delivery of Documents. At the Closing, the Company shall deliver, or
cause to be delivered, all stock certificates representing Shares to be
delivered by the Company in order to satisfy the provisions of Section 1.1. Each
Exchanging Stockholder agrees to execute and deliver to the Company such
additional instruments of transfer to evidence the Transfer of such
Stockholder's membership interests in the LLC to the Company pursuant to Section
1.1 as the Company may reasonably request.
ARTICLE 2
MANAGEMENT
2.1 Board of Directors.
(a) Subject to the rights of holders of the Preferred Stock or as may
otherwise be agreed upon in writing by the holders of a majority of the Shares,
the Stockholders hereby agree that, at all times after the date hereof, the
Board of Directors shall consist of seven (7) directors. Promptly after the date
hereof, the Stockholders shall take all actions, as necessary, to elect, or to
cause the Board of Directors to approve and appoint, the following persons as
the members of the Board of Directors:
Thomas F. Helms, Jr. Jack Africk
David I. Brunson Maurice Langston
Alan Minsterketter Mark F. Secrest
Arnold Sheiffer
8
<PAGE>
Thereafter, the members of the Board of Directors will be chosen in accordance
with the Company's Certificate of Incorporation and By-Laws, subject to Section
2.1(b) below in the case of Management Stockholders.
(b) In order to ensure unity among the Management Stockholders and provide
for continuity in management of the Company, each Management Stockholder agrees
to vote all of its Shares of Voting Common Stock with respect to the election or
removal of directors in such manner as such Stockholder may from time to time be
directed in writing by Thomas F. Helms, Jr. ("Helms") and, if any Management
Stockholder fails for any reason to vote such Stockholder's Shares in accordance
with the requirements of this Section 2.1(b), then Helms shall have the right to
vote such Shares of Voting Common Stock as provided in this Section 2.1(b). Each
Management Stockholder hereby constitutes and appoints Helms with full power of
substitution, such Stockholder's true and lawful proxy and attorney-in-fact, to
vote, or to give a written consent with respect to, all of the Shares of Voting
Common Stock owned by the grantor of the proxy for the election of persons to,
or the removal of persons from, the Board of Directors. Each Management
Stockholder acknowledges that the proxy granted hereby is coupled with an
interest and is irrevocable to the full extent permitted by the General
Corporation Law of the State of Delaware. Each such proxy granted under this
Section 2.1(b) shall terminate at such time as the grantor is no longer
obligated to vote such Stockholder's Shares of Voting Common Stock in accordance
with the requirements of this Section 2.1(b) and, in all events, with respect to
any Shares of Voting Common Stock upon the sale of such Shares by such grantor
permitted hereunder pursuant to an effective Registration Statement under the
Securities Act or Rule 144 thereunder. The vote of Helms in accordance with this
Section 2.1(b) shall control in any conflict between the vote of such Shares by
Helms and a vote of such Shares by any such grantor.
2.2 Transaction Approval. Each Stockholder hereby (a) consents to the
Exchange and Purchase and the transactions contemplated thereby and by the
Offering Memorandum, including, without limitation, (i) the change of the
Company's name to North Atlantic Trading Company, Inc., including the adoption
of an amendment to the Company's certificate of incorporation to effect the
same, (ii) the transfer of all of the assets of LLC or any of the NTC Equity
Entities to the Company and any liquidation or dissolution of LLC or any of the
NTC Equity Entities, (iii) the acquisition by NATC Operating of all of the
capital stock of NATC Holding, (v) the merger of NATC Holding into NATC
Operating, and (vi) any other transactions contemplated by the foregoing clause
(i) through (v), and (b) authorizes the taking by the Board of Directors of such
actions as may be necessary in connection with the
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foregoing transactions, including, without limitation, the entering into, and
performing on behalf of the Company of all documents, instruments and agreements
relating thereto or associated therewith.
ARTICLE 3
TRANSFERS OF SHARES
3.1 General Restrictions.
(a) No Stockholder may Transfer all or any part of the Shares owned by such
Stockholder, except as provided in this Agreement. Any purported Transfer or
purported purchase of any Shares or a portion thereof in violation of the terms
of this Agreement shall be null and void and of no effect. Any transferee
desiring to make a further Transfer shall become subject to all the provisions
of this Article 3 to the same extent and in the same manner as any Stockholder
desiring to make any Transfer.
(b) In the event of any permitted Transfer, the transferee and all
subsequent permitted transferees shall be bound and obligated by, and shall be
entitled to the rights and benefits afforded to a Stockholder under the terms
and provisions of this Agreement. As a condition precedent to any permitted
Transfer by a Stockholder of Shares, each purchaser, transferee or donee (other
than a Stockholder who is already a party hereto) shall agree in writing to be
bound by all of the provisions and conditions of this Agreement and shall become
a Stockholder hereunder, and no such purchaser, transferee or donee shall be
permitted to effect any Transfer of Shares which the transferring Stockholder is
not permitted to make under this Agreement. Any purported Transfer of Shares by
a Stockholder in contravention of this Agreement shall be null and void, and the
Company agrees not to effectuate any such Transfer of Shares.
3.2 Permitted Transfers. (a) Each Stockholder shall have the right to
Transfer all or any part of such Stockholder's Shares, if, and only if such
Transfer has been approved by a majority of the members of the Board of
Directors (excluding any member (or Affiliate thereof) whose Shares are proposed
to be Transferred);
(b) Each Management Stockholder represents that it has caused its
shareholders, partners or members, as the case may be, to agree to certain
Transfer restrictions on such Management Stockholder's Shares and to make
certain
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representations and covenants, by executing an agreement in the form of Annex 1
attached hereto.
ARTICLE 4
REPURCHASE OF SHARES
4.1 Death of a Principal.
(a) In the event of the death of any Management Stockholder or a Principal
of a Management Stockholder (the "Decedent") and subject to the provisions of
Sections 4.3 and 4.5 and the Loan Documents, (i) in the event and to the extent
the Company receives life insurance proceeds as a result thereof (other than key
man insurance maintained for the benefit of lenders to the Company), the Company
shall repurchase Shares from the Decedent's respective Affiliate corporation
(or, if necessary, any Related Transferees) holding such Shares (the "Decedent
Holder"), and such Decedent Holder shall be obligated to sell Shares to the
Company, at the purchase price per Share and on the terms and conditions set
forth in Section 4.3 and (ii) in the event and to the extent that life insurance
proceeds (if any) are insufficient to fund the repurchase of all Shares held by
the Decedent Holder, subject to the existence of funds legally available
therefor, the Company shall have the right and option, but not the obligation,
to repurchase all or such portion of the remaining Shares held by the Decedent
Holder and the Decedent Holder shall be obligated to sell such Shares to the
Company, at the purchase price per Share and on the terms and conditions set
forth in Section 4.3. Such option may be exercised by the Company giving Notice
to the Decedent Holder of its election to so repurchase a Decedent Holder's
Shares. A Decedent Holder shall remain a Stockholder to the extent of any of the
remaining Shares (after the repurchase of Shares contemplated by this Section
4.1(a)) subject to the terms of this Agreement.
(b) The Company at its option may maintain, or cause its Subsidiaries to
maintain, insurance on the life of the Principals in such amounts as the Company
deems reasonable and upon such terms and conditions as the Company, in its sole
discretion, shall deem to be appropriate and reasonable in light of the
circumstances. The Company shall be the sole beneficiary of all such policies.
4.2 Termination, Bankruptcy or Transfer of Stockholders. Subject to the
provisions of Sections 4.3 and 4.5, in the event of (a) the termination of the
employment with the Company or the Operating Subsidiaries of a Principal of a
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Management Stockholder other than by reason of his death, (b) the commencement
by or against a Stockholder or a Principal, of a proceeding under any Federal or
state law relating to bankruptcy, insolvency or debtor relief which shall remain
undismissed for ninety (90) days, or the assumption or rejection of this
Agreement or any part hereof in any such proceeding, or (c) the involuntary
transfer of a Stockholder's Shares pursuant to court order or otherwise (each
such event, a "Section 4.2 Event"), the Company may, at its option, exercisable
by delivering a Notice to the appropriate Stockholder on or before the
expiration of one hundred eighty (180) days after the occurrence such Section
4.2 Event, elect to repurchase, and upon the giving of such Notice the Company
shall be obligated to repurchase and the Stockholder shall be obligated to sell,
all the Shares owned by the Stockholder at the price and on the terms and
conditions set forth in Section 4.3.
4.3 Repurchase Price, Closing and Terms of Payment.
(a) The repurchase price to be paid for Shares repurchased or redeemed
pursuant to Sections 4.1 and 4.2 shall be equal to the Fair Market Value of such
Shares as of the date on which the Company exercises its rights to repurchase
such Shares, and such repurchase price shall be paid in cash.
(b) The closing for any repurchase of Shares (or portions thereof) provided
for in this Article 4 shall be held at the principal executive offices of the
Company at 10:00 a.m. eastern time on the later of (i) the fifteenth Business
Day after the determination of the repurchase price for such Shares (or portion
thereof) to be repurchased or redeemed, or (ii) in the event of the death of a
Principal for which the Company maintains a life insurance policy pursuant to
Section 4.1(c), the second Business Day following receipt by the Company of the
insurance proceeds from such policy.
(c) The Stockholders disposing of Shares pursuant to this Article 4 shall
cause such Shares to be delivered to the Company at the closing free and clear
of all liens, charges or encumbrances of any kind. Such Stockholders shall take
all such actions as the Company shall request to vest in the Company at such
closing good and marketable title to such Shares, free and clear of all liens,
charges and encumbrances.
4.4 No Right of Employment. No right of employment of any Principal is
implied either by ownership of Shares or by any provision of this Agreement.
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4.5 Prohibition of Repurchase. In the event a repurchase of all or a
portion of a Stockholder's Shares pursuant to this Article 4 is prohibited or
would cause a default under the terms of this Agreement or any Loan Document or
other agreement, instrument or law to which the Company is a party or may
otherwise be bound, the obligations of the Company and the rights of
Stockholders pursuant to this Article 4 shall be suspended until such time as
such prohibition first lapses or is waived and no such default or violation
would be caused. In no event shall the Company be obligated hereunder to incur
any debt, refinance any existing debt or issue additional Shares.
ARTICLE 5
CERTAIN RIGHTS AND OBLIGATIONS TO TRANSFER SHARES
5.1 Tag-Along Right.
(a) In the event of a proposed Transfer by one or more Stockholders (the
"Selling Stockholders") in one transaction or a series of related transactions
of 15% or more of the outstanding shares of Common Stock to any Person or group
of Persons other than, in the case of any Stockholder, an Affiliate of such
Stockholder (the "Proposed Purchaser"), each other Stockholder shall have the
right (the "Tag-Along Right") to require the Proposed Purchaser to purchase from
such other Stockholder a number of Shares owned by such Stockholder equal to the
total number of Shares to be sold by the Selling Stockholders to the Proposed
Purchaser (collectively, the "Transfer Shares") multiplied by a fraction, the
numerator of which is the number of Shares (including the number of Shares
issuable upon the exercise of options) owned by such Stockholder, and the
denominator of which is the total number of Shares and the total number of
Shares issuable upon the exercise of options owned by all of the Selling
Stockholders. The purchase price for any Shares purchased from each Stockholder
exercising Tag-Along Rights pursuant to this Section 6.1 shall be the same
amount and form of consideration as that paid, directly or indirectly, for the
Shares being purchased from the Selling Stockholders.
(b) The Selling Stockholders proposing the Transfer shall, as soon as
practicable prior to such proposed Transfer, but in no event less than ten days
prior to such Transfer, give Notice to each other Stockholder of such proposed
Transfer. Such notice (the "Notice of Proposed Transfer") shall set forth: (i)
the total number of Shares outstanding prior to the proposed Transfer, (ii) the
number of Shares being
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so Transferred, (iii) the amount of consideration being paid for the Shares, and
(iv) the closing date, terms of payment and other terms and conditions of the
proposed Transfer.
(c) The Tag-Along Right may be exercised by a Stockholder giving Notice to
the Selling Stockholders, stating the number of Shares that such Stockholder
proposes to include in such Transfer to the Proposed Purchaser, within five
Business Days following such Stockholder's receipt of the Notice of Proposed
Transfer. If no such Notice to participate is received from any Stockholder
during such five-day period, the Selling Stockholders shall have the right, for
a 120-day period after the expiration of such five-day period, to transfer the
Shares specified in the Notice of Proposed Transfer to the Proposed Purchaser on
the terms and conditions set forth therein.
5.2 Take-Along Right. In the event of a proposed Transfer by one or more
Stockholders (in one transaction or a series of related transactions) to a
Person or Group of Persons other than, in the case of any Stockholder, an
Affiliate of such Stockholder, of 51% or more of the outstanding shares of
Common Stock (the "Take-Along Selling Stockholders") to an unaffiliated third
party or propose to approve a sale of the assets to, or a merger of the Company
with, an unaffiliated third party, the Take-Along Selling Stockholders shall
have the right, exercisable upon fifteen (15) days' prior Notice to the other
Stockholders to consummate such sale of such Shares and to require other
Stockholders to sell to such third party the same proportionate part of their
respective Shares as the Take-Along Selling Stockholders propose to sell of the
Shares owned by them or to require the other Stockholders to approve such sale
of assets or merger, for a price per Share (if applicable) and otherwise upon
terms no less favorable to such other Stockholders than those on which the sale
or other transaction by the Take-Along Selling Stockholders is proposed to be
made.
5.3 Registration Rights. The Company hereby agrees that the Stockholders
shall have the right to include their Shares (including Shares issuable upon the
exercise of options) in any registration statement under the Securities Act
filed by the Company for the account of any of its holders of Common Stock
(other than a registration statement on Form S-8) (a "Piggy-Back Registration")
upon terms and conditions no less favorable to such Stockholders than those
provided to the holders of warrants to purchase shares of common stock pursuant
to the Registration Rights and Stockholders' Agreement between the Company and
NatWest Capital Markets Limited being entered into by the Company on the date
hereof.
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ARTICLE 6
RESTRICTIVE ENDORSEMENTS
6.1 Restrictive Endorsements.
(a) (i) Each certificate representing the Shares now or hereafter held by a
Stockholder shall bear a legend in substantially the following form:
"The Shares represented by this Certificate are subject to an Exchange and
Stockholders' Agreement (the "Stockholders' Agreement") dated as of June 25,
1997, a copy of which is on file at the offices of the Company and will be
furnished to any prospective purchasers on request. Such Stockholders' Agreement
provides, among other things, for certain restrictions on the sale, transfer,
pledge, hypothecation or other disposition of the Shares represented by this
Certificate, and that under certain circumstances the holder hereof may be
required to sell the Shares represented by this Certificate. By acceptance of
this Certificate, each holder hereof agrees to be bound by the provisions of
such Stockholders' Agreement. The Shares represented by this Certificate have
not been registered under the Securities Act of 1933, as amended, or any state
securities law and may not be transferred, sold or otherwise disposed of in the
absence of such registration or an exemption therefrom under such Act.
(ii) Each Stockholder agrees that it will deliver, as necessary, all
Certificates representing Shares owned by it to the Company for the purpose
of affixing thereto the legend specified in this Section 6.1(a).
(b) Removal of Certain Restrictive Legends. Anything herein to the contrary
notwithstanding, Certificates representing Shares sold pursuant to a public
offering permitted hereunder shall not contain the legend set forth in the last
sentence of Section 6.1(a)(i) above.
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ARTICLE 7
DEFINITIONS
In addition to terms defined elsewhere herein, as used herein, the
following terms shall have the following meanings, unless the context otherwise
requires:
"Affiliate" of a specified Person means any Person who directly or
indirectly controls, is controlled by, or is under common control with, such
Person.
"Agreement" means this Exchange and Stockholders' Agreement, as amended,
supplemented or otherwise modified from time to time.
"Blue Sky Laws" shall have the meaning set forth in Section 1.1(b)(vii).
"Board of Directors" shall mean the Board of Directors of the Company.
"Business Day" means any day (other than a day which is a Saturday, Sunday
or legal holiday in the state of New York) on which banks are open for business
in New York City.
"Closing" shall have the meaning set forth in Section 1.2.
"Common Stock" shall have the meaning set forth in the premises hereof.
"Company" means North Atlantic Trading Company, Inc., a Delaware
corporation formerly named North Atlantic Trading Acquisition Company, Inc.
"Credit Agreement" means the Credit Agreement dated as of June 25, 1997
among the Company, various lending institutions, Gleacher NatWest, as arranging
agent, and National Westminster Bank plc, as administrative agent, as the same
may be amended, supplemented or otherwise modified from time to time.
"Decedent" shall have the meaning set forth in Section 3.1(a).
"Decedent Holder" shall have the meaning set forth in Section 3.1(a)
"Exchange" shall have the meaning set forth in the preamble.
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"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Fair Market Value" shall mean, as of any date of determination with
respect to any Shares, the fair market value of such Shares as agreed to by the
Company and the applicable Stockholder or Stockholders obligated to sell Shares
pursuant to Article 4 hereof in any particular transaction. In the event the
Company and such Stockholders are unable to agree upon the Fair Market Value
within thirty (30) days following the event requiring a determination of Fair
Market Value, the Company and the holders of a Majority of the Shares held by
such Stockholders (the Majority Holders") shall select an independent investment
banking firm to determine Fair Market Value. In the event the Company and such
Majority Holders cannot agree on an investment banking firm to perform the
determination of Fair Market Value within ten (10) Business Days following the
expiration of the 30-day period described above, the Company and such Majority
Holders each shall select an independent investment banking firm and the two so
selected shall select a third independent investment banking firm which shall
determine Fair Market Value. The investment banking firm selected shall not have
a direct or indirect interest in the Company, any Stockholder or any Affiliate
thereof and may not otherwise be affiliated with, or have provided services
within the preceding two years to, any such Person; provided, however, an
investment banking firm shall not be deemed to have a direct or indirect
interest in any Stockholder solely because such firm owns less than three
percent (3%) of a fund or trust that does not hold any Shares directly or
indirectly but which is an Affiliate of a fund or trust that does own Shares
directly or indirectly. For purposes of this Agreement, Fair Market Value shall
mean the value that would be obtained for such Shares in the event all
outstanding shares of Common Stock were sold in their entirety on that date to
an unaffiliated third party with neither the buyer or seller under any
compulsion to act, based on financial information of the Company and its
Subsidiaries as of the date of determination, but taking into account all
relevant factors relating to the Company and its Subsidiaries (including, if
any, business developments since such date and all obligations and liabilities
(including all joint and several obligations and liabilities) of the Company and
its Subsidiaries), and without giving effect (a) to any discount for the lack of
(i) liquidity, (ii) public trading market for the Shares, or (ii) any voting
rights or lack thereof with respect to the Shares, (b) to the fact that the
Company and its Subsidiaries may have no equity securities registered under the
Exchange Act, or that the Stockholder has a minority interest in the Company,
(c) to any contract limitation in respect of the Shares, including their
transfer, voting and other rights, and (d) to the taxable nature of such sale
and the status of a Stockholder as a holder of a "minority interest" in the
Shares being valued. The fees and expenses incurred in connection with the
determination of Fair Market
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Value shall be shared equally by the Company, on the one hand, and the affected
Stockholders, on the other hand.
"Helms" means Thomas F. Helms, Jr.
"Indenture" means the Indenture dated as of June 25, 1997 among the
Company, as issuer, the Guarantors named therein, and U.S. Trust Company of New
York, as trustee, as the same may be amended, supplemented or otherwise modified
from time to time.
"Loan Documents" shall mean (a) the Credit Agreement, (b) the Indenture,
and (c) all agreements and instruments entered into or issued pursuant to the
agreements described in clauses (a) and (b) above, and (c) any agreement
relating to the renewal, extension, refunding, restructuring, replacement, or
refinancing of any of the foregoing.
"LLC" shall have the meaning set forth in the premises hereof.
"Majority" means, with respect to any Shares and except is otherwise
expressly provided herein, the affirmative vote or written consent, as the case
may be, of Stockholders holding more than sixty-five percent (65%) of the total
number of Shares held by all Stockholders.
"Management Stockholders" shall mean the Stockholders listed on Schedule 2
hereto that are designated thereon as Management Stockholders.
"NATC Operating" means North Atlantic Operating Company, Inc., a Delaware
corporation and, on the date hereof, the direct, wholly-owned Subsidiary of the
Company.
"NATC Holding" means NATC Holding USA, Inc., a Delaware corporation to be
merged with and into NATC Operating on or about the date hereof.
"Non-Voting Common Stock" shall have the meaning set forth in the premises
hereof.
"Notice" means a writing, containing the information required by this
Agreement to be communicated to a party, and shall be deemed to have been
received (a) when personally delivered or sent by telecopy, (b) one day
following delivery by
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overnight delivery courier, with all delivery charges pre-paid, or (c) on the
third Business Day following the date on which it was sent by United States
mail, postage prepaid, to such party at the address or fax number, as the case
may be, of such Person as shown on the records of the Company.
"NTC" means National Tobacco Company, L.P., a Delaware limited partnership.
"NTC Equity Entities" means any or both of NTC Equity I, Inc., a Delaware
corporation, and NTC Equity II, Inc., a Delaware corporation, each on date
hereof the direct, wholly-owned Subsidiary of the Company.
"Operating Subsidiaries" means NTC and NATC Operating, collectively.
"Person" means any natural person, corporation, partnership, limited
liability company, firm association, trust, governmental agency or other entity,
whether acting in an individual, fiduciary or other capacity.
"Preferred Stock" shall have the meaning set forth in the premises hereof.
"Principal" means the individual, if any, listed below a Management
Stockholder's name on Part A. of Schedule 2 hereto.
"Related Transferees" means, with respect to any Stockholder, the Principal
of such Stockholder, his spouse, his children, trusts solely for the benefit of
such Principal, spouse or children and, in the event of his death, his personal
representatives (in their capacities as such), estate and named beneficiaries.
"Section 4.2 Event" shall have the meaning set forth in Section 4.2.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Shares" shall have the meaning set forth in the preamble.
"Stockholder" or "Stockholders" shall have the respective meanings set
forth in the preamble hereof.
"Subsidiary" means, with respect to any Person, (i) any corporation of
which more than 50% of the outstanding capital stock having ordinary voting
power to elect
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a majority of the board of directors of such corporation (irrespective of
whether at the time, capital stock of any other class or classes of such
corporation shall or might have voting power upon the occurrence of any
contingency) is at the time directly or indirectly owned by such Person, by such
Person and one or more other Subsidiaries of such Person, or by one or more
other Subsidiaries of such Person and (ii) any partnership, limited liability
company, association, joint venture or other entity of which such Person,
together with its other Subsidiaries, has more than a 50% equity interest.
"Transfer" or "Transferred" means (a) when used as a verb, to give, sell
exchange, assign, transfer, pledge, hypothecate, bequeath, devise or otherwise
dispose of or encumber, and (b) when used as a noun, the nouns corresponding to
such verbs in either case voluntarily or involuntarily, by operation of law or
otherwise. When referring to Shares, "Transfer" shall mean the Transfer of such
whether of record, beneficially, or otherwise. For purposes of this Agreement, a
Transfer shall not include the initial issuance of Shares to a Stockholder
pursuant to Section 1.1 hereof.
"Voting Common Stock" shall have the meaning set forth in the premises
hereof.
ARTICLE 8
MISCELLANEOUS
8.1 Waiver of Default. No consent or waiver, express or implied, by the
Company or a Stockholder with respect to any breach or default by the Company or
a Stockholder hereunder shall be deemed or construed to be a consent or waiver
with respect to any other breach or default by any party of the same provision
or any other provision of this Agreement. Failure on the part of the Company or
a Stockholder to complain of any act or failure to act of the Company or a
Stockholder or to declare such party in default shall not be deemed or
constitute a waiver by the Company or the Stockholder of any rights hereunder.
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8.2 Amendment.
(a) Except as otherwise expressly provided elsewhere in this Agreement,
this Agreement shall not be altered, modified or changed except by an amendment
approved by Stockholders holding a Majority of Shares.
(b) In addition to any amendments otherwise authorized herein, the Company
may make any amendments to any of the Schedules to this Agreement from time to
time to reflect transfers of Shares and issuances of additional Shares. Copies
of such amendments shall be delivered to each of the Stockholders promptly upon
execution thereof.
(c) Any modification or amendment to this Agreement made in accordance with
this Section 8.2 shall be binding on all Stockholders and the Company.
8.3 No Third Party Rights. None of the provisions contained in this
Agreement shall be for the benefit of or enforceable by any third parties,
including creditors of the Company. The parties to this Agreement expressly
retain any and all rights to amend this Agreement as herein provided,
notwithstanding any interest in this Agreement or in any party to this Agreement
held by any other Person.
8.4 Severability. In the event any provision of this Agreement is held to
be illegal, invalid or unenforceable to any extent, the legality, validity and
enforceability of the remainder of this Agreement shall not be affected thereby
and shall remain in full force and effect and shall be enforced to the greatest
extent permitted by law.
8.5 Binding Agreement. Subject to the restrictions on Transfers of Shares
herein contained, the provisions of this Agreement shall be binding upon, and
inure to the benefit of, the parties hereto and their respective heirs, personal
representatives, successors and permitted assigns.
8.6 Headings. The headings of sections of this Agreement are for
convenience only and shall not be considered in construing or interpreting any
of the terms or provisions hereof
8.7 Word Meanings. The words such as "herein", "hereinafter", "hereof", and
"hereunder" refer to this Agreement as a whole and not merely to a subdivision
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in which such words appear unless the context otherwise requires. The singular
shall include the plural, and vice versa, unless the context otherwise requires.
8.8 Counterparts. This Agreement may be executed in several counterparts,
all of which together shall constitute one agreement binding on all parties
hereto, notwithstanding that all the parties have not signed the same
counterpart.
8.9 Entire Agreement. This Agreement, as effective on the date hereof,
contain the entire agreement between the parties hereto with respect to the
subject matter hereof and supersedes all prior writings or agreements with
respect to such subject matter.
8.10 Arbitration. Except as otherwise provided herein, any dispute arising
out of or relating to this Agreement between or among the Company and one or
more Stockholders or between or among the Stockholders which cannot be resolved
informally within sixty (60) days after referral of such dispute to the
appropriate management level of such Stockholders shall be subject to
arbitration in New York City in accordance with the rules and procedures of the
American Arbitration Association in the State of New York. A Stockholder seeking
to take a matter to arbitration shall provide the other Stockholders and the
Company with written Notice of such intent. Within thirty (30) days following
the issuance of such Notice, each Stockholder (or, if more than two Stockholders
are involved, holders of a Majority of Shares held by the participating
Stockholders) involved in the dispute shall appoint an arbitrator and within
fifteen (15) days thereafter the arbitrators so chosen shall select a third
arbitrator. Each of the three arbitrators chosen shall have no current or prior
affiliation with any of the Stockholders to the arbitration. The three
arbitrators shall promptly hold hearings in accordance with the rules and
guidelines of the American Arbitration Association. The arbitrators shall render
a decision, in writing, as quickly as practicable, but in no event after the
90th day following the initial Notice hereunder. The costs of the arbitration,
including reasonable attorneys' fees and expenses, shall be borne in accordance
with the decision of the arbitrators. The majority decision of the arbitrators
shall be final and binding on the parties and a judgment may be entered upon
such decision in all appropriate jurisdictions. Except as otherwise provided
herein, arbitration as provided in this Section 7.10 shall be a condition
precedent to the filing or institution of any proceeding relating to or arising
out of this Agreement in any court or administrative body. The parties shall be
obligated to continue performance under this Agreement during the pendency of
any dispute arising under this Agreement and any resulting arbitration
proceeding.
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8.11 Governing Law; Consent to Jurisdiction and Venue. This Agreement shall
be construed according to and governed by the laws of the State of Delaware
without regard to principles of conflict of laws. The parties hereby submit to
the exclusive jurisdiction and venue of the state courts of New York County, New
York and the United States District Court for the Southern District of New York,
and agree that the Company or the Stockholders may, at their option, enforce
their rights hereunder in such courts.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first written above.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION
WHICH MAY BE ENFORCED BY THE PARTIES.
COMPANY:
NORTH ATLANTIC TRADING COMPANY, INC.
By: /s/ Thomas F. Helms, Jr.
--------------------------------
Name: Thomas F. Helms, Jr.
Title: President
STOCKHOLDERS:
HELMS MANAGEMENT CORP.
By: /s/ Thomas F. Helms, Jr.
-------------------------------
Name: Thomas F. Helms, Jr.
Title: President
FLOWING VELVET PRODUCTS, INC.
By: /s/ Herbert Morris
-------------------------------
Name: Herbert Morris
Title: President
<PAGE>
LANGSTON ENTERPRISES, INC.
By: /s/ Maurice R. Langston
-------------------------------
Name: Maurice R. Langston
Title: President
ALAN M, INC.
By: /s/ Alan R. Minsterketter
-------------------------------
Name: Alan R. Minsterketter
Title: President
C.D. RAY, INC.
By: /s/ Clifford D. Ray
-------------------------------
Name: Clifford D. Ray
Title: President
RBO INC.
By: /s/ Raymond B. Orlandi
-------------------------------
Name: Raymond B. Orlandi
Title: President
<PAGE>
J. MARTIN ASSOCIATES, INC.
By: /s/ Jay Martin
-------------------------------
Name: Jay Martin
Title: President
PINNACLE INVESTORS, INC.
By: /s/ Daniel I. Siegel
-------------------------------
Name: Daniel I. Siegel
Title: President
S.L. DICKMAN, INC.
By: /s/ Stephen L. Dickman
-------------------------------
Name: Stephen L. Dickman
Title: President
ALVIN F. FEIGE, JR., INC.
By: /s/ Alvin F. Feige, Jr.
-------------------------------
Name: Alvin F. Feige, Jr.
Title: President
<PAGE>
JAMES H. HINELY, III, INC.
By:/s/ James H. Hinely, III
-------------------------------
Name: James H. Hinely, III
Title: President
CNK ENTERPRISES, INC.
By:/s/ Christopher N. Kounnas
-------------------------------
Name: Christopher N. Kounnas
Title: President
D. LEE GOODIN, INC.
By:/s/ David L. Goodin
-------------------------------
Name: David L. Goodin
Title: President
SHERMAN V. ABLE, JR., INC.
By:/s/ Sherman V. Able, Jr.
-------------------------------
Name: Sherman V. Able, Jr.
Title: President
<PAGE>
GARY L. MCGAUGHEY, INC.
By:/s/ Gary L. McGaughey
-------------------------------
Name: Gary L. McGaughey
Title: President
M. LEE MAYVILLE, INC.
By:/s/ M. Lee Mayville
-------------------------------
Name: M. Lee Mayville
Title: President
JOHN W. TODD, INC.
By:/s/ John W. Todd
-------------------------------
Name: John W. Todd
Title: President
FISH GROUP, LLC
By:/s/ Jeffrey S. Hay
-------------------------------
Name: Jeffrey S. Hay
Title: Member
<PAGE>
RICHARD M., INC.
By:/s/ Richard A. Mudd
-------------------------------
Name: Richard A. Mudd
Title: President
LOWELL, INC.
By:/s/ Norman L. Jenkins
-------------------------------
Name: Norman L. Jenkins
Title: President
/s/ Lynn Swann
-------------------------------
Lynn Swann
/s/ Arnold Sheiffer
-------------------------------
Arnold Sheiffer
/s/ Jack Africk
-------------------------------
Jack Africk
/s/ David Brunson
-------------------------------
David Brunson
<PAGE>
/s/ Ronald B. Beasley
-------------------------------
Ronald B. Beasley
/s/ John Czerewko
-------------------------------
John Czerewko
/s/ Eugene Hayes
-------------------------------
Eugene Hayes
/s/ Douglas Walcoff
-------------------------------
Douglas Walcoff
/s/ Paul D. Wilhour
-------------------------------
Paul D. Wilhour
/s/ Duane A. Wright
-------------------------------
Duane A. Wright
/s/ E. Rabon Carlin
-------------------------------
E. Rabon Carlin
<PAGE>
SECREST HOLDINGS
By:/s/ Mark Secrest
-------------------------------
Name: Mark Secrest
Title: General Partner
IVORY CAPITAL
By:/s/ Kim Fennebresque
-------------------------------
Name: Kim Fennebresque
Title: General Partner
<PAGE>
- --------------------------------------------------------------------------------
NATIONAL TOBACCO COMPANY, L.P.,
a Delaware limited partnership
and
LANCASTER LEAF TOBACCO COMPANY OF PENNSYLVANIA, INC.
- --------------------------------------------------------------------------------
THIRD AMENDED AND RESTATED
PURCHASING AND PROCESSING AGREEMENT
- --------------------------------------------------------------------------------
Dated as of June 25, 1997
<PAGE>
TABLE OF CONTENTS
Page
----
STATEMENT OF BACKGROUND ................................................... 1
ARTICLE I - DEFINITIONS ................................................... 2
1.01. Certain Definitions ........................................ 2
ARTICLE II - TOBACCO PURCHASE AND STORAGE ................................. 5
2.01. Tobacco Purchases .......................................... 5
(a) Right and Obligation to Purchase ....................... 5
(b) Condition to Purchase Obligation and Right ............. 5
(c) Tobacco for Company Affiliates ......................... 6
(d) Waivers Are Limited .................................... 6
2.02. Tobacco Storage ............................................ 6
2.03. Company's Commitment for Lancaster's Purchases ............. 7
2.04. Price and Payment Terms .................................... 7
2.05. Obligation to Insure ....................................... 7
2.06. Disclaimer of Warranties ................................... 8
2.07. Ownership of Tobacco ....................................... 8
ARTICLE III - PROCESSING .................................................. 8
3.01. Processing Commitment and Agreement ........................ 8
(a) Exclusive Processing Right and Obligation .............. 8
(b) Early Termination ...................................... 9
(c) Renewal and Termination ................................ 11
(d) Exceptions to Exclusive Processing For Company
Affiliates ............................................. 12
(e) Processing on Termination of Agreement ................. 12
3.02. Inspection; Control ........................................ 13
3.03. Delivery of Processed Tobacco .............................. 13
3.04. Processing Rates ........................................... 14
(a) Rates .................................................. 14
(b) Modification of Rates .................................. 14
3.05. Carrying Charges ........................................... 14
(a) Billing ................................................ 14
(b) Payment Required as a Condition of Delivery ............ 14
3.06. Finance Charges ............................................ 14
3.07. Payment for Processed Tobacco .............................. 15
3.08. Release of Security Agreements ............................. 15
ARTICLE IV - CERTAIN CONDITIONS ........................................... 16
4.01. Deliveries at Closing ...................................... 16
4.02. Additional Conditions Precedent to Lancaster
Obligations ................................................ 16
4.03. Conditions Precedent to Company Obligations ................ 17
(i)
<PAGE>
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF LANCASTER ................... 17
5.01. Organization and Good Standing ............................. 17
5.02. Authority .................................................. 18
5.03. Validity of Documents ...................................... 18
5.04. Litigation ................................................. 18
5.05. Financial Condition ........................................ 18
ARTICLE VI - REPRESENTATIONS AND WARRANTIES BY COMPANY .................... 19
6.01. Organization and Good Standing ............................. 19
6.02. Authority .................................................. 19
6.03. No Violations .............................................. 19
6.04. Validity of Documents ...................................... 20
6.05. Litigation ................................................. 20
6.06. Solvency ................................................... 20
6.07. Disclosure ................................................. 20
6.08. No Default ................................................. 20
ARTICLE VII - COVENANTS OF LANCASTER ...................................... 21
7.01. Confidentiality ............................................ 21
7.02. Lancaster's Employees ...................................... 21
7.03. Access to Premises ......................................... 21
7.04. Insurance .................................................. 21
7.05. Tobacco Storage ............................................ 22
7.06. Tobacco Purchasing and Processing .......................... 22
ARTICLE VIII - COVENANTS OF COMPANY ....................................... 22
8.01. Financial Information ...................................... 22
8.02. Existence .................................................. 23
8.03. Insurance .................................................. 23
8.04. Notice of Default or Change of Condition ................... 23
8.05. Additional Documents ....................................... 23
ARTICLE IX - DEFAULT ...................................................... 23
9.01. Events of Default .......................................... 23
9.02. Waivers .................................................... 25
ARTICLE X - MISCELLANEOUS ................................................. 25
10.01. Force Majeure ............................................. 25
10.02. Entire Agreement .......................................... 26
10.03. Notices, Etc .............................................. 26
10.04. Applicable Law ............................................ 28
10.05. Consent to Jurisdiction and Waiver of Service ............. 28
10.06. Product Liability and Indemnity ........................... 28
10.07. Execution in Counterparts ................................. 29
10.08. Binding Effect; Assignment ................................ 30
10.09. Severability of Provisions, Etc ........................... 30
10.10. Captions .................................................. 30
10.11. Recovery of Expenses After Default ........................ 30
(ii)
<PAGE>
10.12. Lancaster Expenses ........................................ 31
10.13. Rules of Construction ..................................... 31
(iii)
<PAGE>
THIRD AMENDED AND RESTATED
PURCHASING AND PROCESSING AGREEMENT
THIS THIRD AMENDED AND RESTATED PURCHASING AND PROCESSING AGREEMENT is made
by and between NATIONAL TOBACCO COMPANY, L.P., a Delaware limited partnership
(the "Company"), and LANCASTER LEAF TOBACCO COMPANY OF PENNSYLVANIA, INC., a
Virginia corporation qualified to do business in Pennsylvania ("Lancaster").
STATEMENT OF BACKGROUND
In January, 1988, the Company was formed by its management team and
Shearson Lehman Brothers, Inc. ("Shearson") to acquire the smokeless tobacco
division of Lorillard, Inc. ("Lorillard"), which was accomplished in April,
1988. As part of that transaction Lancaster financed on behalf of the Company
the acquisition of Lorillard's inventory, and as part of that transaction
entered into an Agreement for (i) Financing Purchase of Tobacco Inventory, (ii)
storage of Tobacco, (iii) Purchase of Tobacco to meet Processing Requirements,
and (iv) Processing Tobacco dated April 26, 1988 (the "Original Lancaster
Agreement").
As part of recapitalizations and refinancings in 1992 and 1996, the Company
and Lancaster restated and amended in its entirety the Original Lancaster
Agreement in accordance with amended and restated agreements dated as of April
14, 1992 (the "Amended Lancaster Agreement") and May 17, 1996 (the "Second
Amended Lancaster Agreement"), respectively. The Company is again recapitalizing
and refinancing (the "1997 Recapitaliza tion") as part of its acquisition of the
stock of NATC Holding USA, Inc., a Delaware corporation (the "Zig Zag(R)
Acquisition"). Part of the Company's 1997 Recapitalization involves the Company
purchasing from Lancaster the Tobacco owned and financed by Lancaster for the
Company's use, and Lancaster releasing the security interests previously granted
to Lancaster by the Company to secure the financing by Lancaster of its Tobacco
purchases. In connection therewith, the Company and Lancaster have agreed to
amend and restate in its entirety the Second Amended Lancaster Agreement.
THEREFORE, with the foregoing Statement of Background being incorporated
into this Agreement by reference, it is agreed as follows:
<PAGE>
ARTICLE I
DEFINITIONS
1.01. Certain Definitions. In addition to the words and terms defined
elsewhere in this Agreement, the words and terms defined in this Section 1.01,
whenever used and whether or not beginning with initial capital letters in this
Agreement, shall, unless the context requires otherwise, have the respective
meanings specified in this Section 1.01.
"Accumulated carrying charges", with reference to Tobacco, means the cost
charged by Lancaster associated with or for purchasing, financing, storing,
transporting, insuring, and otherwise dealing with or handling Tobacco.
"Affiliate" means any Person that directly or indirectly controls, is
controlled by, or is under common control with the Person in question. As used
in this definition of "Affiliate", the term "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through ownership of voting
securities, ownership of partnership equity, by contract or otherwise.
"Agreement" means this Third Amended and Restated Purchasing and Processing
Agreement and the Exhibits and Schedules attached to and made a part of this
Agreement, if any, as modified and supplemented and in effect from time to time.
"Business Day" means Monday through Friday of each week, except that a
legal holiday recognized as such by the government of the United States or the
states of Pennsylvania, New York or Kentucky shall not be regarded as a Business
Day.
"By-products" means stems, veins and siftings that are removed from the
tobacco leaf and/or foreign tobacco strips while the tobacco is being processed
into a final strip form prior to manufacture into a consumer product.
"Closing" means June 25, 1997, the date of execution and delivery of this
Agreement and of the documents and instruments delivered in connection with the
1997 Recapitalization and the closing of the Zig Zag(R) Acquisition.
"Company" means National Tobacco Company, L.P., a Delaware limited
partnership, and its successors.
-2-
<PAGE>
"Crop Year" means the approximately annual period, generally from December
1 through November 30, in which Lancaster purchases (i) domestic tobacco and
(ii) foreign tobacco, and is generally designated by Lancaster with reference to
the year in which the first purchases of newly harvested domestic tobacco are
made. For example, the 1995 Crop Year includes the domestic tobacco purchased in
December, 1995, and January-March, 1996, as well as any other domestic or
foreign tobacco purchased prior to Lancaster purchasing the domestic tobacco
grown in the summer of 1996 and harvested in the fall of 1996.
"Default" means an Event of Default or an event which with notice or lapse
of time or both would, unless cured or waived, become an Event of Default.
"Dollars" and the symbol "$" means lawful money of the United States of
America.
"Event of Default" or "Events of Default" shall have the meaning set forth
in Section 9.01.
"Governing Documents" means for the purposes of Article VI, in the case of
(a) a partnership, its partnership agreement, as amended to date, and (b) a
corporation, its certificate or articles of incorporation and bylaws, as amended
to date.
"Index" means the Consumer Price Index (1982 - 84 = 100) as published by
the United States Bureau of Labor Statistics for Philadelphia, Pennsylvania, in
the category "All Items" (or similar successor index).
"Industry" means the loose leaf tobacco industry.
"Lancaster" means Lancaster Leaf Tobacco Company of Pennsylvania, Inc., a
Virginia corporation, and its successors.
"Lien" means any security interest, mortgage, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or otherwise),
charge against or interest in property to secure payment of a debt or
performance of an obligation or other priority or preferential arrangement of
any kind or nature whatsoever.
"North Atlantic Trading" means North Atlantic Trading Acquisition Company,
Inc., a Delaware corporation. North Atlantic Trading will change its name
following the Zig-Zag(R) Acquisition to North Atlantic Trading Company, Inc.
North Atlantic Trading is the sole limited partner of the Company.
-3-
<PAGE>
"NTFC" means National Tobacco Finance Corporation, a Delaware corporation,
which, contemporaneously with the Zig-Zag(R) Acquisition will be a wholly-owned
subsidiary of North Atlantic Trading. NTFC is the sole general partner of the
Company.
"Person" means any individual, corporation, partnership, limited liability
company, association, joint-stock company, trust, unincorporated organization,
joint venture, court or government or political subdivision or agency thereof.
"Prime Rate" means the rate of interest periodically defined and
established by Crestar Bank, Richmond, Virginia, or such other bank or other
entity which is a principal provider of financing to Lancaster, as its "prime
rate", as designated by Lancaster. A determination by Lancaster from time to
time of the Prime Rate shall be conclusive absent manifest error.
"Processed Tobacco" means leaf tobacco and unprocessed foreign strips from
which the middle stem and other associated material is removed from the lamina
to form a strip ready for the final stages of manufacturing into a consumer
product.
"Purchase Price", with reference to Tobacco, shall have the meaning set
forth in Section 2.04.
"Termination Fee" has the meaning set forth in Section 3.01(b)(3) of this
Agreement.
"Tobacco" means domestic and foreign leaf tobacco, unprocessed and
processed strips (including Processed Tobacco), and By-products.
ARTICLE II
TOBACCO PURCHASE AND STORAGE
2.01. Tobacco Purchases.
(a) Right and Obligation to Purchase. Subject to the provisions of this
Agreement, the Company agrees that for the term ending November 30, 2006, or
such longer term as provided for herein with respect to renewal or as otherwise
mutually agreed from time to time, Lancaster will, at the Company's request,
have the right and, to the extent provided below, the obligation, to purchase
all of the Tobacco required by the Company and its Affiliates, subject as to any
Affiliate of the Company, only, the requirement that Lancaster (directly or
through Affiliates of Lancaster) is in the business of processing Tobacco of the
type required by such Company Affiliate.
-4-
<PAGE>
(b) Condition to Purchase Obligation and Right. Lancaster's obligations to
purchase Tobacco are conditioned upon the general availability in the
marketplace of Tobacco of the types and quantities which the Company has
requested Lancaster to purchase in quantities sufficient to meet the needs of
the Company and Lancaster's other customers. In the event Lancaster is unable to
purchase sufficient quantities of domestic or foreign tobacco to meet the needs
of the Company and Lancaster's other customers, the Company agrees and
acknowledges that Lancaster will provide for the Company an appropriate
proportionate amount (as determined by Lancaster after discussion with the
Company) of the Tobacco which the Company has requested and which Lancaster is
able to buy. In any Crop Year during the term of this Agreement, if Lancaster is
unable to purchase sufficient quantities of a particular type of Tobacco
requested by the Company, and Lancaster is unable to obtain a sufficient
quantity of alternative Tobacco which satisfies the needs of the Company in the
reasonable exercise of the judgment of the Company which is of comparable type
to the Tobacco requested by the Company for such Crop Year, then, to the extent
of the deficit of the requested Tobacco for such Crop Year, the Company may
purchase from other sources for processing by Lancaster the amount of the
requested Tobacco that Lancaster was unable to supply in that Crop Year.
(c) Tobacco for Company Affiliates. The Company and North Atlantic Trading
hereby guaranty the obligations of each Company Affiliate to pay for Tobacco in
accordance with the terms of this Agreement. If and to the extent that any
Affiliate of the Company acquired in the future is bound by contractual
obligations existing at the time such entity becomes an Affiliate of the Company
that cannot be terminated with the reasonable best efforts (not requiring the
payment of any material premiums or material penalties) of the Company or the
Affiliate which require that such Affiliate purchase its Tobacco requirements
elsewhere, such contractual requirements may be honored, but shall not be
extended or renewed. Further, if the newly acquired Affiliate of the Company has
at the time of acquisition an internal purchasing organization in place, the
Affiliate may continue to purchase such Affiliate's Tobacco needs through its
own internal organization, so long as such purchases are consistent with prior
practices, and so long as any Tobacco purchases are only for the Affiliate's
requirements and products, and not the Company's or any other Company
Affiliate's requirements or products.
(d) Waivers Are Limited. Any waiver of any of the requirements of this
Section 2.01 by Lancaster or the Company shall be for the specific event or for
the specific time in question only, and such waiver or refusal in any case shall
not
-5-
<PAGE>
constitute a waiver of the provisions and requirements of this Section 2.01 for
any subsequent event or year, unless otherwise specifically stated in such
waiver.
2.02. Tobacco Storage. The Company agrees that all Tobacco now or hereafter
owned by or for the benefit of the Company and its Affiliates (subject to the
exceptions as to any Company Affiliate's Tobacco set forth in Section 2.01(c)),
or, to the extent permitted by this Agreement, purchased for the Company's or
any Company Affiliate's benefit by any other Person, shall be stored in
facilities under Lancaster's control, unless specifically agreed to the contrary
by Lancaster. Lancaster will, in accordance with Lancaster's standard business
practices, (i) keep the Company's Tobacco segregated from any Tobacco or Tobacco
products owned by Lancaster or any other Person, (ii) clearly mark and identify
the Tobacco owned by the Company as the Company's property, and (iii) take such
steps as reasonably requested by the Company to perfect a security interest in
the Company's Tobacco in favor of the Company's secured note holders and lenders
as is consistent with Industry standards. Lancaster shall handle the Company's
Tobacco in Lancaster's storages, subject to the Company's right of inspection
during normal business hours, in a manner consistent with Lancaster's practices
for handling its customers' Tobacco in general.
2.03. Company's Commitment for Lancaster's Purchases. Lancaster will
confirm in writing the Company's or the Company's Affiliate's request for
Tobacco purchases with respect to type and amount of Tobacco. Lancaster's
confirmation will constitute the Company's (or its Affiliate's) binding
commitment to pay Lancaster for the purchased Tobacco, when invoiced, which will
be, in general, following receipt by Lancaster of the purchased Tobacco in
Lancaster, Pennsylvania. Lancaster will invoice the Company or its Affiliate for
purchased Tobacco based on the provisions set forth in Section 2.04 and, to the
extent applicable, Section 3.01(b). The Company agrees that until Lancaster
receives written notice to the contrary, it may rely on any order or
confirmation for Tobacco purchases from any one of Thomas F. Helms, Jr., David
I. Brunson, Alan Minsterketter, or Raymond B. Orlandi as the binding commitment
of the Company.
2.04. Price and Payment Terms. The Company will pay to Lancaster, from time
to time, those fees and charges invoiced by Lancaster for purchasing,
transporting, insuring, storing, processing and otherwise dealing with or
handling all Tobacco for the benefit of the Company or any Affiliate of the
Company, based on the pricing determined by Lancaster and communicated to the
Company in writing (the "Purchase Price"), subject to and in accordance with
this Section 2.04, Sections 3.04 through 3.07,
-6-
<PAGE>
inclusive, and, to the extent applicable, Section 3.01, in immediately available
funds promptly upon receipt of, and in accordance with, Lancaster's invoices.
2.05. Obligation to Insure. The Company is not obligated to insure or cause
to be insured the Company's and the Company's Affiliates' Tobacco. Nonetheless,
the Company has requested and Lancaster has agreed, at its initial expense, and
subject to the provisions of Section 7.04 of this Agreement, which are
incorporated herein, to insure all Tobacco purchased for the benefit of the
Company or any Affiliate of the Company until such Tobacco is shipped to the
Company F.O.B. Lancaster.
2.06. Disclaimer of Warranties. EXCEPT AS OTHERWISE EXPLICITLY SET FORTH IN
THIS AGREEMENT, LANCASTER DOES NOT MAKE AND HEREBY DISCLAIMS ANY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR ANY OTHER WARRANTY,
WHETHER EXPRESS, IMPLIED OR STATUTORY, WITH RESPECT TO ANY TOBACCO HERETOFORE OR
HEREAFTER PURCHASED. EXCEPT AS SPECIFICALLY PROVIDED TO THE CONTRARY HEREIN,
LANCASTER SHALL NOT BE LIABLE TO THE COMPANY OR ANY AFFILIATE OF THE COMPANY FOR
ANY INCIDENTAL, SPECIAL, OR CONSEQUENTIAL DAMAGES OF ANY KIND WHATSOEVER.
2.07. Ownership of Tobacco. All Tobacco purchased for the Company or any
Company Affiliate from time to time by Lancaster is and shall remain at all
times the sole and exclusive property of Lancaster until such time as Lancaster
has received payment of Lancaster's invoice for such purchased Tobacco. Upon
payment of Lancaster's invoice for the purchased Tobacco, title to the invoiced
Tobacco shall pass to the Company or the Company's Affiliate, as appropriate.
Any provision of this Agreement to the contrary notwithstanding, Lancaster's
obligation to purchase, process, sell and deliver any Tobacco to or at the
direction of the Company or any Affiliate of the Company is expressly subject to
the Company's compliance with the terms and conditions of this Agreement.
ARTICLE III
PROCESSING
3.01. Processing Commitment and Agreement.
(a) Exclusive Processing Right and Obligation. Subject to the provisions of
Section 3.01(b) and 10.01, Lancaster shall continue to have the sole and
exclusive right to process all Tobacco for the Company and the Company
Affiliates, for a term ending on November 30, 2006, subject as to any Company
Affiliate only, to (i) the exceptions set forth in Sections
-7-
<PAGE>
2.01(c) and 3.01(d), and (ii) Lancaster, directly or through Affiliates of
Lancaster, being in the business of processing Tobacco of the type required by
such Company Affiliate. Subject to the provisions of this Agreement, Lancaster
will process all Tobacco required by the Company and its Affiliates during the
period of this Agreement in accordance with any reasonable written
specifications or requirements furnished by the Company or such Company
Affiliate to Lancaster. The Company agrees that Lancaster may rely on oral
modifications, changes, amendments or directions with respect to processing the
Company's and any Company Affiliate's Tobacco requirements received from Raymond
B. Orlandi or Alan Minsterketter, or other individuals from time to time
designated by the Company or such Company Affiliate in writing, notwithstanding
that such oral modifications or changes may contradict the Company's or any
Company Affiliate's existing written specifications (provided that any
modifications or changes which will increase Lancaster's processing costs and
the Company's or Company Affiliate's charges shall be agreed upon), and that
Lancaster shall be fully protected and indemnified in relying upon such oral
representations.
(b) Early Termination.
(1) Permitted Termination; Exclusive Reason. Subject to the provisions of
Section 9.01 (providing for Events of Default by Company and certain remedies),
Lancaster's right and obligation to process Tobacco for the Company and its
Affiliates on an exclusive basis may be terminated by the Company in the event
of Lancaster's materially uncompetitive pricing as hereafter set forth in this
Section 3.01(b), but only after compliance with the provisions of such Section.
(2) Materially Uncompetitive Pricing. Any provision of this Agreement to
the contrary notwithstanding, if in any twelve-month period from July 1 to June
30, (A) Lancaster's pricing to the Company for Processed Tobacco is
demonstratively proven by the Company to be materially uncompetitive with other
dealers in the business of processing Tobacco for the Industry who (i) produce a
finished product of comparable quality and yield with Lancaster's, and (ii) have
provided estimates at normal and customary Industry pricing levels (and for this
purpose the Company shall have obtained and provided to Lancaster at least two
(2) written offers from independent dealers in the Industry to provide Processed
Tobacco, all of which are significantly lower than Lancaster's pricing), and (B)
Lancaster refuses to reduce its processing fees to the Company to be competitive
with (but not necessarily equal to) the highest of such independent dealer's
written offers made at normal and customary Industry pricing levels, and (C) as
a result of Lancaster's higher processing fees the Company can demonstrate
through information compiled by the Company and reviewed by its
-8-
<PAGE>
independent outside auditors that, as a result of such cost differential, its
financial performance will be materially adversely affected, then the Company
may terminate this Agreement by giving Lancaster at least sixty (60) days' prior
written notice of intent to do so, if during such sixty (60) day period
Lancaster does not cure the failure to reduce its processing rates as provided
in clause B of this Section 3.01(b)(2), subject to Lancaster's right, at its
option, to process Tobacco on hand in accordance with the provisions of Section
3.01(e).
(3) Termination Fee.
(A) Except for termination pursuant to Section 3.01(b)(4), if this
Agreement is terminated prior to expiration of its term for any reason
whatsoever except in connection with Section 3.01(b)(2) (dealing with
termination in the event of materially uncompetitive pricing), the Company shall
pay a fee (the "Termination Fee") to Lancaster in the amount of $5,000,000. The
Termination Fee will be increased as of each January 1 starting January 1, 1997,
by the percentage increase in the Index from the prior January to the applicable
January. If such termination occurs after January 1, 2003, the Termination Fee
of $5,000,000, as adjusted, will continue to increase by the percentage increase
in the Index for each year, but after giving effect to such increase will be
reduced for each year thereafter starting with the year 2003 by the following
percentages:
For Example Only, Proforma
Reduction to Termination Fee (Subject
Original Termination to Increases by the
Year Fee (as increased) Index not Included Here)
- ---- ------------------ ------------------------
2003 25% $3,750,000
2004 50% $2,500,000
2005 75% $1,250,000
2006 100% $0
(B) The Company and Lancaster agree that the Termination Fee provided for
herein constitutes liquidated damages; is in lieu of actual damages, the proof
of which would be difficult and time consuming; was the result of commercial
negotiations between the parties intended to approximate actual damages to
Lancaster; and does not constitute a penalty.
(4) Sale as Going Concern.
The Company will use its best efforts (not requiring the payment of any
material premium or material penalty) in the event of sale of all or
substantially all of the assets of the Company as a going concern to cause this
Agreement to be assumed and reaffirmed by the successor owners of the Company.
If all Accumulated Carrying Charges are paid at the
-9-
<PAGE>
Closing of such transaction, and if the Company and the acquiror of the
Company's assets reaffirm and agree to be bound by the terms and conditions of
this Agreement, no Termination Fee shall be due or payable solely as a result of
such sale.
Notwithstanding the foregoing or anything else in this Agreement to the
contrary, upon the sale of all or substantially all of the assets of the
Company, or upon the acquisition by a person or entity (other than an existing
partner or stockholder of the Company as of the date hereof) of a majority of
the voting stock or voting equity interests issued by the Company having the
right to elect members to the Board of Directors of the Company, Lancaster may,
at its option, elect to terminate this Agreement in its entirety, in which event
neither Lancaster nor the Company shall be further obligated under this
Agreement, except with respect to Lancaster's right to process pursuant to
Section 3.01(e), and the Company's obligation to pay for, the Company's and
Company's Affiliates' Tobacco on hand as of the date of termination, as set
forth in Section 3.01(e), and the obligation of the Company to pay the Purchase
Price for the Company's and the Company's Affiliates' Tobacco. If Lancaster
elects to terminate this Agreement because of the sale of all or substantially
all of the Company's assets or such acquisition of voting stock or voting equity
interests as provided above, and no Event of Default exists or will exist with
the passage of time, Lancaster will, subject to the compliance by the Company
with the provisions of this Agreement, process the Tobacco on hand as of the
date of termination.
(c) Renewal and Termination. Unless terminated earlier in accordance with
Section 3.01(b) or Section 9.01, this Agreement for purchasing and processing
Tobacco shall continue for a term ending on November 30, 2006, and shall
automatically renew thereafter for successive additional annual terms unless
either party shall have given the other party one (1) year's prior written
notice of intent to terminate this Agreement. Upon demand by Lancaster after the
expiration or earlier termination of this Agreement, the Company shall pay to
Lancaster, by wire transfer or other payment method acceptable to Lancaster, the
Purchase Price and, if payable pursuant to Section 3.01(b), the Termination Fee,
as communicated by Lancaster to the Company; provided, however, that, in the
event this Agreement is terminated by the Company in accordance with Section
3.01(b)(2) because of Lancaster's materially uncompetitive pricing, and
Lancaster, in connection with such termination, elects to continue processing
Tobacco in accordance with Section 3.01(e), then payment for such Tobacco shall
be made by the Company in accordance with Section 3.07.
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(d) Exceptions to Exclusive Processing For Company Affiliates.
Notwithstanding the foregoing (except for Section 2.01(c)), with respect to any
Affiliate of the Company, Lancaster may at its option from time to time, decline
to process Tobacco for a Company Affiliate, in which event it shall notify the
Company thereof. If Lancaster elects not to process Tobacco for a Company
Affiliate for any reason other than as permitted by this Agreement, such Company
Affiliate shall be entitled to enter into such other agreements as it deems
reasonable with respect to purchasing and processing of such Company Affiliate's
(but only such Company Affiliate's) Tobacco. Further, to the extent that any
newly acquired Company Affiliate is bound by contractual obligations existing at
the time of acquisition by the Company that cannot be terminated with the
reasonable best efforts of the Company or the Company Affiliate and which
require such Company Affiliate's Tobacco be processed by another Person, such
contractual requirements may be honored as to the Company Affiliate's Processed
Tobacco, but not extended or renewed. Further, if the newly acquired Company
Affiliate at the time of acquisition processes its own Tobacco in the Company
Affiliate's facilities, such Company Affiliate may continue to process its own
Tobacco requirements at its own facilities, so long as such processing is
consistent with prior practices, and so long as the Company Affiliate processes
solely its own Tobacco for its own requirements and products.
(e) Processing on Termination of Agreement. Notwithstanding anything in
this Agreement to the contrary, in the event this Agreement is terminated for
any reason whatsoever, including the expiration of the term hereof, any default
or breach, the payment of the Termination Fee under Section 3.01(b)(3), or for
any other reason, then, notwithstanding such termination, Lancaster shall be
entitled, at its option, to process so much of, up to all, the Company's and the
Company's Affiliate's Tobacco held by Lancaster as of the date of termination of
this Agreement as Lancaster may elect, in accordance with the pricing and
payment terms of this Agreement, prior to the Company or any Company Affiliate
processing or permitting the processing of any Tobacco by the Company or any
Person other than Lancaster (except as permitted by Section 3.01(d)); and, if
necessary, the Company will purchase through Lancaster, subject to the terms of
this Agreement, such additional Tobacco as may be required to meet the Company's
or the Company's Affiliate's, as the case may be, blend or mix requirements in
connection with such processing by Lancaster.
3.02. Inspection; Control. Lancaster agrees that during such periods of
time as it is storing or processing any Tobacco for the benefit of the Company
or any Company Affiliate, it will
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permit representatives of the Company upon any of Lancaster's facilities engaged
in such storage or processing during normal business hours for the purpose of
observing the storage or production of unprocessed and Processed Tobacco and for
determining the specifications or requirements appropriate to the type of
Tobacco delivered to Lancaster for processing. The Company and its
representatives shall have no right to direct or control any of the employees of
Lancaster, all of whom shall remain at all times under the direction and control
of Lancaster.
3.03. Delivery of Processed Tobacco. Upon completion of the production
process, and upon payment in accordance with this Agreement, Lancaster shall
deliver Processed Tobacco F.O.B. at Lancaster's factory door to any carrier
selected by the Company for transportation to the destinations designated by the
Company, in the amounts and upon the dates specified by the Company. The
Processed Tobacco will be free and clear of liens and encumbrances created by
Lancaster. Prior to loading, the Processed Tobacco shall be packed by Lancaster
in appropriate containers as provided by the Company and in accordance with the
Company's instructions. Lancaster, at its initial expense, shall be obligated to
load the Processed Tobacco upon the carrier's means of transportation. The
Company shall provide all appropriate packing materials.
3.04. Processing Rates.
(a) Rates. The charges payable by the Company to Lancaster for Lancaster's
handling and processing of Tobacco for 1997 are attached hereto as Schedule I.
(b) Modification of Rates. Lancaster reserves the right from time to time
to modify and increase its processing rates and service fees and charges, if
Lancaster's costs with respect to purchasing, storing, transporting, insuring,
processing, or otherwise dealing with Tobacco, or with respect to Lancaster's
plant and employees, increase; provided, however, that Lancaster will not
increase its charges to the Company unless Lancaster increases or seeks to
increase its charges, in general, to substantially all of its customers. Any
increase in charges shall be effective as of the effective date announced by
Lancaster, and will be reflected in an amended Schedule I hereto.
3.05. Carrying Charges.
(a) Billing. Lancaster will bill the Company quarter-annually for
Accumulated Carrying Charges, or in other installments mutually agreeable to
Lancaster and the Company, in amounts as computed by Lancaster. The Company will
pay Lancaster
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on account of such billed Accumulated Carrying Charges within fifteen (15) days
of when billed in immediately available funds.
(b) Payment Required as a Condition of Delivery. The Company acknowledges
that as a condition of shipping Processed Tobacco to the Company, the Company
shall not be delinquent in the payment of any invoiced Tobacco or billed
Accumulated Carrying Charges or other charges.
3.06. Finance Charges. Finance charges will be computed on the cost of all
Tobacco purchases until the Purchase Price for such Tobacco is paid by the
Company (as described in Sections 2.03 and 2.04), and on Accumulated Carrying
Charges and other charges until paid at a varying rate per annum equal to the
Prime Rate plus 1%, in accordance with Lancaster's normal and customary
procedures and in accordance with the terms hereafter set forth. The finance
charges will be based on Lancaster's determination of the Prime Rate for each
day, and by reference to Lancaster's records as to the Tobacco and amount of
charges to which the interest rate will apply, computed on actual days elapsed
using a year of 365/366 days.
3.07. Payment for Processed Tobacco. The Company shall, prior to the date
any Processed Tobacco requested by the Company is delivered to the Company's
carrier, pay in full Lancaster's invoice for such Processed Tobacco, in
accordance with the provisions of Sections 3.04 through 3.07, inclusive, Section
2.04 and, to the extent applicable, Section 3.01. Notwithstanding the foregoing
sentence, if Lancaster should ever waive such payment requirement and elect in
its sole discretion to deliver Processed Tobacco to or for the benefit of the
Company prior to receiving full payment of Lancaster's invoice for such
Processed Tobacco (including outstanding invoices for purchased Tobacco and for
Accumulated Carrying Charges), the Company shall make payment immediately upon
and in accordance with Lancaster's demand for payment. Lancaster may in its
discretion from time to time refuse to deliver Tobacco until all outstanding
invoices relating to any Tobacco or Accumulated Carrying Charges are paid in
full.
3.08. Release of Security Agreements. Lancaster hereby releases and
terminates all of its right, title and interest in, to and under the property
and assets of the Company in which it was granted a security interest pursuant
to the Security Agreements (as defined in the Second Amended Lancaster
Amendment) and hereby terminates such Security Agreements. Lancaster hereby
agrees to execute and deliver to the Company, at the Company's expense, such
instruments, notices, releases or certificates as the Company may reasonably
request to more fully effectuate the foregoing terminations and releases,
including, without
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limitation, all documents necessary to release the liens on, and security
interests in, all United States Trademark Registrations (and all other
intellectual property filing releases) filed in the United States Patent and
Trademark Office with respect to the Company. Lancaster authorizes the Company
and its agents to file the Uniform Commercial Code Form UCC-3 termination
statements and Release and Reassignment referred to in Schedule II hereto in the
appropriate jurisdictions.
ARTICLE IV
CERTAIN CONDITIONS
4.01. Deliveries at Closing. At Closing, there shall be or have been
delivered to Lancaster, in form satisfactory to Lancaster:
(a) counterparts of this Agreement duly executed and delivered by the
Company and North Atlantic Trading;
(b) satisfactory opinions of Weil, Gotshall & Manges, special counsel to
the Company, as to the power and authority of the Company to enter into this
Agreement; its due authorization, execution and delivery; and the validity and
binding effect and enforceability hereof;
(c) by wire transfer of immediately available funds to Lancaster's account
designated by Lancaster, the following:
(i) the Purchase Price, as calculated by Lancaster, of the Tobacco,
Accumulated Carrying Charges, Lancaster's fees and expenses in connection
with this transaction, and the fees and expenses of Lancaster's counsel;
and
(ii) the Deferred Financing Fee of $250,000 as contemplated by Section
4.06 of the Second Amended Agreement; and
(d) such other documents, certificates and instruments as Lancaster or its
counsel deems necessary or appropriate.
4.02. Additional Conditions Precedent to Lancaster Obligations. The
obligation of Lancaster to perform its obligations under this Agreement is
further conditioned upon:
(a) all legal details and proceedings in connection with the transactions
contemplated by this Agreement shall be in
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form and substance reasonably satisfactory to Lancaster and its
counsel; and
(b) the absence of any Default or Event of Default; and
(c) the simultaneous closing on the 1997 Recapitalization and the Zig
Zag(R) Acquisition, and the execution and delivery of the documents and
instruments contemplated by each thereof.
4.03. Conditions Precedent to Company Obligations. The obligation of the
Company to perform its obligations under this Agreement is conditioned upon:
(a) The execution and delivery by Lancaster of this Agreement;
(b) The simultaneous closing by the Company and all other parties on the
1997 Recapitalization and the Zig Zag(R) Acquisition;
(c) The delivery by Lancaster at Closing of such documents and instruments,
including (A) the Forms UCC-3 Termination Statements and (B) the Release and
Reassignment, as identified on Schedule II hereto, as (i) the Company may
reasonably require to satisfy, at Company expense, all recorded liens held by
Lancaster on the Company's assets; and (ii) as any other senior secured note
holder or lender, with the Company, may reasonably request in connection with
terminating Lancaster's liens on Company assets and perfecting in favor of such
Person liens in their favor thereon; and
(d) the delivery by Lancaster to the Company for cancellation of the
original PIK Notes (as defined in the Second Amended Lancaster Agreement), which
are the only Notes outstanding under the Second Amended Lancaster Agreement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF LANCASTER
Lancaster represents and warrants to the Company:
5.01. Organization and Good Standing. Lancaster (i) is a corporation duly
organized and validly existing under the laws of the Commonwealth of Virginia,
(ii) is in good standing under the laws of the Commonwealths of Virginia and
Pennsylvania, and each other jurisdiction, if any, in which it is required to be
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registered as a foreign corporation and where failure to qualify would have a
material adverse effect on the business or properties of Lancaster, and (iii)
has all the necessary power and authority to own its properties and to carry on
its business as now conducted and as presently proposed to be conducted.
5.02. Authority. The execution, delivery and performance by Lancaster of
this Agreement have been duly authorized by all necessary action on its part.
The execution, delivery and performance by Lancaster of this Agreement does not
violate any order, writ, judgment, injunction, decree, determination or award
presently in effect and having application to Lancaster, or any provision of its
Articles of Incorporation or Bylaws, as amended to date, and will not result in
any breach of or constitute a default under any term of any indenture, loan or
credit agreement, or other agreement, lease or instrument to which Lancaster is
a party or by which Lancaster may be bound.
5.03. Validity of Documents. This Agreement is the legal, valid and binding
obligation of Lancaster, and is enforceable against Lancaster in accordance with
its terms.
5.04. Litigation. There are no actions, suits or proceedings pending, or to
the knowledge of Lancaster, threatened against or affecting Lancaster, or any of
its assets or properties, before any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign,
which, if determined adversely to Lancaster, would have a material adverse
effect on the financial condition, operations or properties of Lancaster, or
upon the ability of Lancaster to perform its obligations under this Agreement.
5.05. Financial Condition. Lancaster (i) is in sound financial condition,
(ii) has all necessary financial resources required to perform its obligations
under this Agreement, and (iii) will maintain sufficient resources, financial
and otherwise, to enable it to perform its obligations under this Agreement.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES BY COMPANY
The Company represents and warrants to Lancaster at Closing and as of the
date of the requested purchase of any Tobacco for the Company or any Company
Affiliate by Lancaster that:
6.01. Organization and Good Standing. (i) The Company is a limited
partnership, and NTFC and North Atlantic Trading are
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each corporations, each of which is duly organized and validly existing under
the laws of the State of Delaware, (ii) the Company, North Atlantic Trading, and
NTFC are each in good standing under the laws of those jurisdictions where they
are required to be qualified to do business and where the failure to qualify
would have a material adverse effect on the business or properties of each of
them, and (iii) the Company, North Atlantic Trading and NTFC each have all the
necessary power and authority to own its properties and to carry on its business
as now conducted and as presently proposed to be conducted.
6.02. Authority. The execution, delivery and performance by the Company,
North Atlantic Trading, and NTFC of this Agreement are within the respective
authority of each of them and have been duly authorized by all necessary action
on each of their part.
6.03. No Violations. The execution, delivery and performance by the
Company, North Atlantic Trading, and NTFC of this Agreement does not violate any
law or regulation of the United States, any state or any subdivision thereof or
any agency of the United States, or any order, writ, judgment, injunction,
decree, determination or award presently in effect and having application to any
of them, or any provision of any of their Governing Documents, and will not
result in any breach of or constitute a default under, or result in the creation
or imposition of any lien or charge upon any property of the Company, North
Atlantic Trading, or NTFC pursuant to any term of any indenture, loan or credit
agreement, or other agreement, lease or instrument to which any of them is a
party or by which any of them may be bound or to which any of their properties
may be subject. The Company, North Atlantic Trading and NTFC are not in default
under any such indenture, agreement, lease or instrument.
6.04. Validity of Documents. This Agreement is the legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms.
6.05. Litigation. There are no actions, suits or proceedings pending or, to
the knowledge of the Company, threatened against the Company, North Atlantic
Trading, or NTFC, or any of the assets or properties of any of them, before any
court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, which, if determined adversely to any of
the Company, North Atlantic Trading, or NTFC, would have a material, adverse
effect on the financial condition or business of the Company, except as
disclosed to Lancaster.
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6.06. Solvency. The Company now (i) has capital sufficient to carry on its
business and transactions as now conducted and all business and transactions in
which it currently plans to engage, (ii) is solvent and able to pay its debts as
they mature, and (iii) owns property having a value, both at fair valuation and
at present fair saleable value within the meaning of applicable bankruptcy and
fraudulent conveyance laws, greater than the amount required to pay the
Company's Indebtedness (as defined in the Second Amended Lancaster Agreement).
6.07. Disclosure. Neither the Company's financial statements for the years
ended December 31, 1994, 1995, or 1996 heretofore provided to Lancaster nor any
other information furnished to Lancaster by the Company in connection with this
Agreement, the 1997 Recapitalization, or the Zig Zag(R) Acquisition contains any
misstatement of a material fact or is untrue in any material respect.
6.08. No Default. No Default or Event of Default exists as of the date of
Closing or will exist as of the date of any purchase of Tobacco by Lancaster.
ARTICLE VII
COVENANTS OF LANCASTER
Lancaster covenants and agrees with the Company as follows:
7.01. Confidentiality. Lancaster shall, in accordance with its customary
procedures for handling confidential information, use its best efforts to ensure
that all written or oral specifications or requirements, all financial
information, and all confidential information furnished to Lancaster by the
Company or any Company Affiliates that is not in the public domain shall not be
published or disclosed to Persons (including other customers of Lancaster)
outside Lancaster's manufacturing division, or to Lancaster's employees or
employees of Lancaster's Affiliates, other than those who need to know such
information in order to fulfill Lancaster's obligations to the Company, without
the Company's prior written consent.
7.02. Lancaster's Employees. Lancaster will be responsible at all times for
the insurance, pay and benefits of Lancaster's employees, including worker's
compensation insurance.
7.03. Access to Premises. Lancaster will permit the Company's
representatives upon any of Lancaster's facilities engaged in the processing of
Tobacco for the Company or any
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Company Affiliate during normal business hours for the purposes of either
inspecting Tobacco owned by the Company or any Company Affiliate, or observing
the production of Processed Tobacco for the Company and its Affiliates, and/or
determining the specifications or requirements appropriate to the type of leaf
tobacco and leaf tobacco stems delivered to Lancaster for processing.
Notwithstanding the foregoing, Lancaster reserves the right to refuse access to
its premises at any time in which it is engaged in the processing of Tobacco for
other customers.
7.04. Insurance. As provided in Section 2.05, so long as requested to do so
by the Company Lancaster will at its initial expense insure (subject to
deductibles and other terms and conditions of any applicable policy of insurance
from time to time in effect) all Tobacco from time to time purchased by
Lancaster for the Company or any Company Affiliate until the Tobacco is shipped
to the Company or Company Affiliate F.O.B. Lancaster, at which time the
obligation to insure the Tobacco becomes that of the Company. Any insurance
maintained or provided by Lancaster covering Tobacco purchased for or owned by
the Company or any Company Affiliate shall be in amounts, with such deductibles,
and upon the same terms and conditions as Lancaster insures its own Tobacco. In
the event of insured loss or damage to the Company's or any Company's
Affiliaates' Tobacco, Lancaster shall make available to the Company the proceeds
of any insurance received by Lancaster covering the Company's or Company's
Affiliates' Tobacco. Lancaster shall not be obligated under any circumstances to
replace any Tobacco that is destroyed or damaged by casualty; and Company for
itself and each Company Affiliate acknowledges that it will look solely to
insurance proceeds as its only remedy for Tobacco destroyed or damaged by
casualty. The deductible under Lancaster's current policies insuring Tobacco is
$10,000, but Lancaster reserves the right from time to time to amend its
insurance policies and deductibles. If Lancaster materially changes its
deductibles, it will provide thirty (30) days advance notice thereof to the
Company.
7.05. Tobacco Storage. Storage of Tobacco in Lancaster's facilities does
and will conform to Industry standards, and Lancaster will handle the Tobacco in
its storage with the same care and skill as Lancaster uses with respect to
Tobacco owned by Lancaster and Lancaster's other customers.
7.06. Tobacco Purchasing and Processing. Lancaster will (i) purchase
Tobacco for the Company and Company Affiliates with the same care and skill as
Lancaster uses in purchasing Tobacco to meet other customers' requirements, and
(ii) process the Tobacco in accordance with Industry standards.
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ARTICLE VIII
COVENANTS OF COMPANY
The Company covenants and agrees with Lancaster as follows:
8.01. Financial Information. The Company will provide to Lancaster in a
timely manner copies of its Quarterly Reports on Form 10-Q and Annual Reports on
Form 10-K.
8.02. Existence. The Company will preserve and maintain the existence,
rights, franchises and privileges of the Company in the jurisdiction of its
formation and in each jurisdiction in which the nature and character of its
properties and activities makes such qualification necessary, and where the
failure to maintain such existence, rights, franchises and privileges would have
a material adverse effect on the business and properties of the Company;
provided, however, that nothing herein contained shall be deemed to limit the
Company's right to convert from a limited partnership to a corporation by merger
or otherwise.
8.03. Insurance. The Company shall have no obligation to insure any of its
or any Company Affiliates' Tobacco in the custody of Lancaster. However,
Lancaster shall have no liability for any loss or damage to the Company's or any
Company Affiliates' Tobacco at any time the Tobacco is not insured by Lancaster,
unless such loss or damage is caused by Lancaster's negligence.
8.04. Notice of Default or Change of Condition. The Company will, promptly
upon discovery, notify Lancaster of any Default or any event of default under
this Agreement and amendments hereof, and will promptly notify Lancaster of any
material adverse change in the Company's financial condition.
8.05. Additional Documents. The Company will execute and deliver and cause
to be executed and delivered such documents or instruments as Lancaster may from
time to time reasonably request in order to carry out the intent of this
Agreement.
ARTICLE IX
DEFAULT
9.01. Events of Default. If any one or more of the following events
(individually, an "Event of Default" and collectively, the "Events of Default")
shall occur:
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(a) default shall be made in the obligation of the Company or any Company
Affiliate to pay when due any invoiced charge or other costs of or related to
purchasing, processing, handling, insuring, or otherwise dealing with Tobacco as
set forth in and required by this Agreement;
(b) the Company or any Company Affiliate shall default in the performance
or observance of any of its obligations under this Agreement (other than those
referred to in Section 9.01(a)), and such default shall continue unremedied for
a period of twenty (20) days after notice thereof to the Company by Lancaster;
(c) the Company or North Atlantic Trading shall commence a voluntary case
or other proceeding seeking liquidation, reorganization or other relief with
respect to itself or its debts under any bankruptcy, insolvency or other similar
law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such official in an
involuntary case or other proceeding commenced against it, or shall make a
general assignment for the benefit of creditors, or shall fail generally to pay
its debts as they become due, or shall take any action to authorize any of the
foregoing;
(d) an involuntary case or other proceeding shall be commenced against the
Company or North Atlantic Trading seeking liquidation, reorganization or other
relief with respect to it or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a trustee
of any substantial part of its property, and such involuntary case or other
proceeding shall remain undismissed and unstayed for a period of sixty (60)
days;
(e) this Agreement, in whole or in part, after delivery thereof, shall for
any reason cease to be a valid and binding obligation upon the Company or any
Company Affiliate, in whole or in part;
then, upon the happening of any one or more of the foregoing Events of Default,
Lancaster may, at its option, by providing notice to the Company, do any one or
more of the following: (i) declare all sums or obligations payable by the
Company under this Agreement or under any invoice or document to be immediately
due and payable; (ii) immediately terminate this Agreement and Lancaster's
obligations hereunder and require the Company to
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immediately pay the Purchase Price and Termination Fee; (iii) terminate
Lancaster's obligations to purchase Tobacco and to process Tobacco subsequently
acquired by the Company or any Company Affiliate, but continue to process the
Tobacco in Lancaster's possession as of the date of termination, in accordance
with the provisions of Section 3.01(e); or (iv) exercise any other remedy,
either alone or in conjunction with one or more of the foregoing remedies, as
are available to Lancaster pursuant to other provisions of this Agreement, at
law, in equity, or otherwise, as Lancaster may elect in its sole discretion from
time to time. The Company expressly waives any presentment, demand, protest or
other notice of any kind.
9.02. Waivers. Failure or delay of Lancaster to exercise any of the
remedies provided in this Agreement or otherwise available shall not constitute
a waiver thereof by Lancaster, nor shall use of one or more of any such remedies
from time to time prevent the subsequent or concurrent resort to any other
remedy or remedies which shall be vested in Lancaster by this Agreement or at
law or in equity. To be effective, any waiver by Lancaster must be in writing,
and such waiver shall be limited in its effect to the condition or default
specified therein, and no such waiver shall extend to any subsequent condition
or default or impair any right consequent thereon.
ARTICLE X
MISCELLANEOUS
10.01. Force Majeure. Neither Lancaster nor the Company nor any Company
Affiliate shall be responsible for any delay or failure of performance under
this Agreement which is caused, in whole or in part, by any act, event or
condition beyond the reasonable control of Lancaster or the Company or such
Company Affiliate, including, as an illustration and not a limitation: fire;
acts of God; adverse weather; unavailability or shortage of fuel, utilities, raw
materials, equipment, means of repair, labor, contractors, carriers or means of
transportation; war; civil strife; governmental proclamation or regulation;
accidents; break-down of machinery; strike, lockout, boycott, or other
interruption of or disruption from labor (regardless of whether demands by labor
are within the power of Lancaster or the Company or such Company Affiliate to
grant); injunction, administrative regulation, compliance with the requirements
of law or governmental agencies, and the like; provided, however, that the
parties so affected shall (i) take reasonable steps to avoid or remove such
action, event or condition causing nonperformance and
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to resume performance with reasonable dispatch as soon as such action, event or
condition is removed, and (ii) give notice promptly to the other party as soon
as such action, event or condition causing non-performance is discovered,
including an estimate of the period thereof. With respect to Lancaster's
obligation to purchase Tobacco pursuant to Section 2.01, the Company
acknowledges that market conditions may be such from time to time as to render
it impossible, as a practicable matter, for Lancaster to perform, and in such
event Lancaster will notify the Company and keep the Company fully apprised of
market conditions. To the extent that any of the events or conditions covered by
this Section 10.01 occur, and as a result Lancaster is delayed in purchasing
Tobacco or processing tobacco, thereby causing the normal cycle of purchasing
Tobacco and processing tobacco for the Company or any Company Affiliate to be
extended, the Company and its Affiliates may, if Lancaster is unable to find
alternative means to meet its processing obligations under Section 3.01 and such
failure is likely to continue for more than thirty (30) days and will have a
material, adverse effect on the Company or any Company Affiliate, after ten (10)
days' prior written notice to Lancaster to such effect, find and utilize
alternative processing sources until Lancaster is again able to meet its
processing obligations under this Agreement and so notifies the Company. Nothing
contained in this Section 10.01 shall constitute an extension of time for
payment with respect to any purchased Tobacco or Processed Tobacco delivered to
or for the Company or its Affiliates.
10.02. Entire Agreement. This Agreement and the Schedules and Exhibits (if
any) attached to this Agreement set forth the entire agreement of the parties,
and supersede any prior writings or agreements. This Agreement may be amended
only in conformity with the provisions of this Agreement.
10.03. Notices, Etc. All notices, requests, demands, directions and other
communications provided for in this Agreement shall be in writing (including
telegraphic communication) and shall be sufficiently and satisfactorily given if
the same are mailed, postage prepaid, by certified or registered mail, return
receipt requested, or delivered by hand, or delivered by private courier, fee
prepaid, or delivered by facsimile transmission with positive confirmation of
receipt, to the applicable party at the address indicated below:
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If to the Company or any Company Affiliate:
National Tobacco Company, L.P.
257 Park Avenue South, 7th Floor
New York, NY 10010
Attn: Thomas F. Helms, Jr., President
FAX No. (212) 253-8296
with a copy to:
Jeffrey S. Hay, Esquire
Fennebresque, Clark, Swindell & Hay
Nations Bank Corporate Center, Suite 2900
100 North Tryon Street
Charlotte, NC 28202-4011
FAX No. (704) 347-3838
If to Lancaster:
Lancaster Leaf Tobacco Company of
Pennsylvania, Inc.
198 West Liberty Street
P.O. Box 897
Lancaster, Pennsylvania 17603
Attention: Claude G. Martin, President
FAX No. (717) 394-4479
with a copy to:
Andrew F. Lucarelli, Esquire
Hartman Underhill & Brubaker
221 East Chestnut Street
Lancaster, PA 17602
FAX No. (717) 299-3160
or at such other address as shall be designated by a Person in accordance with
this Section 10.03. All such notices, requests, demands, directions and other
communications shall be effective when personally delivered or faxed, upon
actual delivery; or when delivered by private courier or telegraphed, shall be
effective one (1) Business Day after being delivered to the courier or telegraph
company; or when mailed by certified or registered mail, shall be effective
three (3) Business Days after being deposited in the mails.
10.04. Applicable Law. This Agreement and the rights and obligations of the
parties hereunder, shall be governed by and
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construed and enforced in accordance with the laws of the Commonwealth of
Pennsylvania, without giving effect to Pennsylvania's laws of conflict of laws.
10.05. Consent to Jurisdiction and Waiver of Service.
(a) THE COMPANY HEREBY CONSENTS AND AGREES THAT THE COURT OF COMMON PLEAS
OF LANCASTER COUNTY, PENNSYLVANIA, OR, AT LANCASTER'S OPTION, THE UNITED STATES
DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA, SHALL HAVE EXCLUSIVE
JURISDICTION AND VENUE IN ANY LAWSUIT OR ACTION PERTAINING TO THIS AGREEMENT OR
TO ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT.
(b) The Company hereby waives personal service of the Writ, Complaint, and
other process issued in any action or suit and agrees that service of such Writ,
Complaint and other process may be made by registered or certified mail, or by
private courier addressed to the Company at the address set forth in this
Agreement. Nothing in this Agreement shall be deemed or operate to affect the
right of Lancaster to serve legal process in any other manner permitted by law,
or to preclude the enforcement by Lancaster of any claim, or any judgment or
order obtained in such forum, or the taking of any action under this Agreement
to enforce same, in any other appropriate forum or jurisdiction.
10.06. Product Liability and Indemnity. The Company shall indemnify and
hold harmless Lancaster and its Affiliates, and their employees, officers and
directors, from and against liability (including punitive damages) and costs
(including reasonable attorneys' fees) arising out of a claim or claims for
personal injury, illness, disease or death caused by, or alleged to have been
caused by, the purchase or use of chewing tobacco or other tobacco products or
components of tobacco products manufactured and sold by the Company (a "Claim"),
except that this indemnity shall not apply to any Claim to the extent caused by
or arising out of the negligence or intentional misconduct of Lancaster or its
Affiliates or any of their employees, officers, directors, contractors or
agents. The Company's indemnity obligation as stated herein shall be conditioned
on (1) Lancaster providing reasonable notice of the assertion or initiation of
any Claim for which it asserts a right of indemnity hereunder (2) Lancaster
granting to the Company the right to direct and provide (through counsel
selected by the Company) the defense of any such Claim, and (3) Lancaster's
reasonable cooperation in the preparation and presentation of such defense,
which cooperation
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<PAGE>
shall include cooperating in discovery and providing reasonable access to and
the testimony of Lancaster officers, directors, employees, contractors and
agents who may be witnesses or potential witnesses. Prior to the settlement,
release or other disposition of any such Claim ("Disposition"), the Company
shall provide written notice to Lancaster of the terms and conditions of the
proposed Disposition, but Lancaster shall have absolute discretion in whether to
accept or reject any proposed Disposition to the extent such Disposition would
affect a Claim as to which Lancaster asserts a right to indemnity hereunder. The
Company shall have no indemnity obligation hereunder with respect to any Claim
that Lancaster shall settle or otherwise compromise, in whole or in part,
without the prior written consent of the Company. This indemnity shall survive
the termination of this Agreement for any reason whatsoever.
10.07. Execution in Counterparts. This Agreement may be executed in any
number of counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which taken together shall constitute but
one and the same instrument.
10.08. Binding Effect; Assignment. This Agreement shall bind and inure to
the benefit of the Company and Lancaster, and their respective successors and
assigns, except that neither the Company nor Lancaster shall have the right to
assign any of its rights hereunder or any interest herein without the written
consent of the other party, which consent may be arbitrarily re fused. No Person
not a party to this Agreement is intended to be benefitted hereby or shall have
any rights hereunder. Notwith standing the foregoing, the Company may assign as
collateral security its rights under this Agreement to its senior secured note
holders and lenders; provided, however, that except as expressly provided
otherwise in any agreement that may be subsequently entered into between or
among Lancaster and any of the Company's senior secured note holders or lenders,
Lancaster shall have no obligation to such note holders or lenders under this
Agreement unless and until such note holders or lenders shall have agreed to
assume the obligations of the Company under this Agreement.
10.09. Severability of Provisions, Etc. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without affecting the validity or enforceability of the
remainder of this
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<PAGE>
Agreement or the validity or enforceability of such provision in any other
jurisdiction.
10.10. Captions. Article and Section captions in this Agreement are
included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
10.11. Recovery of Expenses After Default. If Lancaster or the Company
defaults in the performance of the obligations under this Agreement, and the
other sues to enforce the provisions of this Agreement, or to cure the default,
or for damages, the prevailing party shall be entitled to recover its costs
incurred in such proceeding, including reasonable attorney's fees.
10.12. Lancaster Expenses. The Company will pay to Lancaster at Closing,
and from time to time upon demand of Lancaster thereafter, all reasonable
expenses incurred by Lancaster (including legal fees and expenses) with respect
to (a) advice concerning, or actions taken in connection with, the terms,
conditions and requirements of this Agreement and any matters relating to the
Company, and (b) the enforcement of this Agreement, including without limitation
all reasonable costs and expenses of Lancaster (including attorneys' fees and
expenses) in any bankruptcy proceedings.
10.13. Rules of Construction. As used in this Agreement, neutral pronouns
and any variations thereof shall be deemed to include the feminine and masculine
and all terms used in the singular shall be deemed to include the plural, and
vice versa, as the context may require. The words "herein", "hereof", "hereto"
and "hereunder" and other words of similar import refer to this Agreement as a
whole, including the Schedules and Ex hibits hereto, as the same may from time
to time be amended or supplemented and not to any subdivision contained in this
Agree ment. The word "including" when used herein means "including, without
limitation", is intended to be construed in the widest possible context, and is
not intended to be exclusive notwithstanding any contrary rule of statutory
interpretation. References herein to a Section, subsection, clause, Schedule or
Exhibit shall refer to the appropriate Section, subsection, clause, Schedule or
Exhibit in or to this Agreement.
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<PAGE>
IN WITNESS WHEREOF, and intending to be legally bound hereby, the Company
and Lancaster together with NTC Holding as guarantor, have caused this Agreement
to be duly and properly executed as of the 25th day of June, 1997.
NATIONAL TOBACCO COMPANY, L.P.,
a Delaware limited partnership,
by its authorized General Partner,
NATIONAL TOBACCO FINANCE
CORPORATION
By: /s/ Thomas F. Helms, Jr.
-------------------------------
Thomas F. Helms, Jr., President
its authorized officer
[Signatures continued on next page]
LANCASTER LEAF TOBACCO
COMPANY OF PENNSYLVANIA, INC.
By: /s/ William E. Powell
-------------------------------
William E. Powell,
Executive Vice President
its authorized officer
For purposes of guarantying and becoming surety to Lancaster for the payment and
performance of the obligations of the Company and each Company Affiliate
pursuant to the terms of this Agreement.
NORTH ATLANTIC TRADING
ACQUISITION COMPANY, INC.,
to be renamed NORTH
ATLANTIC TRADING COMPANY,
INC.
By: /s/ Thomas F. Helms, Jr.
-------------------------------
Thomas F. Helms, Jr., President
its authorized officer
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<PAGE>
Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions marked by [**] have been separately
filed with the Commission.
AMENDED AND RESTATED DISTRIBUTION AND LICENSE AGREEMENT
Dated as of November 30, 1992
The parties to this Agreement are Bollore Technologies, S.A., a corporation
organized under the laws of the Republic of France ("Bollore"), and North
Atlantic Trading Company, Inc., a Delaware corporation (the "Distributor").
PREAMBLE
WHEREAS, pursuant to a Consent Agreement, dated November 30, 1992, among
Bollore, the Distributor, United States Tobacco Company ("USTC") and certain of
USTC's affiliates (the "Consent Agreement"), Bollore has consented to the
transfer and assignment to the Distributor of USTC's rights and interests in, to
and under the Bollore Documents, other than the Manufacturing Rights (as those
terms are defined in the Consent Agreement) contingent upon the consummation of
the transactions contemplated by the Asset Purchase Agreement, dated November
25, 1992, among the Distributor, USTC and certain of USTC's affiliates (the
"Asset Purchase Agreement") and provided that the Bollore Documents are
immediately amended and restated pursuant to this Agreement; and
WHEREAS, the parties desire to restate, amend and supersede the Bollore
Documents in their entirety as herein provided;
NOW, THEREFORE, the parties hereby agree, for good and valuable
consideration, to restate, amend and supersede the Bollore Documents in their
entirety as follows:
1. Distribution Rights.
(a) On the terms and subject to the conditions of this Agreement, Bollore
hereby grants to the Distributor for the term of this Agreement (as defined in
Section 6) the exclusive right to purchase the cigarette paper booklets sold
under the trademark "ZIG-ZAG" listed on Schedule A (the "Products") from Bollore
for resale in the fifty United States and the District of Columbia and its
territories, possessions and foreign military bases (the "Territory"). During
the term of this Agreement, Bollore shall not sell the Products to any person or
company in the Territory
<PAGE>
other than the Distributor and, except as expressly otherwise provided in this
Agreement, Bollore shall sell to the Distributor the quantities of the Products
required by the Distributor.
(b) The Distributor accepts the grant of such right and shall use its best
efforts throughout the term of this Agreement to promote and sell the Products
within and throughout the Territory. Except as expressly provided otherwise in
this Agreement, the Distributor shall purchase all of its requirements of
Products exclusively from Bollore.
The Distributor shall have the sole right to determine the prices at and
the terms upon which the Distributor shall sell the Products within the
Territory and to determine the wholesalers and subdistributors and other
customers to whom it sells the Products, provided, to the best of the
Distributor's knowledge, all such parties use or resell the Products solely
within the Territory.
During the term of this Agreement, the Distributor shall not sell the
Products outside the Territory (other than pursuant to, and in accordance with
the terms of, a written agreement with Bollore) and shall not knowingly sell the
Products to any party who, directly or indirectly, resells or distributes such
Products outside, or sells to a third party for resale or distribution outside,
the Territory, and shall immediately cease selling to any such party upon
becoming aware of such party's sales outside the Territory. Bollore may select
(a) other distributors for the Products in other territories, and (b) other
distributors for any products not using the Marks (as defined in Section 9) in
the Territory.
(c) The relationship between the parties is that of vendor and purchaser
(rather than principal and agent, employer and employee, partners or joint
venturers) and, accordingly, the Distributor is not empowered hereunder or
otherwise (i) to act for or to bind Bollore, (ii) to accept service of process
on behalf of Bollore in the Territory or (iii) to make any express or implied
representation or warranty on behalf of Bollore; provided, however, that the
Distributor may describe and represent itself as the exclusive distributor of
the Products in the Territory.
(d) The Distributor shall provide Bollore with information relating to
unit sales volume and inventory of the Products in the Territory on at least a
monthly basis consistent with past practices between Bollore and USTC and its
affiliates.
2
<PAGE>
(e) The Distributor shall be solely responsible for securing all required
import licenses, governmental approvals, permits and authorizations necessary
for the importation and sale of the Products in the Territory; provided,
however, that Bollore shall use its reasonable best efforts (at the
Distributor's expense) to cooperate with the Distributor in securing such
licenses, approvals, permits and authorizations. Bollore shall, at its own
expense, supply any technical data and samples required in connection with
necessary governmental registration of Products in the Territory; provided,
however that the Distributor shall use such technical data and any other
proprietary information obtained from Bollore solely for the purpose of
obtaining such registration. Bollore shall be solely responsible for securing
all required export licenses, governmental approvals, permits and authorizations
necessary for the exportation of the Products from the country of manufacture;
provided, however, that the Distributor shall use its reasonable best efforts
(at Bollore's expense) to cooperate with Bollore in securing such licenses,
approvals, permits and authorizations. The Distributor shall, at its own
expense, supply such information and data as may be required in connection with
obtaining any of the foregoing.
2. Warranties; Product Defects.
Bollore shall ship and deliver all Products in saleable condition, and
Bollore represents and warrants that all Products are merchantable, but makes no
other representation or warranty express or implied regarding the condition of
the Products. The Distributor is not authorized to extend or modify any warranty
or guaranty on behalf of Bollore. All Products received by the Distributor will
be inspected promptly upon receipt for damage, but in no event later than 15
days after receipt. If any Products are materially damaged, defective and not
usable or saleable in the ordinary course of the Distributor's business
("Defective Products"), then the Distributor's sole and exclusive remedy
(subject to the fourth paragraph of this Section 2) shall be rejection of the
Defective Products with a right to a refund of the payment for such Defective
Products if they have been paid for (as provided below) and without obligation
to pay for such rejected portion if they have not been paid for. Except as
provided below, if Bollore does not receive a written rejection from the
Distributor of a shipment, or part thereof, within 15 days after delivery of
such shipment, the Distributor shall be deemed irrevocably to have accepted such
shipment. If the Distributor timely notifies Bollore that it rejects all or part
of a shipment, Bollore, at its sole expense, shall have 30 days
3
<PAGE>
after receipt of such notice (a) to cure any defect by providing substitute
Products or causing the Defective Products to meet its customary quality
standards, or (b) to provide a credit to the Distributor for the amount due
Bollore for such Defective Products or refund such amount if previously paid.
Bollore shall supply either a return authorization number and return shipping
instructions or instructions to destroy the Defective Products and shall ship
replacement merchandise as soon as possible.
Nothing herein shall prevent the Distributor from returning to Bollore for
refund of the purchase price paid therefor any Product found to be manufactured
defectively which is discovered by the Distributor subsequent to such inspection
for damage.
Notwithstanding the foregoing, if Bollore disputes the Distributor's claim
that any Product does not meet Bollore's customary quality standards or is
otherwise a Defective Product, the parties shall cooperate in good faith to
settle the dispute amicably. If they fail to agree, the parties shall submit
samples of the Product to a mutually agreed upon independent laboratory or
industry expert (which or who has no prior dealings and is unaffiliated with
either party) (an "Independent Evaluator") for testing and such Independent
Evaluator's determination shall be final and binding. If the parties fail to
agree upon an Independent Evaluator within 10 days, each party shall select an
Independent Evaluator and the two appointed Independent Evaluators shall agree
upon a third Independent Evaluator, whose determination shall be final and
binding. The losing party shall pay the costs of submitting the samples and
testing by the Independent Evaluator.
Except for the remedies set forth in this Section, Bollore shall not be
liable to the Distributor or any other party by reason of supplying defective or
otherwise non-conforming Product; except that nothing herein shall affect
Bollore's liability, if any, as a matter of law, to third parties for defective
product nor Bollore's liability to the Distributor arising from third party
claims relating to defective Product, but Bollore shall have no liability to the
Distributor for damages to Distributor arising from lost profits or lost
opportunities of the Distributor.
To the extent requested by the Distributor, Bollore shall modify the
Products to the extent reasonably necessary to comply with applicable laws in
the Territory; provided, however, that if such modification increases Bollore's
costs, the parties shall negotiate in good faith for 30 days for a mutually
agreed
4
<PAGE>
upon purchase price adjustment to reflect such additional costs. If after such
30 day period the parties, acting in good faith, have been unable to agree, the
parties shall submit the dispute to binding arbitration in accordance with
Section 14(d); provided, however, that during such 30 day period and/or
arbitration, the previously established prices shall apply to all transactions
and corresponding payment schedules of Bollore and the Distributor.
Notwithstanding the proviso contained in the previous sentence, if after such 30
day period and/or arbitration a new price is established, such new price shall
apply retroactively to the parties and the Distributor shall pay, within 10
business days of the final determination of the new price, to Bollore, the
amount equal to the difference between the amount that would have been paid over
such period if the new price had been in effect and the amount that was actually
paid.
3. Terms of Sales.
(a) The Distributor shall pay Bollore in French Francs the full invoiced
price for purchases of the Product, without any set-offs, withholdings or
deductions of any kind (other than amounts payable with respect to a specific
invoice, the payment of which the Distributor disputes in good faith because of
Defective Products covered by such invoice or an error in such invoice), not
later than 45 days after the date of issuance of the bill of lading or, in the
case of shipments of Products from the bonded warehouse pursuant to section 3(f)
below, no later than 30 days after the date such Products are released from the
warehouse. Such payments shall be made by wire transfer of immediately available
funds to Bollore's [**], or such other account as Bollore may designate from
time to time. The Distributor shall be responsible for paying [**]. Bollore
shall be responsible for [**].
(b) The prices to be charged by Bollore to the Distributor for the Products
shall initially be the prices set forth in Schedule A, which shall remain in
effect until December 31, 1993. From January 1, 1994 through December 31, 1994,
the prices shall increase by [**].
5
<PAGE>
(c) Until December 31, 1998, the following adjustment shall be made to
Product prices to account for material currency fluctuations: if the average
rate of exchange (averaging the bid and the asked rates), as quoted by the
reference banks of Credit Lyonnais (Paris), Chemical Bank (New York City) and
Banque Nationale de Paris (Paris) (the "Average Exchange Number") during the
calendar month immediately preceding the date of any invoice is less than
[**], the price for such Products shall be adjusted to be equal to the current
Product price pursuant to this Agreement, multiplied by a fraction, the
numerator of which is the Average Exchange Number and the denominator of which
is [**].
(d) In order to assure each of the parties commercially reasonable profits
in light of inflationary trends and currency translation factors, 120 days prior
to December 31, 1998 and each fifth-year anniversary of that date, the parties
shall enter into good faith negotiations to agree on an index and a currency
adjustment formula to replace those set forth in subparagraphs (b) and (c) above
(the "Price Negotiation Period"). If after the Price Negotiation Period the
parties, acting in good faith, have been unable to agree, the parties agree to
submit the dispute to binding arbitration in accordance with Section 14(d);
provided, however, that during such Price Negotiation Period and/or arbitration,
the previously established and applicable indices and adjustment formulae shall
apply to all transactions and corresponding payment schedules of Bollore and the
Distributor. Notwithstanding the proviso contained in the previous sentence, if
after such Price Negotiation Period and/or arbitration a new price is
established, such new price shall apply retroactively to the parties and the
appropriate party shall pay, within 10 business days of the final determination
of the new price, to the party in whose favor a price adjustment is made, the
amount equal to the difference between the amount that would have been paid over
such period if the new price had been in effect and the amount that was actually
paid.
(e) All terms of sale shall be [**]. Ninety days prior to the beginning of
each calendar year, the Distributor
6
<PAGE>
shall deliver to Bollore a Product purchase forecast on a quarter-by-quarter
basis, anticipating its purchase requirements for each Product during the next
year (other than the forecast for the first full calendar year, which shall be
delivered 15 days prior to the beginning of that year). Purchases of Products
shall be made by purchase orders on a quarterly basis, with a firm purchase
order to be delivered to Bollore at least 90 days prior to the beginning of each
calendar quarter. The Distributor's order for the first quarter is as listed on
Schedule B. Bollore shall not be required to deliver to the Distributor more
than [**], of the Distributor's forecasted annual purchase requirements and
Bollore shall in no event be required to ship Products to the Distributor if
such shipment is not fully covered by the Letter of Credit referred to in
Section 3(h) or if the Distributor fails to make payment as provided in the
second sentence of Section 6(c).
(f) Within six months from the date of this Agreement, Bollore shall
establish, and from that date on maintain, [**] (the "Supply Amount") of
Products at a bonded warehouse in the United States. In the event that it is
necessary to supply the Distributor from such warehouse, the Distributor shall
be invoiced for the Products pursuant to this Agreement and shall be responsible
for paying all duties and taxes. Both parties shall cooperate to facilitate the
release of Products from such warehouse. For the calendar years 1993 and 1994,
the Supply Amount shall be deemed to be [**] of the varieties selected by the
Distributor no later than 30 days after the Effective Date of this Agreement (as
defined in Section 14(e)); thereafter, Bollore will (at the beginning of each
calendar year) compute a new Supply Amount based on the average monthly
purchases made during the immediately preceding calendar year.
(g) Notwithstanding anything to the contrary in this Agreement, if at any
time the price received by Bollore under this Agreement for Products fails to
cover Bollore's costs (e.g., manufacturing, transportation, taxes, warehousing
and the like) for such Products, Bollore may give notice to the Distributor to
such effect, and thereby implement this Section (the "Adjustment Notice"), in
which event the parties shall promptly negotiate in good faith to determine if
they can agree on an adjustment to the price being charged under this Agreement
mutually acceptable to the parties. If the parties fail to reach an agreement
within 90 days of the delivery of the Adjustment Notice, the Distributor shall
have the right, subject to the conditions below, to contract with an alternate
supplier reasonably acceptable to
7
<PAGE>
Bollore ("Alternate Supplier") to manufacture and supply the Products to the
Distributor, in which event Bollore shall, pursuant to Section 9(a), be deemed
to have granted a royalty-free license to the Distributor to permit such
manufacture of the Products by the Alternate Supplier for the sole account of
the Distributor for such period as the Distributor shall be entitled to purchase
from such Alternate Supplier in accordance with this Agreement.
During the 90-day period following the delivery of the Adjustment Notice,
and for up to an additional 6 months thereafter, if no agreement on a price
adjustment has been reached, Bollore shall continue to supply the Distributor
under this Agreement to enable the Distributor to retain an Alternate Supplier.
After such additional 6-month period, or at such earlier date as an Alternate
Supplier shall have commenced supplying Products to the Distributor, Bollore may
cease supplying the Distributor hereunder, with no further liability to the
Distributor to supply the Distributor with Products under this Agreement or to
pay a Price Differential Payment as referred to in Section 10(a) (unless Bollore
shall elect to continue supplying the Distributor pursuant to the provisions of
this Section as set forth below).
The parties' rights under this Section shall be subject to the following:
(i) The Distributor shall give Bollore not less than 30 days prior
notice of the identity of, and the terms offered by, the Alternate
Supplier, and Bollore shall have the right, exercisable by notice given
within such 30-day period, to agree to supply the Distributor under this
Agreement for the same price terms offered by the Alternate Supplier, in
which event the Distributor shall not retain the Alternate Supplier, and
Bollore shall continue to exclusively supply the Distributor under this
Agreement, but on such price terms (the "Match Right") until the next Price
Negotiation Period;
(ii) Pursuant only to the terms of this Section 3(g), the Distributor
shall notify Bollore of any change in price terms (not the result of
changes due to the automatic operation of a specific price formula which
was part of the original price terms) by the Alternate Supplier within 5
business days of the Distributor being notified thereof, and Bollore shall
have a Match Right for 5 business days following receipt of such notice in
connection therewith;
8
<PAGE>
(iii) If the Distributor is being supplied by an Alternate Supplier
pursuant to this Section, Bollore shall have the right, prior to or during
any subsequent Price Negotiation Period, to notify the Distributor that it
intends to commence shipping Product hereunder again (as of either (x) the
date such Price Negotiation Period commences or (y) the date final
agreement is reached or an arbitration award is issued with respect to
prices under Section 3(d)) and to exercise its right to negotiation and, if
necessary, arbitrate a new price structure pursuant to Section 3(d) above,
in which event, thereafter Bollore shall supply, and the Distributor shall
purchase, Products in accordance with the prices in effect pursuant to the
terms of this Agreement, adjusted as may be required by such arbitration
award or agreement as provided in Section 3(d), subject to the right of
Bollore to give an Adjustment Notice under this Section again at a later
time; and
(iv) Any agreement between the Distributor and an Alternate Supplier
shall not contain provisions which prevent the Distributor from complying
with this Section.
(h) No later than the Effective Date of this Agreement, the Distributor
shall establish and deliver to Bollore an irrevocable, unconditional, demand
letter of credit, which shall expire no earlier than sixty days after the second
anniversary of the Effective Date of this Agreement, in form and substance
reasonably satisfactory to Bollore, drawn on a bank reasonably satisfactory to
Bollore, and in the amount of FF 16,000,000 (which, together with any other
supplemental or replacement letters of credit of any amount, herein called the
"Letter of Credit"). It is the intent of the parties that the Letter of Credit
will secure payments to be made by the Distributor for shipments of Products
pursuant to this Agreement as provided in Section 6(c). Therefore, in the event
that the Distributor does not pay Bollore in accordance with Section 3(a) above
within 15 days of the due date thereof, Bollore may draw on the Letter of Credit
to the extent of such unpaid invoiced amount as provided in Section 6(c) below.
After the second anniversary of the Effective Date, if Bollore requires a
Letter of Credit from the Distributor, Bollore shall bear 50% of the bank fees
(exclusive of legal costs) imposed on the Distributor by the bank for issuance
of such letter of credit, it being understood that Bollore may not require a
Letter of Credit in excess of 16,000,000 FF. The Distributor may, at any time,
arrange for a letter of credit in an amount greater than the amount required by
Bollore, provided
9
<PAGE>
the Distributor shall bear all costs and fees associated with such greater
amount.
Notwithstanding anything to the contrary contained in this Agreement, and
notwithstanding any limitation in this Agreement on the amount of the Letter of
Credit Bollore may require Distributor to provide, in no event shall Bollore be
required to ship any Products ordered by the Distributor if the amount then
outstanding under the Letter of Credit is less than the aggregate of all unpaid
invoices then currently outstanding (including invoiced amounts that may be in
dispute) plus the invoice amount of the purchase order to be shipped, unless
Bollore waives in writing the requirement of a Letter of Credit, which Bollore
may do from time to time for specific shipments or specific time periods.
4. Advertising and Promotion.
(a) The Distributor shall submit to Bollore all written materials to be
used in advertising, promotional and marketing campaigns (all of which shall be
prepared in accordance with Section 9), for approval by Bollore, which approval
shall not be unreasonably withheld. If notice of disapproval shall not have been
given within 15 business days after receipt of such copy by Bollore, approval
shall be deemed granted. Notice of disapproval, if any, shall specify the
reasons for said disapproval.
(b) The Distributor shall comply in all material respects with all laws and
regulations of all jurisdictions, relative to its sales activities.
5. Exclusivity and Non-Competition.
(a) During the Term of this Agreement and for a period of five years after
termination of this Agreement, the Distributor shall not directly or indirectly,
manufacture, sell, distribute or otherwise deal in or be associated with
promotion in the Territory of cigarette paper or cigarette paper booklets
("Competitive Products") (including, but not limited to, owning an interest in
any company, partnership or other entity which directly or indirectly
manufactures, sells or distributes Competitive Products) except for (i) the
distribution and sale of such products produced by Bollore or by an Alternate
Supplier or by the Distributor as permitted by Sections 3(g), 10(a) and 10(b);
(ii) ownership of no more than 2% of the issued and
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<PAGE>
outstanding stock of a company whose securities are publicly traded on a
national securities exchange or an over-the-counter or similar public market;
and (iii) the distribution and sale of products manufactured by USTC with
Bollore's consent pursuant to the Consent Agreement. In addition, during the
term of this Agreement and for a period of five years after termination of this
Agreement, the Distributor shall cause its subsidiaries and affiliates (which
for purposes of this Agreement shall be deemed to include any Parent of the
Distributor and the Original Stockholders and Permitted Transferees (as such
terms are defined in section 11)) (collectively, the "Non-Compete Party") to
comply with the provisions of this Section.
(b) During the term of this Agreement, the Distributor shall not permit any
individual to serve as a director of the Distributor or its subsidiaries and
affiliates if such individual is an officer, director or employee of a
corporation, partnership or other entity which directly or indirectly
manufactures, sells, distributes or promotes Competitive Products.
(c) The Distributor acknowledges that there may be no adequate remedy at
law, and that money damages may not be an adequate remedy for a breach of this
Section. Therefore, the Distributor agrees that Bollore shall have the right, in
addition to its rights under Section 6(b)(iv) and any other rights it may have,
to injunctive relief and specific performance in the event of the Distributor's
breach of this Section 5. This remedy shall be cumulative and shall in no way
limit any other remedy Bollore may have at law, in equity or under this
Agreement.
6. Term.
(a) The term of this Agreement shall commence on the Effective Date of this
Agreement and shall continue until the twentieth anniversary date of this
Agreement; whereupon this Agreement shall automatically renew thereafter for
successive twenty-year periods unless such initial term or renewal period is
earlier terminated in accordance with subparagraphs (b) or (c) below.
(b) Notwithstanding the foregoing, this Agreement shall terminate upon
written notice by the party indicated below as follows:
(i) (A) at the option of either party, if (x) there shall be filed by
the other party a petition under any reorganization, bankruptcy, insolvency
or similar statute, or if
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such party shall make an assignment for the benefit of creditors or if such
party is being liquidated or dissolved, (y) there shall be filed against
the other party any petition specified in clause (x) or such other party
shall be adjudged a bankrupt or shall be subject to an order of bankruptcy
or if a receiver, trustee or custodian is appointed, which results in the
entry of an order of relief or if any or substantially all of its assets
are attached and any such petition, adjudication, order or attachment
remains undismissed, undischarged or unbonded for a period of sixty days or
(B) at the option of the Distributor if the equivalent to the foregoing
shall occur under the laws of any foreign jurisdiction with respect to
Bollore; or
(ii) at the option of Bollore, if the Distributor shall fail to
purchase and pay for in any calendar year a minimum of [**] booklets of the
Products for resale in the Territory, upon notice given within 120 days of
the end of such calendar year; or
(iii) at the option of Bollore, if there shall be a wilful material
breach by the Distributor of the terms of Section 4(a); Section 8; or
Sections 9(b), 9(c) or 9(d); and at the option of Bollore, if the
Distributor shall fail to comply in any material respect with the terms of
any final award granted by arbitrators pursuant to Section 14(d); in each
case where such breach or noncompliance under this Subsection (iii) shall
not be cured within 60 days after notice thereof.
(iv) at the option of Bollore, immediately upon notice by Bollore if:
(A) either the Distributor or any Non-Compete Party violates the terms of
Section 5(a) or 5(b); (B) any violation shall occur under Section 11(b);
(C) an assignment, delegation or sublicense by the Distributor shall occur
in violation of Section 14(a); or (D) the Distributor shall violate in any
material respect the second sentence of the first paragraph or the first
sentence of the third paragraph of Section 1(b); provided, however, that if
there shall have occurred, without the knowledge of Distributor, a
violation under (A) or (B) by a party other than Distributor, the
Distributor shall have a period of 10 days from the date it first has
knowledge of such violation to cure, or cause to be cured, such violation,
provided it shall promptly notify Bollore in writing that such violation
has occurred and the manner in which it has been cured.
(c) In the event the Distributor fails to make payment of any amount when
due under this Agreement, and such failure continues for more than 15 days from
the due date thereof, from and after such 15th day, (i) all amounts unpaid shall
bear
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<PAGE>
interest from such 15th day to the date of payment at a rate equal to the sum of
(A) the "prime rate" as announced by Chemical Bank, N.A. (New York City) from
time to time as set forth in the Wall Street Journal which rate shall change
when and if such "prime rate" shall change, plus (B) 2%; and, (ii) Bollore shall
be entitled to draw upon the Letter of Credit, if any, in an amount up to the
lesser of the amount due or the principal amount remaining under the Letter of
Credit at any time by presenting a copy of a demand notice to the issuer of the
Letter of Credit (the "Draw Down"). If any amount (including any interest
payable hereunder) shall continue to remain outstanding after the Draw Down on
the Letter of Credit or, if there shall be no Letter of Credit as contemplated
by Section 3(h), any amount shall remain outstanding after 15 days from the due
date thereof, Bollore may, by written notice to the Distributor, terminate this
Agreement effective on a date specified in such notice, which date shall be not
less than 120 days from the original due date of the amount which has not been
paid, unless payment of such amount (together with accrued interest) is made
prior to the close of business on the business day immediately preceding the
termination date specified in the notice in which case such termination notice
shall not be effective. Notwithstanding the foregoing, in the event that the
Distributor (i) in the case of payment for Product, disputes in good faith any
amounts due and owing for product delivered as a result of a claim such product
was defective or damaged or there was invoice error or (ii) disputes in good
faith any other amounts claimed by Bollore to be due under this Agreement,
Bollore shall not have the right to terminate the Agreement as a result of
non-payment of the disputed amount unless the Distributor continues to fail to
pay the amount due after the dispute is resolved.
(d) After the end of the term of this Agreement, Bollore and any persons
designated by it shall be free to deal with all customers of the Distributor
within and throughout the Territory and may appoint, accept orders from, and
deliver Products to, one or more new distributors in the Territory, without
incurring any liability or obligation to the Distributor. Bollore shall have the
right by written notice to the Distributor within 30 days after the termination,
but not the obligation, to purchase from the Distributor all remaining undamaged
inventories of the Products then owned by the Distributor at the Distributor's
cost for such inventory. If Bollore elects not to purchase such inventory, the
Distributor shall have 90 days to sell any inventory in its possession, which
sale shall be consistent with the terms of this Agreement. Thereafter, the
Distributor shall not sell any Products or make any use of the
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<PAGE>
Marks (as defined in Section 9) without Bollore's prior written
consent.
(e) All rights of termination under subparagraphs (b) and (c) shall be in
addition to all other rights and remedies available at law or under this
Agreement.
7. Purchase of Equipment.
No later than six months after the Closing under the Asset Purchase
Agreement, Bollore shall purchase, and the Distributor shall sell, certain of
the Distributor's manufacturing equipment listed on Schedule C (the "Equipment")
in accordance with the purchase schedule attached as Schedule D. The Distributor
represents, warrants and covenants to Bollore that if the Closing shall occur
(a) at the Closing, the Distributor shall be the sole owner of the Equipment,
free and clear of any and all liens, pledges, security interests, options,
encumbrances, charges, agreements or claims of any kind whatsoever, (b) at the
Closing, the Equipment shall be in the same condition as the Distributor
received it from USTC, (c) the Distributor shall acquire from USTC all of the
operating equipment previously used by USTC in the manufacture of cigarette
paper booklets (except for equipment which has been destroyed) and all such
equipment shall be included in the Equipment being conveyed to Bollore and (d)
the Distributor shall deliver a bill of sale to Bollore, in form and substance
reasonably satisfactory to Bollore conveying title to the Equipment in its then
current condition. The purchase price for the Equipment shall be 2,000,000
Product booklets as indicated on Schedule D and to be delivered in accordance
with the schedule set forth on Schedule D. Bollore shall pay for the cost of
removal, crating, freighting, insuring and transporting the Equipment to its own
facilities. Bollore shall have no responsibility for repairs and clean-up to the
premises from which the Equipment is removed.
8. Insurance.
If the Distributor plans to distribute promotional products in addition to
the Products, the Distributor shall either (i) increase its insurance prior to
the distribution of such promotional products to cover any possible additional
liability related to the distribution of such new products or (ii) cause the
third party manufacturer of such promotional products to name Bollore as an
additional insured under its insurance policy.
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If during the term of this Agreement the Distributor elects, pursuant to
Sections 3(g), 10(a) or 10(b), to select a substitute third-party manufacturer
for the Products, the Distributor agrees to cause such third-party manufacturer,
at its own cost and expense, (i) to obtain general and product liability
insurance, in commercially reasonable amounts, and (ii) to name Bollore as an
additional insured under such insurance policies. In the event the Distributor
chooses to manufacture the Products itself during the term hereof (in lieu of
selecting a third party manufacturer), prior to the commencement of such
manufacture, the Distributor shall obtain, at its own cost and expense, general
and product liability insurance in commercially reasonable amounts and shall
name Bollore as an additional insured under such insurance policies; provided,
however, the above shall not apply to any production prior to the Effective Date
of this Agreement by any third-party manufacturers for USTC of any ancillary or
promotional products. Pursuant to the terms of this Section 8, the Distributor
shall promptly provide Bollore with, and cause its third-party manufacturers to
provide promptly to Bollore, certificates evidencing the foregoing. Such
insurance shall provide that it may not be cancelled or modified without at
least 30 days' prior written notice to Bollore and that the issuer waives all
rights of subrogation against any insured party thereunder. All insurance under
this Section shall be in such commercially reasonable amounts and cover such
commercially reasonable risks as Bollore deems reasonably appropriate.
9. Trademark License.
(a) License. Subject to the terms and conditions hereinafter set forth,
Bollore hereby grants the Distributor an exclusive, royalty-free license to use
the marks "ZIG-ZAG" and the head design (as set forth on Schedule E) (the
"Marks") in the Territory in connection with the promotion of the Products for
the term of this Agreement. In the event that the Distributor is permitted to
use third party manufacturers for the Products or manufacture the Products
itself under the provisions of Sections 3(g), 10(a) or 10(b), then such license
shall automatically be deemed granted, as an exclusive, royalty-free license to
use the Marks in the Territory to manufacture or permit others to manufacture
the Products for the Distributor's account as provided in such sections and
subject at all times to the terms and restrictions set forth below (including,
without limitation, the quality control and notice provisions). Such license
shall automatically terminate when Bollore resumes supplying the Distributor
pursuant to Section 3(g) or 10(a), or if this Agreement shall terminate.
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<PAGE>
(b) Ownership and Use of Marks. Bollore hereby acknowledges that, as
between the parties, the Distributor has acquired from USTC the U.S.
registrations and pending applications set forth on Schedule F hereto for the
mark "ZIG-ZAG" in the United States in the forms set forth in those
registrations for use in connection with tobacco in tubular or non-tubular form
consisting of cigarettes, cigars, smoking tobacco, chewing tobacco,
roll-your-own cigarette tobacco and snuff (collectively, "Tobacco Products")
(such marks are herein referred to as the "Tobacco Marks") and that the
Distributor is the sole owner of the Tobacco Marks for use in the United States
in connection with Tobacco Products and the goodwill pertaining thereto and that
all goodwill and improved reputation generated by the Distributor's use of the
Tobacco Marks on the Tobacco Products shall inure to the benefit of the
Distributor with respect to such Tobacco Products. Bollore agrees that it will
not contest the Distributor's ownership of the Tobacco Marks or the validity of
the registration of the Tobacco Marks nor take any action in derogation of the
Distributor's rights in the Tobacco Marks.
The Distributor hereby acknowledges that, as between the parties, Bollore
is the sole owner of the Marks and all variations thereof, for all uses (other
than in connection with the Tobacco Products) and the good will pertaining
thereto and that nothing contained in this Agreement shall constitute an
assignment of the Marks or grant to the Distributor any right, title or interest
therein, except the right to use them as set forth in this Agreement. The
Distributor agrees that it will not contest Bollore's ownership of and rights in
the Marks or the validity of the registration of the Marks nor take any action
in derogation of Bollore's rights in the Marks and that all goodwill and
improved reputation generated by the Distributor's use of the Marks shall inure
to the benefit of Bollore. Bollore hereby acknowledges and approves of the
license agreements to be assigned to the Distributor by USTC pursuant to the
Asset Purchase Agreement listed on Schedule G hereto for ancillary and
promotional products and the Distributor hereby acknowledges that Bollore is the
sole and exclusive owner of the trademarks sub- licensed under such agreements
(with respect to all uses other than on Tobacco Products) and shall cooperate
with Bollore in obtaining registrations of the Marks in the categories referred
to in such license agreements. The Distributor shall at any time execute any
documents and provide specimens of use, at its own expense, as required by
Bollore to confirm Bollore's ownership of the Marks. Bollore shall, from time to
time, prosecute trademark applications as it deems necessary, the costs and
expenses of which shall be borne by Bollore. If at any time the Distributor
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<PAGE>
wishes to alter the Marks in any way or create new marks which are variations of
the Marks or are used in conjunction with the Marks, such alterations and new
marks (collectively, "New Marks") must be approved by Bollore prior to their
use. Bollore may withhold its approval for any reason. The New Marks, if
approved, shall be owned exclusively by Bollore and the Distributor shall assist
Bollore in obtaining any necessary registrations for such New Marks. In
addition, any reference in this Agreement to "Marks" shall be deemed to include
any New Marks approved by Bollore in the future.
(c) Quality Control. (i) The Distributor shall at all times maintain the
quality standards set forth by Bollore for all goods and services in connection
with which the Marks are used, except that if an Alternate Supplier or the
Distributor is permitted to manufacture Products under this Agreement, the
quality standards shall be determined in accordance with the next two sentences.
In the event that an Alternate Supplier or the Distributor is permitted to
manufacture under this Agreement, Bollore shall supply the Distributor with a
set of specifications for the manufacture of the Products within 8 business days
of Bollore's Adjustment Notice under Section 3(g) or Discontinuance Notice (as
hereafter defined) under Section 10(b), or the occurrence of a Disruption Event
(as hereafter defined) under Section 10(a), which specifications shall be the
same as those used by Bollore for the year immediately prior to the notice or
event. The Distributor shall submit to Bollore, for its written approval,
samples of any Product to be manufactured by an Alternate Supplier or the
Distributor and if Bollore and the Distributor are unable to agree whether such
samples meet the specifications within two business days, then the parties shall
submit the samples to an Independent Evaluator (selected in accordance with the
procedures set forth in Section 2) who shall determine whether or not such
samples meet the specifications within two business days and whose determination
shall be binding on the parties. The Distributor agrees to cooperate with
Bollore to ensure preservation of the goodwill associated with the Marks and to
comply in all material respects with all applicable laws and regulations
pertaining to the goods and services in connection with which the Marks are
used. All use of the Marks shall conform to the image and reputation associated
therewith.
(ii) The design and manufacture of all goods or promotional material
(an "Article") bearing the Mark shall be subject to the prior written
approval of Bollore. To this end, samples of each such Article shall be
submitted to Bollore, free of cost to Bollore, for written approval prior
to any distribution or other use by the Distributor. After such samples
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<PAGE>
have been approved by Bollore, the Distributor shall not modify or alter
the Article in any respect without Bollore's prior written consent. The
Distributor shall not use any other trademark or tradename (other than its
corporate name or other fictitious corporate name reasonably acceptable to
Bollore) in connection with the Products.
(iii) If at any time Bollore notifies the Distributor that an Article
(i) fails to be of substantially the same quality as that previously
approved by Bollore, the Distributor shall immediately cease the
production, sale, distribution and promotion of such non-conforming
Article, or (ii) fails to be of at least the same quality, but with defects
in quality that are not substantial, the Distributor shall cease production
of such Article, but shall not be required to cease distribution of such
Article for a period of 60 days, after which period no such Articles shall
be manufactured or distributed unless they conform to all quality standards
applicable thereto.
(d) Notices. The Distributor will cause the trademark notice "(C)" or
"(TM)", as requested by Bollore, and/or such other legend as reasonably
requested by Bollore in writing from time to time or as may be required by any
law or regulation in the jurisdiction in which and goods or services are
offered, to appear on labels, packaging, advertising and other promotional
materials, in such manner and location as requested by Bollore with respect to
the Marks. The Distributor shall not affix any other trademark notice to any of
the foregoing or to the Products without Bollore's prior written approval. All
cigarette paper booklets shall indicate that the Distributor is the exclusive
distributor of Bollore in the Territory (provided that the Distributor may use
up all inventory acquired from USTC which indicates that USTC is the exclusive
distributor of Bollore).
(e) Representation and Warranty. Bollore hereby represents and warrants to
the Distributor that it is the owner of the Marks for use in connection with
cigarette paper in the United States and is the owner of U.S. Registration Nos.
610,530, 1,127,946 and 1,247,856 therefor. Bollore makes no express or implied
representations or warranties as to ownership of the Marks for use outside of
the United States or for use in connection with any goods or services other than
cigarette paper and the Distributor assumes all risk with respect to any such
use thereof;
(f) Infringements. Each of Bollore and the Distributor shall promptly
notify the other, in writing, of any uses of the Marks in contravention of the
license under this
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<PAGE>
Agreement or which otherwise may infringe on the Marks which may come to such
party's attention. Bollore shall have the option to send cease and desist
letters, commence and prosecute, at its own expense, such claims or suits, and
take such other action, as it in its sole discretion deems necessary and the
Distributor agrees to cooperate fully with Bollore in the prosecution of any
such claim. The Distributor shall have the option to commence and prosecute, at
its own expense, any such claim or suit (or take other enforcement action) which
Bollore determines not to commence or diligently pursue and Bollore agrees to
cooperate fully with the Distributor in the prosecution of any such claim. All
monetary recovery from any such claims or suits prosecuted shall be shared
equally between the parties, after reimbursement of the costs of prosecution.
10. Interruption in Supply; Permanent Discontinuance.
(a) If Bollore is unable to furnish some or all of the Distributor's
requirements for Products for any reason, other than (i) Bollore's inability to
furnish Products requested by the Distributor which exceed the quarterly or
monthly maximums set forth in the last sentence of Section 3(e), (ii) Bollore's
failure to ship Product as permitted by Section 3(h) or (iii) the application of
the second paragraph of Section 3(g) (a "Disruption Event"), then the
performance of the obligations of Bollore shall be suspended during the
continuance of any Disruption Event and shall be resumed promptly upon the
cessation of the Disruption Event. During a Disruption Event, the Distributor
shall be entitled to substitute other cigarette paper of like quality to the
extent its requirements are not being filled by Bollore, subject to the
provisions of Section 9(c) above, with an Alternate Supplier, and Bollore may,
at its option, select the Alternate Supplier who shall be reasonably
satisfactory to the Distributor. In such event, Bollore shall reimburse the
Distributor for the cost of the substituted product from such alternate sources
to the extent it exceeds the current purchase price of the Product (the "Price
Differential Payment").
(b) In the event that Bollore decides to discontinue its cigarette paper
manufacturing operations permanently without assigning its rights to the
"ZIG-ZAG" mark and this Agreement to a third party as described in the second
sentence of the second paragraph of Section 14(a), it shall provide the
Distributor with written notice of such decision ("Discontinuance Notice") at
least 90 days prior to the effective date of such discontinuance, and the
Distributor shall be permitted to manufacture or permit others to manufacture
the Products for the Distributor's account
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<PAGE>
pursuant to Section 9 hereof, with an Alternate Supplier. After such 90-day
period, Bollore may discontinue its operations with no further liability to ship
the Products to the Distributor hereunder or to pay the Price Differential
Payment.
11. Changes in Control of the Distributor.
(a) For purposes of this Section, the following definitions shall apply:
"Change in Control" shall mean a failure of (i) the Original Stockholders
and their Permitted Transferees to own beneficially (and solely control the
voting of), in the aggregate, at least 51% of the issued and outstanding voting
capital stock of all classes of the Parent, and retain the ability to elect a
majority of the directors of the Parent; or (ii) the Parent to own and solely
control the voting of, in the aggregate, at least 51% of the issued and
outstanding voting capital stock of all classes of the Distributor and retain
the ability to elect a majority of the directors of the Distributor.
"Competitor" shall mean any person, corporation, partnership or other
entity that, directly or indirectly, manufactures, sells, markets, distributes
or promotes cigarette paper or cigarette paper booklets in the Territory, or
which owns, directly or indirectly, more than 30% of any class of voting capital
stock of a Competitor.
"Original Stockholder" shall mean each of John Drake, Chris Goodwin and
Mark Graham.
"Parent" shall mean any company which owns directly or indirectly 50% or
more of the voting capital stock of any class of the Distributor or another
Parent and/or has the ability to elect a majority of the directors of the
Distributor or another Parent.
"Permitted Transferee" shall mean any spouse or lineal descendent of an
Original Stockholder or any trust for the benefit of any spouse or lineal
descendent where the trustees consist of Original Stockholders or Permitted
Transferees or a bank, trust company or attorney-at-law, which is not a
Competitor.
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(b) The following shall constitute violations of this Section:
(i) if at any time an Original Stockholder or any Permitted Transferee
or a Parent (as the case may be), transfers any shares of voting capital
stock of any class of the Distributor or of a Parent to a Competitor;
(ii) if at any time a Competitor acquires a total of at least 30% of
any class of voting capital stock of the Distributor or a Parent (whether
or not from an Original Stockholder or Permitted Transferee);
(iii) if at any time before the fifth anniversary of the Effective
Date of this Agreement, there is a Change in Control in either the
Distributor or a Parent without the consent of Bollore, which may be
withheld for any reason;
(iv) if at any time after the fifth anniversary of the Effective Date
of this Agreement, there is a Change in Control in either the Distributor
or a Parent without the consent of Bollore, which may not be unreasonably
withheld or delayed, it being understood that Bollore's refusal to consent
to a transfer to a Competitor shall not be deemed unreasonable.
12. [Intentionally omitted]
13. Confidentiality.
(a) Bollore and the Distributor acknowledge that the information each party
has provided or will provide in connection with the negotiation of and during
the term of this Agreement, including, without limitation, this Agreement, are
and shall be confidential and proprietary to the parties supplying such
information (the "Confidential Information"). Each party agrees not to use or
disclose to any third party the Confidential Information of the other party
except as required for performance of its obligations under this Agreement.
Moreover, each party hereto agrees to restrict dissemination of particular
Confidential Information to only those persons in its respective organization
who must have access to such Confidential Information in order to perform its
obligations under this Agreement and will advise such persons of the
confidentiality obligations hereunder.
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(b) The parties' obligations with regard to any Confidential Information
shall not apply in respect of such information that:
(i) was in the public domain at the time it was disclosed;
(ii) was disclosed with the written consent of the other party;
(iii) becomes known to the disclosing party from a third party without
breach of this Agreement; or
(iv) is required to be disclosed by any state or federal court or
agency, provided that, if permitted by law, the disclosing party shall
promptly inform the non-disclosing party of the request to disclose, and as
the non-disclosing party may reasonably request, the disclosing party shall
assist the non-disclosing party, at the expense of the non-disclosing
party, in any effort by such party to obtain a protective order with
respect to such Confidential Information.
(c) In the event this Agreement is terminated, each party in possession of
Confidential Information of the other party shall promptly return such
Confidential Information (and any copies, extracts and summaries thereof) to the
other party, or, with the other party's written consent, shall promptly destroy
such Confidential Information (and any copies, extracts and summaries thereof).
(d) The provisions of this Section 13 shall survive for a period of five
years after termination of this Agreement.
14. Additional Provisions.
(a) Except as otherwise expressly provided in this Agreement, the
Distributor may not assign, delegate or sublicense any of its rights or duties
hereunder, by operation of law or otherwise, to any other person or entity
without the prior written consent of Bollore before such assignment, delegation
or sublicense is made; provided, however, that the Distributor may, upon prior
written notice to Bollore, assign this Agreement to a wholly-owned subsidiary
provided that (i) such assignee shall agree in a writing reasonably acceptable
to Bollore, to be bound by the terms of this Agreement, and (ii) the Distributor
shall continue to be primarily liable hereunder on its own behalf and on behalf
of such assignee.
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<PAGE>
Bollore may assign, delegate or sublicense this Agreement, or any of its
rights or obligations hereunder, provided Bollore shall remain primarily liable
hereunder for itself and on behalf of any party to which such assignment,
delegation or sublicense is made. In addition, Bollore may assign this Agreement
(with prior written notice to the Distributor, but without its consent) to an
unaffiliated third party purchaser (by purchase, license or otherwise) of
Bollore's rights to the "ZIG-ZAG" trademark in the Territory, in which event
such purchaser shall be bound by this Agreement, and Bollore shall have no
further liability hereunder, except with regard to matters arising prior to such
assignment. In the event that Bollore assigns this Agreement to a third party as
contemplated by the immediately preceding sentence prior to the tenth
anniversary of the Effective Date of this Agreement (the "Transfer Price
Protection Period"), the price provisions under Sections 3(a), (b) and (c) shall
continue for the shorter of five years or the expiration of the Transfer Price
Protection Period, and such assignee shall not have the right to exercise any
right to renegotiate such price formula pursuant to Section 3(d) until 120 days
prior to the earlier of the expiration of five years after the date such
assignment becomes effective or the expiration of such Transfer Price Protection
Period.
(b) The parties hereto agree that with regard to the licenses granted to
the Distributor pursuant to Section 6 hereof, no assignment or transfer of the
goodwill to the Bollore Trademarks is or has been deemed to have taken effect,
and the Distributor and Bollore acknowledge and agree that all proprietary
interest in and to the Bollore Trademarks shall remain with Bollore.
(c) Any notice required under this Agreement shall be deemed duly given (i)
upon receipt by delivery in person or by courier or by telegram, telex,
telefacsimile which is confirmed by letter mailed certified or registered mail
or (ii) 5 days after being mailed by registered or certified mail, postage
prepaid return receipt requested, addressed as follows:
If to Bollore:
Bollore Technologies, S.A.
31/32 quai de Dion Bouton
32811 Puteaux Cedex, France
Attention: Claude Parisot, Esq.
Telefax: 011-331-46-96-40-15
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<PAGE>
and, in the case of any notice relating to a claimed breach of
this Agreement, with a copy to:
Steven L. Kirshenbaum, Esq.
Proskauer Rose Goetz & Mendelsohn
1585 Broadway
New York, New York 10036
Telefax: 212-969-2900
If to the Distributor:
North Atlantic Trading Company, Inc.
c/o Drake, Goodwin & Graham
1301 Avenue of the Americas, 7th Floor
New York, New York 10019
Attention: Mark Graham
Telefax: 212-259-5322
and, in the case of any notice relating to a claimed breach of
this Agreement, with a copy to:
Steven A. Hobbs, Esq.
Rogers & Wells
200 Park Avenue
New York, New York 10166
Telefax: 212-878-8375
Any party may change its address for the giving of notice by notice given in the
above manner. No other form of giving notice is precluded, but notice given by
any other means shall not be duly given unless and until actually received by
the addressee.
(d) Should any dispute arise in connection with this Agreement, including,
without limitation, the interpretation of this Agreement, or the performance or
breach of any provision herein, or a purchase price adjustment is required under
the last paragraph of Section 2 or under Section 3(d) and such dispute cannot be
settled by good faith negotiation between the parties in accordance with the
terms hereof, at the written request of either party, such dispute shall be
finally and conclusively settled by binding arbitration held and conducted in
the State of New York in accordance with the rules of the American Arbitration
Association; except that any dispute regarding whether any Product meets
Bollore's quality standards shall be submitted to an Independent Evaluator as
contemplated by Sections 2 or 9(c). Such arbitration shall be conducted by a
panel of three arbitrators who are each an industry expert. Each party shall
appoint one arbitrator within 15 days who is unaffiliated with
24
<PAGE>
that party and the two appointed arbitrators shall agree on a third unaffiliated
arbitrator within 15 days. Judgment upon the award rendered may be entered in
any court having jurisdiction or application may be made to such court for a
judicial acceptance of the award or an order for enforcement, as the case may
be. The foregoing, however, shall not preclude either party from bringing an
action in the courts for equitable relief pursuant to Section 5(c), or
terminating this Agreement pursuant to Section 6(b) or (c).
The submission of any dispute for resolution to arbitration or to the
courts, as aforesaid, shall not, in and of itself, operate to terminate this
Agreement. Each party shall bear its own costs incurred during the arbitration,
and shall equally share the filing or other fees required to institute the
arbitration.
(e) Notwithstanding anything to the contrary contained in this Agreement,
the effectiveness of this Agreement is contingent upon (i) the Closing under the
Asset Purchase Agreement and (ii) Bollore's receipt of the Closing Consent
Payment as defined in the Consent Agreement. For purposes of this Agreement, the
"Effective Date" of this Agreement shall be the date of such Closing. This
Agreement shall terminate and shall be of no further force and effect if the
Closing has not occurred on or before February 1, 1993. The Distributor shall
have no liability under the Bollore Documents for matters arising prior to the
Effective Date of this Agreement.
(f) This Agreement constitutes the entire Agreement between the parties
with respect to the subject matter hereof, supersedes the Bollore Documents in
their entirety and all prior agreements relating to the subject matter hereof,
and can be amended, changed or extended only by a writing duly signed by both of
the parties. No waiver of a breach hereunder shall be valid unless contained in
a writing duly signed by the waiving party and a waiver given on any one
occasion shall not be deemed to be a waiver of the same or any other breach on
any other occasion. This Agreement shall be governed by and construed under the
internal laws of the State of New York applicable to contracts made and to be
performed within the State of New York.
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(g) This Agreement may be signed in counterparts, each of which shall be an
original and both of which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties have hereunto duly executed this Agreement
as of November 30, 1992.
BOLLORE TECHNOLOGIES, S.A.
By:/s/ Gilles Alix
-----------------------------
Name: Gilles Alix
Title: Financial Manager
NORTH ATLANTIC TRADING COMPANY, INC.
By:/s/ Christopher Goodwin
-----------------------------
Name: Christopher Goodwin
Title: Vice Chairman
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Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions marked by [**] have been separately
filed with the Commission.
AMENDED AND RESTATED DISTRIBUTION AND LICENSE AGREEMENT
Dated as of November 30, 1992
The parties to this Agreement are Bollore Technologies, S.A., a corporation
organized under the laws of the Republic of France ("Bollore"), and North
Atlantic Trading Company, Inc., a Delaware corporation (the "Distributor").
PREAMBLE
WHEREAS, pursuant to a Consent Agreement, dated November 30, 1992, among
Bollore, the Distributor, United States Tobacco Company ("USTC") and certain of
USTC's affiliates (the "Consent Agreement"), Bollore has consented to the
transfer and assignment to the Distributor of USTC's rights and interests in, to
and under the Bollore Documents, other than the Manufacturing Rights (as those
terms are defined in the Consent Agreement) contingent upon the consummation of
the transactions contemplated by the Asset Purchase Agreement, dated November
25, 1992, among the Distributor, USTC and certain of USTC's affiliates (the
"Asset Purchase Agreement") and provided that the Bollore Documents are
immediately amended and restated pursuant to this Agreement; and
WHEREAS, the parties desire to restate, amend and supersede the Bollore
Documents in their entirety as herein provided;
NOW, THEREFORE, the parties hereby agree, for good and valuable
consideration, to restate, amend and supersede the Bollore Documents in their
entirety as follows:
1. Distribution Rights.
(a) On the terms and subject to the conditions of this Agreement, Bollore
hereby grants to the Distributor for the term of this Agreement (as defined in
Section 6) the exclusive right to purchase the cigarette paper booklets sold
under the trademark "ZIG-ZAG" listed on Schedule A (the "Products") from Bollore
for resale in Hong Kong, Singapore, Dubai, Qatar, Oman and Jordan (collectively,
the "Territory"). During the term of this Agreement, Bollore shall not sell the
Products to any person or company in the Territory other than the Distributor
and, except as expressly otherwise provided in this Agreement, Bollore shall
sell to the Distributor the quantities of the Products required by the
Distributor.
<PAGE>
(b) The Distributor accepts the grant of such right and shall use its best
efforts throughout the term of this Agreement to promote and sell the Products
within and throughout the Territory. Except as expressly provided otherwise in
this Agreement, the Distributor shall purchase all of its requirements of
Products exclusively from Bollore.
The Distributor shall have the sole right to determine the prices at and
the terms upon which the Distributor shall sell the Products within the
Territory and to determine the wholesalers and subdistributors and other
customers to whom it sells the Products, provided, to the best of the
Distributor's knowledge, all such parties use or resell the Products solely
within the Territory.
During the term of this Agreement, the Distributor shall not sell the
Products outside the Territory (other than pursuant to, and in accordance with
the terms of, a written agreement with Bollore) and shall not knowingly sell the
Products to any party who, directly or indirectly, resells or distributes such
Products outside, or sells to a third party for resale or distribution outside,
the Territory, and shall immediately cease selling to any such party upon
becoming aware of such party's sales outside the Territory. Bollore may select
(a) other distributors for the Products in other territories, and (b) other
distributors for any products not using the Marks (as defined in Section 8) in
the Territory.
(c) The relationship between the parties is that of vendor and purchaser
(rather than principal and agent, employer and employee, partners or joint
venturers) and, accordingly, the Distributor is not empowered hereunder or
otherwise (i) to act for or to bind Bollore, (ii) to accept service of process
on behalf of Bollore in the Territory or (iii) to make any express or implied
representation or warranty on behalf of Bollore; provided, however, that the
Distributor may describe and represent itself as the exclusive distributor of
the Products in the Territory.
(d) The Distributor shall provide Bollore with information relating to unit
sales volume and inventory of the Products in the Territory on at least a
monthly basis consistent with past practices between Bollore and USTC and its
affiliates.
(e) The Distributor shall be solely responsible for securing all required
import licenses, governmental approvals, permits and authorizations necessary
for the importation and sale of the Products in the Territory; provided,
however, that Bollore shall use its reasonable best efforts (at the
Distributor's expense) to cooperate with the Distributor in securing such
licenses, approvals, permits and authorizations. Bollore shall, at its own
expense, supply any technical data and samples
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required in connection with necessary governmental registration of Products in
the Territory; provided, however, that the Distributor shall use such technical
data and any other proprietary information obtained from Bollore solely for the
purpose of obtaining such registration. Bollore shall be solely responsible for
securing all required export licenses, governmental approvals, permits and
authorizations necessary for the exportation of the Products from the country of
manufacture; provided, however, that the Distributor shall use its reasonable
best efforts (at Bollore's expense) to cooperate with Bollore in securing such
licenses, approvals, permits and authorizations. The Distributor shall, at its
own expense, supply such information and data as may be required in connection
with obtaining any of the foregoing.
2. Warranties; Product Defects.
Bollore shall ship and deliver all Products in saleable condition, and
Bollore represents and warrants that all Products are merchantable, but makes no
other representation or warranty express or implied regarding the condition of
the Products. The Distributor is not authorized to extend or modify any warranty
or guaranty on behalf of Bollore. All Products received by the Distributor will
be inspected promptly upon receipt for damage, but in no event later than 15
days after receipt. If any Products are materially damaged, defective and not
usable or saleable in the ordinary course of the Distributor's business
("Defective Products"), then the Distributor's sole and exclusive remedy
(subject to the fourth paragraph of this Section 2) shall be rejection of the
Defective Products with a right to a refund of the payment for such Defective
Products if they have been paid for (as provided below) and without obligation
to pay for such rejected portion if they have not been paid for. Except as
provided below, if Bollore does not receive a written rejection from the
Distributor of a shipment, or part thereof, within 15 days after delivery of
such shipment, the Distributor shall be deemed irrevocably to have accepted such
shipment. If the Distributor timely notifies Bollore that it rejects all or part
of a shipment, Bollore, at its sole expense, shall have 30 days after receipt of
such notice (a) to cure any defect by providing substitute Products or causing
the Defective Products to meet its customary quality standards, or (b) to
provide a credit to the Distributor for the amount due Bollore for such
Defective Products or refund such amount if previously paid. Bollore shall
supply either a return authorization number and return shipping instructions or
instructions to destroy the Defective Products and shall ship replacement
merchandise as soon as possible.
Nothing herein shall prevent the Distributor from returning to Bollore for
refund of the purchase price paid therefor any product found to be manufactured
defectively which
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is discovered by the Distributor subsequent to such inspection for damage.
Notwithstanding the foregoing, if Bollore disputes the Distributor's claim
that any Product does not meet Bollore's customary quality standards or is
otherwise a Defective Product, the parties shall cooperate in good faith to
settle the dispute amicably. If they fail to agree, the parties shall submit
samples of the Product to a mutually agreed upon independent laboratory or
industry expert (which or who has no prior dealings and is unaffiliated with
either party) (an "Independent Evaluator") for testing and such Independent
Evaluator's determination shall be final and binding. If the parties fail to
agree upon an Independent Evaluator within 10 days, each party shall select an
Independent Evaluator and the two appointed Independent Evaluators shall agree
upon a third Independent Evaluator, whose determination shall be final and
binding. The losing party shall pay the costs of submitting the samples and
testing by the Independent Evaluator.
Except for the remedies set forth in this Section, Bollore shall not be
liable to the Distributor or any other party by reason of supplying defective or
otherwise non-conforming Product; except that nothing herein shall affect
Bollore's liability, if any, as a matter of law, to third parties for defective
product nor Bollore's liability to the Distributor arising from third party
claims relating to defective Product, but Bollore shall have no liability to the
Distributor for damages to Distributor arising from lost profits or lost
opportunities of the Distributor.
To the extent requested by the Distributor, Bollore shall modify the
Products to the extent reasonably necessary to comply with applicable laws in
the Territory; provided, however, that is such modification increases Bollore's
costs, the parties shall negotiate in good faith for 30 days for a mutually
agreed upon purchase price adjustment to reflect such additional costs. If after
such 30 day period the parties, acting in good faith, have been unable to agree,
the parties shall submit the dispute to binding arbitration in accordance with
Section 12(d); provided, however, that during such 30 day period and/or
arbitration, the previously established prices shall apply to all transactions
and corresponding payment schedules of Bollore and the Distributor.
Notwithstanding the proviso contained in the previous sentence, if after such 30
day period and/or arbitration a new price is established, such new price shall
apply retroactively to the parties and the Distributor shall pay, within 10
business days of the final determination of the new price, to Bollore, the
amount equal to the difference between the amount that would have been paid over
such period if the new price had been in effect and the amount that was actually
paid.
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3. Terms of Sales.
(a) The Distributor shall pay Bollore in French Francs the full invoiced
price for purchases of the Product, without any set-offs, withholdings or
deductions of any kind (other than amounts payable with respect to a specific
invoice, the payment of which the Distributor disputes in good faith because of
Defective Products covered by such invoice or an error in such invoice), not
later than 45 days after the date of issuance of the bill of lading. Such
payments shall be made by wire transfer of immediately available funds to
Bollore's [**], or such other account as Bollore may designate from time to
time. The Distributor shall be responsible for paying [**]. Bollore shall be
responsible for [**].
(b) The prices to be charged by Bollore to the Distributor for the Products
shall initially be the prices set forth in Schedule A, which shall remain in
effect until December 31, 1993. From January 1, 1994 through December 31, 1994,
the prices shall increase by [**].
(c) Until December 31, 1998, the following adjustment shall be made to
Product prices to account for material currency fluctuations: if the average
rate of exchange (averaging the bid and the asked rates), as quoted by the
reference banks of Credit Lyonnais (Paris), Chemical Bank (New York City) and
Banque Nationale de Paris (Paris) (the "Average Exchange Number") during the
calendar month immediately preceding the date of any invoice is less than [**],
the price for such Products shall be adjusted to be equal to the current Product
price pursuant to this Agreement, multiplied by a fraction, the numerator of
which is the Average Exchange Number and the denominator of which is [**].
(d) In order to assure each of the parties commercially reasonable profits
in light of inflationary trends and currency translation factors, 120 days prior
to December 31, 1998 and each fifth-year anniversary of that date, the parties
shall enter into good faith negotiations to agree on an index and
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<PAGE>
a currency adjustment formula to replace those set forth in subparagraphs (b)
and (c) above (the "Price Negotiation Period"). If after the Price Negotiation
Period the parties, acting in good faith, have been unable to agree, the parties
agree to submit the dispute to binding arbitration in accordance with Section
12(d); provided, however, that during such Price Negotiation Period and/or
arbitration, the previously established and applicable indices and adjustment
formulae shall apply to all transactions and corresponding payment schedules of
Bollore and the Distributor. Notwithstanding the proviso contained in the
previous sentence, if after such Price Negotiation Period and/or arbitration a
new price is established, such new price shall apply retroactively to the
parties and the appropriate party shall pay, within 10 business days of the
final determination of the new price, to the party in whose favor a price
adjustment is made, the amount equal to the difference between the amount that
would have been paid over such period if the new price had been in effect and
the amount that was actually paid.
(e) All terms of sale shall be [**]. Ninety days prior to the beginning of
each calendar year, the Distributor shall deliver to Bollore a Product purchase
forecast on a quarter-by-quarter basis, anticipating its purchase requirements
for each Product during the next year (other than the forecast for the first
full calendar year, which shall be delivered 15 days prior to the beginning of
that year). Purchases of Products shall be made by purchase orders on a
quarterly basis, with a firm purchase order to be delivered to Bollore at least
90 days prior to the beginning of each calendar quarter. The Distributor's order
for the first quarter is as listed on Schedule B. Bollore shall not be required
to deliver to the Distributor more than [**], of the Distributor's forecasted
annual purchase requirements and Bollore shall in no event be required to ship
Products to the Distributor if such shipment is not fully covered by the Letter
of Credit referred to in Section 3(g) or if the Distributor fails to make
payment as provided in the second sentence of Section 6(c).
(f) Notwithstanding anything to the contrary in this Agreement, if at any
time the price received by Bollore under this Agreement for Products fails to
cover Bollore's costs (e.g., manufacturing, transportation, taxes, warehousing
and the like) for such Products, Bollore may give notice to the Distributor to
such effect, and thereby implement this Section (the "Adjustment Notice"), in
which event the parties shall promptly negotiate in good faith to determine if
they can agree on an adjustment to the price being charged under this Agreement
mutually acceptable to the parties. If the parties fail to reach an agreement
within 90
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<PAGE>
days of the delivery of the Adjustment Notice, the Distributor shall have the
right, subject to the conditions below, to contract with an alternate supplier
reasonably acceptable to Bollore ("Alternate Supplier") to manufacture and
supply the Products to the Distributor, in which event Bollore shall, pursuant
to Section 8(a), be deemed to have granted a royalty-free license to the
Distributor to permit such manufacture of the Products by the Alternate Supplier
for the sole account of the Distributor for such period as the Distributor shall
be entitled to purchase from such Alternate Supplier in accordance with this
Agreement.
During the 90-day period following the delivery of the Adjustment Notice,
and for up to an additional 6 months thereafter, if no agreement on a price
adjustment has been reached, Bollore shall continue to supply the Distributor
under this Agreement to enable the Distributor to retain an Alternate Supplier.
After such additional 6-month period, or at such earlier date as an Alternate
Supplier shall have commenced supplying Products to the Distributor, Bollore may
cease supplying the Distributor hereunder, with no further liability to the
Distributor to supply the Distributor with Products under this Agreement or to
pay a Price Differential payment as referred to in Section 9(a) (unless Bollore
shall elect to continue supplying the Distributor pursuant to the provisions of
this Section as set forth below).
The parties' rights under this Section shall be subject to the following:
(i) The Distributor shall give Bollore not less than 30 days prior
notice of the identity of, and the terms offered by, the Alternate
Supplier, and Bollore shall have the right, exercisable by notice given
within such 30-day period, to agree to supply the Distributor under this
Agreement for the same price terms offered by the Alternate Supplier, in
which event the Distributor shall not retain the Alternate Supplier, and
Bollore shall continue to exclusively supply the Distributor under this
Agreement, but on such price terms (the "Match Right") until the next Price
Negotiation Period);
(ii) Pursuant only to the terms of this Section 3(f), the Distributor
shall notify Bollore of any change in price terms (not the result of
changes due to the automatic operation of a specific price formula which
was part of the original price terms) by the Alternate Supplier within 5
business days of the Distributor being notified thereof, and Bollore shall
have a Match Right for 5 business days following receipt of such notice in
connection therewith;
(iii) If the Distributor is being supplied by an Alternate Supplier
pursuant to this Section, Bollore shall have
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<PAGE>
the right, prior to or during any subsequent Price Negotiation Period, to
notify the Distributor that it intends to commence shipping Product
hereunder again (as of either (x) the date such Price Negotiation Period
commences or (y) the date final agreement is reached or an arbitration
award is issued with respect to prices under Section 3(d)) and to exercise
its right to negotiation and, if necessary, arbitrate a new price structure
pursuant to Section 3(d) above, in which event, thereafter Bollore shall
supply, and the Distributor shall purchase, Products in accordance with the
prices in effect pursuant to the terms of this Agreement, adjusted as may
be required by such arbitration award or agreement as provided in Section
3(d), subject to the right of Bollore to give an Adjustment Notice under
this Section again at a later time; and
(iv) Any agreement between the Distributor and an Alternate Supplier
shall not contain provisions which prevent the Distributor from complying
with this Section.
(g) Pursuant to the Amended and Restated Distribution and License Agreement
of even date herewith between the parties hereto covering the United States
territory (the "U.S. Agreement"), the Distributor will establish and deliver to
Bollore the Letter of Credit (as defined in the U.S. Agreement). It is the
intent of the parties that the Letter of Credit will secure payments to be made
by the Distributor of shipments of Products pursuant to this Agreement as
provided in Section 6(c). Therefore, in the event that the Distributor does not
pay Bollore in accordance with Section 3(a) above within 15 days of the due date
thereof, Bollore may draw on the Letter of Credit to the extent of such unpaid
invoiced amount as provided in Section 6(c) below.
Notwithstanding anything to the contrary contained in this Agreement, and
notwithstanding any limitation in this Agreement on the amount of the Letter of
Credit Bollore may require Distributor to provide, in no event shall Bollore be
required to ship any Products ordered by the Distributor if the amount then
outstanding under the Letter of Credit is less than the aggregate of all unpaid
invoices then currently outstanding (including invoiced amounts that may be in
dispute) plus the invoice amount of the purchase order to be shipped, unless
Bollore waives in writing the requirement of a Letter of Credit, which Bollore
may do from time to time for specific shipments or specific time periods.
4. Advertising and Promotion.
(a) The Distributor shall submit to Bollore all written materials to be
used in advertising, promotional and marketing campaigns (all of which shall be
prepared in accordance
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with Section 8), for approval by Bollore, which approval shall not be
unreasonably withheld. If notice of disapproval shall not have been given within
15 business days after receipt of such copy by Bollore, approval shall be deemed
granted. Notice of disapproval, if any, shall specify the reasons for said
disapproval.
(b) The Distributor shall comply in all material respects with all laws and
regulations of all jurisdictions, relative to its sales activities.
5. Exclusivity and Non-Competition.
(a) During the Term of this Agreement and for a period of five years after
termination of this Agreement, the Distributor shall not directly or indirectly,
manufacture, sell, distribute or otherwise deal in or be associated with
promotion in the Territory of cigarette paper or cigarette paper booklets
("Competitive Products") (including, but not limited to, owning an interest in
any company, partnership or other entity which directly or indirectly
manufactures, sells or distributes Competitive Products) except for (i) the
distribution and sale of such products produced by Bollore or by an Alternate
Supplier or by the Distributor as permitted by Sections 3(f), 9(a) and 9(b);
(ii) ownership of no more than 2% of the issued and outstanding stock of a
company whose securities are publicly traded on a national securities exchange
or an over-the-counter or similar public market; and (iii) the distribution and
sale of products manufactured by USTC with Bollore's consent pursuant to the
Consent Agreement. In addition, during the term of this Agreement and for a
period of five years after termination of this Agreement, the Distributor shall
cause its subsidiaries and affiliates (which for purposes of this Agreement
shall be deemed to include any Parent of the Distributor and the Original
Stockholders and Permitted Transferees (as such terms are defined in Section
10)) (collectively, the "Non-Compete Party") to comply with the provisions of
this Section.
(b) During the term of this Agreement, the Distributor shall not permit any
individual to serve as a director of the Distributor or its subsidiaries and
affiliates if such individual is an officer, director or employee of a
corporation, partnership or other entity which directly or indirectly
manufactures, sells, distributes or promotes Competitive Products.
(c) The Distributor acknowledges that there may be no adequate remedy at
law, and that money damages may not be an adequate remedy for a breach of this
Section. Therefore, the Distributor agrees that Bollore shall have the right, in
addition to its rights under Section 6(b)(iv) and any other rights it may have,
to injunctive relief and specific performance in the event
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of the Distributor's breach of this Section 5. This remedy shall be cumulative
and shall in no way limit any other remedy Bollore may have at law, in equity or
under this Agreement.
6. Term.
(a) The term of this Agreement shall commence on the Effective Date of this
Agreement and shall continue until the tenth anniversary date of this Agreement
(the "Initial Term"), unless such Initial Term is earlier terminated in
accordance with subparagraphs (b) or (c) below. Provided that the Distributor is
not in breach in any material respect of this Agreement, and provided further
that the Distributor has purchased at least [**] booklets for resale within the
Territory in each of the last three years of the Initial Term (the "Renewal
Requirement"), this Agreement shall automatically renew thereafter for an
additional term of ten years. If at the end of the Initial Term the Distributor
has not met the Renewal Requirement, Bollore shall have the option, exercisable
within 120 days after the end of the Initial Term, to terminate this Agreement
in its entirety or only as to certain portions of the Territory.
(b) Notwithstanding the foregoing, this Agreement shall terminate upon
written notice by the party indicated below as follows:
(i) (A) at the option of either party, if (x) there shall be filed by
the other party a petition under any reorganization, bankruptcy, insolvency
or similar statute, or if such party shall make an assignment for the
benefit of creditors, or is such party is being liquidated or dissolved,
(y) there shall be filed against the other party any petition specified in
clause (x) or such other party shall be adjudged a bankrupt or shall be
subject to an order of bankruptcy or if a receiver, trustee or custodian is
appointed, which results in the entry of an order of relief or if any or
substantially all of its assets are attached and any such petition,
adjudication, order or attachment remains undismissed, undischarged or
unbonded for a period of sixty days or (B) at the option of the Distributor
if the equivalent to the foregoing shall occur under the laws of any
foreign jurisdiction with respect to Bollore; or
(ii) at the option of Bollore, if there shall be a wilful material
breach by the Distributor of the terms of Section 4(a); Section 7; or
Sections 8(b), 8(c) or 8(d); and at the option of Bollore, if the
Distributor shall fail to comply in any material respect with the terms of
any final award granted by arbitrators pursuant to Section 12(d); in each
case where such breach or noncompliance under this Subsection (ii) shall
not be cured within 60 days after notice thereof; or
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(iii) at the option of either party upon the termination of the U.S.
Agreement; provided, however, that in the event that either party has the
option to terminate under this subparagraph (iii), they shall have the
right to terminate this Agreement in its entirety or only as to certain
portions of the Territory; or
(iv) at the option of Bollore, immediately upon notice of Bollore if:
(A) either the Distributor or any Non-Compete party violates the terms of
Section 5(a) or 5(b; (B) any violation shall occur under Section 10(b; (c)
an assignment, delegation or sublicense by the Distributor shall occur in
violation of Section 12(a); or (D) the Distributor shall violate in any
material respect the second sentence of the first paragraph or the first
sentence of the third paragraph of Section 1(b); provided, however, that if
there shall have occurred, without the knowledge of Distributor, a
violation under (A) or (B) by a party other than Distributor, the
Distributor shall have a period of 10 days from the date it first has
knowledge of such violation to cure, or cause to be cured, such violation,
provided it shall promptly notify Bollore in writing that such violation
has occurred and the manner in which it has been cured.
(c) In the event the Distributor fails to make payment of any amount when
due under this Agreement, and such failure continues for more than 15 days from
the due date thereof, from and after such 15th day, (i) all amounts unpaid shall
bear interest from such 15th day to the date of payment at a rate equal to the
sum of (A) the "prime rate" as announced by Chemical Bank, N.A. (New York City)
from time to time as set forth in the Wall Street Journal which rate shall
change when and if such "prime rate" shall change, plus (B) 2%; and, (ii)
Bollore shall be entitled to draw upon the Letter of Credit, if any, in an
amount up to the lesser of the amount due or the principal amount remaining
under the Letter of Credit at any time by presenting a copy of a demand notice
to the issuer of the Letter of Credit (the "Draw Down"). If any amount
(including any interest payable hereunder) shall continue to remain outstanding
after the Draw Down on the Letter of Credit or, if there shall be no Letter of
Credit as contemplated by Section 3(g) or the U.S. Agreement, any amount shall
remain outstanding after 15 days from the due date thereof, Bollore may, by
written notice to the Distributor, terminate this Agreement effective on a date
specified in such notice, which date shall be not less than 120 days from the
original due date of the amount which has not been paid, unless payment of such
amount (together with accrued interest) is made prior to the close of business
on the business day immediately preceding the termination date specified in the
notice in which case such termination notice shall not be effective.
Notwithstanding the foregoing, in the event that the Distributor (i) in the case
of payment for Product, disputes in good faith any amounts due and owing for
product delivered as a result of a
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claim such product was defective or damaged or there was invoice error or (ii)
disputes in good faith any other amounts claimed by Bollore to be due under this
Agreement, Bollore shall not have the right to terminate the Agreement as a
result of non-payment of the disputed amount unless the Distributor continues to
fail to pay the amount due after the dispute is resolved.
(d) After the end of the term of this Agreement, Bollore and any persons
designated by it shall be free to deal with all customers of the Distributor
within and throughout the Territory and may appoint, accept orders from, and
deliver Products to, one or more new distributors in the Territory, without
incurring any liability or obligation to the Distributor. Bollore shall have the
right by written notice to the Distributor within 30 days after the termination,
but not the obligation, to purchase from the Distributor all remaining undamaged
inventories of the Products then owned by the Distributor at the Distributor's
cost for such inventory. If Bollore elects not to purchase such inventory, the
Distributor shall have 90 days to sell any inventory in its possession, which
sale shall be consistent with the terms of this Agreement. Thereafter, the
Distributor shall not sell any Products or make any use of the Marks (as defined
in Section 8) without Bollore's prior written consent.
(e) All rights of termination under subparagraphs (b) and (c) shall be in
addition to all other rights and remedies available at law or under this
Agreement.
7. Insurance.
If the Distributor plans to distribute promotional products in addition to
the Products, the Distributor shall either (i) increase its insurance prior to
the distribution of such promotional products to cover any possible additional
liability related to the distribution of such new products or (ii) cause the
third party manufacturer of such promotional products to name Bollore as an
additional insured under its insurance policy.
If during the term of this Agreement the Distributor elects, pursuant to
Sections 3(f), 9(a) or 9(b), to select a substitute third-party manufacturer for
the Products, the Distributor agrees to cause such third-party manufacturer, at
its own cost and expense, (i) to obtain general and product liability insurance,
in commercially reasonable amounts, and (ii) to name Bollore as an additional
insured under such insurance policies. In the event the Distributor chooses to
manufacture the Products itself during the term hereof (in lieu of selecting a
third party manufacturer), prior to the commencement of such manufacture, the
Distributor shall obtain, at its own cost and expense, general
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and product liability insurance in commercially reasonable amounts and shall
name Bollore as an additional insured under such insurance policies; provided,
however, the above shall not apply to any production prior to the Effective Date
of this Agreement by any third-party manufacturers for USTC of any ancillary or
promotional products. Pursuant to the terms of this Section 7, the Distributor
shall promptly provide Bollore with, and cause its third-party manufacturers to
provide promptly to Bollore, certificates evidencing the foregoing. Such
insurance shall provide that it may not be cancelled or modified without at
least 30 days' prior written notice to Bollore and that the issuer waives all
rights of subrogation against any insured party thereunder. All insurance under
this Section shall be in such commercially reasonable amounts and cover such
commercially reasonable risks as Bollore deems reasonably appropriate.
8. Trademark License.
(a) License. Subject to the terms and conditions hereinafter set forth,
Bollore hereby grants the Distributor an exclusive, royalty-free license to use
the marks "ZIG-ZAG" and the head design (as set forth on Schedule C) (the
"Marks") in the Territory in connection with the promotion of the Products for
the term of this Agreement. In the vent that the Distributor is permitted to use
third party manufacturers for the Products or manufacture the Products itself
under the provisions of Sections 3(f), 9(a) or 9(b), then such license shall
automatically be deemed granted, as an exclusive, royalty-free license to use
the Marks in the Territory to manufacture or permit others to manufacture the
Products for the Distributor's account as provided in such sections and subject
at all times to the terms and restrictions set forth below (including, without
limitation, the quality control and notice provisions). Such license shall
automatically terminate when Bollore resumes supplying the Distributor pursuant
to Section 3(f) or 9(a), or if this Agreement shall terminate.
(b) Ownership and Use of Marks. The Distributor hereby acknowledges that,
as between the parties, Bollore is the sole owner of the Marks and all
variations thereof, for all uses and the good will pertaining thereto and that
nothing contained in this Agreement shall constitute an assignment of the Marks
or grant to the Distributor any right, title or interest therein, except the
right to use them as set forth in this Agreement. The Distributor agrees that it
will not contest Bollore's ownership of and rights in the Marks or the validity
of the registration of the Marks nor take any action in derogation of Bollore's
rights in the Marks and that all goodwill and improved reputation generated by
the Distributor's use of the Marks shall inure to the benefit of Bollore.
Bollore hereby acknowledges and approves of the license agreements to be
assigned to the Distributor by
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USTC pursuant to the Asset Purchase Agreement listed on Schedule D hereto for
ancillary and promotional products and the Distributor hereby acknowledges that
Bollore is the sole and exclusive owner of the trademarks sub-licensed under
such agreements and shall cooperate with Bollore in obtaining registrations of
the Marks in the categories referred to in such license agreements. The
Distributor shall at any time execute any documents and provide specimens of
use, at its own expense, as required by Bollore to confirm Bollore's ownership
of the Marks. Bollore shall, from time to time, prosecute trademark applications
as its deems necessary, the costs and expenses of which shall be borne by
Bollore. If at any time the Distributor wishes to alter the Marks in any way or
create new marks which are variations of the Marks or are used in conjunction
with the Marks, such alterations and new marks (collectively, "New Marks")must
be approved by Bollore prior to their use. Bollore may withhold its approval for
any reason. The New Marks, if approved, shall be owned exclusively by Bollore in
obtaining any necessary registrations for such New Marks. In addition, any
reference in this agreement to "Marks" shall be deemed to include any New Marks
approved by Bollore in the future.
(c) Quality Control. (i) The Distributor shall at all times maintain the
qualify standards set forth by Bollore for all goods and services in connection
with which the Marks are used, except that if an Alternate Supplier or the
Distributor is permitted to manufacture Products under this Agreement, the
quality standards shall be determined in accordance with the next two sentences.
In the event that an Alternate Supplier or the Distributor is permitted to
manufacture under this Agreement, Bollore shall supply the Distributor with a
set of specifications for the manufacture of the Products within 8 business days
of Bollore's Adjustment Notice under Section 3(f) or Discontinuance Notice (as
hereinafter defined) under Section 9(b), or the occurrence of a Disruption Event
(as hereinafter defined) under Section 9(a), which specifications shall be the
same as those used by Bollore for the year immediately prior to the notice or
event. The Distributor shall submit to Bollore, for its written approval,
samples of any Product to be manufactured by an Alternate Supplier or the
Distributor and if Bollore and the Distributor are unable to agree whether such
samples meet the specifications within two business days, then the parties shall
submit the samples to an Independent Evaluator (selected in accordance with the
procedures set forth in Section 2) who shall determine whether or not such
samples meet the specifications within two business days and whose determination
shall be binding on the parties. The Distributor agrees to cooperate with
Bollore to ensure preservation of the goodwill associated with the Marks and to
comply in all material respects with all applicable laws and regulations
pertaining to the goods and services in connection with which the Marks are
used. All use of the Marks shall conform to the image and reputation associated
therewith.
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(ii) the design and manufacture of all goods or promotional material
(an "Article") bearing the Mark shall be subject to the prior written
approval of Bollore. To this end, samples of each such Article shall be
submitted to Bollore, free of cost to Bollore, for written approval prior
to any distribution or other use by the Distributor. After such samples
have been approved by Bollore, the Distributor shall not modify or alter
the Article in any respect without Bollore's prior written consent. The
Distributor shall not use any other trademark or tradename (other than its
corporate name or other fictitious corporate name reasonably acceptable to
Bollore) in connection with the Products.
(iii) If at any time Bollore notifies the Distributor that an Article
(i) fails to be of substantially the same quality as that previously
approved by Bollore, the Distributor shall immediately cease the
production, sale, distribution and promotion of such non-conforming
Article, or (ii) fails to be of at least the same quality, but with defects
in quality that are not substantial, the Distributor shall cease production
of such Article, but shall not be required to case distribution of such
Article for a period of 60 days, after which period no such Articles shall
be manufactured or distributed unless they conform to all quality standards
applicable thereto.
(d) Notices. The Distributor will cause the trademark notice "o" or "TM",
as requested by Bollore, and/or such other legend as reasonably requested by
Bollore in writing from time to time or as may be required by any law or
regulation in that jurisdiction in which and goods or services are offered, to
appear on labels, packaging, advertising and other promotional materials, in
such manner and location as requested by Bollore with respect to the Marks. The
Distributor shall not affix any other trademark notice to any of the foregoing
or to the Products without Bollore's prior written approval. All cigarette paper
booklets shall indicate that the Distributor is an exclusive distributor of
Bollore in the Territory (provided that the Distributor may use up all inventory
acquired from USTC which indicates that USTC is the exclusive distributor of
Bollore).
(e) Representation and Warranty. Bollore makes no express or implied
representations or warranties as to ownership of the of the Marks for use in the
Territory, except that Bollore has been granted the registrations or has made
applications for the registrations listed on Schedule E, or for use of the Marks
in connection with any goods or services other than cigarette paper and the
Distributor assumes all risk with respect to any such use thereof;
(f) Infringements. Each of Bollore and the Distributor shall promptly
notify the other, in writing, of any use of the Marks in contravention of the
license under this
15
<PAGE>
Agreement of which otherwise may infringe on the Marks which may come to such
party's attention. Bollore shall have the option to send cease and desist
letters, commence and prosecute, at its own expense, such claims or suits, and
take such other action, as it in its sole discretion deems necessary and the
Distributor agrees to cooperate fully with Bollore in the prosecution of any
such claim. The Distributor shall have the option to commence and prosecute, at
its own expense, any such claim or suit (or take other enforcement action) which
Bollore determines not to commence or diligently pursue and Bollore agrees to
cooperate fully with the Distributor in the prosecution of any such claim. All
monetary recovery from any such claims or suits prosecuted shall be shared
equally between the parties, after reimbursement of the costs of prosecution.
9. Interruption in Supply; Permanent Discontinuance.
(a) If Bollore is unable to furnish some or all of the Distributor's
requirements for Products for any reason, other than (i) Bollore's inability to
furnish Products requested by the Distributor which exceed the quarterly or
monthly maximums set forth in the last sentence of Section 3(e), (ii) Bollore's
failure to ship Product as permitted by Section 3(g) or (iii) the application of
the second paragraph of Section 3(f) (a "Disruption Event"), then the
performance of the obligations of Bollore shall be suspended during the
continuance of any Disruption Event and shall be resumed promptly upon the
cessation of the Disruption Event. During a Disruption Event, the Distributor
shall be entitled to substitute other cigarette paper of like quality to the
extent its requirements are not being filled by Bollore, subject to the
provisions of Section 8(c) above, with an Alternate Supplier, and Bollore may,
at its option, select the Alternate Supplier who shall be reasonably
satisfactory to the Distributor. In such event, Bollore shall reimburse the
Distributor for the cost of the substituted product from such alternate sources
to the extent it exceeds the current purchase price of the Product (the "Price
Differential Payment").
(b) In the event that Bollore decides to discontinue its cigarette paper
manufacturing operations permanently without assigning its rights to the
"ZIG-ZAG" mark and this Agreement to a third party as described in the second
sentence of the second paragraph of Section 12(a), it shall provide the
Distributor with written notice of such decision ("Discontinuance Notice") at
least 90 days prior to the effective date of such discontinuance, and the
Distributor shall be permitted to manufacture or permit others to manufacture
the Products for the Distributor's account pursuant to Section 8 hereof, with an
Alternate Supplier. After such 90-day period, Bollore may discontinue its
operations with no further liability to ship the Products to the Distributor
hereunder or to pay the Price Differential Payment.
16
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10. Changes in Control of the Distributor.
(a) For purposes of this Section, the following definitions shall apply:
"Change in Control" shall mean a failure of (i) the Original Stockholders
and their Permitted Transferees to own beneficially (and solely control the
voting of), in the aggregate, at least 51% of the issued and outstanding voting
capital stock of all classes of the Parent, and retain the ability to elect a
majority of the directors of the Parent; or (ii) the Parent to own and solely
control the voting of, in the aggregate, at least 51% of the issued and
outstanding voting capital stock of all classes of the Distributor and retain
the ability to elect a majority of the directors of the Distributor.
"Competitor" shall mean any person, corporation, partnership or other
entity that, directly or indirectly, manufactures, sells, markets, distributes
or promotes cigarette paper or cigarette paper booklets in the Territory, or
which owns, directly or indirectly, more than 30% of any class of voting capital
stock of a Competitor.
"Original Stockholder" shall mean each of John Drake, Chris Goodwin and
Mark Graham.
"Parent" shall mean any company which owns directly or indirectly 50% or
more of the voting capital stock of any class of the Distributor or another
Parent and/or has the ability to elect a majority of the directors of the
Distributor or another Parent.
"Permitted Transferee" shall mean any spouse or lineal descendent of an
Original Stockholder or any trust for the benefit of any spouse or lineal
descendent where the trustees consist of Original Stockholders or Permitted
Transferees or a bank, trust company or attorney-at-law, which is not a
Competitor.
(b) The following shall constitute violations of this Section:
(i) if at any time an Original Stockholder or any Permitted Transferee
or a Parent (as the case may be), transfers any shares of voting capital
stock of any class of the Distributor or of a Parent to a Competitor;
(ii) if at any time a Competitor acquires a total of at least 30% of
any class of voting capital stock of the Distributor or a Parent (whether
or not from an Original Stockholder or Permitted Transferee);
17
<PAGE>
(iii) if at any time before the fifth anniversary of the Effective
Date of this Agreement, there is a Change in Control in either the
Distributor or a Parent without the consent of Bollore, which may be
withheld for any reason;
(iv) if at any time after the fifth anniversary of the Effective Date
of this Agreement, there is a Change in Control in either the Distributor
or a Parent without the consent of Bollore, which may not be unreasonably
withheld or delayed, it being understood that Bollore's refusal to consent
to a transfer to a Competitor shall not be deemed unreasonable.
11. Confidentiality.
(a) Bollore and the Distributor acknowledge that the information each party
has provided or will provide in connection with the negotiation of and during
the term of this Agreement, including, without limitation, this Agreement, are
and shall be confidential and proprietary to the parties supplying such
information (the "Confidential Information"). Each party agrees not to use or
disclose to any third party the Confidential Information of the other party
except as required for performance of its obligations under this Agreement.
Moreover, each party hereto agrees to restrict dissemination of particular
Confidential Information to only those persons in its respective organization
who must have access to such Confidential Information in order to perform its
obligations under this Agreement and will advise such persons of the
confidentiality obligations hereunder.
(b) The parties' obligations with regard to any Confidential Information
shall not apply in respect of such information that:
(i) was in the public domain at the time it was disclosed;
(ii) was disclosed with the written consent of the other party;
(iii) becomes known to the disclosing party from a third party without
breach of this Agreement; or
(iv) is required to be disclosed by any state or federal court or
agency, provided that, if permitted by law, the disclosing party shall
promptly inform the non-disclosing party of the request to disclose, and
as the non-disclosing party may reasonably request, the disclosing party
shall assist the non-disclosing party, at the expense of the non-disclosing
party, in any effort by such party to
18
<PAGE>
obtain a protective order with respect to such Confidential Information.
(c) In the event this Agreement is terminated, each party in possession of
Confidential Information of the other party shall promptly return such
Confidential Information (and any copies, extracts and summaries thereof) to the
other party, or, with the other party's written consent, shall promptly destroy
such Confidential Information (and any copies, extracts and summaries thereof).
(d) The provisions of this Section 11 shall survive for a period of five
years after termination of this Agreement.
12. Additional Provisions.
(a) Except as otherwise expressly provided in this Agreement, the
Distributor may not assign, delegate or sublicense any of its rights or duties
hereunder, by operation of law or otherwise, to any other person or entity
without the prior written consent of Bollore before such assignment, delegation
or sublicense is made; provided, however, that the Distributor may, upon prior
written notice to Bollore, assign this Agreement to a wholly-owned subsidiary
provided that (i) such assignee shall agree in a writing reasonably acceptable
to Bollore, to be bound by the terms of this Agreement, and (ii) the Distributor
shall continue to be primarily liable hereunder on its own behalf and on behalf
of such assignee.
Bollore may assign, delegate or sublicense this Agreement, or any of its
rights or obligations hereunder, provided Bollore shall remain primarily liable
hereunder for itself and on behalf of any party to which such assignment,
delegation or sublicense is made. In addition, Bollore may assign this Agreement
(with prior written notice to the distributor, but without its consent) to an
unaffiliated third party purchaser (by purchase, license or otherwise) of
Bollore's rights to the "ZIG-ZAG" trademark in the Territory, in which events
such purchaser acquirer shall be bound by this Agreement, and Bollore shall have
no further liability hereunder, except with regard to matters arising prior to
such assignment. In the event that Bollore assigns this Agreement to a third
party as contemplated by the immediately preceding sentence prior to the tenth
anniversary of the Effective Date of this Agreement (the "Transfer Price
Protection Period"), the price provisions under Sections 3(a), (b) and (c) shall
continue for the shorter of five years or the expiration of the Transfer Price
Protection Period, and such assignee shall not have the right to exercise any
right to renegotiate such price formula pursuant to Section 3(d) until 120 days
prior to the earlier of the expiration of five years
19
<PAGE>
after the date such assignment becomes effective or the expiration of such
Transfer Price Protection Period.
(b) The parties hereto agree that with regard to the licenses granted to
the Distributor pursuant to Section 6 hereof, no assignment or transfer of the
goodwill to the Bollore Trademarks is or has been deemed to have taken effect,
and the Distributor and Bollore acknowledge and agree that all proprietary
interest in and to the Bollore Trademarks shall remain with Bollore.
(c) Any notice required under this agreement shall be deemed duly given (i)
upon receipt by delivery or in person or by courier or by telegram, telex,
telefacsimile which is confirmed by letter mailed certified or registered mail
or (ii) 5 days after being mailed by registered or certified mail, postage
prepaid return receipt requested, addressed as follows:
If to Bollore:
Bollore Technologies, S.A.
31/32 quai e Dion bouton
32811 Puteaux Cedex, France
Attention: Claude Parisot, Esq.
Telefax: 011-311-46-96-40-15
and, in the case of any notice relating to a claimed
breach of this Agreement, with a copy to:
Steven L. Kirshenbaum, Esq.
Proskauer Rose Goetz & Mendelsohn
1585 Broadway
New York, New York 10036
Telefax: 212-969-2900
If to the Distributor:
North Atlantic Trading Company, Inc.
c/o Drake, Goodwin & Graham
1301 Avenue of the Americas, 7th Floor
New York, New York 10019
Attention: Mark Graham
Telefax: 212-259-5322
and, in the case of any notice relating to a claimed
breach of this Agreement, with a copy to:
20
<PAGE>
Steven A. Hobbs, Esq.
Rogers & Wells
200 Park Avenue
New York, New York 10166
Telefax: 212-878-8375
Any party may change its address for the giving of notice by notice given in the
above manner. No other form of giving notice is precluded, but notice given by
any other means shall not be duly given unless and until actually received by
the addressee.
(d) Should any dispute arise in connection with this Agreement, including,
without limitation, the interpretation of this Agreement, or the performance or
breach of any provision herein, or a purchase price adjustment is required under
the last paragraph of Section 2 or under Section 3(d) and such dispute cannot be
settled by good faith negotiation between the parties in accordance with the
terms hereof, at the written request of either party, such dispute shall be
finally and conclusively settled by binding arbitration held and conducted in
the State of New York in accordance with the rules of the American Arbitration
Association; except that any dispute regarding whether any Product meets
Bollore's quality standards shall be submitted to an Independent Evaluator as
contemplated by Sections 2 or 8(c). Such arbitration shall be conducted by a
panel of three arbitrators who are each an industry expert. Each party shall
appoint one arbitrator within 15 days who is unaffiliated with that party and
the two appointed arbitrators shall agree on a third unaffiliated arbitrator
within 15 days. Judgment upon the award rendered may be entered in any court
having jurisdiction or application may be made to such court for judicial
acceptance of the award or an order for enforcement, as the case may be. The
foregoing, however, shall not preclude either party from bringing an action in
the courts for equitable relief pursuant to Section 5(c), or terminating this
Agreement pursuant to Section 6(b) or (c).
The submission of any dispute for resolution to arbitration or to the
courts, as aforesaid, shall not, in and of itself, operate to terminate this
Agreement. Each party shall bear its own costs incurred during the arbitration,
and shall equally share the filing or other fees required to institute the
arbitration.
(e) Notwithstanding anything to the contrary contained in this Agreement,
the effectiveness of this Agreement is contingent upon (i) the Closing under the
Asset Purchase Agreement and (ii) Bolore's receipt of the Closing Consent
Payment as defined in the Consent Agreement. For purposes of this Agreement, the
"Effective Date" of this Agreement shall be the date of such Closing. This
Agreement shall terminate and shall be of no further force and effect if the
Closing has not
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<PAGE>
occurred on or before February 1, 1993. The Distributor shall have no liability
under the Bolore Documents for matters arising prior to the Effective Date of
this Agreement.
(f) This Agreement constitutes the entire Agreement between the parties
with respect to the subject matter hereof, supersedes the Bollore Documents in
their entirety and all prior agreements relating to the subject matter hereof,
and can be amended, changed or extended only by a writing duly signed by both of
the parties. No waiver of a breach hereunder shall be valid unless contained in
a writing duly signed by the waiving party and a waiver given on any one
occasion shall not be deemed to be a waiver of the same or any other breach on
any other occasion. This Agreement shall be governed by and construed under the
internal laws of the State of New York applicable to contracts made and to be
performed within the State of New York.
(g) This Agreement may be signed in counterparts, each of which shall be an
original and both of which together shall constitute one and the same
instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties have hereunto duly executed this Agreement
as of November 30, 1992.
BOLLORE TECHNOLOGIES, S.A.
By:/s/ Gilles Alix
--------------------------------
Name: Gilles Alix
Title: Financial manager
NORTH ATLANTIC TRADING COMPANY,
INC.
By:/s/ Christopher Goodwin
--------------------------------
Name: Christopher Goodwin
Title: Vice Chairman
23
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Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions marked by [**] have been separately
filed with the Commission.
AMENDED AND RESTATED DISTRIBUTION AND LICENSE AGREEMENT
Dated as of November 30, 1992
The parties to this Agreement are Bollore Technologies, S.A., a corporation
organized under the laws of the Republic of France ("Bollore"), and North
Atlantic Trading Company, Inc., a Delaware corporation (the "Distributor").
PREAMBLE
WHEREAS, pursuant to a Consent Agreement, dated November 30, 1992, among
Bollore, the Distributor, United States Tobacco Company ("USTC") and certain of
USTC's affiliates (the "Consent Agreement"), Bollore has consented to the
transfer and assignment to the Distributor of USTC's rights and interests in, to
and under the Bollore Documents, other than the Manufacturing Rights (as those
terms are defined in the Consent Agreement) contingent upon the consummation of
the transactions contemplated by the Asset Purchase Agreement, dated November
25, 1992, among the Distributor, USTC and certain of USTC's affiliates (the
"Asset Purchase Agreement") and provided that the Bollore Documents are
immediately amended and restated pursuant to this Agreement; and
WHEREAS, the parties desire to restate, amend and supersede the Bollore
Documents in their entirety as herein provided;
NOW, THEREFORE, the parties hereby agree, for good and valuable
consideration, to restate, amend and supersede the Bollore Documents in their
entirety as follows:
1. Distribution Rights.
(a) On the terms and subject to the conditions of this Agreement, Bollore
hereby grants to the Distributor for the term of this Agreement (as defined in
Section 6) the exclusive right to purchase the cigarette paper booklets sold
under the trademark "ZIG-ZAG" listed on Schedule A (the "Products") from Bollore
for resale throughout the Dominion of Canada (the "Territory"). During the term
of this Agreement, Bollore shall not sell the Products to any person or company
in the territory other than the Distributor and, except as expressly otherwise
provided in this
<PAGE>
Agreement, Bollore shall sell to the Distributor the quantities of the Products
required by the Distributor.
(b) The Distributor accepts the grant of such right and shall use its best
efforts throughout the term of this Agreement to promote and sell the Products
within and throughout the Territory. Except as expressly provided otherwise in
this Agreement, the Distributor shall purchase all of its requirements of
Products exclusively from Bollore.
The Distributor shall have the sole right to determine the prices at and
the terms upon which the Distributor shall sell the Products within the
Territory and to determine the wholesalers and subdistributors and other
customers to whom it sells the Products, provided, to the best of the
Distributor's knowledge, all such parties use or resell the Products solely
within the Territory.
During the term of this Agreement, the Distributor shall not sell the
Products outside the Territory (other than pursuant to, and in accordance with
the terms of, a written agreement with Bollore) and shall not knowingly sell the
Products to any party who, directly or indirectly, resells or distributes such
Products outside, or sells to a third party for resale or distribution outside,
the Territory, and shall immediately cease selling to any such party upon
becoming aware of such party's sales outside the Territory. Bollore may select
(a) other distributors for the Products in other territories, and (b) other
distributors for any products not using the Marks (as defined in Section 8) in
the Territory.
(c) The relationship between the parties is that of vendor and purchaser
(rather than principal and agent, employer and employee, partners or joint
venturers) and, accordingly, the Distributor is not empowered hereunder or
otherwise (i) to act for or to bind Bollore, (ii) to accept service of process
on behalf of Bollore in the Territory or (iii) to make any express or implied
representation or warranty on behalf of Bollore; provided, however, that the
Distributor may describe and represent itself as the exclusive distributor of
the Products in the Territory.
(d) The Distributor shall provide Bollore with information relating to unit
sales volume and inventory of the Products in the Territory on at least a
monthly basis consistent with past practices between Bollore and USTC and its
affiliates.
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<PAGE>
(e) The Distributor shall be solely responsible for securing all required
import licenses, governmental approvals, permits and authorizations necessary
for the importation and sale of the Products in the Territory; provided,
however, that Bollore shall use its reasonable best efforts (at the
Distributor's expense) to cooperate with the Distributor in securing such
licenses, approvals, permits and authorizations. Bollore shall, at its own
expense, supply any technical data and samples required in connection with
necessary governmental registration of Products in the Territory; provided,
however, that the Distributor shall use such technical data and any other
proprietary information obtained from Bollore solely for the purpose of
obtaining such registration. Bollore shall be solely responsible for securing
all required export licenses, governmental approvals, permits and authorizations
necessary for the exportation of the Products from the country of manufacture;
provided, however, that the Distributor shall use its reasonable best efforts
(at Bollore's expense) to cooperate with Bollore in securing such licenses,
approvals, permits and authorizations. The Distributor shall, at its own
expense, supply such information and data as may be required in connection with
obtaining any of the foregoing.
2. Warranties; Product Defects.
Bollore shall ship and deliver all Products in saleable condition, and
Bollore represents and warrants that all Products are merchantable, but makes no
other representation or warranty express or implied regarding the condition of
the Products. The Distributor is not authorized to extend or modify any warranty
or guaranty on behalf of Bollore. All Products received by the Distributor will
be inspected promptly upon receipt for damage, but in no event later than 15
days after receipt. If any Products are materially damaged, defective and not
usable or saleable in the ordinary course of the Distributor's business
("Defective Products"), then the Distributor's sole and exclusive remedy
(subject to the fourth paragraph of this Section 2) shall be rejection of the
Defective Products with a right to a refund of the payment for such Defective
Products if they have been paid for (as provided below) and without obligation
to pay for such rejected portion if they have not been paid for. Except as
provided below, if Bollore does not receive a written rejection from the
Distributor of a shipment, or part thereof, within 15 days after delivery of
such shipment, the Distributor shall be deemed irrevocably to have accepted such
shipment. If the Distributor timely notifies Bollore that it rejects all or part
of a shipment, Bollore, at its sole expense, shall have 30 days
3
<PAGE>
after receipt of such notice (a) to cure any defect by providing substitute
Products or causing the Defective Products to meet its customary quality
standards, or (b) to provide a credit to the Distributor for the amount due
Bollore for such Defective Products or refund such amount if previously paid.
Bollore shall supply either a return authorization number and return shipping
instructions or instructions to destroy the Defective Products and shall ship
replacement merchandise as soon as possible.
Nothing herein shall prevent the Distributor from returning to Bollore for
refund of the purchase price paid therefor any Product found to be manufactured
defectively which is discovered by the Distributor subsequent to such inspection
for damage.
Notwithstanding the foregoing, if Bollore disputes the Distributor's claim
that any Product does not meet Bollore's customary quality standards or is
otherwise a Defective Product, the parties shall cooperate in good faith to
settle the dispute amicably. If they fail to agree, the parties shall submit
samples of the Product to a mutually agreed upon independent laboratory or
industry expert (which or who has no prior dealings and is unaffiliated with
either party) (an "Independent Evaluator") for testing and such Independent
Evaluator's determination shall be final and binding. If the parties fail to
agree upon an Independent Evaluator within 10 days, each party shall select an
Independent Evaluator and the two appointed Independent Evaluators shall agree
upon a third Independent Evaluator, whose determination shall be final and
binding. The losing party shall pay the costs of submitting the samples and
testing by the Independent Evaluator.
Except for the remedies set forth in this Section, Bollore shall not be
liable to the Distributor or any other party by reason of supplying defective or
otherwise non-conforming Product; except that nothing herein shall affect
Bollore's liability, if any, as a matter of law, to third parties for defective
product nor Bollore's liability to the Distributor arising from third party
claims relating to defective Product, but Bollore shall have no liability to the
Distributor for damages to Distributor arising from lost profits or lost
opportunities of the Distributor.
To the extent requested by the Distributor, Bollore shall modify the
Products to the extent reasonably necessary to comply with applicable laws in
the Territory; provided, however, that if such modification increases Bollore's
costs, the parties shall negotiate in good faith for 30 days for a mutually
agreed
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upon purchase price adjustment to reflect such additional costs. If after such
30 day period the parties, acting in good faith, have been unable to agree, the
parties shall submit the dispute to binding arbitration in accordance with
Section 12(d); provided, however, that during such 30 day period and/or
arbitration, the previously established prices shall apply to all transactions
and corresponding patent schedules of Bollore and the Distributor.
Notwithstanding the proviso contained in the previous sentence, if after such 30
day period and/or arbitration a new price is established, such new price shall
apply retroactively to the parties and the Distributor shall pay, within 10
business days of the final determination of the new price, to Bollore, the
amount equal to the difference between the amount that would have been paid over
such period if the new price had been in effect and the amount that was actually
paid.
3. Terms of Sales.
(a) The Distributor shall pay Bollore in French Francs the full invoiced
price for purchases of the Product, without any set-offs, withholdings or
deductions of any kind (other than amounts payable with respect to a specific
invoice, the payment of which the Distributor disputes in good faith because of
Defective Products covered by such invoice or an error in such invoice), not
later than 45 days after the date of issuance of the bill of lading. Such
payments shall be made by wire transfer of immediately available funds to
Bollore's [**], or such other account as Bollore may designate from time to
time. The Distributor shall be responsible for paying [**]. Bollore shall be
responsible for [**].
(b) The prices to be charged by Bollore to the Distributor for the Products
shall initially be the prices set forth in Schedule A, which shall remain in
effect until December 31, 1993. From January 1, 1994 through December 31, 1994,
the prices shall increase by [**].
(c) Until December 31, 1998, the following adjustment shall be made to
Product prices to account for material currency fluctuations: if the average
rate of exchange (averaging the bid
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and the asked rates), as quoted by the reference banks of Credit Lyonnais
(Paris), Chemical Bank (New York City) and Banque Nationale de Paris (Paris)
(the "Average Exchange Number") during the calendar month immediately preceding
the date of any invoice is less than [**], the price for such Products shall be
adjusted to be equal to the current Product price pursuant to this Agreement,
multiplied by a fraction, the numerator of which is the Average Exchange Number
and the denominator of which is [**].
(d) In order to assure each of the parties commercially reasonable profits
in light of inflationary trends and currency translation factors, 120 days prior
to December 31, 1998 and each fifth-year anniversary of that date, the parties
shall enter into good faith negotiations to agree on an index and a currency
adjustment formula to replace those set forth in subparagraphs (b) and (c) above
(the "Price Negotiation Period"). If after the Price Negotiation Period the
parties, acting in good faith, have been unable to agree, the parties agree to
submit the dispute to binding arbitration in accordance with Section 12(d);
provided, however, that during such Price Negotiation Period and/or arbitration,
the previously established and applicable indices and adjustment formulae shall
apply to all transactions and corresponding payment schedules of Bollore and the
Distributor. Notwithstanding the proviso contained in the previous sentence, if
after such Price Negotiation Period and/or arbitration a new price is
established, such new price shall apply retroactively to the parties and the
appropriate party shall pay, within 10 business days of the final determination
of the new price, to the party in whose favor a price adjustment is made, the
amount equal to the difference between the amount that would have been paid over
such period if the new price had been in effect and the amount that was actually
paid.
(e) All terms of sale shall be [**]. Ninety days prior to the beginning of
each calendar year, the Distributor shall deliver to Bollore a Product purchase
forecast on a quarter-by-quarter basis, anticipating its purchase requirements
for each Product during the next year (other than the forecast for the first
full
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calendar year, which shall be delivered 15 days prior to the beginning of that
year). Purchases of Products shall be made by purchase orders on a quarterly
basis, with a firm purchase order to be delivered to Bollore at least 90 days
prior to the beginning of each calendar quarter. The Distributor's order for the
first quarter is as listed on Schedule B. Bollore shall not be required to
deliver to the Distributor more than [**], of the Distributor's
forecasted annual purchase requirements and Bollore shall in no event be
required to ship Products to the Distributor if such shipment is not fully
covered by the Letter of Credit referred to in Section 3(g) or if the
Distributor fails to make payment as provided in the second sentence of Section
6(c).
(f) Notwithstanding anything to the contrary in this Agreement, if at any
time the price received by Bollore under this Agreement for Products fails to
cover Bollore's costs (e.g., manufacturing, transportation, taxes, warehousing
and the like) for such Products, Bollore may give notice to the Distributor to
such effect, and thereby implement this Section (the "Adjustment Notice"), in
which event the parties shall promptly negotiate in good faith to determine if
they can agree on an adjustment to the price being charged under this Agreement
mutually acceptable to the parties. If the parties fail to reach an agreement
within 90 days of the delivery of the Adjustment Notice, the Distributor shall
have the right, subject to the conditions below, to contract with an alternate
supplier reasonably acceptable to Bollore ("Alternate Supplier") to manufacture
and supply the Products to the Distributor, in which event Bollore shall,
pursuant to Section 8(a), be deemed to have granted a royalty-free license to
the Distributor to permit such manufacture of the Products by the Alternate
Supplier for the sole account of the Distributor for such period as the
Distributor shall be entitled to purchase from such Alternate Supplier in
accordance with this Agreement.
During the 90-day period following the delivery of the Adjustment Notice,
and for up to an additional 6 months thereafter, if no agreement on a price
adjustment has been reached, Bollore shall continue to supply the Distributor
under this Agreement to enable the Distributor to retain an Alternate Supplier.
After such additional 6-month period, or at such earlier date as an Alternate
Supplier shall have commenced supplying Products to the Distributor, Bollore may
cease supplying the Distributor hereunder, with no further liability to the
Distributor to supply the Distributor with Products under this Agreement or to
pay a Price Differential Payment as referred to in Section 9(a) (unless Bollore
shall elect to continue
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<PAGE>
supplying the Distributor pursuant to the provisions of this Section as set
forth below).
The parties' rights under this Section shall be subject to the following:
(i) The Distributor shall give Bollore not less than 30 days prior
notice of the identity of, and the terms offered by, the Alternate
Supplier, and Bollore shall have the right, exercisable by notice given
within such 30-day period, to agree to supply the Distributor under this
Agreement for the same price terms offered by the Alternate Supplier, in
which event the Distributor shall not retain the Alternate Supplier, and
Bollore shall continue to exclusively supply the Distributor under this
Agreement, but on such price terms (the "Match Right") until the next Price
Negotiation Period;
(ii) Pursuant only to the terms of this Section 3(f), the Distributor
shall notify Bollore of any change in price terms (not the result of
changes due to the automatic operation of a specific price formula which
was part of the original price terms) by the Alternate Supplier within 5
business days of the Distributor being notified thereof, and Bollore shall
have a Match Right for 5 business days following receipt of such notice in
connection therewith;
(iii) If the Distributor is being supplied by an Alternate Supplier
pursuant to this Section, Bollore shall have the right, prior to or during
any subsequent Price Negotiation Period, to notify the Distributor that it
intends to commence shipping Product hereunder again (as of either (x) the
date such Price Negotiation Period commences or (y) the date final
agreement is reached or an arbitration award is issued with respect to
prices under Section 3(d)) and to exercise its right to negotiation and, if
necessary arbitrate a new price structure pursuant to Section 3(d) above,
in which event, thereafter Bollore shall supply, and the Distributor shall
purchase, Products in accordance with the prices in effect pursuant to the
terms of this Agreement, adjusted as may be required by such arbitration
award or agreement as provided in Section 3(d), subject to the right of
Bollore to give an Adjustment Notice under this Section again at a later
time; and
(iv) Any agreement between the Distributor and an Alternate Supplier
shall not contain provisions which prevent the Distributor from complying
with this Section.
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(g) Pursuant to the Amended and Restated Distribution and License Agreement
of even date herewith between the parties hereto covering the United States
territory (the "U.S. Agreement"), the Distributor will establish and deliver to
Bollore the Letter of Credit (as defined in the U.S. Agreement). It is the
intent of the parties that the Letter of Credit will secure payments to be made
by the Distributor for shipments of Products pursuant to this Agreement as
provided in Section 6(c). Therefore, in the event that the Distributor does not
pay Bollore in accordance with Section 3(a) above within 15 days of the due date
thereof, Bollore may draw on the Letter of Credit to the extent of such unpaid
invoiced amount as provided in Section 6(c) below.
Notwithstanding anything to the contrary contained in this Agreement, and
notwithstanding any limitation in this Agreement on the amount of the Letter of
Credit Bollore may require Distributor to provide, in no event shall Bollore be
required to ship any Products ordered by the Distributor if the amount then
outstanding under the Letter of Credit is less than the aggregate of all unpaid
invoices then currently outstanding (including invoiced amounts that may be in
dispute) plus the invoice amount of the purchase order to be shipped, unless
Bollore waives in writing the requirement of a Letter of Credit, which Bollore
may do from time to time for specific shipments or specific time periods.
4. Advertising and Promotion.
(a) The Distributor shall submit to Bollore all written materials to be
used in advertising, promotional and marketing campaigns (all of which shall be
prepared in accordance with Section 8), for approval by Bollore, which approval
shall not be unreasonably withheld. If notice of disapproval shall not have been
given within 15 business days after receipt of such copy by Bollore, approval
shall be deemed granted. Notice of disapproval, if any, shall specify the
reasons for said disapproval.
(b) The Distributor shall comply in all material respects with all laws and
regulations of all jurisdictions, relative to its sales activities.
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<PAGE>
5. Exclusivity and Non-Competition.
(a) During the Term of this Agreement and for a period of five years after
termination of this Agreement, the Distributor shall not directly or indirectly,
manufacture, sell, distribute or otherwise deal in or be associated with
promotion in the Territory of cigarette paper or cigarette paper booklets
("Competitive Products") (including, but not limited to, owning an interest in
any company, partnership or other entity which directly or indirectly
manufactures, sells or distributes Competitive Products) except for (i) the
distribution and sale of such products produced by Bollore or by an Alternate
Supplier or by the Distributor as permitted by Sections 3(f), 9(a) and 9(b);
(ii) ownership of no more than 2% of the issued and outstanding stock of a
company whose securities are publicly traded on a national securities exchange
or an over-the-counter or similar public market; and (iii) the distribution and
sale of products manufactured by USTC with Bollore's consent pursuant to the
Consent Agreement. In addition, during the term of this Agreement and for a
period of five years after termination of this Agreement, the Distributor shall
cause its subsidiaries and affiliates (which for purposes of this Agreement
shall be deemed to include any Parent of the Distributor and the Original
Stockholders and Permitted Transferees (as such terms are defined in Section
10)) (collectively, the "Non-Compete Party") to comply with the provisions of
this Section.
(b) During the term of this Agreement, the Distributor shall not permit any
individual to serve as a director of the Distributor or its subsidiaries and
affiliates if such individual is an officer, director or employee of a
corporation, partnership or other entity which directly or indirectly
manufactures, sells, distributes or promotes Competitive Products.
(c) The Distributor acknowledges that there may be no adequate remedy at
law, and that money damages may not be an adequate remedy for a breach of this
Section. Therefore, the Distributor agrees that Bollore shall have the right, in
addition to its rights under Section 6(b)(v) and any other rights it may have,
to injunctive relief and specific performance in the event of the Distributor's
breach of this Section 5. This remedy shall be cumulative and shall in no way
limit any other remedy Bollore may have at law, in equity or under this
Agreement.
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<PAGE>
6. Term.
(a) The term of this Agreement shall commence on the Effective Date of this
Agreement and shall continue until the twentieth anniversary date of this
Agreement; whereupon this Agreement shall automatically renew thereafter for
successive twenty-year periods unless such initial term or renewal period is
earlier terminated in accordance with subparagraphs (b) or (c) below.
(b) Notwithstanding the foregoing, this Agreement shall terminate upon
written notice by the party indicated below as follows:
(i) (A) at the option of either party, if (x) there shall be filed by
the other party a petition under any reorganization, bankruptcy, insolvency
or similar statute, or if such party shall make an assignment for the
benefit of creditors, or if such party is being liquidated or dissolved,
(y) there shall be filed against the other party any petition specified in
clause (x) or such other party shall be adjudged a bankrupt or shall be
subject to an order of bankruptcy or if a receiver, trustee or custodian is
appointed, which results in the entry of an order of relief or if any or
substantially all of its assets are attached and any such petition,
adjudication, order or attachment remains undismissed, undischarged or
unbonded for a period of sixty days or (B) at the option of the Distributor
if the equivalent to the foregoing shall occur under the laws of any
foreign jurisdiction with respect to Bollore; or
(ii) at the option of Bollore, if the Distributor shall fail to
purchase and pay for in any calendar year a minimum of [**] booklets of the
Products for resale in the Territory, upon notice given within 120 days of
the end of such calendar year; or
(iii) at the option of Bollore, if there shall be a wilful material
breach by the Distributor of the terms of Section 4(a); Section 7; or
Sections 8(b), 8(c) or 8(d); and at the option of Bollore, if the
Distributor shall fail to comply in any material respect with the terms of
any final award granted by arbitrators pursuant to Section 12(d); in each
case where such breach or noncompliance under this Subsection (iii) shall
not be cured within 60 days after notice thereof; or
(iv) at the option of either party upon the termination of the U.S.
Agreement; or
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<PAGE>
(v) at the option of Bollore, immediately upon notice by Bollore if:
(A) either the Distributor or any Non-compete Party violates the terms of
Section 5(a) or 5(b); (B) any violation shall occur under Section 10(b);
(C) an assignment, delegation or sublicense by the Distributor shall occur
in violation of Section 12(a); or (D) the Distributor shall violate in any
material respect the second sentence of the first paragraph or the first
sentence of the third paragraph of Section 1(b); provided, however, that if
there shall have occurred, without the knowledge of Distributor, a
violation under (A) or (B) by a party other than Distributor, the
Distributor shall have a period of 10 days from the date it first has
knowledge of such violation to cure, or cause to be cured, such violation,
provided it shall promptly notify Bollore in writing that such violation
has occurred and the manner in which it has been cured.
(c) In the event the Distributor fails to make payment of any amount when
due under this Agreement, and such failure continues for more than 15 days from
the due date thereof, from and after such 15th day, (i) all amounts unpaid shall
bear interest from such 15th day to the date of payment at a rate equal to the
sum of (A) the "prime rate" as announced by Chemical Bank, N.A. (New York City)
from time to time as set forth in the Wall Street Journal which rate shall
change when and if such "prime rate" shall change, plus (B) 2%; and, (ii)
Bollore shall be entitled to draw upon the Letter of Credit, if any, in an
amount up to the lesser of the amount due or the principal amount remaining
under the Letter of Credit at any time by presenting a copy of a demand notice
to the issuer of the Letter of Credit (the "Draw Down"). If any amount
(including any interest payable hereunder) shall continue to remain outstanding
after the Draw Down on the Letter of Credit or, if there shall be no Letter of
Credit as contemplated by Section 3(g) or the U.S. Agreement, any amount shall
remain outstanding after 15 days from the due date thereof, Bollore may, by
written notice to the Distributor, terminate this Agreement effective on a date
specified in such notice, which date shall be not less than 120 days from the
original due date of the amount which has not been paid, unless payment of such
amount (together with accrued interest) is made prior to the close of business
on the business day immediately preceding the termination date specified in the
notice in which case such termination notice shall not be effective.
Notwithstanding the foregoing, in the event that the Distributor (i) in the case
of payment for Product, disputes in good faith any amounts due and owing for
product delivered as a result of a claim such product was defective or damaged
or there was invoice error or (ii) disputes in good faith any other amounts
claimed by Bollore to be due under this Agreement, Bollore shall not have
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<PAGE>
the right to terminate the Agreement as a result of non-payment of the disputed
amount unless the Distributor continues to fail to pay the amount due after the
dispute is resolved.
(d) After the end of the term of this Agreement, Bollore and any persons
designated by it shall be free to deal with all customers of the Distributor
within and throughout the Territory and may appoint, accept orders from, and
deliver Products to, one or more new distributors in the Territory, without
incurring any liability or obligation to the Distributor. Bollore shall have the
right by written notice to the Distributor within 30 days after the termination,
but not the obligation, to purchase from the Distributor all remaining undamaged
inventories of the Products then owned by the Distributor at the Distributor's
cost for such inventory. If Bollore elects not to purchase such inventory, the
Distributor shall have 90 days to sell any inventory in its possession, which
sale shall be consistent with the terms of this Agreement. Thereafter, the
Distributor shall not sell any Products or make any use of the Marks (as defined
in Section 8) without Bollore's prior written consent.
(e) All rights of termination under subparagraphs (b) and (c) shall be in
addition to all other rights and remedies available at law or under this
Agreement.
7. Insurance.
If the Distributor plans to distribute promotional products in addition to
the Products, the Distributor shall either (i) increase its insurance prior to
the distribution of such promotional products to cover any possible additional
liability related to the distribution of such new products or (ii) cause the
third party manufacturer of such promotional products to name Bollore as an
additional insured under its insurance policy.
If during the term of this Agreement the Distributor elects, pursuant to
Sections 3(f), 9(a) or 9(b), to select a substitute third-party manufacturer for
the Products, the Distributor agrees to cause such third-party manufacturer, at
its own cost and expense, (i) to obtain general and product liability insurance,
in commercially reasonable amounts, and (ii) to name Bollore as an additional
insured under such insurance policies. In the event the Distributor chooses to
manufacture the Products itself during the term hereof (in lieu of selecting a
third party manufacturer), prior to the commencement of such manufacture, the
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<PAGE>
Distributor shall obtain, at its own cost and expense, general and product
liability insurance in commercially reasonable amounts and shall name Bollore as
an additional insured under such insurance policies; provided, however, the
above shall not apply to any production prior to the Effective Date of this
Agreement by any third-party manufacturers for USTC of any ancillary or
promotional products. Pursuant to the terms of this Section 7, the Distributor
shall promptly provide Bollore with, and cause its third-party manufacturers to
provide promptly to Bollore, certificates evidencing the foregoing. Such
insurance shall provide that it may not be cancelled or modified without at
least 30 days' prior written notice to Bollore and that the issuer waives all
rights of subrogation against any insured party thereunder. All insurance under
this Section shall be in such commercially reasonable amounts and cover such
commercially reasonable risks as Bollere deems reasonably appropriate.
8. Trademark License.
(a) License. Subject to the terms and conditions hereinafter set forth,
Bollore hereby grants the Distributor an exclusive, royalty-free license to use
the marks "ZIG-ZAG" and the head design (as set forth on Schedule C) (the
"Marks") in the Territory in connection with the promotion of the Products for
the term of this Agreement. In the event that the Distributor is permitted to
use third party manufacturers for the Products or manufacture the Products
itself under the provisions of Sections 3(f), 9(a) or 9(b), then such license
shall automatically be deemed granted, as an exclusive, royalty-free license to
use the Marks in the Territory to manufacture or permit others to manufacture
the Products for the Distributor's account as provided in such sections and
subject at all times to the terms and restrictions set forth below (including,
without limitation, the quality control and notice provisions). Such license
shall automatically terminate when Bollore resumes supplying the Distributor
pursuant to Section 3(f) or 9(a), or if this Agreement shall terminate.
(b) Ownership and Use of Marks. The Distributor hereby acknowledges that,
as between the parties, Bollore is the sole owner of the Marks and all
variations thereof, for all uses (other than in connection with tobacco in
tubular or non-tubular form consisting of cigarettes, cigars, smoking tobacco,
chewing tobacco, roll-your-own cigarette tobacco and snuff (collectively,
"Tobacco Products")) and the good will pertaining thereto and that nothing
contained in this Agreement shall constitute an assignment of the Marks or grant
to the Distributor any right,
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<PAGE>
title or interest therein, except the right to use them as set forth in this
Agreement. The Distributor agrees that it will not contest Bollore's ownership
of and rights in the Marks or the validity of the registration of the Marks nor
take any action in derogation of Bollore's rights in the Marks and that all
goodwill and improved reputation generated by the Distributor's use of the Marks
shall inure to the benefit of Bollore. Bollore hereby acknowledges and approves
of the license agreements to be assigned to the Distributor by USTC pursuant to
the Asset Purchase Agreement listed on Schedule D hereto for ancillary and
promotional products and the Distributor hereby acknowledges that Bollore is the
sole and exclusive owner of the trademarks sub- licensed under such agreements
(with respect to all uses other than on Tobacco Products) and shall cooperate
with Bollore in obtaining registrations of the Marks in the categories referred
to in such license agreements. The Distributor shall at any time execute any
documents and provide specimens of use, at its own expense, as required by
Bollore to confirm Bollore's ownership of the Marks. Bollore shall, from time to
time, prosecute trademark applications as it deems necessary, the costs and
expenses of which shall be borne by Bollore. If at any time the Distributor
wishes to alter the Marks in any way or create new marks which are variations of
the Marks or are used in conjunction with the Marks, such alterations and new
marks (collectively, "New Marks") must be approved by Bollore prior to their
use. Bollore may withhold its approval for any reason. The New Marks, if
approved, shall be owned exclusively by Bollore and the Distributor shall assist
Bollore in obtaining any necessary registrations for such New Marks. In
addition, any reference in this Agreement to "Marks" shall be deemed to include
any New Marks approved by Bollore in the future.
(c) Quality Control. (i) The Distributor shall at all times maintain the
quality standards set forth by Bollore for all goods and services in connection
with which the Marks are used, except that if an Alternate Supplier or the
Distributor is permitted to manufacture Products under this Agreement, the
quality standards shall be determined in accordance with the next two sentences.
In the event that an Alternate Supplier or the Distributor is permitted to
manufacture under this Agreement, Bollore shall supply the Distributor with a
set of specifications for the manufacture of the Products within 8 business days
of Bollore's Adjustment Notice under Section 3(f) or Discontinuance Notice (as
hereafter defined) under Section 9(b), or the occurrence of a Disruption Event
(as hereafter defined) under Section 9(a), which specifications shall be the
same as those used by Bollore for the year immediately prior to the notice or
event. The Distributor shall submit to Bollore, for its written
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<PAGE>
approval, samples of any Product to be manufactured by an Alternate Supplier or
the Distributor and if Bollore and the Distributor are unable to agree whether
such samples meet the specifications within two business days, then the parties
shall submit the samples to an Independent Evaluator (selected in accordance
with the procedures set forth in Section 2) who shall determine whether or not
such samples meet the specifications within two business days and whose
determination shall be binding on the parties. The Distributor agrees to
cooperate with Bollore to ensure preservation of the goodwill associated with
the Marks and to comply in all material respects with all applicable laws and
regulations pertaining to the goods and services in connection with which the
Marks are used. All use of the Marks shall conform to the image and reputation
associated therewith.
(ii) The design and manufacture of all goods or promotional material
(an "Article") bearing the Mark shall be subject to the prior written
approval of Bollore. To this end, samples of each such Article shall be
submitted to Bollore, free of cost to Bollore, for written approval prior
to any distribution or other use by the Distributor. After such samples
have been approved by Bollore, the Distributor shall not modify or alter
the Article in any respect without Bollore's prior written consent. The
Distributor shall not use any other trademark or tradename (other than its
corporate name or other fictitious corporate name reasonably acceptable to
Bollore) in connection with the Products.
(iii) If at any time Bollore notifies the Distributor that an Article
(i) fails to be of substantially the same quality as that previously
approved by Bollore, the Distributor shall immediately cease the
production, sale, distribution and promotion of such non-conforming
Article, or (ii) fails to be of at least the same quality, but with defects
in quality that are not substantial, the Distributor shall cease production
of such Article, but shall not be required to cease distribution of such
Article for a period of 60 days, after which period no such Articles shall
be manufactured or distributed unless they conform to all quality standards
applicable thereto.
(d) Notices. The Distributor will cause the trademark notice "(R)" or
"(TM)", as requested by Bollore, and/or such other legend as reasonably
requested by Bollore in writing from time to time or as may be required by any
law or regulation in the jurisdiction in which any goods or services are
offered, to appear on labels, packaging, advertising and other promotional
materials, in such manner and location as requested by Bollore with respect to
the Marks. The Distributor shall not affix any
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<PAGE>
other trademark notice to any of the foregoing or to the Products without
Bollore's prior written approval. All cigarette paper booklets shall indicate
that the Distributor is the exclusive distributor of Bollore in the Territory
(provided that the Distributor may use up all inventory acquired from USTC which
indicates that USTC is the exclusive distributor of Bollore).
(e) Representation and Warranty. Bollore hereby represents and warrants to
the Distributor that it is the owner of the Canadian Registration Nos. UCA44319
for the mark "ZIG-ZAG" and 278058 for the head design for use in connection with
cigarette paper in Canada. Bollore makes no other express or implied
representations or warranties as to ownership of the Marks in Canada or for use
outside of the Territory or for use in connection with any goods or sen ices
other than cigarette paper and the Distributor assumes all risk with respect to
any such use thereof.
(f) Infringements. Each of Bollore and the Distributor shall promptly
notify the other, in writing, of any uses of the Marks in contravention of the
license under this Agreement or which otherwise may infringe on the Marks which
may come to such party's attention. Bollore shall have the option to send cease
and desist letters, commence and prosecute, at its own expense, such claims or
suits, and take such other action, as it in its sole discretion deems necessary
and the Distributor agrees to cooperate fully with Bollore in the prosecution of
any such claim. The Distributor shall have the option to commence and prosecute,
at its own expense, any such claim or suit (or take other enforcement action)
which Bollore determines not to commence or diligently pursue and Bollore agrees
to cooperate fully with the Distributor in the prosecution of any such claim.
All monetary recovery from any such claims or suits prosecuted shall be shared
equally between the parties, after reimbursement of the costs of prosecution.
9. Interruption in Supply; Permanent Discontinuance.
(a) If Bollore is unable to furnish some or all of the Distributor's
requirements for Products for any reason, other than (i) Bollore's inability to
furnish Products requested by the Distributor which exceed the quarterly or
monthly maximums set forth in the last sentence of Section 3(e), (ii) Bollore's
failure to ship Product as permitted by Section 3(g) or (iii) the application of
the second paragraph of Section 3(f) (a "Disruption Event"), then the
performance of the obligations of Bollore shall be suspended during the
continuance of any
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Disruption Event and shall be resumed promptly upon the cessation of the
Disruption Event. During a Disruption Event, the Distributor shall be entitled
to substitute other cigarette paper of like quality to the extent its
requirements are not being filled by Bollore, subject to the provisions of
Section 8(c) above, with an Alternate Supplier, and Bollore may, at its option,
select the Alternate Supplier who shall be reasonably satisfactory to the
Distributor. In such event, Bollore shall reimburse the Distributor for the cost
of the substituted product from such alternate sources to the extent it exceeds
the current purchase price of the Product (the "Price Differential Payment").
(b) In the event that Bollore decides to discontinue its cigarette paper
manufacturing operations permanently without assigning its rights to the
"ZIG-ZAG" mark and this Agreement to a third party as described in the second
sentence of the second paragraph of Section 12(a), it shall provide the
Distributor with written notice of such decision ("Discontinuance Notice") at
least 90 days prior to the effective date of such discontinuance, and the
Distributor shall be permitted to manufacture or permit others to manufacture
the Products for the Distributor's account pursuant to Section 8 hereof, with an
Alternate Supplier. After such 90-day period, Bollore may discontinue its
operations with no further liability to ship the Products to the Distributor
hereunder or to pay the Price Differential Payment.
10. Changes in Control of the Distributor.
(a) For purposes of this Section, the following definitions shall apply:
"Change in Control" shall mean a failure of (i) the Original Stockholders
and their Permitted Transferees to own beneficially (and solely control the
voting of), in the aggregate, at least 51% of the issued and outstanding voting
capital stock of all classes of the Parent, and retain the ability to elect a
majority of the directors of the Parent; or (ii) the Parent to own and solely
control the voting of, in the aggregate, at least 51% of the issued and
outstanding voting capital stock of all classes of the Distributor and retain
the ability to elect a majority of the directors of the Distributor.
"Competitor" shall mean any person, corporation, partnership or other
entity that, directly or indirectly, manufactures, sells, markets, distributes
or promotes cigarette paper or cigarette paper booklets in the Territory, or
which
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owns, directly or indirectly, more than 30% of any class of voting capital stock
of a Competitor.
"Original Stockholder" shall mean each of John Drake, Chris Goodwin and
Mark Graham.
"Parent" shall mean any company which owns directly or indirectly 50% or
more of the voting capital stock of any class of the Distributor or another
Parent and/or has the ability to elect a majority of the directors of the
Distributor or another Parent.
"Permitted Transferee" shall mean any spouse or lineal descendent of an
Original Stockholder or any trust for the benefit of any spouse or lineal
descendent where the trustees consist of Original Stockholders or Permitted
Transferees or a bank, trust company or attorney-at-law, which is not a
Competitor.
(b) The following shall constitute violations of this Section:
(i) if at any time an Original Stockholder or any Permitted Transferee
or a Parent (as the case may be), transfers any shares of voting capital
stock of any class of the Distributor or of a Parent to a Competitor;
(ii) if at any time a Competitor acquires a total of at least 30% of
any class of voting capital stock of the Distributor or a Parent (whether
or not from an Original Stockholder or Permitted Transferee);
(iii) if at any time before the fifth anniversary of the Effective
Date of this Agreement, there is a Change in Control in either the
Distributor or a Parent without the consent of Bollore, which may be
withheld for any reason;
(iv) if at any time after the fifth anniversary of the Effective Date
of this Agreement, there is a Change in Control in either the Distributor
or a Parent without the consent of Bollore, which may not be unreasonably
withheld or delayed, it being understood that Bollore's refusal to consent
to a transfer to a Competitor shall not be deemed unreasonable.
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11. Confidentiality.
(a) Bollore and the Distributor acknowledge that the information each party
has provided or will provide in connection with the negotiation of and during
the term of this Agreement, including, without limitation, this Agreement, are
and shall be confidential and proprietary to the parties supplying such
information (the "Confidential Information"). Each party agrees not to use or
disclose to any third party the Confidential Information of the other party
except as required for performance of its obligations under this Agreement.
Moreover, each party hereto agrees to restrict dissemination of particular
Confidential Information to only those persons in its respective organization
who must have access to such Confidential Information in order to perform its
obligations under this Agreement and will advise such persons of the
confidentiality obligations hereunder.
(b) The parties' obligations with regard to any Confidential Information
shall not apply in respect of such information that:
(i) was in the public domain at the time it was disclosed;
(ii) was disclosed with the written consent of the other party;
(iii) becomes known to the disclosing party from a third party without
breach of this Agreement; or
(iv) is required to be disclosed by any state or federal court or
agency, provided that, if permitted by law, the disclosing party shall
promptly inform the non-disclosing party of the request to disclose, and
as the non-disclosing party may reasonably request, the disclosing party
shall assist the non-disclosing party, at the expense of the non-disclosing
party, in any effort by such party to obtain a protective order with
respect to such Confidential Information.
(c) In the event this Agreement is terminated, each party in possession of
Confidential Information of the other party shall promptly return such
Confidential Information (and any copies, extracts and summaries thereof) to the
other party, or, with the other party's written consent, shall promptly destroy
such Confidential Information (and any copies, extracts and summaries thereof).
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(d) The provisions of this Section 11 shall survive for a period of five
years after termination of this Agreement.
12. Additional Provisions.
(a) Except as otherwise expressly provided in this Agreement, the
Distributor may not assign, delegate or sublicense any of its rights or duties
hereunder, by operation of law or otherwise, to any other person or entity
without the prior written consent of Bollore before such assignment, delegation
or sublicense is made; provided, however, that the Distributor may, upon prior
written notice to Bollore, assign this Agreement to a wholly-owned subsidiary
provided that (i) such assignee shall agree in a writing reasonably acceptable
to Bollore, to be bound by the terms of this Agreement, and (ii) the Distributor
shall continue to be primarily liable hereunder on its own behalf and on behalf
of such assignee.
Bollore may assign, delegate or sublicense this Agreement, or any of its
rights or obligations hereunder, provided Bollore shall remain primarily liable
hereunder for itself and on behalf of any party to which such assignment,
delegation or sublicense is made. In addition, Bollore may assign this Agreement
(with prior written notice to the Distributor, but without its consent) to an
unaffiliated third party purchaser (by purchase, license or otherwise) of
Bollore's rights to the "ZIG-ZAG" trademark in the Territory, in which event
such purchaser shall be bound by this Agreement, and Bollore shall have no
further liability hereunder, except with regard to matters arising prior to such
assignment. In the event that Bollore assigns this Agreement to a third party as
contemplated by the immediately preceding sentence prior to the tenth
anniversary of the Effective Date of this Agreement (the "Transfer Price
Protection Period"), the price provisions under Sections 3(a), (b) and (c) shall
continue for the shorter of five years or the expiration of the Transfer Price
Protection Period, and such assignee shall not have the right to exercise any
right to renegotiate such price formula pursuant to Section 3(d) until 120 days
prior to the earlier of the expiration of five years after the date such
assignment becomes effective or the expiration of such Transfer Price Protection
Period.
(b) The parties hereto agree that with regard to the licenses granted to
the Distributor pursuant to Section 6 hereof, no assignment or transfer of the
goodwill to the Bollore Trademarks is or has been deemed to have taken effect,
and the Distributor and Bollore acknowledge and agree that all
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proprietary interest in and to the Bollore Trademarks shall remain with Bollore.
(c) Any notice required under this Agreement shall be deemed duly given (i)
upon receipt by delivery in person or by courier or by telegram, telex,
telefacsimile which is confirmed by letter mailed certified or registered mail
or (ii) 5 days after being mailed by registered or certified mail, postage
prepaid return receipt requested, addressed as follows:
If to Bollore:
Bollore Technologies, S.A.
31/32 quai de Dion Bouton
32811 Puteaux Cedex, France
Attention: Claude Parisot
Telefax: 011-331-46-96-40-15
and, in the case of any notice relating to a claimed
breach of this Agreement, with a copy to:
Steven L. Kirshenbaum, Esq.
Proskauer Rose Goetz & Mendelsohn
1585 Broadway
New York, New York 10036
Telefax: 212-969-2900
If to the Distributor:
North Atlantic Trading Company, Inc.
c/o Drake, Goodwin & Graham
1301 Avenue of the Americas, 7th Floor
New York, New York 10019
Attention: Mark Graham
Telefax: 212-259-5322
and, in the case of any notice relating to a claimed
breach of this Agreement, with a copy to:
Steven A. Hobbs, Esg.
Rogers & Wells
200 Park Avenue
New York, New York 10166
Telefax: 212-878-8375
Any party may change its address for the giving of notice by notice given in the
above manner. No other form of giving notice
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<PAGE>
is precluded, but notice given by any other means shall not be duly given unless
and until actually received by the addressee.
(d) Should any dispute arise in connection with this Agreement, including,
without limitation, the interpretation of this Agreement, or the performance or
breach of any provision herein, or a purchase price adjustment is required under
the last paragraph of Section 2 or under Section 3(d) and such dispute cannot be
settled by good faith negotiation between the parties in accordance with the
terms hereof, at the written request of either party, such dispute shall be
finally and conclusively settled by binding arbitration held and conducted in
the State of New York in accordance with the rules of the American Arbitration
Association; except that any dispute regarding whether any Product meets
Bollore's quality standards shall be submitted to an Independent Evaluator as
contemplated by Section 2 or 8(c). Such arbitration shall be conducted by a
panel of three arbitrators who are each an industry expert. Each party shall
appoint one arbitrator within 15 days who is unaffiliated with that party and
the two appointed arbitrators shall agree on a third unaffiliated arbitrator
within 15-days. Judgment upon the award rendered may be entered in any court
having jurisdiction or application may be made to such court for a judicial
acceptance of the award or an order for enforcement, as the case may be. The
foregoing, however, shall not preclude either party from bringing an action in
the courts for equitable relief pursuant to Section 5(c), or terminating this
Agreement pursuant to Section 6(b) or (c).
The submission of any dispute for resolution to arbitration or to the
courts, as aforesaid, shall not, in and of itself, operate to terminate this
Agreement. Each party shall bear its own costs incurred during the arbitration,
and shall equally share the filing or other fees required to institute the
arbitration.
(e) Notwithstanding anything to the contrary contained in this Agreement,
the effectiveness of this Agreement is contingent upon (i) the Closing under the
Asset Purchase Agreement and (ii) Bollore's receipt of the Closing Consent
Payment as defined in the Consent Agreement. For purposes of this Agreement, the
"Effective Date" of this Agreement shall be the date of such Closing. This
Agreement shall terminate and shall be of no further force and effect if the
Closing has not occurred on or before February 1, 1993. The Distributor shall
have no liability under the Bollore Documents for matters arising prior to the
Effective Date of this Agreement.
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<PAGE>
(f) This Agreement constitutes the entire Agreement between the parties
with respect to the subject matter hereof, supersedes the Bollore Documents in
their entirety and all prior agreements relating to the subject matter hereof,
and can be amended, changed or extended only by a writing duly signed by both of
the parties. No waiver of a breach hereunder shall be valid unless contained in
a writing duly signed by the waiving party and a waiver given on any one
occasion shall not be deemed to be a waiver of the same or any other breach on
any other occasion. This Agreement shall be governed by and construed under the
internal laws of the State of New York applicable to contracts made and to be
performed within the State of New York.
(g) This Agreement may be signed in counterparts, each of which shall be an
original and both of which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties have hereunto duly executed this Agreement
as of November 30, 1992.
BOLLORE TECHNOLOGIES, S.A.
By:/s/ Gilles Alix
---------------------------
Name: Gilles Alix
Title: Financial Manager
NORTH ATLANTIC TRADING COMPANY, INC.
By:/s/ Christopher Goodwin
---------------------------
Name: Christopher Goodwin
Title: Vice Chairman
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<PAGE>
Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions marked by [**] have been separately
filed with the Commission.
RESTATED AMENDMENT, dated as of June 25, 1997 (the "Agreement") between
Bollore Technologies S.A., a corporation organized under the laws of the
Republic of France ("Bollore"), and North Atlantic Operating Company, Inc., a
Delaware corporation ("NAOC") (as successor by merger to all rights and
obligations of North Atlantic Trading Company, Inc.). Capitalized terms used but
not defined herein shall have the meanings ascribed to them in the Distribution
Agreements (defined below).
WHEREAS, the parties hereto are parties to three Amended and Restated
Distribution and License Agreements, dated as of November 30, 1992, relating to
the distribution of Zig Zag cigarette paper booklets in each of the United
States (the "U.S. Agreement"), Canada (the "Canadian Agreement") and Hong Kong
and certain other territories (the "Asian Agreement"), as amended by agreements
dated January 28, 1993, March 31, 1993, June 10, 1996 and September 25, 1996
(collectively, the "Prior Amendments"; and the U.S. Agreement, the Canadian
Agreement and the Asian Agreement sometimes collectively referred to as the
"Distribution Agreements"); and
WHEREAS. the parties have entered into a Consent Agreement, dated April 4,
1997, as amended by Amendments Nos. 1 and 2, dated April 9, 1997 and June 25,
1997, respectively (collectively, the "Consent Agreement"), which provides that
the Distribution Agreements be further amended as provided herein, and this
Restated Amendment satisfies the parties' obligations under the Consent
Agreement with regard to amending the Distribution Agreements; and
<PAGE>
WHEREAS, the parties hereto accordingly wish to further amend the
Distribution Agreements and supersede and restate the Prior Amendments in their
entirety as provided herein;
NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, the parties hereby agree to amend the Distribution
Agreements, and restate the Prior Amendments in their entirety, as follows:
1. Sections 3(c) and 3(d) of each of the Distribution Agreements shall be
amended by deleting all references to the date "December 31, 2001" and
substituting in lieu thereof the date "December 31, 2004."
2. The last sentence of Section 3(b) of each of the U.S. Agreement and the
Asian Agreement shall be deleted in its entirety and the following shall be
inserted in lieu thereof:
[**], the price set forth on Schedule A shall be adjusted as of the first
day of each year by a percentage equal to the percentage increase in the
United States Consumer Price Index of the Northeast urban region during the
12 month period ended August 31 of the immediately preceding year. The
foregoing percentage increase shall also apply to the amount of the Price
Reduction referred to in Schedule A.
3. The last sentence of Section 3(b) of the Canadian Agreement shall be
deleted in its entirety and the following shall be inserted in lieu thereof:
[**], the price set forth on Schedule A shall be adjusted as of the first
day of each year by a percentage equal to the percentage increase in the
Canadian Consumer Price Index during the 12 month period ended August 31 of
the immediately preceding year. The foregoing percentage increase shall
also apply to the amount of the Price Reduction referred to on Schedule A.
4. Section 3(h) of the U.S. Agreement and Section 3(g) of each of the other
Distribution Agreements are hereby deleted in their entirety.
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<PAGE>
5. Section 5 of each of the Distribution Agreements shall be amended to
read in its entirety as follows:
5. Exclusivity and Non-Competition.
(a) During the Term of this Agreement and for a period of five years after
termination of this Agreement:
(i) Neither the Distributor nor any Sole Parent (as defined below)
shall, directly or indirectly, engage in Purchasing Competitive Activities
(as defined below), including, but not limited to, owning any debt or
Equity Interest (as defined below) in any Purchasing Competitor (as defined
below) except for (a) the distribution and sale of products produced by
Bollore, an Alternate Supplier or by or for the benefit of the Distributor
as expressly permitted by this Agreement and (b) ownership of no more than
2% of the issued and outstanding capital stock of any class or debt
security of a company whose securities are publicly traded on a national
securities exchange or a recognized over-the-counter or similar public
market.
(ii) The Distributor's Affiliates (as defined below) shall not, and
the Distributor shall cause its Affiliates not to, directly, or indirectly
engage in Investment Competitive Activities (as defined below), including,
without limitation, owning any Equity Interest in an Investment Competitor
(as defined below) except for the ownership of less than 10% of any class
of Equity Interest of a company whose securities are publicly traded on a
national securities exchange or a recognized over-the-counter or similar
public market and less than 10% of whose assets and revenues are derived
from Investment Competitive Activities.
(b) If any Affiliate of the Distributor violates the terms of Subsection
(a)(ii) above solely due to the fact that (i) after the acquisition of an Equity
Interest in an Entity (as defined below) that is not an Investment Competitor at
the time of such acquisition (A) that Entity becomes or acquires an Investment
Competitor, (B) the assets or revenues attributable to Investment Competitive
Activities increases to equal or exceed 10% of such Entity's assets or revenues
or (C) such Affiliate's Equity Interest in that Entity increases to equal or
exceed 10% of a class of securities due to any event other than a voluntary
purchase of an Equity Interest, including but not limited to, a merger,
consolidation or other reorganization or (ii) in the case only of an Entity
which derives less than 10% of its assets and revenues from Investment
Competitive Activities, the Entity the Affiliate has invested in is not on a
list of Investment Competitors contemplated under Subsection (d) below and the
Affiliate did not know and could not have determined with reasonable diligence
that such Entity was an Investment Competitor, then the Affiliate shall have a
period of 45 days from the date it first becomes aware that it is in violation
of Subsection (a)(ii) to cure such violation by divesting itself of all or a
portion of its Equity Interest in such Entity as necessary to comply with this
Section, after which period, if the
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<PAGE>
Affiliate has not cured the violation, the Distributor shall be deemed to be in
default under this Section. Such 45-day cure period shall run concurrently with
the cure period granted under Section 6(b)(iv) of the Distribution Agreements,
if applicable. As used in this Subsection (b), the term "reasonable diligence"
shall mean reviewing periodic reports and other documents filed with the
Securities and Exchange Commission, conducting a Nexis or similar on-line
computer search and reviewing corporate summaries compiled by Dun & Bradstreet
Corporation; it being understood that an Affiliate will be deemed to know that
an Entity is an Investment Competitor if that Entity derives 10% or more of its
assets or revenues from Investment Competitive Activities. The provisions of
this Subsection (b) shall not apply to any Affiliate which has an Equity
Interest in an Entity which is an Investment Competitor if such Affiliate either
has the ability to designate a majority of the members of the board of directors
of such Entity or any Parent of such Entity or owns a majority Equity Interest
in any class of securities of such Entity or any Parent of such Entity.
(c) The Distributor acknowledges that there may be no adequate remedy at
law, and that money damages may not be an adequate remedy for breach of this
Section. Therefore, the Distributor agrees that Bollore shall have the right, in
addition to any other rights it may have under this Agreement (including any
termination rights) or otherwise, to injunctive relief and specific performance
in the event of the Distributor's breach of this Section. This remedy (including
any termination rights) shall be cumulative and shall in no way limit any other
remedy Bollore may have at law, in equity or under this Agreement.
(d) The Distributor shall, from time to time upon the request of Bollore,
use its best efforts to make due inquiry of its Affiliates and certify in
writing within 15 days after Bollore request that it and its Sole Parent and, to
the best of its knowledge, its other Affiliates are in full compliance with this
Section and that no Non-compete Default or Change in Control Default has
occurred (as such terms are defined below). The Distributor shall also deliver
to Bollore the certification described in the previous sentence annually
simultaneously with its yearly forecast pursuant to Section 3(e) of the
Distribution Agreements. In addition, the Distributor shall, except with respect
to Public Holders solely to the extent of their Public Securities, notify
Bollore in writing within 30 days after any change in the shareholdings of the
Distributor or any Parent of the Distributor of the nature of such change and
the identity of any new shareholders and provide Bollore promptly with such
information in connection therewith as Bollore may reasonably request. The
Distributor also shall, except with respect to Public Holders solely to the
extent of their Public Securities, within 15 days of any request by Bollore,
confirm to Bollore the shareholdings (and identity of all shareholders) of the
Distributor and any Parent of the Distributor and provide Bollore with such
information in connection therewith as Bollore may reasonably request. Bollore
shall periodically, and reasonably promptly upon request by the Distributor,
provide Distributor with a list of those Entities Bollore believes to be
Investment Competitors at such time. Bollore shall use its good faith efforts to
be as complete as possible in preparing such list, including using its good
faith efforts to identify which of such Investment Competitors are public
companies or Subsidiaries (as defined below) of public companies. The
Distributor shall use its best efforts to distribute such list
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<PAGE>
to its Affiliates, it being understood that delivery of such list from time to
time by Bollore shall not constitute a representation by Bollore that the
Entities on such list are the only Investment Competitors.
6. (a) Section 6(b) (ii) of the U.S. Agreement and of the Canadian
Agreement shall be amended to add the following proviso at the end of each of
such Sections:
; provided, however, that Bollore shall not have the option to terminate
under this Subsection (ii) if the Distributor shall fail to purchase the
minimum number of booklets in any calendar year in which an Alternate
Supplier is manufacturing and supplying Products or the Distributor is
manufacturing Products under this Agreement unless the aggregate number of
booklets purchased by the Distributor from the Alternate Supplier and
Bollore (or manufactured by the Distributor for sale within such period)
does not meet the minimum number of booklets required to be purchased,
except as provided in the last sentence of this paragraph. In any calendar
year in which an Alternate Supplier is being used or the Distributor is
manufacturing booklets, the Distributor and such Alternate Supplier shall,
within 15 days after the end of such calendar year, certify in writing to
Bollore the total number of booklets purchased from such Alternate Supplier
and manufactured by the Distributor for sale during such year. In addition
to meeting the minimum purchase requirement set forth above, for any
portion of a calendar year in which Bollore is manufacturing and supplying
Products for at least the last quarter of such year, the Distributor shall
be required to purchase from Bollore a number of booklets equal to the
minimum purchase requirement set forth in this Subsection (ii) for such
calendar year, reduced pro rata based on the number of months that such
Alternate Supplier has been used and/or the Distributor has been
manufacturing Products (the "Bollore Minimum") and Bollore shall have the
option to terminate if the Distributor fails to purchase such Bollore
Minimum during such portion of the calendar year during which Bollore
supplied Products.
(b) Section 6(a) of the Asian Agreement is amended to add the following to
the end of such Section:
For purposes of calculating whether the Renewal Requirement has been met in
any of the last three years, if an Alternate Supplier is being used or the
Distributor is manufacturing booklets under this Agreement during such
year, the number of booklets purchased from such Alternate Supplier or
manufactured by the Distributor for sale within the Territory during such
year shall be included. In addition, for any portion of a year in which
Bollore is manufacturing and supplying products for at least the last
quarter of such year, in order to be deemed to have met the Renewal
Requirement for such year, the Distributor shall also be required to have
purchased from Bollore a number of booklets equal to the Renewal
Requirement for such year, reduced pro rata based on the number of months
that such Alternate Supplier has been used and/or the Distributor has been
manufacturing products during such year.
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<PAGE>
7. Section 6(b)(ii) of the U.S. Agreement shall be amended to delete the
number [**] from the third line and insert in lieu thereof the number [**].
8. Section 6(c) of each Distribution Agreement shall be deemed to be
amended by adding the following to the end of such Section:
Anything contained in this Agreement to the contrary notwithstanding, in
the event that Distributor shall fail to pay to Bollore any installment of
the Remainder Payment when due (as defined and provided for in the Consent
Agreement), then Bollore shall have the same rights and remedies pursuant
to this Agreement as if Distributor had failed to pay to Bollore when due
the purchase price for any products shipped to Distributor by Bollore
pursuant to this Agreement, except that Distributor shall not have the
right to dispute whether such amount is due (unless it has actually paid
such amount when due).
9. Section 11 of the U.S. Agreement and Section 10 of each of the other
Distribution Agreements shall be amended to read in their entirety as follows.
(a) For purposes of this Section and Section 5, the following definitions
shall apply:
"Affiliate" shall mean any Entity that (i) is a director or a beneficial or
record holder, either directly or indirectly through one or more Subsidiaries,
of at least 20% of any class of Equity Interest of the Distributor or any Parent
of the Distributor or any spouse of the foregoing, (ii) has the power or right
(by contract or otherwise) to appoint at least one member of the Board of
Directors of the Distributor or any Parent of the Distributor, (iii) 20% or more
of whose Equity Interests of any class are owned, beneficially or of record,
either directly or indirectly through one or more Subsidiaries, by the
Distributor or any Parent of the Distributor, (iv) the Distributor or any Parent
or Subsidiary of the Distributor have the power or right (by contract or
otherwise) to designate a majority of the members of the Board of Directors (or
similar governing body) of that Entity, (v) is an Original Stockholder or (vi)
any Entity which is, directly or indirectly through Parents or Subsidiaries, a
Parent or Subsidiary of the foregoing. For purposes of this definition,
"beneficial" holder shall have the meaning set forth in Rule 13d-3 of the
Securities and Exchange Act of 1934. Notwithstanding the foregoing, the
following shall not be deemed an Affiliate for purposes of this Agreement: (x)
any pledgee of the Distributor's shares pursuant to a pledge agreement between
Newco and National Westminster Bank Plc., as agent, in connection with certain
loans made to Newco and/or
6
<PAGE>
the Distributor with respect to Newco's acquisition of the Distributor's capital
stock (or refinancings thereof to the extent permitted by this Agreement or any
written consent thereunder given by Bollore), unless and until such pledgee
forecloses on such shares or otherwise has the right to vote or dispose of any
such shares pursuant to its rights and remedies under the pledge agreement and
provided further that the pledgee shall be a commercial bank, insurance company
or similar financial institution, and (y) a director of the Distributor or a
Parent of the Distributor if such director is a designee of the holders of the
12% PIK Preferred Stock described on Exhibit B hereto, appointed upon a default
relating to the Preferred Stock in accordance with the terms of such Preferred
Stock as of the date hereof.
"Applicable Percentage" shall mean twenty percent (20%) unless and until
Distributor or any Parent of Distributor shall have consummated a registered
public offering of any of its Equity Interests pursuant to the Securities Act of
1933, as amended, at which time the term "Applicable Percentage" shall mean
fifteen percent (15%).
"Change in Control" shall mean a failure of (i) the Original Stockholders
(and any Entity in which the Original Stockholders own not less than 98% of all
classes of the outstanding Equity Interests), and their Permitted Transferees to
own beneficially, directly or indirectly (and solely control the voting of), in
the aggregate, at least 51% of the issued and outstanding capital stock (whether
common or preferred) of all classes of the Sole Parent, and retain the ability
to designate a majority of the directors of the Sole Parent; or (ii) the Sole
Parent to own and solely control the voting of, in the aggregate, 100% of the
issued and outstanding capital stock (whether common or preferred) of all
classes of the Distributor and retain the ability to designate a majority of the
directors of the Distributor.
"Change in Control Default" shall mean any violation of any provision of
this Section.
"Competitor" shall mean an Investment Competitor or a Purchasing
Competitor, as the context shall indicate.
"Consent Agreement" shall mean the Consent Agreement, dated as of April 4,
1997, between Bollore and Distributor, as amended.
"Entity" shall mean any person, corporation, partnership or other entity.
"Equity Interest" shall mean the ownership of any class of equity security
of an Entity (whether common or preferred and whether voting or non-voting), any
security that is convertible into any class of equity security of an Entity
(including, but not limited to, any warrant, option, convertible note or
contract right to acquire any equity security) or any partnership or other
equity ownership interest in an Entity.
"Investment Competitive Activities" shall mean manufacturing, selling,
distributing, marketing or otherwise promoting in the Territory cigarette paper
booklets.
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"Investment Competitor" shall mean any Entity that, directly or indirectly,
manufactures, sells, markets, distributes or otherwise promotes cigarette paper
booklets in the Territory; owns, directly or indirectly, 20% or more of an
Equity Interest of any class in any other Investment Competitor; or which has
the right to appoint a majority of the members of the Board of Directors of an
Investment Competitor or its Parent.
"Newco" shall mean North Atlantic Trading Co., Inc, the Sole Parent of the
Distributor.
"Non-Compete Default" shall mean any violation by Distributor, any Parent
of the Distributor or any other Affiliate of any provision of Section 5.
"Non-Compete Parties" shall mean the Distributor, its Sole Parent and its
Affiliates.
"Original Stockholder" shall mean each of the persons listed on Exhibit A
hereto.
"Parent" shall mean any Entity which owns directly or indirectly 50% or
more of the Equity Interests of any class of any Entity or of another Parent of
such Entity and/or has the ability to elect a majority of the directors of the
Entity or another Parent of such Entity.
"Permitted Transferee" shall mean any spouse or lineal descendent of an
Original Stockholder or any trust or other similar entity (such as a limited
liability company) for the sole benefit of any spouse or lineal descendant where
the trustees or similar controlling persons consist solely of Original
Stockholders or Permitted Transferees or a bank, trust company or
attorney-at-law, which is not a Competitor.
"Public Holder" shall mean any owner of a Public Security, but solely to
the extent and in the capacity as owner of such Public Security, it being
understood that no Public Holder who owns any other Equity Interest will be
considered a Public Holder for purposes of such other Equity Interest.
"Public Securities" shall mean the Units, the 12% PIK Preferred Stock, the
Warrants and the Warrant Shares described on Exhibit B hereto, solely to the
extent outstanding on the date hereof or, in the case of the 12% PIK Preferred
Stock, issued as payment-in-kind dividends thereon or, in the case of the
Warrant Shares, reserved for issuance as of the date hereof under the terms of
the Warrants.
"Purchasing Competitive Activities" shall mean manufacturing, selling,
distributing, marketing or otherwise promoting in the Territory cigarette paper
or cigarette paper booklets.
"Purchasing Competitor" shall mean any Entity that, directly or indirectly,
manufactures, sells, markets, distributes or otherwise promotes cigarette paper
or cigarette paper booklets in the Territory; owns, directly or indirectly, more
than a 20% Equity Interest in any other Purchasing Competitor, or which serves
as a director or officer or which has the right to appoint an officer or
director to the Board of Directors of a
8
<PAGE>
Purchasing Competitor or its Parent, other than the ownership of an Equity
Interest in the Distributor, its Subsidiaries, or the Sole Parent.
"Sole Parent" shall mean any Parent which owns directly or indirectly 100%
of all classes of all classes of capital stock of the Distributor or of another
Sole Parent of the Distributor; as of the date that this amended definition
shall become effective, Newco is the ultimate Sole Parent.
"Subsidiary" shall mean any Entity 50% or more of whose Equity Interests of
any class are owned by another Entity or by another Entity together with any
Parent or Subsidiary of that Entity and any Subsidiaries of the foregoing.
"Testamentary Transfer" shall mean a transfer of any Equity Interest of any
class in the Distributor or a Parent upon the death of the owner thereof by
testamentary bequest or other disposition by the estate of such owner.
(b) The following shall constitute violations of this Section:
(i) if at any time an Original Stockholder, any Permitted Transferee
or any Parent (as the case may be) transfers any Equity Interest of any
class in the Distributor or in a Parent of the Distributor to any Entity
which at the time of such transfer is a Purchasing Competitor, other than a
transfer of such Equity Interest pursuant to a registered public offering
of such Equity Interest pursuant to the Securities Act of 1933, as amended,
or Rule 144 promulgated thereunder (provided that such public offering is
not being effected for the purpose of transferring such Equity Interest to
a Purchasing Competitor);
(ii) if at any time a Purchasing Competitor acquires a total of at
least the Applicable Percentage of the outstanding Equity Interests of any
class in the Distributor or a Parent of the Distributor (whether from an
Original Stockholder, a Permitted Transferee, a Parent or otherwise);
(iii) if at any time before the third anniversary of the date of this
Restated Amendment, there is a Change in Control in either the Distributor
or a Parent without the consent of Bollore, which may be withheld for any
reason; provided, however, that if such a Change in Control resulted from a
Testamentary Transfer, such Change in Control shall be subject to Bollore's
consent, which may not be unreasonably withheld or delayed, it being
understood that Bollore's refusal to consent to a transfer to a Purchasing
Competitor shall conclusively be deemed reasonable;
(iv) if at any time after the third anniversary of the date of this
Restated Amendment there is a Change in Control in either the Distributor
or a Parent without the consent of Bollore, which may not be unreasonably
withheld or delayed, it being understood that Bollore's refusal to consent
to a transfer to a Purchasing Competitor shall conclusively be deemed
reasonable;
9
<PAGE>
(v) if at any time any director of the Distributor or any director of
a Parent or a Subsidiary of the Distributor shall be a Competitor or an
officer, director or representative of a Competitor.
(c) In the event of a Change in Control permitted hereunder or otherwise
consented to in writing by Bollore, this provision shall thereafter apply to the
new stockholders of the Distributor or any Parent of the Distributor, and such
new stockholders shall be deemed to be the Original Stockholders for purposes of
this Agreement. It shall be a condition to any transfer of shares to such new
stockholders that the Distributor and Bollore shall enter into an amendment to
this Agreement to reflect such new ownership structure as reasonably required by
Bollore.
10. The paragraph beneath the caption "INITIAL PRICE FOR ALL PRODUCTS" set
forth on Schedule A to the U.S. Agreement and on Schedule A to the Asian
Agreement shall be deleted in its entirety and the following shall be inserted
in lieu thereof:
[**]
10
<PAGE>
11. The paragraph beneath the caption "INITIAL PRICE FOR ALL PRODUCTS" set
forth on Schedule A to the Canadian Agreement shall be deleted in its entirety
and the following shall be inserted in lieu thereof:
[**]
12. Notwithstanding the amendments set forth in Sections 10 and 11 above,
the parties acknowledge that the price for all booklets shipped in 1994
(regardless of when paid) shall be calculated based on the terms of the
Distribution Agreements in effect prior to this Restated Amendment and that
accordingly the Distributor shall not be entitled to any Price Reduction for
1994.
11
<PAGE>
13. Each Distribution Agreement shall be amended by adding Exhibits A and B
hereto as Exhibits to each such Agreement.
14. Except as set forth in this Restated Amendment, the Prior Amendments
are hereby superseded and terminated, and the terms and provisions of each of
the Distribution Agreements, as amended hereby, shall remain in full force and
effect.
15. Each of the parties represents and warrants to the other that this
Amendment has been duly authorized by all necessary corporate action and that
any consents required by either party in connection with this amendment have
been obtained by such party. Please sign in the space below to indicate your
agreement with the foregoing.
Very truly yours,
BOLLORE TECHNOLOGIES, S.A.
By:/s/ Cedric Bollore
-----------------------------------
Name: Cedric Bollore
Title: Industrial Divisions
AGREED TO AND ACCEPTED:
NORTH ATLANTIC OPERATING COMPANY, INC.
By:/s/ Thomas F. Helms, Jr.
-----------------------------------
Name: Thomas F. Helms, Jr.
Title: President
12
<PAGE>
======================
REGISTRATION RIGHTS AGREEMENT
Dated as of June 25, 1997
by and among
NORTH ATLANTIC TRADING ACQUISITION COMPANY, INC.
and
THE SUBSIDIARY GUARANTORS,
named herein
and
NATWEST CAPITAL MARKETS LIMITED
and
CIBC WOOD GUNDY SECURITIES
as Initial Purchaser
======================
$155,000,000
11% SENIOR SECURED NOTES DUE 2004
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
1. Definitions............................................................. 1
2. Exchange Offer.......................................................... 5
3. Shelf Registration...................................................... 9
4. Additional Interest..................................................... 10
5. Registration Procedures................................................. 12
6. Registration Expenses................................................... 20
7. Indemnification......................................................... 22
8. Rules 144 and 144A...................................................... 25
9. Underwritten Registrations.............................................. 25
10. Miscellaneous. ......................................................... 26
(a) No Inconsistent Agreements................................ 26
(b) Adjustments Affecting Registrable Notes................... 26
(c) Amendments and Waivers.................................... 26
(d) Notices................................................... 26
(e) Successors and Assigns.................................... 28
(f) Counterparts.............................................. 28
(g) Headings.................................................. 28
(h) Governing Law............................................. 28
(i) Severability.............................................. 29
(j) Notes Held by the Issuers or their Affiliates............. 29
(k) Third Party Beneficiaries................................. 29
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REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is dated
as of June 25, 1997, by and among North Atlantic Trading Acquisition Company,
Inc., a Delaware corporation (the "Company"), National Tobacco Company, L.P., a
Delaware corporation, North Atlantic Operating Company, Inc., a Delaware
corporation, and National Tobacco Finance Corporation, a Delaware corporation,
each of which is a wholly-owned subsidiary of the Company (collectively, the
"Guarantors"), and NatWest Capital Markets Limited and CIBC Wood Gundy
Securities (the "Initial Purchasers").
This Agreement is entered into in connection with the Purchase
Agreement, dated June 18, 1997, among the Company, the Guarantors and the
Initial Purchaser (the "Purchase Agreement"), which provides for the sale by the
Company to the Initial Purchaser of $155,000,000 aggregate principal amount of
the Company's 11% Senior Notes due 2004 (the "Notes"), which Notes will be
guaranteed by the Guarantors. The Company and the Guarantors are collectively
referred to herein as the "Issuers." In order to induce the Initial Purchaser to
enter into the Purchase Agreement, the Issuers have agreed to provide the
registration rights set forth in this Agreement for the benefit of the Initial
Purchaser and its direct and indirect transferees. The execution and delivery of
this Agreement is a condition to the obligation of the Initial Purchaser to
purchase the Notes under the Purchase Agreement.
The parties hereby agree as follows:
1. Definitions
As used in this Agreement, the following terms shall have the
following meanings:
Additional Interest: Has the meaning provided in Section 4(a)
hereof.
Advice: Has the meaning provided in the last paragraph of
Section 5 hereof.
Agreement: Has the meaning provided in the first introductory
paragraph hereto.
<PAGE>
Applicable Period: Has the meaning provided in Section 2(b)
hereof.
Closing Date: Has the meaning provided in the Purchase
Agreement.
Company: Has the meaning provided in the first introductory
paragraph hereto.
Effectiveness Date: The 90th day after the Filing Date.
Effectiveness Period: Has the meaning provided in Section 3(a)
hereof.
Event Date: Has the meaning provided in Section 4(b) hereof.
Exchange Act: The Securities Exchange Act of 1934, as amended,
and the rules and regulations of the SEC promulgated thereunder.
Exchange Notes: Has the meaning provided in Section 2(a)
hereof.
Exchange Offer: Has the meaning provided in Section 2(a)
hereof.
Exchange Registration Statement: Has the meaning provided in
Section 2(a) hereof.
Filing Date: The 30th day after the Issue Date.
Guarantors: Has the meaning provided in the first introductory
paragraph hereto.
Holder: Any holder of a Registrable Note or Registrable Notes.
Indemnified Person: Has the meaning provided in Section 7(c)
hereof.
Indemnifying Person: Has the meaning provided in Section 7(c)
hereof.
Indenture: The Indenture, dated as of June 25, 1997 between
the Company, the Guarantors and United States Trust Company of New York, as
trustee, pursuant to which the Notes are being issued, as amended or
supplemented from time to time in accordance with the terms thereof.
Initial Purchaser: Has the meaning provided in the first
introductory paragraph hereto.
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<PAGE>
Inspectors: Has the meaning provided in Section 5(o) hereof.
Issue Date: The date on which the original Notes were sold to
the Initial Purchaser pursuant to the Purchase Agreement.
Issuers: Has the meaning provided in the second introductory
paragraph hereto.
NASD: Has the meaning provided in Section 5(s) hereof.
Notes: Has the meaning provided in the second introductory
paragraph hereto.
Participant: Has the meaning provided in Section 7(a) hereof.
Participating Broker-Dealer: Has the meaning provided in
Section 2(b) hereof.
Persons: An individual, trustee, corporation, partnership,
limited liability company, joint stock company, trust, unincorporated
association, union, business association, firm or other legal entity.
Private Exchange: Has the meaning provided in Section 2(b)
hereof.
Private Exchange Notes: Has the meaning provided in Section
2(b) hereof.
Prospectus: The prospectus included in any Registration
Statement (including, without limitation, any prospectus subject to completion
and a prospectus that includes any information previously omitted from a
prospectus filed as part of an effective registration statement in reliance upon
Rule 430A promulgated under the Securities Act), as amended or supplemented by
any prospectus supplement, and all other amendments and supplements to the
Prospectus, with respect to the terms of the offering of any portion of the
Registrable Notes covered by such Registration Statement including
post-effective amendments, and all material incorporated by reference or deemed
to be incorporated by reference in such Prospectus.
Purchase Agreement: Has the meaning provided in the second
introductory paragraph hereto.
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<PAGE>
Records: Has the meaning provided in Section 5(o) hereof.
Registrable Notes: Each Note upon original issuance of the
Notes and at all times subsequent thereto, each Exchange Note as to which
Section 2(c)(v) hereof is applicable upon original issuance and at all times
subsequent thereto and each Private Exchange Note upon original issuance thereof
and at all times subsequent thereto, until in the case of any such Note,
Exchange Note or Private Exchange Note, as the case may be, the earliest to
occur of (i) a Registration Statement (other than, with respect to any Exchange
Note as to which Section 2(c)(v) hereof is applicable, the Exchange Registration
Statement) covering such Note, Exchange Note or Private Exchange Note, as the
case may be, has been declared effective by the SEC and such Note (unless such
Note was not tendered for exchange by the Holder thereof), Exchange Note or
Private Exchange Note, as the case may be, has been disposed of in accordance
with such effective Registration Statement, (ii) such Note, Exchange Note or
Private Exchange Note, as the case may be, is, or may be, sold in compliance
with Rule 144, or (iii) such Note, Exchange Note or Private Exchange Note, as
the case may be, ceases to be outstanding for purposes of the Indenture.
Registration Statement: Any registration statement of the
Company, including, but not limited to, the Exchange Registration Statement,
that covers any of the Registrable Notes pursuant to the provisions of this
Agreement, including the Prospectus, amendments and supplements to such
registration statement, including post-effective amendments, all exhibits, and
all material incorporated by reference or deemed to be incorporated by reference
in such registration statement.
Rule 144: Rule 144 promulgated under the Securities Act, as
such Rule may be amended from time to time, or any similar rule (other than Rule
144A) or regulation hereafter adopted by the SEC providing for offers and sales
of securities made in compliance therewith resulting in offers and sales by
subsequent holders that are not affiliates of an issuer of such securities being
free of the registration and prospectus delivery requirements of the Securities
Act.
Rule 144A: Rule 144A promulgated under the Securities Act, as
such Rule may be amended from time to time, or any similar rule (other than Rule
144) or regulation hereafter adopted by the SEC.
Rule 415: Rule 415 promulgated under the Securities Act, as
such Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the SEC.
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<PAGE>
SEC: The Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended, and
the rules and regulations of the SEC promulgated thereunder.
Shelf Notice: Has the meaning provided in Section 2(c) hereof.
Shelf Registration: Has the meaning provided in Section 3(a)
hereof.
Shelf Registration Statement: shall mean a "shelf"
registration statement of the Company and the Guarantors which covers all of the
Registrable Notes on an appropriate form under Rule 415 under the 1933 Act, or
any similar rule that may be adopted by the SEC, and all amendments and
supplements to such registration statement, including post-effective amendments,
in each case including the Prospectus contained therein, all exhibits thereto
and all material incorporated by reference therein.
TIA: The Trust Indenture Act of 1939, as amended.
Trustee(s): The trustee under the Indenture and, if existent,
the trustee under any indenture governing the Exchange Notes and Private
Exchange Notes (if any).
Underwritten registration or underwritten offering: A
registration in which securities of one or more of the Issuers are sold to an
underwriter for reoffering to the public.
2. Exchange Offer
(a) Each of the Issuers agrees to file with the SEC no later
than the Filing Date an offer to exchange (the "Exchange Offer") any and all of
the Registrable Notes (other than the Private Exchange Notes, if any) for a like
aggregate principal amount of debt securities of the Company, guaranteed by the
Guarantors, which are identical in all material respects to the Notes (the
"Exchange Notes") (and which are entitled to the benefits of the Indenture or a
trust indenture which is identical in all material respects to the Indenture
(other than such changes to the Indenture or any such identical trust indenture
as are necessary to comply with any requirements of the SEC to effect or
maintain the qualification thereof under the TIA) and which, in either case, has
been qualified under the TIA), except that the Exchange Notes (other than
Private Exchange Notes, if any) shall have been registered pursuant to an
effective Registration Statement under the Securities Act and shall contain no
restrictive legend thereon. The Exchange Offer shall be registered under the
Securities Act on the appropriate form (the
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<PAGE>
"Exchange Registration Statement") and shall comply with all applicable tender
offer rules and regulations under the Exchange Act. The Issuers agree to use
their best efforts to (x) cause the Exchange Registration Statement to be
declared effective under the Securities Act no later than the 90th day after the
Filing Date; (y) keep the Exchange Offer open for at least 30 business days (or
longer if required by applicable law) after the date that notice of the Exchange
Offer is mailed to the Holders; and (z) consummate the Exchange Offer on or
prior to the 120th day following the Filing Date. If after such Exchange
Registration Statement is declared effective by the SEC, the Exchange Offer or
the issuance of the Exchange Notes thereunder is interfered with by any stop
order, injunction or other order or requirement of the SEC or any other
governmental agency or court, such Exchange Registration Statement shall be
deemed not to have become effective for purposes of this Agreement until such
stop order, injunction or other order or requirement is no longer in effect.
Each Holder who participates in the Exchange Offer will be required to represent
that any Exchange Notes received by it will be acquired in the ordinary course
of its business, that at the time of the consummation of the Exchange Offer such
Holder will have no arrangement or understanding with any Person to participate
in the distribution of the Exchange Notes in violation of the provisions of the
Securities Act, and that such Holder in not an "affiliate" of any of the Issuers
within the meaning of the Securities Act. Upon consummation of the Exchange
Offer in accordance with this Section 2, the Issuers shall have no further
obligation to register Registrable Notes (other than Private Exchange Notes and
other than in respect of any Exchange Notes as to which clause 2(c)(v) hereof
applies) pursuant to Section 3 hereof. No securities other than the Exchange
Notes shall be included in the Exchange Registration Statement.
(b) The Issuers shall include within the Prospectus contained
in the Exchange Registration Statement a section entitled "Plan of
Distribution," reasonably acceptable to the Initial Purchaser, which shall
contain a summary statement of the positions taken or policies made by the Staff
of the SEC with respect to the potential "underwriter" status of any
broker-dealer that is the beneficial owner (as defined in Rule 13d-3 under the
Exchange Act) of Exchange Notes received by such broker-dealer in the Exchange
Offer (a "Participating Broker-Dealer"), whether such positions or policies have
been publicly disseminated by the Staff of the SEC or such positions or
policies, in the judgment of the Initial Purchaser, represent the prevailing
views of the Staff of the SEC. Such "Plan of Distribution" section shall also
expressly permit the use of the Prospectus by all Persons subject to the
prospectus delivery requirements of the Securities Act, including all
Participating Broker-Dealers, and include a statement describing the means by
which Participating Broker-Dealers may resell the Exchange Notes.
Each of the Issuers shall use its best efforts to keep the
Exchange
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<PAGE>
Registration Statement effective and to amend and supplement the Prospectus
contained therein, in order to permit such Prospectus to be lawfully delivered
by any Participating Broker-Dealer subject to the prospectus delivery
requirements of the Securities Act for such period of time as is necessary to
comply with applicable law in connection with any resale of the Exchange Notes;
provided, however, that such period shall not exceed 180 days after the
consummation of the Exchange Offer (or such longer period if extended pursuant
to the last paragraph of Section 5 hereof) (the "Applicable Period").
If, prior to consummation of the Exchange Offer, the Initial
Purchaser holds any Notes acquired by it and having the status of an unsold
allotment in the initial distribution, the Issuers shall, upon the request of
the Initial Purchaser, simultaneously with the delivery of the Exchange Notes in
the Exchange Offer issue and deliver to the Initial Purchaser in exchange (the
"Private Exchange") for such Notes held by the Initial Purchaser a like
principal amount of debt securities of the Company, guaranteed by the
Guarantors, that are identical in all material respects to the Exchange Notes
(the "Private Exchange Notes") (and which are issued pursuant to the same
Indenture as the Exchange Notes) except for the placement of a restrictive
legend on such Private Exchange Notes. The Private Exchange Notes shall if
permissible bear the same CUSIP number as the Exchange Notes.
Interest on the Exchange Notes and the Private Exchange Notes
will accrue from the last interest payment date on which interest was paid on
the Notes surrendered in exchange therefor or, if no interest has been paid on
the Notes, from the Issue Date.
In connection with the Exchange Offer, the Issuers shall:
(1) mail to each Holder a copy of the Prospectus forming part
of the Exchange Registration Statement, together with an appropriate
letter of transmittal and related documents;
(2) utilize the services of a depositary for the Exchange
Offer with an address in the Borough of Manhattan, The City of New
York;
(3) permit Holders to withdraw tendered Notes at any time
prior to the close of business, New York time, on the last business day
on which the Exchange Offer shall remain open; and
(4) otherwise comply in all material respects with all
applicable laws, rules and regulations.
-7-
<PAGE>
As soon as practicable after the close of the Exchange Offer
or the Private Exchange, as the case may be, the Issuers shall:
(1) accept for exchange all Notes tendered and not validly
withdrawn pursuant to the Exchange Offer or the Private Exchange;
(2) deliver to the Trustee for cancellation all Notes so
accepted for exchange; and
(3) cause the Trustee to authenticate and deliver promptly to
each Holder of Notes, Exchange Notes or Private Exchange Notes, as the
case may be, equal in principal amount to the Notes of such Holder so
accepted for exchange.
The Exchange Notes and the Private Exchange Notes to be issued
under (i) the Indenture or (ii) an indenture identical in all material respects
to the Indenture, which in either event shall provide that (1) the Exchange
Notes shall not be subject to the transfer restrictions set forth in the
Indenture and (2) the Private Exchange Notes shall be subject to the transfer
restrictions set forth in the Indenture. The Indenture or such indenture shall
provide that the Exchange Notes, the Private Exchange Notes and the Notes shall
vote and consent together on all matters as one class and that none of the
Exchange Notes, the Private Exchange Notes or the Notes will have the right to
vote or consent as a separate class on any matter.
(c) If, (i) because of any change in law or in currently
prevailing interpretations of the Staff of the SEC, the Issuers are not
permitted to effect an Exchange Offer, (ii) the Exchange Offer is not
consummated within 120 days after the Filing Date, (iii) any holder of Private
Exchange Notes so requests at any time after the consummation of the Private
Exchange, or (iv) if any Holder (other than the Initial Purchaser) is not
eligible to participate in the Exchange Offer, then the Issuers shall promptly
deliver to the Holders and the Trustee written notice thereof (the "Shelf
Notice") to the Trustee and, in the case of clauses (i) and (ii) above, all
Holders, in the case of clause (iii) above, the Holders of the Private Exchange
Notes and, in the case of clause (iv) above, the affected Holder, and shall file
a Shelf Registration pursuant to Section 3 hereof, provided, however, that in
the case of clause (iii) above such holder shall pay all reasonable registration
expenses of the Company as described in Section 6 hereof in connection with such
Shelf Registration.
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<PAGE>
3. Shelf Registration
If a Shelf Notice is delivered as contemplated by Section 2(c)
hereof, then:
(a) Shelf Registration. The Issuers shall as promptly as
reasonably practicable file with the SEC a Registration Statement for an
offering to be made on a continuous basis pursuant to Rule 415 covering all of
the Registrable Notes (the "Shelf Registration"). If the Issuers shall not have
yet filed an Exchange Registration Statement, each of the Issuers shall use its
best efforts to file with the SEC the Shelf Registration on or prior to the
Filing Date. The Shelf Registration shall be on Form S-1 or another appropriate
form permitting registration of such Registrable Notes for resale by Holders in
the manner or manners designated by them (including, without limitation, one or
more underwritten offerings). The Issuers shall not permit any securities other
than the Registrable Notes to be included in the Shelf Registration.
Each of the Issuers shall use its best efforts to cause the
Shelf Registration to be declared effective under the Securities Act by the
165th day after the Issue Date and to keep the Shelf Registration continuously
effective under the Securities Act until the date which is three years from the
Issue Date, subject to extension pursuant to the last paragraph of Section 5
hereof, or such shorter period ending when all Registrable Notes covered by the
Shelf Registration have been sold in the manner set forth and as contemplated in
the Shelf Registration or when the Notes become eligible for registration
without volume restrictions, pursuant to Rule 144 under the Securities Act (the
"Effectiveness Period").
(b) Withdrawal of Stop Orders. If the Shelf Registration
ceases to be effective for any reason at any time during the Effectiveness
Period (other than because of the sale of all of the securities registered
thereunder), each of the Issuers shall use its best efforts to obtain the prompt
withdrawal of any order suspending the effectiveness thereof.
(c) Supplements and Amendments. The Issuers shall promptly
supplement and amend the Shelf Registration if required by the rules,
regulations or instructions applicable to the registration form used for such
Shelf Registration, if required by the Securities Act, or if reasonably
requested for such purpose by the Holders of a majority in aggregate principal
amount of the Registrable Notes covered by such Registration Statement or by any
underwriter of such Registrable Notes.
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<PAGE>
4. Additional Interest
(a) The Issuers and the Initial Purchaser agree that the
Holders of Registrable Notes will suffer damages if the Issuers fail to fulfill
their obligations under Section 2 or Section 3 hereof and that it would not be
feasible to ascertain the extent of such damages with precision. Accordingly,
the Issuers agree to pay, as liquidated damages and as the sole and exclusive
remedy rule therefor, additional interest on the Notes ("Additional Interest")
under the circumstances and to the extent set forth below:
(i) if neither the Exchange Registration Statement nor the
Shelf Registration has been filed on or prior to the Filing Date, then,
commencing on the 31st day after the Issue Date, Additional Interest
shall accrue on the Notes over and above the stated interest at a rate
of 0.50% per annum for the first 60 days commencing on the 31st day
after the Issue Date, such Additional Interest rate increasing by an
additional 0.50% per annum at the beginning of each subsequent 30-day
period;
(ii) if neither the Exchange Registration Statement nor the
Shelf Registration is declared effective by the SEC on or prior to the
Effectiveness Date, then, commencing on the 91st day after the Filing
Date, Additional Interest shall accrue on the Notes included or which
should have been included in such Registration Statement over and above
the stated interest at a rate of 0.50% per annum for the first 30 days
commencing on the 91st day after the Filing Date, such Additional
Interest rate increasing by an additional 0.50% per annum at the
beginning of each subsequent 30-day period; and
(iii) if (A) the Issuers have not exchanged Exchange Notes for
all Notes validly tendered in accordance with the terms of the Exchange
Offer on or prior to the 120th day after the Filing Date or (B) the
Exchange Registration Statement ceases to be effective at any time
prior to the time that the Exchange Offer is consummated or (C) if
applicable, the Shelf Registration has been declared effective and such
Shelf Registration ceases to be effective at any time during the
Effectiveness Period, then Additional Interest shall accrue (over and
above any interest otherwise payable on such Notes) at a rate of 0.50%
per annum for the first 30 days commencing on (x) the 121st day after
the Filing Date with respect to the Notes validly tendered and not
exchanged by the Company, in the case of (A) above, or (y) the day the
Exchange Registration Statement ceases to be effective in the case of
(B) above, or (z) the day such Shelf Registration ceases to be
effective in the case of (C) above, such Additional Interest rate
increasing by an additional 0.50% per annum at the beginning of
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<PAGE>
each such subsequent 30-day period (it being understood and agreed
that, notwithstanding any provision to the contrary, so long as any
Note which is the subject of a Shelf Notice is then covered by an
effective Shelf Registration Statement, no Additional Interest shall
accrue on such Note);
provided, however, that the Additional Interest rate on any affected Note may
not exceed at any one time in the aggregate 2.0% per annum; and provided,
further, that (1) upon the filing of the Exchange Registration Statement or a
Shelf Registration (in the case of clause (i) of this Section 4(a)), (2) upon
the effectiveness of the Exchange Registration Statement or the Shelf
Registration (in the case of clause (ii) of this Section 4(a)), or (3) upon the
exchange of Exchange Notes for all Notes tendered (in the case of clause
(iii)(A) of this Section 4(a)), or upon the effectiveness of the Exchange
Registration Statement which had ceased to remain effective (in the case of
(iii)(B) of this Section 4(a)), or upon the effectiveness of the Shelf
Registration which had ceased to remain effective (in the case of (iii)(C) of
this Section 4(a)), Additional Interest on the affected Notes as a result of
such clause (or the relevant subclause thereof), as the case may be, shall cease
to accrue.
(b) The Issuers shall notify the Trustee within one business
day after each and every date on which an event occurs in respect of which
Additional Interest is required to be paid (an "Event Date"). The Company shall
pay the Additional Interest due on the transfer restricted Notes by depositing
with the paying agent (which shall not be the Company for these purposes) for
the transfer restricted Notes, in trust, for the benefit of the holders thereof,
prior to 11:00 A.M. on the next interest payment date specified by the Indenture
(or such other indenture), sums sufficient to pay the Additional Interest then
due. Any amounts of Additional Interest due pursuant to clauses (a)(i), (a)(ii)
or (a)(iii) of this Section 4 will be payable to the Holders of affected Notes
in cash semi-annually on each interest payment date specified by the Indenture
(or such other indenture) to the record holders entitled to receive the interest
payment to be made on such date. Commencing with the first such date occurring
after any such Additional Interest commences to accrue. The amount of Additional
Interest will be determined by multiplying the applicable Additional Interest
rate by the principal amount of the affected Registrable Notes of such Holders,
multiplied by a fraction, the numerator of which is the number of days such
Additional Interest rate was applicable during such period (determined on the
basis of a 360-day year comprised of twelve 30-day months and, in the case of a
partial month, the actual number of days elapsed), and the denominator of which
is 360.
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5. Registration Procedures
In connection with the filing of any Registration Statement
pursuant to Sections 2 or 3 hereof, the Issuers shall effect such
registration(s) to permit the sale of the securities covered thereby in
accordance with the intended method or methods of disposition thereof, and
pursuant thereto and in connection with any Registration Statement filed by the
Issuers hereunder, the Issuers shall:
(a) Prepare and file with the SEC prior to the Filing Date a
Registration Statement or Registration Statements as prescribed by
Sections 2 or 3 hereof, and use their best efforts to cause each such
Registration Statement to become effective and remain effective as
provided herein; provided, however, that, if (1) such filing is
pursuant to Section 3 hereof, or (2) a Prospectus contained in an
Exchange Registration Statement filed pursuant to Section 2 hereof is
required to be delivered under the Securities Act by any Participating
Broker-Dealer who seeks to sell Exchange Notes during the Applicable
Period, before filing any Registration Statement or Prospectus or any
amendments or supplements thereto, the Issuers shall, if requested in
writing, furnish to and afford the Holders of the Registrable Notes
covered by such Registration Statement or each such Participating
Broker-Dealer, as the case may be, their counsel and the managing
underwriters, if any, a reasonable opportunity to review copies of all
such documents (including copies of any documents to be incorporated by
reference therein and all exhibits thereto) proposed to be filed (in
each case at least three business days prior to such filing). The
Issuers shall not file any Registration Statement or Prospectus or any
amendments or supplements thereto in respect of which the Holders must
be afforded an opportunity to review prior to the filing of such
document under the immediately preceding sentence, if the Holders of a
majority in aggregate principal amount of the Registrable Notes covered
by such Registration Statement, or any such Participating
Broker-Dealer, as the case may be, their counsel, or the managing
underwriters, if any, shall reasonably object thereto in writing, which
writing shall set forth a basis for such objection.
(b) Prepare and file with the SEC such amendments and
post-effective amendments to each Shelf Registration or Exchange
Registration Statement, as the case may be, as may be necessary to keep
such Registration Statement continuously effective for the
Effectiveness Period or the Applicable Period or until consummation of
the Exchange Offer, as the case may be; cause the related Prospectus to
be supplemented by any Prospectus supplement required by applicable
law, and as so supplemented to be filed pursuant to Rule
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424 (or any similar provisions then in force) promulgated under the
Securities Act; and comply with the provisions of the Securities Act
and the Exchange Act applicable to it with respect to the disposition
of all securities covered by such Registration Statement as so amended
or in such Prospectus as so supplemented and with respect to the
subsequent resale of any securities being sold by a Participating
Broker-Dealer covered by any such Prospectus; the Company shall be
deemed not to have used its best efforts to keep a Registration
Statement effective during the Applicable Period if it voluntarily
takes any action that would result in selling Holders of the
Registrable Notes covered thereby or Participating Broker-Dealers
seeking to sell Exchange Notes not being able to sell such Registrable
Notes or such Exchange Notes during that period unless such action is
required by applicable law or unless the Company complies with this
Agreement, including without limitation, the provisions of paragraph
5(k) hereof and the last paragraph of this Section 5.
(c) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in an Exchange Registration Statement
filed pursuant to Section 2 hereof is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Notes during the Applicable Period, notify the selling Holders of Registrable
Notes, or each such Participating Broker-Dealer, as the case may be, their
counsel and the managing underwriters, if any, promptly (but in any event within
two business days), and confirm such notice in writing, (i) when a Prospectus or
any Prospectus supplement or post-effective amendment has been filed, and, with
respect to a Registration Statement or any post-effective amendment, when the
same has become effective under the Securities Act (including in such notice a
written statement that any Holder may, upon request, obtain, at the sole expense
of the Issuers, one conformed copy of such Registration Statement or
post-effective amendment including financial statements and schedules, documents
incorporated or deemed to be incorporated by reference and exhibits), (ii) of
the issuance by the SEC of any stop order suspending the effectiveness of a
Registration Statement or of any order preventing or suspending the use of any
preliminary prospectus or the initiation of any proceedings for that purpose,
(iii) if at any time when a Prospectus is required by the Securities Act to be
delivered in connection with sales of the Registrable Notes or resales of
Exchange Notes by Participating Broker-Dealers the representations and
warranties of the Issuers contained in any agreement (including any underwriting
agreement), contemplated by Section 5(n) hereof cease to be true and correct,
(iv) of the receipt by the Issuers of any notification with respect to the
suspension of the qualification or exemption from qualification of a
Registration Statement or any of the Registrable Notes or the Exchange Notes to
be sold by any Participating Broker-Dealer for offer or sale
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<PAGE>
in any jurisdiction, or the initiation or threatening of any proceeding
for such purpose, (v) of the happening of any event, the existence of
any condition or any information becoming known that makes any
statement made in such Registration Statement or related Prospectus or
any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires the making of
any changes in or amendments or supplements to such Registration
Statement, Prospectus or documents so that, in the case of the
Registration Statement, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and
that in the case of the Prospectus, it will not contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and (vi) of the determination by the Issuers that a
post-effective amendment to a Registration Statement would be
appropriate.
(d) Use its best efforts to prevent the issuance of any order
suspending the effectiveness of a Registration Statement or of any
order preventing or suspending the use of a Prospectus or suspending
the qualification (or exemption from qualification) of any of the
Registrable Notes or the Exchange Notes for sale in any jurisdiction,
and, if any such order is issued, to use its best efforts to obtain the
withdrawal of any such order at the earliest possible moment.
(e) If a Shelf Registration is filed pursuant to Section 3
hereof and if requested by the managing underwriter or underwriters (if
any), or the Holders of a majority in aggregate principal amount of the
Registrable Notes being sold in connection with an underwritten
offering, (i) promptly incorporate in a prospectus supplement or
post-effective amendment such information as the managing underwriter
or underwriters (if any), such Holders, or counsel for any of them
reasonably request to be included therein, (ii) make all required
filings of such prospectus supplement or such post-effective amendment
as soon as practicable after the Issuers have received notification of
the matters to be incorporated in such prospectus supplement or
post-effective amendment, and (iii) supplement or make amendments to
such Registration Statement.
(f) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in an Exchange Registration
Statement filed pursuant to Section 2 hereof is required to be
delivered under the Securities Act by any Participating Broker-Dealer
who seeks to sell Exchange Notes during the Applicable Period, furnish
to each selling Holder of Registrable Notes and to each such
Participating Broker-Dealer who so requests and to counsel and each
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managing underwriter, if any, at the sole expense of the Issuers, one
conformed copy of the Registration Statement or Registration Statements
and each post-effective amendment thereto, including financial
statements and schedules, and, if requested, all documents incorporated
or deemed to be incorporated therein by reference and all exhibits.
(g) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in an Exchange Registration
Statement filed pursuant to Section 2 hereof is required to be
delivered under the Securities Act by any Participating Broker-Dealer
who seeks to sell Exchange Notes during the Applicable Period, deliver
to each selling Holder of Registrable Notes, or each such Participating
Broker-Dealer, as the case may be, their respective counsel, and the
underwriters, if any, at the sole expense of the Issuers, as many
copies of the Prospectus or Prospectuses (including each form of
preliminary prospectus) and each amendment or supplement thereto and
any documents incorporated by reference therein as such Persons may
reasonably request; and, subject to the last paragraph of this Section
5, each Issuer hereby consents to the use of such Prospectus and each
amendment or supplement thereto by each of the selling Holders of
Registrable Notes or each such Participating Broker-Dealer, as the
case-may be, and the underwriters or agents, if any, and dealers (if
any), in connection with the offering and sale of the Registrable Notes
covered by, or the sale by Participating Broker-Dealers of the Exchange
Notes pursuant to, such Prospectus and any amendment or supplement
thereto.
(h) Prior to any public offering of Registrable Notes or any
delivery of a Prospectus contained in the Exchange Registration
Statement by any Participating Broker-Dealer who seeks to sell Exchange
Notes during the Applicable Period, to use its best efforts to register
or qualify such Registrable Notes (and to cooperate with selling
Holders of Registrable Notes or each such Participating Broker-Dealer,
as the case may be, the managing underwriter or underwriters, if any,
and their respective counsel in connection with the registration or
qualification (or exemption from such registration or qualification) of
such Registrable Notes) for offer and sale under the securities or Blue
Sky laws of such jurisdictions within the United States as any selling
Holder, Participating Broker-Dealer, or the managing underwriter or
underwriters reasonably request in writing; provided, however, that
where Exchange Notes held by Participating Broker-Dealers or
Registrable Notes are offered other than through an underwritten
offering, the Issuers agree to cause their counsel to perform Blue Sky
investigations and file registrations and qualifications required to be
filed pursuant to this Section 5(h); keep each such registration or
qualification (or exemption therefrom) effective during the period such
Registration
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<PAGE>
Statement is required to be kept effective and do any and all other
acts or things reasonably necessary or advisable to enable the
disposition in such jurisdictions of the Exchange Notes held by
Participating Broker-Dealers or the Registrable Notes covered by the
applicable Registration Statement; provided, however, that none of the
Issuers shall be required to (A) qualify generally to do business in
any jurisdiction where it is not then so qualified, (B) take any action
that would subject it to general service of process in any such
jurisdiction where it is not then so subject or (C) subject itself to
taxation in excess of a nominal dollar amount in any such jurisdiction
where it is not then so subject.
(i) If a Shelf Registration is filed pursuant to Section 3
hereof, cooperate with the selling Holders of Registrable Notes and the
managing underwriter or underwriters, if any, to facilitate the timely
preparation and delivery of certificates representing Registrable Notes
to be sold, which certificates shall not bear any restrictive legends
and shall be in a form eligible for deposit with The Depository Trust
Company; and enable such Registrable Notes to be in such denominations
and registered in such names as the managing underwriter or
underwriters, if any, or Holders may reasonably request.
(j) Use its best efforts to cause the Registrable Notes
covered by the Registration Statement to be registered with or approved
by such other governmental agencies or authorities as may be necessary
to enable the Holders thereof or the underwriter or underwriters, if
any, to dispose of such Registrable Notes, except as may be required
solely as a consequence of the nature of a selling Holder's business,
in which case each of the Issuers will cooperate in all reasonable
respects with the filing of such Registration Statement and the
granting of such approvals.
(k) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in an Exchange Registration
Statement filed pursuant to Section 2 hereof is required to be
delivered under the Securities Act by any Participating Broker-Dealer
who seeks to sell Exchange Notes during the Applicable Period, upon the
occurrence of any event contemplated by paragraph 5(c)(v) or 5(c)(vi)
hereof, as promptly an practicable prepare and (subject to Section 5(a)
hereof) file with the SEC, at the sole expense of the Issuers, a
supplement or post-effective amendment to the Registration Statement or
a supplement to the related Prospectus or any document incorporated or
deemed to be incorporated therein by reference, or file any other
required document so that, as thereafter delivered to the purchasers of
the Registrable Notes being sold thereunder or to the purchasers of the
Exchange Notes to whom such Prospectus will be delivered by a
Participating Broker-Dealer, any such Prospectus will not
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<PAGE>
contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
(l) Prior to the effective date of the first Registration
Statement relating to the Registrable Notes, (i) provide the Trustee
with certificates for the Registrable Notes or Exchange Notes, as the
case may be, in a form eligible for deposit with The Depositary Trust
Company and (ii) provide a CUSIP number for the Registrable Notes or
Exchange Notes, as the case may be.
(m) In connection with any underwritten offering initiated by
the Company of Registrable Notes pursuant to a Shelf Registration,
enter into an underwriting agreement as is customary in underwritten
offerings of debt securities similar to the Notes and take all such
other actions as are reasonably requested by the managing underwriter
or underwriters in order to facilitate the registration or the
disposition of such Registrable Notes and, in such connection, (i) make
such representations and warranties to, and covenants with, the
underwriters with respect to the business of the Issuers and their
respective subsidiaries and the Registration Statement, Prospectus and
documents, if any, incorporated or deemed to be incorporated by
reference therein, in each case, as are customarily made by Issuers to
underwriters in underwritten offerings of debt securities similar to
the Notes, and confirm the same in writing if and when requested; (ii)
obtain the written opinion of counsel to the Issuers and written
updates thereof in form, scope and substance reasonably satisfactory to
the managing underwriter or underwriters, addressed to the underwriters
covering the matters customarily covered in opinions requested in
underwritten offerings of debt similar to the Notes and such other
matters as may be reasonably requested by the managing underwriter or
underwriters; (iii) obtain "cold comfort" letters and updates thereof
in form, scope and substance reasonably satisfactory to the managing
underwriter or underwriters from the independent certified public
accountants of the Issuers (and, if necessary, any other independent
certified public accountants of any subsidiary of any of the Issuers or
of any business acquired by any of the Issuers for which financial
statements and financial data are, or are required to be, included or
incorporated by reference in the Registration Statement), addressed to
each of the underwriters, such letters to be in customary form and
covering matters of the type customarily covered in "cold comfort"
letters in connection with underwritten offerings of debt similar to
the Notes and such other matters as reasonably requested by the
managing underwriter or underwriters; and (iv) if an underwriting
agreement is entered into, the same shall contain indemnification
provisions and procedures no less favorable than those set forth in
Section 7 hereof (or such other provisions and procedures
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acceptable to Holders of a majority in aggregate principal amount
of Registrable Notes covered by such Registration Statement and the
managing underwriter or underwriters or agents) with respect to all
parties to be indemnified pursuant to said Section. The above shall be
done at each closing under such underwriting agreement, or as and to
the extent required thereunder.
(n) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in an Exchange Registration
Statement filed pursuant to Section 2 hereof is required to be
delivered under the Securities Act by any Participating Broker-Dealer
who seeks to sell Exchange Notes during the Applicable Period, make
available for inspection by any selling Holder of such Registrable
Notes being sold, or each such Participating Broker-Dealer, as the case
may be, any underwriter participating in any such disposition of
Registrable Notes, if any, and any attorney, accountant or other agent
retained by any such selling Holder or each such Participating
Broker-Dealer, as the case may be, or underwriter (collectively, the
"Inspectors"), at the offices where normally kept, during reasonable
business hours, all financial and other records, pertinent corporate
documents and instruments of the Issuers and their respective
subsidiaries (collectively, the "Records") as shall be reasonably
necessary to enable them to exercise any applicable due diligence
responsibilities, and cause the officers, directors and employees of
the Issuers and their respective subsidiaries to make available for
inspection all information reasonably requested by any such Inspector
in connection with such Registration Statement. Records which any of
the Issuers determine, in good faith, to be confidential and any
Records which it notifies the Inspectors are confidential shall not be
disclosed by the Inspectors unless (i) the disclosure of such Records
is necessary to avoid or correct a misstatement or omission in such
Registration Statement, (ii) the release of such Records is ordered
pursuant to a subpoena or other order from a court of competent
jurisdiction, (iii) disclosure of such information is, in the opinion
of counsel (a copy of which shall be delivered to the Issuers) for any
Inspector, necessary or advisable in connection with any action, claim,
suit or proceeding, directly or indirectly, involving or potentially
involving such Inspector and arising out of, based upon, relating to,
or involving this Agreement, or any transactions contemplated hereby or
arising hereunder, or (iv) the information in such Records has been
made generally available to the public. Each selling Holder of such
Registrable Securities and each such Participating Broker-Dealer will
be required to agree that information obtained by it as a result of
such inspections shall be deemed confidential and shall not be used by
it as the basis for any market transactions in the securities of the
Issuers unless and until such information is generally available to the
public. Each selling Holder of such Registrable Notes and each such
Participating Broker-Dealer will be required to
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further agree that it will, upon learning that disclosure of such
Records is sought in a court of competent jurisdiction, give notice to
the Issuers and allow the Issuers to undertake appropriate action to
prevent disclosure of the Records deemed confidential at the Issuers'
sole expense.
(o) Provide an indenture trustee for the Registrable Notes or
the Exchange Notes, as the case may be, and cause the Indenture or the
trust indenture provided for in Section 2(a) hereof, as the case may
be, to be qualified under the TIA not later than the effective date of
the Exchange Offer or the first Registration Statement relating to the
Registrable Notes; and in connection therewith, cooperate with the
trustee under any such indenture and the Holders of the Registrable
Notes, to effect such changes to such indenture as may be required for
such indenture to be so qualified in accordance with the terms of the
TIA; and execute, and use its best efforts to cause such trustee to
execute, all documents as may be required to effect such changes, and
all other forms and documents required to be filed with the SEC to
enable such indenture to be so qualified in a timely manner.
(p) Comply with all applicable rules and regulations of the
SEC and make generally available to its securityholders earnings
statements satisfying the provisions of Section 11(a) of the Securities
Act and Rule 158 thereunder (or any similar rule promulgated under the
Securities Act) no later than 45 days after the end of any 12-month
period (or 90 days after the end of any 12-month period if such period
is a fiscal year) (i) commencing at the end of any fiscal quarter in
which Registrable Notes are sold to underwriters in a firm commitment
or best efforts underwritten offering and (ii) if not sold to
underwriters in such an offering, commencing on the first day of the
first fiscal quarter of the Company after the effective date of a
Registration Statement, which statements shall cover said 12-month
periods.
(q) If an Exchange Offer or a Private Exchange is to be
consummated, upon delivery of the Registrable Notes by Holders to the
Issuers (or to such other Person as directed by the Issuers) in
exchange for the Exchange Notes or the Private Exchange Notes, as the
case may be, the Issuers shall mark, or cause to be marked, on such
Registrable Notes that such Registrable Notes are being cancelled in
exchange for the Exchange Notes or the Private Exchange Notes, as the
case may be; in no event shall such Registrable Notes be marked as paid
or otherwise satisfied.
(r) Cooperate with each seller of Registrable Notes covered by
any Registration Statement and each underwriter, if any, participating
in the
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disposition of such Registrable Notes and their respective counsel in
connection with any filings required to be made with the National
Association of Securities Dealers, Inc. (the "NASD").
(s) Use its best efforts to take all other steps necessary or
advisable to effect the registration of the Registrable Notes covered
by a Registration Statement contemplated hereby.
The Issuers may require each seller of Registrable Notes as to
which any Registration Statement is being effected to furnish to the Issuers
such information regarding such seller and the distribution of such Registrable
Notes as the Issuers may, from time to time, reasonably request. The Issuers may
exclude from such Registration Statement the Registrable Notes of any seller who
unreasonably fails to furnish such information within a reasonable time after
receiving such request. Each seller as to which any Shelf Registration is being
effected agrees to furnish promptly to the Issuers all information required to
be disclosed in order to make the information previously furnished to the
Issuers by such seller not materially misleading.
Each Holder of Registrable Notes and each Participating
Broker-Dealer agrees by acquisition of such Registrable Notes or Exchange Notes
to be sold by such Participating Broker-Dealer, as the case may be, that, upon
actual receipt of any notice from the Issuers of the happening of any event of
the kind described in Section 5(c)(ii), 5(c)(iv), 5(c)(v), or 5(c)(vi) hereof,
such Holder will forthwith discontinue disposition of such Registrable Notes
covered by such Registration Statement or Prospectus or Exchange Notes to be
sold by such Holder or Participating Broker-Dealer, as the case may be, until
such Holder's or Participating Broker-Dealer's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 5(k) hereof, or until
it is advised in writing (the "Advice") by the Issuers that the use of the
applicable Prospectus may be resumed, and has received copies of any amendments
or supplements thereto. In the event the Issuers shall give any such notice,
each of the Effectiveness Period and the Applicable Period shall be extended by
the number of days during such periods from and including the date of the giving
of such notice to and including the date when each seller of Registrable Notes
covered by such Registration Statement or Exchange Notes to be sold by such
Participating Broker-Dealer, as the case may be, shall have received (x) the
copies of the supplemented or amended Prospectus contemplated by Section 5(k)
hereof or (y) the Advice.
6. Registration Expenses
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Issuers shall be borne by the Issuers
whether or not the
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Exchange Offer or a Shelf Registration is filed or becomes effective,
including, without limitation, (i) all registration and filing fees (including,
without limitation, (A) fees with respect to filings required to be made with
the NASD in connection with an underwritten offering and (B) fees and expenses
of compliance with state securities or Blue Sky laws (including, without
limitation, reasonable fees and disbursements of the Issuer's counsel in
connection with Blue Sky qualifications of the Registrable Notes or Exchange
Notes and determination of the eligibility of the Registrable Notes or Exchange
Notes for investment under the laws of such jurisdictions (x) where the holders
of Registrable Notes are located, in the case of the Exchange Notes, or (y) as
provided in Section 5(h) hereof, in the case of Registrable Notes or Exchange
Notes to be sold by a Participating Broker-Dealer during the Applicable
Period)), (ii) printing expenses, including, without limitation, expenses of
printing certificates for Registrable Notes or Exchange Notes in a form eligible
for deposit with The Depository Trust Company and of printing Prospectuses if
the printing of Prospectuses is requested by the managing underwriter or
underwriters, if any, by the Holders of a majority in aggregate principal amount
of the Registrable Notes included in any Registration Statement or sold by any
Participating Broker-Dealer, as the case may be, (iii) messenger, telephone and
delivery expenses, (iv) fees and disbursements of counsel for the Issuers, (v)
fees and disbursements of all independent certified public accountants referred
to in Section 5(n)(iii) hereof (including, without limitation, the expenses of
any special audit and "cold comfort" letters required by or incident to such
performance by or incident to such performance), (vi) rating agency fees, if
any, and any fees associated with making the Registrable Notes or Exchange Notes
eligible for trading through The Depository Trust Company, (vii) Securities Act
liability insurance, if the Issuers desire such insurance, (viii) fees and
expenses of all other Persons retained by the Issuers, (ix) internal expenses of
the Issuers (including, without limitation, all salaries and expenses of
officers and employees of the Issuers performing legal or accounting duties),
(x) the expense of any annual audit, (ix) the fees and expenses incurred in
connection with the listing of the securities to be registered on any securities
exchange or any inter-dealer quotation system, if applicable, and (xii) the
expenses relating to printing, word processing and distributing all Registration
Statements, underwriting agreements, securities sales agreements, indentures and
any other documents necessary in order to comply with this Agreement.
(b) The Issuers, jointly and severally, shall reimburse the
Holders of the Registrable Notes being registered in a Shelf Registration for
the reasonable fees and disbursements of not more than one counsel chosen in
writing by the Holders of a majority in aggregate principal amount of the
Registrable Notes to be included in such Registration Statement. In addition,
the Issuers, jointly and severally, shall reimburse the Initial Purchaser for
50% (but not more than $30,000) of the reasonable fees and expenses of one
counsel in connection with the Exchange Offer which shall be White &
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Case, and shall not be required to pay any other legal expenses of the Initial
Purchaser in connection therewith.
7. Indemnification. (a) Each of the Issuers, jointly and
severally, agrees to indemnify and hold harmless each Holder of Registrable
Notes offered pursuant to a Shelf Registration Statement and each Participating
Broker-Dealer selling Exchange Notes during the Applicable Period, the
affiliates, directors, officers, agents, representatives and employees of each
such Person or its affiliates, and each other Person, if any, who controls any
such Person or its affiliates within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act (each, a "Participant") from
and against any and all losses, claims, damages and liabilities (including,
without limitation, the reasonable legal fees and other expenses actually
incurred in connection with any suit, action or proceeding or any claim
asserted) caused by, arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement pursuant to which the offering of such Registrable Notes or Exchange
Notes, as the case may be, is registered (or any amendment thereto) or related
Prospectus (or any amendments or supplements thereto) or any related preliminary
prospectus, or caused by, arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; provided, however, that the Issuers will
not be required to indemnify a Participant if (i) such losses, claims, damages
or liabilities are caused by any untrue statement or omission or alleged untrue
statement or omission made in reliance upon and in conformity with information
furnished to the Issuers in writing by or on behalf of such Participant
expressly for use therein or (ii) if such Participant sold to the person
asserting the claim the Registrable Notes or Exchange Notes which are the
subject of such claim and 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 any 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 such Participant 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 Registrable Notes or Exchange Notes sold to
such Person if required by applicable laws, unless such failure to deliver or
provide a copy of the Prospectus (as amended or supplemented) was a result of
noncompliance by the Issuers with Section 5 of this Agreement.
(b) Each Participant agrees, severally and not jointly, to
indemnify and hold harmless the Issuers, their respective directors and officers
and each Person who controls the Issuers within the meaning of Section 15 of the
Securities Act or Sec-
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<PAGE>
tion 20 of the Exchange Act to the same extent as the foregoing indemnity from
the Issuers to each Participant, but only (i) with reference to information
furnished to the Issuers in writing by or on behalf of such Participant
expressly for use in any Registration Statement or Prospectus, any amendment or
supplement thereto, or any preliminary prospectus or (ii) with respect to any
untrue statement or representation made by such Participant in writing to the
Issuers.
(c) If any suit, action, proceeding (including any
governmental or regulatory investigation), claim or demand shall be brought or
asserted against any Person in respect of which indemnity may be sought pursuant
to either of the two preceding paragraphs, such Person (the "Indemnified
Person") shall promptly notify the Person against whom such indemnity may be
sought (the "Indemnifying Person") in writing, and the Indemnifying Person,
shall have the right to retain counsel reasonably satisfactory to the
Indemnified Person to represent the Indemnified Person and any others the
Indemnifying Person may reasonably designate in such proceeding and shall pay
the reasonable fees and expenses actually incurred by such counsel related to
such proceeding; provided, however, that the failure to so notify the
Indemnifying Person shall not relieve it of any obligation or liability which it
may have hereunder or otherwise (unless and only to the extent that such failure
results in the loss or compromise of any material rights or defenses by the
Indemnifying Person). In any such proceeding, any Indemnified Person shall have
the right to retain its own counsel, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Person unless (i) the Indemnifying
Person and the Indemnified Person shall have mutually agreed in writing to the
contrary, (ii) the Indemnifying Person shall have failed within a reasonable
period of time to retain counsel reasonably satisfactory to the Indemnified
Person or (iii) the named parties in any such proceeding (including any
impleaded parties) include both the Indemnifying Person and the Indemnified
Person and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them. It is
understood that, unless there exists a conflict among Indemnified Persons, the
Indemnifying Person shall not, in connection with any one such proceeding or
separate but substantially similar related proceeding in the same jurisdiction
arising out of the same general allegations, be liable for the fees and expenses
of more than one separate firm (in addition to any local counsel) for all
Indemnified Persons, and that all such reasonable fees and expenses shall be
reimbursed promptly as they are incurred. Any such separate firm for the
Participants and such control Persons of Participants shall be designated in
writing by Participants who sold a majority in interest of Registrable Notes and
Exchange Notes sold by all such Participants and any such separate firm for the
Issuers, their directors, their officers and such control Persons of the Issuers
shall be designated in writing by the Issuers. The Indemnifying Person shall not
be liable for any settlement of any proceeding effected without its prior
written consent, but if settled with such consent or if there be a final
non-appealable judgment
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<PAGE>
for the plaintiff for which the Indemnified Person is entitled to
indemnification pursuant to this Agreement, the Indemnifying Person agrees to
indemnify and hold harmless each Indemnified Person from and against any loss or
liability by reason of such settlement or judgment. No Indemnifying Person
shall, without the prior written consent of the Indemnified Person, effect any
settlement or compromise of any pending or threatened proceeding in respect of
which any Indemnified Person is our could have been a party, and indemnity could
have been sought hereunder by such Indemnified Person, unless such settlement
(A) includes an unconditional written release of such Indemnified Person, in
form and substance reasonably satisfactory to such Indemnified Person, from all
liability on claims that are the subject matter of such proceeding and (B) does
not include any statement as to an admission of fault, culpability or failure to
act by or on behalf of any Indemnified Person.
(d) If the indemnification provided for in Section 7(a) and
7(b) hereof is for any reason unavailable to, or insufficient to hold harmless,
an Indemnified Person in respect of any losses, claims, damages or liabilities
referred to therein, than each Indemnifying Person under such paragraphs, in
lieu of indemnifying such Indemnified Person thereunder and in order to provide
for just and equitable contribution, shall contribute to the amount paid or
payable by such Indemnified Person as a result of such losses, claims, damages
or liabilities in such proportion as is appropriate to reflect (i) the relative
benefits received by the Indemnifying Person or Persons on the one hand and the
Indemnified Person or Persons on the other from the offering of the Notes or
(ii) if the allocation provided by the foregoing clause (i) is not permitted by
applicable law, not only such relative benefits but also the relative fault of
the Indemnifying Person or Persons on the one hand and the Indemnified Person or
Persons on the other in connection with the statements or omissions or alleged
statements or omissions that resulted in such losses, claims, damages or
liabilities (or actions in respect thereof). The relative fault of the parties
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Issuers on the
one hand or such Participant or such other Indemnified Person, as the case may
be, on the other, the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission, and any other
equitable considerations appropriate in the circumstances.
(e) The parties agree that it would not be just and equitable
if contribution pursuant to this Section 7 were determined by pro rata
allocation (even if the Participants were treated as one entity for such
purposes) or by any other method of allocation that does not take account of the
equitable considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an Indemnified Person as a result of the losses,
claims, damages and liabilities referred to in the
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<PAGE>
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any reasonable legal or other expenses actually
incurred by such Indemnified Person in connection with investigating or
defending any such action or claim. Notwithstanding the provisions of this
Section 7, in no event shall a Participant be required to contribute any amount
in excess of the amount by which proceeds received by such Participant from
sales of Registrable Notes or Exchange Notes, as the case may be, exceeds the
amount of any damages that such Participant has otherwise been required to pay
or has paid by reason of such untrue or alleged untrue statement or omission or
alleged omission. No Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
(f) The indemnity and contribution agreements contained in
this Section 7 will be in addition to any liability which the Indemnifying
Persons may otherwise have to the Indemnified Persons referred to above.
8. Rules 144 and 144A. The Company covenants that it will file
the reports required to be filed by it under the Securities Act and the Exchange
Act and the rules and regulations adopted by the SEC thereunder in a timely
manner in accordance with the requirements of the Securities Act and the
Exchange Act and, if at any time the Company is not required to file such
reports, it will, upon the request of any Holder of Registrable Notes, make
publicly available annual reports and such information, documents and other
reports of the type specified in Sections 13 and 15(d) of the Exchange Act. The
Company further covenants for so long as any Registrable Notes remain
outstanding, to make available to any Holder or beneficial owner of Registrable
Notes in connection with any sale thereof and any prospective purchaser of such
Registrable Notes from such Holder or beneficial owner the information required
by Rule 144(d)(4) under the Securities Act in order to permit resales of such
Registrable Notes pursuant to Rule 144A.
9. Underwritten Registrations. If any of the Registrable Notes
covered by any Shelf Registration are to be sold in an underwritten offering,
the investment banker or investment bankers and manager or managers that will
manage the offering will be selected by the Holders of a majority in aggregate
principal amount of such Registrable Notes included in such offering and
reasonably acceptable to the Issuers.
No Holder of Registrable Notes may participate in any
underwritten registration hereunder unless such Holder (a) agrees to sell such
Holder's Registrable Notes on the basis provided in any underwriting
arrangements approved by the Persons entitled hereunder to approve such
arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other
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<PAGE>
documents required under the terms of such underwriting arrangements.
10. Miscellaneous. (a) No Inconsistent Agreements. None of the
Issuers have entered, as of the date hereof, and none of the Issuers shall,
after the date of this Agreement, enter into any agreement with respect to any
of its securities that is inconsistent with the rights granted to the Holders of
Registrable Notes in this Agreement or otherwise conflicts with the provisions
hereof. Other than as provided in Schedule A attached hereto, none of the
Issuers have entered and none of the Issuers will enter into any agreement with
respect to any of its securities which will grant to any Person piggy-back
registration rights with respect to a Registration Statement.
(b) Adjustments Affecting Registrable Notes. Other than as
provided in Schedule B attached hereto, none of the Issuers shall, directly or
indirectly, take any action with respect to the Registrable Notes as a class
that would adversely affect the ability of the Holders of Registrable Notes to
include such Registrable Notes in a registration undertaken pursuant to this
Agreement.
(c) Amendments and Waivers. The provisions of this Agreement
may not be amended, modified or supplemented, and waivers or consents to
departures from the provisions hereof may not be given, otherwise than with the
prior written consent of the Holders of not less than a majority in aggregate
principal amount of the then outstanding Registrable Notes. Notwithstanding the
foregoing, a waiver or consent to depart from the provisions hereof with respect
to a matter that relates exclusively to the rights of Holders of Registrable
Notes whose securities are being sold pursuant to a Registration Statement and
that does not directly or indirectly affect, impair, limit or compromise the
rights of other Holders of Registrable Notes may be given by Holders of at least
a majority in aggregate principal amount of the Registrable Notes being sold by
such Holders pursuant to such Registration Statement; provided, however, that
the provisions of this sentence may not be amended, modified or supplemented
except in accordance with the provisions of the immediately preceding sentence.
(d) Notices. All notices and other communications (including,
without limitation, any notices or other communications to the Trustee) provided
for or permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, next-day air courier or facsimile:
1. if to a Holder of the Registrable Notes or any
Participating Broker-Dealer, at the most current address of
such Holder or Participat- ing Broker-Dealer, as the case may
be, set forth on the records of the registrar under the
Indenture, with a copy in like manner to the Initial Purchaser
as follows:
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<PAGE>
NatWest Capital Markets Limited
660 Madison Avenue
19th Floor
New York, New York 10021
Facsimile No: (212) 752-2711
Attention: [Corporate Finance
Department]
with a copy to:
White & Case
1155 Avenue of the Americas
New York, NY 10036
Facsimile No: (212) 354-8113
Attention: Timothy B. Goodell, Esq.
2. if to the Initial Purchaser, at the addresses
specified in Section 10(d)(1);
3. if to an Issuer, as follows:
North Atlantic Trading Acquisition
Company, Inc.
c/o National Tobacco Company, L.P.
257 Park Avenue South, 7th Floor
New York, NY 10010-7304
Facsimile No: (212) 253-8296
Attention: Chief Financial Officer
with a copy to:
Weil, Gotshal, Manges LLP
767 Fifth Avenue
New York, NY 10153
Facsimile No.: (212) 310-8007
Attention: David Zeltner, Esq.
All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; one business
day after being timely
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<PAGE>
delivered to a next-day air courier; and when receipt is acknowledged by the
addressee, if sent by facsimile.
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 and in the manner specified in such Indenture.
(e) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the parties
hereto; 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 holds Registerable Notes.
(f) Counterparts. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning thereof.
(h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO
CONTRACTS MADE AND PERFORMED WHOLLY WITHIN THE STATE OF NEW YORK, WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT
TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.
(i) Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their best efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
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<PAGE>
(j) Notes Held by the Issuers or their Affiliates. Whenever
the consent or approval of Holders of a specified percentage of Registerable
Notes is required hereunder, Registerable Notes held by the Issuers or their
affiliates (as such term is defined in Rule 405 under the Securities Act) shall
not be counted in determining whether such consent or approval was given by the
Holders of such required percentage.
(k) Third Party Beneficiaries. Holders of Registerable Notes
and Participating Broker-Dealers are intended third party beneficiaries of this
Agreement and this Agreement may be enforced by such Persons.
IN WITNESS WHEREOF, the parties have executed the Agreement as
of the date first written above.
Issuer:
NORTH ATLANTIC TRADING
ACQUISITION COMPANY
By: /s/Thomas F. Helms, Jr.
-------------------------------
Name: Thomas F. Helms, Jr.
Title: President
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<PAGE>
Guarantors:
NATIONAL TOBACCO COMPANY, L.P.
By: /s/Thomas F. Helms, Jr.
------------------------------
Name: Thomas F. Helms, Jr.
Title: President
NORTH ATLANTIC OPERATING
COMPANY, INC.
By: /s/Thomas F. Helms, Jr.
------------------------------
Name: Thomas F. Helms, Jr.
Title: President
NATIONAL TOBACCO FINANCE
CORPORATION
By: /s/Thomas F. Helms, Jr.
------------------------------
Name: Thomas F. Helms, Jr.
Title: President
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<PAGE>
The foregoing Agreement is
hereby confirmed and accepted
as of the date first above
written:
NATWEST CAPITAL MARKETS LIMITED
By: /s/Greg Bowes
--------------------------
Name: Greg Bowes
Title: Managing Director
CIBC WOOD GUNDY SECURITIES
By: /s/Neil Weisenberg
--------------------------
Name: Neil Weisenberg
Title: Managing Director
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<PAGE>
----------------------------------------
PREFERRED STOCK REGISTRATION RIGHTS AGREEMENT
Dated as of June 25, 1997
by and among
NORTH ATLANTIC TRADING ACQUISITION COMPANY, INC.
and
NATWEST CAPITAL MARKETS LIMITED
as Initial Purchaser
----------------------------------------
12% SENIOR PIK PREFERRED STOCK
<PAGE>
TABLE OF CONTENTS
Page
1. Definitions......................................................... 1
2. Exchange Offer...................................................... 5
3. Shelf Registration.................................................. 8
4. Additional Dividends................................................ 9
5. Registration Procedures............................................. 11
6. Registration Expenses............................................... 20
7. Indemnification..................................................... 21
8. Rules 144 and 144A.................................................. 25
9. Underwritten Registrations.......................................... 25
10. Miscellaneous. ..................................................... 25
(a) No Inconsistent Agreements................................. 25
(b) Adjustments Affecting Transfer Restricted Preferred Stock.. 26
(c) Amendments and Waivers..................................... 26
(d) Notices.................................................... 26
(e) Successors and Assigns..................................... 28
(f) Counterparts............................................... 28
(g) Headings................................................... 28
(h) Governing Law.............................................. 28
(i) Severability............................................... 28
(j) Preferred Stock Held by the Company or their Affiliates.... 28
(k) Third Party Beneficiaries.................................. 29
(i)
<PAGE>
PREFERRED STOCK REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is dated as of
June 25, 1997, by and among North Atlantic Trading Acquisition Company, Inc., a
Delaware corporation (the "Company"). and NatWest Capital Markets Limited (the
"Initial Purchaser").
This Agreement is entered into in connection with the Purchase
Agreement, dated June 18, 1997, among the Company and the Initial Purchaser (the
"Purchase Agreement"), which provides for the sale by the Company to the Initial
Purchaser of 1,360 units (the "Units") consisting of 1,000 shares of 12% Senior
Payment-in-Kind Preferred Stock (the "Preferred Stock") with warrants to
purchase an aggregate of 44,440 shares of common stock of the Company. In order
to induce the Initial Purchaser to enter into the Purchase Agreement, the
Company has agreed to provide the registration rights set forth in this
Agreement for the benefit of the Initial Purchaser and its direct and indirect
transferees. The execution and delivery of this Agreement is a condition to the
obligation of the Initial Purchaser to purchase the Preferred Stock under the
Purchase Agreement.
The parties hereby agree as follows:
1. Definitions
As used in this Agreement, the following terms shall have the
following meanings:
Additional Dividends: Has the meaning provided in Section
4(a) hereof.
Advice: Has the meaning provided in the last paragraph of
Section 5 hereof.
Agreement: Has the meaning provided in the first introductory
paragraph hereto.
Applicable Period: Has the meaning provided in Section 2(b)
hereof.
Certificate of Designation: means the certificate of
designation governing the Preferred Stock and the Exchange Preferred Stock.
Closing Date: Has the meaning provided in the Purchase
Agreement.
<PAGE>
Company: Has the meaning provided in the first introductory
paragraph hereto.
Effectiveness Date: The 90th day after the Filing Date.
Effectiveness Period: Has the meaning provided in Section
3(a) hereof.
Event Date: Has the meaning provided in Section 4(b) hereof.
Exchange Act: The Securities Exchange Act of 1934, as
amended, and the rules and regulations of the SEC promulgated thereunder.
Exchange Offer: Has the meaning provided in Section 2(a)
hereof.
Exchange Preferred Stock: The shares of 12% Senior
Payment-In-Kind Preferred Stock of the Company that are identical to the
Preferred Stock in all material respects, except that the provisions regarding
restrictions on transfer shall be modified, as provided in the Certificate of
Designation, and the issuance thereof pursuant to the Exchange Offer shall have
been registered pursuant to an effective Registration Statement in compliance
with the Securities Act.
Exchange Registration Statement: Has the meaning provided in
Section 2(a) hereof.
Filing Date: The 30th day after the Issue Date.
Holder: Any holder of Transfer Restricted Preferred Stock.
Indemnified Person: Has the meaning provided in Section 7(c)
hereof.
Indemnifying Person: Has the meaning provided in Section 7(c)
hereof.
Initial Purchaser: Has the meaning provided in the first
introductory paragraph hereto.
Inspectors: Has the meaning provided in Section 5(o) hereof.
Issue Date: The date on which the original Preferred Stock
was sold to the Initial Purchaser pursuant to the Purchase Agreement.
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<PAGE>
NASD: Has the meaning provided in Section 5(s) hereof.
Participant: Has the meaning provided in Section 7(a) hereof.
Participating Broker-Dealer: Has the meaning provided in
Section 2(b) hereof.
Paying Agent: United States Trust Company of New York as
Paying Agent for the Preferred Stock.
Persons: An individual, trustee, corporation, partnership,
limited liability company, joint stock company, trust, unincorporated
association, union, business association, firm or other legal entity.
Preferred Stock: Has the meaning provided in the second
introductory paragraph hereto.
Private Exchange: Has the meaning provided in Section 2(b)
hereof.
Private Exchange Preferred Stock: Has the meaning provided in
Section 2(b) hereof.
Prospectus: The prospectus included in any Registration
Statement (including, without limitation, any prospectus subject to completion
and a prospectus that includes any information previously omitted from a
prospectus filed as part of an effective registration statement in reliance upon
Rule 430A promulgated under the Securities Act), as amended or supplemented by
any prospectus supplement, and all other amendments and supplements to the
Prospectus, with respect to the terms of the offering of any portion of the
Transfer Restricted Preferred Stock covered by such Registration Statement
including post-effective amendments, and all material incorporated by reference
or deemed to be incorporated by reference in such Prospectus.
Purchase Agreement: Has the meaning provided in the second
introduc- tory paragraph hereto.
Records: Has the meaning provided in Section 5(o) hereof.
Registration Statement: Any registration statement of the
Company, including, but not limited to, the Exchange Registration Statement,
that covers any of the Transfer Restricted Preferred Stock pursuant to the
provisions of this Agreement, including the Prospectus, amendments and
supplements to such registration statement,
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<PAGE>
including post-effective amendments, all exhibits, and all material incorporated
by reference or deemed to be incorporated by reference in such registration
statement.
Rule 144(k): Rule 144(k) promulgated under the Securities Act,
as such Rule may be amended from time to time, or any similar rule (other than
Rule 144A) or regulation hereafter adopted by the SEC as a replacement thereto
having substantially the same effect as such Rule.
Rule 144A: Rule 144A promulgated under the Securities Act, as
such Rule may be amended from time to time, or any similar rule (other than Rule
144) or regulation hereafter adopted by the SEC.
Rule 415: Rule 415 promulgated under the Securities Act, as
such Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the SEC.
SEC: The Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended, and
the rules and regulations of the SEC promulgated thereunder.
Shelf Notice: Has the meaning provided in Section 2(c)
hereof.
Shelf Registration: Has the meaning provided in Section 3(a)
hereof.
Shelf Registration Statement: shall mean a "shelf"
registration statement of the Company and the Guarantors which covers all of the
Transfer Restricted Preferred Stock on an appropriate form under Rule 415 under
the 1933 Act, or any similar rule that may be adopted by the SEC, and all
amendments and supplements to such registration statement, including
post-effective amendments, in each case including the Prospectus contained
therein, all exhibits thereto and all material incorporated by reference
therein.
TIA: The Trust Indenture Act of 1939, as amended.
Transfer Restricted Preferred Stock: Each share of Preferred
Stock upon original issuance of the Preferred Stock and at all times subsequent
thereto, each share of Exchange Preferred Stock as to which Section 2(c)(v)
hereof is applicable upon original issuance and at all times subsequent thereto
and each Private Exchange Preferred Stock upon original issuance thereof and at
all times subsequent thereto, until in the case of any such Preferred Stock,
Exchange Preferred Stock or Private Exchange
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<PAGE>
Preferred Stock, as the case may be, the earliest to occur of (i) a Registration
Statement (other than, with respect to any Exchange Preferred Stock as to which
Section 2(c)(v) hereof is applicable, the Exchange Registration Statement)
covering such Preferred Stock, Exchange Preferred Stock or Private Exchange
Preferred Stock, as the case may be, has been declared effective by the SEC and
such Preferred Stock, Exchange Preferred Stock or Private Exchange Preferred
Stock, as the case may be, has been disposed of in accordance with such
effective Registration Statement, (ii) such Preferred Stock, Exchange Preferred
Stock or Private Exchange Preferred Stock, as the case may be, is, or may be,
sold in compliance with Rule 144(k), or (iii) such Preferred Stock, Exchange
Preferred Stock or Private Exchange Preferred Stock, as the case may be, ceases
to be outstanding for purposes of the Certificate of Designation.
Underwritten registration or underwritten offering: A
registration in which securities of the Company are sold to an underwriter for
reoffering to the public.
2. Exchange Offer
(a) The Company agrees to file with the SEC no later than the
Filing Date an offer to exchange (the "Exchange Offer") any and all of Preferred
Stock (other than the Private Exchange Preferred Stock, if any) for a like
number of shares of Exchange Preferred Stock. The Exchange Offer shall be
registered under the Securities Act on the appropriate form (the "Exchange
Registration Statement") and shall comply with all applicable tender offer rules
and regulations under the Exchange Act and state securities or Blue Sky Laws.
The Company agrees to use its best efforts to (x) cause the Exchange
Registration Statement to be declared effective under the Securities Act no
later than the 90th day after the Filing Date; (y) keep the Exchange Offer open
for at least 30 business days (or longer if required by applicable law) after
the date that notice of the Exchange Offer is mailed to the Holders; and (z)
consummate the Exchange Offer on or prior to the 120th day following the Filing
Date. If after such Exchange Registration Statement is declared effective by the
SEC, the Exchange Offer or the issuance of the Exchange Preferred Stock
thereunder is interfered with by any stop order, injunction or other order or
requirement of the SEC or any other governmental agency or court, such Exchange
Registration Statement shall be deemed not to have become effective for purposes
of this Agreement until each stop order, injunction or other order or
requirement is no longer in effect. Each Holder who participates in the Exchange
Offer will be required to represent that any Exchange Preferred Stock received
by it will be acquired in the ordinary course of its business, that at the time
of the consummation of the Exchange Offer such Holder will have no arrangement
or understanding with any Person to participate in the distribution of the
Exchange Preferred Stock in violation of the provisions of the Securities Act,
and that such Holder in not an "affiliate" of any of the Company within the
meaning of the Securities Act. Upon
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<PAGE>
consummation of the Exchange Offer in accordance with this Section 2, the
Company shall have no further obligation to register Transfer Restricted
Preferred Stock (other than Private Exchange Preferred Stock and other than in
respect of any Exchange Preferred Stock as to which clause 2(c)(v) hereof
applies) pursuant to Section 3 hereof. No securities other than the Exchange
Preferred Stock shall be included in the Exchange Registration Statement.
(b) The Company shall include within the Prospectus contained
in the Exchange Registration Statement a section entitled "Plan of
Distribution," reasonably acceptable to the Initial Purchaser, which shall
contain a summary statement of the positions taken or policies made by the Staff
of the SEC with respect to the potential "underwriter" status of any
broker-dealer that is the beneficial owner (as defined in Rule 13d-3 under the
Exchange Act) of Exchange Preferred Stock received by such broker-dealer in the
Exchange Offer (a "Participating Broker-Dealer"), whether such positions or
policies have been publicly disseminated by the Staff of the SEC or such
positions or policies, in the judgment of the Initial Purchaser, represent the
prevailing views of the Staff of the SEC. Such "Plan of Distribution" section
shall also expressly permit the use of the Prospectus by all Persons subject to
the prospectus delivery requirements of the Securities Act, including all
Participating Broker-Dealers, and include a statement describing the means by
which Participating Broker-Dealers may resell the Exchange Preferred Stock.
The Company shall use its best efforts to keep the Exchange
Registration Statement effective and to amend and supplement the Prospectus
contained therein, in order to permit such Prospectus to be lawfully delivered
by any Participating Broker-Dealer subject to the prospectus delivery
requirements of the Securities Act for such period of time as is necessary to
comply with applicable law in connection with any resale of the Exchange
Preferred Stock; provided, however, that such period shall not exceed 180 days
after the consummation of the Exchange Offer (or such longer period if extended
pursuant to the last paragraph of Section 5 hereof) (the "Applicable Period").
If, prior to consummation of the Exchange Offer, the Initial
Purchaser holds any Preferred Stock acquired by it and having the status of an
unsold allotment in the initial distribution, the Company shall, upon the
request of the Initial Purchaser, simultaneously with the delivery of the
Exchange Preferred Stock in the Exchange Offer issue and deliver to the Initial
Purchaser in exchange (the "Private Exchange") for such Preferred Stock held by
the Initial Purchaser a like principal amount of Preferred Stock of the Company,
that is identical in all material respects to the Exchange Preferred Stock (the
"Private Exchange Preferred Stock") (and which is issued pursuant to the same
Certificate of Designation as the Exchange Preferred Stock) except for the
placement of a restrictive legend on such Private Exchange Preferred Stock. The
Private Exchange
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<PAGE>
Preferred Stock shall if permissible bear the same CUSIP number as the Exchange
Preferred Stock.
Interest on the Exchange Preferred Stock and the Private
Exchange Preferred Stock will accrue from the last interest payment date on
which interest was paid on the Preferred Stock surrendered in exchange therefor
or, if no interest has been paid on the Preferred Stock, from the Issue Date.
In connection with the Exchange Offer, the Company shall:
(1) mail to each Holder a copy of the Prospectus
forming part of the Exchange Registration Statement, together with an
appropriate letter of transmittal and related documents;
(2) utilize the services of a depositary for the Exchange
Offer with an address in the Borough of Manhattan, The City of
New York;
(3) permit Holders to withdraw tendered Preferred Stock at
any time prior to the close of business, New York time, on the
last business day on which the Exchange Offer shall remain open; and
(4) otherwise comply in all material respects with all
applicable laws, rules and regulations.
As soon as practicable after the close of the Exchange Offer
or the Private Exchange, as the case may be, the issuers shall:
(1) accept for exchange all Preferred Stock tendered and not
validly withdrawn pursuant to the Exchange Offer or the Private
Exchange;
(2) deliver to the Trustee for cancellation all Preferred
Stock so accepted for exchange; and
(3) cause the Trustee to authenticate and deliver promptly to
each Holder of Preferred Stock, Exchange Preferred Stock or Private
Exchange Preferred Stock, as the case may be, equal in principal amount
to the Preferred Stock of such Holder so accepted for exchange.
The Exchange Preferred Stock and the Private Exchange
Preferred Stock to be issued under (i) the Certificate of Designation or (ii) a
Certificate of Designation identical in all material respects to the
Certificate of Designation, which in either event
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shall provide that (1) the Exchange Preferred Stock shall not be subject to the
transfer restrictions set forth in the Certificate of Designation and (2) the
Private Exchange Preferred Stock shall be subject to the transfer restrictions
set forth in the Indenture. The Indenture or such indenture shall provide that
the Exchange Preferred Stock, the Private Exchange Preferred Stock and the
Preferred Stock shall vote and consent together on all matters as one class and
that none of the Exchange Preferred Stock, the Private Exchange Preferred Stock
or the Preferred Stock will have the right to vote or consent as a separate
class on any matter.
(c) If, (i) because of any change in law or in currently
prevailing interpretations of the Staff of the SEC, the Company are not
permitted to effect an Exchange Offer, (ii) the Exchange offer is not
consummated within 120 days after the Filing Date, (iii) any holder of Private
Exchange Preferred Stock so requests at any time after the consummation of the
Private Exchange, (iv) if any Holder (other than the Initial Purchaser) is not
eligible to participate in the Exchange Offer, then the Company shall promptly
deliver to the Holders and the Trustee written notice thereof (the "Shelf
Notice") to the Trustee and, in the case of clauses (i), and (ii) above, all
Holders, in the case of clause (iii) above, the Holders of the Private Exchange
Preferred Stock and, in the case of clause (iv) above, the affected Holder, and
shall file a Shelf Registration pursuant to Section 3 hereof, provided, however,
that in the case of clause (iii) above such holder shall pay all reasonable
registration expenses of the Company as described in Section 6 hereof in
connection with such Shelf Registration.
3. Shelf Registration
If a Shelf Notice is delivered as contemplated by Section 2(c)
hereof, then:
(a) Shelf Registration. The Company shall as promptly as
reasonably practicable file with the SEC a Registration Statement for an
offering to be made on a continuous basis pursuant to Rule 415 covering all of
the Transfer Restricted Preferred Stock (the "Shelf Registration"). If the
Company shall not have yet filed an Exchange Registration Statement, the Company
shall use its best efforts to file with the SEC the Shelf Registration on or
prior to the Filing Date. The Shelf Registration shall be on Form S-1 or another
appropriate form permitting registration of such Transfer Restricted Preferred
Stock for resale by Holders in the manner or manners designated by them
(including, without limitation, one or more underwritten offerings). The Company
shall not permit any securities other than the Transfer Restricted Preferred
Stock to be included in the Shelf Registration.
The Company shall use its best efforts to cause the Shelf
Registration to
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be declared effective under the Securities Act by the 165th day after the Issue
Date and to keep the Shelf Registration continuously effective under the
Securities Act until the date which is two years from the Issue Date, subject to
extension pursuant to the last paragraph of Section 5 hereof, or such shorter
period ending when all Transfer Restricted Preferred Stock covered by the Shelf
Registration have been sold in the manner set forth and as contemplated in the
Shelf Registration or when such Preferred Stock becomes eligible for resale
without volume restrictions pursuant to Rule 144 and or the Securities Act.
(b) Withdrawal of Stop Orders. If the Shelf Registration
ceases to be effective for any reason at any time during the Effectiveness
Period (other than because of the sale of all of the securities registered
thereunder), the Company shall use its best efforts to obtain the prompt
withdrawal of any order suspending the effectiveness thereof.
(c) Supplements and Amendments. The Company shall promptly
supplement and amend the Shelf Registration if required by the rules,
regulations or instructions applicable to the registration form used for such
Shelf Registration, if required by the Securities Act, or if reasonably
requested for such purpose by the Holders of a majority in aggregate principal
amount of the Transfer Restricted Preferred Stock covered by such Registration
Statement or by any underwriter of such Transfer Restricted Preferred Stock.
4. Additional Dividends
(a) The Company and the Initial Purchaser agree that the
Holders of Transfer Restricted Preferred Stock will suffer damages if the
Company fails to fulfill its obligations under Section 2 or Section 3 hereof and
that it would not be feasible to ascertain the extent of such damages with
precision. Accordingly, the Company agrees to pay, as liquidated damages and as
the sole and exclusive remedy therefor, additional dividends on the Preferred
Stock ("Additional Dividends") under the circumstances and to the extent set
forth below:
(i) if neither the Exchange Registration Statement nor the
Shelf Registration has been filed on or prior to the Filing Date, then,
commencing on the 31st day after the Issue Date, Additional Dividends
shall accrue on the Preferred Stock over and above the stated interest
at a rate of 0.50% per annum for the first 60 days commencing on the
31st day after the Issue Date, such Additional Dividends rate
increasing by an additional 0.50% per annum at the beginning of each
subsequent 30-day period;
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(ii) if neither the Exchange Registration Statement nor the
Shelf Registration is declared effective by the SEC on or prior to the
Effectiveness Date, then, commencing on the 91st day after the Filing
Date, Additional Dividends shall accrue on the Preferred Stock included
or which should have been included in such Registration Statement over
and above the stated interest at a rate of 0.50% per annum for the
first 30 days commencing on the 91st day after the Filing Date, such
Additional Dividend rate increasing by an additional 0.50% per annum at
the beginning of each subsequent 30-day period; and
(iii) if (A) the Company has not exchanged Exchange Preferred
Stock for all Preferred Stock validly tendered in accordance with the
terms of the Exchange Offer on or prior to the 120th day after the
Filing Date or (B) the Exchange Registration Statement ceases to be
effective at any time prior to the time that the Exchange Offer is
consummated or (C) if applicable, the Shelf Registration has been
declared effective and such Shelf Registration ceases to be effective
at any time during the Effectiveness Period, then Additional Dividends
shall accrue (over and above any interest otherwise payable on such
Preferred Stock) at a rate of 0.50% per annum for the first 30 days
commencing on (x) the 121st day after the Filing Date with respect to
the Preferred Stock validly tendered and not exchanged by the Company,
in the case of (A) above, or (y) the day the Exchange Registration
Statement ceases to be effective in the case of (B) above, or (z) the
day such Shelf Registration ceases to be effective in the case of (C)
above, such Additional Dividend rate increasing by an additional 0.50%
per annum at the beginning of each such subsequent 30-day period (it
being understood and agreed that, notwithstanding any provision to the
contrary, so long as any Preferred Stock which is the subject of a
Shelf Notice is then covered by an effective Shelf Registration
Statement, no Additional Dividends shall accrue on such Preferred
Stock);
provided, however, that the Additional Dividends rate on any affected Preferred
Stock may not exceed at any one time in the aggregate 2.0% per annum; and
provided, further, that (1) upon the filing of the Exchange Registration
Statement or a Shelf Registration (in the case of clause (i) of this Section
4(a)), (2) upon the effectiveness of the Exchange Registration Statement or the
Shelf Registration (in the case of clause (ii) of this Section 4(a)), or (3)
upon the exchange of Exchange Preferred Stock for all Preferred Stock tendered
(in the case of clause (iii)(A) of this Section 4(a)), or upon the effectiveness
of the Exchange Registration Statement which had ceased to remain effective (in
the case of (iii)(B) of this Section 4(a)), or upon the effectiveness of the
Shelf Registration which had ceased to remain effective (in the case of (iii)(C)
of this Section 4(a)), Additional Dividends on the affected Preferred Stock as a
result of such clause (or the relevant subclause thereof), as the case may be,
shall cease to accrue.
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(b) The Company shall notify the Paying Agent within one
business day after each and every date on which an event occurs in respect of
which Additional Dividends are required to be paid (an "Event Date"). The
Company shall pay the Additional Dividends due on the Transfer Restricted
Preferred Stock by depositing with the Paying Agent (which shall not be the
Company for these purposes) for the Transfer Restricted Preferred Stock, in
trust, for the benefit of the holders thereof, prior to 11:00 A.M. on the next
dividend payment date specified by the Certificate of Designation (or such other
certificate of designation), sums sufficient to pay the Additional Dividends
then due. Any amounts of Additional Dividends due pursuant to clauses (a)(i),
(a)(ii) or (a)(iii) of this Section 4 will be payable to the Holders of affected
Preferred Stock in cash quarterly on each dividend payment date specified by the
Certificate of Designation (or such other certificate of designation) to the
record holders entitled to receive the dividend payment to be made on such date.
Commencing with the first such date occurring after any such Additional
Dividends commence to accrue. The amount of Additional Dividends will be
determined by multiplying the applicable Additional Dividends rate by the
principal amount of the affected Transfer Restricted Preferred Stock of such
Holders, multiplied by a fraction, the numerator of which is the number of days
such Additional Dividends rate was applicable during such period (determined on
the basis of a 360-day year comprised of twelve 30-day months and, in the case
of a partial month, the actual number of days elapsed), and the denominator of
which is 360.
5. Registration Procedures
In connection with the filing of any Registration Statement
pursuant to Sections 2 or 3 hereof, the Company shall effect such
registration(s) to permit the sale of the securities covered thereby in
accordance with the intended method or methods of disposition thereof, and
pursuant thereto and in connection with any Registration Statement filed by the
Company hereunder, the Company shall:
(a) Prepare and file with the SEC prior to the Filing Date a
Registration Statement or Registration Statements as prescribed by
Sections 2 or 3 hereof, and use its best efforts to cause each such
Registration Statement to become effective and remain effective as
provided herein; provided, however, that, if (1) such filing is
pursuant to Section 3 hereof, or (2) a Prospectus contained in an
Exchange Registration Statement filed pursuant to Section 2 hereof is
required to be delivered under the Securities Act by any Participating
Broker-Dealer who seeks to sell Exchange Preferred Stock during the
Applicable Period, before filing any Registration Statement or
Prospectus or any amendments or supplements thereto, the Company shall,
if requested in writing, furnish to and afford the Holders of the
Transfer Restricted Preferred Stock
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covered by such Registration Statement or each such Participating
Broker-Dealer, as the case may be, their counsel and the managing
underwriters, if any, a reasonable opportunity to review copies of all
such documents (including copies of any documents to be incorporated by
reference therein and all exhibits thereto) proposed to be filed (in
each case at least three business days prior to such filing). The
Company shall not file any Registration Statement or Prospectus or any
amendments or supplements thereto in respect of which the Holders must
be afforded an opportunity to review prior to the filing of such
document under the immediately preceding sentence, if the Holders of a
majority in aggregate principal amount of the Transfer Restricted
Preferred Stock covered by such Registration Statement, or any such
Participating Broker-Dealer, as the case may be, their counsel, or the
managing underwriters, if any, shall reasonably object direct in
writing, which writing shall set forth a basis for such objection.
(b) Prepare and file with the SEC such amendments and
post-effective amendments to each Shelf Registration or Exchange
Registration Statement, as the case may be, as may be necessary to keep
such Registration Statement continuously effective for the
Effectiveness Period or the Applicable Period or until consummation of
the Exchange Offer, as the case may be; cause the related Prospectus to
be supplemented by any Prospectus supplement required by applicable
law, and as so supplemented to be filed pursuant to Rule 424 (or any
similar provisions then in force) promulgated under the Securities Act;
and comply with the provisions of the Securities Act and the Exchange
Act applicable to it with respect to the disposition of all securities
covered by such Registration Statement as so amended or in such
Prospectus as so supplemented and with respect to the subsequent resale
of any securities being sold by a Participating Broker-Dealer covered
by any such Prospectus; the Company shall be deemed not to have used
its best efforts to keep a Registration Statement effective during the
Applicable Period if it voluntarily takes any action that would result
in selling Holders of the Transfer Restricted Preferred Stock covered
thereby or Participating Broker-Dealers seeking to sell Exchange
Preferred Stock not being able to sell such Transfer Restricted
Preferred Stock or such Exchange Preferred Stock during that period
unless such action is required by applicable law or unless the Company
complies with this Agreement, including, without limitation, the
provisions of paragraph 5(k) hereof and the last paragraph of this
Section 5.
(c) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in an Exchange Registration
Statement filed pursuant to Section 2 hereof is required to be
delivered under the Securities Act by any
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Participating Broker-Dealer who seeks to sell Exchange Preferred
Stock during the Applicable Period, notify the selling Holders of
Transfer Restricted Preferred Stock, or each such Participating
Broker-Dealer, as the case may be, their counsel and the managing
underwriters, if any, promptly (but in any event within two business
days), and confirm such notice in writing, (i) when a Prospectus or any
Prospectus supplement or post-effective amendment has been filed, and,
with respect to a Registration Statement or any post-effective
amendment, when the same has become effective under the Securities Act
(including in such notice a written statement that any Holder may, upon
request, obtain, at the sole expense of the Company, one conformed copy
of such Registration Statement or post-effective amendment including
financial statements and schedules, documents incorporated or deemed to
be incorporated by reference and exhibits), (ii) of the issuance by the
SEC of any stop order suspending the effectiveness of a Registration
Statement or of any order preventing or suspending the use of any
preliminary prospectus or the initiation of any proceedings for that
purpose, (iii) if at any time when a Prospectus is required by the
Securities Act to be delivered in connection with sales of the Transfer
Restricted Preferred Stock or resales of Exchange Preferred Stock by
Participating Broker-Dealers the representations and warranties of the
Company contained in any agreement (including any underwriting
agreement), contemplated by Section 5(n) hereof cease to be true and
correct, (iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification or exemption from
qualification of a Registration Statement or any of the Transfer
Restricted Preferred Stock or the Exchange Preferred Stock to be sold
by any Participating Broker-Dealer for offer or sale in any
jurisdiction, or the initiation or threatening of any proceeding for
such purpose, (v) of the happening of any event, the existence of any
condition or any information becoming known that makes any statement
made in such Registration Statement or related Prospectus or any
document incorporated or deemed to be incorporated therein by reference
untrue in any material respect or that requires the making of any
changes in or amendments or supplements to such Registration Statement,
Prospectus or documents so that, in the case of the Registration
Statement, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and that in
the case of the Prospectus, it will not contain any untrue statement of
a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, and (vi)
of the determination by the Company that a post-effective amendment to
a Registration Statement would be appropriate.
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<PAGE>
(d) Use its best efforts to prevent the issuance of any order
suspending the effectiveness of a Registration Statement or of any
order preventing or suspending the use of a Prospectus or suspending
the qualification (or exemption from qualification) of any of the
Transfer Restricted Preferred Stock or the Exchange Preferred Stock for
sale in any jurisdiction, and, if any such order is issued, to use its
best efforts to obtain the withdrawal of any such order at the earliest
possible moment.
(e) If a Shelf Registration is filed pursuant to Section 3
hereof and if requested by the managing underwriter or underwriters (if
any), or the Holders of a majority in aggregate principal amount of the
Transfer Restricted Preferred Stock being sold in connection with an
underwritten offering, (i) promptly incorporate in a prospectus
supplement or post-effective amendment such information as the managing
underwriter or underwriters (if any), such Holders, or counsel for any
of them reasonably request to be included therein, (ii) make all
required filings of such prospectus supplement or such post-effective
amendment as soon as practicable after the Company has received
notification of the matters to be incorporated in such prospectus
supplement or post-effective amendment, and (iii) supplement or make
amendments to such Registration Statement.
(f) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in an Exchange Registration
Statement filed pursuant to Section 2 hereof is required to be
delivered under the Securities Act by any Participating Broker-Dealer
who seeks to sell Exchange Preferred Stock during the Applicable
Period, furnish to each selling Holder of Transfer Restricted Preferred
Stock and to each such Participating Broker-Dealer who so requests and
to counsel and each managing underwriter, if any, at the sole expense
of the Company, one conformed copy of the Registration Statement or
Registration Statements and each post-effective amendment thereto,
including financial statements and schedules, and, if requested, all
documents incorporated or deemed to be incorporated therein by
reference and all exhibits.
(g) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in an Exchange Registration
Statement filed pursuant to Section 2 hereof is required to be
delivered under the Securities Act by any Participating Broker-Dealer
who seeks to sell Exchange Preferred Stock during the Applicable
Period, deliver to each selling Holder of Transfer Restricted Preferred
Stock, or each such Participating Broker-Dealer, as the case may be,
their respective counsel, and the underwriters, if any, at the sole
expense of the Company, as many copies of the Prospectus or
Prospectuses (including each
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form of preliminary prospectus) and each amendment or supplement
thereto and any documents incorporated by reference therein as such
Persons may reasonably request; and, subject to the last paragraph of
this Section 5, Company hereby consents to the use of such Prospectus
and each amendment or supplement thereto by each of the selling Holders
of Transfer Restricted Preferred Stock or each such Participating
Broker-Dealer, as the case-may be, and the underwriters or agents, if
any, and dealers (if any), in connection with the offering and sale of
the Transfer Restricted Preferred Stock covered by, or the sale by
Participating Broker-Dealers of the Exchange Preferred Stock pursuant
to, such Prospectus and any amendment or supplement thereto.
(h) Prior to any public offering of Transfer Restricted
Preferred Stock or any delivery of a Prospectus contained in the
Exchange Registration Statement by any Participating Broker-Dealer who
seeks to sell Exchange Preferred Stock during the Applicable Period, to
use its best efforts to register or qualify such Transfer Restricted
Preferred Stock (and to cooperate with selling Holders of Transfer
Restricted Preferred Stock or each such Participating Broker-Dealer, as
the case may be, the managing underwriter or underwriters, if any, and
their respective counsel in connection with the registration or
qualification (or exemption from such registration or qualification) of
such Transfer Restricted Preferred Stock) for offer and sale under the
securities or Blue Sky laws of such jurisdictions within the United
States as any selling Holder, Participating Broker-Dealer, or the
managing underwriter or underwriters reasonably request in writing;
provided, however, that where Exchange Preferred Stock held by
Participating Broker-Dealers or Transfer Restricted Preferred Stock are
offered other than through an underwritten offering, the Company agrees
to cause their counsel to perform Blue Sky investigations and file
registrations and qualifications required to be filed pursuant to this
Section 5(h); keep each such registration or qualification (or
exemption therefrom) effective during the period such Registration
Statement is required to be kept effective and do any and all other
acts or things reasonably necessary or advisable to enable the
disposition in such jurisdictions of the Exchange Preferred Stock held
by Participating Broker-Dealers or the Transfer Restricted Preferred
Stock covered by the applicable Registration Statement; provided,
however, that the Company shall not be required to (A) qualify
generally to do business in any jurisdiction where it is not then so
qualified, (B) take any action that would subject it to general service
of process in any such jurisdiction where it is not then so subject or
(C) subject itself to taxation in excess of a nominal dollar amount in
any such jurisdiction where it is not then so subject.
(i) If a Shelf Registration is filed pursuant to Section 3
hereof,
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cooperate with the selling Holders of Transfer Restricted Preferred
Stock and the managing underwriter or underwriters, if any, to
facilitate the timely preparation and delivery of certificates
representing Transfer Restricted Preferred Stock to be sold, which
certificates shall not bear any restrictive legends and shall be in a
form eligible for deposit with The Depository Trust Company; and enable
such Transfer Restricted Preferred Stock to be in such denominations
and registered in such names as the managing underwriter or
underwriters, if any, or Holders may reasonably request.
(j) Use its best efforts to cause the Transfer Restricted
Preferred Stock covered by the Registration Statement to be registered
with or approved by such other governmental agencies or authorities as
may be necessary to enable the Holders thereof or the underwriter or
underwriters, if any, to dispose of such Transfer Restricted Preferred
Stock, except as may be required solely as a consequence of the nature
of a selling Holder's business, in which case each of the Company will
cooperate in all reasonable respects with the filing of such
Registration Statement and the granting of such approvals.
(k) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in an Exchange Registration
Statement filed pursuant to Section 2 hereof is required to be
delivered under the Securities Act by any Participating Broker-Dealer
who seeks to sell Exchange Preferred Stock during the Applicable
Period, upon the occurrence of any event contemplated by paragraph
5(c)(v) or 5(c)(vi) hereof, as promptly an practicable prepare and
(subject to Section 5(a) hereof) file with the SEC, at the sole expense
of the Company, a supplement or post-effective amendment to the
Registration Statement or a supplement to the related Prospectus or any
document incorporated or deemed to be incorporated therein by
reference, or file any other required document so that, as thereafter
delivered to the purchasers of the Transfer Restricted Preferred Stock
being sold thereunder or to the purchasers of the Exchange Preferred
Stock to whom such Prospectus will be delivered by a Participating
Broker-Dealer, any such Prospectus will not contain an untrue statement
of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(l) Prior to the effective date of the first Registration
Statement relating to the Transfer Restricted Preferred Stock, provide
a CUSIP number for the Transfer Restricted Preferred Stock or Exchange
Preferred Stock, as the case may be.
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(m) In connection with any underwritten offering initiated by
the Company of Transfer Restricted Preferred Stock pursuant to a Shelf
Registration, enter into an underwriting agreement as is customary in
underwritten offerings of securities similar to the Preferred Stock and
take all such other actions as are reasonably requested by the managing
underwriter or underwriters in order to facilitate the registration or
the disposition of such Transfer Restricted Preferred Stock and, in
such connection, (i) make such representations and warranties to, and
covenants with, the underwriters with respect to the business of the
Company and its respective subsidiaries and the Registration Statement,
Prospectus and documents, if any, incorporated or deemed to be
incorporated by reference therein, in each case, as are customarily
made by Company to underwriters in underwritten offerings of securities
similar to the Preferred Stock, and confirm the same in writing if and
when requested; (ii) obtain the written opinion of counsel to the
Company and written updates thereof in form, scope and substance
reasonably satisfactory to the managing underwriter or underwriters,
addressed to the underwriters covering the matters customarily covered
in opinions requested in underwritten offerings of debt similar to the
Preferred Stock and such other matters as may be reasonably requested
by the managing underwriter or underwriters; (iii) obtain "cold
comfort" letters and updates thereof in form, scope and substance
reasonably satisfactory to the managing underwriter or underwriters
from the independent certified public accountants of the Company (and,
if necessary, any other independent certified public accountants of any
subsidiary of any of the Company or of any business acquired by any of
the Company for which financial statements and financial data are, or
are required to be, included or incorporated by reference in the
Registration Statement), addressed to each of the underwriters, such
letters to be in customary form and covering matters of the type
customarily covered in "cold comfort" letters in connection with
underwritten offerings of debt similar to the Preferred Stock and such
other matters as reasonably requested by the managing underwriter or
underwriters; and (iv) if an underwriting agreement is entered into,
the same shall contain indemnification provisions and procedures no
less favorable than those set forth in Section 7 hereof (or such other
provisions and procedures acceptable to Holders of a majority in
aggregate principal amount of Transfer Restricted Preferred Stock
covered by such Registration Statement and the managing underwriter or
underwriters or agents) with respect to all parties to be indemnified
pursuant to said Section. The above shall be done at each closing under
such underwriting agreement, or as and to the extent required
thereunder.
(n) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in an Exchange Registration
Statement filed pursuant to Section 2 hereof is required to be
delivered under the Securities Act by any
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Participating Broker-Dealer who seeks to sell Exchange Preferred Stock
during the Applicable Period, make available for inspection by any
selling Holder of such Transfer Restricted Preferred Stock being sold,
or each such Participating Broker-Dealer, as the case may be, any
underwriter participating in any such disposition of Transfer
Restricted Preferred Stock, if any, and any attorney, accountant or
other agent retained by any such selling Holder or each such
Participating Broker-Dealer, as the case may be, or underwriter
(collectively, the "Inspectors"), at the offices where normally kept,
during reasonable business hours, all financial and other records,
pertinent corporate documents and instruments of the Company and its
subsidiaries (collectively, the "Records") as shall be reasonably
necessary to enable them to exercise any applicable due diligence
responsibilities, and cause the officers, directors and employees of
the Company and its respective subsidiaries to make available for
inspection all information reasonably requested by any such Inspector
in connection with such Registration Statement. Records which the
Company determine, in good faith, to be confidential and any Records
which it notifies the Inspectors are confidential shall not be
disclosed by the Inspectors unless (i) the disclosure of such Records
is necessary to avoid or correct a misstatement or omission in such
Registration Statement, (ii) the release of such Records is ordered
pursuant to a subpoena or other order from a court of competent
jurisdiction, (iii) disclosure of such information is, in the opinion
of counsel (a copy of which shall be delivered to the Company) for any
Inspector, necessary or advisable in connection with any action, claim,
suit or proceeding, directly or indirectly, involving or potentially
involving such Inspector and arising out of, based upon, relating to,
or involving this Agreement, or any transactions contemplated hereby or
arising hereunder, or (iv) the information in such Records has been
made generally available to the public. Each selling Holder of such
Registrable Securities and each such Participating Broker-Dealer will
be required to agree that information obtained by it as a result of
such inspections shall be deemed confidential and shall not be used by
it as the basis for any market transactions in the securities of the
Company unless and until such information is generally available to the
public. Each selling Holder of such Transfer Restricted Preferred Stock
and each such Participating Broker-Dealer will be required to further
agree that it will, upon learning that disclosure of such Records is
sought in a court of competent jurisdiction, give notice to the Company
and allow the Company to undertake appropriate action to prevent
disclosure of the Records deemed confidential at the Company's sole
expense.
(o) Comply with all applicable rules and regulations of the
SEC and make generally available to its securityholders earnings
statements satisfying the provisions of Section 11(a) of the Securities
Act and Rule 158 thereunder (or any
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similar rule promulgated under the Securities Act) no later than 45
days after the end of any 12-month period (or 90 days after the end of
any 12-month period if such period is a fiscal year) (i) commencing at
the end of any fiscal quarter in which Transfer Restricted Preferred
Stock are sold to underwriters in a firm commitment or best efforts
underwritten offering and (ii) if not sold to underwriters in such an
offering, commencing on the first day of the first fiscal quarter of
the Company after the effective date of a Registration Statement, which
statements shall cover said 12-month periods.
(p) If an Exchange Offer or a Private Exchange is to be
consummated, upon delivery of the Transfer Restricted Preferred Stock
by Holders to the Company (or to such other Person as directed by the
Company) in exchange for the Exchange Preferred Stock or the Private
Exchange Preferred Stock, as the case may be, the Company shall mark,
or cause to be marked, on such Transfer Restricted Preferred Stock that
such Transfer Restricted Preferred Stock is being cancelled in exchange
for the Exchange Preferred Stock or the Private Exchange Preferred
Stock, as the case may be; in no event shall such Transfer Restricted
Preferred Stock be marked as paid or otherwise satisfied.
(q) Cooperate with each seller of Transfer Restricted
Preferred Stock covered by any Registration Statement and each
underwriter, if any, participating in the disposition of such Transfer
Restricted Preferred Stock and their respective counsel in connection
with any filings required to be made with the National Association of
Securities Dealers, Inc. (the "NASD").
(r) Use its best efforts to take all other steps necessary or
advisable to effect the registration of the Transfer Restricted
Preferred Stock covered by a Registration Statement contemplated
hereby.
The Company may require each seller of Transfer Restricted
Preferred Stock as to which any Registration Statement is being effected to
furnish to the Company such information regarding such seller and the
distribution of such Transfer Restricted Preferred Stock as the Company may,
from time to time, reasonably request. The Company may exclude from such
Registration Statement the Transfer Restricted Preferred Stock of any seller who
unreasonably fails to furnish such information within a reasonable time after
receiving such request. Each seller as to which any Shelf Registration 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 seller not materially misleading.
Each Holder of Transfer Restricted Preferred Stock and each
Participat-
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<PAGE>
ing Broker-Dealer agrees by acquisition of such Transfer Restricted
Preferred Stock or Exchange Preferred Stock to be sold by such Participating
Broker-Dealer, as the case may be, that, upon actual receipt of any notice from
the Company of the happening of any event of the kind described in Section
5(c)(ii), 5(c)(iv), 5(c)(v), or 5(c)(vi) hereof, such Holder will forthwith
discontinue disposition of such Transfer Restricted Preferred Stock covered by
such Registration Statement or Prospectus or Exchange Preferred Stock to be sold
by such Holder or Participating Broker-Dealer, as the case may be, until such
Holder's or Participating Broker-Dealer's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 5(k) hereof, or until
it is advised in writing (the "Advice") by the Company that the use of the
applicable Prospectus may be resumed, and has received copies of any amendments
or supplements thereto. In the event the Company shall give any such notice,
each of the Effectiveness Period and the Applicable Period shall be extended by
the number of days during such periods from and including the date of the giving
of such notice to and including the date when each seller of Transfer Restricted
Preferred Stock covered by such Registration Statement or Exchange Preferred
Stock to be sold by such Participating Broker-Dealer, as the case may be, shall
have received (x) the copies of the supplemented or amended Prospectus
contemplated by Section 5(k) hereof or (y) the Advice.
6. Registration Expenses
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Company shall be borne by the Company
whether or not the Exchange Offer or a Shelf Registration is filed or becomes
effective, including, without limitation, (i) all registration and filing fees
(including, without limitation, (A) fees with respect to filings required to be
made with the NASD in connection with an underwritten offering and (B) fees and
expenses of compliance with state securities or Blue Sky laws (including,
without limitation, reasonable fees and disbursements of the Issuer's counsel in
connection with Blue Sky qualifications of the Transfer Restricted Preferred
Stock or Exchange Preferred Stock and determination of the eligibility of the
Transfer Restricted Preferred Stock or Exchange Preferred Stock for investment
under the laws of such jurisdictions (x) where the holders of Transfer
Restricted Preferred Stock are located, in the case of the Exchange Preferred
Stock, or (y) as provided in Section 5(h) hereof, in the case of Transfer
Restricted Preferred Stock or Exchange Preferred Stock to be sold by a
Participating Broker-Dealer during the Applicable Period)), (ii) printing
expenses, including, without limitation, expenses of printing certificates for
Transfer Restricted Preferred Stock or Exchange Preferred Stock in a form
eligible for deposit with The Depository Trust Company and of printing
Prospectuses if the printing of Prospectuses is requested by the managing
underwriter or underwriters, if any, by the Holders of a majority in aggregate
principal amount of the Transfer Restricted Preferred Stock included in any
Registration Statement or sold by any
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<PAGE>
Participating Broker-Dealer, as the case may be, (iii) messenger, telephone and
delivery expenses, (iv) fees and disbursements of counsel for the Company, (v)
fees and disbursements of all independent certified public accountants referred
to in Section 5(n)(iii) hereof (including, without limitation, the expenses of
any special audit and "cold comfort" letters required by or incident to such
performance by or incident to such performance), (vi) rating agency fees, if
any, and any fees associated with making the Transfer Restricted Preferred Stock
or Exchange Preferred Stock eligible for trading through The Depository Trust
Company, (vii) Securities Act liability insurance, if the Company desires such
insurance, (viii) fees and expenses of all other Persons retained by the
Company, (ix) internal expenses of the Company (including, without limitation,
all salaries and expenses of officers and employees of the Company performing
legal or accounting duties), (x) the expense of any annual audit, (ix) the fees
and expenses incurred in connection with the listing of the securities to be
registered on any securities exchange or any inter-dealer quotation system, if
applicable, and (xii) the expenses relating to printing, word processing and
distributing all Registration Statements, underwriting agreements, securities
sales agreements, indentures and any other documents necessary in order to
comply with this Agreement.
(b) The Company shall reimburse the Holders of the Transfer
Restricted Preferred Stock being registered in a Shelf Registration for the
reasonable fees and disbursements of not more than one counsel chosen in writing
by the Holders of a majority in aggregate principal amount of the Transfer
Restricted Preferred Stock to be included in such Registration Statement. In
addition, the Company, shall reimburse the Initial Purchaser for 50% (but not
more than $30,000) of the reasonable fees and expenses of one counsel in
connection with the Exchange Offer which shall be White & Case, and shall not be
required to pay any other legal expenses of the Initial Purchaser in connection
therewith.
7. Indemnification. (a) The Company agrees to indemnify and
hold harmless each Holder of Transfer Restricted Preferred Stock offered
pursuant to a Shelf Registration Statement and each Participating Broker-Dealer
selling Exchange Preferred Stock during the Applicable Period, the affiliates,
directors, officers, agents, representatives and employees of each such Person
or its affiliates, and each other Person, if any, who controls any such Person
or its affiliates within the meaning of either Section 15 of the Securities Act
or Section 20 of the Exchange Act (each, a "Participant") from and against any
and all losses, claims, damages and liabilities (including, without limitation,
the reasonable legal fees and other expenses actually incurred in connection
with any suit, action or proceeding or any claim asserted) caused by, arising
out of or based upon any untrue statement or alleged untrue statement of a
material fact contained in any Registration Statement pursuant to which the
offering of such Transfer Restricted Preferred Stock or Exchange Preferred
Stock, as the case may be, is registered (or any
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amendment thereto) or related Prospectus (or any amendments or supplements
thereto) or any related preliminary prospectus, or caused by, arising out of or
based upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading; provided,
however, that the Company will not be required to indemnify a Participant if (i)
such losses, claims, damages or liabilities are caused by any untrue statement
or omission or alleged untrue statement or omission made in reliance upon and in
conformity with information furnished to the Company in writing by or on behalf
of such Participant expressly for use therein or (ii) if such Participant sold
to the person asserting the claim the Transfer Restricted Preferred Stock or
Exchange Preferred Stock which are the subject of such claim and 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 any
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 such
Participant 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 Transfer Restricted Preferred Stock or Exchange Preferred Stock sold to
such Person if required by applicable laws, 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 5 of this Agreement.
(b) Each Participant agrees, severally and not jointly, to
indemnify and hold harmless the Company, its respective directors and officers
and each Person who controls the Company within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act to the same extent as the
foregoing indemnity from the Company to each Participant, but only (i) with
reference to information furnished to the Company in writing by or on behalf of
such Participant expressly for use in any Registration Statement or Prospectus,
any amendment or supplement thereto, or any preliminary prospectus or (ii) with
respect to any untrue statement or representation made by such Participant in
writing to the Company.
(c) If any suit, action, proceeding (including any
governmental or regulatory investigation), claim or demand shall be brought or
asserted against any Person in respect of which indemnity may be sought pursuant
to either of the two preceding paragraphs, such Person (the "Indemnified
Person") shall promptly notify the Person against whom such indemnity may be
sought (the "Indemnifying Person") in writing, and the Indemnifying Person shall
have the right to retain counsel reasonably satisfactory to the Indemnified
Person to represent the Indemnified Person and any others the Indemnifying
Person may reasonably designate in such proceeding and shall pay the
reasonable fees and expenses actually incurred by such counsel related to such
proceeding;
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<PAGE>
provided, however, that the failure to so notify the Indemnifying Person shall
not relieve it of any obligation or liability which it may have hereunder or
otherwise (unless and only to the extent that such failure results in the loss
or compromise of any material rights or defenses by the Indemnifying Person). In
any such proceeding, any Indemnified Person shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such Indemnified Person unless (i) the Indemnifying Person and the
Indemnified Person shall have mutually agreed in writing to the contrary, (ii)
the Indemnifying Person shall have failed within a reasonable period of time to
retain counsel reasonably satisfactory to the Indemnified Person or (iii) the
named parties in any such proceeding (including any impleaded parties) include
both the Indemnifying Person and the Indemnified Person and representation of
both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. It is understood that, unless there
exists a conflict among Indemnified Persons, the Indemnifying Person shall not,
in connection with any one such proceeding or separate but substantially similar
related proceeding in the same jurisdiction arising out of the same general
allegations, be liable for the reasonable fees and expenses of more than one
separate firm (in addition to any local counsel) for all Indemnified Persons,
and that all such fees and expenses shall be reimbursed promptly as they are
incurred. Any such separate firm for the Participants and such control Persons
of Participants shall be designated in writing by Participants who sold a
majority in interest of Transfer Restricted Preferred Stock and Exchange
Preferred Stock sold by all such Participants and any such separate firm for the
Company, its directors, their officers and such control Persons of the Company
shall be designated in writing by the Company. The Indemnifying Person shall not
be liable for any settlement of any proceeding effected without its prior
written consent, but if settled with such consent or if there be a final
non-appealable judgment for the plaintiff for which the Indemnified Person is
entitled to indemnification pursuant to this Agreement, the Indemnifying Person
agrees to indemnify and hold harmless each Indemnified Person from and against
any loss or liability by reason of such settlement or judgment. No Indemnifying
Person shall, without the prior written consent of the Indemnified Person,
effect any settlement or compromise of any pending or threatened proceeding in
respect of which any Indemnified Person is our could have been a party, and
indemnity could have been sought hereunder by such Indemnified Person, unless
such settlement (A) includes an unconditional written release of such
Indemnified Person, in form and substance reasonably satisfactory to such
Indemnified Person, from all liability on claims that are the subject matter of
such proceeding and (B) does not include any statement as to an admission of
fault, culpability or failure to act by or on behalf of any Indemnified Person.
(d) If the indemnification provided for in Section 7(a) and
7(b) hereof is for any reason unavailable to, or insufficient to hold harmless,
an Indemnified Person in respect of any losses, claims, damages or liabilities
referred to therein, than each
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<PAGE>
Indemnifying Person under such paragraphs, in lieu of indemnifying such
Indemnified Person thereunder and in order to provide for just and equitable
contribution, shall contribute to the amount paid or payable by such Indemnified
Person as a result of such losses, claims, damages or liabilities in such
proportion as is appropriate to reflect (i) the relative benefits received by
the Indemnifying Person or Persons on the one hand and the Indemnified Person or
Persons on the other from the offering of the Preferred Stock or (ii) if the
allocation provided by the foregoing clause (i) is not permitted by applicable
law, not only such relative benefits but also the relative fault of the
Indemnifying Person or Persons on the one hand and the Indemnified Person or
Persons on the other in connection with the statements or omissions or alleged
statements or omissions that resulted in such losses, claims, damages or
liabilities (or actions in respect thereof). The relative fault of the parties
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company on the
one hand or such Participant or such other Indemnified Person, as the case may
be, on the other, the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission, and any other
equitable considerations appropriate in the circumstances.
(e) The parties agree that it would not be just and equitable
if contribution pursuant to this Section 7 were determined by pro rata
allocation (even if the Participants were treated as one entity for such
purposes) or by any other method of allocation that does not take account of the
equitable considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an Indemnified Person as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any reasonable legal or other expenses actually incurred by such
Indemnified Person in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 7, in no event shall a
Participant be required to contribute any amount in excess of the amount by
which proceeds received by such Participant from sales of Transfer Restricted
Preferred Stock or Exchange Preferred Stock, as the case may be, exceeds the
amount of any damages that such Participant has otherwise been required to pay
or has paid by reason of such untrue or alleged untrue statement or omission or
alleged omission. No Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
(f) The indemnity and contribution agreements contained in
this Section 7 will be in addition to any liability which the Indemnifying
Persons may otherwise have to the Indemnified Persons referred to above.
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<PAGE>
8. Rules 144 and 144A. The Company covenants that it will file
the reports required to be filed by it under the Securities Act and the Exchange
Act and the rules and regulations adopted by the SEC thereunder in a timely
manner in accordance with the requirements of the Securities Act and the
Exchange Act and, if at any time the Company is not required to file such
reports, it will, upon the request of any Holder of Transfer Restricted
Preferred Stock, make publicly available annual reports and such information,
documents and other reports of the type specified in Sections 13 and 15(d) of
the Exchange Act. The Company further covenants for so long as any Transfer
Restricted Preferred Stock remain outstanding, to make available to any Holder
or beneficial owner of Transfer Restricted Preferred Stock in connection with
any sale thereof and any prospective purchaser of such Transfer Restricted
Preferred Stock from such Holder or beneficial owner the information required by
Rule 144(d)(4) under the Securities Act in order to permit resales of such
Transfer Restricted Preferred Stock pursuant to Rule 144A.
9. Underwritten Registrations. If any of the Transfer
Restricted Preferred Stock covered by any Shelf Registration are to be sold in
an underwritten offering, the investment banker or investment bankers and
manager or managers that will manage the offering will be selected by the
Holders of a majority in aggregate principal amount of such Transfer Restricted
Preferred Stock included in such offering and reasonably acceptable to the
Company.
No Holder of Transfer Restricted Preferred Stock may
participate in any underwritten registration hereunder unless such Holder (a)
agrees to sell such Holder's Transfer Restricted Preferred Stock on the basis
provided in any underwriting arrangements approved by the Persons entitled
hereunder to approve such arrangements and (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such underwriting arrangements.
10. Miscellaneous. (a) No Inconsistent Agreements. The Company
has not entered, as of the date hereof, and the Company shall not, after the
date of this Agreement, enter into any agreement with respect to any of its
securities that is inconsistent with the rights granted to the Holders of
Transfer Restricted Preferred Stock in this Agreement or otherwise conflicts
with the provisions hereof. Other than as provided in Schedule A attached
hereto, the Company has entered and none of the Company will enter into any
agreement with respect to any of its securities which will grant to any Person
piggy-back registration rights with respect to a Registration Statement.
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<PAGE>
(b) Adjustments Affecting Transfer Restricted Preferred Stock.
Other than as provided in Schedule B attached hereto, the Company shall not,
directly or indirectly, take any action with respect to the Transfer Restricted
Preferred Stock as a class that would adversely affect the ability of the
Holders of Transfer Restricted Preferred Stock to include such Transfer
Restricted Preferred Stock in a registration undertaken pursuant to this
Agreement.
(c) Amendments and Waivers. The provisions of this Agreement
may not be amended, modified or supplemented, and waivers or consents to
departures from the provisions hereof may not be given, otherwise than with the
prior written consent of the Holders of not less than a majority in aggregate
principal amount of the then outstanding Transfer Restricted Preferred Stock.
Notwithstanding the foregoing, a waiver or consent to depart from the provisions
hereof with respect to a matter that relates exclusively to the rights of
Holders of Transfer Restricted Preferred Stock whose securities are being sold
pursuant to a Registration Statement and that does not directly or indirectly
affect, impair, limit or compromise the rights of other Holders of Transfer
Restricted Preferred Stock may be given by Holders of at least a majority in
aggregate principal amount of the Transfer Restricted Preferred Stock being sold
by such Holders pursuant to such Registration Statement; provided, however, that
the provisions of this sentence may not be amended, modified or supplemented
except in accordance with the provisions of the immediately preceding sentence.
(d) Notices. All notices and other communications provided for
or permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, next-day air courier or facsimile:
1. if to a Holder of the Transfer Restricted
Preferred Stock or any Participating Broker-Dealer, at the
most current address of such Holder or Participating
Broker-Dealer, as the case may be, set forth on the records of
the registrar under the Indenture, with a copy in like manner
to the Initial Purchaser as follows:
NatWest Capital Markets Limited
660 Madison Avenue
19th Floor
New York, New York 10021
Facsimile No: (212) 752-2711
Attention: Corporate Finance Department
with a copy to:
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<PAGE>
White & Case
1155 Avenue of the Americas
New York, NY 10036
Facsimile No: (212) 354-8113
Attention: Timothy B. Goodell, Esq.
2. if to the Initial Purchaser, at the addresses
specified in Section 10(d)(1);
3. if to the Company, as follows:
North Atlantic Trading Acquisition
Company, Inc.
c/o National Tobacco Company, L.P.
257 Park Avenue South, 7th Floor
New York, NY 10010-7304
Facsimile No: (212) 253-8296
Attention: Chief Financial Officer
with a copy to:
Weil, Gotshal, Manges LLP
767 Fifth Avenue
New York, NY 10153
Facsimile No.: (212) 310-8007
Attention: David Zeltner, Esq.
All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; one business
day after being timely delivered to a next-day air courier; and when receipt is
acknowledged by the addressee, if sent by facsimile.
(e) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the parties
hereto; 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 holds Registerable Preferred Stock.
(f) Counterparts. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when
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so executed shall be deemed to be an original and all of which taken together
shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for
convenienceof reference only and shall not limit or otherwise affect the meaning
thereof.
(h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO
CONTRACTS MADE AND PERFORMED WHOLLY WITHIN THE STATE OF NEW YORK, WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT
TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.
(i) Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their best efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
(j) Preferred Stock Held by the Company or their Affiliates.
Whenever the consent or approval of Holders of a specified percentage of
Registerable Preferred Stock is required hereunder, Registerable Preferred Stock
held by the Company or its affiliates (as such term is defined in Rule 405 under
the Securities Act) shall not be counted in determining whether such consent or
approval was given by the Holders of such required percentage.
(k) Third Party Beneficiaries. Holders of Registerable
Preferred Stock and Participating Broker-Dealers are intended third party
beneficiaries of this Agreement and this Agreement may be enforced by such
Persons.
IN WITNESS WHEREOF, the parties have executed the Agreement as
of the date first written above.
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<PAGE>
Company:
NORTH ATLANTIC TRADING
ACQUISITION COMPANY, INC.
By: /s/Thomas F. Helms, Jr.
----------------------------
Name: Thomas F. Helms, Jr.
Title: President
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written:
NATWEST CAPITAL MARKETS LIMITED
By: /s/Greg Bowes
---------------------------
Name: Greg Bowes
Title: Managing Director
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<PAGE>
COMMON STOCK REGISTRATION RIGHTS AND STOCKHOLDERS AGREEMENT
Dated as of June 25, 1997
among
NORTH ATLANTIC TRADING COMPANY, INC.
and
NATWEST CAPITAL MARKETS LIMITED
(as Initial Purchaser)
THIS COMMON STOCK REGISTRATION RIGHTS AND STOCKHOLDERS
AGREEMENT (the "Agreement") is made and entered into as of June 25, 1997 among
North Atlantic Trading Company, Inc., a Delaware corporation (the "Company") and
NatWest Capital Markets Limited, as Initial Purchaser (the "Initial Purchaser").
This Agreement is made pursuant to the Purchase Agreement, dated as of June 18,
1997, between the Company and the Initial Purchaser (the "Purchase Agreement"),
relating, among other things, to the sale by the Company to the Initial
Purchaser of an aggregate of 1,360 Units, each Unit consisting of one share of
the Company's 12% Senior Preferred Stock (the "Senior Preferred Stock") and one
Warrant (collectively, "Warrants") to purchase 32.6765 shares of Common Stock,
par value $0.01 per share ("Common Stock"), of the Company. In order to induce
the Initial Purchaser to enter into the Purchase Agreement, the Company has
agreed to provide to the Initial Purchaser and the Holders (as defined herein)
among other things, the registration rights for the Common Stock set forth in
this Agreement and the Stockholders (as defined) have agreed to provide the
Holders, among other things, the tag-along rights for the Common Stock set forth
herein. In consideration of the foregoing, the parties hereto agree as follows:
1. Definitions. As used in this Agreement, the
following capitalized defined terms shall have the following meanings:
<PAGE>
"Affiliate" means, when used with reference to any Person, any
other Person directly or indirectly controlling, controlled by, or under direct
or indirect common control with, the referent Person or such other Person, as
the case may be.
For the purposes of this definition, "control" (including, with correlative
meanings, the term "controlling," "controlled by," and "under common control
with"), when used with respect to any specified Person means the power to direct
or cause the direction of management or policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; provided, however, that beneficial ownership of at least 10% of the
voting securities of a Person shall be deemed to be control.
"Business Day" shall mean a day that is not a Legal Holiday.
"Capital Stock" shall mean with respect to any Person any and
all shares or other equivalents (however designated) of capital stock,
partnership interests or any other participation, right or other interest in
nature of an equity interest in such Person or any option, warrant or other
security convertible into any of the foregoing. "Certificate of Designation"
means the certificate of designation governing the Senior Preferred Stock as in
effect on the date hereof.
"Closing Date" shall mean the Closing Date as defined in the
Purchase Agreement.
"Common Stock" shall mean the Common Stock, par value $.01 per
share, of the Company.
"Company" shall have the meaning set forth in the preamble and
shall also include the Company's successors.
"Depository" shall mean, with respect to Warrant Shares
represented by one or more Global Certificates, The Depository Trust Company or
another person designated as Depository by the Company, which must be a clearing
agency registered under the Exchange Act.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended from time to time.
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<PAGE>
"Exempt Transfer" shall mean, with respect to any Existing
Stockholder, a transfer by such Stockholder to any Permitted Transferee.
"Existing Stockholder" shall mean (i) each holder of Common
Stock on the date hereof and any employee of the Company who acquires Common
Stock after the date hereof and (ii) with respect to any such holder, any
Permitted Transferee thereof.
"Fair Market Value" shall mean the value of any securities as
determined (without any discount for lack of liquidity, the amount of Warrants
and Common Stock proposed to be sold or the fact that the shares of Warrants and
Common Stock held by any Holder of such security may represent a minority
interest in a private company) by a nationally recognized investment banking
firm selected by the Company for the determination of such value.
"Global Certificate" shall mean a certificate representing all
or part of the Warrant Shares issued to the Depository and bearing the legend
set forth in Exhibit A hereto.
"Holder" shall mean a holder of Warrants and/or Warrant Shares
as the context may require.
"Legal Holiday" shall mean a Saturday, a Sunday or a day on
which banking institutions in New York, New York are required by law, regulation
or executive order to remain closed. If a payment date is a Legal Holiday,
payment may be made on the next succeeding day that is not a Legal Holiday.
"Permitted Transferee" shall mean, with respect to any
Existing Stockholder, (i) the Company or any other Existing Stockholder, (ii)
any Affiliate of such existing Stockholder (other than the Company or any of its
subsidiaries), (iii) any family member of such Existing Stockholder (not more
remote than first cousin and including any spouse or lineal descendant thereof),
(iv) any trust for the benefit of such Existing Stockholder and/or any family
members of such Existing Stockholder and (v) any heirs, executors,
administrators, testamentary trustees, legatees or beneficiaries of any Existing
Stockholder or Person described in clause (iii) above.
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<PAGE>
"Person" shall mean an individual, partnership, corporation,
trust or unincorporated organization, or a government or agency or political
subdivision thereof.
"Physical Certificate" shall mean a certificate representing
Warrant Shares in definitive registered form, other than a Global Certificate.
"Piggy-Back Registration" shall have the meaning
set forth in Section 2.1.
"Purchase Agreement" shall have the meaning set
forth in the preamble.
"Registrable Securities" shall mean Warrant Shares. As to any
particular Registrable Securities, such securities shall cease to be Registrable
Securities when (i) a Registration Statement with respect to such securities
shall have been declared effective under the Securities Act and such securities
shall have been disposed of pursuant to such Registration Statement, (ii) such
securities have been sold to the public pursuant to Rule 144 (or any similar
provision then in force, but not Rule 144A) under the Securities Act, (iii) such
securities shall have been otherwise transferred by such Holder and new
certificates for such securities not bearing a legend restricting further
transfer shall have been delivered by the Company or its transfer agent and
subsequent disposition of such securities shall not require registration or
qualification under the Securities Act or any similar state law then in force or
(iv) such securities shall have ceased to be outstanding.
"Registration Expenses" shall mean all expenses incident to
the Company's performance of or compliance with this Agreement, including,
without limitation, all SEC and stock exchange or National Association of
Securities Dealers, Inc. registration and filing fees and expenses, fees and
expenses of compliance with securities or blue sky laws (including in the case
of an underwritten offering, without limitation, reasonable fees and
disbursements of counsel for the underwriters in connection with blue sky
qualifications of the Registrable Securities), rating agency fees, printing
expenses, messenger, telephone and delivery expenses, fees and disbursements of
counsel for the Company and all independent certified public accountants
retained by the Company, the fees and disbursements of underwriters customarily
paid by issuers or sellers of securities (but not including any underwriting
discounts or
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commissions or transfer taxes, if any, attributable to the sale of Registrable
Securities by Holders of such Registrable Securities).
"Registration Statement" shall mean any registration statement
of the Company which covers any of the Warrant Shares pursuant to the provisions
of this Agreement and all amendments and supplements to any such Registration
Statement, including post-effective amendments, in each case including the
Prospectus contained therein, all exhibits thereto and all material incorporated
by reference therein.
"Restricted Security" shall have the meaning set forth in Rule
144(a)(3) under the Securities Act. "Rule 144" shall mean Rule 144 under the
Securities Act, as such Rule may be amended from time to time, or any similar
rule (other than Rule 144A) or regulation hereafter adopted by the SEC providing
for offers and sales of securities made in compliance therewith resulting in
offers and sales by subsequent holders that are not affiliates of an issuer of
such securities being free of the registration and prospectus delivery
requirements of the Securities Act.
"Rule 144A" shall mean Rule 144A under the Securities Act, as
such Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the SEC.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended from time
to time.
"Selling Holder" shall mean a Holder who is selling Warrant
Shares in accordance with the provisions of Section 2.1, 2.2, 3.3 or 3.4 hereof.
"Transfer Agent" means any transfer agent or registrar
appointed by the Company for the Common Stock.]
"Warrant Shares" means the shares of Common Stock issued and
issuable upon exercise of the Warrants.
2. Registration Rights.
2.1 Piggy-Back Registration. If at any time the
Company proposes to file a Registration Statement under the Securities Act with
respect to an offering by the Company for the account of any of its respective
securityholders of
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any class of its common equity securities (other than a Registration Statement
on Form S-8 (or any substitute form that may be adopted by the SEC), then the
Company shall give written notice of such proposed filing to the Holders of
Registrable Securities as soon as practicable (but in no event less than 20
Business Days before the anticipated filing date), and such notice shall offer
such Holders the opportunity to register such number of shares of Registrable
Securities as each such Holder may request (which request shall specify the
Registrable Securities intended to be disposed of by such Selling Holder and the
intended method of distribution thereof) (a "Piggy-Back Registration"). In the
case of any underwritten offering, the Company shall use its best efforts to
cause the managing Underwriter or Underwriters of such proposed underwritten
offering to permit the Registrable Securities requested to be included in a
Piggy-Back Registration to be included on the same terms and conditions as any
similar securities of any other securityholder included therein and to permit
the sale or other disposition of such Registrable Securities in accordance with
the intended method of distribution thereof. Any Selling Holder shall have the
right to withdraw its request for inclusion of its Registrable Securities in any
Registration Statement pursuant to this Section 2.1 by giving written notice to
the Company of its request to withdraw prior to the time such Registration is
declared or becomes effective. The Company may withdraw a Piggy-Back
Registration at any time prior to the time it is declared or becomes effective;
provided that the Company shall give prompt notice thereof to participating
Selling Holders. The Company will pay all Registration Expenses in connection
with each registration of Registrable Securities requested pursuant to this
Section 2.1, and each Holder shall pay all underwriting discounts and
commissions and transfer taxes, if any, relating to the sale or disposition of
such Holder's Registrable Securities pursuant to a registration statement
effected pursuant to this Section 2.1.
No failure to effect a registration under this Section 2.1 and
to complete the sale of shares of Common Stock in connection therewith shall
relieve the Company of any other obligation under this Agreement.
2.2 Reduction of Offering. (a) Piggy-Back
Registration. (i) If the Managing Underwriter or Under- writers of any
underwritten offering described in Section 2.1 have informed, in writing, the
Company or the Selling Holders of the Registrable Securities requesting
inclusion in such offering that it is their opinion that the total
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number of shares which the Company, the Selling Holders and any other Persons
desiring to participate in such registration intend to include in such offering
is such as to materially and adversely affect the success of such offering,
including the price at which such securities can be sold, then the number of
shares to be offered for the account of the Selling Holders and all such other
Persons (other than the Company) participating in such registration shall be
reduced or limited pro rata in proportion to the respective number of shares
requested to be registered to the extent necessary to reduce the total number of
shares requested to be included in such offering to the number of shares, if
any, recommended by such managing Underwriters; provided, however, that if such
offering is effected for the account of any securityholder of the Company other
than the Selling Holders, pursuant to the demand registration rights of any such
securityholder, then the number of shares to be offered for the account of the
Company (if any) and the Selling Holders (but not such securityholders who have
exercised their demand registration rights) shall be reduced or limited pro rata
in proportion to the respective number of shares requested to be registered to
the extent necessary to reduce the total number of shares requested to be
included in such offering to the number of shares, if any, recommended by such
managing Underwriters.
(ii) If the managing Underwriter or Underwriters of any
underwritten offering described in Section 2.1 notify the Selling Holders
requesting inclusion of Registrable Securities in such offering, that the kind
of securities that the Selling Holders, the Company and any other Persons
desiring to participate in such registration intend to include in such offering
is such as to materially and adversely affect the success of such offering, (x)
the Registrable Securities to be included in such offering shall be reduced as
described in clause (i) above or (y) if a reduction in the Registrable
Securities pursuant to clause (i) above would, in the judgment of the managing
Underwriter or Underwriters, be insufficient to substantially eliminate the
adverse effect that inclusion of the Registrable Securities requested to be
included would have on such offering, such Registrable Securities will be
excluded from such offering.
(b) If, as a result of the proration provisions of this
Section 2.2, any Selling Holder shall not be entitled to include all Registrable
Securities in a Piggy-Back Registration that such Selling Holder has requested
to be included, such Selling Holder may elect to withdraw his
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request to include Registrable Securities in such registration (a "Withdrawal
Election"); provided, however, that a Withdrawal Election shall be irrevocable
and, after making a Withdrawal Election, a Selling Holder shall no longer have
any right to include Registrable Securities in the registration as to which such
Withdrawal Election was made.
3. Transfers of Warrant Shares.
3.1 Generally. All Warrant Shares at any time and from time to
time outstanding that are Registrable Securities shall be held subject to the
conditions and restrictions set forth in this Section 3. All shares of Common
Stock now or hereafter held by a Stockholder shall be held subject to the
conditions and restrictions set forth in this Section 3. Each Holder of Warrant
Shares and each Stockholder by executing this Agreement or by accepting a
certificate representing Common Stock or other indicia of ownership therefor
from the Company agrees with the Company and with each other Stockholder to such
conditions and restrictions.
3.2 Restrictions on Transfer. (a) The Company agrees that it
shall not permit any Existing Stockholder to sell, assign, give, transfer,
exchange, convert, devise, bequeath, pledge or otherwise dispose of
(collectively, "Transfer") any Common Stock or any interest therein except (A)
in compliance with Section 3.3 or (B) pursuant to an Exempt Transfer. Each
certificate representing Warrants and/or Warrant Shares shall contain
conspicuous notation on such certificate indicating that the transfer of such
Warrant Shares is subject to the terms and restrictions of this Agreement, and
each Holder consents to the placement of such legend on the certificate or
certificates representing the Warrant Shares owned by such Holder.
(b) Each Holder agrees that it will not transfer any Warrant
Shares or any interest therein except in compliance with Sections 3.3 and 3.4.
3.3 Tag-Along Rights. (a) In the event of any proposed
Transfer of Common Stock by any of the Existing Stockholders (the "Selling
Stockholders") in a single transaction or a series of related transactions
involving shares of Common Stock aggregating at least 15% of the shares of
Common Stock collectively then owned by the Existing Stockholders to a person
(such other person being hereinafter referred to as the "proposed purchaser"),
other than pursuant to an Exempt Transfer or in a bona fide
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public distribution pursuant to an effective Registration Statement under the
Securities Act, each of the Holders of Warrants and Warrant Shares (the
"Non-Selling Stockholders") each shall have the irrevocable and exclusive right,
but not the obligation (the "Tag-Along Right"), to require the proposed
purchaser to purchase from each of them up to a number of Warrant Shares (and/or
Warrants exercisable for a number of Warrant Shares) owned by such Holder equal
to the total number of shares of Common Stock to be sold by the Selling
Stockholders to the proposed purchaser (collectively, the "Transfer Shares")
multiplied by a fraction, the numerator of which is the number of Warrant Shares
(including the number of Warrant Shares issuable upon the exercise of Warrants)
owned by such Holder, and the denominator of which is the total number of shares
of Common Stock and Warrant Shares (including the number of Warrant Shares
issuable upon the exercise of Warrants) owned by the Selling Stockholders and by
all of the Holders of Warrant Shares and Warrants (the number of Warrant Shares
that a Holder of Warrants or Warrant Shares may require to be so purchased being
referred to as such Holder's "Tag-Along Shares"). The Company shall give written
notice at least 15 days prior to the date of the proposed Transfer to the
Non-Selling Stockholders stating:
(i) the name and address of the proposed purchaser,
(ii) the proposed amount of consideration and terms and conditions
of payment offered by such proposed purchaser (if the proposed
consideration is not cash, the notice shall describe the terms of the
proposed consideration),
(iii) the number of shares of Common Stock proposed to be
transferred, and
(iv) that either the proposed purchaser has been informed of the
Tag-Along Right and has agreed to purchase Warrants and/or Warrant
Shares in accordance with the terms hereof or that the Existing
Stockholders participating in the transaction will make such purchase.
The Tag-Along Right shall be exercised by any or all of the
Non-Selling Stockholders by giving written notice to the Company ("Tag-Along
Notice") within five days following receipt of the notice specified in the
preceding
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sentence, indicating its election to exercise the Tag-Along Right (the
"Participating Stockholders"). The Tag-Along Notice shall state the amount of
Warrants and/or Warrant Shares that such Holder proposes to include in such
transfer to the proposed purchaser. Failure by any Non-Selling Stockholder to
give such notice within such five-day period shall be deemed an election by such
Non Selling Stockholder not to sell its Warrants and/or Warrant Shares pursuant
to that Tag-Along Notice. The closing with respect to any sale to a proposed
purchaser pursuant to this Section shall be held at the time and place specified
in the Tag-Along Notice but in any event within 60 days of the date the Tag-
Along Notice is given; provided that if through the exercise of reasonable
efforts the Selling Stockholders are unable to cause such transaction to close
within 60 days, such period may be extended for such reasonable period of time
as may be necessary to close such transaction. Consummation of the sale of
Common Stock by any Selling Stockholder to a proposed purchaser shall be
conditioned upon consummation of the sale by each Participating Stockholder to
such proposed purchaser of the Tag-Along Shares, if any. As used in this Section
3.3(a), the term "Transfer" shall be deemed to include all transactions or
series of transactions pursuant to which beneficial ownership of Common Stock is
transferred, directly or indirectly, to a proposed purchaser, regardless of the
number or type of intermediate entities or transactions between a Selling
Stockholder and such proposed purchaser.
(b) In the event that the proposed purchaser does not purchase
Tag-Along Shares from the Holders on the same terms and conditions as purchased
from the Selling Stockholders, then the Company shall cause the Selling
Stockholders making such Transfer to purchase on such terms and conditions such
Tag-Along Shares if the Transfer occurs.
(c) The Selling Stockholders who are parties to a sale to a
proposed purchaser shall arrange for payment directly by the proposed purchaser
to each Participating Stockholder, upon delivery of the certificate or
certificates representing the Warrants and/or Warrant Shares duly endorsed for
transfer, together with such other documents as the proposed purchaser may
reasonably request. The reasonable costs and expenses incurred by the Selling
Stockholders and Holders in connection with a Transfer subject to this Section
3.3 shall be allocated among the Selling Stockholders and Participating
Stockholders pro rata based upon the number of shares of Common Stock, the
number of
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Warrant Shares subject to Warrants and/or Warrant Shares sold by each Selling
Stockholder and each Participating Stockholder to a proposed purchaser (and may
be deducted from amounts distributed in the transaction); provided, that the
costs and expenses shall not include the fees and expenses of more than one law
firm, which firm shall be selected in writing by the Selling Stockholders,
unless representation of the Selling Stockholders by the same counsel, due to
actual or potential differing interests between them, shall create a conflict of
interest which shall be evidenced by an opinion of counsel, in which case the
costs and expenses of one additional law firm designated by Participating
Stockholders proposing to sell a majority of the Tag-Along Shares proposed to be
sold by all Participating Stockholders.
(d) If at the end of 60 days following the date on which a
Tag-Along Notice was given, or as otherwise extended pursuant to the provisions
of Section 3.3(a), the sale of Common Stock by the Stockholders and the sale of
the Tag-Along Shares have not been completed in accordance with the terms of the
proposed purchaser's offer, all certificates representing the Tag-Along Shares
shall be returned to the Participating Stockholders, and all the restrictions on
sale, transfer or assignment contained in this Agreement with respect to Common
Stock owned by the Stockholders shall again be in effect.
(e) Tag-Along Rights shall terminate upon the effectiveness of
any Registration Statement filed with the SEC with respect to shares of Common
Stock in an initial public offering or subsequent public offering if, after
giving effect to such Offering, at least 50% of the Company's Common Stock on a
fully-diluted basis would be held by persons unaffiliated with the Company and
without restriction on transfer under the Act.
3.4 Drag-Along Rights. (a) In the event of any proposed
Transfer of Common Stock by any of the Selling Stockholders (other than pursuant
to an Exempt Transfer or in a bona fide public distribution pursuant to an
effective Registration Statement under the Securities Act) in a single
transaction or a series of related transactions involving shares of Common Stock
aggregating at least 51% of the shares of Common Stock collectively then owned
by the Existing Stockholders to a proposed purchaser, such Selling Stockholders
shall have the right (the "Drag-Along Right"), to require each Holder to
Transfer to the proposed purchaser a number of Warrant Shares (and/or Warrants
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exercisable for a number of Warrant Shares) owned by such Holder equal to the
total number of Warrant Shares (including the number of Warrant Shares issuable
upon the exercise of Warrants) multiplied by a fraction, the numerator of which
is the number of shares of Common Stock to be sold by the Selling Stockholders
to the proposed purchaser and the denominator of which is the total number of
shares of Common Stock then owned by the Existing Stockholders (the number of
Warrant Shares that a Holder of Warrants or Warrant Shares may be required to so
Transfer being referred to as such Holder's "Drag-Along Shares"). The Selling
Stockholders shall give written notice (the "Drag- Along Notice") at least 15
days prior to the date of the proposed transfer to each Holder stating:
(i) the name and address of the proposed purchaser,
(ii) the proposed amount of consideration and terms and conditions
of payment offered by such proposed purchaser (if the proposed
consideration is not cash, the notice shall describe the terms of the
proposed consideration),
(iii) the number of shares of Common Stock proposed to be
transferred, and
(iv) that the proposed purchaser has been informed of the
Drag-Along Right and has agreed to purchase Warrants and/or Warrant
Shares in accordance with the terms hereof.
The closing with respect to any sale to a proposed purchaser
pursuant to this Section shall be held at the time and place specified in the
Drag-Along Notice but in any event within 60 days of the date the Drag-Along
Notice is given; provided that if through the exercise of reasonable efforts the
Selling Stockholders are unable to cause such transaction to close within 60
days, such period may be extended for such reasonable period of time as may be
necessary to close such transaction. Consummation of the sale of Common Stock by
any Holder to a proposed purchaser shall be conditioned upon consummation of the
sale by each Selling Stockholder to such proposed purchaser of the Shares of
Common Stock owned by such Selling Stockholders.
(b) In the event that the proposed purchaser does not
purchase the Drag-Along Shares from the Holders on
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the same terms and conditions as purchased from the Selling Stockholders, then
the Holders of the Drag-Along Shares shall have the right to require the Company
to cause the Selling Stockholders making such Transfer to purchase on such terms
and conditions such Drag-Along Shares if the Transfer occurs.
(c) The Selling Stockholders who are parties to a sale to a
proposed purchaser shall arrange for payment directly by the proposed purchaser
to each Holder, upon delivery of the certificate or certificates representing
the Warrants and/or Warrant Shares duly endorsed for transfer, together with
such other documents as the proposed purchaser may reasonably request. The
reasonable costs and expenses incurred by the Selling Stockholders and Holders
in connection with a sale of Common Stock, Warrants and/or Warrant Shares
subject to this Section 3.4 shall be allocated among the Selling Stockholders
and such Holders pro rata based upon the number of shares of Common Stock,
Warrants and/or Warrant Shares sold by each Selling Stockholder and each Holder
to a proposed purchaser (and may be deducted from the amounts distributed in the
transactions, provided, that the costs and expenses shall not include the fees
and expenses of more than one law firm, which firm shall be selected by the
Selling Stockholders, unless representation of the Selling Stockholders and the
Holders by the same counsel, due to actual or potential differing interests
between them, shall create a conflict of interest, in which case the costs and
expenses shall include the reasonable fees and expenses of one additional law
firm designated in writing by Holders proposing to sell a majority of the
Drag-Along Shares.
(d) If at the end of 30 days following the date on which a
Drag-Along Notice was given, or as otherwise extended pursuant to the provisions
of Section 3.3(a), the sale of Common Stock by the Selling Stockholders and the
sale of the Drag-Along Shares have not been completed in accordance with the
terms of the Drag-Along Notice offer, all certificates representing the
Drag-Along Shares shall be returned to the Holders, and all the restrictions on
sale, transfer or assignment contained in this Agreement with respect to Common
Stock owned by the Selling Stockholders shall again be in effect.
(e) Drag-Along Rights shall terminate upon the effectiveness
of any Registration Statement filed with the SEC with respect to shares of
Common Stock in an initial public offering or subsequent public offering if,
after
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giving effect to such Offering, at least 50% of the Company's Common Stock on a
fully-diluted basis would be held by persons unaffiliated with the Company and
without restriction on transfer under the Act.
3.5 Registration of Transfers and Exchanges.
(a) Transfer and Exchange of Physical Certificates. When Physical
Certificates are presented to the Transfer Agent with a request:
(i) to register the transfer of the Physical Certificates; or
(ii) to exchange such Physical Certificates for an equal number of
Physical Certificates of other authorized denominations, the Transfer
Agent shall register the transfer or make the exchange as requested if
the requirements under this Agreement as set forth in this Section 3.5
for such transactions are met; provided, however, that the Physical
Certificates presented or surrendered for registration of transfer or
exchange:
(I) shall be duly endorsed or accompanied by a
written Instrument of transfer in form satisfactory to the
Transfer Agent, duly executed by the Holder thereof or his
attorney duly authorized in writing; and
(II) in the case of Physical Certificates the offer
and sale of which have not been registered under the
Securities, such Physical Certificates shall be accompanied,
in the sole discretion of the Company, by the following
additional information and documents, as applicable:
(A) if such Physical Certificates are being
delivered to the Transfer Agent by a holder for
registration in the name of such holder, without
transfer, a certification from such holder to that
effect (in substantially the form of Exhibit B
hereto); or
(B) if such Physical Certificates are being
transferred to a "qualified Institutional buyer" (as
defined in Rule 144A under the Securities Act (a
"Qualified Institutional Buyer")) in accordance with
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Rule 144A under the Securities Act, a certification
to that effect (in substantially the form of Exhibit
B hereto); or
(C) if such Physical Certificates are being
transferred to an institutional "accredited investor"
(as defined in Rule 501(a)(1), (2), (3) or (7) under
the Securities Act (an "Institutional Accredited
Investor")) delivery of a certification to that
effect (in substantially the form of Exhibit B
hereto) and a Transferee Certificate for
Institutional Accredited Investors in substantially
the form of Exhibit C hereto; or
(D) if such Physical Certificates are being
transferred in reliance on Regulation S under the
Securities Act ("Regulation S"), delivery of a
certification to that effect (in substantially the
form of Exhibit B hereto) and a Transferee
Certificate for Regulation S Transfers in
substantially the form of Exhibit D hereto and an
opinion of counsel reasonably satisfactory to the
Company to the effect that such transfer is in
compliance with the Securities Act; or
(E) if such Physical Certificates are being
transferred in reliance on Rule 144 under the
Securities Act, delivery of a certification to that
effect (in substantially the form of Exhibit B
hereto) and an opinion of counsel reasonably
satisfactory to the Company to the effect that such
transfer is in compliance with the Securities Act; or
(F) if such Physical Certificates are being
transferred in reliance on another exemption from the
registration requirements of the Securities Act, a
certification to that effect (in substantially the
form of Exhibit B hereto) and an opinion of counsel
reasonably satisfactory to the Company to the effect
that such transfer is in compliance with the
Securities Act.
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(b) Restrictions on Transfer of Physical Certificates for a
Beneficial Interest in a Global Certificate. A Physical Certificate may not be
exchanged for a beneficial interest in a Global Certificate except upon
satisfaction of the requirements set forth below. Upon receipt by the Transfer
Agent of a Physical Certificate, duly endorsed or accompanied by appropriate
instruments of transfer, in form satisfactory to the Transfer Agent, together
with:
(A) a certification, in substantially the form of Exhibit B
hereto, that such Physical Certificate is being transferred to a
Qualified Institutional Buyer; and
(B) written instructions directing the Transfer Agent to make,
or to direct the Depositary to make, an endorsement on the Global
Certificate to reflect an increase in the aggregate amount of the
shares represented by the Global Certificate, then the Transfer Agent
shall cancel such Physical Certificate and cause or direct the
Depositary to cause, in accordance with the standing instructions and
procedures existing between the Depositary and the Transfer Agent, the
number of shares represented by the Global Certificate to be increased
accordingly. If no Global Certificate is then outstanding, the Company
shall issue a new Global Certificate in the appropriate amount.
(c) Transfer and Exchange of Global Certificates. The transfer
and exchange of Global Certificates or beneficial interests therein shall be
effected through the Depositary, in accordance with this Agreement (including
the restrictions on transfer set forth herein) and the procedures of the
Depositary therefor.
(d) Transfer of a Beneficial Interest in a Global
Certificate for a Physical Certificate.
(i) Any person having a beneficial interest in a Global
Certificate may upon request exchange such beneficial interest for a
Physical Certificate. Upon receipt by the Transfer Agent of written
instructions or such other form of instructions as is customary for the
Depositary from the Depositary or its nominee on behalf of any person
having a beneficial interest in a Global Certificate and upon receipt
by the Transfer Agent of a written order or such other form of
instructions as is customary for the Depositary or the
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person designated by the Depositary as having such a beneficial
interest containing registration instructions and, in the case of any
such transfer or exchange of a beneficial interest in a Global
Certificate the offer and sale of which gave not been registered under
the Securities Act, the following additional information and documents:
(A) if such beneficial interest is being transferred
to the person designated by the Depositary as being the
beneficial owner, a certification from such person to that
effect (in substantially the form of Exhibit B hereto); or
(B) if such beneficial interest is being transferred
to a Qualified Institutional Buyer in accordance with Rule
144A under the Securities Act, a certification to that effect
(in substantially the form of Exhibit B hereto); or
(C) if such beneficial interest is being transferred
to an Institutional Accredited Investor, deliver of a
certification to that effect (in substantially the form of
Exhibit B hereto) and a Certificate for Institutional
Accredited Investors in substantially the form of Exhibit C
hereto; or
(D) if such beneficial interest is being transferred
in reliance on Regulation S, delivery of a certification to
that effect (in substantially the form of Exhibit B hereto)
and a Transferee Certificate for Regulation S Transfers in
substantially the form of Exhibit D hereto and an opinion of
counsel reasonably satisfactory to the Company to the effect
that such transfer is in compliance with the Securities Act;
or
(E) if such beneficial interest is being transferred
in reliance on Rule 144 under the Securities Act, delivery of
a certification to that effect (in substantially the form of
Exhibit B hereto) and an opinion of counsel reasonably
satisfactory to the Company to the effect that such transfer
is in compliance with the Securities Act; or
(F) if such beneficial interest is being
transferred in reliance on another exemption from
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the registration requirements of the Securities Act, a
certification to that effect (in substantially the form of
Exhibit B hereto) and an opinion of counsel reasonably
satisfactory to the Company to the effect that such transfer
is in compliance with the Securities Act, then the Transfer
Agent will cause, in accordance with the standing instructions
and procedures existing between the Depositary and the
Transfer Agent, the aggregate amount of the Global Certificate
to be reduced and, following such reduction, the Company will
execute and deliver to the transferee a Physical Certificate.
(ii) Physical Certificates issued in exchange for a beneficial
interest in a Global Certificate 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 Transfer Agent in writing. The Transfer Agent shall
deliver such Physical Certificates to the persons in whose names such
Physical Certificates are so registered.
(e) Restrictions on Transfer and Exchange of Global
Certificates. Notwithstanding any other provisions of this Agreement, a Global
Certificate may not be transferred as a whole except by the Depositary to a
nominee of the Depositary or by a nominee of the Depositary to the Depositary or
another nominee of the Depositary or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary.
(f) Authentication of Definitive Certificates in Absence of
Depositary. If at any time:
(i) the Depositary for the Global Certificates notifies the
Company that the Depositary is unwilling or unable to continue as
Depositary for the Global Certificates and a successor Depositary for
the Global Certificates is not appointed by the Company within 90 days
after delivery of such notice; or
(ii) the Company, at its sole discretion, notifies the
Transfer Agent in writing that it elects to cause the issuance of
Physical Certificates, then the Company will execute, and the Transfer
Agent, upon written instructions from the Company, will authenticate
and deliver Definitive Certificates, in an aggre-
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gate number equal to the aggregate number of shares represented by the
Global Certificates, in exchange for such Global Certificates.
(g) Legends.
(i) Each Warrant Share (and all shares of Common Stock issued
in exchange therefor or substitution thereof) which is a Restricted
Security shall bear a legend substantially to the following effect:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED
OR SOLD EXCEPT AS SET FORTH BELOW. 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) (AN "ACCREDITED INVESTOR") OR (C)
IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE
TRANSACTION, (2) AGREES THAT IT WILL NOT WITHIN TWO YEARS AFTER THE
ORIGINAL ISSUANCE OF THIS SECURITY RESELL OR OTHERWISE TRANSFER THIS
SECURITY EXCEPT (A) TO THE ISSUER 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
ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE
TRANSFER AGENT A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND
AGREEMENTS (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRANSFER
AGENT), (D) OUTSIDE THE UNITED STATES TO PERSONS OTHER THAN U.S.
PERSONS IN OFFSHORE TRANSACTIONS MEETING THE REQUIREMENTS OF RULE 904
UNDER REGULATION S UNDER THE SECURITIES ACT, (E) PURSUANT TO THE
EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES
ACT (IF AVAILABLE), OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO
EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY
TO THE EFFECT OF THIS LEGEND. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE RESPECTIVE
MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. THIS
SECURITY IS SUBJECT TO THE TERMS AND CONDITIONS SET FORTH IN A COMMON
STOCK REGISTRATION RIGHTS AND STOCKHOLDERS AGREEMENT DATED JUNE 25,
1997, A COPY OF WHICH MAY BE OBTAINED FROM THE SECRETARY OF THE
COMPANY.
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(h) Cancellation and/or Adjustment of a Global Certificate. At
such time as all beneficial interests in a Global Certificate have either been
exchanged for Physical Certificates, redeemed, repurchased or cancelled, such
Global Certificate shall be returned to or retained and cancelled by the
Transfer Agent. At any time prior to such cancellation, if any beneficial
interest in a Global Certificate is exchanged for Physical Certificates,
redeemed, repurchased or cancelled, the number of shares of Common Stock
represented by such Global Certificate shall be reduced and an endorsement shall
be made on such Global Certificate, by the Transfer Agent to reflect such
reduction.
(i) Obligations with Respect to Transfers and Exchanges of
Physical Certificates.
(i) To permit registrations of transfers and exchanges, the
Company shall execute, at the Transfer Agent's request, and the
Transfer Agent shall countersign and register Physical Certificates and
Global Certificates.
(ii) All Physical Certificates and Global Certificates issued
upon any Registration, transfer or exchange of Physical Certificates or
Global Certificates shall be validly issued, fully paid and
nonassessable.
4. Registration Procedures. In connection with
the obligations of the Company with respect to any Registration Statement
pursuant to Sections 2.1 hereof, the Company shall:
(a) prepare and file with the SEC a Registration Statement on
the appropriate form under the Securities Act, which form (i) shall be
selected by the Company and (ii) shall comply as to form in all
material respects with the requirements of the applicable form and
include all financial statements required by the SEC to be filed
therewith, and the Company shall use its commercially reasonable
efforts to cause such Registration Statement to become effective and
remain effective in accordance with Section 2 hereof;
(b) prepare and file with the SEC such amendments and
post-effective amendments to each Registration Statement as may be
necessary to keep such Registration Statement effective for such time
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<PAGE>
period may be required by any applicable underwriting agreement or, if
not so required, as determined by the Company in its sole discretion
(the "Applicable Period"), cause each Prospectus to be supplemented by
any required prospectus supplement during such Applicable Period and,
as so supplemented, to be filed pursuant to Rule 424 under the
Securities Act;
(c) furnish to each Holder of Registrable Securities and to
each underwriter of an underwritten offering of Registrable Securities,
if any, without charge, as many copies of each Prospectus, including
each preliminary Prospectus, and any amendment or supplement thereto
and such other documents as such Holder or underwriter may reasonably
request, in order to facilitate the public sale or other disposition of
the Registrable Securities;
(d) use reasonable commercial best efforts to register or
qualify the Registrable Securities under all applicable state
securities or Blue Sky laws of such jurisdictions as any Holder thereof
covered by a Registration Statement shall reasonably request in writing
by the time the applicable Registration Statement is declared effective
by the SEC; provided, however, that the Company shall not be required
to
(i) qualify as a foreign corporation or as a dealer
in securities in any jurisdiction where it would not otherwise
be required to qualify but for this Section 4(d), or
(ii) file any general consent to service of process
or (iii) subject itself to taxation in any such jurisdiction
if it is not so subject;
(e) notify each Holder of Registrable Securities promptly
and, if requested by such Holder, confirm such advice in writing
(i) when a Registration Statement has become
effective and when any post-effective amendments and
supplements thereto become effective;
(ii) of any request by the SEC or any state
securities authority for amendments and supplements to a
Registration Statement and Prospectus or for additional
information, in each
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case after the Registration Statement has become
effective;
(iii) of the issuance by the SEC or any state
securities authority of any stop order suspending the
effectiveness of a Registration Statement or the initiation of
any proceedings for that purpose;
(iv) if, between the effective date of a
Registration Statement and the closing of any sale of
Registrable Securities covered thereby, the representations
and warranties of the Company contained in any underwriting
agreement, securities sales agreement or other similar
agreement, if any, relating to the offering cease to be true
and correct in all material respects or if the Company
receives any notification with respect to the suspension of
the qualification of the Registrable Securities for sale in
any jurisdiction or the initiation of any proceeding for such
purpose; and
(v) of the happening of any event during the period
a Registration Statement is effective which makes any
statement made in such Registration Statement or the related
Prospectus untrue in any material respect or which requires
the making of any changes in such Registration Statement or
Prospectus in order to make the statements therein not
misleading;
(f) use reasonable commercial efforts to obtain the
withdrawal of any order suspending the effectiveness of a
Registration Statement at the earliest possible moment;
(g) furnish to each Holder of Registrable Securities and to
the Initial Purchaser, without charge, at least one conformed copy of
each Registration Statement and any post-effective amendment thereto
(with documents incorporated therein by reference or exhibits thereto);
(h) cooperate with the Selling Holders of Registrable
Securities to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold and not
bearing any restrictive legends and registered in such names as
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<PAGE>
the selling Holders may reasonably request at least two business days
prior to the closing of any sale of Registrable Securities;
(i) upon the occurrence of any event contemplated by Section
4(e)(v) hereof during the Applicable Period, use reasonable efforts to
prepare a supplement or post-effective amendment to a Registration
Statement or the related Prospectus or any document incorporated
therein by reference or file any other required document so that, as
thereafter delivered to the purchasers of the Registrable Securities,
such Prospectus will not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that the Company shall not be required
to amend or supplement a Registration Statement, any related Prospectus
or any document incorporated therein by reference in the event that,
and for so long as, an event occurs and is continuing as a result of
which the Registration Statement, any related Prospectus or any
document incorporates therein by reference as then amended or
supplemented would, in the Company's good faith judgment, contain 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 under which they are made. The Company
agrees to notify each Holder to suspend use of the Prospectus as
promptly as practicable after the occurrence of such an event, and each
Holder hereby agrees to suspend use of the Prospectus until the Company
has amended or supplemented the Prospectus to correct such misstatement
or omission. At such time as such public disclosure is otherwise made
or the Company determines in good faith that such disclosure is not
necessary, the Company agrees promptly to notify each Holder of such
determination, to amend or supplement the Prospectus if necessary to
correct any untrue statement or omission therein and to furnish each
Holder such numbers of copies of the Prospectus as so amended or
supplemented as each Holder may reasonably request;
(j) obtain a CUSIP number for the Common Stock;
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<PAGE>
(k) (i) make reasonably available for inspection by a
representative of, and counsel for, any underwriter participating in
any disposition pursuant to a Registration Statement, all relevant
financial and other records, pertinent corporate documents and
properties of the Company and
(ii) cause the Company's officers, directors and employees to
supply all relevant information reasonably requested by such
representative, counsel or any such underwriter in connection with any
such Registration Statement; and
(l) If requested by the Holders in connection with any
Registration Statement, shall use reasonably commercial efforts to
cause (w) counsel for the Company to deliver an opinion relating to the
Registration Statement and the Common Stock, in customary form, in the
event and to the extent the same is furnished to any other Stockholder
or Underwriter in connection with such Registration Statement (x) its
officers to execute and deliver all customary documents and
certificates requested by a representative of the Holders or any
underwriter, as applicable in the event and to the extent the same is
furnished to any other Stockholder or Underwriter in connection with
such Registration Statement and (y) its independent public accountants
to provide a comfort letter in customary form in the event and to the
extent the same is furnished to any other Stockholder or Underwriter in
connection with such Registration Statement. The Company may, as a
condition to such Holder's participation in any Registration Statement,
require each Holder of Registrable Securities to (i) furnish to the
Company such information regarding the Holder and the proposed
distribution by such Holder of such Registrable Securities as the
Company may from time to time reasonably request in writing and (ii)
agree in writing to be bound by this Agreement.
5. Indemnification and Contribution. (a) The
Company agrees to indemnify and hold harmless each Holder and each person, if
any, who controls such Holder within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, or is under common control
with, or is controlled by, such Holder, from and against all losses, claims,
damages and liabilities (including, without limitation, any legal or other
expenses reasonably incurred by any Holder or any such controlling or affil-
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<PAGE>
iated person in connection with defending or investigating any such action or
claim) caused by any untrue statement or alleged untrue statement of a material
fact contained in any Registration Statement (or any amendment thereto) pursuant
to which Registrable Securities were registered under the Securities Act, or
caused by any omission or alleged omission to state therein a material fact
necessary to make the statements therein in light of the circumstances under
which they were made not misleading, or caused by any untrue statement or
alleged untrue statement of a material fact contained in any Prospectus (as
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto), or caused by any omission or alleged omission to state
therein a material fact necessary to make the statements therein in light of the
circumstances under which they were made not misleading, except insofar as such
losses, claims, damages or liabilities are caused by any such untrue statement
or omission or alleged untrue statement or omission based upon information
relating to any Holder furnished to the Company in writing by such Holder
expressly for use in any such Registration Statement or Prospectus.
(b) Each Holder agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers and each
person, if any, who controls the Company within the meaning of either Section 15
of the Securities Act or Section 20 of the Exchange Act to the same extent as
the foregoing indemnity from the Company to such Holder, but only with reference
to information relating to such Holder furnished to the Company in writing by
such Holder expressly for use in any Registration Statement (or any amendment
thereto) or any Prospectus (or any amendment or supplement thereto.
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to either paragraph (a) or (b) above, such
person (the "indemnified party") shall promptly notify the person against which
such indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party shall have the right to retain counsel reasonably
satisfactory to the indemnified party to represent the indemnified party and any
others the indemnifying party may designate in such proceeding and shall pay the
reasonable fees and disbursements of such counsel relating to such proceeding.
In any such proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of
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<PAGE>
such counsel shall be at the expense of such indemnified party unless (i) the
indemnifying party and the indemnified party shall have mutually agreed in
writing to the retention of such counsel or (ii) the indemnifying party fails
promptly to assume the defense of such proceeding or fails to employ counsel
reasonably satisfactory to such indemnified party or parties or (iii) the named
parties to any such proceeding (including any impleaded parties) include both
such indemnified party or parties and the indemnifying parties or an affiliate
of the indemnifying parties or such indemnified parties, and there may be one or
more defenses available to such indemnified party or parties that are different
from or additional to those available to the indemnifying parties, in which
case, if such indemnified party or parties notifies the indemnifying parties in
writing that it elects to employ separate counsel of its choice at the expense
of the indemnifying parties, the indemnifying parties shall not have the right
to assume the defense thereof and such counsel shall be at the expense of the
indemnifying parties, it being understood, however, that unless there exists a
conflict among indemnified parties, the indemnifying parties shall not, in
connection with any one such proceeding or separate but substantially similar or
related proceedings in the same jurisdiction, arising out of the same general
allegations or circumstances, be liable for the fees and expenses of more than
one separate firm of attorneys (together with appropriate local counsel) at any
time for such indemnified party or parties. The indemnifying party shall not be
liable for any settlement of any proceeding effected without its written consent
but, if settled with such consent or if there be a final judgment for the
plaintiff, the indemnifying party agrees to indemnify the 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 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 the subject matter of such proceeding.
(d) To the extent the indemnification provided for in
paragraph (a) or (b) of this Section 5 is unavailable to an indemnified party or
insufficient in respect of any losses, claims, damages or liabilities, then each
indemnifying party under such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute
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<PAGE>
to the amount paid or payable by such indemnified party as a result of such
losses, claims, damages or liabilities (i) in such proportion as is appropriate
to reflect the relative benefits received by the Company on the one hand and the
Holders on the other hand from the offering of such Registrable Securities or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company on the one hand and the Holders on the other hand in connection with
the statements or omissions that resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
relative fault of the Company on the one hand and the Holders on the other hand
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company or by
the Holders and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
(e) The Company and each Holder agrees that it would not be
just or equitable if contribution pursuant to this Section 5 were determined by
pro rata allocation or by any other method of allocation that does not take
account of the equitable considerations referred to in paragraph (d) above. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities referred to in paragraph (d) above shall be
deemed to include, subject to the limitations set forth above, any legal or
other expenses reasonably incurred (and not otherwise reimbursed) by such
indemnified party in connection with investigating or defending any such action
or claim. No person guilty of fraudulent misrepresentation (within the meaning
of section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The remedies
provided for in this Section 5 are not exclusive and shall not limit any rights
or remedies which may otherwise be available to any indemnified party at law or
in equity.
6. Miscellaneous. (a) No Inconsistent Agreements. The
Company has not entered into nor will the Company on or after the date of this
Agreement enter into any agreement which is inconsistent with the rights granted
to the Holders of Registrable Securities in this Agreement or otherwise
conflicts with the provisions hereof. The
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<PAGE>
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 other
issued and outstanding securities, if any, under any such agreements.
(b) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of Holders
of at least a majority of the sum of the outstanding number of Warrant Shares
and number of Warrant Shares subject to Warrants affected by such amendment,
modification, supplement, waiver or consent; provided, however, a waiver or
consent to departure from the provisions hereof that relates exclusively to the
rights of Holders of Registrable Securities whose securities are being sold
pursuant to a registration statement and that does not directly or indirectly
affect the rights of other Holders of Registrable Securities may be given by the
Holders of a majority of the Registrable Securities proposed to be sold.
(c) Notices. All notices and other communications provided for
or permitted hereunder shall be made in writing by hand delivery, registered
first-class mail, telex, telecopier, or any courier guaranteeing overnight
delivery (i) if to the Initial Purchaser, at its address set forth in the
Purchase Agreement; (ii) if to the Company or an Existing Stockholder, at the
Company's address set forth in the Purchase Agreement; (iii) if to a holder of
Warrants, as set forth in the register of the Warrants; and (iv) if to a holder
of Warrant Shares, at such holder's address as set forth in the stock books of
the Company. 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 is acknowledged, if telecopied; and
on the next business day, if timely delivered to an air courier guaranteeing
overnight delivery.
(d) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors, assigns and transferees of each
of the parties. If any transferee of any Holder shall acquire Warrants and
Warrant Shares, in any manner, whether by operation of law or otherwise, such
Warrants and Warrant Shares shall be held subject to all of the terms of this
Agreement, and by
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<PAGE>
taking and holding such Warrants and Warrant Shares such person shall be
conclusively deemed to have agreed to be bound by and to perform all of the
terms and provisions of this Agreement and such person shall be entitled to
receive the benefits hereof.
(e) Third Part Beneficiary. All Holders shall be a third party
beneficiary to the agreements made hereunder between the Company, on the one
hand, and the Initial Purchaser, on the other hand, and the Initial Purchaser
shall have the right to enforce such agreements directly to the extent it deems
such enforcement necessary or advisable to protect its rights or the rights of
Holders hereunder.
(f) Counterparts. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(h) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
(i) 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 impair thereby.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
NORTH ATLANTIC TRADING COMPANY,
INC.
By: /s/ Thomas F. Helms, Jr.
-----------------------------
Name: Thomas F. Helms, Jr.
Title: President and CEO
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<PAGE>
NATWEST CAPITAL MARKETS LIMITED
By: /s/ Greg B. Bowes
------------------------------
Name: Greg B. Bowes
Title: Managing Director
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<PAGE>
NORTH ATLANTIC TRADING ACQUISITION COMPANY, INC
$155,000,000
11% Senior Notes due 2004
PURCHASE AGREEMENT
June 18, 1997
NatWest Capital Markets Limited
135 Bishopsgate
London, EC2M 3XT
United Kingdom
CIBC Wood Gundy Securities Corp.
425 Lexington Avenue
New York, New York 10017
Ladies and Gentlemen:
North Atlantic Trading Acquisition Company, Inc. a Delaware
corporation (the "Company"), and the subsidiary guarantors listed in Schedule 2
attached hereto (the "Guarantors") each hereby confirm its agreement with each
of you (the "Initial Purchasers"), as set forth below.
1. The Securities. Subject to the terms and conditions herein
contained, the Company proposes to issue and sell to the Initial Purchasers
$155,000,000 aggregate principal amount of its 11% Senior Notes due 2004
(collectively, with the guarantees defined below, the "Notes"). The Notes will
be guaranteed (the "Guarantees") by each of the Guarantors on a senior basis.
The Notes are to be issued under an indenture (the "Indenture") to be dated as
of June
<PAGE>
15, 1997 by and among the Company and United States Trust Company, as trustee
(the "Trustee").
The Notes will be offered and sold to the Initial Purchasers
without being registered under the Securities Act of 1933, as amended (the
"Act"), in reliance on exemptions therefrom.
In connection with the sale of the Notes, the Company has
prepared a preliminary offering memorandum dated June 16, 1997 (the "Preliminary
Memorandum") and will prepare a final offering memorandum dated June 18, 1997
(the "Final Memorandum"; the Preliminary Memorandum and the Final Memorandum
each herein being referred to as a "Memorandum") setting forth or including a
description of the terms of the Notes, the terms of the offering of the Notes, a
description of the Company and the Guarantors and any material developments
relating to the Company and the Guarantors occurring after the date of the most
recent historical financial statements included therein.
The Company, the Guarantors and the Initial Purchasers will
enter into a Registration Rights Agreement (the "Registration Rights Agreement")
prior to or concurrently with the issuance of the Notes. Pursuant to the
Registration Rights Agreement, under the circumstances and the terms set forth
therein, the Company, the Guarantors will agree to file with the Securities and
Exchange Commission (the "Commission"): (i) a registration statement (the
"Exchange Offer Registration Statement"), relating to a registered Exchange
Offer (as defined in the Registration Rights Agreement) for the Notes under the
Act to offer to the holders of the Notes the opportunity to exchange their Notes
for an issue of notes substantially identical to the Notes that would be
registered under the Act (the "Exchange Notes") (except that (a) interest
thereon will accrue from the last date on which interest was paid on the Notes,
or if no such interest has been paid, from June 25, 1997, (b) such Notes will
not contain any restrictions on transfer, and (c) such Notes will not contain
provisions relating to an increase in their interest rate under certain
circumstances); or (ii) alternatively, in the event that applicable
interpretations of the Commission do not permit the Company to effect the
Exchange Offer or do not permit any holder of the Notes to participate in the
Exchange Offer, a shelf registration statement (the "Shelf Registration
Statement") to cover resales of Notes by such holders who satisfy certain
conditions relating to, including the provision of information in connection
with the Shelf Registration Statement.
2. Representations and Warranties. The Company and each
Guarantor represents and warrants to, and agrees, jointly and severally, with
each of the Initial Purchasers that:
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<PAGE>
(a) Neither the Preliminary Memorandum as of the date thereof
nor the Final Memorandum nor any amendment or supplement thereto as of
the date thereof and, in the case of the Final Memorandum and any
amendment or supplement thereto, at all times subsequent thereto up to
the Closing Date (as defined in Section 3 below) contained or shall
contain any untrue statement of a material fact or omitted or omits to
state a material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading,
except that the representations and warranties set forth in this
Section 2(a) do not apply to statements or omissions made in reliance
upon and in conformity with information furnished to the Company in
writing by the Initial Purchasers expressly for use in the Preliminary
Memorandum, the Final Memorandum or any amendment or supplement
thereto.
(b) As of the Closing Date, the Company will have the
capitalization set forth in the Final Memorandum; the Guarantors
constitute all of the subsidiaries of the Company; the Company will own
one hundred percent of the issued and outstanding stock (or other
equity securities) of each Guarantor; all of the outstanding shares of
capital stock of the Company and the Guarantors as of the Closing Date
will be duly authorized and validly issued, are fully paid and
nonassessable (except with respect to the Company's stock to the extent
of loans outstanding to executive officers as described in the
Memorandum) and were not issued in violation of any preemptive or
similar rights (except to the extent that SGIC, as defined below,
alleges any such rights to arise out of its interest in LLC, as defined
below); except as set forth in the Final Memorandum and for any claim
that may be asserted by Societe Generale Investment Corporation
("SGIC") with respect to SGIC's interest in NTC Holding LLC ("LLC") as
described therein, there are no (i) options, warrants or other rights
to purchase from the Company and the Guarantors, (ii) agreements or
other obligations of the Company or any of the Guarantors to issue or
(iii) other rights to convert any obligation into, or exchange any
securities for, shares of capital stock of, or other equity securities
in, the Company or any of the Guarantors outstanding. The entities
listed on Schedule 2 hereto collectively (the "Subsidiaries") are the
only subsidiaries, direct or indirect, of the Company other than LLC.
Except as disclosed on Schedule 2, the Company does not own, directly
or indirectly, any capital stock or any other equity or long-term debt
securities or have any equity interest in any firm, partnership, joint
venture, limited liability company or other entity other than LLC in
which it owns all of the membership interests therein other than those
owned by SGIC.
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<PAGE>
(c) The Company and each of National Tobacco Finance
Corporation and North Atlantic Operating Company, Inc. (the "Corporate
Subsidiaries") has been duly incorporated, is validly existing and is
in good standing as a corporation under the laws of its jurisdiction of
incorporation, with all requisite corporate power and authority to own
its properties and conduct its business as now conducted, and as
described in the Final Memorandum; National Tobacco, L.P. ("National
Tobacco") is a limited partnership duly organized and subsisting under
the laws of the State of Delaware, with the requisite partnership power
and authority to own its properties and conduct its business as now
conducted and as described in the Final Memorandum; LLC is a limited
liability company duly organized and subsisting under the laws of the
State of Delaware and does not have any assets except those that will
be transferred to the Company; the Company and each Guarantor is duly
qualified to do business as a foreign corporation in good standing in
all other jurisdictions where the ownership or leasing of its
properties or the conduct of its business requires such qualification,
except where the failure to be so qualified would not, individually or
in the aggregate, have a material adverse effect on the general
affairs, management, business, condition (financial or otherwise),
prospects or results of operations of the Company and the Guarantors,
taken as a whole (any such event, a "Material Adverse Effect").
(d) The Company and each Guarantor has all requisite corporate
or partnership power and authority, as the case may be, to execute,
deliver and perform its obligations under the Notes, including, in the
case of the Guarantors, the Guarantees, and the Exchange Notes. The
Notes, the Exchange Notes and the Guarantees will be duly and validly
authorized by the Company and each of the Guarantors prior to the
Closing and, when executed and delivered by the Company and each of the
Guarantors against payment therefor by the Initial Purchasers in
accordance with the terms of this Agreement (and assuming the due
authorization, execution and delivery of the Indenture by the Trustee
and the execution and delivery of certificates of authentication of the
Notes in the manner prescribed in the Indenture by one of the Trustee's
duly authorized officers) will have been duly executed, issued and
delivered and will constitute valid and legally binding obligations of
the Company and each of the Guarantors with respect to its obligations
thereunder, entitled to the benefits of the Indenture and enforceable
against the Company and each of the Guarantors in accordance with their
terms, subject to applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally, and subject, as to
enforceability, to general principles of
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<PAGE>
equity, including principles of commercial reasonableness, good faith
and fair dealing (regardless of whether a proceeding is sought at law
or in equity).
(e) The Company and each of the Guarantors has all requisite
corporate power and authority to execute, deliver and perform its
obligations under the Indenture. The Indenture will be duly and validly
authorized by the Company and each of the Guarantors prior to the
Closing and, when executed and delivered by the Company and each of the
Guarantors (assuming the due authorization, execution and delivery by
the Trustee), will constitute a valid and legally binding obligation of
the Company and each of the Guarantors with respect to its obligations
thereunder, enforceable against the Company and each of the Guarantors
in accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally, and
subject, as to enforceability, to general principles of equity,
including principles of commercial reasonableness, good faith and fair
dealing (regardless of whether a proceeding is sought at law or in
equity).
(f) The Company and each of the Guarantors has all requisite
corporate power and authority to execute, deliver and perform its
obligations under the Registration Rights Agreement. The Registration
Rights Agreement will be duly and validly authorized by the Company and
each of the Guarantors prior to the Closing and, when executed and
delivered by the Company and each of the Guarantors, will constitute a
valid and legally binding obligation of the Company and each of the
Guarantors with respect to its obligations thereunder, enforceable
against the Company and each of the Guarantors in accordance with its
terms, subject to applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally, and subject, as to
enforceability, to general principles of equity, including principles
of commercial reasonableness, good faith and fair dealing (regardless
of whether a proceeding is sought at law or in equity) and except that
rights of indemnification and contribution thereunder may be limited by
Federal or state securities laws or public policy relating thereto.
(g) The Company and each of the Guarantors has all requisite
corporate power and authority to execute, deliver and perform its
obligations under this Agreement and to consummate the transactions
contemplated hereby. This Agreement has been duly and validly
authorized, executed and delivered by the Company and each of the
Guarantors .
-5-
<PAGE>
(h) No consent, approval, authorization or order of any court
or governmental agency or body or third party is required for the
execution, delivery or performance of this Agreement by the Company or
the consummation by the Company or any of the Guarantors of the
transactions contemplated hereby that are to be completed on or before
the Closing Date, except such as have been obtained or disclosed in the
Final Memorandum and such as may be required under state securities or
"Blue Sky" laws or foreign securities laws in connection with the
purchase and resale of the Notes by the Initial Purchasers. None of the
Company or any of the Guarantors is (i) in violation of its certificate
of incorporation or bylaws (or similar organizational document), (ii)
in breach or violation of any statute, judgment, decree, order, rule or
regulation applicable to any of them or any of their respective
properties or assets, or (iii) in breach of or in default under (nor
has any event occurred which, with notice or passage of time or both,
would constitute a default under) or in violation of any of the terms
or provisions of any indenture, mortgage, deed of trust, loan
agreement, note, lease, license, franchise agreement, permit,
certificate, contract or other agreement or instrument to which any of
them is a party or to which any of them or their respective properties
or assets is subject (collectively, "Contracts") except in the case of
clauses (ii) and (iii) above such violations, breaches or defaults that
would not, individually or in the aggregate, have a Material Adverse
Effect.
(i) The execution, delivery and performance by the Company and
the Guarantors of this Agreement, the Indenture, and the Registration
Rights Agreement and the consummation by the Company and the Guarantors
of the transactions contemplated hereby and thereby, and the
fulfillment of the terms hereof and thereof, and the retention by the
Company of NatWest Capital Markets Limited ("NatWest") and CIBC Wood
Gundy Securities Corp., ("CIBC") pursuant to those certain letter
agreements (including the engagement and indemnity letter agreements)
dated as of May 19, 1997 (collectively, the "Engagement Letter") and
NatWest's and CIBC's acting as contemplated hereby and thereby, will
not conflict with or constitute or result in a breach of or a default
under (or an event which with notice or passage of time or both would
constitute a default under) or violation of any of (i) the terms or
provisions of any Contract except such conflicts, breaches, defaults or
violations, that would not, individually or in the aggregate, have a
Material Adverse Effect, (ii) the certificate of incorporation or
by-laws (or similar organizational document) of the Company or any of
the Guarantors, or (iii) (assuming compliance with all applicable state
securities or "Blue Sky" laws and assuming the accuracy of the
representations and warranties of
-6-
<PAGE>
the Initial Purchasers in Section 8 hereof) any statute, judgment,
decree, order, rule or regulation applicable to the Company or any of
the Guarantors or any of their respective properties or assets except
such conflicts, breaches, defaults or violations that would not,
individually or in the aggregate, have a Material Adverse Effect.
(j) The audited consolidated financial statements of the
entities included in the Preliminary Memorandum and the Final
Memorandum present fairly in all material respects the financial
position, results of operations and cash flows of such entities at the
dates and for the periods to which they relate and have been prepared
in accordance with generally accepted accounting principles applied on
a consistent basis except as otherwise stated therein. The summary and
selected financial and statistical data in the Preliminary Memorandum
and the Final Memorandum present fairly in all material respects the
information shown therein and have been prepared and compiled on a
basis consistent with the audited financial statements included
therein, except as otherwise stated therein. Coopers & Lybrand L.L.P.
is an independent public accounting firm within the meaning of the Act
and the rules and regulations promulgated thereunder.
(k) The pro forma financial information included in the
Preliminary Memorandum and the Final Memorandum have been properly
computed on the bases described therein; the assumptions used in the
preparation of the pro forma financial data and other pro forma
financial information included in the Preliminary Memorandum and the
Final Memorandum are reasonable and the adjustments used therein are
appropriate to give effect to the transactions or circumstances
referred to therein.
(l) There is not pending or, to the knowledge of the Company
and the Guarantors, threatened any action, suit, proceeding, inquiry,
investigation or legislative mandate to which the Company or any of the
Guarantors is a party, or to which the property or assets of the
Company or any of the Guarantors are subject, before or brought by any
court, arbitrator or governmental agency or body which are reasonably
likely to, individually or in the aggregate, have a Material Adverse
Effect or which seeks to restrain, enjoin, prevent the consummation of
or otherwise challenge the issuance or sale of the Notes to be sold
hereunder or the consummation of the other transactions described in
the Preliminary Memorandum and the Final Memorandum, including but not
limited the transactions described under the section "Transactions"
(the "Transactions").
-7-
<PAGE>
(m) Each of the Company and the Guarantors owns or possesses
adequate licenses or other rights to use all material patents,
trademarks, service marks, trade names, copyrights and know-how
necessary to conduct the businesses now or proposed to be operated by
it as described in the Preliminary Memorandum and the Final Memorandum,
except where the failure to own or possess the same would not,
individually or in the aggregate, have a Material Adverse Effect, and
none of the Company nor any of the Guarantors has received any notice
of infringement of or conflict with (or knows of any such infringement
of or conflict with) asserted rights of others with respect to any
patents, trademarks, service marks, trade names, copyrights or know-how
which, if such assertion of infringement or conflict were sustained,
would, individually or in the aggregate, have a Material Adverse
Effect.
(n) The Company and each of the Guarantors possesses all
licenses, permits, certificates, consents, orders, approvals and other
authorizations from, and has made all declarations and filings with,
all federal, state, local and other governmental authorities, all
self-regulatory organizations and all courts and other tribunals,
presently required or necessary to own or lease, as the case may be,
and to operate its respective properties and to carry on its respective
businesses as now or proposed to be conducted as described in the
Preliminary Memorandum and the Final Memorandum (collectively, the
"Permits"), except where the failure to obtain such Permits would not,
individually or in the aggregate, have a Material Adverse Effect.
(o) Since the date of the most recent financial statements
appearing in and the Final Memorandum, except as described therein, (i)
none of the Company nor the Guarantors has incurred any liabilities or
obligations, direct or contingent, or entered into or agreed to enter
into any transactions or contracts (written or oral) not in the
ordinary course of business which liabilities, obligations,
transactions or contracts would, individually or in the aggregate, be
material to the general affairs, management, business, condition
(financial or otherwise), prospects or results of operations of the
Company and the Guarantors, either individually or taken as a whole (a
"Material Change"), (ii) none of the Company nor the Guarantors has
purchased any of its outstanding capital stock, nor declared, paid or
otherwise made any dividend or distribution of any kind on its capital
stock and (iii) other than as described in the Final Memorandum, there
shall not have been any change in the capital stock or long-term
indebtedness of the Company or the Guarantors which would, individually
or in the aggregate, constitute a Material Change.
-8-
<PAGE>
(p) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
general affairs, management, business, condition, (financial or
otherwise), prospects or results of operations of the Company and the
Guarantors, either individually or taken as a whole, from that set
forth in the Preliminary Memorandum and the Final Memorandum.
(q) The Company and each of the Guarantors has filed all
necessary federal, state, local and foreign income and franchise tax
returns, and has paid all taxes shown as due thereon; and there is no
tax deficiency that has been asserted against the Company or any of the
Guarantors other than tax deficiencies which the Company or any
Guarantor is contesting in good faith and for which the Company or such
Guarantor has provided adequate reserves.
(r) The statistical and market-related data included in the
Final Memorandum are based on or derived from sources which the Company
and the Guarantors believe to be reliable and accurate.
(s) None of the Company, the Guarantors nor any agent acting
on their behalf has taken or will take any action that might cause this
Agreement or the sale of the Notes to violate Regulation G, T, U or X
of the Board of Governors of the Federal Reserve System, in each case
as in effect, or as the same may hereafter be in effect, on the Closing
Date.
(t) Each of the Company and the Guarantors has good and
marketable title to all real property and good title to all personal
property described in the Preliminary Memorandum and the Final
Memorandum as being owned by it and good and marketable title to any
leasehold estate in the real and personal property described in the
Preliminary Memorandum and the Final Memorandum as being leased by it
free and clear of all liens, charges, encumbrances or restrictions,
except as described in the Preliminary Memorandum and the Final
Memorandum or to the extent the failure to have such title or the
existence of such liens, charges, encumbrances or restrictions would
not, individually or in the aggregate, have a Material Adverse Effect.
(u) There are no legal or governmental proceedings involving
or affecting the Company or any Guarantor or any of their respective
properties or assets which would be required to be described in a
prospectus forming part of a registration statement filed with the
Commission pursuant to the Act
-9-
<PAGE>
that are not described in the Preliminary Memorandum and the Final
Memorandum.
(v) Except as would not, individually or in the aggregate, be
reasonably expected to have a Material Adverse Effect (A) each of the
Company and the Guarantors is in compliance with and not subject to
liability under applicable Environmental Laws (as defined below), (B)
each of the Company and the Guarantors has made all filings and
provided all notices required under any applicable Environmental Laws,
and has and is in compliance with all Permits required under any
applicable Environmental Laws and each of them is in full force and
effect, (C) there is no civil, criminal or administrative action, suit,
demand, claim, hearing, notice of violation, investigation, proceeding,
notice or demand letter or request for information pending or, to the
knowledge of the Company or any of the Guarantors, threatened against
the Company or any of the Guarantors under any Environmental Law, (D)
no lien, charge, encumbrance or restriction has been recorded under any
Environmental Law with respect to any assets, facility or property
owned, operated, leased or controlled by the Company or any of the
Guarantors, (E) none of the Company or the Guarantors has received
notice that it has been identified as a potentially responsible party
under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA") or any comparable state
law, (F) no property or facility of the Company or any of the
Guarantors is (i) listed or proposed for listing on the National
Priorities List under CERCLA or is (ii) listed in the Comprehensive
Environmental Response, Compensation, Liability Information System List
promulgated pursuant to CERCLA, or on any comparable list maintained by
any state or local governmental authority.
For purposes of this Agreement, "Environmental Laws" means the
common law and all applicable federal, state and local laws or
regulations, codes, orders, decrees, judgments or injunctions issued,
promulgated, approved or entered thereunder, relating to pollution or
protection of public or employee health and safety or the environment,
including, without limitation, law relating to (i) emissions,
discharges, releases or threatened releases of hazardous materials,
into the environment (including, without limitation, ambient air,
surface water, ground water, land surface or subsurface strata), (ii)
the manufacture, processing, distribution, use, generation, treatment,
storage, disposal, transport or handling of hazardous materials, and
(iii) underground and above ground storage tanks, and related piping,
and emissions, discharges, releases or threatened releases therefrom.
-10-
<PAGE>
(w) There is no strike, labor dispute, slowdown or work
stoppage with the employees of the Company or any of the Guarantors
which is pending or, to the knowledge of the Company or any of the
Guarantors, threatened.
(x) Except for the risks described under "Extensive and
Increasing Regulation of Products", "Tobacco Industry Product Liability
Litigation" and "Possible National Settlement of Tobacco Liability
Claims" in "Risk Factors" in the Final Memorandum, each of the Company
and the Guarantors carries insurance in such amounts and covering such
risks as is adequate for the conduct of its business and the value of
its properties. Neither the Company nor any of the Guarantors has
received notice from any insurer or agent of such insurer that capital
improvements or other expenditures are required or necessary to be made
in order to continue such insurance.
(y) None of the Company nor the Guarantors has any material
liability for any prohibited transaction (within the meaning of Section
4975(c) of the Internal Revenue Code of 1986, as amended (the "Code")
or Part 4 of Title I of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")) (or an accumulated funding deficiency
within the meaning of Section 412 of the Code or Section 302 of ERISA)
or any complete or partial withdrawal liability (within the meaning of
Section 4201 of ERISA) with respect to any pension, profit sharing or
other plan which is subject to ERISA, to which the Company or any of
the Subsidiaries makes or ever has made a contribution and in which any
employee of the Company or of any Subsidiary is or has ever been a
participant. With respect to such plans, the Company and each
Subsidiary is in compliance in all material respects with all
applicable provisions of ERISA.
(z) The Company and each of the Guarantors (i) makes and keeps
accurate books and records and (ii) maintains internal accounting
controls which provide reasonable assurance that (A) transactions are
executed in accordance with management's authorization, (B)
transactions are recorded as necessary to permit preparation of its
financial statements and to maintain accountability for its assets, (C)
access to its assets is permitted only in accordance with management's
authorization and (D) the reported accountability for its assets is
compared with existing assets at reasonable intervals.
(aa) None of the Company or the Guarantors will be an
"investment company" or "promoter" or "principal underwriter" for an
"investment
-11-
<PAGE>
company," as such terms are defined in the Investment Company Act of
1940, as amended, and the rules and regulations thereunder.
(bb) The Notes, the Exchange Notes, the Indenture and the
Registration Rights Agreement will conform in all material respects to
the descriptions thereof in the Final Memorandum.
(cc) No holder of securities of the Company nor any of the
Guarantors will be entitled to have such securities registered under
the registration statements required to be filed by the Company
pursuant to the Registration Rights Agreement other than as expressly
permitted thereby.
(dd) Immediately after the consummation of the transactions
contemplated by this Agreement, the fair value and present fair
saleable value of the assets of each of the Company and the Guarantors
(each on a consolidated basis) will exceed the sum of its stated
liabilities and identified contingent liabilities; none of the Company
or the Guarantors (each on a consolidated basis) is, nor will any of
the Company or the Guarantors (each on a consolidated basis) be, after
giving effect to the execution, delivery and performance of this
Agreement, and the consummation of the transactions contemplated
hereby, (a) left with unreasonably small capital with which to carry on
its business as it is currently or proposed to be conducted, (b) unable
to pay its debts (contingent or otherwise) as they mature or otherwise
become due or (c) otherwise insolvent.
(ee) None of the Company, the Guarantors or any of their
respective Affiliates (as defined in Rule 501(b) of Regulation D under
the Act) has directly, or through any agent, (i) sold, offered for
sale, solicited offers to buy or otherwise negotiated in respect of,
any "security" (as defined in the Act) which is or could be integrated
with the sale of the Notes in a manner that would require the
registration under the Act of the Notes or (ii) engaged in any form of
general solicitation or general advertising (as those terms are used in
Regulation D under the Act) in connection with the offering of the
Notes or in any manner involving a public offering within the meaning
of Section 4(2) of the Act. The Company has not distributed and will
not distribute any offering material in connection with the Offering
other than the Final Memorandum and any Preliminary Memorandum. No
securities of the same class as the Notes have been issued and sold by
the Company within the six-month period immediately prior to the date
hereof.
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<PAGE>
(ff) Assuming the accuracy of the representations and
warranties of the Initial Purchasers in Section 8 hereof, it is not
necessary in connection with the offer, sale and delivery of the Notes
to the Initial Purchasers in the manner contemplated by this Agreement
to register any of the Notes under the Act or to qualify the Indenture
under the TIA.
(gg) No securities of the Company or any Subsidiary are of the
same class (within the meaning of Rule 144A as promulgated under the
Act ("Rule 144A")) as the Notes and listed on a national securities
exchange registered under Section 6 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), or quoted in a U.S. automated
inter-dealer quotation system.
(hh) None of the Company or the Guarantors has taken, nor will
any of them take, directly or indirectly, any action designed to, or
that might be reasonably expected to, cause or result in stabilization
or manipulation of the price of the Notes.
(ii) None of the Company or the Guarantors, or any person
acting on any of their behalf (other than the Initial Purchasers) has
engaged in any directed selling efforts (as that term is defined in
Regulation S under the Act ("Regulation S")) with respect to the Notes;
the Company and its respective Affiliates and any person acting on any
of their behalf (other than the Initial Purchasers or any Affiliate of
the Initial Purchasers) have complied with the offering restrictions
requirement of Regulation S.
(jj) Each of the Preliminary Memorandum and the Final
Memorandum, as of its respective date, contains all of the information
that, if requested by a prospective purchaser of the Notes, would be
required to be provided to such prospective purchaser pursuant to Rule
144A(d)(4) under the Act.
(kk) The Notes satisfy the eligibility requirements of Rule
144A(d)(3) under the Act.
(ll) Neither the Company nor any of the Guarantors nor, to the
Company's knowledge, any officer or director purporting to act on
behalf of the Company or any of the Guarantors has at any time: (i)
made any contributions to any candidate for political office, or failed
to disclose fully any such contributions, in violation of law, (ii)
made any payment of funds to, or received or retained any funds from,
any state, federal or foreign
-13-
<PAGE>
governmental officer or official, or other person charged with similar
public or quasi-public duties, other than payments required or allowed
by applicable law, (iii) violated or is in violation of any provision
of the Foreign Corrupt Practices Act of 1977, (iv) made any bribe,
rebate, payoff, influence payment, kickback or other unlawful payment
or (v) engaged in any transaction, maintained any bank account or used
any corporate funds except for transaction, bank accounts and funds
which have been and are reflected in the normally maintained books and
records of the Company and the Guarantors.
(mm) Except as disclosed in any Memorandum, there are no
material outstanding loans or advances or material guarantees of
indebtedness by the Company or any of its Guarantors to or for the
benefit of any of the officers or directors of the Company or any of
its Guarantors or any of the members of the families of any of them.
(nn) Neither the Company nor any affiliate of the Company does
business with the government of Cuba or with any person or affiliate
located in Cuba within the meaning of Florida Statutes Section 517.075.
(oo) None of the Company nor the Guarantors has engaged or
retained any person, other than NatWest and CIBC, as the Initial
Purchasers, to act as a financial advisor, underwriter or placement
agent in connection with the issuance of the Notes and, except for the
fees and expenses payable in connection with the issuance of the Notes
as described in the Final Memorandum and the advisory fees payable to
UBS Securities LLC, no person has the right to receive a material
amount of financial advisory, underwriting, placement, finder's or
similar fees in connection with, or as a result of, the issuance of the
Notes and the purchase of the Notes by the Initial Purchasers or the
consummation of the other transactions contemplated hereby.
Any certificate signed by any officer of the Company or any
Guarantor and delivered to the Initial Purchasers or to counsel for the Initial
Purchasers shall be deemed a joint and several representation and warranty by
the Company and each of the Guarantors to the Initial Purchasers as to the
matters covered thereby.
3. Purchase, Sale and Delivery of the Notes. On the basis of
the representations, warranties, agreements and covenants herein contained and
subject to the terms and conditions herein set forth, the Company agrees to
issue and sell to
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<PAGE>
each of the Initial Purchasers, and each of the Initial Purchasers agrees,
severally and not jointly, to purchase from the Company the principal amount of
Notes set forth opposite its name on Schedule 1 hereto at 96.75% of their
principal amount. One or more certificates in definitive form for the Notes that
each of the Initial Purchasers has agreed to purchase hereunder, and in such
denomination or denominations and registered in such name or names as each of
the Initial Purchasers requests upon notice to the Company at least 48 hours
prior to the Closing Date, shall be delivered by or on behalf of the Company to
each of the Initial Purchasers, against payment by or on behalf of such Initial
Purchaser of the purchase price therefor by wire transfer to such account or
accounts as the Company shall specify prior to the Closing Date, or by such
means as the parties hereto shall agree prior to the Closing Date. Such delivery
of and payment for the Notes shall be made at the offices of Weil, Gotshal &
Manges L.L.P., 767 Fifth Avenue, New York, NY at 10:00 A.M., New York time, on
June 25, 1997, or at such other place, time or date as the Initial Purchasers,
on the one hand, and the Company, on the other hand, may agree upon, such time
and date of delivery against payment being herein referred to as the "Closing
Date." The Company will make such certificate or certificates for the Notes
available for inspection and packaging by the Initial Purchasers at such place
as designated by the Initial Purchasers at least 24 hours prior to the Closing
Date.
4. Offering by the Initial Purchasers. The Initial Purchasers
propose to make an offering of the Notes at the price and upon the terms set
forth in the Final Memorandum, as soon as practicable after this Agreement is
entered into and as in the judgment of the Initial Purchasers is advisable.
5. Covenants of the Company and the Guarantors. Each of the
Company and the Guarantors, jointly and severally, covenants and agrees with the
Initial Purchasers that:
(a) The Company and the Guarantors will not amend or
supplement the Final Memorandum or any amendment or supplement thereto
of which the Initial Purchasers shall not previously have been advised
and furnished a copy for a reasonable period of time prior to the
proposed amendment or supplement and as to which the Initial Purchasers
shall not have consented. The Company and the Guarantors will promptly,
upon the reasonable request of the Initial Purchasers or counsel for
the Initial Purchasers, make any amendments or supplements to the Final
Memorandum that may be necessary or advisable in connection with the
resale of the Notes by the Initial Purchasers.
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<PAGE>
(b) The Company and the Guarantors will cooperate with the
Initial Purchasers in arranging for the qualification of the Notes for
offering and sale under the securities or "Blue Sky" laws of which
jurisdictions as the Initial Purchasers may designate and will continue
such qualifications in effect for as long as may be necessary to
complete the resale of the Notes; provided, however, that in connection
therewith, none of the Company nor any Guarantor shall be required to
qualify as a foreign corporation or to execute a general consent to
service of process in any jurisdiction or subject itself to taxation in
excess of a nominal dollar amount in any such jurisdiction where it is
not then so subject.
(c) If, at any time prior to the completion of the
distribution by the Initial Purchasers of the Notes, any event occurs
or information becomes known as a result of which the Final Memorandum
as then amended or supplemented would, in the judgment of the Company,
the Guarantors or in the reasonable opinion of counsel for the Initial
Purchasers include any untrue statement of a material fact, or omit to
state a material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading,
or if for any other reason it is necessary at any time to amend or
supplement the Final Memorandum to comply with applicable law, the
Company and the Guarantors will promptly notify the Initial Purchasers
thereof and will prepare, at the expense of the Company and the
Guarantors, an amendment or supplement to the Final Memorandum that
corrects such statement or omission or effects such compliance.
(d) The Company and the Guarantors will, without charge,
provide to the Initial Purchasers and to counsel for the Initial
Purchasers as many copies of the Preliminary Memorandum and the Final
Memorandum or any amendment or supplement thereto as the Initial
Purchasers may reasonably request.
(e) The Company and the Guarantors will apply the net proceeds
from the sale of the Notes substantially as set forth under "Use of
Proceeds" in the Final Memorandum.
(f) From the Closing Date until the date that no Notes are
outstanding under the Indenture, the Company and the Guarantors will
furnish to the Initial Purchasers copies of all reports and other
communications (financial or otherwise) furnished by the Company to the
Trustee or the holders of the Notes and, as soon as available, copies
of any reports or financial statements furnished to or filed by the
Company or any Guarantors
-16-
<PAGE>
with the Commission or any national securities exchange on which any
class of securities of the Company or any Guarantors may be listed.
(g) Prior to the Closing Date, the Company will furnish to the
Initial Purchasers, as soon as they have been prepared, a copy of any
unaudited interim financial statements of the Company and the
Guarantors for any period subsequent to the period covered by the most
recent financial statements appearing in the Final Memorandum.
(h) None of the Company, the Guarantors or any of their
Affiliates will sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any "security" (as defined in the
Act) which could be integrated with the sale of the Notes in a manner
which would require the registration under the Act of the Notes.
(i) None of the Company nor the Guarantors will engage in any
form of "general solicitation" or "general advertising" (as those terms
are used in Regulation D under the Act) in connection with the offering
of the Notes or in any manner involving a public offering of the Notes
within the meaning of Section 4(2) of the Act.
(j) None of the Company, the Guarantors nor their Affiliates
nor any person acting on its or their behalf to engage, in any directed
selling efforts (as that term is defined in Regulation S) with respect
to the Notes, and to comply, and to have its Affiliates and each person
acting on its or their behalf comply, with the offering restrictions
requirements of Regulation S.
(k) For so long as any of the Notes remain outstanding, the
Company and the Guarantor will make available, upon request, to any
seller of such Notes the information specified in Rule 144A(d)(4) under
the Act, unless the Company and the Guarantor are then subject to
Section 13 or 15(d) of the Exchange Act.
(l) For a period of 180 days from the date of the Final
Memorandum, the Company and the Guarantor will not offer for sale,
sell, contract to sell or otherwise dispose of, directly or indirectly,
or file a registration statement for, or announce any offer, sale,
contract for sale of or other disposition of any debt securities issued
or guaranteed by the Company or any of the Guarantors (other than the
Notes or the Exchange Notes) without the prior written consent of the
Initial Purchasers.
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<PAGE>
(m) During the period from the Closing Date until two years
after the Closing Date, without the prior written consent of the
Initial Purchasers, the Company and the Guarantors will not, and will
not permit any of their affiliates (as defined in Rule 144 under the
Act) to, resell any of the Notes that have been reacquired by them,
except for Notes purchased by the Company or any of its affiliates and
resold in a transaction registered under the Act.
(n) In connection with the offering of the Notes, until the
Initial Purchasers shall have notified the Company of the completion of
the resale of the Notes, the Company and the Guarantors will not, and
will cause their affiliated purchasers (as defined in the Exchange Act)
not to, either alone or with one or more other persons, bid for or
purchase, for any account in which it or any of its affiliated
purchasers has a beneficial interest, any Notes, or attempt to induce
any person to purchase any Notes; and not to, and to cause its
affiliated purchasers not to, make bids or purchase for the purpose of
creating actual, or apparent, active trading in or of raising the price
of the Notes.
(o) Except as contemplated in the Final Memorandum, the
Company and the Guarantors will not take any action prior to the
execution and delivery of the Indenture which, if taken after such
execution and delivery, would have violated any of the covenants
contained in the Indenture.
(p) The Company and the Guarantors will not take any action
prior to Closing Date which would require the Final Memorandum to be
amended or supplemented pursuant to Section 5(c) hereof.
(q) Prior to the Closing Date, the Company and the Guarantors
will not issue any press release or other communication directly or
indirectly or hold any press conference with respect to the Company or
the Guarantors or the condition, financial or otherwise of any of them,
or earnings, business affairs or business prospects (except for routine
oral marketing communications in the ordinary course of business and
consistent with the past practices of the Company and of which the
Initial Purchasers is notified), without the prior written consent of
the Initial Purchasers, unless in the judgment of the Company and its
counsel, after notification to the Initial Purchasers, such press
release or communication is required by law.
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(r) The Company will use its best efforts to (i) permit the
Notes to be designated PORTAL securities in accordance with the rules
and regulations adopted by the NASD relating to trading in the Private
Offerings, Resales and Trading through Automated Linkages market (the
"Portal Market") and (ii) permit the Notes to be eligible for clearance
and settlement through the Depository Trust Company ("DTC").
6. Expenses. The Company and the Guarantors agree, jointly and
severally, to pay all costs and expenses incident to the performance of their
obligations under this Agreement, whether or not the transactions contemplated
herein are consummated or this Agreement is terminated pursuant to Section 11
hereof, including all costs and expenses incident to (i) the printing, word
processing or other production of documents with respect to the transactions
contemplated hereby, including any costs of printing the Preliminary Memorandum
and the Final Memorandum and any amendment or supplement thereto, and any "Blue
Sky" memoranda, (ii) all arrangements relating to the delivery to the Initial
Purchasers of copies of the foregoing documents, (iii) the fees and
disbursements of counsel, accountants and any other experts or advisors retained
by the Company, (iv) preparation (including printing), issuance and delivery to
the Initial Purchasers of the Notes, (v) the qualification of the Notes under
state securities and "Blue Sky" laws, including filing fees and reasonable fees
and disbursements of counsel for the Initial Purchasers relating thereto, (vi)
expenses in connection with any meetings with prospective investors in the
Notes, (vii) fees and expenses of the Trustee (including fees and expenses of
counsel), (viii) all expenses and listing fees incurred in connection with the
application for quotation of the Notes on the PORTAL Market and the approval of
the Notes for book-entry transfer by DTC, and (ix) any fees charged by
investment rating agencies for the rating of the Notes. If the sale of the Notes
provided for herein is not consummated because any condition to the obligations
of the Initial Purchasers set forth in Section 7 hereof is not satisfied,
because this Agreement is terminated or because of any failure, refusal or
inability on the part of the Company or any Guarantor to perform all obligations
and satisfy all conditions on their part to be performed or satisfied hereunder
(other than solely by reason of a default by the Initial Purchasers of their
obligations hereunder after all conditions hereunder have been satisfied in
accordance herewith), the Company agrees to promptly reimburse the Initial
Purchasers upon demand for all out-of-pocket expenses (including all reasonable
fees, disbursements and charges of White & Case) that shall have been incurred
by the Initial Purchasers in connection with the proposed purchase and sale of
the Notes.
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7. Conditions of the Initial Purchasers's Obligations. The
obligation of the Initial Purchasers to purchase and pay for the Notes shall, in
its sole discretion, be subject to the satisfaction or waiver of the following
conditions on or prior to the Closing Date:
(a) On the Closing Date, the Initial Purchasers shall have
received the opinion, dated as of the Closing Date and addressed to the Initial
Purchasers, of Weil, Gotshal & Manges LLP, counsel for the Company, in form and
substance satisfactory for counsel to the Initial Purchasers, dated the Closing
Date, substantially to the effect that:
(i) the Company is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of
Delaware. Each of the Corporate Subsidiaries is a corporation duly
incorporated, validly existing and in good standing under the laws of
the State of Delaware. National Tobacco is a limited partnership duly
organized and subsisting under the laws of the State of Delaware. Each
of the Company and the Corporate Subsidiaries has all requisite
corporate power and authority to own its properties and to conduct its
business as described in the Final Memorandum. National Tobacco has all
requisite partnership power and authority to own its property and to
conduct its business as described in the Final Memorandum;
(ii) all of the outstanding shares of capital stock
of the Company and each of the Corporate Subsidiaries and the
partnership interests in National Tobacco are duly authorized, validly
issued, fully paid and nonassessable (except, with respect to the
Company, to the extent of loans outstanding to executive officers as
described in the Final Memorandum) and were not issued in violation of
any preemptive or similar rights other than any rights of SGIC with
respect to or arising out of SGIC's interest in LLC as to which no
opinion is expressed. Except as set forth in the Final Memorandum, all
of the outstanding shares of capital stock of each of the Corporate
Subsidiaries and the partnership interests in National Tobacco are
owned of record and, to such counsel's knowledge, beneficially, by the
Company or, in the case of National Tobacco, a Subsidiary, free and
clear, to our knowledge, of all liens, security interests, encumbrances
or claims;
(iii) Except as set forth in the Final Memorandum,
(A) no options, warrants or other rights to purchase from the Company
or any Guarantor shares of capital stock or equity interests in the
Company or any Guarantor are outstanding, (B) no agreements or other
obligations of the Company or any Guarantor to issue, or other rights
to cause the Company or
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any Guarantor to convert, any obligation into, or exchange any
securities for, shares of capital stock or ownership interests in the
Company or any Guarantor are outstanding and (C) no holder of
securities of the Company or any Guarantor is entitled to have such
securities registered under a registration statement filed by the
Company and the Guarantor pursuant to the Registration Rights Agreement
in each case other than rights of SGIC with respect to or arising out
of its interest in LLC, as to which no opinion is expressed;
(iv) the Indenture has been duly authorized by the
Company and each Guarantor and, when executed and delivered by the
Company and each Guarantor (assuming the due authorization, execution
and delivery thereof by the Trustee), will constitute the legal, valid
and binding obligation of the Company and each Guarantor with respect
to its obligations thereunder, enforceable against the Company and each
Guarantor in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights and remedies
generally, and subject, as to enforceability, to general principles of
equity, including principles of commercial reasonableness, good faith
and fair dealing (regardless of whether a proceeding is sought at law
or in equity); the Notes have been duly authorized by the Company and,
when issued and delivered against payment therefor by the Initial
Purchasers (and assuming the due authorization, execution and delivery
of the Indenture by the Trustee and the execution and delivery of
certificates of authentication of the Notes in the manner prescribed by
the Indenture by one of the Trustee's duly authorized officers), will
be duly executed, authenticated, issued and delivered and will
constitute valid and legally binding obligations of the Company
enforceable in accordance with their terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights and remedies
generally and subject, as to enforceability, to general principles of
equity, including principles of commercial reasonableness, good faith
and fair dealing (regardless of whether a proceeding is sought at law
or in equity);
(v) The Exchange Notes have been duly and validly
authorized by the Company and each Guarantor, and when the Exchange
Notes have been duly executed and delivered by the Company and each
Guarantor in accordance with the terms of the Registration Rights
Agreement and the Indenture (assuming the due authorization, execution
and delivery of the Indenture by the Trustee and due authentication and
delivery of the
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Exchange Notes and by the Trustee in accordance with the Indenture),
will constitute the valid and legally binding obligations of the
Company and each Guarantor, entitled to the benefits of the Indenture
and enforceable against the Company and each Guarantor in accordance
with their terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally, and subject, as to
enforceability, to general principles of equity, including principles
of commercial reasonableness, good faith and fair dealing (regardless
of whether a proceeding is sought at law or in equity);
(vi) the Registration Rights Agreement has been duly
authorized by the Company and each Guarantor and, when validly executed
and delivered by the Company and each Guarantor, will constitute a
valid and legally binding obligation of the Company and each Guarantor
with respect to its obligations thereunder and will be enforceable
against it in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights and remedies
generally, and subject, as to enforceability, to general principles of
equity, including principles of commercial reasonableness, good faith
and fair dealing (regardless of whether a proceeding is sought at law
or in equity) and except that rights of indemnification and
contribution thereunder may be limited by federal or state securities
laws or public policy relating thereto;
(vii) the Company and each Guarantor has all
requisite corporate power and authority to execute and deliver this
Agreement and to perform its obligations thereunder; the execution,
delivery and performance of this Agreement by the Company and the
consummation by the Company and each Guarantor of the transactions
contemplated thereby have been duly authorized by all necessary
corporate action on the part of the Company and each Guarantor; this
Agreement has been duly authorized, executed and delivered by the
Company and each Guarantor;
(viii) the statements in the Final Memorandum under
the caption "Description of Notes" and "Exchange Offer Registration
Rights," insofar as they describe the provisions of the documents and
instruments therein described, constitute fair summaries thereof
accurate in all material respects;
(ix) to the knowledge of such counsel, there is no
action, suit or proceeding pending before or threatened by any court
or public
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<PAGE>
governmental authority or arbitrator involving the Company or any of
its Subsidiaries of a character required to be disclosed in the Final
Memorandum which is not adequately disclosed or incorporated by
reference in the Final Memorandum or which seeks to restrain, enjoin,
prevent the consummation of or otherwise challenge the issuance or sale
of the Notes to be sold hereunder or the consummation of the other
transactions described in the Final Memorandum under the caption "Use
of Proceeds", except that no opinion is expressed with respect to any
threat of SGIC with respect to or arising out of its interest in LLC.
(x) neither the Company nor any of the Guarantors is
or immediately after the sale of the Notes to be sold hereunder and the
application of the proceeds from such sale (as described in the Final
Memorandum under the caption "Use of Proceeds") an "investment company"
within the meaning of, and is not registered or otherwise required to
be registered under, the Investment Company Act of 1940, as amended;
(xi) no consent, approval, waiver, license, permit,
authorization or other action by or filing with any New York, Delaware
corporate or United States governmental authority is required in
connection with the issuance and sale by the Company to the Initial
Purchasers on the Closing Date of the Notes, the consummation by the
Company and the Guarantors of the transactions contemplated by this
Agreement, the Indenture or the Registration Rights Agreement, except
for (i) state securities or "blue sky" laws, rules or regulations, (ii)
with respect to the Registration Rights Agreement only, filings and
other actions required pursuant to the Securities Act, the Exchange
Act, the Trust Indenture Act of 1939 as amended, and the rules and
regulations of the Commission promulgated thereunder, and (iii) filings
with the Bureau of Alcohol, Tobacco and Firearms, as to all of which we
express no opinion, and those consents, approvals, waivers, licenses,
permits or authorizations which have heretofore been obtained;
(xii) neither the issuance and sale by the Company of
the Notes pursuant to this Agreement, the execution and delivery of
this Agreement, the Indenture or the Registration Rights Agreement, the
compliance by the Company or the Guarantors, as applicable, with the
terms and provisions thereof, or the consummation by the Company or the
Guarantors of any of the transactions contemplated thereby, will
conflict with, constitute a default under, or violate (i) any of the
terms, conditions or provisions of the certificate of incorporation or
by-laws of the Company or any of the Guarantors, (ii) any New York,
Delaware corporate or United
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<PAGE>
States federal law or regulation (other than United States federal and
state securities or "blue sky" laws, rules and regulations or laws,
rules and regulations administered by the Bureau of Alcohol, Tobacco
and Firearms, as to which such counsel need not express any opinion in
this paragraph), or (iii) any judgment, writ, injunction, decree or
order of any court or governmental authority binding on the Company or
any of the Guarantors of which such counsel is aware;
(xiii) No registration under the Act of the Notes is
required in connection with the sale of the Notes to the Initial
Purchasers or the resale of the Units by the Initial Purchasers in the
manner contemplated by this Agreement and the Final Memorandum.
In rendering such opinion, such counsel may rely (A) as to
matters involving the application of laws of any jurisdiction other than the
State of New York or the United States or the corporation law of the State of
Delaware, to the extent they deem proper and specified in such opinion, upon the
opinion of other counsel of good standing whom they believe to be reliable and
who are satisfactory to counsel for the Purchasers and (B) as to matters of
fact, to the extent they deem proper, on certificates of responsible officers of
the Company and public officials.
In addition to the foregoing, such counsel shall state that is
has participated in conferences with directors, executive officers and other
representatives of the Company, representatives of the Company's independent
public accountants, at which conferences the contents of the Final Memorandum
and relating matters were discussed, and although such counsel has not
independently verified and has not passed upon or assumed any responsibility for
the accuracy, completeness or fairness of the statements contained in such
documents, no facts have come to such counsel's attention to lead it to believe
that the Final Memorandum and any further amendments or supplements thereto as
of their respective dates and on the date of such opinion letter contained or
contains an untrue statement of a material fact or omitted or omits to state a
material fact required to be stated therein, or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading (it being understood that such counsel need not express any view with
respect to the financial statements and related notes, the financial statement
schedules and the other financial, statistical and accounting data included in
the Final Memorandum).The opinion of Weil Gotshal & Manges LLP described in this
Section shall be rendered to the Initial Purchasers at the request of the
Company and shall so state therein.
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<PAGE>
References to the Final Memorandum in this subsection (a) shall include
any amendment or supplement thereto prepared in accordance with the provisions
of this Agreement on or before the Closing Date.
(b) On the Closing Date, the Initial Purchasers shall have received the
opinion, in form and substance satisfactory to the Initial Purchasers, dated as
of the Closing Date and addressed to the Initial Purchasers, of White & Case
counsel for the Initial Purchasers, with respect to certain legal matters
relating to this Agreement and such other related matters as the Initial
Purchasers may reasonably require. In rendering such opinion, White & Case shall
have received and may rely upon such certificates and other documents and
information as it may reasonably request to pass upon such matters.
(c) The Initial Purchasers shall have received from Coopers & Lybrand
L.L.P. comfort letters dated the date hereof and the Closing Date, in form and
substance satisfactory to counsel for the Initial Purchasers.
(d) The representations and warranties of the Company and the
Guarantors contained in this Agreement shall be true and correct on and as of
the date hereof and on and as of the Closing Date as if made on and as of the
Closing Date; the statements of the Company's or any Guarantors' officers made
pursuant to any certificate delivered in accordance with the provisions hereof
shall be true and correct on and as of the date made and on and as of the
Closing Date; the Company and the Guarantors shall have performed all covenants
and agreements and satisfied all conditions on their part to be performed or
satisfied hereunder at or prior to the Closing Date; and, except as described in
the Final Memorandum (exclusive of any amendment or supplement thereto after the
date hereof), subsequent to the date of the most recent financial statements in
such Final Memorandum, there shall have been no event or development that,
individually or in the aggregate, has had, or would be reasonably likely to
have, a Material Adverse Effect.
(e) The sale of the Notes hereunder shall not be enjoined (temporarily
or permanently) on the Closing Date.
(f) The Notes shall have been approved by the NASD for trading in the
PORTAL Market.
(g) There shall not have occurred any invalidation of Rule 144A under
the Act by any court or any withdrawal or proposed withdrawal of any rule or
regulation under the Act or the Exchange Act by the Commission or any amendment
or proposed amendment thereof by the Commission which in the judgment of the
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<PAGE>
Initial Purchasers would materially impair the ability of the Initial Purchasers
to purchase, hold or effect resales of the Notes as contemplated hereby.
(h) There shall not have occurred any change, or any development
involving a prospective change, in the general business affairs, condition
(financial or otherwise), prospects or results of operations, of the Company and
the Guarantors, taken as a whole, from that set forth in the Final Memorandum
that constitutes a Material Adverse Effect and that makes it, in the Initial
Purchasers' judgment, impracticable to market the Notes on the terms and in the
manner contemplated in the Final Memorandum.
(i) Subsequent to the date of the most recent financial statements in
the Final Memorandum (exclusive of any amendment or supplement thereto after the
date hereof), the conduct of the business and operations of the Company and the
Guarantor shall not have been interfered with by strike, fire, flood, hurricane,
accident or other calamity (whether or not insured) or by any court or
governmental action, order or decree, and, except as otherwise stated therein,
the properties of the Company and the Guarantor shall not have sustained any
loss or damage (whether or not insured) as a result of any such occurrence,
except any such interference, loss or damage which would not, individually or in
the aggregate, have a Material Adverse Effect.
(j) No securities of the Company or any Guarantor shall have been
downgraded or placed on any "watch list" for possible downgrading by any
nationally recognized statistical rating organization.
(k) The Initial Purchasers shall have received certificates of the
Company and each Guarantor, dated the Closing Date, signed by their President
and the Chief Financial Officer, to the effect that:
(i) The representations and warranties of the Company and such
Guarantor contained in this Agreement are true and correct as of the date hereof
and as of the Closing Date, and the Company and each Guarantor has performed all
covenants and agreements and satisfied all conditions on their part to be
performed or satisfied hereunder at or prior to the Closing Date;
(ii) At the Closing Date, since the date hereof or since the date of
the most recent financial statements in the Final
Memorandum (exclusive of any amendment or supplement thereto after the
date hereof), no event or events have occurred, no information has
become known nor does
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<PAGE>
any condition exist that, individually or in the aggregate, has had,
or could be reasonably be expected to have, a Material Adverse Effect;
(iii) The sale of the Notes hereunder has
not been enjoined (temporarily or permanently);
(iv) The transactions described in the Final
Memorandum entitled "The Transactions" have been consummated on
substantially the terms described in the Final Memorandum; and
(v) Such other information as the Initial
Purchasers may reasonably request.
(l) On the Closing Date, the Initial Purchasers shall have received the
Registration Rights Agreement executed by the Company and the Guarantors and
such agreement shall be in full force and effect at all times pursuant to its
terms.
(m) On the Closing Date, each of the transactions described in the
section of the Memorandum entitled "The Transactions" shall have been
consummated on a basis satisfactory to the Initial Purchasers.
(n) On the Closing Date, the Distribution Agreements (as such term is
defined in the Memorandum) shall be in full force and effect and no party
thereto shall have been in breach thereof.
(o) On the Closing Date, the Lancaster Agreement (as such term is
defined in the Memorandum) shall be in full force and effect and no party
thereto shall have been neither the Company nor any Guarantor will be in breach
thereof.
(p) The conditions to the purchase and sale of the Company's Units by
NatWest Capital Markets Limited ("NatWest") as set forth in the Purchase
Agreement dated the date hereof between the Company and NatWest shall have been
satisfied and such Agreement shall not have been terminated.
On or before the Closing Date, the Initial Purchasers and
counsel for the Initial Purchasers shall have received such further documents,
opinions, certificates, letters and schedules or instruments relating to the
business, corporate, legal and financial affairs of the Company and the
Guarantors as they shall have heretofore reasonably requested from the Company
and the Guarantors.
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<PAGE>
All such documents, opinions, certificates, letters, schedules
or instruments delivered pursuant to this Agreement will comply with the
provisions hereof only if they are reasonably satisfactory in all material
respects to the Initial Purchasers and counsel for the Initial Purchasers. The
Company and the Guarantors shall furnish to the Initial Purchasers such
conformed copies of such documents, opinions, certificates, letters, schedules
and instruments in such quantities as the Initial Purchasers shall reasonably
request.
8. Offering of Notes; Restrictions on Transfer. Each of the
Initial Purchasers agree with the Company (severally and not jointly) that (i)
they have not and will not solicit offers for, or offer or sell, the Notes by
any form of general solicitation or general advertising (as those terms are used
in Regulation D under the Act) or in any manner involving a public offering
within the meaning of Section 4(2) of the Act; and (ii) they have and will
solicit offers for the Notes only from, and will offer the Notes only to (A) in
the case of offers inside the United States, (x) persons whom the Initial
Purchasers reasonably believe to be QIBs 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 the Initial Purchasers that
each such account is a QIB, to whom notice has been given that such sale or
delivery is being made in reliance on Rule 144A, and, in each case, in
transactions under Rule 144A or (y) a limited number of other institutional
investors reasonably believed by the Initial Purchasers to be Accredited
Investors that, prior to their purchase of the Notes, deliver to the Initial
Purchasers a letter containing the representations and agreements set forth in
Appendix A to the Final Memorandum and (B) in the case of offers outside the
United States, to persons other than U.S. persons ("foreign purchasers," which
term shall include dealers or other professional fiduciaries in the United
States acting on a discretionary basis for foreign beneficial owners (other than
an estate or trust)); provided, however, that, in the case of this clause (B),
in purchasing such Notes such persons are deemed to have represented and agreed
as provided under the caption "Transfer Restrictions" contained in the Final
Memorandum.
Each of the Initial Purchasers represent and warrant
(severally and not jointly) that they are QIBs, with such knowledge and
experience in financial and business matters as are necessary in order to
evaluate the merits and risks of an investment in the Notes. Each of the Initial
Purchasers agree (severally and not jointly) to comply with the applicable
provisions of Rule 144A and Regulation S under the Act. Each of the Initial
Purchasers hereby acknowledge that the Company and the Guarantors and, for
purposes of the opinions to be delivered to the Initial Purchasers pursuant to
Section 7(a) hereof, counsel to the Company and the
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Guarantors will rely upon the accuracy and truth of the representations
contained in this Section 8 and each of the Initial Purchasers hereby consent to
such reliance.
9. Indemnification and Contribution. (a) The Company and the
Guarantors jointly and severally agree to indemnify and hold harmless the
Initial Purchasers and the affiliates, directors, officers, agents,
representatives general partners and employees of such Initial Purchasers or
their affiliates, and each other person, if any, who controls either of the
Initial Purchasers or its affiliates within the meaning of Section 15 of the Act
or Section 20 of the Exchange Act, to the full extent lawful against any losses,
claims, damages, expenses or liabilities (or actions in respect thereof,
including, without, limitation, shareholder derivative actions and arbitration
proceedings) to which any Initial Purchasers or such other person may become
subject under the Act, the Exchange Act or otherwise, insofar as any such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon:
(i) any untrue statement or alleged untrue statement of any
material fact contained in any Memorandum or any amendment or
supplement thereto or any application or other document, or any
amendment or supplement thereto, executed by the Company or any
Guarantor or based upon written information furnished by or on behalf
of the Company or any Guarantor filed in any jurisdiction in order to
qualify the Notes under the securities or "Blue Sky" laws thereof or
filed with any securities association or securities exchange (each an
"Application");
(ii) the omission or alleged omission to state, in any
Memorandum or any amendment or supplement thereto or any Application, a
material fact required to be stated therein or necessary to make the
statements therein not misleading; or
(iii) any breach of any of the representations and warranties
of the Company and the Guarantors set forth in this Agreement or the
Registration Rights Agreement,
and will reimburse, as incurred, the Initial Purchasers and each such other
person for any reasonable legal or other expenses incurred by the Initial
Purchasers or such other person in connection with investigating, defending
against or appearing as a third-party witness in connection with any such loss,
claim, damage, liability or action; provided, however, the Company and the
Guarantors will not be liable in any such case to the extent that any such loss,
claim, damage, or liability arises out of or is based upon any untrue statement
or alleged untrue statement or omission or
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alleged omission made in any Memorandum or any amendment or supplement thereto
or any Application in reliance upon and in conformity with written information
furnished to the Company by an Initial Purchasers specifically for use therein
and, provided, further, that with respect to any untrue statement or alleged
untrue statement in or omission or alleged omission from the Preliminary
Memorandum, the indemnity agreement contained in this subsection (a) shall not
inure to the benefit of any Initial Purchaser that sold the Notes concerned to
the person asserting any such losses, claims, damages or liabilities, to the
extent that such sale was an initial resale by such Initial Purchaser and any
such loss, claim, damage or liability of such Initial Purchaser results from the
fact that there was not sent or given to such person, at or prior to the written
confirmation of the sale of such Notes to such person, a copy of the Final
Memorandum (exclusive of any material included therein but not attached thereto)
if the Company had previously furnished copies thereof to such Initial
Purchaser. This indemnity agreement will be in addition to any liabilities or
obligations that the Company and the Guarantors may otherwise have to the
indemnified parties, including without limitation the indemnification
obligations of the Company pursuant to the Engagement Letter. Subject to Section
9(c), the Company and the Guarantors shall not be liable under this Section 9
for any settlement of any claim or action effected without their prior consent,
which shall not be unreasonably withheld. The Initial Purchasers shall not,
without prior written consent of the Company and the Guarantors, effect any
settlement or compromise of any pending or threatened proceeding in respect of
which the Initial Purchasers is or could have been a party, or indemnity could
have been sought hereunder by any Initial Purchasers, unless such settlement (A)
includes an unconditional written release of the Company and the Guarantors, in
form and substance reasonably satisfactory to the Company and the Guarantors,
from all liability on claims that are the subject matter of such proceeding and
(B) does not include any statement as to an admission of fault, culpability or
failure to act by or on behalf of the Company and the Guarantors.
(b) The Initial Purchasers, severally and not jointly, agree
to indemnify and hold harmless the Company and the Guarantors, their directors,
their officers and each person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act against any
losses, claims, damages or liabilities to which the Company or any such
director, officer or controlling person may become subject under the Act, the
Exchange Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (i)
any untrue statement or alleged untrue statement of any material fact contained
in any Memorandum or any amendment or supplement thereto or any Application, or
(ii) the omission or the alleged omission to state therein a material fact
required to be stated in any Memorandum or any
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<PAGE>
amendment or supplement thereto or any Application, or necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company or the Guarantors by the Initial Purchasers
specifically for use therein; and subject to the limitation set forth
immediately preceding this clause, will reimburse, as incurred, any reasonable
legal or other expenses incurred by the Company, or any such director, officer
or controlling person in connection with investigating or defending against or
appearing as a third party witness in connection with any such loss, claim,
damage, liability or action in respect thereof. This indemnity agreement will be
in addition to any liability that the Initial Purchasers may otherwise have to
the indemnified parties. Subject to Section 9(c), the Initial Purchasers shall
not be liable under this Section 9 for any settlement of any claim or action
effected without their written consent, which shall not be unreasonably
withheld. The Company and the Guarantors shall not, without the prior written
consent of the Initial Purchasers, effect any settlement or compromise of any
pending or threatened proceeding in respect of which the Initial Purchasers is
or could have been a party, or indemnity could have been sought hereunder by any
Initial Purchasers, unless such settlement (A) includes an unconditional written
release of the Initial Purchasers, in form and substance reasonably satisfactory
to the Initial Purchasers, from all liability on claims that are the subject
matter of such proceeding and (B) does not include any statement as to an
admission of fault, culpability or failure to act by or on behalf of the Initial
Purchasers.
(c) Promptly after receipt by an indemnified party under this
Section 9 of notice of the commencement of any action for which such indemnified
party is entitled to indemnification under this Section 9, such indemnified
party will, if a claim in respect thereof is to be made against the indemnifying
party under this Section 9, notify the indemnifying party of the commencement
thereof in writing; but the omission to so notify the indemnifying party (i)
will not relieve it from any liability under paragraph (a) or (b) above unless
and to the extent such failure results in the forfeiture by the indemnifying
party of substantial rights and defenses and (ii) will not, in any event,
relieve the indemnifying party from any obligations to any indemnified party
other than the indemnification obligation provided in paragraphs (a) and (b)
above. In case any such action is brought against any indemnified party, and it
notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel reasonably satisfactory to such indemnified
party; provided, however, that if (i) the use of counsel chosen by the
indemnifying party to represent the indemnified party would present such counsel
with a conflict of interest, (ii) the
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<PAGE>
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have been advised by counsel
that there may be one or more legal defenses available to it and/or other
indemnified parties that are different from or additional to those available to
the indemnifying party, or (iii) the indemnifying party shall not have employed
counsel reasonably satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after receipt by the indemnifying
party of notice of the institution of such action, then, in each such case, the
indemnifying party shall not have the right to direct the defense of such action
on behalf of such indemnified party or parties and such indemnified party or
parties shall have the right to select separate counsel to defend such action on
behalf of such indemnified party or parties. After notice from the indemnifying
party to such indemnified party of its election so to assume the defense thereof
and approval by such indemnified party of counsel appointed to defend such
action, the indemnifying party will not be liable to such indemnified party
under this Section 9 for any legal or other expenses, other than reasonable
costs of investigation, subsequently incurred by such indemnified party in
connection with the defense thereof, unless (i) the indemnified party shall have
employed separate counsel in accordance with the proviso to the immediately
preceding sentence (it being understood, however, that in connection with such
action the indemnifying party shall not be liable for the expenses of more than
one separate counsel (in addition to local counsel) in any one action or
separate but substantially similar actions in the same jurisdiction arising out
of the same general allegations or circumstances designated by the Initial
Purchasers in the case of paragraph (a) of this Section 9 or either the Company
or any of the Guarantors in the case of paragraph (b) of this Section 9,
representing the indemnified parties under such paragraph (a) or paragraph (b),
as the case may be, who are parties to such action or actions) or (ii) the
indemnifying party has authorized in writing the employment of counsel for the
indemnified party at the expense of the indemnifying party. After such notice
from the indemnifying party to such indemnified party, the indemnifying party
will not be liable for the costs and expenses of any settlement of such action
effected by such indemnified party without the prior written consent of the
indemnifying party, unless such indemnified party waived in writing its rights
under this Section 9, in which case the indemnified party may effect such a
settlement without such consent.
(d) In circumstances in which the indemnity agreement provided
for in the preceding paragraphs of this Section 9 is unavailable to an
indemnified party in respect of any losses, claims, damages or liabilities (or
actions in respect thereof), each indemnifying party, in order to provide for
just and equitable contribution, shall contribute to the amount paid or payable
by such indemnified party as a result of such losses, claims, damages or
liabilities (or actions in respect thereof) in such proportion as is appropriate
to reflect (i) the relative benefits received by the
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<PAGE>
indemnifying party or parties on the one hand and the indemnified party on the
other from the offering of the Notes or (ii) if the allocation provided by the
foregoing clause (i) is not permitted by applicable law, not only such relative
benefits but also the relative fault of the indemnifying party or parties on the
one hand and the indemnified party on the other in connection with the
statements or omissions or alleged statements or omissions or breaches that
resulted in such losses, claims, damages or liabilities (or actions in respect
thereof). The relative benefits received by the Company and the Guarantors on
the one hand and the Initial Purchasers on the other shall be deemed to be in
the same proportion as the total proceeds from the offering (net of commissions
and before deducting expenses) received by the Company and the Guarantors bear
to the total discounts and commissions received by the Initial Purchasers. The
relative fault of the parties shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company and the Guarantors on the one hand, or the Initial
Purchasers on the other, the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission or
alleged statement or omission, and any other equitable considerations
appropriate in the circumstances. The Company, the Guarantors and the Initial
Purchasers agree that it would not be equitable if the amount of such
contribution were determined by pro rata or per capita allocation or by any
other method of allocation that does not take into account the equitable
considerations referred to in the first sentence of this paragraph (d).
Notwithstanding any other provision of this paragraph (d), the Initial
Purchasers shall not be obligated to make contributions hereunder that in the
aggregate exceed the total discounts, commissions and other compensation
received by the Initial Purchasers under this Agreement, less the aggregate
amount of any damages that the Initial Purchasers has otherwise been required to
pay by reason of the untrue or alleged untrue statements or the omissions or
alleged omissions to state a material fact, and no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this paragraph (d), each person, if any, who
controls the Initial Purchasers within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act shall have the same rights to contribution as the
Initial Purchasers, and each director of the Company, each officer of the
Company and each person, if any, who controls the Company or the Guarantors
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act,
shall have the same rights to contribution as the Company.
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<PAGE>
10. Survival Clause. The respective representations,
warranties, agreements, covenants, indemnities and other statements of the
Company, the Guarantors, their respective officers and the Initial Purchasers
set forth in this Agreement or made by or on behalf of them pursuant to this
Agreement shall remain in full force and effect, regardless of (i) any
investigation made by or on behalf of the Company, the Guarantors, any of their
respective officers or directors, the Initial Purchasers or any other person
referred to in Section 9 hereof and (ii) delivery of and payment for the Notes.
The respective agreements, covenants, indemnities and other statements set forth
in Sections 6, 9 and 15 hereof shall remain in full force and effect, regardless
of any termination or cancellation of this Agreement.
11. Termination. (a) This Agreement may be terminated in the
sole discretion of the Initial Purchasers by notice to the Company given prior
to the Closing Date in the event that the Company shall have failed, refused or
been unable to perform all obligations and satisfy all conditions on their
respective part to be performed or satisfied hereunder at or prior thereto or,
if at or prior to the Closing Date any of the following shall have occurred:
(i) any of the Company or the Guarantors shall have sustained
any loss or interference with respect to its businesses or properties
from fire, flood, earthquakes, hurricane, accident or other calamity,
whether or not covered by insurance, or from any strike, labor dispute,
slow down or work stoppage or any legal or governmental proceeding,
which loss or interference has had or could be reasonably likely to
have a Material Adverse Effect, or there shall have been, in the sole
judgment of the Initial Purchasers, any other event or development
that, individually or in the aggregate, has or could be reasonably
likely to have a Material Adverse Effect (including without limitation
a change in control of the Company or the Guarantors), except in each
case as described in the Final Memorandum (exclusive of any amendment
or supplement thereto);
(ii) there shall have occurred any change, or any development
involving a prospective change, in the condition, financial or
otherwise, or in the earnings, business or operations, of the Company
and the Guarantors, taken as a whole, from that set forth in the Final
Memorandum that is material and adverse and that makes it, in the
Initial Purchasers' sole judgment, impracticable to market the Notes on
the terms and in the manner contemplated in the Final Memorandum;
(iii) trading generally shall have been suspended or materially
limited on or by, as the case may be, either of the New York Stock
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<PAGE>
Exchange or the National Association of Securities Dealers, Inc. or the
setting of minimum prices for trading on such exchange or market shall
have occurred or trading of any securities of the Company or the
Guarantors shall have been suspended on any exchange or in any
over-the-counter market;
(iv) a banking moratorium shall have been declared by New York
or United States authorities;
(v) there shall have been (A) an outbreak or escalation of
hostilities between the United States and any foreign power, (B) an
outbreak or escalation of any other insurrection or armed conflict
involving the United States, (C) any material change in the financial
markets of the United States or (D) any other national or international
calamity or emergency which, in the case of (A), (B), (C) or (D) above
and in the sole judgment of the Initial Purchasers, makes it
impracticable or inadvisable to proceed with the offering or the
delivery of the Notes as contemplated by the Final Memorandum;
(vi) the taking of any action by any federal, state or local
government or agency in respect of its monetary or fiscal affairs that
has a material adverse effect on the financial markets in the United
States, and would, in the sole judgment of the Initial Purchasers, make
it impracticable or inadvisable to market the Notes;
(vii) the proposal, enactment, publication, decree, or other
promulgation of any federal or state statute, regulation, rule order of
any court or other governmental authority which, in the sole judgment
of the Initial Purchasers, would have a Material Adverse Effect;
(viii) any securities of the Company or any Guarantor shall have
been downgraded or placed on any "watch list" for possible downgrading
by any nationally recognized statistical rating organization.
(b) Termination of this Agreement pursuant to this Section 11
shall be without liability of any party to any other party except as provided in
Section 10 hereof.
12. If on the Closing Date any Initial Purchaser shall fail or
refuse to purchase Notes which it has agreed to purchase hereunder on such date,
and the aggregate principal amount of Notes with respect to which such default
occurs is more than one-tenth of the aggregate principal amount of Notes to be
purchased on such date, and arrangements satisfactory to the non-defaulting
Initial Purchaser and
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<PAGE>
the Company for the purchase of such Notes are not made within 36 hours after
such default, this Agreement shall terminate without liability on the part of
any non-defaulting Initial Purchaser or the Company. In any such case either the
non-defaulting Initial Purchaser or the Company shall have the right to postpone
the Closing Date, but in no event for longer than seven days, in order that the
required changes, if any, in the Memorandum or any other documents or
arrangements may be effected. Any action take under this paragraph shall not
relieve any defaulting Initial Purchaser from liability in respect of any
default of such Initial Purchaser under this Agreement.
If this Agreement shall be terminated by the Initial
Purchaser, or any of them, because of any failure or refusal on the part of the
Company to comply with the terms or to fulfill any of the conditions of this
Agreement, or if for any reason the Company shall be unable to perform its
obligations under this Agreement or any condition of the purchasers, obligations
cannot be fulfilled, the Company and each Guarantor agrees to reimburse the
Initial Purchasers or such Initial Purchasers as have so terminated this
Agreement with respect to themselves, severally, for all out-of-pocket expenses
(including the fees and expenses of their counsel) reasonably incurred by such
Initial Purchasers in connection with this Agreement or the offering
contemplated hereunder; provided, however, that the Company shall have no
obligation under the Section if this Agreement is terminated by reason of (i)
the nonfulfillment of any condition arising out of any event described in
Section 11 hereof (ii) the failure of Initial Purchaser's counsel to deliver the
opinion referred to in Section 7(b) hereof.
13. Information Supplied by the Initial Purchasers. The
statements set forth in the last paragraph on the cover page of the Final
Memorandum and paragraphs 5, 6 and 7 under the heading "Plan of Distribution" in
the Final Memorandum (to the extent such statements relate to the Initial
Purchasers) constitute the only information furnished by the Initial Purchasers
to the Company for the purposes of Sections 2(a) and 9 hereof.
14. Notices. All communications hereunder shall be in writing
and, if sent to the Initial Purchasers, shall be mailed or delivered to (i)
NatWest Capital Markets Limited, 135 Bishopsgate, London, England; with a copy
to White & Case, 1155 Avenue of the Americas, New York, New York 10036,
Attention: Timothy B. Goodell, Esq.; if sent to the Company, shall be mailed or
delivered to the Company at National Tobacco Company, 275 Park Avenue South, 7th
Floor, New York, New York 10010 with a copy to, Weil, Gotshal & Manges, 767 5th
Avenue, New York, New York 10153, Attention: David E. Zeltner, Esq.
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<PAGE>
All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; and one
business day after being timely delivered to a next-day air courier.
15. Successors. This Agreement shall inure to the benefit of
and be binding upon the Initial Purchasers, the Company, the Guarantors and
their respective successors and legal representatives, and nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any other
person any legal or equitable right, remedy or claim under or in respect of this
Agreement, or any provisions herein contained; this Agreement and all conditions
and provisions hereof being intended to be and being for the sole and exclusive
benefit of such persons and for the benefit of no other person except that (i)
the indemnities of the Company and the Guarantors contained in Section 9 of this
Agreement shall also be for the benefit of any person or persons who control the
Initial Purchasers within the meaning of Section 15 of the Act or Section 20 of
the Exchange Act and (ii) the indemnities of the Initial Purchasers contained in
Section 9 of this Agreement shall also be for the benefit of the directors of
the Company and officers and any person or persons who control the Company
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act.
No purchaser of Notes from the Initial Purchasers will be deemed a successor
because of such purchase.
16. APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF THIS
AGREEMENT, AND THE TERMS AND CONDITIONS SET FORTH HEREIN, SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED WHOLLY THEREIN, WITHOUT GIVING EFFECT TO ANY
PROVISIONS THEREOF RELATING TO CONFLICTS OF LAW.
17. Counterparts. This Agreement may be executed in two 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>
If the foregoing correctly sets forth our understanding,
please indicate your acceptance thereof in the space provided below for that
purpose, whereupon this letter shall constitute a binding agreement between the
Company and the Initial Purchasers.
Very truly yours,
NORTH ATLANTIC TRADING
ACQUISITION COMPANY, INC.
By: /s/ Thomas F. Helms, Jr.
------------------------
Name: Thomas F. Helms, Jr.
Title: Chairman, President and CEO
GUARANTORS:
NATIONAL TOBACCO FINANCE
CORPORATION
By: /s/ Thomas F. Helms, Jr.
------------------------
Name: Thomas F. Helms, Jr.
Title: Chairman, President and CEO
NATIONAL TOBACCO COMPANY, L.P.
By: /s/ Thomas F. Helms, Jr.
------------------------
Name: Thomas F. Helms, Jr.
Title: Chairman, President and CEO
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<PAGE>
NORTH ATLANTIC OPERATING
COMPANY, INC.
By: /s/ Thomas F. Helms, Jr.
------------------------
Name: Thomas F. Helms, Jr.
Title: Chairman, President and CEO
The foregoing Agreement is
hereby confirmed and accepted
as of the date first above
written.
NATWEST CAPITAL MARKETS LIMITED
By: /s/ Greg B. Bowes
-------------------
Name: Greg B. Bowes
Title: Managing Director
CIBC WOOD GUNDY SECURITIES CORP.
By: /s/ Neil Wiesenberg
--------------------
Name: Neil Wiesenberg
Title: Managing Director
<PAGE>
NORTH ATLANTIC TRADING ACQUISITION COMPANY, INC
$34,000,000
1,360 Units consisting of 1,000 Shares of
12% Senior PIK Preferred Stock with Warrants to Purchase
44,440 Shares of Common Stock
PURCHASE AGREEMENT
June 18, 1997
NatWest Capital Markets Limited
135 Bishopsgate
London, EC2M 3XT
United Kingdom
Ladies and Gentlemen:
North Atlantic Trading Acquisition Company, Inc. a Delaware
corporation (the "Company") hereby confirms its agreement with you (the "Initial
Purchaser"), as set forth below.
1. The Securities. Subject to the terms and conditions herein
contained, the Company proposes to issue and sell to the Initial Purchaser 1,360
units (the "Units") consisting of 1,000 shares of 12% Senior PIK Preferred Stock
(the "Preferred Stock") with Warrants (the "Warrants") to purchase an aggregate
of 44,440 shares of Common Stock of the Company (the "Warrant Shares")
representing 7% of the outstanding Common Stock of the Company on a fully
diluted basis.
The Units will be offered and sold to the Initial Purchaser
without being registered under the Securities Act of 1933, as amended (the
"Act"), in reliance on exemptions therefrom.
<PAGE>
In connection with the sale of the Units, the Company has
prepared a preliminary offering memorandum dated June 16, 1997 (the "Preliminary
Memorandum") and will prepare a final offering memorandum dated June 18, 1997
(the "Final Memorandum"; the Preliminary Memorandum and the Final Memorandum
each herein being referred to as a "Memorandum") setting forth or including a
description of the terms of the Units, the Preferred Stock and the Warrants, the
terms of the offering of the Units, a description of the Company and the
Subsidiaries (as defined below) and any material developments relating to the
Company and the Subsidiaries occurring after the date of the most recent
historical financial statements included therein.
The Company and the Initial Purchaser will enter into a
Registration Rights Agreement (the "Preferred Stock Registration Rights
Agreement") prior to or concurrently with the issuance of the Units. Pursuant to
the Preferred Stock Registration Rights Agreement, under the circumstances and
the terms set forth therein, the Company will agree to file with the Securities
and Exchange Commission (the "Commission"): (i) a registration statement (the
"Exchange Offer Registration Statement"), relating to a registered Exchange
Offer (as defined in the Preferred Stock Registration Rights Agreement) for the
Preferred Stock under the Act to offer to the holders of the Preferred Stock the
opportunity to exchange their Preferred Stock for an issue of preferred stock
substantially identical to the Preferred Stock that would be registered under
the Act (the "Exchange Preferred Stock") (except that (a) dividends thereon will
accrue from the last date on which dividends were paid on the Preferred Stock,
or if no such dividends have been paid, from the date of original issuance of
the Preferred Stock, (b) such Preferred Stock will not contain any restrictions
on transfer, and (c) such Preferred Stock will not contain provisions relating
to an increase in the dividend rate for a failure to register the Preferred
Stock pursuant to the Preferred Stock Registration Rights Agreement) or (ii)
alternatively, in the event that applicable interpretations of the Commission do
not permit the Company to effect the Exchange Offer or do not permit any holder
of the Preferred Stock to participate in the Exchange Offer, a shelf
registration statement (the "Shelf Registration Statement") to cover resales of
Preferred Stock by such holders who satisfy certain conditions relating to,
including the provision of information in connection with the Shelf Registration
Statement.
The Company will enter into (i) a Unit Agreement (the "Unit
Agreement") and (ii) a Warrant Agreement with United States Trust Company as
Unit Agent (the "Unit Agent") or Warrant Agent (the "Warrant Agent"), as the
case may be, prior to, or concurrently with, the issuance of the Units (the
"Warrant Agreement").
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<PAGE>
2. Representations and Warranties. The Company represents
and warrants to, and agrees with the Initial Purchaser that:
(a) Neither the Preliminary Memorandum as of the date thereof
nor the Final Memorandum nor any amendment or supplement thereto as of
the date thereof and, in the case of the Final Memorandum and any
amendment or supplement thereto, at all times subsequent thereto up to
the Closing Date (as defined in Section 3 below) contained or shall
contain any untrue statement of a material fact or omitted or omits to
state a material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading,
except that the representations and warranties set forth in this
Section 2(a) do not apply to statements or omissions made in reliance
upon and in conformity with information furnished to the Company in
writing by the Initial Purchaser expressly for use in the Preliminary
Memorandum, the Final Memorandum or any amendment or supplement
thereto.
(b) As of the Closing Date, the Company will have the
capitalization set forth in the Final Memorandum; the Subsidiaries
constitute all of the subsidiaries of the Company; the Company will own
one hundred percent of the issued and outstanding stock (or other
equity securities) of each of the Subsidiaries; all of the outstanding
shares of capital stock of the Company and the Subsidiaries as of the
Closing Date will be duly authorized and validly issued, are fully paid
and nonassessable (except with respect to the Company's stock to the
extent of loans outstanding to executive officers as described in the
Memorandum) and were not issued in violation of any preemptive or
similar rights (except to the extent that SGIC, as defined below,
alleges any such rights to arise out of its interest in LLC, as defined
below); except as set forth in the Final Memorandum or for any claim
that may be asserted by Societe Generale Investment Corporation
("SGIC") with respect to SGIC's interest in NTC Holding, LLC ("LLC") as
described therein, there are no (i) options, warrants or other rights
to purchase from the Company and the Subsidiaries, (ii) agreements or
other obligations of the Company or any of the Subsidiaries to issue or
(iii) other rights to convert any obligation into, or exchange any
securities for, shares of capital stock of, or other equity securities
in, the Company or any of the Subsidiaries outstanding. The entities
listed on Schedule 2 hereto (collectively, the "Subsidiaries") are the
only subsidiaries, direct or indirect, of the Company other than LLC.
Except as disclosed on Schedule 2, the Company does not own, directly
or indirectly, any capital stock or any other equity or long-term debt
securities or have any equity interests in any firm, partnership, joint
-3-
<PAGE>
venture, limited liability company or other entity other than LLC in
which it owns all of the membership interests therein other than those
owned by SGIC.
(c) The Company and each of National Tobacco Finance
Corporation and North Atlantic Operating Company, Inc. (the "Corporate
Subsidiaries") has been duly incorporated, is validly existing and is
in good standing as a corporation under the laws of its jurisdiction of
incorporation, with all requisite corporate power and authority to own
its properties and conduct its business as now conducted, and as
described in the Final Memorandum; National Tobacco, L.P. ("National
Tobacco") is a limited partnership duly organized and subsisting under
the laws of the State of Delaware, with the requisite partnership power
and authority to own its properties and conduct its business as now
conducted and as described in the Final Memorandum; LLC is a limited
liability company duly organized and subsisting under the laws of the
State of Delaware, and does not have any assets except those that will
be transferred to the Company; each of the Company and the Subsidiaries
is duly qualified to do business as a foreign corporation in good
standing in all other jurisdictions where the ownership or leasing of
its properties or the conduct of its business requires such
qualification, except where the failure to be so qualified would not,
individually or in the aggregate, have a material adverse effect on the
general affairs, management, business, condition (financial or
otherwise), prospects or results of operations of the Company and the
Subsidiaries, taken as a whole (any such event, a "Material Adverse
Effect").
(d) The Unit Agreement will be duly authorized by the Company
prior to the Closing and, when executed and delivered by the Company
and (assuming the due authorization, execution and delivery by the Unit
Agent) will constitute a valid and legally binding agreement of the
Company, enforceable in accordance with its terms, subject to
applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights
and remedies generally, and subject, as to enforceability, to general
principles of equity, including principles of commercial
reasonableness, good faith and fair dealing (regardless of whether a
proceeding is sought at law or in equity).
(e) The Units will be duly authorized by the Company prior to
the Closing and, when issued and delivered by the Company against
payment therefor by the Initial Purchaser in accordance with the terms
of this Agreement and (assuming due authentication, execution and
delivery thereof
-4-
<PAGE>
by the Unit Agent in accordance with the Unit Agreement) will
constitute a valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights and remedies
generally, and subject, as to enforceability, to general principles of
equity, including principles of commercial reasonableness, good faith
and fair dealing (regardless of whether a proceeding is sought at law
or in equity).
(f) The Warrant Agreement will be duly authorized by the
Company prior to the Closing and, when executed and delivered by the
Company and (assuming the due authorization, execution and delivery
thereof by the Warrant Agent) will constitute a valid and legally
binding agreement of the Company, enforceable in accordance with its
terms, subject to applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally, and subject, as to
enforceability, to general principles of equity, including principles
of commercial reasonableness, good faith and fair dealing (regardless
of whether a proceeding is sought at law or in equity).
(g) The Warrants will be duly authorized by the Company prior
to the Closing and, when issued and delivered by the Company against
payment therefor by the Initial Purchaser in accordance with the terms
of this Agreement (assuming the due authentication thereof by the
Warrant Agent in accordance with the Warrant Agreement) will constitute
valid and legally binding obligations of the Company, enforceable in
accordance with their terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally, and
subject, as to enforceability, to general principles of equity,
including principles of commercial reasonableness, good faith and fair
dealing (regardless of whether a proceeding is sought at law or in
equity).
(h) The Warrant Shares will be duly and validly authorized and
validly reserved for issuance prior to the Closing and when issued and
paid for upon exercise of the Warrants in accordance with the terms
thereof, will be validly issued, fully paid, nonassessable and free of
preemptive or other similar rights.
(i) The Certificate of Designation relating to the Preferred
Stock and any additional Preferred Stock issued as dividends in
accordance with the terms of the Certificate of Designation (the "PIK
Preferred Stock") will be
-5-
<PAGE>
duly authorized by the Company prior to the Closing. Upon filing of
such Certificate of Designation with the Delaware Secretary of State,
the Preferred Stock and the PIK Preferred Stock will be duly authorized
and, when issued and delivered by the Company against payment therefor
in accordance with the provisions of this Agreement, in the case of the
Preferred Stock and in accordance with the terms of the Certificate of
Designation, in the case of the PIK Preferred Stock, will be validly
issued, fully paid and nonassessable and free of any preemptive or
similar rights; the certificates for the Preferred Stock and the PIK
Preferred Stock will be in due and proper form; and the holders of such
Preferred Stock and PIK Preferred Stock will not be subject to personal
liability by reason of being such holders. Prior to the Closing, the
Company will have reserved for issuance, and duly authorized the
issuance of, the maximum number of Preferred Stock and PIK Preferred
Stock issuable as dividends pursuant to the terms of the Certificate of
Designation. The Certificate of Incorporation of the Company, by virtue
of the filing of the Certificate of Designation, will set forth the
rights, preferences and priorities of the Preferred Stock and the PIK
Preferred Stock. The Exchange Preferred Stock will be duly authorized
prior to the Closing and, when issued and delivered by the Company in
accordance with the provisions of the Exchange Offer contemplated by
the Preferred Stock Registration Rights Agreement, will be validly
issued, fully paid and nonassessable and free of any preemptive or
similar rights.
(j) The Company and each of the Subsidiaries has all requisite
corporate power and authority to execute, deliver and perform its
obligations under the Preferred Stock Registration Rights Agreement.
The Preferred Stock Registration Rights Agreement will be duly and
validly authorized by the Company prior to the Closing and, when
executed and delivered by the Company and each of the Subsidiaries,
will constitute a valid and legally binding obligation of the Company
and each of the Subsidiaries with respect to its obligations
thereunder, enforceable against the Company and each of the
Subsidiaries in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights and remedies
generally, and subject, as to enforceability, to general principles of
equity, including principles of commercial reasonableness, good faith
and fair dealing (regardless of whether a proceeding is sought at law
or in equity) and except that rights of indemnification and
contribution thereunder may be limited by Federal or state securities
laws or public policy relating thereto.
-6-
<PAGE>
(k) The Company has all requisite corporate power and
authority to execute, deliver and perform its obligations under this
Agreement and to consummate the transactions contemplated hereby. This
Agreement has been duly and validly authorized, executed and delivered
by the Company.
(l) No consent, approval, authorization or order of any court
or governmental agency or body or third party is required for the
execution, delivery or performance of this Agreement by the Company or
the consummation by the Company or any of the Subsidiaries of the
transactions contemplated hereby that are to be completed on or before
the Closing Date, except such as have been obtained or disclosed in the
Final Memorandum and such as may be required under state securities or
"Blue Sky" laws or foreign securities laws in connection with the
purchase and resale of the Preferred Stock by the Initial Purchaser.
None of the Company or any of the Subsidiaries is (i) in violation of
its certificate of incorporation or bylaws (or similar organizational
document), (ii) in breach or violation of any statute, judgment,
decree, order, rule or regulation applicable to any of them or any of
their respective properties or assets, or (iii) in breach of or in
default under (nor has any event occurred which, with notice or passage
of time or both, would constitute a default under) or in violation of
any of the terms or provisions of any indenture, mortgage, deed of
trust, loan agreement, note, lease, license, franchise agreement,
permit, certificate, contract or other agreement or instrument to which
any of them is a party or to which any of them or their respective
properties or assets is subject (collectively, "Contracts") except in
the case of clauses (ii) and (iii) above such violations, breaches or
defaults that would not, individually or in the aggregate, have a
Material Adverse Effect.
(m) The execution, delivery and performance by the Company and
the Subsidiaries of this Agreement, the Unit Agreement, the Warrant
Agreement and the Preferred Stock Registration Rights Agreement and the
consummation by the Company and the Subsidiaries of the transactions
contemplated hereby and thereby, and the fulfillment of the terms
hereof and thereof, will not conflict with or constitute or result in a
breach of or a default under (or an event which with notice or passage
of time or both would constitute a default under) or violation of any
of (i) the terms or provisions of any Contract except such conflicts,
breaches, defaults or violations, that would not, individually or in
the aggregate, have a Material Adverse Effect, (ii) the certificate of
incorporation or by-laws (or similar organizational document) of the
Company or any of the Subsidiaries, or (iii) (assuming compliance with
all applicable state securities or "Blue Sky" laws
-7-
<PAGE>
and assuming the accuracy of the representations and warranties of the
Initial Purchaser in Section 8 hereof) any statute, judgment, decree,
order, rule or regulation applicable to the Company or any of the
Subsidiaries or any of their respective properties or assets except
such conflicts, breaches, defaults or violations that would not,
individually or in the aggregate, have a Material Adverse Effect.
(n) The audited consolidated financial statements of the
entities included in the Preliminary Memorandum and the Final
Memorandum present fairly in all material respects the financial
position, results of operations and cash flows of such entities at the
dates and for the periods to which they relate and have been prepared
in accordance with generally accepted accounting principles applied on
a consistent basis except as otherwise stated therein. The summary and
selected financial and statistical data in the Preliminary Memorandum
and the Final Memorandum present fairly in all material respects the
information shown therein and have been prepared and compiled on a
basis consistent with the audited financial statements included
therein, except as otherwise stated therein. Coopers & Lybrand L.L.P.
is an independent public accounting firm within the meaning of the Act
and the rules and regulations promulgated thereunder.
(o) The pro forma financial information included in the
Preliminary Memorandum and the Final Memorandum have been properly
computed on the bases described therein; the assumptions used in the
preparation of the pro forma financial data and other pro forma
financial information included in the Preliminary Memorandum and the
Final Memorandum are reasonable and the adjustments used therein are
appropriate to give effect to the transactions or circumstances
referred to therein.
(p) There is not pending or, to the knowledge of the Company
and the Subsidiaries, threatened any action, suit, proceeding, inquiry,
investigation or legislative mandate to which the Company or any of the
Subsidiaries is a party, or to which the property or assets of the
Company or any of the Subsidiaries are subject, before or brought by
any court, arbitrator or governmental agency or body which are
reasonably likely to, individually or in the aggregate, have a Material
Adverse Effect or which seeks to restrain, enjoin, prevent the
consummation of or otherwise challenge the issuance or sale of the
Units to be sold hereunder or the consummation of the other
transactions described in the Preliminary Memorandum and the Final
Memorandum, including but not limited the transactions described under
the section "The Transactions" (the "Transactions").
-8-
<PAGE>
(q) Each of the Company and the Subsidiaries owns or possesses
adequate licenses or other rights to use all material patents,
trademarks, service marks, trade names, copyrights and know-how
necessary to conduct the businesses now or proposed to be operated by
it as described in the Preliminary Memorandum and the Final Memorandum,
except where the failure to own or possess the same would not,
individually or in the aggregate, have a Material Adverse Effect, and
none of the Company nor any of the Subsidiaries has received any notice
of infringement of or conflict with (or knows of any such infringement
of or conflict with) asserted rights of others with respect to any
patents, trademarks, service marks, trade names, copyrights or know-how
which, if such assertion of infringement or conflict were sustained,
would, individually or in the aggregate, have a Material Adverse
Effect.
(r) The Company and each of the Subsidiaries possesses all
licenses, permits, certificates, consents, orders, approvals and other
authorizations from, and has made all declarations and filings with,
all federal, state, local and other governmental authorities, all
self-regulatory organizations and all courts and other tribunals,
presently required or necessary to own or lease, as the case may be,
and to operate its respective properties and to carry on its respective
businesses as now or proposed to be conducted as described in the
Preliminary Memorandum and the Final Memorandum (collectively, the
"Permits"), except where the failure to obtain such Permits would not,
individually or in the aggregate, have a Material Adverse Effect.
(s) Since the date of the most recent financial statements
appearing in the Final Memorandum, except as described therein, (i)
none of the Company nor the Subsidiaries has incurred any liabilities
or obligations, direct or contingent, or entered into or agreed to
enter into any transactions or contracts (written or oral) not in the
ordinary course of business which liabilities, obligations,
transactions or contracts would, individually or in the aggregate, be
material to the general affairs, management, business, condition
(financial or otherwise), prospects or results of operations of the
Company and the Subsidiaries, either individually or taken as a whole
(a "Material Change"), (ii) none of the Company nor the Subsidiaries
has purchased any of its outstanding capital stock, nor declared, paid
or otherwise made any dividend or distribution of any kind on its
capital stock and (iii) other than as described in the Final
Memorandum, there shall not have been any change in the capital stock
or long-term indebtedness of the Company or the Subsidiaries which
would, individually or in the aggregate, constitute a Material Change.
-9-
<PAGE>
(t) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
general affairs, management, business, condition, (financial or
otherwise), prospects or results of operations of the Company and the
Subsidiaries, either individually or taken as a whole, from that set
forth in the Preliminary Memorandum and the Final Memorandum.
(u) The Company and each of the Subsidiaries has filed all
necessary federal, state, local and foreign income and franchise tax
returns, and has paid all taxes shown as due thereon; and there is no
tax deficiency that has been asserted against the Company or any of the
Subsidiaries other than tax deficiencies which the Company or any
Subsidiary is contesting in good faith and for which the Company or
such Subsidiary has provided adequate reserves.
(v) The statistical and market-related data included in the
Final Memorandum are based on or derived from sources which the Company
and the Subsidiaries believe to be reliable and accurate.
(w) None of the Company, the Subsidiaries nor any agent acting
on their behalf has taken or will take any action that might cause this
Agreement or the sale of the Units to violate Regulation G, T, U or X
of the Board of Governors of the Federal Reserve System, in each case
as in effect, or as the same may hereafter be in effect, on the Closing
Date.
(x) Each of the Company and the Subsidiaries has good and
marketable title to all real property and good title to all personal
property described in the Preliminary Memorandum and the Final
Memorandum as being owned by it and good and marketable title to any
leasehold estate in the real and personal property described in the
Preliminary Memorandum and the Final Memorandum as being leased by it
free and clear of all liens, charges, encumbrances or restrictions,
except as described in the Preliminary Memorandum and the Final
Memorandum or to the extent the failure to have such title or the
existence of such liens, charges, encumbrances or restrictions would
not, individually or in the aggregate, have a Material Adverse Effect.
(y) There are no legal or governmental proceedings involving
or affecting the Company or any Subsidiary or any of their respective
properties or assets which would be required to be described in a
prospectus forming part of a registration statement filed with the
Commission pursuant to the Act
-10-
<PAGE>
that are not described in the Preliminary Memorandum and the Final
Memorandum.
(z) Except as would not, individually or in the aggregate, be
reasonably expected to have a Material Adverse Effect (A) each of the
Company and the Subsidiaries is in compliance with and not subject to
liability under applicable Environmental Laws (as defined below), (B)
each of the Company and the Subsidiaries has made all filings and
provided all notices required under any applicable Environmental Laws,
and has and is in compliance with all Permits required under any
applicable Environmental Laws and each of them is in full force and
effect, (C) there is no civil, criminal or administrative action, suit,
demand, claim, hearing, notice of violation, investigation, proceeding,
notice or demand letter or request for information pending or, to the
knowledge of the Company or any of the Subsidiaries, threatened against
the Company or any of the Subsidiaries under any Environmental Law, (D)
no lien, charge, encumbrance or restriction has been recorded under any
Environmental Law with respect to any assets, facility or property
owned, operated, leased or controlled by the Company or any of the
Subsidiaries, (E) none of the Company or the Subsidiaries has received
notice that it has been identified as a potentially responsible party
under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA") or any comparable state
law, (F) no property or facility of the Company or any of the
Subsidiaries is (i) listed or proposed for listing on the National
Priorities List under CERCLA or is (ii) listed in the Comprehensive
Environmental Response, Compensation, Liability Information System List
promulgated pursuant to CERCLA, or on any comparable list maintained by
any state or local governmental authority.
For purposes of this Agreement, "Environmental Laws" means the
common law and all applicable federal, state and local laws or
regulations, codes, orders, decrees, judgments or injunctions issued,
promulgated, approved or entered thereunder, relating to pollution or
protection of public or employee health and safety or the environment,
including, without limitation, law relating to (i) emissions,
discharges, releases or threatened releases of hazardous materials,
into the environment (including, without limitation, ambient air,
surface water, ground water, land surface or subsurface strata), (ii)
the manufacture, processing, distribution, use, generation, treatment,
storage, disposal, transport or handling of hazardous materials, and
(iii) underground and above ground storage tanks, and related piping,
and emissions, discharges, releases or threatened releases therefrom.
-11-
<PAGE>
(aa) There is no strike, labor dispute, slowdown or work
stoppage with the employees of the Company or any of the Subsidiaries
which is pending or, to the knowledge of the Company or any of the
Subsidiaries, threatened.
(ab) Except for the risks described under "Extensive and
Increasing Regulation of Products", "Tobacco Industry Product Liability
Litigation" and "Possible National Settlement of Tobacco Liability
Claims" under the section entitled "Risk Factors" in the Final
Memorandum, each of the Company and the Subsidiaries carries insurance
in such amounts and covering such risks as is adequate for the conduct
of its business and the value of its properties. Neither the Company
nor any of the Subsidiaries has received notice from any insurer or
agent of such insurer that capital improvements or other expenditures
are required or necessary to be made in order to continue such
insurance.
(bb) None of the Company nor the Subsidiaries has any material
liability for any prohibited transaction (within the meaning of Section
4975(c) of the Internal Revenue Code of 1986, as amended (the "Code")
or Part 4 of Title I of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")) (or an accumulated funding deficiency
within the meaning of Section 412 of the Code or Section 302 of ERISA)
or any complete or partial withdrawal liability (within the meaning of
Section 4201 of ERISA) with respect to any pension, profit sharing or
other plan which is subject to ERISA, to which the Company or any of
the Subsidiaries makes or ever has made a contribution and in which any
employee of the Company or of any Subsidiary is or has ever been a
participant. With respect to such plans, the Company and each
Subsidiary is in compliance in all material respects with all
applicable provisions of ERISA.
(cc) The Company and each of the Subsidiaries (i) makes and
keeps accurate books and records and (ii) maintains internal accounting
controls which provide reasonable assurance that (A) transactions are
executed in accordance with management's authorization, (B)
transactions are recorded as necessary to permit preparation of its
financial statements and to maintain accountability for its assets, (C)
access to its assets is permitted only in accordance with management's
authorization and (D) the reported accountability for its assets is
compared with existing assets at reasonable intervals.
(dd) None of the Company or the Subsidiaries will be an
"investment company" or "promoter" or "principal underwriter" for an
"investment
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<PAGE>
company," as such terms are defined in the Investment Company Act of
1940, as amended, and the rules and regulations thereunder.
(ee) The Units, the Unit Agreement, the Warrants, the Warrant
Shares, the Warrant Agreement, the Preferred Stock, the Exchange
Preferred Stock, and the Preferred Stock Registration Rights Agreement
will conform in all material respects to the descriptions thereof in
the Final Memorandum.
(ff) No holder of securities of the Company nor any of the
Subsidiaries will be entitled to have such securities registered under
the registration statements required to be filed by the Company
pursuant to the Preferred Stock Registration Rights Agreement other
than as expressly permitted thereby.
(gg) Immediately after the consummation of the transactions
contemplated by this Agreement, the fair value and present fair
saleable value of the assets of each of the Company and the
Subsidiaries (each on a consolidated basis) will exceed the sum of its
stated liabilities and identified contingent liabilities; none of the
Company or the Subsidiaries (each on a consolidated basis) is, nor will
any of the Company or the Subsidiaries (each on a consolidated basis)
be, after giving effect to the execution, delivery and performance of
this Agreement, and the consummation of the transactions contemplated
hereby, (a) left with unreasonably small capital with which to carry on
its business as it is currently or proposed to be conducted, (b) unable
to pay its debts (contingent or otherwise) as they mature or otherwise
become due or (c) otherwise insolvent.
(hh) None of the Company, the Subsidiaries or any of their
respective Affiliates (as defined in Rule 501(b) of Regulation D under
the Act) has directly, or through any agent, (i) sold, offered for
sale, solicited offers to buy or otherwise negotiated in respect of,
any "security" (as defined in the Act) which is or could be integrated
with the sale of the Units in a manner that would require the
registration under the Act of the Units or (ii) engaged in any form of
general solicitation or general advertising (as those terms are used in
Regulation D under the Act) in connection with the offering of the
Units or in any manner involving a public offering within the meaning
of Section 4(2) of the Act. The Company has not distributed and will
not distribute any offering material in connection with the Offering
other than the Final Memorandum and any Preliminary Memorandum. No
securities of the same class as the Preferred Stock or the Warrants
have been issued and sold
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<PAGE>
by the Company within the six-month period immediately prior to the
date hereof.
(ii) Assuming the accuracy of the representations and
warranties of the Initial Purchaser in Section 8 hereof, it is not
necessary in connection with the offer, sale and delivery of the Units
to the Initial Purchaser in the manner contemplated by this Agreement
to register the Units, the Preferred Stock, the Warrants or the Warrant
Shares under the Act.
(jj) No securities of the Company or any Subsidiary are of the
same class (within the meaning of Rule 144A as promulgated under the
Act ("Rule 144A")) as the Units, the Warrants, the Warrant Shares or
the Preferred Stock and listed on a national securities exchange
registered under Section 6 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or quoted in a U.S. automated
inter-dealer quotation system.
(kk) None of the Company or the Subsidiaries has taken, nor
will any of them take, directly or indirectly, any action designed to,
or that might be reasonably expected to, cause or result in
stabilization or manipulation of the price of the Units, the Warrants
or the Preferred Stock.
(ll) None of the Company or the Subsidiaries, or any person
acting on any of their behalf (other than the Initial Purchaser) has
engaged in any directed selling efforts (as that term is defined in
Regulation S under the Act ("Regulation S")) with respect to the Units,
the Warrants or the Preferred Stock; the Company and its respective
Affiliates and any person acting on any of their behalf (other than the
Initial Purchaser or any Affiliate of the Initial Purchaser) have
complied with the offering restrictions requirement of Regulation S.
(mm) Each of the Preliminary Memorandum and the Final
Memorandum, as of its respective date, contains all of the information
that, if requested by a prospective purchaser of the Units, the
Warrants or the Preferred Stock, would be required to be provided to
such prospective purchaser pursuant to Rule 144A(d)(4) under the Act.
(nn) The Units, the Warrants and the Preferred Stock satisfy
the eligibility requirements of Rule 144A(d)(3) under the Act.
(oo) Neither the Company nor any of the Subsidiaries nor, to
the Company's knowledge, any officer or director purporting to act on
behalf of
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<PAGE>
the Company or any of the Subsidiaries has at any time: (i) made any
contributions to any candidate for political office, or failed to
disclose fully any such contributions, in violation of law, (ii) made
any payment of funds to, or received or retained any funds from, any
state, federal or foreign governmental officer or official, or other
person charged with similar public or quasi-public duties, other than
payments required or allowed by applicable law, (iii) violated or is in
violation of any provision of the Foreign Corrupt Practices Act of
1977, (iv) made any bribe, rebate, payoff, influence payment, kickback
or other unlawful payment or (v) engaged in any transaction, maintained
any bank account or used any corporate funds except for transaction,
bank accounts and funds which have been and are reflected in the
normally maintained books and records of the Company and the
Subsidiaries.
(pp) Except as disclosed in any Memorandum, there are no
material outstanding loans or advances or material guarantees of
indebtedness by the Company or any of its Subsidiaries to or for the
benefit of any of the officers or directors of the Company or any of
its Subsidiaries or any of the members of the families of any of them.
(qq) Neither the Company nor any affiliate of the Company does
business with the government of Cuba or with any person or affiliate
located in Cuba within the meaning of Florida Statutes Section 517.075.
(rr) None of the Company nor the Subsidiaries has engaged or
retained any person, other than NatWest Capital Markets Limited
("NatWest"), to act as a financial advisor, underwriter or placement
agent in connection with the issuance of the Units, the Warrants and
the Preferred Stock and, except for the fees and expenses payable in
connection with the issuance of the Units as described in the Final
Memorandum and the advisory fees payable to UBS Securities LLC, no
person has the right to receive a material amount of financial
advisory, underwriting, placement, finder's or similar fees in
connection with, or as a result of, the issuance of the Units and the
purchase of the Units by NatWest or the consummation of the other
transactions contemplated hereby.
3. Purchase, Sale and Delivery of the Units. On the basis of
the representations, warranties, agreements and covenants herein contained and
subject to the terms and conditions herein set forth, the Company agrees to
issue and sell to the Initial Purchaser, and the Initial Purchaser agrees, to
purchase from the Company the Units at a price of $24,117.65 per unit. One or
more certificates in
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<PAGE>
definitive form for the Units that the Initial Purchaser has agreed to purchase
hereunder, and in such denomination or denominations and registered in such name
or names as each of the Initial Purchaser requests upon notice to the Company at
least 48 hours prior to the Closing Date, shall be delivered by or on behalf of
the Company to the Initial Purchaser, against payment by or on behalf of such
Initial Purchaser of the purchase price therefor by wire transfer to such
account or accounts as the Company shall specify prior to the Closing Date, or
by such means as the parties hereto shall agree prior to the Closing Date. Such
delivery of and payment for the Units shall be made at the offices of Weil,
Gotshal & Manges L.L.P., 767 Fifth Avenue, New York, NY at 10:00 A.M., New York
time, on June 25, 1997, or at such other place, time or date as the Initial
Purchaser, on the one hand, and the Company, on the other hand, may agree upon,
such time and date of delivery against payment being herein referred to as the
"Closing Date." The Company will make such certificate or certificates for the
Units available for inspection and packaging by the Initial Purchaser at such
place as designated by the Initial Purchaser at least 24 hours prior to the
Closing Date.
4. Offering by the Initial Purchaser. The Initial Purchaser
proposes to make an offering of the Units at the price and upon the terms set
forth in the Final Memorandum, as soon as practicable after this Agreement is
entered into and as in the judgment of the Initial Purchaser is advisable.
5. Covenants of the Company. The Company covenants and agrees
with the Initial Purchaser that:
(a) The Company will not amend or supplement the Final
Memorandum or any amendment or supplement thereto of which the Initial
Purchaser shall not previously have been advised and furnished a copy
for a reasonable period of time prior to the proposed amendment or
supplement and as to which the Initial Purchaser shall not have
consented. The Company will promptly, upon the reasonable request of
the Initial Purchaser or counsel for the Initial Purchaser, make any
amendments or supplements to the Final Memorandum that may be necessary
or advisable in connection with the resale of the Units by the Initial
Purchaser.
(b) The Company will cooperate with the Initial Purchaser in
arranging for the qualification of the Units for offering and sale
under the securities or "Blue Sky" laws of which jurisdictions as the
Initial Purchaser may designate and will continue such qualifications
in effect for as long as may be necessary to complete the resale of the
Units; provided, however, that in connection therewith, the Company
shall not be required to qualify as a foreign
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<PAGE>
corporation or to execute a general consent to service of process in
any jurisdiction or subject itself to taxation in excess of a nominal
dollar amount in any such jurisdiction where it is not then so subject.
(c) If, at any time prior to the completion of the
distribution by the Initial Purchaser of the Units, any event occurs or
information becomes known as a result of which the Final Memorandum as
then amended or supplemented would, in the judgment of the Company or
in the reasonable opinion of counsel for the Initial Purchaser include
any untrue statement of a material fact, or omit to state a material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if for any
other reason it is necessary at any time to amend or supplement the
Final Memorandum to comply with applicable law, the Company will
promptly notify the Initial Purchaser thereof and will prepare, at the
expense of the Company, an amendment or supplement to the Final
Memorandum that corrects such statement or omission or effects such
compliance.
(d) The Company will, without charge, provide to the Initial
Purchaser and to counsel for the Initial Purchaser as many copies of
the Preliminary Memorandum and the Final Memorandum or any amendment or
supplement thereto as the Initial Purchaser may reasonably request.
(e) The Company will apply the net proceeds from the sale of
the Preferred Stock substantially as set forth under "Use of Proceeds"
in the Final Memorandum.
(f) The Company will furnish to the Initial Purchaser copies
of all reports and other communications (financial or otherwise)
furnished by the Company to the Unit Agent, the Warrant Agent, the
holders of the Warrants, the Warrant Shares or the holders of the
Preferred Stock and, as soon as available, copies of any reports or
financial statements furnished to or filed by the Company with the
Commission or any national securities exchange on which any class of
securities of the Company may be listed.
(g) Prior to the Closing Date, the Company will furnish to the
Initial Purchaser, as soon as they have been prepared, a copy of any
unaudited interim financial statements of the Company and the
Subsidiaries for any period subsequent to the period covered by the
most recent financial statements appearing in the Final Memorandum.
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<PAGE>
(h) None of the Company, the Subsidiaries or any of their
Affiliates will sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any "security" (as defined in the
Act) which could be integrated with the sale of the Units, the
Warrants, the Warrant Shares or the Preferred Stock in a manner which
would require the registration under the Act of the Units, the Warrants
or the Preferred Stock.
(i) None of the Company nor the Subsidiaries will engage in
any form of "general solicitation" or "general advertising" (as those
terms are used in Regulation D under the Act) in connection with the
offering of the Units or in any manner involving a public offering of
the Units, the Warrants or the Preferred Stock within the meaning of
Section 4(2) of the Act.
(j) None of the Company, the Subsidiaries nor their Affiliates
nor any person acting on its or their behalf to engage, in any directed
selling efforts (as that term is defined in Regulation S) with respect
to the Units, the Warrants or the Preferred Stock, and to comply, and
to have its Affiliates and each person acting on its or their behalf
comply, with the offering restrictions requirements of Regulation S.
(k) For so long as any of the Units, the Warrants or the
Preferred Stock remain outstanding, the Company will make available,
upon request, to any seller of such Preferred Stock the information
specified in Rule 144A(d)(4) under the Act, unless the Company is then
subject to Section 13 or 15(d) of the Exchange Act.
(l) For a period of 180 days from the date of the Final
Memorandum, the Company will not offer for sale, sell, contract to sell
or otherwise dispose of, directly or indirectly, or file a registration
statement for, or announce any offer, sale, contract for sale of or
other disposition of any Units, Warrants or Preferred Stock (other than
the Exchange Notes, the Units, the Warrants, the Warrant Shares, the
Preferred Stock and the Exchange Preferred Stock) without the prior
written consent of the Initial Purchaser.
(m) During the period from the Closing Date until two years
after the Closing Date, without the prior written consent of the
Initial Purchaser, the Company will not, and will not permit any of
their affiliates (as defined in Rule 144 under the Act) to, resell any
of the Units, Warrants or the Preferred Stock that have been reacquired
by them, except for Units,
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<PAGE>
Warrants or Preferred Stock purchased by the Company or any of its
affiliates and resold in a transaction registered under the Act.
(n) In connection with the offering of the Units, until the
Initial Purchaser shall have notified the Company of the completion of
the resale of the Units, the Company will not, and will cause their
affiliated purchasers (as defined in the Exchange Act) not to, either
alone or with one or more other persons, bid for or purchase, for any
account in which it or any of its affiliated purchasers has a
beneficial dividends, any Units, or attempt to induce any person to
purchase any Units; and not to, and to cause its affiliated purchasers
not to, make bids or purchase for the purpose of creating actual, or
apparent, active trading in or of raising the price of the Units.
(o) Except as contemplated by the Final Memorandum, the
Company will not take any action prior to the execution and delivery of
the Unit Agreements or the Warrant Agreement which, if taken after such
execution and delivery, would have violated any of the covenants
contained in the Unit Agreement or the Warrant Agreement.
(p) The Company will not take any action prior to Closing Date
which would require the Final Memorandum to be amended or supplemented
pursuant to Section 5(c).
(q) Prior to the Closing Date, the Company will not issue any
press release or other communication directly or indirectly or hold any
press conference with respect to the Company, its condition, financial
or otherwise, or earnings, business affairs or business prospects
(except for routine oral marketing communications in the ordinary
course of business and consistent with the past practices of the
Company and of which the Initial Purchaser is notified), without the
prior written consent of the Initial Purchaser, unless in the judgment
of the Company and its counsel, after notification to the Initial
Purchaser, such press release or communication is required by law.
(r) The Company will use its best efforts to (i) permit the
Units, the Warrants, the Warrant Shares and the Preferred Stock to be
designated PORTAL securities in accordance with the rules and
regulations adopted by the NASD relating to trading in the Private
Offerings, Resales and Trading through Automated Linkages market (the
"Portal Market") and (ii) permit the Units, the Warrants, the Warrant
Shares and the Preferred Stock to be
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eligible for clearance and settlement through the Depository Trust
Company ("DTC").
6. Expenses. The Company and the Subsidiaries agree, jointly
and severally to pay all costs and expenses incident to the performance of their
obligations under this Agreement, whether or not the transactions contemplated
herein are consummated or this Agreement is terminated pursuant to Section 11
hereof, including all costs and expenses incident to (i) the printing, word
processing or other production of documents with respect to the transactions
contemplated hereby, including any costs of printing the Preliminary Memorandum
and the Final Memorandum and any amendment or supplement thereto, and any "Blue
Sky" memoranda, (ii) all arrangements relating to the delivery to the Initial
Purchaser of copies of the foregoing documents, (iii) the fees and disbursements
of counsel, accountants and any other experts or advisors retained by the
Company, (iv) preparation (including printing), issuance and delivery to the
Initial Purchaser of the Units, (v) the qualification of the Units under state
securities and "Blue Sky" laws, including filing fees and reasonable fees and
disbursements of counsel for the Initial Purchaser relating thereto, (vi)
expenses in connection with any meetings with prospective investors in the
Units, (vii) fees and expenses of the Unit Agent and the Warrant Agent including
fees and expenses of counsel, (viii) all expenses and listing fees incurred in
connection with the application for quotation of the Units on the PORTAL Market
and the approval of the Units for book-entry transfer by DTC, and (ix) any fees
charged by investment rating agencies for the rating of the Units. If the sale
of the Units provided for herein is not consummated because any condition to the
obligations of the Initial Purchaser set forth in Section 7 hereof is not
satisfied, because this Agreement is terminated or because of any failure,
refusal or inability on the part of the Company to perform all obligations and
satisfy all conditions on their part to be performed or satisfied hereunder
(other than solely by reason of a default by the Initial Purchaser of their
obligations hereunder after all conditions hereunder have been satisfied in
accordance herewith), the Company agrees to promptly reimburse the Initial
Purchaser upon demand for all out-of-pocket expenses (including all reasonable
fees, disbursements and charges of White & Case) that shall have been incurred
by the Initial Purchaser in connection with the proposed purchase and sale of
the Units.
7. Conditions of the Initial Purchaser's Obligations. The
obligation of the Initial Purchaser to purchase and pay for the Units shall, in
its sole discretion, be subject to the satisfaction or waiver of the following
conditions on or prior to the Closing Date:
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(a) On the Closing Date, the Initial Purchaser shall have
received the opinion, dated as of the Closing Date and addressed to the Initial
Purchaser, of Weil, Gotshal & Manges LLP, counsel for the Company, in form and
substance satisfactory for counsel to the Initial Purchaser, dated the Closing
Date, substantially to the effect that:
(i) the Company is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of
Delaware. Each of the Corporate Subsidiaries is a corporation duly
incorporated, validly existing and in good standing under the laws of
the State of Delaware. National Tobacco is a limited partnership duly
organized and subsisting under the laws of the State of Delaware. Each
of the Company and the Corporate Subsidiaries has all requisite
corporate power and authority to own its properties and to conduct its
business as described in the Final Memorandum. National Tobacco has all
requisite partnership power and authority to own its property and to
conduct its business as described in the Final Memorandum;
(ii) all of the outstanding shares of capital stock
of the Company and each of the Corporate Subsidiaries and the
partnership interests in National Tobacco are duly authorized, validly
issued, fully paid and nonassessable (except, with respect to the
Company, to the extent of loans outstanding to executive officers as
described in the Final Memorandum) and were not issued in violation of
any preemptive or similar rights, other than any rights of SGIC with
respect to or arising out of SGIC's interest in LLC as to which no
opinion is expressed. Except as set forth in the Final Memorandum, all
of the outstanding shares of capital stock of each of the Corporate
Subsidiaries and the partnership interests in National Tobacco are
owned of record and, to such counsel's knowledge, beneficially, by the
Company or, in the case of National Tobacco, a Subsidiary, free and
clear, to our knowledge, of all liens, security interests, encumbrances
or claims;
(iii) Except as set forth in the Final Memorandum,
(A) no options, warrants or other rights to purchase from the Company
or any Subsidiary shares of capital stock or equity interests in the
Company or any Subsidiary are outstanding, (B) no agreements or other
obligations of the Company or any Subsidiary to issue, or other rights
to cause the Company or any Subsidiary to convert, any obligation into,
or exchange any securities for, shares of capital stock or ownership
interests in the Company or any Subsidiary are outstanding and (C) no
holder of securities of the Company or any Subsidiary is entitled to
have such securities registered under a registration statement filed by
the Company and the Subsidiary pursuant to
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the Preferred Stock Registration Rights Agreement in each case other
than rights of SGIC with respect to or arising out of its interest in
LLC, as to which no opinion is expressed;
(iv) the Unit Agreement has been duly authorized by
the Company and, when executed and delivered by the Company (assuming
the due authorization, execution and delivery thereof by the Unit
Agent), will constitute the legal, valid and binding obligation of the
Company with respect to its obligations thereunder, enforceable against
the Company in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights and remedies
generally, and subject, as to enforceability, to general principles of
equity, including principles of commercial reasonableness, good faith
and fair dealing (regardless of whether a proceeding is sought at law
or in equity); the Units have been duly authorized by the Company and,
when issued and delivered against payment therefor by the Initial
Purchaser (and assuming the due authorization, execution and delivery
of the Unit Agreement by the Unit Agent and the execution and delivery
of the Units in the manner prescribed by the Unit Agreement by one of
the Unit Agent's duly authorized officers), will be duly executed,
authenticated, issued and delivered and will constitute valid and
legally binding obligations of the Company enforceable in accordance
with their terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally and subject, as to
enforceability, to general principles of equity, including principles
of commercial reasonableness, good faith and fair dealing (regardless
of whether a proceeding is sought at law or in equity);
(v) the Warrant Agreement has been duly authorized by
the Company and, when executed and delivered by the Company (assuming
the due authorization, execution and delivery thereof by the Warrant
Agent), will constitute the legal, valid and binding obligation of the
Company with respect to its obligations thereunder, enforceable against
the Company in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights and remedies
generally, and subject, as to enforceability, to general principles of
equity, including principles of commercial reasonableness, good faith
and fair dealing (regardless of whether a proceeding is sought at law
or in equity); the Warrants have been duly authorized by the Company
and, when issued and delivered against payment for the Units by the
Initial Purchaser (and assuming the due authorization, execution and
delivery of the
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Warrant Agreement by the Warrant Agent and the execution and delivery
of certificates of authentication of the Warrants in the manner
prescribed by the Warrant Agreement by one of the Warrant Agent's duly
authorized officers), will be duly executed, authenticated, issued and
delivered and will constitute valid and legally binding obligations of
the Company enforceable in accordance with their terms, subject to
applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights
and remedies generally and subject, as to enforceability, to general
principles of equity, including principles of commercial
reasonableness, good faith and fair dealing (regardless of whether a
proceeding is sought at law or in equity);
(vi) The Certificate of Designation has been duly
adopted by the Company, has been duly executed and acknowledged in
accordance with the General Corporation Law of the State of Delaware by
authorized officers of the Company and has been filed with the
Secretary of State of the State of Delaware;
(vii) Each of the Preferred Stock and the Exchange
Preferred Stock have been duly and validly authorized by the Company
and, when issued and paid for by the purchasers thereof or issued in
payment of dividends, as the case may be, will be fully paid and
nonassessable and free of preemptive or other similar rights contained
in the Company's certificate of incorporation and the certificates
evidencing the Preferred Stock comply as to matters of form with the
General Corporation Law of the State of Delaware (assuming the due
execution and delivery of Preferred Stock issued subsequent to the date
hereof);
(viii) The Warrant Shares issuable upon the exercise
of the Warrants have been duly authorized and validly reserved for
issuance and when issued and paid for upon the exercise of the Warrants
in accordance with the terms thereof, will be validly issued, fully
paid, nonassessable;
(ix) the Preferred Stock Registration Rights
Agreement has been duly authorized by the Company and, when validly
executed and delivered by the Company, will constitute a valid and
legally binding obligation of the Company with respect to its
obligations thereunder and will be enforceable against it in accordance
with its terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally, and subject, as to
enforceability, to general principles of equity, including
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principles of commercial reasonableness, good faith and fair dealing
(regardless of whether a proceeding is sought at law or in equity) and
except that rights of indemnification and contribution thereunder may
be limited by federal or state securities laws or public policy
relating thereto;
(x) the Company has all requisite corporate power and
authority to execute and deliver this Agreement and to perform its
obligations thereunder; the execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the
transactions contemplated thereby have been duly authorized by all
necessary corporate action on the part of the Company; this Agreement
has been duly authorized, executed and delivered by the Company;
(xi) the statements in the Final Memorandum under the
caption "Description of Capital Stock", "Description of Senior PIK
Preferred Stock", "Description of Warrants" and "Senior PIK Preferred
Stock Registration Rights Agreement" insofar as they describe the
provisions of the documents and instruments therein described,
constitute fair summaries thereof accurate in all material respects;
(xii) to the knowledge of such counsel, there is no
action, suit or proceeding pending before or threatened by any court or
public governmental authority or arbitrator involving the Company or
any of its subsidiaries of a character required to be disclosed in the
Final Memorandum which is not adequately disclosed or incorporated by
reference in the Final Memorandum or which seeks to restrain, enjoin,
prevent the consummation of or otherwise challenge the issuance or sale
of the Units to be sold hereunder or the consummation of the other
transactions described in the Final Memorandum under the caption "Use
of Proceeds", except that no opinion is expressed with respect to any
threatened action by SGIC with respect to or arising out of its
interest in LLC.
(xiii) neither the Company nor any of the
Subsidiaries is or immediately after the sale of the Preferred Stock to
be sold hereunder and the application of the proceeds from such sale
(as described in the Final Memorandum under the caption "Use of
Proceeds") will be an "investment company" within the meaning of, and
is not registered or otherwise required to be registered under, the
Investment Company Act of 1940, as amended;
(xiv) no consent, approval, waiver, license, permit,
authorization or other action by or filing with any New York, Delaware
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corporate or United States governmental authority is required in
connection with the issuance and sale by the Company to the Initial
Purchaser on the Closing Date of the Units, the Warrants, the Warrant
Shares or the Preferred Stock, the consummation by the Company of the
transactions contemplated by this Agreement, the Unit Agreement, the
Warrant Agreement or the Preferred Stock Registration Rights Agreement,
except for (i) state securities or "blue sky" laws, rules or
regulations, (ii) with respect to the Preferred Stock Registration
Rights Agreement only, filings and other actions required pursuant to
the Securities Act, the Exchange Act, and the rules and regulations of
the Commission promulgated thereunder, and (iii) filings with the
Bureau of Alcohol, Tobacco and Firearms, as to all of which we express
no opinion, and those consents, approvals, waivers, licenses, permits
or authorizations which have heretofore been obtained;
(xv) neither the issuance and sale by the Company of
the Units, the Warrants, the Warrant Shares or the Preferred Stock
pursuant to this Agreement, the execution and delivery of this
Agreement, the Unit Agreement, the Warrant Agreement or the Preferred
Stock Registration Rights Agreement, the compliance by the Company with
the terms and provisions thereof, or the consummation by the Company or
the Subsidiaries of any of the transactions contemplated thereby, will
conflict with, constitute a default under, or violate (i) any of the
terms, conditions or provisions of the certificate of incorporation or
by-laws of the Company or any of the Subsidiaries, (ii) any New York,
Delaware corporate or United States federal law or regulation (other
than United States federal and state securities or "blue sky" laws,
rules and regulations or laws, rules and regulations administered by
the Bureau of Alcohol, Tobacco and Firearms, as to which such counsel
need not express any opinion in this paragraph), or (iii) any judgment,
writ, injunction, decree or order of any court or governmental
authority binding on the Company or any of the Subsidiaries of which
such counsel is aware;
(xvi) No registration under the Act of the Units is
required in connection with the sale of the Units to the Initial
Purchaser or the resale of the Units by the Initial Purchaser in the
manner contemplated by this Agreement and the Final Memorandum.
In rendering such opinion, such counsel may rely (A) as to
matters involving the application of laws of any jurisdiction other than the
State of New York or the United States or the corporation law of the State of
Delaware, to the extent they deem proper and specified in such opinion, upon the
opinion of other
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counsel of good standing whom they believe to be reliable and who are
satisfactory to counsel for the Purchasers and (B) as to matters of fact, to the
extent they deem proper, on certificates of responsible officers of the Company
and public officials.
In addition to the foregoing, such counsel shall state that is
has participated in conferences with directors, executive officers and other
representatives of the Company, representatives of the Company's independent
public accountants, at which conferences the contents of the Final Memorandum
and relating matters were discussed, and although such counsel has not
independently verified and has not passed upon or assumed any responsibility for
the accuracy, completeness or fairness of the statements contained in such
documents, no facts have come to such counsel's attention to lead it to believe
that the Final Memorandum and any further amendments or supplements thereto as
of their respective dates and on the date of such opinion letter contained or
contains an untrue statement of a material fact or omitted or omits to state a
material fact required to be stated therein, or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading (it being understood that such counsel need not express any view with
respect to the financial statements and related notes, the financial statement
schedules and the other financial, statistical and accounting data included in
the Final Memorandum).The opinion of Weil Gotshal & Manges LLP described in this
Section shall be rendered to the Initial Purchaser at the request of the Company
and shall so state therein.
References to the Final Memorandum in this subsection (a) shall include
any amendment or supplement thereto prepared in accordance with the provisions
of this Agreement on or before the Closing Date.
(b) On the Closing Date, the Initial Purchaser shall have received the
opinion, in form and substance satisfactory to the Initial Purchaser, dated as
of the Closing Date and addressed to the Initial Purchaser, of White & Case
counsel for the Initial Purchaser, with respect to certain legal matters
relating to this Agreement and such other related matters as the Initial
Purchaser may reasonably require. In rendering such opinion, White & Case shall
have received and may rely upon such certificates and other documents and
information as it may reasonably request to pass upon such matters.
(c) The Initial Purchaser shall have received from Coopers & Lybrand
L.L.P. comfort letters dated the date hereof and the Closing Date, in form and
substance satisfactory to counsel for the Initial Purchaser.
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(d) The representations and warranties of the Company and the
Subsidiaries contained in this Agreement shall be true and correct on and as of
the date hereof and on and as of the Closing Date as if made on and as of the
Closing Date; the statements of the Company's or any Subsidiaries' officers made
pursuant to any certificate delivered in accordance with the provisions hereof
shall be true and correct on and as of the date made and on and as of the
Closing Date; the Company and the Subsidiaries shall have performed all
covenants and agreements and satisfied all conditions on their part to be
performed or satisfied hereunder at or prior to the Closing Date; and, except as
described in the Final Memorandum (exclusive of any amendment or supplement
thereto after the date hereof), subsequent to the date of the most recent
financial statements in such Final Memorandum, there shall have been no event or
development that, individually or in the aggregate, has had, or would be
reasonably likely to have, a Material Adverse Effect.
(e) The sale of the Units hereunder shall not be enjoined (temporarily
or permanently) on the Closing Date.
(f) The Units shall have been approved by the NASD for trading in the
PORTAL Market.
(g) There shall not have occurred any invalidation of Rule 144A under
the Act by any court or any withdrawal or proposed withdrawal of any rule or
regulation under the Act or the Exchange Act by the Commission or any amendment
or proposed amendment thereof by the Commission which in the judgment of the
Initial Purchaser would materially impair the ability of the Initial Purchaser
to purchase, hold or effect resales of the Units as contemplated hereby.
(h) There shall not have occurred any change, or any development
involving a prospective change, in the general business affairs, condition
(financial or otherwise), prospects or results of operations, of the Company and
the Subsidiaries, taken as a whole, from that set forth in the Final Memorandum
that constitutes a Material Adverse Effect and that makes it, in the Initial
Purchaser' judgment, impracticable to market the Units on the terms and in the
manner contemplated in the Final Memorandum.
(i) Subsequent to the date of the most recent financial statements in
the Final Memorandum (exclusive of any amendment or supplement thereto after the
date hereof), the conduct of the business and operations of the Company and the
Subsidiary shall not have been interfered with by strike, fire, flood,
hurricane, accident or other calamity (whether or not insured) or by any court
or governmental action, order or decree, and, except as otherwise stated
therein, the properties of the
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Company and the Subsidiaries shall not have sustained any loss or damage
(whether or not insured) as a result of any such occurrence, except any such
interference, loss or damage which would not, individually or in the aggregate,
have a Material Adverse Effect.
(j) No securities of the Company or any Subsidiary shall have been
downgraded or placed on any "watch list" for possible downgrading by any
nationally recognized statistical rating organization.
(k) The Initial Purchaser shall have received certificates of the
Company, dated the Closing Date, signed by its President and the Chief Financial
Officer, to the effect that:
(i) The representations and warranties of the
Company contained in this Agreement are true and correct as of the date
hereof and as of the Closing Date, and the Company has performed all
covenants and agreements and satisfied all conditions on their part to
be performed or satisfied hereunder at or prior to the Closing Date;
(ii) At the Closing Date, since the date
hereof or since the date of the most recent financial statements in the
Final Memorandum (exclusive of any amendment or supplement thereto
after the date hereof), no event or events have occurred, no
information has become known nor does any condition exist that,
individually or in the aggregate, has had, or could be reasonably be
expected to have, a Material Adverse Effect;
(iii) The sale of the Units hereunder has not
been enjoined (temporarily or permanently);
(iv) The transactions described in the Final
Memorandum entitled "The Transactions" have been consummated on
substantially the terms described in the Final Memorandum; and
(v) Such other information as the Initial
Purchaser may reasonably request.
(l) On the Closing Date, the Initial Purchaser shall have received the
Preferred Stock Registration Rights Agreement executed by the Company and such
agreement shall be in full force and effect pursuant to its terms.
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(m) On the Closing Date, the Initial Purchaser shall have received the
Common Stock Registration Rights and Stockholder Agreement, dated the date
hereof, executed by the Company, the Initial Purchaser and certain stockholders
of the Company, and such agreement shall be in full force and effect pursuant to
its terms.
(n) On the Closing Date, each of the transactions described in the
section of the Memorandum entitled "The Transactions" shall have been
consummated on a basis satisfactory to the Initial Purchaser.
(o) On the Closing Date, the Distribution Agreements (as such term is
defined in the Memorandum) shall be in full force and effect and no party
thereto shall have been in breach thereof.
(p) On the Closing Date, the Lancaster Agreement (as such term is
defined in the Memorandum) shall be in full force and effect and no party
thereto will be in breach thereof.
(q) The conditions to the purchase and sale of the Company's 11% Senior
Notes due 2004 by the Initial Purchaser and CIBC Wood Gundy Securities Corp.
("CIBC") as set forth in the Purchase Agreement dated the date hereof between
the Company and certain of its subsidiaries, the Initial Purchaser and CIBC
shall have been satisfied and such Agreement shall not have been terminated.
On or before the Closing Date, the Initial Purchaser and
counsel for the Initial Purchaser shall have received such further documents,
opinions, certificates, letters and schedules or instruments relating to the
business, corporate, legal and financial affairs of the Company and the
Subsidiaries as they shall have heretofore reasonably requested from the Company
and the Subsidiaries.
All such documents, opinions, certificates, letters, schedules
or instruments delivered pursuant to this Agreement will comply with the
provisions hereof only if they are reasonably satisfactory in all material
respects to the Initial Purchaser and counsel for the Initial Purchaser. The
Company and the Subsidiaries shall furnish to the Initial Purchaser such
conformed copies of such documents, opinions, certificates, letters, schedules
and instruments in such quantities as the Initial Purchaser shall reasonably
request.
8. Offering of Units; Restrictions on Transfer. The Initial
Purchaser agrees with the Company that (i) it has not and will not solicit
offers for, or offer or sell, the Units by any form of general solicitation or
general advertising (as those
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terms are used in Regulation D under the Act) or in any manner involving a
public offering within the meaning of Section 4(2) of the Act; and (ii) they
have and will solicit offers for the Units only from, and will offer the Units
only to (A) in the case of offers inside the United States, (x) persons whom the
Initial Purchaser reasonably believe to be QIBs 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 the Initial
Purchaser that each such account is a QIB, to whom notice has been given that
such sale or delivery is being made in reliance on Rule 144A, and, in each case,
in transactions under Rule 144A or (y) a limited number of other institutional
investors reasonably believed by the Initial Purchaser to be Accredited
Investors that, prior to their purchase of the Units, deliver to the Initial
Purchaser a letter containing the representations and agreements set forth in
Appendix B to the Final Memorandum and (B) in the case of offers outside the
United States, to persons other than U.S. persons ("foreign purchasers," which
term shall include dealers or other professional fiduciaries in the United
States acting on a discretionary basis for foreign beneficial owners (other than
an estate or trust)); provided, however, that, in the case of this clause (B),
in purchasing such Units such persons are deemed to have represented and agreed
as provided under the caption "Transfer Restrictions on the Units" contained in
the Final Memorandum.
The Initial Purchaser represents and warrants that it is a
QIB, with such knowledge and experience in financial and business matters as are
necessary in order to evaluate the merits and risks of an investment in the
Units. The Initial Purchaser agrees to comply with the applicable provisions of
Rule 144A and Regulation S under the Act. The Initial Purchaser hereby
acknowledges that the Company and, for purposes of the opinions to be delivered
to the Initial Purchaser pursuant to Section 7(a) hereof, counsel to the Company
will rely upon the accuracy and truth of the representations contained in this
Section 8 and the Initial Purchaser hereby consents to such reliance.
9. Indemnification and Contribution. (a) The Company agrees to
indemnify and hold harmless the Initial Purchaser and its respective affiliates,
directors, officers, agents, representatives general partners and employees of
such Initial Purchaser or its affiliates, and each other person, if any, who
controls the Initial Purchaser or its affiliates within the meaning of Section
15 of the Act or Section 20 of the Exchange Act, to the full extent lawful
against any losses, claims, damages, expenses or liabilities (or actions in
respect thereof, including, without, limitation, shareholder derivative actions
and arbitration proceedings) to which any Initial Purchaser or such other person
may become subject under the Act, the Exchange Act or otherwise, insofar as any
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon:
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(i) any untrue statement or alleged untrue statement of any
material fact contained in any Memorandum or any amendment or
supplement thereto or any application or other document, or any
amendment or supplement thereto, executed by the Company or based upon
written information furnished by or on behalf of the Company filed in
any jurisdiction in order to qualify the Units under the securities or
"Blue Sky" laws thereof or filed with any securities association or
securities exchange (each an "Application");
(ii) the omission or alleged omission to state, in any
Memorandum or any amendment or supplement thereto or any Application, a
material fact required to be stated therein or necessary to make the
statements therein not misleading; or
(iii) any breach of any of the representations and warranties of
the Company set forth in this Agreement the Unit Agreement, the Warrant
Agreement or the Preferred Stock Registration Rights Agreement,
and will reimburse, as incurred, the Initial Purchaser and each such other
person for any reasonable legal or other expenses incurred by the Initial
Purchaser or such other person in connection with investigating, defending
against or appearing as a third-party witness in connection with any such loss,
claim, damage, liability or action; provided, however, the Company will not be
liable in any such case to the extent that any such loss, claim, damage, or
liability arises out of or is based upon any untrue statement or alleged untrue
statement or omission or alleged omission made in any Memorandum or any
amendment or supplement thereto or any Application in reliance upon and in
conformity with written information furnished to the Company by the Initial
Purchaser specifically for use therein and, provided, further, that with respect
to any untrue statement or alleged untrue statement in or omission or alleged
omission from the Preliminary Memorandum, the indemnity agreement contained in
this subsection (a) shall not inure to the benefit of any Initial Purchaser that
sold the Units to the person asserting any such losses, claims, damages or
liabilities, to the extent that such sale was an initial resale by such Initial
Purchaser and any such loss, claim, damage or liability of such Initial
Purchaser results from the fact that there was not sent or given to such person,
at or prior to the written confirmation of the sale of such Units to such
person, a copy of the Final Memorandum (exclusive of any material included
therein but not attached thereto) if the Company had previously furnished copies
thereof to such Initial Purchaser. This indemnity agreement will be in addition
to any liabilities or obligations that the Company may otherwise have to the
indemnified parties. Subject to Section 9(c), the Company shall not be liable
under this Section 9 for any settlement of any claim
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or action effected without their prior consent, which shall not be unreasonably
withheld. The Initial Purchaser shall not, without prior written consent of the
Company and the Subsidiaries, effect any settlement or compromise of any pending
or threatened proceeding in respect of which the Initial Purchaser is or could
have been a party, or indemnity could have been sought hereunder by the Initial
Purchaser, unless such settlement (A) includes an unconditional written release
of the Company and the Subsidiaries, in form and substance reasonably
satisfactory to the Company, from all liability on claims that are the subject
matter of such proceeding and (B) does not include any statement as to an
admission of fault, culpability or failure to act by or on behalf of the Company
or any of the Subsidiaries.
(b) The Initial Purchaser agrees to indemnify and hold
harmless the Company, their directors, their officers and each person, if any,
who controls the Company within the meaning of Section 15 of the Act or Section
20 of the Exchange Act against any losses, claims, damages or liabilities to
which the Company or any such director, officer or controlling person may become
subject under the Act, the Exchange Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon (i) any untrue statement or alleged untrue statement of any
material fact contained in any Memorandum or any amendment or supplement thereto
or any Application, or (ii) the omission or the alleged omission to state
therein a material fact required to be stated in any Memorandum or any amendment
or supplement thereto or any Application, or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
furnished to the Company or the Subsidiaries by the Initial Purchaser
specifically for use therein; and subject to the limitation set forth
immediately preceding this clause, will reimburse, as incurred, any reasonable
legal or other expenses incurred by the Company, or any such director, officer
or controlling person in connection with investigating or defending against or
appearing as a third party witness in connection with any such loss, claim,
damage, liability or action in respect thereof. This indemnity agreement will be
in addition to any liability that the Initial Purchaser may otherwise have to
the indemnified parties. Subject to Section 9(c), the Initial Purchaser shall
not be liable under this Section 9 for any settlement of any claim or action
effected without their written consent, which shall not be unreasonably
withheld. The Company and the Subsidiaries shall not, without the prior written
consent of the Initial Purchaser, effect any settlement or compromise of any
pending or threatened proceeding in respect of which the Initial Purchaser is or
could have been a party, or indemnity could have been sought hereunder by any
Initial Purchaser, unless such settlement (A) includes an uncondi-
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tional written release of the Initial Purchaser, in form and substance
reasonably satisfactory to the Initial Purchaser, from all liability on claims
that are the subject matter of such proceeding and (B) does not include any
statement as to an admission of fault, culpability or failure to act by or on
behalf of the Initial Purchaser.
(c) Promptly after receipt by an indemnified party under this
Section 9 of notice of the commencement of any action for which such indemnified
party is entitled to indemnification under this Section 9, such indemnified
party will, if a claim in respect thereof is to be made against the indemnifying
party under this Section 9, notify the indemnifying party of the commencement
thereof in writing; but the omission to so notify the indemnifying party (i)
will not relieve it from any liability under paragraph (a) or (b) above unless
and to the extent such failure results in the forfeiture by the indemnifying
party of substantial rights and defenses and (ii) will not, in any event,
relieve the indemnifying party from any obligations to any indemnified party
other than the indemnification obligation provided in paragraphs (a) and (b)
above. In case any such action is brought against any indemnified party, and it
notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel reasonably satisfactory to such indemnified
party; provided, however, that if (i) the use of counsel chosen by the
indemnifying party to represent the indemnified party would present such counsel
with a conflict of dividends, (ii) the defendants in any such action include
both the indemnified party and the indemnifying party and the indemnified party
shall have been advised by counsel that there may be one or more legal defenses
available to it and/or other indemnified parties that are different from or
additional to those available to the indemnifying party, or (iii) the
indemnifying party shall not have employed counsel reasonably satisfactory to
the indemnified party to represent the indemnified party within a reasonable
time after receipt by the indemnifying party of notice of the institution of
such action, then, in each such case, the indemnifying party shall not have the
right to direct the defense of such action on behalf of such indemnified party
or parties and such indemnified party or parties shall have the right to select
separate counsel to defend such action on behalf of such indemnified party or
parties. After notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof and approval by such indemnified
party of counsel appointed to defend such action, the indemnifying party will
not be liable to such indemnified party under this Section 9 for any legal or
other expenses, other than reasonable costs of investigation, subsequently
incurred by such indemnified party in connection with the defense thereof,
unless (i) the indemnified party shall have employed separate counsel in
accordance with the proviso to the immediately preceding sentence (it being
understood, however, that in connection with such action the
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indemnifying party shall not be liable for the expenses of more than one
separate counsel (in addition to local counsel) in any one action or separate
but substantially similar actions in the same jurisdiction arising out of the
same general allegations or circumstances designated by the Initial Purchaser in
the case of paragraph (a) of this Section 9 or either the Company or any of the
Subsidiaries in the case of paragraph (b) of this Section 9, representing the
indemnified parties under such paragraph (a) or paragraph (b), as the case may
be, who are parties to such action or actions) or (ii) the indemnifying party
has authorized in writing the employment of counsel for the indemnified party at
the expense of the indemnifying party. After such notice from the indemnifying
party to such indemnified party, the indemnifying party will not be liable for
the costs and expenses of any settlement of such action effected by such
indemnified party without the prior written consent of the indemnifying party,
unless such indemnified party waived in writing its rights under this Section 9,
in which case the indemnified party may effect such a settlement without such
consent.
(d) In circumstances in which the indemnity agreement provided
for in the preceding paragraphs of this Section 9 is unavailable to an
indemnified party in respect of any losses, claims, damages or liabilities (or
actions in respect thereof), each indemnifying party, in order to provide for
just and equitable contribution, shall contribute to the amount paid or payable
by such indemnified party as a result of such losses, claims, damages or
liabilities (or actions in respect thereof) in such proportion as is appropriate
to reflect (i) the relative benefits received by the indemnifying party or
parties on the one hand and the indemnified party on the other from the offering
of the Units or (ii) if the allocation provided by the foregoing clause (i) is
not permitted by applicable law, not only such relative benefits but also the
relative fault of the indemnifying party or parties on the one hand and the
indemnified party on the other in connection with the statements or omissions or
alleged statements or omissions or breaches that resulted in such losses,
claims, damages or liabilities (or actions in respect thereof). The relative
benefits received by the Company on the one hand and the Initial Purchaser on
the other shall be deemed to be in the same proportion as the total proceeds
from the offering (net of commissions and before deducting expenses) received by
the Company bears to the total discounts and commissions received by the Initial
Purchaser. The relative fault of the parties shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company on the one hand, or the Initial
Purchaser on the other, the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission or
alleged statement or omission, and any other equitable considerations
appropriate in the circumstances. The Company and the Initial Purchaser agree
that it would not be equitable if the amount of such contribution were deter-
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<PAGE>
mined by pro rata or per capita allocation or by any other method of allocation
that does not take into account the equitable considerations referred to in the
first sentence of this paragraph (d). Notwithstanding any other provision of
this paragraph (d), the Initial Purchaser shall not be obligated to make
contributions hereunder that in the aggregate exceed the total discounts,
commissions and other compensation received by the Initial Purchaser under this
Agreement, less the aggregate amount of any damages that the Initial Purchaser
has otherwise been required to pay by reason of the untrue or alleged untrue
statements or the omissions or alleged omissions to state a material fact, and
no person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this paragraph (d),
each person, if any, who controls the Initial Purchaser within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act shall have the same
rights to contribution as the Initial Purchaser, and each director of the
Company, each officer of the Company and each person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, shall have the same rights to contribution as the Company.
10. Survival Clause. The respective representations,
warranties, agreements, covenants, indemnities and other statements of the
Company, the Subsidiaries, their respective officers and the Initial Purchaser
set forth in this Agreement or made by or on behalf of them pursuant to this
Agreement shall remain in full force and effect, regardless of (i) any
investigation made by or on behalf of the Company, the Subsidiaries, any of
their respective officers or directors, the Initial Purchaser or any other
person referred to in Section 9 hereof and (ii) delivery of and payment for the
Units. The respective agreements, covenants, indemnities and other statements
set forth in Sections 6, 9 and 15 hereof shall remain in full force and effect,
regardless of any termination or cancellation of this Agreement.
11. Termination. (a) This Agreement may be terminated in the
sole discretion of the Initial Purchaser by notice to the Company given prior to
the Closing Date in the event that the Company shall have failed, refused or
been unable to perform all obligations and satisfy all conditions on their
respective part to be performed or satisfied hereunder at or prior thereto or,
if at or prior to the Closing Date any of the following shall have occurred:
(i) any of the Company or the Subsidiaries shall have
sustained any loss or interference with respect to its businesses or
properties from fire, flood, earthquakes, hurricane, accident or other
calamity, whether or not covered by insurance, or from any strike,
labor dispute, slow down or work stoppage or any legal or governmental
proceeding, which loss or interference
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<PAGE>
has had or could be reasonably likely to have a Material Adverse
Effect, or there shall have been, in the sole judgment of the Initial
Purchaser, any other event or development that, individually or in the
aggregate, has or could be reasonably likely to have a Material Adverse
Effect (including without limitation a change in control of the Company
or the Subsidiaries), except in each case as described in the Final
Memorandum (exclusive of any amendment or supplement thereto);
(ii) there shall have occurred any change, or any development
involving a prospective change, in the condition, financial or
otherwise, or in the earnings, business or operations, of the Company
and the Subsidiaries, taken as a whole, from that set forth in the
Final Memorandum that is material and adverse and that makes it, in the
Initial Purchaser' sole judgment, impracticable to market the Units,
the Warrants or the Preferred Stock on the terms and in the manner
contemplated in the Final Memorandum;
(iii) trading generally shall have been suspended or materially
limited on or by, as the case may be, either of the New York Stock
Exchange or the National Association of Securities Dealers, Inc. or the
setting of minimum prices for trading on such exchange or market shall
have occurred or trading of any securities of the Company or the
Subsidiaries shall have been suspended on any exchange or in any
over-the-counter market;
(iv) a banking moratorium shall have been declared by New York
or United States authorities;
(v) there shall have been (A) an outbreak or escalation of
hostilities between the United States and any foreign power, (B) an
outbreak or escalation of any other insurrection or armed conflict
involving the United States, (C) any material change in the financial
markets of the United States or (D) any other national or international
calamity or emergency which, in the case of (A), (B), (C) or (D) above
and in the sole judgment of the Initial Purchaser, makes it
impracticable or inadvisable to proceed with the offering or the
delivery of the Units as contemplated by the Final Memorandum;
(vi) the taking of any action by any federal, state or local
government or agency in respect of its monetary or fiscal affairs that
has a material adverse effect on the financial markets in the United
States, and would, in the sole judgment of the Initial Purchaser, make
it impracticable or inadvisable to market the Units;
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<PAGE>
(vii) the proposal, enactment, publication, decree, or other
promulgation of any federal or state statute, regulation, rule order of
any court or other governmental authority which, in the sole judgment
of the Initial Purchaser, would have a Material Adverse Effect;
(viii) any securities of the Company or any Subsidiary shall have
been downgraded or placed on any "watch list" for possible downgrading
by any nationally recognized statistical rating organization.
(b) Termination of this Agreement pursuant to this Section 11
shall be without liability of any party to any other party except as provided in
Section 10 hereof.
If this Agreement shall be terminated by the Initial Purchaser
because of any failure or refusal on the part of the Company to comply with the
terms or to fulfill any of the conditions of this Agreement, or if for any
reason the Company shall be unable to perform its obligations under this
Agreement or any condition of the purchasers, obligations cannot be fulfilled,
the Company agrees to reimburse the Initial Purchaser for all out-of-pocket
expenses (including the fees and expenses of their counsel) reasonably incurred
by such Initial Purchaser in connection with this Agreement or the offering
contemplated hereunder; provided, however, that the Company shall have no
obligation under the Section if this Agreement is terminated by reason of (i)
the non-fulfillment of any condition arising out of any event described in this
Section 11 (ii) the failure of Initial Purchaser's counsel to deliver the
opinion referred to in Section 7(b).
12. Information Supplied by the Initial Purchaser. The
statements set forth in the last paragraph on the cover page of the Final
Memorandum and paragraphs 5, 6 and 7 under the heading "Units Plan of
Distribution" in the Final Memorandum (to the extent such statements relate to
the Initial Purchaser) constitute the only information furnished by the Initial
Purchaser to the Company for the purposes of Sections 2(a) and 9 hereof.
13. Notices. All communications hereunder shall be in writing
and, if sent to the Initial Purchaser, shall be mailed or delivered to (i)
NatWest Capital Markets Limited, 135 Bishopsgate, London, England, with a copy
to White & Case, 1155 Avenue of the Americas, New York, New York 10036,
Attention: Timothy B. Goodell, Esq.; if sent to the Company, shall be mailed or
delivered to the Company at National Tobacco Company, 275 Park Avenue South, 7th
Floor, New York, New York 10010 with a copy to, Weil, Gotshal & Manges, 767 5th
Avenue, New York, New York 10153, Attention: David E. Zeltner, Esq.
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<PAGE>
All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; and one
business day after being timely delivered to a next-day air courier.
14. Successors. This Agreement shall inure to the benefit of
and be binding upon the Initial Purchaser, the Company, the Subsidiaries and
their respective successors and legal representatives, and nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any other
person any legal or equitable right, remedy or claim under or in respect of this
Agreement, or any provisions herein contained; this Agreement and all conditions
and provisions hereof being intended to be and being for the sole and exclusive
benefit of such persons and for the benefit of no other person except that (i)
the indemnities of the Company and the Subsidiaries contained in Section 9 of
this Agreement shall also be for the benefit of any person or persons who
control the Initial Purchaser within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act and (ii) the indemnities of the Initial Purchaser
contained in Section 9 of this Agreement shall also be for the benefit of the
directors of the Company and officers and any person or persons who control the
Company within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act. No purchaser of Units from the Initial Purchaser will be deemed a
successor because of such purchase.
15. APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF THIS
AGREEMENT, AND THE TERMS AND CONDITIONS SET FORTH HEREIN, SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED WHOLLY THEREIN, WITHOUT GIVING EFFECT TO ANY
PROVISIONS THEREOF RELATING TO CONFLICTS OF LAW.
16. Counterparts. This Agreement may be executed in two 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>
If the foregoing correctly sets forth our understanding,
please indicate your acceptance thereof in the space provided below for that
purpose, whereupon this letter shall constitute a binding agreement between the
Company and the Initial Purchaser.
Very truly yours,
NORTH ATLANTIC TRADING
ACQUISITION COMPANY, INC.
By: /s/ Thomas F. Helms, Jr.
------------------------
Name: Thomas F. Helms
Title: Chairman, President and CEO
The foregoing Agreement is
hereby confirmed and accepted
as of the date first above
written.
NATWEST CAPITAL MARKETS LIMITED
By: /s/ Greg B. Bowes
------------------
Name: Greg B. Bowes
Title: Managing Director
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<PAGE>
UNIT AGREEMENT
Between
NORTH ATLANTIC TRADING ACQUISITION COMPANY, INC.
and
UNITED STATES TRUST COMPANY OF NEW YORK
Dated as of June 25, 1997
UNIT AGREEMENT dated as of June 25, 1997 between North
Atlantic Trading Acquisition Company, Inc., a Delaware corporation (the
"Company"), and United States Trust Company of New York, a bank and trust
company organized and existing under the laws of the State of New York.
WHEREAS, the Company proposes to issue 1,360,000 shares of its
12% Senior PIK Preferred Stock (the "Senior PIK Preferred Stock") and warrants
(the "Warrants") to purchase 44,440 shares of its Common Stock, par value $.01
per share (the "Common Stock"), in the form of 1,360 units (the "Units"), with
each Unit consisting of 1,000 shares of Senior PIK Preferred Stock and one
Warrant to purchase 32.6765 shares of Common Stock;
WHEREAS, the Company and United States Trust Company of New
York, in its capacity as warrant agent for the Warrants (the "Warrant Agent")
and transfer agent for the Senior PIK Preferred Stock (the "Transfer Agent")
desire to appoint United States Trust Company of New York to act as their agent
for the purpose of issuing certificates ("Unit Certificates") representing the
Units and registration of transfers and exchanges thereof. United States Trust
Company of New York in such capacity is referred to herein as the "Unit Agent";
WHEREAS, the Units will be exchangeable for the Senior PIK
Preferred Stock and Warrants represented thereby upon the earliest to occur of:
(i) the tenth (10) business day after the date of original issuance of the Units
or (ii) such earlier date as may be determined by NatWest Capital Markets
Limited with the consent of the Company. The date on which an event listed in
the preceding sentence occurs is referred to as the "Separability Date";
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<PAGE>
NOW THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereto agree as follows:
SECTION 1. Appointment of Unit Agent. (a) The Company hereby
appoints the Unit Agent to act as agent for the Company in accordance with the
instructions set forth hereinafter in this Agreement, and the Unit Agent hereby
accepts such appointment.
(b) The Transfer Agent and the Company hereby appoint the Unit
Agent as a co-transfer agent for the Senior PIK Preferred Stock for so long as
the Senior PIK Preferred Stock is represented by the Units. In its capacity as a
cotransfer agent, the Unit Agent shall have the rights and obligations provided
for a transfer agent in the Certificate of Designation governing the Senior PIK
Preferred Stock.
(c) The Warrant Agent and the Company hereby appoint the Unit
Agent as an agent of the Warrant Agent for the purposes of maintaining a
register of the registered owners of and the registration of transfers and
exchanges of the Warrants represented by the Units.
SECTION 2. Unit Certificates. The Units will initially be
issued either in global form (the "Global Units"), or in registered form as
definitive Unit certificates ("Physical Units") substantially in the form of
Exhibit A attached hereto. Any certificates evidencing the Global Units to be
delivered pursuant to this Agreement shall be substantially in the form set
forth in Exhibit A attached hereto, and shall bear the legend set forth in
Exhibit B attached hereto. Such Global Units shall represent such of the
outstanding Units as shall be specified therein and each shall provide that it
shall represent the aggregate Units from time to time endorsed thereon and that
the aggregate amounts of outstanding Units represented thereby may from time to
time be reduced or increased, as appropriate. Any endorsement of a Global Unit
to reflect the amount of any increase or decrease in the amount of outstanding
Units represented thereby shall be made by the Unit Agent and Depository (as
defined blow) in accordance with instructions given by the holder thereof. The
Depository Trust Company shall act as the Depository with respect to the Global
Units until a successor shall be appointed by the Company and the Unit Agent.
Upon written request, a Unit holder may receive from the Depository and Unit
Agent Physical Units as set forth in Section 5 below.
SECTION 3. Execution of Unit Certificates. Each Unit
Certificate shall be signed on behalf of the Company by its Chairman of the
Board or its President, Chief Executive Officer, Treasurer, Chief Financial
officer or a Vice
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<PAGE>
President and by its Secretary or an Assistant Secretary. Each such signature
upon the Unit Certificates may be in the form of a facsimile signature of the
present or any future Chairman of the Board, President, Vice President, Chief
Financial Officer, Treasurer, Secretary or Assistant Secretary and may be
imprinted or otherwise reproduced on the Unit Certificates and for that purpose
the Company may adopt and use the facsimile signature of any person who shall
have been Chairman of the Board, President, Chief Executive Officer, Vice
President, Treasurer, Chief Financial Officer, Secretary or Assistant Secretary,
notwithstanding the fact that at the time the Unit Certificates shall be
countersigned and delivered or disposed of he shall have ceased to hold such
office.
In case any officer of the Company who shall have signed any
of the Unit Certificates shall cease to be such officer before the Unit
Certificates so signed shall have been countersigned by the Unit Agent, or
disposed of by the Company, such Unit Certificates nevertheless may be
countersigned and delivered or disposed of as though such person had not ceased
to be such officer of the Company; and any Unit Certificate may be signed on
behalf of the Company by any person who, at the actual date of the execution of
such Unit Certificate, shall be a proper officer of the Company to sign such
Unit Certificate, although at the date of the execution of this Unit Agreement
any such person was not such officer.
Unit Certificates shall be dated the date of counter-signature
by the Unit Agent.
SECTION 4. Registration and Countersignature. The Unit
Agent, on behalf of the Company, shall number and register the Unit Certificates
in a register as they are issued by the Company.
Unit Certificates shall be manually countersigned by the Unit
Agent and shall not be valid for any purpose unless so countersigned. The Unit
Agent shall, upon written instructions of the Chairman of the Board, the
President, Chief Executive Officer, a Vice President, Chief Financial Officer,
Treasurer, the Secretary or an Assistant Secretary of the Company, initially
countersign and deliver not more than 1,360 Units and shall thereafter
countersign and deliver Units as otherwise provided in this Agreement.
The Company and the Unit Agent may deem and treat the
registered holder(s) of the Unit Certificates as the absolute owner(s) thereof
(notwithstanding any notation of ownership or other writing thereon made by
anyone) for all purposes, and neither the Company nor the Unit Agent shall be
affected by any notice to the contrary.
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<PAGE>
SECTION 5. Registration of Transfers and Exchanges.
(a) Transfer and Exchange of Physical Units. Prior to
the Separability Date, when Physical Units are presented to the Unit Agent with
a request:
(i) to register the transfer of the Physical Units; or
(ii) to exchange such Physical Units for an equal number
of Physical Units of other authorized denominations,
The Unit Agent shall register the transfer or make the exchange as requested if
the requirements under this Agreement as set forth in this Section 5 for such
transactions are met; provided, however, that the Physical Units presented or
surrendered for registration of transfer or exchange:
(x) shall be duly endorsed or accompanied by a written
instruction of transfer in form satisfactory to the
Unit Agent, duly executed by the holder thereof or by
his attorney, duly authorized in writing; and
(y) in the case of Units the offer and sale of which
have not been registered under the Securities Act and
are presented for transfer or exchange prior to (x)
the date which is two years after the date of
original issue and (y) such later date, if any, as
may be required by any subsequent change in
applicable law (the "Resale Restriction Separation
Date"), such Units shall be accompanied by the
following additional information and documents, as
applicable, however, it being understood that the
Unit Agent need not determine which clause (A)
through (D) below is applicable:
(A) if such Unit is being delivered to the Unit
Agent by a holder or registration in the
name of such holder, without transfer, a
certification from such holder to that
effect (in substantially the form of Exhibit
C hereto); or
(B) if such Unit is being transferred to a
qualified institutional buyer (as defined in
Rule 144A under the Securities Act) in
accordance with Rule 144A under the
Securities Act or pursuant to an exemption
for
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<PAGE>
registration in accordance with Rule 144 or
Regulation S under the Securities Act or
pursuant to an effective registration
statement under the Securities Act, a
certification to that effect (in
substantially the form of Exhibit C hereto);
or
(C) if such Unit is being transferred to an
institutional "accredited investor" within
the meaning of subparagraph (a)(1), (a)(2),
(a)(3) or (a)(7) of Rule 501 under the
Securities Act, delivery of a Certificate of
Transfer in the form of Exhibit D hereto and
an opinion of counsel and/or other
information satisfactory to the Company to
the effect that such transfer is in
compliance with the Securities Act; or
(D) if such Unit is being transferred in
reliance on another exemption from the
registration requirements of the Securities
Act, a certification to that effect (in
substantially the form of Exhibit C hereto)
and an opinion of counsel reasonably
acceptable to Company to the effect that
such transfer is in compliance with the
Securities Act.
(b) Restrictions on Transfer of Physical Unit for a Beneficial
Interest in a Global Unit. A Physical Unit may not be exchanged for a beneficial
interest in a Global Unit except upon satisfaction of the requirements set forth
below. Upon receipt by the Unit Agent of a Physical Unit, duly endorsed or
accompanied by appropriate instruments of transfer, in form satisfactory to the
Unit Agent, together with:
(i) certification, substantially in the form of Exhibit C
hereto, that such Physical Unit is being transferred to a qualified
institutional buyer (as defined in Rule 144A under the Securities Act)
in accordance with Rule 144A under the Securities Act, or delivery of a
Certificate of transfer in the form of Exhibit D hereto if such
Physical Unit is being transferred to an accredited investor within the
meaning of subparagraph (a)(1), (a)(2), (a)(3) or (a)(7) of Rule 501
under the Securities Act; and
(ii) written instructions directing the Unit Agent to
make, or to direct the Depositary to make, and endorsement on the
Global Unit to reflect
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<PAGE>
an increase in the aggregate amount of the Units represented by the
Global Unit,
then the Unit Agent shall cancel such Physical Unit and cause, or direct the
Depositary to cause, in accordance with the standing instructions and procedures
existing between the Depositary and the Unit Agent, the number of Units
represented by the Global Unit to be increased accordingly. If no Global Unit is
then outstanding, the Company shall issue and the Unit Agent shall authenticate
a new Global Unit in the appropriate amount.
(c) Transfer and Exchange of Global Units. The transfer and
exchange of Global Units or beneficial interests therein shall be effected
through the Depositary, in accordance with the Unit Agreement (including the
restrictions on transfer set forth herein) and the procedures of the Depositary
therefor.
(d) Transfer of a Beneficial Interest in a Global Unit for a
Physical unit.
(i) Prior to the Separation Date, any person having a
beneficial interest in a Global Unit may upon request exchange such
beneficial interest for a Physical Unit. Upon receipt by the Unit Agent
of written instructions or such other form of instructions as is
customary for the Depositary from the Depositary or its nominee on
behalf of any person having a beneficial interest in a Global Unit and
upon receipt by the Unit Agent of a written order or such other form of
instructions as is customary for the Depositary or the person
designated by the Depositary as having such a beneficial interest
containing registration instructions and, in the case of any such
transfer or exchange prior to the Resale Restriction Separation Date,
the following additional information and documents, however, it being
understood that the unit Agent need not determine which clause (A)
through (D) below is applicable:
(A) if such beneficial interest is being
transferred to the person designated by the
Depositary as being the beneficial owner, a
certification from such person to that
effect (in substantially the form of Exhibit
C hereto); or
(B) if such beneficial interest is being
transferred to a qualified institutional
buyer (as defined in Rule 144A under the
Securities Act) in accordance with Rule 144A
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<PAGE>
under the Securities Act or pursuant to an
exemption from registration in accordance
with Rule 144 or Regulation S under the
Securities Act or pursuant to an effective
registration statement under the Securities
Act, a certification to that effect from the
transferee or transferor (in substantially
the form of Exhibit C hereto); or
(C) if such beneficial interest is being
transferred to an institutional "accredited
investor" within the meaning of subparagraph
(a)(1), (a)(2), (a)(3) or (a)(7) of Rule 501
under the Securities act, delivery of a
Certificate of Transfer in the form of
Exhibit D hereto and an opinion of counsel
and/or other information satisfactory to the
Company to the effect that such transfer is
in compliance with the Securities Act, or
(D) if such beneficial interest is being
transferred in reliance on another exemption
from the registration requirements of the
Securities Act, a certification to that
effect from the transferee or transferor (in
substantially the form of Exhibit C hereto)
and an opinion of counsel from the
transferee or transferor reasonably
acceptable to the Company to the effect that
such transfer is in compliance with the
Securities Act,
then the Unit Agent will cause, in accordance with the standing instructions and
procedures existing between the Depositary and the Unit Agent the aggregate
amount of the Global Unit to be reduced and, following such reduction, the
Company will execute and, upon receipt of an authentication order in the form of
an Officers' Certificate (as defined in Section 5(f) below), the Unit Agent will
authenticate and deliver to the transferee a Physical Unit.
(ii) Physical Units issued in exchange for a beneficial
interest in a Global Unit pursuant to this Section 5(d) 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 unit Agent in writing.
The Unit Agent shall deliver such Physical Units to the persons in
whose names such Units are so registered.
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<PAGE>
(e) Restrictions on Transfer and Exchange of Global Units.
Notwithstanding any other provisions of this Agreement (other than the
provisions set forth in subsection (f) of this Section 5), a Global Unit may not
be transferred as a whole except by the Depositary to a nominee of the
Depositary or by a nominee of the Depositary to the Depositary or any such
nominee of such Depositary.
(f) Authentication of Physical Units in Absence of
Depositary. If at any time:
(i) the Depositary for the Units notifies the Company that the
Depositary is unwilling or unable to continue as Depositary for the
Global Unit and a successor Depositary for the Global Unit is not
appointed by Company within 90 days after delivery of such notice; or
(ii) the Company, in its sole discretion, notifies the Unit
Agent in writing that it elects to cause the issuance of Physical Units
in place of the Global Unit under this Unit Agreement,
then the Company will execute, and the Unit Agent, upon receipt of an officers'
certificate signed by two officers of the Company (one of whom must be the
principal executive officer, principal financial officer or principal accounting
officer) (an "Officer's Certificate") requesting the authentication and delivery
of Physical Units, will authenticate and deliver Physical Units, in an aggregate
number equal to the aggregate number of Units represented by the Global Unit, in
exchange for such Global Unit.
(g) Legends.
(i) Except as permitted by the following paragraph (iii),
and unless specified in an Officer's Certificate delivered to the
Unit Agent defined, each Unit Certificate evidencing the Global Units
(and all Units issued in exchange therefor or substitution thereof)
shall bear a legend substantially to the following effect:
THIS SECURITY IS A GLOBAL UNIT WITHIN THE MEANING OF THE UNIT AGREEMENT
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A
NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS SECURITY IS NOT
EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE
DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
UNIT AGREEMENT,
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<PAGE>
AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A
WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE
DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE
REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE UNIT AGREEMENT.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER 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.
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), 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 BELOW. BY ITS ACQUISITION HEREOF, THE SECURITYHOLDER
(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) (AN "ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING
THIS SECURITY IN AN OFFSHORE TRANSACTION, (2) AGREES THAT IT WILL NOT WITHIN TWO
YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY RESELL OR OTHERWISE TRANSFER
THIS SECURITY EXCEPT (A) TO THE ISSUER 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 ACCREDITED INVESTOR
THAT, PRIOR TO SUCH TRANSFER FURNISHES (OR HAS FURNISHED ON ITS BEHALF BY A U.S.
BROKER-DEALER) TO THE UNIT AGENT A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE
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<PAGE>
RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN BE
OBTAINED FROM THE UNIT AGENT), (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH RULE 904 OF REGULATION S UNDER THE SECURITIES
ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER
THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL DELIVER TO EACH
PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT
OF THIS LEGEND; PROVIDED THAT AN INITIAL INVESTOR THAT IS AN INSTITUTIONAL
ACCREDITED INVESTOR PURCHASING AS DESCRIBED IN CLAUSE (1)(B) ABOVE SHALL NOT BE
PERMITTED TO TRANSFER THIS SECURITY TO AN INSTITUTIONAL ACCREDITED INVESTOR IN
CONNECTION WITH ANY TRANSFER OF THIS SECURITY WITHIN THE TIME PERIOD REFERRED TO
ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF
RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE UNIT
AGENT. IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR
PURCHASING PURSUANT TO CLAUSE (2)(C) ABOVE, THE HOLDER MUST, PRIOR TO SUCH
TRANSFER, FURNISH TO THE UNIT AGENT AND THE ISSUER SUCH CERTIFICATIONS, LEGAL
OPINIONS OR OTHER INFORMATION AS EITHER OF THEM 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 "UNITED
STATES PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE
SECURITIES ACT.
(ii) Upon any sale or transfer of a Unit pursuant to Rule 144
under the Securities Act or an effective registration statement under
the Securities Act:
(A) in the case of any Unit that is a Physical
Unit, the Unit Agent shall permit the holder
thereof to exchange such Unit for a Physical
Unit that does not bear the first two
paragraphs of the legend set forth above and
rescind any related restriction on the
transfer of such Unit; and
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<PAGE>
(B) any such Unit represented by a Global Unit
shall not be subject to the provisions set
forth in (i) above (such sales or transfers
being subject only to the provisions of
Section 5(c) hereof); provided, however,
that with respect to any request for an
exchange of a Unit that is represented by a
Global Unit for a Physical Unit that does
not bear the first two paragraphs of the
legend set forth above, which request is
made in reliance upon Rule 144 under the
Securities Act, the holder thereof shall
certify in writing to the Unit Agent that
such request is being made pursuant to Rule
144 under the Securities Act (such
certification to be substantially in the
form of Exhibit C hereto).
(h) Cancellation and/or Adjustment of a Global Unit. At such
time as all beneficial interest in a Global Unit have either been exchanged for
Physical Units, exchanged, redeemed, repurchased or cancelled, such Global Unit
shall be returned to or retained and cancelled by the Unit Agent. At any time
prior to such cancellation, if any beneficial interest in a Global Unit is
exchanged for Physical Units, redeemed, repurchased or cancelled, the number of
units represented by such Global Unit shall be reduced and an endorsement shall
be made on such Global Unit, by the Unit Agent to reflect such reduction.
(i) Obligations with Respect to Transfers and Exchanges of
Physical Units.
(i) Prior to the Separation Date, to permit registrations of
transfers and exchanges, Company shall deliver to the Unit Agent, upon
execution of this Agreement, and from time to time thereafter,
sufficient inventory of executed Physical Units and Global Units.
(ii) All Physical Units and Global Units issued upon any
registration, transfer or exchange of Physical Units or Global Units
shall be the valid obligations of Company, entitled to the same
benefits under this Unit Agreement as the Physical Units or Global
Units surrendered upon the registration of transfer or exchange.
(iii) Prior to due presentment for registration of transfer of
any Unit, the Unit Agent and the Company may deem and treat the person
in whose name any Unit is registered as the absolute owner of such
Unit, and
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<PAGE>
neither the Unit Agent nor the Company shall be affected by notice to
the contrary.
(j) The Unit Agent shall be under no duty to monitor
compliance with any federal, state or other securities laws.
SECTION 6. Separation of the Senior PIK Preferred Stock and
Warrants. After the Separability Date, the Senior PIK Preferred Stock and the
Warrants represented by the Units shall be separately transferable. Upon
presentation after the Separability Date of any Unit Certificate for exchange
for Senior PIK Preferred Stock and Warrants or for registration of transfer or
otherwise, (i) the Unit Agent shall notify the Transfer Agent and the Warrant
Agent of the number of Units so presented, the registered owner thereof, such
owner's registered address, the nature of any legends or restrictive
endorsements set forth on such Unit Certificate and any other information
provided by the holder thereof in connection therewith, (ii) the Transfer Agent,
if the requirements of the Certificate of Designation with respect to the Senior
PIK Preferred Stock for such transaction and any applicable legend are met,
shall promptly register, authenticate and deliver a new Senior PIK Preferred
Stock Certificate equal in number of shares of Senior PIK Preferred Stock
represented by such Unit Certificate in accordance with the direction of such
holder and (iii) the Warrant Agent, if its requirements for such transactions
are met, shall promptly countersign, register and deliver a new Warrant
Certificate for the number of Warrants previously represented by such Unit
Certificate in accordance with the directions of such holder. The Warrant Agent
and the Transfer Agent will notify the Unit Agent of any additional requirements
in connection with a particular transfer or exchange.
Following the Separability Date, no Unit Certificates shall be
issued upon transfer or exchange of Unit Certificates, or otherwise.
SECTION 7. Rights of Unit Holders. The registered owner of a
Unit Certificate shall have all the rights and privileges of a registered owner
of the number of shares of Senior PIK Preferred Stock represented thereby and
the number of Warrants represented thereby and shall be treated as the
registered owner thereof for all purposes. The Company agrees that it shall be
bound by all provisions of the Certificate of Designation governing the Senior
PIK Preferred Stock, the Senior PIK Preferred Stock, the Warrants, the Warrant
Agreement and the Common Stock Registration Rights and Stockholders Agreement
dated as of June 25, 1997 and that the Senior PIK Preferred Stock and Warrants
represented by each Unit Certificate shall be deemed valid and obligatory
obligations of the Company.
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<PAGE>
SECTION 8. Unit Agent. The Unit Agent undertakes the duties
and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Units, by their
acceptance thereof, shall be bound:
(a) The statements contained herein and in the Unit
Certificates shall be taken as statements of the Company, and the Unit Agent
assumes no responsibility for the correctness of any of the same except such as
describe the Unit Agent or action taken or to be taken by it. The Unit Agent
assumes no responsibility with respect to the distribution of the Unit
Certificates except as herein otherwise provided.
(b) The Unit Agent shall not be responsible for and shall
incur no liability to the Company or any holder of the Units for any failure of
the Company to comply with any of the covenants in this Agreement or in the Unit
Certificates to be complied with by the Company.
(c) The Unit Agent may consult at any time with counsel
satisfactory to it (who may be counsel for the Company) and the Unit Agent shall
incur no liability or responsibility to the Company or to any holder of any Unit
Certificate in respect of any action taken, suffered or omitted by it hereunder
in good faith and in accordance with the opinion or the advice of such counsel
provided, that the foregoing clause shall not apply if the Unit Agent is found
to have acted with willful misconduct or gross negligence.
(d) The Unit Agent shall incur no liability or responsibility
to the Company or to any holder of any Unit Certificate for any action taken in
reliance on any unit Certificate, certificate of shares, notice, resolution,
waiver, consent, order, certificate or other paper, document or instrument
believed by it to be genuine and to have been signed, sent or presented by the
proper party or parties provided, that the foregoing clause shall not apply if
the Unit Agent is found to have acted with willful misconduct or gross
negligence.
(e) The Company agrees to pay to the Unit Agent reasonable
compensation for all services rendered by the Unit Agent in connection with this
Agreement, to reimburse the Unit Agent for all expenses, taxes and governmental
charges and other charges of any kind and nature incurred by the Unit Agent in
the connection with this Agreement and to indemnify the Unit Agent and its
agents, employees, directors, officers and affiliates and save it and them
harmless against any and all liabilities, losses and expenses including without
limitation judgments, costs and counsel fees and actual expenses, for anything
done or omitted by the Unit
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<PAGE>
Agent in connection with this Agreement except as a result of the Unit Agent's
gross negligence or willful misconduct.
(f) The Unit Agent shall be under no obligation to institute
any action, suit or legal proceeding or to take any other action unless the
Company or one or more registered holders of Unit Certificates shall furnish the
Unit Agent with security and indemnity for any costs and expenses which may be
incurred acceptable to the Unit Agent. This provision shall not affect the power
of the Unit Agent to take such action as it may consider proper, whether with or
without any such security or indemnity. All rights of action under this
Agreement or under any of the Units my be enforced by the Unit Agent without the
possession of any of the Unit Certificates or the production thereof at any
trial or other proceeding relative thereto, and any such action, suit or
proceeding instituted by the Unit Agent shall be brought in its name as Unit
Agent and any recovery of judgment shall be for the ratable benefit of the
registered holders of the Units, as their respective rights or interests may
appear.
(g) The Unit Agent, and any stockholder, director, officer or
employee of it (the "Related Parties"), may buy, sell or deal in any of the
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Unit Agent
under this Agreement. Nothing herein shall preclude the Unit Agent or such
Related Parties from acting in any other capacity for the Company or for any
other legal entity.
(h) The Unit Agent shall act hereunder solely as agent for the
Company, the Transfer Agent and the Warrant Agent, and its duties shall be
determined solely by the provisions hereof. The Unit Agent shall not be liable
for anything which it may do or refrain from doing in connection with this
Agreement except for its own gross negligence or bad faith or willful
misconduct.
(i) Before the Unit Agent acts or refrains from acting with
respect to any matter contemplated by this Unit Agreement, it may require:
(1) an officers' certificate stating that, in the
opinion of the signers, all conditions precedent, if any, provided for
in this Unit Agreement relating to the proposed action have been
complied with; and
(2) an opinion of counsel for the Company stating
that, in the opinion of such counsel, all such conditions precedent
have been complied with.
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<PAGE>
Each officers' certificate or opinion of counsel with respect
to compliance with a condition or covenant provided for in this Unit Agreement
shall include:
(1) a statement that the person making such
certificate or opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of
the examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that in the opinion of such person,
he has made such examination or investigation as is necessary to enable
him to express an informed opinion as to whether or not such covenant
or condition has been complied with; and
(4) a statement as to whether or not, in the opinion
of such person, such condition or covenant has been complied with.
The Unit Agent shall not be liable for any action it takes or
omits to take in good faith in reliance on any such certificate or opinion.
(j) In the absence of bad faith on its part, the Unit Agent
may conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to the
Unit Agent and conforming to the requirements of this Unit Agreement. However,
the Unit Agent shall examine the certificates and opinions to determine whether
or not they conform to the requirements of this Unit Agreement.
(k) The Unit Agent may rely and shall be fully protected in
relying upon any document believed by it to be genuine and to have been signed
or presented by the proper person. The Unit Agent need not investigate any fact
or matter stated in the document.
(l) The Unit Agent may act through agents and shall not be
responsible for the misconduct or negligence of any agent appointed with due
care.
SECTION 9. Notices to Company and Unit Agent, Transfer Agent
and Warrant Agent. Any notice or demand authorized by this Agreement to be given
or made to or on the Company shall be sufficiently given or made when and if
deposited in the mail, first class or registered, postage paid, addressed
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<PAGE>
If to the Company:
North Atlantic Trading Acquisition Company, Inc.
257 Park Avenue South
7th Floor
New York, New York 10010-7304
Attention: Chief Financial Officer
Facsimile: (212) 253-8296
with a copy to:
Weil Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: David E. Zeltner, Esq.
Facsimile: (212) 310-8007
If to the Unit Agent, Warrant Agent or the Transfer Agent:
United States Trust Company of New York
114 West 47th Street
New York, New York 10036-1532
Attention: Corporate Trust Administration
Facsimile: (212) 852-1626
The parties hereto by notice to the other parties may
designate additional or different addresses for subsequent communications or
notice.
Any notice to be mailed to a holder of Units shall be mailed
to him or her at the address that appears on the register of Units maintained by
the Unit Agent. Copies of any such communication shall also be mailed to the
Unit Agent, Transfer Agent and Warrant Agent. The Unit Agent shall furnish the
Company, the Transfer Agent or the Warrant Agent promptly when requested with a
list of registered holders of Units for the purpose of mailing any notice or
communication to the holders of the Senior PIK Preferred Stock or Warrants and
at such other times as may be reasonably requested.
SECTION 10. Change of Unit Agent. The Unit Agent may resign
and be discharged from its duties under this Agreement by giving to the Company
30 days' notice in writing. The Unit Agent may be removed by like notice to the
Unit Agent from the Company. If the Unit Agent shall resign or be removed or
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<PAGE>
shall otherwise become incapable of acting, the Company shall appoint a
successor to the Unit Agent. If the Company shall fail to make such appointment
within a period of 30 days after such removal or after it has been notified in
writing of such resignation or incapacity by the resigning or incapacitated Unit
Agent or by any holder of the Units (who shall with such notice submit his Unit
for inspection by the Company), then any such holder may apply to any court of
competent jurisdiction for the appointment of a successor to the Unit Agent.
Pending appointment of a successor to the Unit Agent, either by the Company or
by such court, the duties of the Unit Agent shall be carried out by the Company.
Any successor Unit Agent, whether appointed by the Company or such a court,
shall be a bank or trust company in good standing, incorporated under the laws
of the United States of America or any State thereof or the District of Columbia
and having at the time of its appointment as Unit Agent a combined capital and
surplus of at least $50,000,000. After appointment, the successor Unit Agent
shall be vested with the same powers, rights, duties and responsibilities as if
it had been originally named as Unit Agent without further act or deed; but the
former Unit Agent shall deliver and transfer to the successor Unit Agent any
property at the time held by it hereunder, and execute and deliver any further
assurance, conveyance, act or deed necessary for such purpose. Failure to file
any notice provided for in this Section 10, however, or any defect therein,
shall not affect the legality or validity of the resignation or removal of the
Unit Agent or the appointment of the successor Unit Agent, as the case may be.
In the event of such resignation or removal, the Company or the successor Unit
Agent shall mail by first class mail, postage prepaid, to each holder of the
Units, written notice of such removal or resignation and the name and address of
such successor Unit Agent.
SECTION 11. Supplements and Amendments. The Company, the
Transfer Agent, the Warrant Agent and the Unit Agent may from time to time
supplement or amend this Agreement without the approval of any holders of Unit
Certificates in order to cure any ambiguity or to correct or supplement any
provision contained herein which may be defective or inconsistent with any other
provision herein, or to make any other provisions in regard to matters or
questions arising hereunder which the Company, the Transfer Agent, the Warrant
Agent and the Unit Agent may deem necessary or desirable and which shall not in
any way adversely affect the interests of the holders of Unit Certificates. Any
amendment or supplement to this Agreement that has a material adverse effect on
the interests of the Unit holders shall require the written consent of
registered holders of a majority of the then outstanding Units.
SECTION 12. Successors. All covenants and provisions of this
Agreement by or for the benefit of the Company, the Transfer Agent, the Warrant
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Agent or the Unit Agent shall bind and inure to the benefit of their respective
successors and assigns hereunder.
SECTION 13. Governing Law. THIS AGREEMENT AND EACH UNIT
CERTIFICATE ISSUED HEREUNDER SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE
LAWS OF THE STATE OF NEW YORK AND SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF SAID STATE, WITHOUT REGARD TO THE CONFLICT OF LAW
RULES THEREOF.
SECTION 14. Benefits of This Agreement. Nothing in this
Agreement shall be construed to give to any person or corporation other than the
Company, the Transfer Agent, the Warrant Agent, the Unit Agent and the
registered holders of the Unit Certificates any legal or equitable right, remedy
or claim under this Agreement, but this Agreement shall be for the sole and
exclusive benefit of the Company, the Transfer Agent, the Warrant Agent, the
Unit Agent and the registered holders of the Unit Certificates.
SECTION 15. Counterparts. This Agreement may be executed in
any number of counterparts and each of such counterparts shall for all purposes
be deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written.
NORTH ATLANTIC TRADING
ACQUISITION COMPANY, INC.
By: /s/ Thomas F. Helms, Jr.
------------------------------
Name: Thomas F. Helms, Jr.
Title: President and CEO
UNITED STATES TRUST COMPANY OF
NEW YORK,
as Transfer Agent,
Warrant Agent and Unit Agent
By: /s/ Christine C. Collins
------------------------------
Name: Christine C. Collins
Title: Assistant Vice President
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<PAGE>
WARRANT AGREEMENT
Between
NORTH ATLANTIC TRADING ACQUISITION COMPANY, INC.
and
UNITED STATES TRUST COMPANY OF NEW YORK
as
Warrant Agent
-------------------------
Dated as of June 25, 1997
<PAGE>
WARRANT AGREEMENT (the "Agreement"), dated as of June 25,
1997, between North Atlantic Trading Acquisition Company, Inc., a Delaware
corporation (together with any successors and assigns, the "Company"), and
United States Trust Company of New York, a New York banking corporation, as
Warrant Agent (the "Warrant Agent").
WHEREAS, the Company proposes, among other things, to issue
and sell pursuant to a Purchase Agreement, dated as of June 18, 1997, among the
Company and NatWest Capital Markets Limited ("NatWest"), as Initial Purchaser
(the "Purchase Agreement"), 1,360,000 shares of its 12% Senior Payment-In-Kind
Preferred Stock (the "Senior PIK Preferred Stock"), along with Warrants (the
"Unit Warrants"), for the purchase of 44,440 shares of its Common Stock, par
value $.01 per share (the "Common Stock," and the shares of Common Stock
issuable upon exercise of the Warrants being referred to herein as the "Warrant
Shares"). The Senior PIK Preferred Stock and Warrants will be sold in units (the
"Units), each Unit representing 1,000 shares of Preferred Stock and one Warrant,
to purchase 32.6765 shares of Common Stock;
WHEREAS, the Company proposes to issue to an entity or
individuals affiliated with NatWest 583 Warrants (the "NatWest Warrants" and
together with the Unit Warrants, the "Warrants");
WHEREAS, the Company wishes the Warrant Agent to act on behalf
of the Company and the Warrant Agent is willing to act in connection with the
issuance, division, transfer, exchange and exercise of Warrants as provided
herein;
NOW, THEREFORE, in consideration of the premises and mutual
agreements herein, the Company and the Warrant Agent hereby agree as follows:
SECTION 1. Appointment of Warrant Agent. The Company hereby
appoints the Warrant Agent to act as agent for the Company in accordance with
the instructions hereinafter set forth in this Agreement, and the Warrant Agent
hereby accepts such appointment.
SECTION 2. Warrant Certificates. The Warrants will initially
be issued either in global form (the "Global Warrants"), substantially in the
form of Exhibit A (including footnote I thereto) or in registered form as
physical Warrant certificates (the "Physical Warrants"). Any certificates (the
"Warrant Certificates") evidencing the Global Warrants or the Physical Warrants
to be delivered pursuant to this Agreement shall be substantially in the form
set forth in Exhibit A attached hereto. Such Global Warrants shall represent
such of the outstanding Warrants as shall be specified therein and each shall
provide that it shall represent the aggregate amount of outstanding Warrants
from time to time endorsed thereon and that the
<PAGE>
aggregate amount of outstanding Warrants represented thereby may from time
to time be reduced or increased, as appropriate. Any endorsement of a Global
Warrant to reflect the amount of any increase or decrease in the amount of
outstanding Warrants represented thereby shall be made by the Warrant Agent and
Depositary (as defined below) in accordance with instructions given by the
holder thereof. The Depository Trust Company shall act as the Depositary with
respect to the Global Warrants until a successor shall be appointed by the
Company and the Warrant Agent. Upon written request, a Warrant holder may
receive from the Depositary and Warrant Agent Physical Warrants as set forth in
Section 6 below.
SECTION 3. Execution of Warrant Certificates. Warrant
Certificates shall be signed on behalf of the Company by its Chairman of the
Board or its President or a Vice President and by its Secretary or an Assistant
Secretary under its corporate seal. Each such signature upon the Warrant
Certificates may be in the form of a facsimile signature of the present or any
future Chairman of the Board, President, Chief Executive Officer, Vice
President, Treasurer, Chief Financial Officer, Secretary or Assistant Secretary
and may be imprinted or otherwise reproduced on the Warrant Certificates and for
that purpose the Company may adopt and use the facsimile signature of any person
who shall have been Chairman of the Board, President, Chief Executive Officer,
Vice President, Treasurer, Chief Financial officer, Secretary or Assistant
Secretary, notwithstanding the fact that at the time the Warrant Certificates
shall be countersigned and delivered or disposed of he shall have ceased to hold
such office. The seal of the Company may be in the form of a facsimile thereof
and may be impressed, affixed, imprinted or otherwise reproduced on the Warrant
Certificates.
In case any officer of the Company who shall have signed any
of the Warrant Certificates shall cease to be such officer before the Warrant
Certificates so signed shall have been countersigned by the Warrant Agent, or
disposed of by the Company, such Warrant Certificates nevertheless may be
countersigned and delivered or disposed of as though such person had not ceased
to be such officer of the Company; and any Warrant Certificate may be signed on
behalf of the Company by any person who, at the actual date of the execution of
such Warrant Certificate, shall be a proper officer of the Company to sign such
Warrant Certificate, although at the date of the execution of this Warrant
Agreement any such person was not such officer.
Warrant Certificates shall be dated the date of
countersignature by the Warrant Agent.
SECTION 4. Registration and Countersignature. The Warrants
shall be numbered and shall be registered on the books of the Company maintained
at the principal office of the Warrant Agent in the Borough of Manhattan, city
of New York (the "Warrant Register") as they are issued.
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<PAGE>
Warrant Certificates shall be manually countersigned by the
Warrant Agent and shall not be valid for any purpose unless so countersigned.
The Warrant Agent shall, upon written instructions of the Chairman of the Board,
the President, Chief Executive Officer, a Vice President, the Treasurer, Chief
Financial Officer or an Assistant Secretary of the Company, initially
countersign and deliver Warrants entitling the holders thereof to purchase not
more than the number of Warrant Shares referred to above in the first recital
hereof and shall thereafter countersign and deliver Warrants as otherwise
provided in this Agreement.
The Company and the Warrant Agent may deem and treat the
registered holders (the "Holders") of the Warrant Certificates as the absolute
owners thereof (notwithstanding any notation of ownership or other writing
thereon made by anyone) for all purposes, and neither the Company nor the
Warrant Agent shall be affected by any notice to the contrary.
SECTION 5. Transfer and Exchange of Warrants. The Warrant
Agent shall from time to time, subject to the limitations of Section 6, register
the transfer of any outstanding Warrants upon the records to be maintained by it
for that purpose, upon surrender thereof duly endorsed or accompanied (if so
required by it) by a written instrument or instruments of transfer in form
satisfactory to the Warrant Agent, duly executed by the registered Holder or
Holders thereof or by the duly appointed legal representative thereof or by a
duly authorized attorney. Subject to the terms of this Agreement, each Warrant
Certificate may be exchanged for another certificate or certificates entitling
the Holder thereof to purchase a like aggregate number of Warrant Shares as the
certificate or certificates surrendered then entitle each Holder to purchase.
Any Holder desiring to exchange a Warrant Certificate or Certificates shall make
such request in writing delivered to the Warrant Agent, and shall surrender,
duly endorsed or accompanied (if so required by the Warrant Agent) by a written
instrument or instruments of transfer in form satisfactory to the Warrant Agent,
the Warrant Certificate or Certificates to be so exchanged.
Upon registration of transfer, the Warrant Agent shall
countersign and deliver by certified mail a new Warrant Certificate or
Certificates to the personsentitled thereto. The Warrant Certificates may be
exchanged at the option of the Holder thereof, when surrendered at the office or
agency of the Company maintained for such purpose, which initially will be the
corporate trust office of the Warrant Agent in New York, New York for another
Warrant Certificate, or other Warrant Certificates of different denominations,
of like tenor and representing in the aggregate the right to purchase a like
number of Warrant Shares.
No service charge shall be made for any exchange or
registration of transfer of Warrant Certificates, but the Company may require
payment of a sum sufficient to cover any stamp or other tax or other
governmental charge that is
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imposed in connection with any such exchange or registration of transfer.
SECTION 6. Registration of Transfers and Exchanges.
(a) Transfer and Exchange of Physical Warrants. When
Physical Warrants are presented to the Warrant Agent with a request:
(i) to register the transfer of the Physical
Warrants; or
(ii) to exchange such Physical Warrants for an equal
number of Physical Warrants of other authorized denominations, the
Warrant Agent shall register the transfer or make the exchange as
requested if the requirements under this Agreement as set forth in this
Section 6 for such transactions are met; provided, however, that the
Physical Warrants presented or surrendered for registration of transfer
or exchange:
(I) shall be duly endorsed or accompanied by
a written instrument of transfer in form satisfactory to the
Warrant Agent, duly executed by the Holder thereof or his
attorney duly authorized in writing; and
(II) in the case of Physical Warrants the
offer and sale of which have not been registered under the
Securities Act of 1933, as amended (the "Security Act"), such
Physical Warrants shall be accompanied, in the sole discretion
of the Company, by the following additional information and
documents, as applicable:
(A) if such Physical Warrants are being delivered to the
Warrant Agent by a holder for registration in the
name of such holder, without transfer, a
certification from such holder to that effect (in
substantially the form of Exhibit B hereto); or
(B) if such Physical Warrants are being transferred to a
"qualified Institutional buyer" (as defined in Rule
144A under the Securities Act (a "Qualified
Institutional Buyer")) in accordance with Rule 144A
under the Securities Act, a certification to that
effect (in substantially the form of Exhibit B
hereto); or
(C) if such Physical Warrants are being transferred to an
institutional "accredited investor" (as defined in
Rule 501(a)(1), (2), (3) or (7) under the Securities
Act (an "Institutional Accredited Investor"))
delivery of a certification to that effect (in
substantially the form of Exhibit B hereto) and a
Transferee
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Certificate for Institutional Accredited
Investors in substantially the form of Exhibit C
hereto; or
(D) if such Physical Warrants are being transferred in
reliance on Regulation S under the Securities Act
("Regulation S"), delivery of a certification to that
effect (in substantially the form of Exhibit B
hereto) and a Transferee Certificate for Regulation S
Transfers in substantially the form of Exhibit D
hereto and an Opinion of Counsel reasonably
satisfactory to the Company to the effect that such
transfer is in compliance with the Securities Act; or
(E) if such Physical Warrants are being transferred in
reliance on Rule 144 under the Securities Act,
delivery of a certification to that effect (in
substantially the form of Exhibit B hereto) and an
opinion of counsel reasonably satisfactory to the
Company to the effect that such transfer is in
compliance with the Securities Act; or
(F) if such Physical Warrants are being transferred in
reliance on another exemption from the registration
requirements of the Securities Act, a certification
to that effect (in substantially the form of Exhibit
B hereto) and an opinion of counsel reasonably
satisfactory to the Company to the effect that such
transfer is in compliance with the Securities Act.
(b) Restrictions on Transfer of Physical Warrants for a
Beneficial Interest in a Global Warrant. A Physical Warrant may not be exchanged
for a beneficial interest in a Global Warrant except upon satisfaction of the
requirements set forth below. Upon receipt by the Warrant Agent of a Physical
Warrant, duly endorsed or accompanied by appropriate instruments of transfer, in
form satisfactory to the Warrant Agent, together with:
(A) a certification, in substantially the form of Exhibit
B hereto, that such Physical Warrant is being
transferred to a Qualified Institutional Buyer; and
(B) written instructions directing the Warrant Agent to
make, or to direct the Depositary to make, an
endorsement on the Global Warrant to reflect an
increase in the aggregate amount of the Warrants
represented by the Global Warrant,
then the Warrant Agent shall cancel such Physical Warrant and cause, or direct
the
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Depositary to cause, in accordance with the standing instructions and
procedures existing between the Depositary and the Warrant Agent, the number of
Warrants represented by the Global Warrant to be increased accordingly. If no
Global Warrant is then outstanding, the Company shall issue and the Warrant
Agent shall upon written instructions from the Company authenticate a new Global
Warrant in the appropriate amount.
(c) Transfer and Exchange of Global Warrants. The transfer and
exchange of Global Warrants or beneficial interests therein shall be effected
through the Depositary, in accordance with this Agreement (including the
restrictions on transfer set forth herein) and the procedures of the Depositary
therefor.
(d) Transfer of a Beneficial Interest in a Global Warrant for
a Physical Warrant.
(i) Any person having a beneficial interest in a Global
Warrant may upon request exchange such beneficial interest for a
Physical Warrant. Upon receipt by the Warrant Agent of written
instructions or such other form of instructions as is customary for the
Depositary from the Depositary or its nominee on behalf of any person
having a beneficial interest in a Global Warrant and upon receipt by
the Warrant Agent of a written order or such other form of instructions
as is customary for the Depositary or the person designated by the
Depositary as having such a beneficial interest containing registration
instructions and, in the case of any such transfer or exchange of a
beneficial interest in a Global Warrant the offer and sale of which
have not been registered under the Securities Act, the following
additional information and documents:
(A) if such beneficial interest is being transferred to
the person designated by the Depositary as being the
beneficial owner, a certification from such person to
that effect (in substantially the form of Exhibit B
hereto); or
(B) if such beneficial interest is being transferred to a
Qualified Institutional Buyer in accordance with Rule
144A under the Securities Act, a certification to
that effect (in substantially the form of Exhibit B
hereto); or
(C) if such beneficial interest is being transferred to
an Institutional Accredited Investor, delivery of a
certification to that effect (in substantially the
form of Exhibit B hereto) and a Certificate for
Institutional Accredited Investors in substantially
the form of Exhibit C hereto; or
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(D) if such beneficial interest is being transferred in
reliance on Regulation S, delivery of a certification
to that effect (in substantially the form of Exhibit
B hereto) and a Transferee Certificate for Regulation
S Transfers in substantially the form of Exhibit D
hereto and an opinion of counsel reasonably
satisfactory to the Company to the effect that such
transfer is in compliance with the Securities Act; or
(E) if such beneficial interest is being transferred in
reliance on Rule 144 under the Securities Act,
delivery of a certification to that effect (in
substantially the form of Exhibit B hereto) and an
opinion of counsel reasonably satisfactory to the
Company to the effect that such transfer is in
compliance with the Securities Act; or
(F) if such beneficial interest is being transferred in
reliance on another exemption from the registration
requirements of the Securities Act, a certification
to that effect (in substantially the form of Exhibit
B hereto) and an opinion of counsel reasonably
satisfactory to the Company to the effect that such
transfer is in compliance with the Securities Act,
then the Warrant Agent will cause, in accordance
with the standing instructions and procedures existing between the
Depositary and the Warrant Agent, the aggregate amount of the Global
Warrant to be reduced and, following such reduction, the Company will
execute and, upon receipt of a written instruction in the form of an
Officers' Certificate, the Warrant Agent will countersign and deliver
to the transferee a Physical Warrant.
(ii) Physical Warrants issued in exchange for a beneficial
interest in a Global Warrant pursuant to this Section 6(d) 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 Warrant Agent in writing.
The Warrant Agent shall deliver such Physical Warrants to the persons
in whose names such Physical Warrants are so registered.
(e) Restrictions on Transfer and Exchange of Global Warrants.
Notwithstanding any other provisions of this Agreement, a Global Warrant may not
be transferred as a whole except by the Depositary to a nominee of the
Depositary or by a nominee of the Depositary to the Depositary or another
nominee of the Depositary or by the Depositary or any such nominee to a
successor Depositary or a
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nominee of such successor Depositary.
(f) Authentication of Definitive Warrants in Absence of
Depositary. If at any time:
(i) the Depositary for the Warrants notifies the Company that
the Depositor is unwilling or unable to continue as Depositary for the
Global Warrants and a successor Depositary for the Global Warrants is
not appointed by the Company within 90 days after delivery of such
notice; or
(ii) the Company, at its sole discretion, notifies the Warrant
Agent in writing that it elects to cause the issuance of Physical
Warrants under this Warrant Agreement,
then the Company will execute, and the Warrant Agent, upon written instructions
from the Company requesting the Warrant Agent to countersign and deliver
Physical Warrants, will countersign and deliver Physical Warrants, in an
aggregate number equal to the aggregate number of Warrants represented by the
Global Warrants, in exchange for such holder's beneficial interest in Global
Warrants.
(g) Legends.
(i) For so long as transfer of a Warrant is not permitted
without registration under the Securities Act, each Warrant Certificate
evidencing such Warrant (and all Warrants issued in exchange therefor
or substitution thereof) shall bear a legend substantially to the
following effect:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED
OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT
OF, UNITED STATES 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) OF REGULATION D UNDER
THE SECURITIES ACT) (AN "INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT
IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT,
(2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO IN RULE
144(k) UNDER THE
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SECURITIES ACT AS IN EFFECT WITH RESPECT TO SUCH TRANSFER, RESELL OR
OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE ISSUER 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 THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE WARRANT AGENT A
SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS
RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM OF
WHICH LETTER CAN BE OBTAINED FROM THE WARRANT AGENT), (D) OUTSIDE THE
UNITED STATES IN AN OFFSHORE TRANSACTION 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 (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON
TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE
EFFECT OF THIS LEGEND; PROVIDED THAT AN INITIAL INVESTOR THAT IS AN
INSTITUTIONAL ACCREDITED INVESTOR PURCHASING AS DESCRIBED IN CLAUSE
(1)(B) ABOVE SHALL NOT BE PERMITTED TO TRANSFER THIS SECURITY TO AN
INSTITUTIONAL ACCREDITED INVESTOR. IN CONNECTION WITH ANY TRANSFER OF
THIS SECURITY WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST
CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO
THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE WARRANT
AGENT. IF THE PROPOSED TRANS-FEREE IS AN INSTITUTIONAL ACCREDITED
INVESTOR PURCHASING PURSUANT TO CLAUSE (2)(C) ABOVE, THE HOLDER MUST,
PRIOR TO SUCH TRANSFER, FURNISH TO THE WARRANT AGENT AND THE ISSUER
SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF
THEM 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 RESPECTIVE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE
SECURITIES ACT.
THIS WARRANT AND SHARES OF COMMON STOCK OF THE
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COMPANY INTO WHICH THIS WARRANT IS EXERCISABLE ARE SUBJECT TO A COMMON
STOCK REGISTRATION RIGHTS AND STOCKHOLDERS AGREEMENT DATED AS OF JUNE
25, 1997, WHICH CONTAINS PROVISIONS REGARDING THE RESTRICTIONS ON THE
TRANSFER AND PROVISIONS REQUIRING THE MANDATORY TRANSFER OF SUCH SHARES
AND OTHER MATTERS. A COPY OF SUCH AGREEMENT IS AVAILABLE FOR INSPECTION
AT THE PRINCIPAL OFFICE OF THE COMPANY.
(ii) Until the Separability Date (as hereinafter defined)
each Warrant, other than the NatWest Warrants, shall bear a legend
substantially to the following effect:
THESE SECURITIES HAVE BEEN OFFERED AS PART OF A UNIT. EACH OF THE UNITS
REPRESENTS ONE THOUSAND SHARES OF 12% SENIOR PAYMENT-IN-KIND PREFERRED
STOCK (THE "SENIOR PIK PREFERRED STOCK") OF THE COMPANY AND ONE
WARRANT, EACH WARRANT INITIALLY EXERCISABLE TO PURCHASE 32.6765 SHARES
OF COMMON STOCK OF THE COMPANY. THE SENIOR PIK PREFERRED STOCK AND
WARRANTS WILL NOT BE TRANSFERABLE BY A HOLDER THEREOF SEPARATELY FROM
EACH OTHER UNTIL THE "SEPARABILITY DATE," WHICH SHALL BE THE EARLIEST
OF (i) TEN BUSINESS DAYS FROM THE DATE OF ORIGINAL ISSUANCE OF THE
UNITS OR (ii) SUCH EARLIER DATE AS MAY BE DETERMINED BY NATWEST CAPITAL
MARKETS LIMITED WITH THE CONSENT OF THE COMPANY.
(iii) Each certificate representing Warrant Shares (and all
shares of Common Stock issued in exchange therefor or substitution
therefor) shall bear a legend identical to the legend set forth in
clause (i) above, except that the final paragraph of such legend shall
read as follows (in place of the final paragraph of the legend set
forth in clause (i) above):
THE SHARES OF COMMON STOCK OF THE COMPANY REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO A COMMON STOCK REGISTRATION RIGHTS AND
STOCKHOLDERS AGREEMENT DATED AS OF JUNE 25, 1997, WHICH CONTAINS
PROVISIONS REGARDING RESTRICTIONS ON THE TRANSFER AND THE MANDATORY
TRANSFER OF SUCH SHARES AND OTHER MATTERS. A COPY OF SUCH AGREEMENT IS
AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF THE COMPANY.
(h) Cancellation and/or Adjustment of a Global Warrant. At
such
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time as all beneficial interests in a Global Warrant have either been
exchanged for Physical Warrants, redeemed, repurchased or cancelled, such Global
Warrant shall be returned to or retained and cancelled by the Warrant Agent. At
any time prior to such cancellation, if any beneficial interest in a Global
Warrant is exchanged for Physical Warrants, redeemed, repurchased or cancelled,
the number of Warrants represented by such Global Warrant shall be reduced and
an endorsement shall be made on such Global Warrant, by the Warrant Agent to
reflect such reduction.
(i) Obligations with Respect to Transfers and Exchanges of
Physical Warrants.
(i) To permit registrations of transfers and exchanges, the
Company shall execute, at the Warrant Agent's request, and the Warrant
Agent shall countersign Physical Warrants and Global Warrants.
(ii) All Physical Warrants and Global Warrants issued upon
any registration, transfer or exchange of Physical Warrants or Global
Warrants shall be the valid obligations of the Company, entitled to the
same benefits under this Agreement as the Physical Warrants or Global
Warrants surrendered upon the registration of transfer or exchange.
(iii) Prior to due presentment for registration of transfer of
any Warrant, the Warrant Agent and the Company may deem and treat the
person in whose name any Warrant is registered as the absolute owner of
such Warrant, and neither the Warrant Agent nor the Company shall be
affected by notice to the contrary.
SECTION 7. Separation of Warrants; Terms of Warrants; Exercise
of Warrants. The Senior PIK Preferred Stock and Warrants will not be separately
transferable until the "Separability Date," which shall be the earliest of (i)
ten (10) business days after the date of original issuance of the Warrant
and/or; (ii) such earlier date as may be determined by NatWest with consent of
the Company.
Subject to the terms of this Agreement, each Warrant holder
shall have the right, which may be exercised commencing on or after the date of
issuance and until 5:00 p.m., New York City time, on June 15, 2007 (the
"Expiration Date"), to receive from the Company upon the exercise of each
warrant the number of fully paid and nonassessable Warrant Shares which the
holder may at the time be entitled to receive on exercise of such Warrants and
payment of the Exercise Price (as defined) then in effect for such Warrant
Shares. Each Warrant not exercised prior to the Expiration Date shall become
void and all rights thereunder and all rights in respect thereof under this
Agreement shall cease as of such time. No adjustments as to dividends will be
made upon exercise of the Warrants.
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The initial price per share at which Warrant Shares shall be
purchasable upon exercise of Warrants (the "Exercise Price") shall be $.01,
subject to adjustment, provided, that in no event shall the Exercise Price be
less than $.01 per share. A Warrant may be exercised upon surrender at the
office or agency of the Company maintained for such purpose, which initially
will be the corporate trust office of the Warrant Agent in New York, New York,
of the certificate or certificates evidencing the Warrants to be exercised with
the form of election to purchase on the reverse thereof duly filled in and
signed, which signature shall be guaranteed by a participant in a recognized
Signature Guarantee Medallion Program, and upon payment to the Warrant Agent for
the account of the Company of the Exercise Price, as adjusted as herein
provided, for the number of Warrant Shares in respect of which such Warrants are
then exercised. Payment of the aggregate Exercise Price shall be made in cash or
by certified or official bank check to the order of the Company in New York
Clearing House Funds.
Subject to the provisions of Section 6 hereof, upon such
surrender of Warrants and payment of the Exercise Price, the Company shall issue
and cause to be delivered with all reasonable dispatch to or upon the written
order of the holder and in such name or names as the Warrant holder may
designate a certificate or certificates for the number of Warrant Shares
issuable upon the exercise of such Warrants together with cash as provided in
Section 12; provided, however, that if any consolidation, merger or lease or
sale of assets is proposed to be effected by the Company as described in
subsection (j) of Section 12 hereof, or a tender offer or an exchange offer for
shares of Common Stock of the Company shall be made, upon such surrender of
Warrants and payment of the Exercise Price as aforesaid, the Company shall, as
soon as possible, but in any event not later than 2 days, other than a Saturday
or Sunday or a day on which banking institutions in the State of New York are
not open for business ("Business Day") thereafter, issue and cause to be
delivered the number of Warrant Shares issuable upon the exercise of such
Warrants in the manner described in this sentence together with cash as provided
in Section 12. Such certificate or certificates shall be deemed to have been
issued and any person so designated to be named therein shall be deemed to have
become a holder of record of such Warrant Shares as of the date of the surrender
of such Warrants and payment of the Exercise Price.
The Warrants shall be exercisable, at the election of the
holders thereof, either in full or from time to time in part and, in the event
that a certificate evidencing Warrants is exercised in respect of fewer than all
of the Warrant Shares issuable on such exercise at any time prior to the date of
expiration of the Warrants, a new certificate evidencing the remaining Warrant
or Warrants will be issued, and the Warrant Agent is hereby irrevocably
authorized to countersign and to deliver the required new Warrant Certificate or
Certificates pursuant to the provisions of this
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Section and of Section 3 hereof, and the Company, whenever required by the
Warrant Agent, will promptly supply the Warrant Agent with Warrant Certificates
duly executed on behalf of the Company for such purpose.
All Warrant Certificates surrendered upon exercise of Warrants
shall be cancelled by the Warrant Agent. Such cancelled Warrant Certificates
shall then be disposed of by the Warrant Agent in a manner consistent with the
Warrant Agent's customary procedure for such disposal and in a manner reasonably
satisfactory to the Company. The Warrant Agent shall account promptly to the
Company with respect to Warrants exercised and concurrently pay to the Company
all monies received by the Warrant Agent for the purchase of the Warrant Shares
through the exercise of such Warrants.
The Warrant Agent shall keep copies of this Agreement and any
notices given or received hereunder available for inspection by the holders
during normal business hours at its office. The Company shall supply the Warrant
Agent from time to time with such numbers of copies of this Agreement as the
Warrant Agent may request.
SECTION 8. Payment of Taxes. The Company will pay all
documentary stamp taxes attributable to the initial issuance of Warrant Shares
upon the exercise of Warrants; provided, however, that the Company shall not be
required to pay any tax or taxes which may be payable in respect of any transfer
involved in the issue of any Warrant Certificates or any certificates for
Warrant Shares in a name other than that of the registered holder of a Warrant
Certificate surrendered upon the exercise of a Warrant, and the Company shall
not be required to issue or deliver such Warrant Certificates unless or until
the person or persons requesting the issuance thereof shall have paid to the
Company the amount of such tax or shall have established to the satisfaction of
the Company that such tax has been paid.
SECTION 9. Mutilated or Missing Warrant Certificates. In case
any of the Warrant Certificates shall be mutilated, lost, stolen or destroyed,
the Company may at its discretion issue and the Warrant Agent may countersign,
in exchange and substitution for and upon cancellation of the mutilated Warrant
Certificate, or in lieu of and substitution for the Warrant Certificate lost,
stolen or destroyed, a new Warrant Certificate of like tenor and representing an
equivalent number of Warrants, but only upon receipt of evidence satisfactory to
the Company and the Warrant Agent of such loss, theft or destruction of such
Warrant Certificate and indemnity also satisfactory to them. Applicants for such
substitute Warrant Certificates shall also comply with such other reasonable
regulations and pay such other reasonable charges as the Company or the Warrant
Agent may prescribe.
SECTION 10. Reservation of Warrant Shares. The Company will at
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all times reserve and keep available, free from preemptive rights, out of the
aggregate of its authorized but unissued Common Stock or its authorized and
issued Common Stock held in its treasury, for the purpose of enabling it to
satisfy an obligation to issue Warrant Shares upon exercise of Warrants, the
maximum number of shares of Common Stock which may then be deliverable upon the
exercise of all outstanding Warrants.
The Company or, if appointed, the transfer agent for the
Common Stock (the "Transfer Agent") and every subsequent transfer agent for any
shares of the Company's capital stock issuable upon the exercise of any of the
rights of purchase aforesaid will be irrevocably authorized and directed at all
times to reserve such number of authorized shares as shall be required for such
purpose. The Company will keep a copy of this Agreement on file with the
Transfer Agent and with every subsequent transfer agent for any shares of the
Company's capital stock issuable upon the exercise of the rights of purchase
represented by the Warrants. The Warrant Agent is hereby irrevocably authorized
to requisition from time to time from such Transfer Agent the stock certificates
required to honor outstanding Warrants upon exercise thereof in accordance with
the terms of this Agreement. The Company will supply such Transfer Agent with
duly executed certificates for such purposes and will provide or otherwise make
available any cash which may be payable as provided in Section 12. The Company
will furnish such Transfer Agent a copy of all notices of adjustments and
certificates related thereto transmitted to each holder pursuant to Section 14
hereof.
The Company covenants that all Warrant Shares which may be
issued upon exercise of Warrants made in accordance with the terms of this
Agreement will, upon payment of the Exercise Price therefor and issue, be
validly authorized and issued, fully paid, nonassessable, free of preemptive
rights and free from all taxes, liens, charges and security interests with
respect to the issuance thereof. The Company will take no action to increase the
par value of the Common Stock to an amount in excess of the Exercise Price, and
the Company will not enter into any agreements inconsistent with the rights of
Holders hereunder. The Company will use its best efforts to obtain all such
authorizations, exemptions or consents from any public regulatory body having
jurisdiction thereof as may be necessary to enable the Company to perform its
obligations under this Agreement. The Company shall not take any action
reasonably within its control, including the hiring of a broker to solicit
exercises, which would render unavailable an exemption from registration under
the Securities Act which might otherwise be available with respect to the
issuance of Warrant Shares upon exercise of any Warrants.
SECTION 11. Obtaining Stock Exchange Listings. The Company
will from time to time take all action which may be necessary so that the
Warrant Shares, immediately upon their issuance upon the exercise of Warrants,
will be listed on the
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principal securities exchanges and markets within the United States of America
(including the NASDAQ National Market System), if any, on which other shares of
Common Stock are then listed. In the event that, at any time during the period
in which the Warrants are exercisable, the Common Stock is not listed on any
principal securities or exchanges or markets within the United States of
America, the Company will use its best efforts to permit the Warrant Shares to
be designated PORTAL securities in accordance with the rules and regulations
adopted by the National Association of Securities Dealers, Inc. relating to
trading in the Private Offering, Resales and Trading through Automated Linkages
market.
SECTION 12. Adjustment of Number of Warrant Shares Issuable.
The number of shares of Common Stock issuable upon the exercise of each Warrant
(the "Exercise Rate") is subject to adjustment from time to time upon the
occurrence of the events enumerated in this Section 12. The Exercise Rate shall
initially be 32.6765.
(a) Adjustment for Change in Capital Stock. If the Company:
(1) pays a dividend or makes a distribution on its
Common Stock in shares of its Common Stock or other capital
stock of the Company;
(2) subdivides, combines or reclassifies its
outstanding shares of Common Stock;
(3) makes a distribution to all holders of its Common
Stock of rights, warrants or options to purchase Common Stock
of the Company at a price per share less than the Current
Market Value (as defined in Section 12(d)) at the Time of
Determination (as defined below); and
(4) makes distributions to stockholders of Common
Stock of the Company or rights, warrants or options to
purchase Common Stock of the Company;
then the Exercise Rate in effect immediately prior to such action shall be
proportionately adjusted so that the holder of any Warrant thereafter exercised
may receive the aggregate number and kind of shares of capital stock of the
Company which he would have owned immediately following such action if such
Warrant had been exercised immediately prior to such action; provided, however,
that notwithstanding the foregoing, upon the occurrence of an event described in
any of paragraphs (1), (3) or (4) above, which otherwise would have given rise
to an adjustment, no adjustment shall be made if the Company includes the
holders of Warrants in such distribution pro rata to the number of shares of
Common Stock issued and outstanding (after
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giving effect to the Warrant Shares as if they were issued and outstanding).
The adjustment shall become effective immediately after the
record date in the case of a dividend or distribution (the "Time of
Determination") and immediately after the effective date in the case of a
subdivision, combination or reclassification.
If after an adjustment a holder of a Warrant upon exercise of
it may receive shares of two or more classes of capital stock of the Company,
the Board of Directors of the Company shall determine the allocation of the
adjusted Exercise Price between the classes of capital stock. After such
allocation, the exercise privilege and the Exercise Price of each class of
capital stock shall thereafter be subject to adjustment on terms comparable to
those applicable to Common Stock in this Section.
Such adjustment shall be made successively whenever any event
listed above shall occur.
(b) Adjustment for Certain Issuances of Common Stock.
Subject to Section 12(a), if the Company issues or sells
shares of its Common Stock or distributes any rights, options or warrants to all
holders of its Common Stock entitling them to purchase shares of Common Stock,
or securities convertible into or exchangeable for Common Stock (other than
pursuant to (1) the exercise of and the Warrants, (2) any options, warrants or
rights outstanding as of the date of this Agreement, (3) without limiting any
options, warrants or rights outstanding pursuant to the immediately preceding
clause (2), any directors, plans and employee stock option or purchase plans to
the extent that the aggregate number of shares of Common Stock of the Company
(or securities convertible into or exchangeable or exercisable for the Common
Stock of the Company) distributed under all such directors, plans and employee
stock option and purchase plans does not exceed 61,856 shares of the Company's
Common Stock at any time (of which options to purchase 30,928 shares are
currently outstanding)), at a price per share less than the Current Market Value
at the Time of Determination, the Exercise Rate shall be adjusted in accordance
with the formula:
(0 + N)
-----
El = E x 0 + (N x P)
-----
M
where:
El = the adjusted Exercise Rate.
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<PAGE>
E = the Exercise Rate immediately prior to the Time of
Determination for any such distribution.
0 = the number of Fully Diluted Shares (as defined in
Section 12(i)) outstanding on the Time of
Determination for any such issuance, sale or
distribution.
N = the number of additional shares of Common Stock
issued, sold or issuable upon exercise of such
rights, options or warrants.
P = the price received in the case of any issuance or
sale of Common Stock or exercise price per share of
such rights, options or warrants.
M = the Current Market Value per share of Common Stock
on the Time of Determination for any such issuance,
sale or distribution.
The adjustment shall be made successively whenever any such
rights, options or warrants are issued and shall become effective immediately
after the record date for the determination of stockholders entitled to receive
the rights, options or warrants. If at the end of the period during which any
such rights, options or warrants are exercisable, not all rights, options or
warrants shall have been exercised, the Warrant shall be immediately readjusted
to what it would have been if "N" in the above formula had been the number of
shares actually issued.
(c) Adjustment for Other Distribution.
Subject to Section 12(a), if the Company distributes to all
holders of its Common Stock (i) any evidences of indebtedness of the Company or
any of its subsidiaries, (ii) any assets of the Company or any of its
subsidiaries (other than cash dividends or other cash distributions or
distributions from current or retained earnings other than any Extraordinary
Cash Dividend), or (iii) any rights, options or warrants to acquire any of the
foregoing or to acquire any other securities of the Company, the Exercise Rate
shall be adjusted in accordance with the formula:
El = E x M
-----
M - F
where:
El = the adjusted Exercise Rate.
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<PAGE>
E = the current Exercise Rate on the record date mentioned
below.
M = the Current Market Value per share of Common Stock
on the record date mentioned below.
F = the fair market value on the record date mentioned
below of the indebtedness, assets, rights, options or
warrants distributable to one share of Common Stock.
The adjustment shall be made successively whenever any such
distribution is made and shall become effective immediately after the record
date for the determination of stockholders entitled to receive the distribution.
If an adjustment is made pursuant to clause (iii) above of this subsection (c)
as a result of the issuance of rights, options or warrants and at the end of the
period during which any such rights, options or warrants are exercisable, not
all such rights, options or warrants shall have been exercised, the Warrant
shall be immediately readjusted as if "F" in the above formula was the fair
market value on the record date of the indebtedness or assets actually
distributed upon exercise of such rights, options or warrants divided by the
number of shares of Common Stock outstanding on the record date. Notwithstanding
the foregoing, provisions of this Section 12(c), (x) an event which would
otherwise give rise to an adjustment pursuant to this Section 12(c) shall not
give rise to such an adjustment if the Company includes the holders of the
Warrants in such distribution pro rata to the number of shares of Common Stock
issued and outstanding after giving effect to the Warrant Shares as if they were
issued and outstanding and (y) no adjustment shall be made pursuant to this
Section 12(c) with respect to cash dividends other than Extraordinary Cash
Dividends.
This subsection does not apply to rights, options or warrants
referred to in subsection (b) of this Section 11.
(d) If (x) the Company merges or consolidates with, or sells
all or substantially all of its property and assets to, another person (other
than an Affiliate of the Company) and consideration is payable to holders of
Common Stock in exchange for their Common Stock in connection with such merger,
consolidation or sale which consists solely of cash, or (y) in the event of the
dissolution, liquidation or winding up of the Company, then the holders of
Warrants shall be entitled to receive distributions on the date of such event on
an equal basis with holders of Common Stock (or other securities issuable upon
exercise of the Warrants) as if the Warrants had been exercised immediately
prior to such event, less the Exercise Price. Upon receipt of such payment, if
any, the rights, of a holder shall terminate and cease and his or her Warrants
shall expire. In case of any such merger, consolidation or sale of assets, the
surviving or acquiring Person and, in the event of any dissolution, liquidation
or winding up of the Company, the Company shall deposit promptly with the
Warrant
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<PAGE>
Agent the funds, if any, necessary to pay the Holders of the Warrants. After
receipt of such deposit from such Person or the Company and after receipt of
surrendered Warrant Certificates, the Warrant Agent shall make payment by
delivering a check in such amount as is appropriate (or, in the case of
consideration other than cash, such other consideration as is appropriate) to
such Person or Persons as it may be directed in writing by the holder
surrendering such Warrants.
(e) Current Market Value.
"Current Market Value" per share of Common Stock or of any
other security (herein collectively referred to as a "Security") at any date
shall be:
(1) if the Security is not registered under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), (i)
the value of the Security determined in good faith by the Board of
Directors of the Company and certified in a board resolution, based on
the most recently completed arm's length transaction between the
Company and a person other than an Affiliate of the Company in which
such determination is necessary and the closing of which occurs on such
date or shall have occurred within the six months preceding such date,
(ii) if no such transaction shall have occurred on such date or within
such six-month period, the value of the Security most recently
determined as of a date within the six months preceding such date by an
Independent Financial Expert or (iii) if neither clause (i) nor (ii) is
applicable, the value of the Security determined as of such date by an
Independent Financial Expert, or
(2) if the Security is registered under the Exchange
Act, the average of the daily market prices for each business day
during the period commencing 15 business days before such date and
ending on the date one day prior to such date or, if the Security has
been registered under the Exchange Act for less than 15 consecutive
business days before such date, then the average of the daily market
prices for all of the business days before such date for which daily
market prices are available. If the market price is not determinable
for at least 10 business days in such period, the Current Market Value
of the Security shall be determined as if the Security was not
registered under the Exchange Act.
The "market price" for any Security on each business day
means: (A) if such Security is listed or admitted to trading on any securities
exchange, the closing price, regular way, on such day on the principal exchange
on which such Security is traded, or if no sale takes place on such day, the
average of the closing bid and asked prices on such day, (B) if such Security is
not then listed or admitted to trading on any securities exchange, the last
reported sale price on such day, or if there is no such last
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<PAGE>
reported sale price on such day, the average of the closing bid and the asked
prices on such day, as reported by a reputable quotation source designated by
the Company, or (C) if neither clause (A) nor (B) is applicable, the average of
the reported high bid and low asked prices on such day, as reported by a
reputable quotation service, or a newspaper of general circulation in the
Borough of Manhattan, City of New York, customarily published on each business
day, designated by the Company. If there are no such prices on a business day,
then the market price shall not be determinable for such business day.
"Independent Financial Expert" shall mean (a) NatWest (or any
successor) or (b) another nationally recognized investment banking firm, a
nationally recognized regional investment banking firm or a "big six" accounting
firm selected by the Company reasonably acceptable to the Warrant Agent (i) that
does not (and whose directors, officers, employees and Affiliates do not) have a
direct or indirect material financial interest in the Company, (ii) that has not
been, and, at the time it is called upon to serve as an Independent Financial
Expert under this Agreement is not (and none of whose directors, officers,
employees or Affiliates is) a promoter, director or officer of the Company,
(iii) that has not been retained by the Company for any purpose, other than to
perform an equity valuation, within the preceding twelve months, and (iv) that,
in the reasonable judgement of the Board of Directors of the Company (certified
by a board resolution), is otherwise qualified to serve as an independent
financial advisor. Any such person may receive customary compensation and
indemnification by the Company for opinions or services it provides as an
Independent Financial Expert.
"Affiliate" shall mean, with respect to any person, any other
person directly or indirectly controlling or controlled by or under direct or
indirect common control with such person. For the purposes of this definition,
"control" when used with respect to any person, means the power to direct the
management and policies of such person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Extraordinary Cash Dividend" means cash dividends, subject to
the sentence below, with respect to the Common Stock the aggregate amount of
which in any fiscal year exceeds the lesser of (i) 25% of the net income of the
Company and its subsidiaries for the fiscal year immediately preceding the
payment of such dividend or (ii) $1,500,000.
(e) When De Minimis Adjustment May Be Deferred.
No adjustment in the Exercise Rate need be made unless the
adjustment would require an increase or decrease of at least .5% in the Exercise
Rate. Not-
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<PAGE>
withstanding the foregoing, any adjustments that are not made shall be
carried forward and taken into account in any subsequent adjustment, provided
that no such adjustment shall be deferred beyond the date on which a Warrant is
exercised.
All calculations under this Section 12 shall be made to the
nearest cent or to the nearest 1/100th of a share, as the case may be.
(f) When No Adjustment Required.
If an adjustment is made upon the establishment of a record
date for a distribution subject to subsections (a), (b) or (c) hereof and such
distribution is subsequently cancelled, the Exercise Rate then in effect shall
be readjusted, effective as of the date when the Board of Directors determines
to cancel such distribution, to that which would have been in effect if such
record date had not been fixed.
To the extent the Warrants become convertible into cash, no
adjustment need be made thereafter as to the amount of cash into which such
Warrants are exercisable. Interest will not accrue on the cash.
(g) Notice of Adjustment.
Whenever the Exercise Rate or Exercise Price is adjusted, the
Company shall provide the notices required by Section 14 hereof.
(h) Voluntary Reduction.
The Company from time to time may increase the Exercise Rate
by any amount for any period of time (including, without limitation,
permanently) if the period is at least 20 business days.
An increase of the Exercise Rate under this Subsection (h)
(other than a permanent increase) does not change or adjust the Exercise Rate
otherwise in effect for purposes of subsections (a), (b) or (c) of this Section
12.
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<PAGE>
(i) When Issuance or Payment May Be Deferred.
In any case in which this Section 12 shall require that an
adjustment in the Exercise Rate be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event (i) issuing to the Holder of any Warrant exercised after such record date
the Warrant Shares and other capital stock of the Company, if any, issuable upon
such exercise over and above the Warrant Shares and other capital stock of the
Company, if any, issuable upon such exercise on the basis of the Exercise Rate
prior to such adjustment, and (ii) paying to such Holder any amount in cash in
lieu of a fractional share pursuant to Section 13; provided, however, that the
Company shall deliver to the Warrant Agent and shall cause the Warrant Agent, on
behalf of and at the expense of the Company, to deliver to such Holder a due
bill or other appropriate instrument evidencing such Holder's right to receive
such additional Warrant Shares, other capital stock and cash upon the occurrence
of the event requiring such adjustment.
(j) Reorganizations.
In case of any capital reorganization, other than in the cases
referred to in Sections 12(a), (b), (c) or (d) hereof, or the consolidation or
merger of the Company with or into another corporation (other than a merger or
consolidation in which the Company is the continuing corporation and which does
not result in any reclassification of the outstanding shares of Common Stock
into shares of other stock or other securities or property), or the sale of the
property of the Company as an entirety or substantially as an entirety
(collectively such actions being hereinafter referred to as "Reorganizations"),
there shall thereafter be deliverable upon exercise of any Warrant (in lieu of
the number of shares of Common Stock theretofore deliverable) the number of
shares of stock or other securities or property to which a holder of the number
of shares of Common Stock that would otherwise have been deliverable upon the
exercise of such Warrant would have been entitled upon such Reorganization if
such Warrant had been exercised in full immediately prior to such
Reorganization. In case of any Reorganization, appropriate adjustment, as
determined in good faith by the Board of Directors of the Company, whose
determination shall be described in a duly adopted resolution certified by the
Company's Secretary or Assistant Secretary, shall be made in the application of
the provisions herein set forth with respect to the rights and interests of
Holders so that the provisions set forth herein shall thereafter be applicable,
as nearly as possible, in relation to any shares or other property thereafter
deliverable upon exercise of Warrants.
The Company shall not effect any such Reorganization unless
prior to or simultaneously with the consummation thereof the successor
corporation (if other than the Company) resulting from such Reorganization or
the corporation purchasing
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<PAGE>
or leasing such assets or other appropriate corporation or entity
shall (i) expressly assume, by a supplemental Warrant Agreement or other
acknowledgment executed and delivered to the Warrant Agent the obligation to
deliver to the Warrant Agent and to cause the Warrant Agent to deliver to each
such Holder such shares of stock, securities or assets as, in accordance with
the foregoing provisions, such Holder may be entitled to purchase, and all other
obligations and liabilities under this Agreement and (ii) enter into an
agreement providing to the Holders rights and benefits substantially similar to
those enjoyed by the Holders under the Registration Rights and Stockholders
Agreement of even date herewith.
The foregoing provisions of this Section 12(j) shall apply to
successive Reorganization transactions.
(k) Form of Warrants.
Irrespective of any adjustments in the number or kind of
shares purchasable upon the exercise of the Warrants, Warrants theretofore or
thereafter issued may continue to express the same price and number and kind of
shares as are stated in the Warrants initially issuable pursuant to this
Agreement.
(l) Miscellaneous.
For purposes of this Section 12 the term "Fully Diluted
Shares" shall mean (i) the shares of Common Stock outstanding as of a specified
date, and (ii) shares of Common Stock into or for which rights, options,
warrants or other securities outstanding as of such date are exercisable or
convertible (other than the Warrants). In the event that at any time, as a
result of an adjustment made pursuant to this Section 12, the holders of
Warrants shall become entitled to purchase any securities of the Company other
than, or in addition to, shares of Common Stock, thereafter the number or amount
of such other securities so purchasable upon exercise of each Warrant shall be
subject to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the Warrant Shares
contained in subsections (a) through (l) of this Section 12, inclusive, and the
provisions of Sections 7, 8, 10 and 13 with respect to the Warrant Shares or the
Common Stock shall apply on like terms to any such other securities.
SECTION 13. Fractional Interests. The Company shall not be
required to issue fractional Warrant Shares on the exercise of Warrants. If more
than one Warrant shall be presented for exercise in full at the same time by the
same holder, the number of full Warrant Shares which shall be issuable upon the
exercise thereof shall be computed on the basis of the aggregate number of
Warrant Shares purchasable on exercise of the Warrants so presented. If any
fraction of a Warrant Share would, except for the provisions of this Section 13,
be issuable on the exercise
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<PAGE>
of any Warrants (or specified portion thereof), the Company shall pay an amount
in cash equal to the Current Market Value on the day immediately preceding the
date the Warrant is presented for exercise, multiplied by such fraction.
SECTION 14. Notices to Warrant Holders. Upon any adjustment
pursuant to Section 12 hereof, the Company shall give prompt written notice of
such adjustment to the Warrant Agent and shall cause the Warrant Agent, on
behalf of and at the expense of the Company, within 10 days after such
adjustment, to mail by first class mail, postage prepaid, to each Holder a
notice of such adjustment(s) and shall deliver to the Warrant Agent a
certificate of the Chief Financial Officer of the Company, accompanied by the
report thereon by a firm of independent public accountants selected by the Board
of Directors of the Company (who may be the regular accountants for the
Company), setting forth in reasonable detail (i) the number of Warrant Shares
purchasable upon the exercise of each Warrant and the Exercise Price of such
Warrant after such adjustment(s), (ii) a brief statement of the facts requiring
such adjustment(s) and (iii) the computation by which such adjustment(s) was
made. Where appropriate, such notice may be given in advance and included as a
part of the notice required under the other provisions of this Section 14.
In case:
(a) the Company shall authorize the issuance to all
holders of shares of Common Stock of rights, options or warrants to
subscribe for or purchase shares of Common Stock or of any other
subscription rights or warrants; or
(b) the Company shall authorize the distribution to
all holders of shares of Common Stock of evidences of its indebtedness
or assets; or
(c) of any consolidation or merger to which the
Company is a part and for which approval of any shareholders of the
Company is required, or of the conveyance or transfer of the properties
and assets of the Company substantially as an entirety, or of any
reclassification or change of Common Stock issuable upon exercise of
the Warrants (other than a change in par value, or from par value to no
par value, or from no par value to par value, or as a result of a
subdivision or combination), or a tender offer or exchange offer for
shares of Common Stock; or
(d) of the voluntary or involuntary dissolution,
liquidation or winding up of the Company; or
(e) the Company proposes to take any action that
would
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<PAGE>
require an adjustment to the Exercise Rate or the Exercise Price
pursuant to Section 12 hereof;
then the Company shall give prompt written notice to the Warrant Agent and shall
cause the Warrant Agent, on behalf of and at the expense of the Company to give
to each of the registered holders of the Warrant Certificates at his or its
address appearing on the Warrant register, at least 30 days (or 20 days in any
case specified in clauses (a) or (b) above) prior to the applicable record date
hereinafter specified, or the date of the event in the case of events for which
there is no record date, by first-class mail, postage prepaid, a written notice
stating (i) the date as of which the holders of record of shares of Common Stock
to be entitled to receive any such rights, options, warrants or distribution are
to be determined, or (ii) the initial expiration date set forth in any tender
offer or exchange offer for shares of Common Stock, or (iii) the date on which
any such consolidation, merger, conveyance, transfer, dissolution, liquidation
or winding up is expected to become effective or consummated, and the date as of
which it is expected that holders of record of shares of Common Stock shall be
entitled to exchange such shares for securities or other property, if any,
deliverable upon such reclassification, consolidation, merger, conveyance,
transfer, dissolution, liquidation or winding up. The failure by the Company or
the Warrant Agent to give such notice or any defect therein shall not affect the
legality or validity of any distribution, right, option, warrant, consolidation,
merger, conveyance, transfer, dissolution, liquidation or winding up, or the
vote upon any action.
The Company shall give prompt written notice to the Warrant
Agent and shall cause the Warrant Agent, on behalf of and at the expense of the
Company to give to each Holder written notice of any determination to make a
distribution to the holders of its Common Stock of any cash dividends, assets,
debt securities, preferred stock, or any rights or warrants to purchase debt
securities, preferred stock, assets or other securities (other than Common
Stock, or rights, options, or warrants to purchase Common Stock) of the Company,
which notice shall state the nature and amount of such planned dividend or
distribution and the record date therefor, and shall be received by the Holders
at least 30 days prior to such record date therefor.
Nothing contained in this Agreement or in any Warrant
Certificate shall be construed as conferring upon the Holders the right to vote
or to consent or to receive notice as shareholders in respect of the meetings of
shareholders or the election of Directors of the Company or any other matter, or
any rights whatsoever as shareholders of the Company.
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<PAGE>
SECTION 15. Notices to the Company and Warrant Agent. Any
notice or demand authorized by this Agreement to be given or made by the Warrant
Agent or by any Holder to or on the Company shall be sufficiently given or made
when received at the office of the Company expressly designated by the Company
as its office for purposes of this Agreement (until the Warrant Agent is
otherwise notified in accordance with this Section 15 by the Company), as
follows:
North Atlantic Trading Acquisition Company, Inc.
257 Park Avenue South
New York, New York 10010-7304
Attention: Chief Financial Officer
Facsimile: (212) 218-1116
with a copy to:
Weil, Gotshal and Manges, LLP
767 Fifth Avenue
New York, New York 10153
Attention: David E. Zeltner, Esq.
Facsimile: (212) 310-8007
Any notice pursuant to this Agreement to be given by the
Company or by any Holder(s) to the Warrant Agent shall be sufficiently given
when received by the Warrant Agent at the address appearing below (until the
Company is otherwise notified in accordance with this Section by the Warrant
Agent).
United States Trust Company of New York
114 West 47th Street
New York, New York 10036
Attention: Corporate Trust Administration
Facsimile: (212) 852-1626
SECTION 16. Supplements and Amendments. The Company and the
Warrant Agent may from time to time supplement or amend this Agreement without
the approval of any holders of Warrants in order to cure any ambiguity or to
correct or supplement any provision contained herein which may be defective or
inconsistent with any other provision herein, or to make any other provisions in
regard to matters or questions arising hereunder which the Company and the
Warrant Agent may deem necessary or desirable and which shall not in any way
adversely affect the interests of any holder of Warrants.
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<PAGE>
SECTION 17. Concerning the Warrant Agent. The Warrant Agent
undertakes the duties and obligations imposed by this Agreement upon the
following terms and conditions, by all of which the Company and the Holders, by
their acceptance of Warrants, shall be bound:
(a) The statements contained herein and in the
Warrant Certificate shall be taken as statements of the Company, and
the Warrant Agent assumes no responsibility for the correctness of any
of the same except such as describe the Warrant Agent or any action
taken by it. The Warrant Agent assumes no responsibility with respect
to the distribution of the Warrants except as herein otherwise
provided.
(b) The Warrant Agent shall not be responsible for
and shall incur no liability to the Company or any Holder for any
failure of the Company to comply with the covenants contained in this
Agreement or in the Warrants to be complied with by the Company.
(c) The Warrant Agent may execute and exercise any of
the rights or powers hereby vested in it or perform any duty hereunder
either itself (through its employees) or by or through its attorneys or
agents (which shall not include its employees) and shall not be
responsible for the misconduct of any agent appointed with due care.
(d) The Warrant Agent may consult at any time with
legal counsel satisfactory to it (who may be counsel for the Company),
and the Warrant Agent shall incur no liability or responsibility to the
Company or to any Holder in respect of any action taken, suffered or
omitted by it hereunder in good faith and in accordance with the
opinion or the advice of such counsel.
(e) Whenever in the performance of its duties under
this Agreement the Warrant Agent shall deem it necessary or desirable
that any fact or matter be proved or established by the Company prior
to taking or suffering any action hereunder, such fact or matter
(unless such evidence in respect thereof be herein specifically
prescribed) may be deemed conclusively to be proved and established by
a certificate signed by the Chairman of the Board, the President, one
of the Vice Presidents, the Treasurer or the Secretary of the Company
and delivered to the Warrant Agent; and such certificate shall be full
authorization to the Warrant Agent for any action taken or suffered in
good faith by it under the provisions of this Agreement in reliance
upon such certificate. Without limiting the foregoing, the Company
shall notify the Warrant Agent of the occurrence of the Separability
Date on the Date it occurs, and until receipt of such notice the
Warrant Agent may (but need not) be entitled to assume that any such
date has not occurred.
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<PAGE>
(f) The Company agrees to pay the Warrant Agent
reasonable compensation for all services rendered by the Warrant Agent
in the performance of its duties under this Agreement, to reimburse the
Warrant Agent for all expenses, taxes and governmental charges and
other charges of any kind and nature incurred by the Warrant Agent in
the performance of its duties under this Agreement (including, without
limitation, reasonable fees and expenses of counsel), and to indemnify
the Warrant Agent and its agents, employees, directors, officers and
affiliates and save it and them harmless against any and all
liabilities, losses and expenses, including, without limitation,
judgments, costs and counsel fees, for anything done or omitted by the
Warrant Agent in the performance of its duties under this Agreement,
except as a result of the Warrant Agent's negligence or bad faith.
(g) The Warrant Agent shall be under no obligation to
institute any action, suit or legal proceeding or to take any other
action likely to involve expense unless the Company or one or more
Holders shall furnish the Warrant Agent with reasonable security and
indemnity for any costs and expenses which may be incurred, but this
provision shall not affect the power of the Warrant Agent to take such
action as the Warrant Agent may consider proper, whether with or
without any such security or indemnity. All rights of action under this
Agreement or under any of the Warrants may be enforced by the Warrant
Agent without the possession of any of the Warrants or the production
thereof at any trial or other proceeding relative thereto, and any such
action, suit or proceeding instituted by the Warrant Agent shall be
brought in its name as Warrant Agent, and any recovery of judgment
shall be for the ratable benefit of the Holders, as their respective
rights or interests may appear.
(h) The Warrant Agent and any stockholder, director,
officer or employee ("Related Parties") of the Warrant Agent may buy,
sell or deal in any of the Warrants or other securities of the Company
or become pecuniarily interested in any transactions in which the
Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not
Warrant Agent under this Agreement or such director, officer or
employee. Nothing herein shall preclude the Warrant Agent or any
Related Party from acting in any other capacity for the Company or for
any other legal entity including, without limitation, acting as
Transfer Agent or as a lender to the Company or an affiliate thereof.
(i) The Warrant Agent shall act hereunder solely as
agent, and its duties shall be determined solely by the provisions
thereof. The Warrant Agent shall not be liable for anything which it
may do or refrain from doing in connection with this Agreement except
for its own negligence or bad faith.
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<PAGE>
(j) The Warrant Agent will not incur any liability or
responsibility to the Company or to any Holder for any action taken in
reliance on any notice, resolution, waiver, consent, order,
certificate, or other paper, document or instrument reasonably believed
by it to be genuine and to have been signed, sent or presented by the
proper party or parties.
(k) The Warrant Agent shall not be under any
responsibility in respect of the validity of this Agreement or the
execution and delivery hereof (except the due execution hereof by the
Warrant Agent) or in respect of the validity or execution of any
Warrant (except its countersignature thereof); nor shall the Warrant
Agent by any act hereunder be deemed to make any representation or
warranty as to the authorization or reservation of any Warrant Shares
(or other stock) to be issued pursuant to this Agreement or any
Warrant, or as to whether any Warrant Shares (or other stock) will,
when issued, be validly issued, fully paid and nonassessable, or as to
the Exercise Price or the number or amount of Warrant Shares or other
securities or other property issuable upon exercise of any Warrant.
(l) The Warrant Agent is hereby authorized and
directed to accept instructions with respect to the performance of its
duties hereunder from the Chairman of the Board, the President, any
Vice President or the Secretary of the Company, and to apply to such
officers for advice or instructions in connection with its duties, and
shall not be liable for any action taken or suffered to be taken by it
in good faith and without negligence in accordance with instructions of
any such officer or officers.
SECTION 18. Change of Warrant Agent. The Warrant Agent may
resign and be discharged from its duties under this Agreement by giving to the
Company 30 days' notice in writing. The Warrant Agent may be removed by like
notice to the Warrant Agent from the Company. If the Warrant Agent shall resign
or be removed or shall otherwise become incapable of acting, the Company shall
appoint a successor to the Warrant Agent. If the Company shall fail to make such
appointment within a period of 30 days after such removal or after it has been
notified in writing of such resignation or incapacity by the resigning or
incapacitated Warrant Agent or by any Holder (who shall with such notice submit
his Warrant for inspection by the Company), then any Holder may apply to any
court of competent jurisdiction for the appointment of a successor to the
Warrant Agent. Pending appointment of a successor to the Warrant Agent, either
by the Company or by such court, the duties of the Warrant Agent shall be
carried out by the Company. Any successor warrant agent, whether appointed by
the Company or such a court, shall be a bank or trust company in good standing,
incorporated under the laws of the United States of America or any State thereof
or the District of Columbia and having at the time of its appointment as warrant
agent a combined capital and surplus of at least $50,000,000.
-29-
<PAGE>
After appointment, the successor warrant agent shall be vested with the same
powers, rights, duties and responsibilities as if it had been originally named
as Warrant Agent without further act or deed; but the former Warrant Agent shall
deliver and transfer to the successor warrant agent any property at the time
held by it hereunder, and execute and deliver any further assurance, conveyance,
act or deed necessary for such purpose. Failure to file any notice provided for
in this Section 18, however, or any defect therein, shall not affect the
legality or validity of the resignation or removal of the Warrant Agent or the
appointment of the successor warrant agent, as the case may be. In the event of
such resignation or removal, the Company or the successor warrant agent shall
mail by first class mail, postage prepaid, to each Holder, written notice of
such removal or resignation and the name and address of such successor warrant
agent.
SECTION 19. Identity of Transfer Agent. Forthwith upon the
appointment of any Transfer Agent for the Common Stock, or any other shares of
the Company's capital stock issuable upon the exercise of the Warrants, the
Company shall file with the Warrant Agent a statement setting forth the name and
address of such Transfer Agent.
SECTION 20. Successors. All the covenants and provisions of
this Agreement by or for the benefit of the Company, the Warrant Agent or any
holder of Warrants shall bind and inure to the benefit of their respective
successors and assigns hereunder.
SECTION 21. Termination. This Agreement shall terminate on
the Expiration Date. Notwithstanding the foregoing, this Agreement will
terminate on any earlier date if all Warrants have been exercised or redeemed
pursuant to this Agreement.
SECTION 22. Governing Law. This Agreement and each Warrant
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of New York and shall be governed by and construed in
accordance with the laws of said State, without regard to the conflict of law
rules thereof.
SECTION 23. Benefits of This Agreement. Nothing in this
Agreement shall be construed to give to any person or corporation other than the
Company, the Warrant Agent and the registered holders of the Warrant
Certificates any legal or equitable right, remedy or claim under this Agreement;
but this Agreement shall be for the sole and exclusive benefit of the Company,
the Warrant Agent and the registered holders of the Warrant Certificates.
SECTION 24. Counterparts. This Agreement may be executed in
any number of counterparts and each of such counterparts shall for all purposes
be deemed to be an original, and all such counterparts shall together constitute
but one and the
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<PAGE>
same instrument.
-31-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written.
NORTH ATLANTIC TRADING
ACQUISITION COMPANY, INC.
By: /s/Thomas F. Helms, Jr.
-------------------------------------
Name: Thomas F. Helms, Jr.
Title: President
UNITED STATES TRUST COMPANY OF
NEW YORK, as Warrant Agent
By: /s/Christine C. Collins
--------------------------------------
Name: Christine C. Collins
Title: Assistant Vice President
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<PAGE>
STOCK PURCHASE AGREEMENT
dated as of April 17, 1997
by and between
NATC HOLDING COMPANY, LTD.
and
NTC HOLDING, L.L.C.
with respect to all
outstanding capital stock of
NATC HOLDINGS USA, INC.
<PAGE>
TABLE OF CONTENTS
This Table of Contents is not part of the Agreement to which
it is attached but is inserted for convenience only.
Page
No.
----
ARTICLE I.
SALE OF SHARES AND CLOSING
1.01 Purchase and Sale................................. 1
1.02 Purchase Price; Option Cancellation Payment....... 1
1.03 Closing........................................... 3
ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF SELLER
2.01 Corporate Existence of Seller..................... 3
2.02 Authority......................................... 3
2.03 Corporate Existence of the Company................ 4
2.04 Capital Stock..................................... 4
2.05 Subsidiaries...................................... 4
2.06 No Conflicts...................................... 5
2.07 Governmental Approvals and Filings................ 5
2.08 Books and Records................................. 5
2.09 Financial Statements and Condition................ 6
2.10 Taxes............................................. 8
2.11 Legal Proceedings................................. 8
2.12 Compliance With Laws and Orders................... 8
2.13 Company Plans; ERISA.............................. 9
2.14 Real Property..................................... 9
2.15 Tangible Personal Property........................ 10
2.16 Intellectual Property Rights...................... 10
2.17 Contracts......................................... 10
2.18 Licenses.......................................... 12
2.19 Insurance......................................... 12
2.20 Affiliate Transactions............................ 12
2.21 Labor Relations................................... 12
2.22 Brokers........................................... 12
2.23 Bank Accounts..................................... 13
2.24 Customers......................................... 13
2.25 Disclosure........................................ 13
2.26 No Other Representations.......................... 13
i
<PAGE>
Page
No.
----
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
3.01 Corporate Existence............................... 13
3.02 Authority......................................... 13
3.03 No Conflicts...................................... 13
3.04 Governmental Approvals and Filings................ 14
3.05 Legal Proceedings................................. 14
3.06 Purchase for Investment........................... 14
3.07 Financing......................................... 14
3.08 Brokers........................................... 14
3.09 Disclosure........................................ 15
ARTICLE IV.
COVENANTS OF SELLER
4.01 Regulatory and Other Approvals.................... 15
4.02 HSR Filings....................................... 15
4.03 Investigation by Purchaser........................ 16
4.04 No Solicitations.................................. 16
4.05 Conduct of Business............................... 16
4.06 Noncompetition.................................... 16
4.07 Fulfillment of Conditions......................... 17
ARTICLE V.
COVENANTS OF PURCHASER
5.01 Regulatory and Other Approvals.................... 17
5.02 HSR Filings....................................... 18
5.03 Fulfillment of Conditions......................... 18
ARTICLE VI.
CONDITIONS TO OBLIGATIONS OF PURCHASER
6.01 Representations and Warranties.................... 18
6.02 Performance....................................... 18
6.03 Officers' Certificates............................ 19
6.04 Orders and Laws................................... 19
ii
<PAGE>
Page
No.
----
6.05 Regulatory Consents and Approvals................. 19
6.06 Third Party Consents.............................. 19
6.07 Opinion of Counsel................................ 19
6.08 Repayment of Certain Indebtedness................. 19
6.09 Corporate Authorization........................... 19
6.10 Good Standing..................................... 19
6.11 Financing......................................... 19
6.12 Contingent Obligations............................ 20
6.13 Non-Compete Agreements............................ 20
6.14 Member Consents................................... 20
6.15 Certain Agreements................................ 20
ARTICLE VII.
CONDITIONS TO OBLIGATIONS OF SELLER
7.01 Representations and Warranties.................... 20
7.02 Performance....................................... 20
7.03 Officers' Certificates............................ 21
7.04 Orders and Laws................................... 21
7.05 Regulatory Consents and Approvals................. 21
7.06 Third Party Consents.............................. 21
7.07 Opinion of Counsel................................ 21
7.08 Corporate Authorization........................... 21
7.09 Contingent Agreement.............................. 21
ARTICLE VIII.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
8.01 Survival of Representations and Warranties........ 21
8.02 Net Worth of Seller............................... 22
ARTICLE IX.
INDEMNIFICATION
9.01 Indemnification................................... 22
9.02 Method of Asserting Claims........................ 23
9.03 Exclusivity....................................... 25
iii
<PAGE>
Page
No.
----
ARTICLE X.
TERMINATION
10.01 Termination...................................... 25
10.02 Effect of Termination............................ 25
ARTICLE XI.
DEFINITIONS
11.01 Definitions...................................... 25
ARTICLE XII.
MISCELLANEOUS
12.01 Notices.......................................... 31
12.02 Entire Agreement................................. 33
12.03 Expenses......................................... 33
12.04. Transfer Taxes................................... 33
12.05 Public Announcements............................. 34
12.06 Confidentiality.................................. 34
12.07 Further Assurances; Post-Closing Cooperation..... 35
12.08 Waiver........................................... 35
12.09 Amendment........................................ 35
12.10 No Third Party Beneficiary....................... 36
12.11 No Assignment; Binding Effect.................... 36
12.12 Headings......................................... 36
12.13 Invalid Provisions............................... 36
12.14 Governing Law.................................... 36
12.15 Counterparts..................................... 36
Exhibit A - Option Cancellation Agreement
Exhibit B - 1997 Promotion
Exhibit C - DGG Non-Compete Agreement
Exhibit D - Africk Non-Compete Agreement
Exhibit E - Royalty Agreement
iv
<PAGE>
Exhibit F - Commitment Letter
Exhibit G - Bollore Consent
Exhibit H - USTC Amendment
v
<PAGE>
This STOCK PURCHASE AGREEMENT dated as of April 17, 1997 is
made and entered into by and between NTC Holding, L.L.C., a Delaware limited
liability company ("Purchaser"), and NATC Holding Company, Ltd., a Bermuda
corporation ("Seller"). Capitalized terms not otherwise defined herein have the
meanings set forth in Section 11.01.
WHEREAS, Seller owns 13,333 1/3 shares of Class A Common
Stock, par value $0.01 per share, of NATC Holdings USA, Inc., a Delaware
corporation (the "Company"), constituting all issued and outstanding shares of
capital stock of the Company (such shares being referred to herein as the
"Shares");
WHEREAS, contemporaneously with the execution of this
Agreement Jack Africk, the Chief Executive Officer of the Company ("Africk"), is
executing a Cancellation Agreement in the form attached as Exhibit A hereto (the
"Cancellation Agreement") with respect to the cancellation, effective as of the
time of the Closing, of options (the "Africk Options") to purchase 3331/3 shares
of Class A Common Stock previously awarded to Mr. Africk pursuant to an Option
Award Agreement dated as of March 5, 1996; and
WHEREAS, Seller desires to sell, and Purchaser desires to
purchase, the Shares on the terms and subject to the conditions set forth in
this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
ARTICLE I.
SALE OF SHARES AND CLOSING
1.01 Purchase and Sale. Seller agrees to sell to Purchaser,
and Purchaser agrees to purchase from Seller, all of the right, title and
interest of Seller in and to the Shares at the Closing on the terms and subject
to the conditions set forth in this Agreement.
1.02 Purchase Price; Option Cancellation Payment. (a) Subject
to adjustment as provided in Section 1.02(c), the aggregate purchase price for
the Shares (the "Purchase Price") is an amount equal to (i) One Hundred
Fifty-Three Million Six Hundred Thousand Dollars ($153,600,000) minus (ii) the
Debt Payments minus (iii) the Option Cancellation Payment pursuant to Section
1.02(b).
(b) In addition to the Purchase Price, Purchaser shall
contribute to the Company cash in an amount equal to, and immediately thereafter
Purchaser shall cause the Company to pay to Africk in cash in the manner
provided in Section 1.03 for the cancellation of the Africk Options pursuant to
the Cancellation Agreement an amount (the "Option Cancellation Payment") equal
to (i) (A) (x) One Hundred Fifty-Three Million Six Hundred Thousand Dollars
($153,600,000) minus (y) the Debt Payments multiplied by (B) two and one-half
percent (2.5%) minus (ii) One Hundred Twenty-Five Thousand Dollars ($125,000).
<PAGE>
(c) (i) Not later than three (3) Business Days before the
Closing Date, Seller shall prepare and deliver to Purchaser an estimated
calculation and statement of the Net Assets (the "Estimated Statement") based
upon the books and records of the Company as of the time such books and records
are closed on the day preceding the day of delivery of the Estimated Statement.
The Estimated Statement shall be prepared in good faith. In the event that the
amount of the estimated Net Assets set forth on the Estimated Statement (the
"Estimated Net Assets") exceeds $6,754,247 (such amount representing the Net
Assets as of May 31, 1996), then the Purchase Price shall be increased by the
amount of such excess. In the event that the amount of the Estimated Net Assets
is less than $6,754,247, then the Purchase Price shall be reduced by the amount
of such deficiency.
(ii) As promptly as practicable, but in any event not later
than forty-five (45) days after the Closing Date, Seller shall cause to be
prepared and delivered to Purchaser a consolidated balance sheet for the Company
and the Subsidiary as of the Closing Date (but immediately prior to the payment
of all Contingent Obligations on the Closing Date) (the "Balance Sheet"), which
shall be audited by Coopers & Lybrand ("Seller's Accountant"), certified public
accountants, and certified by such firm to have been prepared in accordance with
GAAP consistently applied and in the manner used to prepare the financial
statements described in Section 2.09. The Balance Sheet shall be accompanied by
a statement (the "Statement of Net Assets") prepared by such accountants and
setting forth the Net Assets as of the Closing Date, which shall be calculated
by reference to the Balance Sheet.
(iii) Subject to subsection (iv) below, within fifteen (15)
days after delivery of the Balance Sheet and the Statement of Net Assets
pursuant to subsection (ii) above, (1) Seller shall pay to Purchaser the amount,
if any, by which the amount of the Estimated Net Assets exceeds the Net Assets
as of the Closing Date, or (2) Purchaser shall pay to Seller the amount, if any,
by which the amount of the Net Assets as of the Closing Date exceeds the
Estimated Net Assets. Payments, if any, by Seller or Purchaser pursuant to this
subsection (iii) shall be made by wire transfer of immediately available funds.
The parties shall treat any payment made pursuant to this Section as an
adjustment to the Purchase Price for all purposes.
(iv) If Purchaser in good faith disagrees with the Balance
Sheet or the Statement of Net Assets, then Purchaser shall notify Seller in
writing (the "Notice of Disagreement") of such disagreement within fifteen (15)
days after delivery of the Balance Sheet and the Statement of Net Assets. The
Notice of Disagreement shall set forth in reasonable detail the basis for the
disagreement. Thereafter, Seller and Purchaser shall attempt in good faith to
resolve and finally determine the Balance Sheet and the Statement of Net Assets.
If Seller and Purchaser are unable to resolve the disagreement within thirty
(30) days after delivery of the Notice of Disagreement, then Seller and
Purchaser shall select a mutually acceptable, nationally recognized independent
accounting firm which does not then have a relationship with either of the
parties hereto or any of their Affiliates (such accounting firm being
hereinafter referred to as the "Independent Accountant") to resolve the disputed
items and make a determination with respect thereto. Such determination will be
made, and written notice thereof given to Seller and Purchaser within thirty
(30) days after such selection. The determination by the Independent Accountant
shall be final, binding and conclusive upon the parties hereto. The scope of
such firm's engagement (which shall not be an audit) shall be limited to the
resolution of the items contained in the Notice of
2
<PAGE>
Disagreement, and the recalculation, if any, of the Balance Sheet and the
Statement of Net Assets in light of such resolution and such firm shall be
deemed to be acting as experts and not as arbitrators. The fees, costs and
expenses of Seller's Accountant in connection with the preparation of the
Balance Sheet and the Statement of Net Assets shall be borne by Seller. The
fees, costs and expenses of the Independent Accountant, if any, will be borne
equally by both parties. Within ten (10) days of delivery of a notice of
determination by the Independent Accountant as described above, any adjustment
shall be paid as provided in subsection (iii). Any portion of the Purchase Price
adjustment not in dispute shall be paid when due.
1.03 Closing. The Closing will take place at the offices of
Rogers & Wells, 200 Park Avenue, New York, New York 10166, or at such other
place as Purchaser and Seller mutually agree, at 10:00 A.M. local time, on the
Closing Date. At the Closing, Purchaser will pay the Purchase Price by wire
transfer of immediately available funds to such account as Seller may reasonably
direct by written notice delivered to Purchaser by Seller at least two (2)
Business Days before the Closing Date. Simultaneously, Seller will assign and
transfer to Purchaser good and valid title in and to the Shares, by delivering
to Purchaser a certificate or certificates representing the Shares, duly
endorsed in blank or accompanied by duly executed stock powers endorsed in
blank. In addition at the Closing, Purchaser will contribute to the Company
immediately available funds in an amount equal to, and shall thereafter cause
the Company to pay to Africk, the Option Cancellation Payment by wire transfer
of immediately available funds to such account as Africk may reasonably direct
by written notice delivered to Purchaser at least two (2) Business Days before
the Closing Date. Simultaneously, Purchaser shall pay, on behalf of the
Subsidiary, the Debt Payments in full and that portion of the Bollore Payment
which is to be paid at the Closing pursuant to the Bollore Consent by wire
transfer of immediately available funds to the respective accounts of the
Persons entitled to receive such funds. At the Closing, there shall also be
delivered to Seller and Purchaser the opinions, certificates and other documents
and instruments to be delivered under Articles VI and VII.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Purchaser as follows,
except as set forth in the Disclosure Schedule:
2.01 Corporate Existence of Seller. Seller is a corporation
duly organized, validly existing and in good standing under the Laws of Bermuda.
Except for authorizations by the board of directors of Seller as described in
Section 2.02, Seller has full corporate power and authority to execute and
deliver this Agreement and to perform its obligations hereunder and to
consummate the transactions contemplated hereby, including without limitation to
own, hold, sell and transfer (pursuant to this Agreement) the Shares.
2.02 Authority. The execution and delivery by Seller of
this Agreement, and the performance by Seller of its obligations hereunder, are
required to be duly and validly authorized by the board of directors of Seller,
no other corporate action on the part of Seller being
3
<PAGE>
necessary; and such authorizations will be obtained on or before the date five
(5) Business Days after the date of this Agreement. Except for such board of
directors authorization, this Agreement has been duly and validly executed and
delivered by Seller and constitutes a legal, valid and binding obligation of
Seller enforceable against Seller in accordance with its terms.
2.03 Corporate Existence of the Company. The Company is a
corporation duly organized, validly existing and in good standing under the Laws
of the State of Delaware, and has full corporate power and authority to conduct
its business as and to the extent now conducted and to own, use and lease its
assets and properties. The Company is duly qualified, licensed or admitted to do
business and is in good standing in those jurisdictions specified in Section
2.03 of the Disclosure Schedule, which are the only jurisdictions in which the
ownership, use or leasing of its assets and properties, or the conduct or nature
of its business, makes such qualification, licensing or admission necessary,
except for those jurisdictions in which the adverse effects of all such failures
by the Company to be qualified, licensed or admitted and in good standing could
not in the aggregate reasonably be expected to have a material adverse effect on
the Business or Condition of the Company. Seller has prior to the execution of
this Agreement delivered or made available for inspection to Purchaser true and
complete copies of the certificate of incorporation and by-laws of the Company
as currently in effect.
2.04 Capital Stock. The authorized capital stock of the
Company consists solely of fifty thousand (50,000) shares of Class A Common
Stock and fifty thousand (50,000) shares of Class B Common Stock, of which only
the Shares are issued and outstanding. The Shares are duly authorized, validly
issued, fully paid and nonassessable. Seller owns the Shares, beneficially and
of record, free and clear of all Liens. Except for this Agreement, there are no
outstanding Options with respect to the Company. The delivery of a certificate
or certificates at the Closing representing the Shares in the manner provided in
Section 1.03 will transfer to Purchaser good and valid title to the Shares, free
and clear of all Liens other than Liens created or suffered to exist by
Purchaser.
2.05 Subsidiaries. The Subsidiary is the only Person in which
the Company directly or indirectly beneficially owns more than 50% of either the
equity interests in, or the voting control of, such Person. The Subsidiary is a
corporation duly organized, validly existing and in good standing under the Laws
the State of Delaware, and has full corporate power and authority to conduct its
business as and to the extent now conducted and to own, use and lease its assets
and properties. The Subsidiary is duly qualified, licensed or admitted to do
business and is in good standing in those jurisdictions specified in Section
2.05 of the Disclosure Schedule, which are the only jurisdictions in which the
ownership, use or leasing of the Subsidiary's assets and properties, or the
conduct or nature of its business, makes such qualification, licensing or
admission necessary, except for those jurisdictions in which the adverse effects
of all such failures by the Subsidiary to be qualified, licensed or admitted and
in good standing could not in the aggregate reasonably be expected to have a
material adverse effect on the Business or Condition of the Company. Section
2.05 of the Disclosure Schedule lists for the Subsidiary the amount of its
authorized capital stock, the amount of its outstanding capital stock and the
record owners of such outstanding capital stock. All of the outstanding shares
of capital stock of the Subsidiary have been duly authorized and validly issued,
are fully paid and nonassessable, and are owned, beneficially and of record, by
the Company free and clear of all
4
<PAGE>
Liens. There are no outstanding Options with respect to the Subsidiary. Seller
has prior to the execution of this Agreement delivered or made available for
inspection to Purchaser true and complete copies of the certificate of
incorporation and by-laws of the Subsidiary as currently in effect.
2.06 No Conflicts. The execution and delivery by Seller of
this Agreement do not, and the performance by Seller of its obligations under
this Agreement and the consummation of the transactions contemplated hereby will
not (with or without notice or lapse of time or both):
(a) conflict with or result in a violation or breach of any of
the articles of association, certificate of incorporation or by-laws (or other
comparable corporate charter documents) of Seller, the Company or the
Subsidiary;
(b) conflict with or result in a violation or breach of any
Law or Order applicable to Seller, the Company or the Subsidiary or any of their
respective assets and properties (other than such conflicts, violations or
breaches (i) which could not in the aggregate reasonably be expected to
materially adversely affect the validity or enforceability of this Agreement or
to have a material adverse effect on the Business or Condition of the Company or
(ii) as would occur solely as a result of the identity or the legal or
regulatory status of Purchaser or any of its Affiliates); or
(c) (i) conflict with or result in a violation or breach of,
(ii) constitute (with or without notice or lapse of time or both) a default
under, (iii) require Seller, the Company or the Subsidiary to obtain any
consent, approval or action of, make any filing with or give any notice to any
Person as a result or under the terms of, or (iv) result in the creation or
imposition of any Lien upon Seller, the Company or the Subsidiary or any of
their respective assets and properties under, any Contract or License to which
Seller, the Company or the Subsidiary is a party or by which any of their
respective assets and properties is bound and which, individually or in the
aggregate with other such Contracts and Licenses, is material to the validity or
enforceability of this Agreement or to the Business or Condition of the Company.
2.07 Governmental Approvals and Filings. Except as required
pursuant to the HSR Act, no consent, approval or action of, filing with or
notice to any Governmental or Regulatory Authority on the part of Seller, the
Company or the Subsidiary is required in connection with the execution, delivery
and performance of this Agreement or the consummation of the transactions
contemplated hereby, except (i) where the failure to obtain any such consent,
approval or action, to make any such filing or to give any such notice could not
reasonably be expected to materially adversely affect the validity or
enforceability of this Agreement or to have a material adverse effect on the
Business or Condition of the Company and (ii) those as would be required solely
as a result of the identity or the legal or regulatory status of Purchaser or
any of its Affiliates.
2.08 Books and Records. The minute books of the Company and
the Subsidiary as made available to Purchaser prior to the execution of this
Agreement contain a true and complete record, in all material respects, of all
action taken at all meetings and by all written
5
<PAGE>
consents in lieu of meetings of the stockholders, the boards of directors and
committees of the boards of directors of the Company and the Subsidiary.
2.09 Financial Statements and Condition. (a) Prior to the
execution of this Agreement, Seller has delivered to Purchaser true and complete
copies of the audited consolidated balance sheets of the Company and the
Subsidiary as of December 31, 1994, 1995 and 1996, and the related audited
consolidated statements of operations, stockholders' equity and cash flows for
each of the fiscal periods then ended, certified by Seller's Accountant. All
such financial statements were prepared in accordance with GAAP and fairly
present in all material respects the consolidated financial condition and
results of operations of the Company and the Subsidiary as of the respective
dates thereof and for the respective periods covered thereby except, in the case
of the unaudited financial statements, for the absence of footnotes and normal
year end adjustments which an audit would reveal.
(b) Except for the execution and delivery of this Agreement
and the transactions to take place pursuant hereto on or prior to the Closing
Date, since the Audited Financial Statement Date there has not been any material
adverse change in the Business or Condition of the Company, other than those
occurring as a result of general economic or financial conditions or other
developments which are not unique to the Company and the Subsidiary but also
affect other Persons who participate or are engaged in the lines of business in
which the Company and the Subsidiary participate or are engaged.
(c) Since the Audited Financial Statement Date, neither the
Company nor the Subsidiary has incurred any liabilities of a kind required by
GAAP to be set forth on a balance sheet and which in the aggregate are material
to the Business or Condition of the Company, other than liabilities incurred in
the ordinary course of business.
(d) Except as expressly authorized or required by this
Agreement, since December 31, 1996 neither the Company nor the Subsidiary has,
and Seller covenants and agrees that from the date of this Agreement until the
Closing Date neither the Company nor the Subsidiary will have,:
(i) amended its certificate of incorporation or by-laws
or comparable instruments or merged with or into or
consolidated with any other Person, or changed or
agreed to rearrange in any material respect the
character of its business (except that the Company
may amend its certificate of incorporation to change
its name as contemplated by Section 12.16);
(ii) issued, sold or purchased options or rights to
subscribe to, or entered into any contracts or
commitments to issue, sell or purchase, any shares of
its capital stock;
(iii) entered into, amended or terminated any (x)
employment agreement, (y) adopted, entered into or
amended any arrangement which is, or would be, a
Company Plan or (z) made any change in any actuarial
methods or
6
<PAGE>
assumptions used in funding any Company Plan or in
the assumptions or factors used in determining
benefit equivalences thereunder;
(iv) issued any note, bond or other debt security,
created, incurred or assumed any indebtedness for
borrowed money, or guaranteed any indebtedness for
borrowed money or any capitalized lease obligation,
in each case in excess of $25,000 individually or in
the aggregate;
(v) declared, set aside or paid any dividends or declared
or made any other distributions of any kind to its
stockholders, or made any direct or indirect
redemption, retirement, purchase or other acquisition
of any shares of its capital stock other than cash
distributions to its stockholders;
(vi) knowingly waived any right of material value to its
business;
(vii) made any change in its accounting methods or
practices or made any changes in depreciation or
amortization policies or rates adopted by it or made
any material write-down of inventory or material
write-off as uncollectible of accounts receivable;
(viii) made any wage or salary increase or other
compensation payable or to become payable or bonus,
or increase in any other direct or indirect
compensation, for or to any of its officers,
directors, employees, consultants, agents or other
representatives, or any accrual for or commitment or
agreement to make or pay the same, other than
increases made in the ordinary course consistent with
past practice;
(ix) entered into any transactions with any of its
Affiliates, stockholders, officers, directors,
employees, consultants, agents or other
representatives (other than employment arrangements
made in the ordinary course of business consistent
with past practice), or any Affiliate of any
stockholder, officer, director, consultant, employee,
agent or other representative;
(x) made any payment or commitment to pay any severance
or termination pay to any Person or any of its
officers, directors, employees, consultants, agents
or other representatives, other than payments or
commitments to pay such Persons or its officers,
directors, employees in the ordinary course of
business;
(xi) (A) entered into any lease (as lessor or lessee), (B)
sold, abandoned or made any other disposition of any
of its assets or properties other than in the
ordinary course of business consistent with past
practice; or (C) granted or suffered any Lien on any
of its assets or properties other than Permitted
Liens and sales of inventory in the ordinary course
of business;
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(xii) except for inventory or equipment acquired in the
ordinary course of business, made any acquisition of
all or any part of the assets, properties, capital
stock or business of any other Person;
(xiii) paid, directly or indirectly, any of its liabilities
before the same became due in accordance with its
terms or otherwise than in the ordinary course of
business, except to obtain the benefit of discounts
available for early payment; or
(xiv) made any capital expenditures or commitments for
capital expenditures in an aggregate amount exceeding
$25,000.
2.10 Taxes. (i) All Tax Returns required to be filed with
respect to the Company and the Subsidiary have been timely filed; (ii) such Tax
Returns were true, correct and complete in all material respects; (iii) all
Taxes owed by the Company and the Subsidiary have been timely paid (other than
such Taxes not exceeding $100,000 in the aggregate); (iv) neither the Company
nor the Subsidiary has entered into any agreement extending the statute of
limitations with respect to the collection or assessment of any Taxes; (v) no
consent under Section 341(f) of the Code has been filed with respect to the
Company or the Subsidiary; and (vi) neither the Company or the Subsidiary are or
have been United States real property holding corporations, as defined in Code
Section 897(c)(2), during the applicable period specified in Code Section
897(c)(1). Neither the Company nor the Subsidiary has executed or filed with the
IRS or any other taxing authority any agreement extending the period for
assessment or collection of any Taxes. No examination by any taxing authority of
the Company's or the Subsidiary's Tax Returns is pending which could reasonably
be expected to have a material adverse effect on the Business or Condition of
the Company.
2.11 Legal Proceedings. (a) (i) There are no Actions or
Proceedings pending against Seller, the Company or the Subsidiary or any of
their respective assets and properties; and (ii) to the Knowledge of Seller,
there are no Actions or Proceedings threatened against Seller, the Company or
the Subsidiary or any of their respective assets and properties except, in the
case of this clause (ii), where such Actions or Proceedings could not reasonably
be expected, individually or in the aggregate with other such Actions or
Proceedings, to have a material adverse effect on the Business or Condition of
the Company or to result in the issuance of an Order restraining, enjoining or
otherwise prohibiting or making illegal the consummation of any of the
transactions contemplated by this Agreement; and
(b) there are no Orders outstanding against the Company or the
Subsidiary which, individually or in the aggregate with other such Orders,
materially adversely affect the Business or Condition of the Company.
2.12 Compliance With Laws and Orders. Neither the Company nor
the Subsidiary is or has been in violation of or in default under any Law or
Order (including, without limitation, any Law or Order relating to or otherwise
involving the protection of the environment) applicable to the Company or the
Subsidiary or any of their respective assets and properties the effect of
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which, individually or in the aggregate with other such violations and defaults,
could reasonably be expected to be materially adverse to the Business or
Condition of the Company.
2.13 Company Plans; ERISA. There are no Company Plans other
than those listed on Section 2.13 of the Disclosure Schedule. With respect to
each Company Plan, to the extent applicable:
(a) Such Company Plan has been maintained and operated in
material compliance with its terms and with the applicable provisions of ERISA,
the Code and all other applicable governmental laws and regulations;
(b) There is no material suit, action, dispute, claim,
arbitration or legal, administrative or other proceeding or governmental
investigation pending, or to the Knowledge of Seller threatened, alleging any
breach of the terms of any such Company Plan or of any fiduciary duties
thereunder or violation of any applicable Law with respect to any such Company
Plan;
(c) (i) No ERISA Event has occurred as to which the Company or
any ERISA Affiliate was required to file a report with the PBGC and (ii) the
Company and its ERISA Affiliates are not required to make, or accrue an
obligation to make, contributions to any Multiemployer Plan and, during the past
five years, neither the Company nor any ERISA Affiliate has been required to
make, or accrued an obligation to make, any contribution to any Multiemployer
Plan; and
(d) True, correct, and complete copies of the applicable
following documents have been delivered to Purchaser: (i) all current Company
Plan documents; (ii) the most recently filed Forms 5500 with applicable
attachments; and (iii) all current summary plan descriptions.
2.14 Real Property. (a) Section 2.14(a) of the Disclosure
Schedule contains a true and correct list of each parcel of real property leased
by the Company or the Subsidiary (as lessee). Neither the Company nor the
Subsidiary owns any real property or leases any real property to others.
(b) Each of the Company and the Subsidiary has a valid and
subsisting leasehold estate in and the right to quiet enjoyment of the real
properties leased by it as lessee under leases referred to in paragraph (a)
above for the full term of the lease thereof. Each such lease is a legal, valid
and binding agreement, enforceable in accordance with its terms, of the Company
or the Subsidiary and, to the Knowledge of Seller, of each other Person that is
a party thereto, and neither the Company nor the Subsidiary is in default (or
with the giving of notice or lapse of time or both, would be in default) in any
material respect thereunder.
(c) Seller has delivered or made available for inspection to
Purchaser prior to the execution of this Agreement true and complete copies of
all leases referred to in paragraph (a) above.
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(d) To the Knowledge of Seller the improvements on the real
property to be identified in Section 2.14(a) of the Disclosure Schedule are in
all material respects in good operating condition and in a state of good
maintenance and repair, ordinary wear and tear excepted, are adequate and
suitable for the purposes for which they are presently being used and, to the
Knowledge of Seller, there are no condemnation or appropriation proceedings
pending or threatened against any of such real property or the improvements
thereon.
2.15 Tangible Personal Property. The Company or the Subsidiary
is in possession of and has good title to, or has valid leasehold interests in
or valid rights under Contract to use, all tangible personal property which is
used in, and individually or in the aggregate with other such property is
material to, the Business or Condition of the Company. All such tangible
personal property is free and clear of all Liens, other than Permitted Liens and
is in all material respects in good working order and condition, ordinary wear
and tear excepted.
2.16 Intellectual Property Rights. Section 2.16 of the
Disclosure Schedule discloses all Intellectual Property which is used in and
individually or in the aggregate with other such Intellectual Property is
material to the Business or Condition of the Company, each of which the Company
or the Subsidiary either has all right, title and interest in or a valid and
binding license to use (and Section 2.16 of the Disclosure Schedule sets forth
which of such Intellectual Property is held by license). (i) All registrations
with and applications to Governmental or Regulatory Authorities in respect of
Intellectual Property owned by the Company or the Subsidiary and disclosed in
Section 2.16 of the Disclosure Schedule are valid and in full force and effect,
(ii) there are no material restrictions on the direct or indirect transfer of
any license, or any interest therein, held by the Company or the Subsidiary in
respect of Intellectual Property disclosed in Section 2.16 of the Disclosure
Schedule, (iii) neither the Company nor the Subsidiary is in default (or with
the giving of notice or lapse of time or both, would be in default) in any
material respect under any license to use the Intellectual Property disclosed in
Section 2.16 of the Disclosure Schedule and (iv) to the Knowledge of Seller the
Intellectual Property to be disclosed in Section 2.16 of the Disclosure Schedule
is not being infringed by any other Person. Neither Seller, the Company nor the
Subsidiary has received notice that the Company or the Subsidiary is infringing
any Intellectual Property of any other Person, to the Knowledge of Seller no
claim is pending or has been made to such effect that has not been resolved and,
to the Knowledge of Seller, neither the Company nor the Subsidiary is infringing
any Intellectual Property Rights of any other Person the effect of which,
individually or in the aggregate, could reasonably be expected to be materially
adverse to the Business or Condition of the Company.
2.17 Contracts. (a) Section 2.17(a) of the Disclosure Schedule
(with paragraph references corresponding to those set forth below) contains a
true and complete list of each of the following Contracts (true and complete
copies or, if none, reasonably complete and accurate written descriptions of
which, together with all amendments and supplements thereto, have been delivered
or made available for inspection to Purchaser prior to the execution of this
Agreement), to which the Company or the Subsidiary is a party or by which any of
their respective assets and properties is bound:
(i) all Contracts (excluding Company Plans) providing
for a commitment of employment or consultation services for a specified
or unspecified term,
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the name, position and rate of compensation of each Person party to
such a Contract and the expiration date of each such Contract;
(ii) all Contracts with any Person containing any
provision or covenant prohibiting or materially limiting the ability of
the Company or the Subsidiary to engage in any business activity or
compete with any Person or prohibiting or materially limiting the
ability of any Person to compete with the Company or the Subsidiary;
(iii) all material partnership, joint venture or
stockholders' Contracts with any Person;
(iv) all Contracts relating to Indebtedness of the
Company or the Subsidiary in excess of $25,000 individually (other
than Indebtedness owing to the Company or the Subsidiary);
(v) all Contracts with distributors, dealers,
manufacturer's representatives, sales agencies or franchisees which in
any case (A) involve the payment or potential payment, pursuant to the
terms of any such Contract, by or to the Company or the Subsidiary of
more than $25,000 in any calendar year or (B) involve an exclusive
grant of right to distribute the product and, in the case of clause (A)
or (B) above cannot be terminated on thirty (30) days or less notice
without penalty to the Company or the Subsidiary;
(vi) all Contracts relating to (A) the future
disposition or acquisition of any assets and properties individually or
in the aggregate material to the Business or Condition of the Company,
other than dispositions or acquisitions in the ordinary course of
business, and (B) any Business Combination;
(vii) all Contracts between or among the Company or the
Subsidiary, on the one hand, and Seller, any officer, director or
Affiliate of Seller (other than the Company or the Subsidiary) on the
other hand;
(viii) all collective bargaining Contracts; and
(ix) all other Contracts which (A) involve the payment
or potential payment, pursuant to the terms of any such Contract, by or
to the Company or the Subsidiary of more than $25,000 in any calendar
year and (B) cannot be terminated on thirty (30) days or less notice
without penalty to the Company or the Subsidiary.
(b) Each Contract disclosed in Section 2.17(a) of the
Disclosure Schedule is in full force and effect and constitutes a legal, valid
and binding agreement, enforceable in accordance with its terms, of the Company
or the Subsidiary and, to the Knowledge of Seller, of each other party thereto,
and neither the Company, the Subsidiary nor, to the Knowledge of Seller, any
other party to such Contract is in violation or breach of or default under any
such Contract (or with notice or lapse of time or both, would be in violation or
breach of or default
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under any such Contract), the effect of which, individually or in the aggregate,
could reasonably be expected to be materially adverse to the Business or
Condition of the Company.
2.18 Licenses. Section 2.18 of the Disclosure Schedule
contains a true and complete list of all Licenses which are used in and
individually or in the aggregate with other such Licenses material to the
Business or Condition of the Company. Prior to the execution of this Agreement,
Seller has delivered or made available for inspection to Purchaser true and
complete copies of all such Licenses. Each such License is in full force and
effect.
2.19 Insurance. Section 2.19 of the Disclosure Schedule
contains a true and complete list of all material insurance policies currently
in effect that insure the business, operations or employees of the Company or
the Subsidiary or affect or relate to the ownership, use or operation of any of
the assets and properties of the Company or the Subsidiary and that (i) have
been issued to the Company or the Subsidiary or (ii) have been issued to any
Person (other than the Company or the Subsidiary) for the benefit of the Company
or the Subsidiary. The insurance coverage provided by the policies described in
clause (i) above will not terminate or lapse by reason of the transactions
contemplated by this Agreement. Each policy referred to in clause (i) above is,
to the Knowledge of Seller, valid and binding and in full force and effect, and
no premiums due thereunder have not been paid and neither the Company nor the
Subsidiary has received any notice of cancellation or termination in respect of
any such policy or is in default thereunder in any material respect.
2.20 Affiliate Transactions. As of the date of this Agreement,
(i) there is no Indebtedness between the Company or the Subsidiary, on the one
hand, and Seller or any officer, director, employee, stockholder or Affiliate of
Seller (other than the Company or the Subsidiary), on the other, (ii) neither
Seller nor any such officer, director, employee, stockholder or Affiliate
provides or causes to be provided any assets, services, facilities or goods to
the Company or the Subsidiary which are individually or in the aggregate
material to the Business or Condition of the Company and (iii) neither the
Company nor the Subsidiary is a party to any contract for any assets, services,
facilities or goods with Seller or any such officer, director, employee,
stockholder or Affiliate of Seller.
2.21 Labor Relations. As of the date of this Agreement, the
Company and the Subsidiary have 18 employees (it being understood that such
number excludes Africk and Ron Beasly because they are consultants). No employee
of the Company or the Subsidiary is presently a member of a collective
bargaining unit and, to the Knowledge of Seller, there are no threatened or
contemplated attempts to organize for collective bargaining purposes any of the
employees of the Company or the Subsidiary. Since January 1, 1994, there has
been no work stoppage, strike or other concerted action by employees of the
Company or the Subsidiary which materially adversely affected the Business or
Condition of the Company.
2.22 Brokers. Except for Smith Barney Inc. ("Smith Barney"),
whose fees, commissions and expenses are the sole responsibility of Seller, all
negotiations relative to this Agreement and the transactions contemplated hereby
have been carried out by Seller directly with Purchaser without the intervention
of any Person on behalf of Seller in such manner as to give
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rise to any valid claim by any Person against Purchaser, the Company or the
Subsidiary for a finder's fee, brokerage commission or similar payment.
2.23 Bank Accounts. Section 2.23 of the Disclosure Schedule
lists (i) all bank, trust, checking, savings, custody and other accounts
(including without limitation any trading or other accounts maintained with any
brokerage, investment banking or commodity trading firms) and lock boxes or safe
deposit boxes of the Company or the Subsidiary in which there are or may be
deposited monies or other assets of the Company or the Subsidiary, (ii) an
indication of the purposes of each of such accounts and lock boxes or safe
deposit boxes, (iii) any and all persons authorized to make withdrawals or other
transfers from such accounts or lock boxes or safe deposit boxes, (iv) each bank
at which the Company has borrowing authority and (v) a true, correct and
complete list of any and all persons authorized to exercise such borrowing
authority.
2.24 Customers. No customer of the Company or the
Subsidiary is an Affiliate of the Company, the Subsidiary or Seller.
2.25 Disclosure. No representation or warranty of Seller
contained herein contains any untrue statement of material fact or omits to
state a material fact necessary in order to make the statements contained herein
not misleading.
2.26 No Other Representations. Notwithstanding anything to the
contrary contained in this Agreement, it is the explicit intent of each party
hereto that Seller is making no representation or warranty whatsoever, express
or implied, except those representations and warranties contained in this
Article II and in any certificate delivered pursuant to Section 6.03.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Seller as follows:
3.01 Corporate Existence. Purchaser is a limited liability
company duly formed, validly existing and in good standing under the Laws of the
State of Delaware. Purchaser has full limited liability company power and
authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby.
3.02 Authority. The execution and delivery by Purchaser of
this Agreement, and the performance by Purchaser of its obligations hereunder,
have been duly and validly authorized by the managers and members of Purchaser,
no other limited liability company action on the part of Purchaser being
necessary. This Agreement has been duly and validly executed and delivered by
Purchaser and constitutes a legal, valid and binding obligation of Purchaser
enforceable against Purchaser in accordance with its terms.
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3.03 No Conflicts. The execution and delivery by Purchaser
of this Agreement do not, the performance by Purchaser of its obligations under
this Agreement and the consummation of the transactions contemplated hereby will
not:
(a) conflict with or result in a violation or breach of any
of the certificate of formation, by-laws, operating agreement, or other
comparable charter document of Purchaser;
(b) conflict with or result in a violation or breach of any
Law or Order applicable to Purchaser or any of its assets and properties (other
than such conflicts, violations or breaches which could not in the aggregate
reasonably be expected to materially adversely affect the validity or
enforceability of this Agreement); or
(c) except as disclosed in Schedule 3.03 hereto, (i) conflict
with or result in a violation or breach of, (ii) constitute (with or without
notice or lapse of time or both) a default under, (iii) require Purchaser to
obtain any consent, approval or action of, make any filing with or give any
notice to any Person as a result or under the terms of, or (iv) result in the
creation or imposition of any Lien upon Purchaser or any of its assets or
properties under, any Contract or License to which Purchaser is a party or by
which any of its assets and properties is bound and which, individually or in
the aggregate with other such Contracts and Licenses, is material to the
validity or enforceability of this Agreement.
3.04 Governmental Approvals and Filings. Except as required
pursuant to the HSR Act and except for a post-Closing notice to be given to the
Bureau of Alcohol, Tobacco and Firearms by Purchaser, no consent, approval or
action of, filing with or notice to any Governmental or Regulatory Authority on
the part of Purchaser is required in connection with the execution, delivery and
performance of this Agreement or the consummation of the transactions
contemplated hereby, except where the failure to obtain any such consent,
approval or action, to make any such filing or to give any such notice could not
reasonably be expected to materially adversely affect the validity or
enforceability of this Agreement.
3.05 Legal Proceedings. There are no Actions or Proceedings
pending or, to the knowledge of Purchaser, threatened against Purchaser or any
of its assets and properties which could reasonably be expected to result in the
issuance of an Order restraining, enjoining or otherwise prohibiting or making
illegal the consummation of any of the transactions contemplated by this
Agreement.
3.06 Purchase for Investment. The Shares will be acquired by
Purchaser for its own account for the purpose of investment. Purchaser will
refrain from transferring or otherwise disposing of any of the Shares, or any
interest therein, in such manner as to cause Seller to be in violation of the
registration requirements of the Securities Act of 1933, as amended, or
applicable state securities or blue sky laws.
3.07 Financing. Attached hereto as Exhibit F is a true,
correct and complete copy of the Commitment Letter. The Commitment Letter has
been accepted by Purchaser and all commitment fees payable on or prior to the
date hereof in respect thereof have been paid.
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3.08 Brokers. Except for UBS Securities LLC ("UBS"), whose
fees, commissions and expenses are the sole responsibility of Purchaser, all
negotiations relative to this Agreement and the transactions contemplated hereby
have been carried out by Purchaser directly with Seller without the intervention
of any Person on behalf of Purchaser in such manner as to give rise to any valid
claim by any Person against Seller, the Company or the Subsidiary for a finder's
fee, brokerage commission or similar payment.
3.09 Disclosure. No representation or warranty of Purchaser
contained herein contains any untrue statement of material fact or omits to
state a material fact necessary in order to make the statements contained herein
not misleading.
ARTICLE IV.
COVENANTS OF SELLER
Seller covenants and agrees with Purchaser that, at all times
from and after the date hereof until the Closing Seller will comply with all
covenants and provisions of this Article IV, except to the extent Purchaser may
otherwise consent in writing.
4.01 Regulatory and Other Approvals. Seller will, and will
cause the Company and the Subsidiary to, (a) take all commercially reasonable
steps necessary or desirable, and proceed diligently and in good faith and use
all commercially reasonable efforts, as promptly as practicable to obtain all
consents, approvals or actions of, to make all filings with and to give all
notices to Governmental or Regulatory Authorities or any other Person required
of Seller, the Company or the Subsidiary to consummate the transactions
contemplated hereby, including without limitation those described in Sections
2.06 and 2.07 of the Disclosure Schedule, (b) provide such other information and
communications to such Governmental or Regulatory Authorities or other Persons
as such Governmental or Regulatory Authorities or other Persons may reasonably
request and (c) provide reasonable cooperation to Purchaser in obtaining all
consents, approvals or actions of, making all filings with and giving all
notices to Governmental or Regulatory Authorities or other Persons required of
Purchaser to consummate the transactions contemplated hereby. Seller will
provide prompt notification to Purchaser when any such consent, approval,
action, filing or notice referred to in clause (a) above is obtained, taken,
made or given, as applicable, and will advise Purchaser of any communications
(and, unless precluded by Law, provide copies of any such communications that
are in writing) with any Governmental or Regulatory Authority or other Person
regarding any of the transactions contemplated by this Agreement.
4.02 HSR Filings. Seller will (a) take promptly all actions
necessary to make the filings required of Seller or its Affiliates under the HSR
Act, (b) comply at the earliest practicable date with any request for additional
information received by Seller or its Affiliates from the Federal Trade
Commission or the Antitrust Division of the Department of Justice pursuant to
the HSR Act and (c) cooperate with Purchaser in connection with Purchaser's
filing under the HSR Act and in connection with resolving any investigation or
other inquiry concerning the transactions contemplated by this Agreement
commenced by either the Federal
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Trade Commission or the Antitrust Division of the Department of Justice or state
attorneys general.
4.03 Investigation by Purchaser. Until the Closing, Seller
will, and will cause the Company and the Subsidiary to, (a) provide Purchaser
and its officers, employees, counsel, accountants, financial advisors,
consultants and other representatives (together, "Representatives") with access,
upon reasonable prior notice and during normal business hours, to all officers,
employees, agents and accountants of the Company and the Subsidiary and their
assets and properties and books and records, but only to the extent that such
access does not unreasonably interfere with the business and operations of the
Company and the Subsidiary, and (b) furnish Purchaser and such other Persons
with all such information and data (including without limitation copies of
Contracts, Company Plans, monthly financial statements and other books and
records) concerning the business and operations of the Company and the
Subsidiary as Purchaser or any of such other Persons reasonably may request in
connection with such investigation. All information and data provided to
Purchaser and its Representatives pursuant to this Section 4.03 will be subject
to the provisions of Section 12.06.
4.04 No Solicitations. Prior to the termination of this
Agreement, subject to the duties imposed by applicable Law, Seller will not
take, and it will cause the Company, the Subsidiary, the shareholders of Seller
and any parent company of Seller and their respective representatives, not to
take, directly or indirectly, any action to initiate, assist, solicit, negotiate
or accept any offer from any Person to engage in any Business Combination. For
purposes hereof, "Business Combination" means any merger, consolidation or
combination to which the Company or the Subsidiary is a party, any sale,
dividend, split or other disposition of capital stock or other equity interest
of the Company or the Subsidiary or any sale, dividend or other disposition of
all or substantially all of the assets and properties of the Company or the
Subsidiary.
4.05 Conduct of Business. Seller will cause the Company and
the Subsidiary to conduct business only in the ordinary course. Without limiting
the generality of the foregoing, Seller will cause the Company and the
Subsidiary to use commercially reasonable efforts, to the extent the officers of
the Company believe such action to be in the best interests of the Company and
the Subsidiary, to (a) preserve intact the present business organization and
reputation of the Company and the Subsidiary, (b) keep available (subject to
dismissals and retirements in the ordinary course of business) the services of
the key officers and employees of the Company and the Subsidiary in all material
respects, (c) maintain the assets and properties of the Company and the
Subsidiary in good working order and condition, ordinary wear and tear excepted,
and (d) maintain the good will of key customers and suppliers of the Company or
the Subsidiary. In addition, Seller will cause the Company and the Subsidiary
(i) to conduct product promotions during the remainder of 1997 (the "1997
Promotions") only in accordance with the description thereof in Exhibit B
hereto, (ii) to pay their trade payables and maintain their inventory in the
ordinary course of business consistent with past practice (other than
inconsistencies with past practice which result from the fact that the 1997
Promotions are not the same as previous promotions) and (iii) not to enter into
any agreement with Republic Tobacco, L.P. with respect to any of the matters
referred to in Section 2.16 of the Disclosure Schedule without the consent of
Purchaser.
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4.06 Noncompetition. (a) Seller will, for a period of five
(5) years from the Closing Date, refrain from, directly or indirectly through
its Affiliates:
(i) disclosing (unless required by Law or Order
or other judicial or administrative process) or using any confidential
or secret information relating to the Company or the Subsidiary; or
(ii) engaging in (other than through the ownership of
five percent (5%) or less of any class of securities registered under
the Securities Exchange Act of 1934, as amended), the Restricted
Business in the Restricted Region.
(b) The parties hereto recognize that the Laws and public
policies of the various jurisdictions within the Restricted Region may differ as
to the validity and enforceability of covenants similar to those set forth in
this Section. It is the intention of the parties that the provisions of this
Section be enforced to the fullest extent permissible under the Laws and
policies of each jurisdiction in which enforcement may be sought, and that the
unenforceability (or the modification to conform to such Laws or policies) of
any provisions of this Section shall not render unenforceable, or impair, the
remainder of the provisions of this Section. Accordingly, if any provision of
this Section shall be determined to be invalid or unenforceable, such invalidity
or unenforceability shall be deemed to apply only with respect to the operation
of such provision in the particular jurisdiction in which such determination is
made and not with respect to any other provision or jurisdiction.
(c) The parties hereto acknowledge and agree that any remedy
at Law for any breach of the provisions of this Section would be inadequate, and
Seller hereby consents to the granting by any court of an injunction or other
equitable relief, without the necessity of actual monetary loss being proved, in
order that the breach or threatened breach of such provisions may be effectively
restrained.
4.07 Fulfillment of Conditions. Seller will take all
commercially reasonable steps necessary or desirable and proceed diligently and
in good faith to satisfy each condition to the obligations of Purchaser
contained in this Agreement (other than Section 6.12). Notwithstanding anything
to the contrary contained in this Agreement, in no event will Seller, the
Company or the Subsidiary be required to request, and Purchaser will not
request, that Bollore consent to any changes to the Bollore Contracts other than
as provided in the Bollore Consent.
ARTICLE V.
COVENANTS OF PURCHASER
Purchaser covenants and agrees with Seller that, at all times
from and after the date hereof until the Closing, Purchaser will comply with all
covenants and provisions of this Article V, except to the extent Seller may
otherwise consent in writing.
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5.01 Regulatory and Other Approvals. Purchaser will (a) take
all commercially reasonable steps necessary or desirable, and proceed diligently
and in good faith and use all commercially reasonable efforts, as promptly as
practicable to obtain all consents, approvals or actions of, to make all filings
with and to give all notices to Governmental or Regulatory Authorities or any
other Person required of Purchaser to consummate the transactions contemplated
hereby, including without limitation those described in Schedule 3.03 hereto,
(b) provide such other information and communications to such Governmental or
Regulatory Authorities or other Persons as such Governmental or Regulatory
Authorities or other Persons may reasonably request and (c) provide reasonable
cooperation to Seller, the Company and the Subsidiary in obtaining all consents,
approvals or actions of, making all filings with and giving all notices to
Governmental or Regulatory Authorities or other Persons required of Seller, the
Company or the Subsidiary to consummate the transactions contemplated hereby.
Purchaser will provide prompt notification to Seller when any such consent,
approval, action, filing or notice referred to in clause (a) above is obtained,
taken, made or given, as applicable, and will advise Seller of any
communications (and, unless precluded by Law, provide copies of any such
communications that are in writing) with any Governmental or Regulatory
Authority or other Person regarding any of the transactions contemplated by this
Agreement.
5.02 HSR Filings. Purchaser will (a) take promptly all actions
necessary to make the filings required of Purchaser or its Affiliates under the
HSR Act, (b) comply at the earliest practicable date with any requests for
additional information received by Purchaser or its Affiliates from the Federal
Trade Commission or the Antitrust Division of the Department of Justice pursuant
to the HSR Act and (c) cooperate with Seller in connection with Seller's filing
under the HSR Act and in connection with resolving any investigation or other
inquiry concerning the transactions contemplated by the Agreement commenced by
either the Federal Trade Commission or the Antitrust Division of the Department
of Justice or state attorneys general.
5.03 Fulfillment of Conditions. Purchaser will take all
commercially reasonable steps necessary or desirable and proceed diligently and
in good faith to satisfy each condition to the obligations of Seller contained
in this Agreement.
5.04 Maximizing Economic Benefits. Purchaser agrees to (i)
cooperate with Seller with a view toward restructuring the transactions
contemplated by the Royalty Agreement in the form of Exhibit E hereto (including
contributing the "Marks", as defined therein, to a jointly owned entity such as
a partnership) so as to allow the parties thereto to more fully realize the
economic benefits of such transactions and (ii) negotiate in good faith with
Seller any revision of such Royalty Agreement that Purchaser and Seller believe
will maximize such benefits; provided, however, that Purchaser shall not have
any obligation to take any action pursuant to this Section 5.04 that would
result in Purchaser incurring any economic detriment as a result thereof and,
provided further, that neither the restructuring of the transactions
contemplated by such Royalty Agreement nor the revision of such Royalty
Agreement shall constitute a condition precedent to the Closing.
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ARTICLE VI.
CONDITIONS TO OBLIGATIONS OF PURCHASER
The obligations of Purchaser hereunder are subject to the
fulfillment, at or before the Closing, of each of the following conditions (all
or any of which may be waived in whole or in part by Purchaser in its sole
discretion):
6.01 Representations and Warranties. The representations and
warranties made by Seller in this Agreement, shall be true and correct in all
material respects on and as of the Closing Date as though made on and as of the
Closing Date or, in the case of representations and warranties made as of a
specified date earlier than the Closing Date, on and as of such earlier date.
6.02 Performance. Seller shall have performed and complied
with, in all material respects, the agreements, covenants and obligations
required by this Agreement to be so performed or complied with by Seller at or
before the Closing.
6.03 Officers' Certificates. Seller shall have delivered to
Purchaser a certificate, dated the Closing Date and executed by the Chairman of
the Board, the President or any Vice President of Seller to the effect of the
matters set forth in section 6.01 and 6.02.
6.04 Orders and Laws. There shall not be in effect on the
Closing Date any Order or Law restraining, enjoining or otherwise prohibiting or
making illegal the consummation of any of the transactions contemplated by this
Agreement.
6.05 Regulatory Consents and Approvals. All consents,
approvals and actions of, filings with and notices to any Governmental or
Regulatory Authority necessary to permit Purchaser and Seller to perform their
obligations under this Agreement and to consummate the transactions contemplated
hereby shall have been duly obtained, made or given and shall be in full force
and effect, and all terminations or expirations of waiting periods imposed by
any Governmental or Regulatory Authority necessary for the consummation of the
transactions contemplated by this Agreement, including the HSR Act, shall have
occurred.
6.06 Third Party Consents. The consents (or in lieu thereof
waivers) listed in Schedule 3.03 hereto or in Sections 2.06 and 2.07 of the
Disclosure Schedule shall have been obtained and shall be in full force and
effect.
6.07 Opinion of Counsel. Purchaser shall have received the
opinion of counsel to Seller, dated the Closing Date, in form and substance
customary for transactions of the type contemplated by this Agreement and
reasonably satisfactory to Purchaser.
6.08 Repayment of Certain Indebtedness. Prior to or at the
Closing, the holders of the Subsidiary's Senior Subordinated Notes due April 20,
2001 shall have waived the requirement that they receive notice of prepayment of
such Notes.
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6.09 Corporate Authorization. Purchaser shall have received
from Seller a copy of the resolutions of the board of directors and
shareholders, of Seller certified as of the Closing Date by the secretary or
assistant secretary thereof, duly authorizing the execution, delivery and
performance by Seller of this Agreement and the transactions contemplated
hereby, together with an incumbency certificate as to the persons authorized to
execute and deliver this Agreement and other closing documents on its behalf.
6.10 Good Standing. Seller shall have delivered to Purchaser
certificates issued by appropriate governmental authorities evidencing the good
standing of the Company, the Subsidiary and Seller as of a date or dates not
more than ten (10) days prior to the Closing Date as corporations of the
respective jurisdictions in which they were organized and are qualified to do
business.
6.11 Financing. Purchaser shall have obtained financing for
the purchase of the Shares as herein provided on the terms and conditions
specified in the Commitment Letter and from a private placement of debt
securities having substantially the terms set forth in Schedule 6.12 hereto.
6.12 Contingent Obligations. The Company and/or the
Subsidiary, as applicable, shall have entered into agreements, each in a form
reasonably satisfactory to Purchaser, with each holder of a Contingent
Obligation pursuant to which such holder shall have agreed to cancel its
Contingent Obligation at the Closing in consideration of a fixed sum cash
payment by the Subsidiary at the Closing in an amount determined and negotiated
with such holder by Seller in its sole discretion (such payments being referred
to herein collectively as the "Contingent Obligation Payments").
6.13 Non-Compete Agreements. Each of Drake, Goodwin &
Graham, Inc. and Africk shall have executed and delivered to Purchaser
Non-Compete Agreements in the forms of Exhibits C and D attached hereto,
respectively.
6.14 Member Consents. Each of the members of Purchaser shall
have consented to (i) the conversion of Purchaser into a Delaware corporation by
merger or otherwise and (ii) the inclusion in the Certificate of Incorporation
of such Delaware corporation of provisions with respect to voting and conversion
as those currently contained in the Certificate of Incorporation provisions
attached as Exhibit C to Amendment No. 1 dated as of April 9, 1997 to the
Bollore Consent.
6.15 Certain Agreements. (i) Each of the three Employment
Agreements dated as of January 17, 1997 between the Subsidiary and each of John
C. Drake, Christopher K. Goodwin and Mark R. Graham shall have been terminated,
(ii) the Company shall have assigned all of its rights and obligations under
that certain Agreement of Sublease (the "New York Sublease") dated February 14,
1997 between Yeager, Wood & Marshall Incorporated and the Company to an
Affiliate of the Company other than the Subsidiary, as contemplated by Section 7
thereof, (iii) the Subsidiary and Drake, Goodwin & Graham, Inc. shall have
terminated all arrangements pursuant to which the Subsidiary is obligated to
purchase Learjet airtime from Drake, Goodwin & Graham, Inc. and (iv) that
certain Financial Advisory Agreement dated as of
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March 31, 1993 among the Company, the Subsidiary and Drake, Goodwin & Graham,
Inc. shall have been terminated.
6.16 USTC Amendment and Bollore Consent. Each of the USTC
Amendment and Bollore Consent shall be in full force and effect and the
Subsidiary and Bollore shall have entered into the Buyer Trademark Agreement (as
such term is defined in the Bollore consent).
ARTICLE VII.
CONDITIONS TO OBLIGATIONS OF SELLER
The obligations of Seller hereunder are subject to the
fulfillment, at or before the Closing, of each of the following conditions (all
or any of which may be waived in whole or in part by Seller in its sole
discretion):
7.01 Representations and Warranties. The representations and
warranties made by Purchaser in this Agreement shall be true and correct in all
material respects on and as of the Closing Date as though made on and as of the
Closing Date.
7.02 Performance. Purchaser shall have performed and complied
with, in all material respects, the agreements, covenants and obligations
required by this Agreement to be so performed or complied with by Purchaser at
or before the Closing.
7.03 Officers' Certificates. Purchaser shall have delivered to
Seller a certificate, dated the Closing Date and executed by the Chairman of the
Board, the President or any Vice President of Purchaser to the effect of the
matters set forth in Section 7.01 and 7.02.
7.04 Orders and Laws. There shall not be in effect on the
Closing Date any Order or Law restraining, enjoining or otherwise prohibiting or
making illegal the consummation of any of the transactions contemplated by this
Agreement.
7.05 Regulatory Consents and Approvals. All consents,
approvals and actions of, filings with and notices to any Governmental or
Regulatory Authority necessary to permit Seller and Purchaser to perform their
obligations under this Agreement and to consummate the transactions contemplated
hereby shall have been duly obtained, made or given and shall be in full force
and effect, and all terminations or expirations of waiting periods imposed by
any Governmental or Regulatory Authority necessary for the consummation of the
transactions contemplated by this Agreement, including the HSR Act, shall have
occurred.
7.06 Third Party Consents. The consents (or in lieu thereof
waivers) listed in Schedule 3.03 and Sections 2.06 and 2.07 of the Disclosure
Schedule shall have been obtained and shall be in full force and effect.
7.07 Opinion of Counsel. Seller shall have received the
opinion of counsel to Purchaser, dated the Closing Date and customary for
transactions of the type contemplated by this Agreement and reasonably
satisfactory to Seller.
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7.08 Corporate Authorization. Seller shall have received from
Purchaser a copy of the resolutions of the managers and members of Purchaser,
certified as of the Closing Date by the secretary or assistant secretary
thereof, duly authorizing the execution, delivery and performance by Purchaser
of this Agreement and the transactions contemplated hereby, together with an
incumbency certificate as to the persons authorized to execute and deliver this
Agreement and other closing documents on its behalf.
7.09 Contingent Agreement. The Purchaser and the
Subsidiary shall have executed and delivered to Seller a Royalty Agreement in
the form of Exhibit E attached hereto.
7.10 USTC Amendment and Bollore Consent. Each of the USTC
Amendment and Bollore Consent shall be in full force and effect and the
Subsidiary and Bollore shall have entered into the Buyer Trademark Agreement (as
such term is defined in the Bollore Consent).
ARTICLE VIII.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
8.01 Survival of Representations and Warranties. The
representations and warranties of Seller and Purchaser, and the covenants and
agreements of Seller and Purchaser to be performed at or before the Closing,
contained in this Agreement and in the certificates delivered by Seller pursuant
to Section 6.03 and by Purchaser pursuant to Section 7.03 will survive the
Closing (a) until the date thirty (30) months after the Closing Date with
respect to the representations and warranties contained in Section 2.10 and (b)
until the date twelve (12) months after the Closing Date in the case of each
other representation and warranty and each of such covenants and agreements;
except that any representation, warranty, covenant or agreement that would
otherwise terminate in accordance with clause (a) or clause (b) above will
continue to survive if a Claim Notice shall have been timely given in good faith
based on facts reasonably expected to establish a valid claim under Article IX
on or prior to such termination date, until the related claim for
indemnification has been satisfied or otherwise resolved as provided in Article
IX.
8.02 Net Worth of Seller. Seller covenants with Purchaser
that from and after the Closing and until the date thirty (30) months after the
Closing Date, Seller will maintain on hand cash, cash equivalents and/or
marketable securities having a market value at all times in an amount which
exceeds Seller's liabilities (such liabilities being calculated in accordance
with GAAP) by not less than the Applicable Cap Amount. For purposes of this
Agreement, the term "Applicable Cap Amount" shall mean: (i) with respect to the
period from the Closing Date to the date which is 360 days after the Closing
Date, an amount equal to Twelve Million Five Hundred Thousand Dollars
($12,500,000), (ii) with respect to the period from the date which is 360 days
after the Closing Date until the date which is thirty (30) months after the
Closing Date, an amount equal to Five Million Dollars ($5,000,000); provided,
however, that if a Claim Notice shall have been given in good faith based on
facts reasonably expected to establish a valid claim under Article IX on or
prior to the date on which the Applicable Cap Amount pursuant to clause (i) or
clause (ii) above would expire and such claim has not been satisfied or
otherwise resolved
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as provided in Article IX on or before such expiration date but which claim
would otherwise be covered by such Applicable Cap Amount, then such Applicable
Cap Amount shall not so expire with respect to such covered claim until such
claim has been satisfied or otherwise resolved as provided in Article IX.
ARTICLE IX.
INDEMNIFICATION
9.01 Indemnification.
(a) Subject to the other Sections of this Article IX, (i)
Seller shall indemnify Purchaser, its Affiliates and their respective officers,
directors, employees and agents in respect of, and hold each of them harmless
from and against, any and all Losses suffered, incurred or sustained by any of
them or to which any of them becomes subject, resulting from, arising out of or
relating to any misrepresentation, breach of warranty or breach of any covenant
or agreement on the part of Seller contained in this Agreement or in the
certificate delivered by Seller pursuant to Section 6.03 and (ii) Seller shall
(x) reimburse the Company for sixty percent (60%) of the aggregate additional
federal, state or local income taxes which the Company or the Subsidiary is
required to pay after the Closing Date with respect to the proposed adjustments
(the "Audit Adjustments") to the Company's Federal income Tax Returns for
calendar years 1993, 1994 and 1995 described in Section 2.10 of Disclosure
Schedule and (y) indemnify the Company for one hundred percent (100%) of any
Losses (including but not limited to interest and penalties which are payable to
a federal, state or local taxing authority in respect of the additional income
taxes referred to subclause (x) above) which arise after the Closing out of the
Audit Adjustments, excluding, however, the additional income taxes referred to
in subclause (x) above.
(b) Subject to the other Sections of this Article IX,
Purchaser agrees to indemnify Seller, its Affiliates and their respective
officers, directors, employees and agents in respect of, and hold each of them
harmless from and against, any and all Losses suffered, incurred or sustained by
any of them or to which any of them becomes subject, resulting from, arising out
of or relating to any misrepresentation, breach of warranty or breach of any
covenant or agreement on the part of Purchaser contained in this Agreement or in
the certificate delivered by Purchaser pursuant to Section 7.03.
(c) Notwithstanding anything to the contrary contained in this
Agreement, no amounts of indemnity shall be payable as a result of any claim
arising under Section 9.01(a):
(i) in the case of a claim pursuant to clause (i) of
Section 9.01(a), unless, until and then only to the extent that the
Indemnified Parties thereunder have suffered, incurred, sustained or
become subject to Losses referred to in such clause (i) in excess of
One Million Five Hundred Thousand Dollars ($1,500,000) in the
aggregate, (the "Basket Amount"), and at such time as such Losses
exceed the Basket Amount the
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Indemnified Parties shall be entitled to the full amount of any and
all such Losses (including the Basket Amount).
(ii) with respect to any Loss as to which the
Indemnified Parties are entitled to receive insurance proceeds in
respect thereof; or
(iii) with respect to any amount to the extent that an
accrual is made in respect thereof for purposes of calculating Net
Assets as of the Closing Date pursuant to Section 1.02(c).
In addition, notwithstanding anything to the contrary
contained in this Agreement, in no event shall the aggregate liability of Seller
pursuant to clause (i) of Section 9.01(a) exceed the Applicable Cap Amount. For
the avoidance of doubt in this regard, it is understood and agreed that the
Applicable Cap Amount is intended to be a declining cap on Seller's aggregate
liability pursuant to clause (i) of Section 9.01(a) so that, (i) in no event
shall Seller's aggregate liability pursuant to clause (i) of Section 9.01(a)
exceed Twelve Million Five Hundred Thousand Dollars ($12,500,000) with respect
to all claims for indemnification thereunder (including those claims described
in clause (ii) below), (ii) Seller's aggregate liability with respect to claims
for indemnification pursuant to clause (i) of Section 9.01(a) which are made
after the date which is 360 days after the Closing Date but prior to the date
thirty (30) months after the Closing Date shall be Five Million Dollars
($5,000,000) and, at that time, those claims may only be made with respect to a
breach by Seller of its representations and warranties contained in Section
2.10, as more fully provided in Section 8.01 and (iii) Seller shall not have any
liability with respect to claims for indemnification pursuant to clause (i) of
Section 9.01(a) which are made after the date thirty (30) months after the
Closing Date.
9.02 Method of Asserting Claims. The party making a claim
under this Article IX is referred to as the "Indemnified Party" and the party
against whom such claims are asserted under this Article IX is referred to as
the "Indemnifying Party". All claims by any Indemnified Party under this Article
IX shall be asserted and resolved as follows:
(a) In the event that any claim or demand for which an
Indemnifying Party would be liable to an Indemnified Party hereunder is asserted
against or sought to be collected from such Indemnified Party by a third party,
said Indemnified Party shall with reasonable promptness notify in writing the
Indemnifying Party of such claim or demand, specifying the basis for such claim
or demand, and the amount or the estimated amount thereof to the extent then
determinable (which estimate shall not be conclusive of the final amount of such
claim and demand; the "Claim Notice"); provided, however, that any failure to
give such Claim Notice will not be deemed a waiver of any rights of the
Indemnified Party except to the extent the rights of the Indemnifying Party are
actually prejudiced by such failure. The Indemnifying Party shall have the right
to control the defense of such claim or demand and shall retain counsel (who
shall be reasonably acceptable to the Indemnified Party) to represent the
Indemnified Party and shall pay the reasonable fees and disbursements of such
counsel with regard thereto; provided, however, that any Indemnified Party is
hereby authorized prior to the date on which it receives written notice from the
Indemnifying Party designating such counsel, to retain counsel, whose fees and
expenses shall be at the expense of the Indemnifying Party, to file any motion,
answer
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or other pleading and take such other action which it reasonably shall deem
necessary to protect its interests or those of the Indemnifying Party until the
date on which the Indemnified Party receives such notice from the Indemnifying
Party. After the Indemnifying Party shall retain such counsel, the Indemnified
Party shall have the right to retain its own counsel, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party. The
Indemnifying Party shall not, in connection with any proceedings or related
proceedings in the same jurisdiction, be liable for the fees and expenses of
more than one such firm for the Indemnified Party (except to the extent the
Indemnified Party retained counsel to protect its (or the Indemnifying Party's)
rights prior to the selection of counsel by the Indemnifying Party). If
requested by the Indemnifying Party, the Indemnified Party agrees to cooperate
with the Indemnifying Party and its counsel in contesting any claim or demand
which the Indemnifying Party defends. A claim or demand may not be settled by
the Indemnifying Party without the prior written consent of the Indemnified
Party (which consent will not be unreasonably withheld) unless, as part of such
settlement, the Indemnified Party shall receive a full and unconditional release
reasonably satisfactory to the Indemnified Party. If the Indemnifying Party
elects to defend a claim or demand, the Indemnified Party shall not pay or
settle such claim or demand without the consent of the Indemnifying Party.
(b) In the event any Indemnified Party shall have a claim
against any Indemnifying Party hereunder which does not involve a claim or
demand being asserted against or sought to be collected from it by a third
party, the Indemnified Party shall send a Claim Notice with respect to such
claim to the Indemnifying Party.
(c) After delivery of a Claim Notice, so long as any right to
indemnification exists pursuant to this Article IX, the affected parties each
agree to retain all books and records related to such Claim Notice. In each
instance, the Indemnified Party shall have the right to be kept fully informed
by the Indemnifying Party and its legal counsel with respect to any legal
proceedings. Any information or documents made available to any party hereunder
and designated as confidential by the party providing such information or
documents and which is not otherwise generally available to the public and not
already within the knowledge of the party to whom the information is provided
(unless otherwise covered by the confidentiality provisions of any other
agreement among the parties hereto, or any of them), and except as may be
required by applicable law, shall not be disclosed to any third Person (except
for the representatives of the party being provided with the information, in
which event the party being provided with the information shall request its
representatives not to disclose any such information which it otherwise required
hereunder to be kept confidential).
(d) Anything contained herein to the contrary notwithstanding,
Seller shall have the sole right to control the defense and settlement of the
Audit Adjustments and any appeal thereof; it being understood and agreed,
however, that (i) the Company shall be responsible for the payment of forty per
cent (40%) of the additional federal, state or local income taxes referred to in
subclause (x) of clause (ii) of Section 9.01(a) and (ii) unless the prior
written consent of Purchaser shall be obtained (which consent shall not be
unreasonably withheld), such settlement must include a full and unconditional
release of the Company and the Subsidiary reasonably satisfactory to Purchaser.
Seller shall retain an accounting firm and/or counsel (who shall be reasonably
acceptable to Purchaser; it being agreed that Coopers & Lybrand L.L.P. and
Rogers
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& Wells shall be acceptable to Purchaser) to represent the Company and
the Subsidiary in connection with the Audit Adjustments and shall pay the
reasonable fees and disbursements of such accountants and counsel. Purchaser
shall have the right to retain its own accountants and counsel with respect to
the Audit Adjustments but the fees and disbursements of such accountants and
counsel shall be at the expense of Purchaser. Purchaser shall, and shall cause
the Company and the Subsidiary and its and their accountants and counsel to
cooperate with Seller and its accountants and counsel in the defense of the
Audit Adjustments. Purchaser shall not, and shall cause the Company and the
Subsidiary not to, pay or settle the Audit Adjustments without the prior written
consent of Seller. Nothing contained in this Section 9.02(d) is intended to
modify Section 9.02(c), which shall also apply to the matters set forth in this
Section 9.02(d).
9.03 Exclusivity. After the Closing, to the extent permitted
by Law and except as provided in paragraph (c) of Section 4.06, the indemnities
set forth in this Article IX shall be the exclusive remedies of Purchaser and
Seller, their Affiliates and their respective officers, directors, employees and
agents for any misrepresentation, breach of warranty or breach of any covenant
or agreement contained in this Agreement, and the parties shall not be entitled
to a rescission of this Agreement or to any further indemnification rights or
claims of any nature whatsoever in respect thereof, all of which the parties
hereto hereby waive.
ARTICLE X.
TERMINATION
10.01 Termination. This Agreement may be terminated, and
the transactions contemplated hereby may be abandoned:
(a) at any time before the Closing, by mutual written
agreement of Seller and Purchaser; or
(b) at any time after the Cut-Off Date, by Seller or Purchaser
upon notification of the non-terminating party by the terminating party if the
Closing shall not have occurred on or before such date and such failure to
consummate is not caused by a breach of this Agreement by the terminating party;
or
(c) at any time before the Closing, by Seller or Purchaser
upon notification of the non-terminating party if either of the Bollore Consent
or the USTC Amendment shall have terminated.
10.02 Effect of Termination. If this Agreement is validly
terminated pursuant to Section 10.01, this Agreement will forthwith become null
and void, and there will be no liability or obligation on the part of Seller or
Purchaser (or any of their Affiliates or their respective officers, directors,
employees or agents), except as provided in the next succeeding sentence and
except that the provisions with respect to expenses in Sections 12.03 and
confidentiality in Sections 12.05 and 12.06 will continue to apply following any
such termination. Notwithstanding any other provision in this Agreement to the
contrary, upon termination of this Agreement
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pursuant to Section 10.01(b), each party will remain liable to the other party
for any willful breach of this Agreement existing at the time of such
termination.
ARTICLE XI.
DEFINITIONS
11.01 Definitions. (a) As used in this Agreement, the
following defined terms shall have the meanings indicated below:
"Actions or Proceedings" means any action, suit, proceeding,
arbitration or Governmental or Regulatory Authority investigation.
"Affiliate" means any Person that directly, or indirectly
through one of more intermediaries, controls or is controlled by or is under
common control with the Person specified. For purposes of this definition,
control of a Person means the power, direct or indirect, to direct or cause the
direction of the management and policies of such Person whether by Contract or
otherwise and, in any event and without limitation of the previous sentence, any
Person owning more than fifty (50%) of the voting securities of a second Person
shall be deemed to control that second Person.
"Agreement" means this Stock Purchase Agreement and the
Exhibits, the Disclosure Schedule and the Schedules hereto, as the same shall be
amended from time to time.
"Applicable Cap Amount" has the meaning specified in
Section 8.02.
"Audited Financial Statement Date" means December 31, 1996.
"Audit Adjustments" has the meaning specified in
Section 9.01(a).
"Balance Sheet" has the meaning specified in Section 1.02(c).
"Bollore" means Bollore Technologies S. A.
"Bollore Consent" means that certain Consent Agreement dated
as of April 4, 1997 between Bollore and the Subsidiary, as amended by an
Amendment No. 1 thereto dated as of April 9, 1997, a copy of which is attached
hereto as Exhibit G.
"Bollore Contracts" means the three Amended and Restated
Distribution and License Agreements dated as of November 30, 1992 between the
Subsidiary and Bollore relating to the distribution of Zig Zag cigarette paper
booklets in the United States, in Canada and in Hong Kong and certain other
territories, as amended by agreements dated January 28, 1993, March 31, 1993,
June 10, 1996 and September 25, 1996 and by the Bollore Consent.
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"Bollore Payment" means any of the amounts payable to Bollore
by the Subsidiary pursuant to Section 2 of the Bollore Consent.
"Business Combination" has the meaning specified in Section
4.04.
"Business Day" means a day other than Saturday, Sunday or any
day on which banks located in the States of New York and North Carolina are
authorized or obligated to close.
"Business or Condition of the Company" means the business,
assets, liabilities, condition (financial or otherwise) or results of operations
of the Company and the Subsidiary, taken as a whole.
"Claim Notice" has the meaning specified in Section 9.02(a).
"Class A Common Stock" means the Class A voting common stock,
par value $0.01 per share, of the Company.
"Class B Common Stock" means the Class B non-voting common
stock, par value $0.01 per share, of the Company.
"Closing" means the closing of the transactions contemplated
by Section 1.03.
"Closing Date" means (a) the fifth Business Day after the day
on which the last of the consents, approvals, actions, filings, notices or
waiting periods described in or related to the filings described in Sections
6.04 through 6.06 and Sections 7.04 through 7.06 has been obtained, made or
given or has expired, as applicable, or (b) such other date as Purchaser and
Seller mutually agree upon in writing.
"Code" means the Internal Revenue Code of 1986, as amended,
and the rules and regulations promulgated thereunder.
"Commitment Letter" means that certain commitment letter dated
February 14, 1997 from Societe Generale, a copy which is attached hereto as
Exhibit F.
"Company" has the meaning ascribed to it in the forepart of
this Agreement.
"Company Plan" means a plan maintained by the Company or the
Subsidiary that is (a) an employee pension benefit plan (as defined in ERISA ss.
3(2)) or (b) an employee welfare benefit plan (as defined in ERISA ss. 3(1))
subject to ERISA.
"Contingent Obligations" shall mean (i) the obligations of the
Company and the Subsidiary to make certain payments under the letter agreement
dated March 31, 1993 from the Company and the Subsidiary to Banque Nationale de
Paris, New York Branch and (ii) the obligations of the Subsidiary to make
certain payments under the three letter agreements dated May 5, 1995 between the
Subsidiary and each of Crescent/MACH I Partners, L.P., Crescent Shared
Opportunity Fund II, L.P. and Continental Casualty Company.
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"Contingent Obligation Payment" has the meaning specified in
Section 6.12.
"Contract" means any agreement, lease, evidence of
Indebtedness, mortgage, indenture, security agreement or other contract.
"Cut-Off Date" means June 30, 1997.
"Debt Payments" means an amount equal to the sum of (i) the
total principal, interest and all other amounts required to repay in full, at
the Closing, all Indebtedness under the Subsidiary's Senior Subordinated Notes
due April 20, 2001, (ii) the total principal, interest and all other amounts
required to repay in full, at the Closing, all Indebtedness under the Credit
Agreement, dated as of April 28, 1995 among the Subsidiary, as borrower, the
banks named therein and NationsBank N.A. Carolina, as agent, (iii) the
Prepayment Amount (as such term is defined in the USTC Amendment), (iv) the
aggregate amount which Seller, in its sole discretion, shall have agreed with
the holders of all Contingent Obligations shall be paid to such holders by the
Subsidiary at the Closing in consideration of the cancellation of the Contingent
Obligations and (v) any and all other long term Indebtedness incurred by Seller
after the date hereof and which remains outstanding at the Closing; provided,
however, that the term "Debt Payments" shall not include (x) any portion of any
of the foregoing to the extent that it is included as a current liability for
purposes of calculating Net Assets as of the Closing Date or (y) the Bollore
Payment.
"Disclosure Schedule" means the record delivered to Purchaser
by Seller on the date hereof, containing all lists, descriptions, exceptions and
other information and materials as are included therein by Seller.
"Estimated Statement" has the meaning specified in Section
1.02(c).
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and the rules and regulations promulgated thereunder.
"ERISA Affiliate" shall mean any trade or business (whether or
not incorporated) that is a member of a group of which the Company or the
Subsidiary is a member and which is treated as a single employer under Section
414 of the Code.
"ERISA Event" with respect to any Person means (i) the
occurrence of a reportable event, within the meaning of Section 4043 of ERISA,
with respect to any Company Plan of such Person or any of its ERISA Affiliates
unless the 30-day notice requirement with respect to such event has been waived
by the PBGC; (ii) the provision by the administrator of any Company Plan of such
Person or any of its ERISA Affiliates of a notice of intent to terminate such
Company Plan, pursuant to Section 4041(a)(2) of ERISA (including any such notice
with respect to a plan amendment referred to in Section 4041(e) of ERISA); (iii)
the cessation of operations at a facility of such Person or any of its ERISA
Affiliates in the circumstances described in Section 4068(f) of ERISA; (iv) the
failure by such Person or any of its ERISA Affiliates to make a payment to a
Company Plan required under Section 302(f)(1) of ERISA; (v) the adoption of an
amendment to a Company Plan of such Person or any of its ERISA Affiliates
requiring the provision of
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<PAGE>
security to such Company Plan, pursuant to Section 307 of ERISA; or (vi) the
institution by the PBGC of proceedings to terminate a Company Plan of such
Person or any of its ERISA Affiliates, pursuant to Section 4042 of ERISA, or the
occurrence of any event or condition described in Section 4042 of ERISA that
could constitute grounds for the termination of, or the appointment of a trustee
to administer, such Company Plan.
"GAAP" means generally accepted accounting principles,
consistently applied throughout the specified period.
"Governmental or Regulatory Authority" means any court,
tribunal, arbitrator, authority, agency, commission, official or other
instrumentality of the United States, any foreign country or any domestic or
foreign state, county, city or other political subdivision.
"HSR Act" means Section 7A of the Clayton Act (Title II of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended) and the rules
and regulations promulgated thereunder.
"Indebtedness" of any Person means all obligations of such
Person (i) for borrowed money, (ii) evidenced by notes, bonds, debentures or
similar instruments, (iii) for the deferred purchase price of goods or services
(other than trade payables or accruals incurred in the ordinary course of
business), (iv) under capital leases and (v) in the nature of guarantees of the
obligations described in clauses (i) through (iv) above of any other Person.
"Indemnified Party" has the meaning specified in Section 9.02.
"Indemnifying Party" has the meaning specified in
Section 9.02.
"Independent Accountant" has the meaning specified in Section
1.02(c).
"Intellectual Property" means all patents and patent rights,
trademarks and trademark rights, trade names and trade name rights, service
marks and service mark rights, service names and service name rights, brand
names, inventions, copyrights and copyright rights, and all pending applications
for and registrations of patents, trademarks, service marks and copyrights, both
foreign and domestic.
"IRS" means the United States Internal Revenue Service.
"Knowledge of Seller" means the actual knowledge of any of
the following Persons: Africk, John Drake, Chris Goodwin, Mark Graham, Ron
Beasly and Bob Dixson.
"Laws" means all laws, statutes, rules, regulations,
ordinances and other pronouncements having the effect of law of the United
States, any foreign country or any domestic or foreign state, county, city or
other political subdivision or of any Governmental or Regulatory Authority.
30
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"Licenses" means all licenses, permits, certificates of
authority, authorizations, approvals, registrations, franchises and similar
consents granted or issued by any Governmental or Regulatory Authority.
"Liens" means any mortgage, pledge, security interest, lien
or other encumbrance.
"Loss" means any and all damages, fines, penalties,
deficiencies, losses and expenses (including without limitation reasonable fees
of attorneys).
"Multiemployer Plan" means a multiemployer plan as defined in
Section 4001(a)(3) of ERISA.
"Net Assets" means, as of any date, the amount by which (i)
the consolidated current assets of the Company and the Subsidiary (excluding for
this purpose the amount contributed to the Company by Purchaser pursuant to
Section 1.02(b)) as of such date exceed (ii) the consolidated current
liabilities of the Company and the Subsidiary (excluding for this purpose the
Option Cancellation Payment to be paid pursuant to Section 1.02(b), the Bollore
Payment, any Debt Payments and any other amounts which will be extinguished by
payment of the Bollore Payment or Debt Payments pursuant to Section 1.03,
including without limitation, current maturities of long term debt) as of such
date. Net Assets shall be calculated in accordance with GAAP applied on a basis
consistent with the preparation of the financial statements described in Section
2.09.
"New York Sublease" has the meaning specified in Section 6.15.
"Notice of Disagreement" has the meaning specified in Section
1.02(c).
"Option" with respect to any Person means any security, right,
subscription, warrant, option, or other Contract that gives the right to
purchase or otherwise receive or be issued any shares of capital stock of such
Person or any security of any kind convertible into or exchangeable or
exercisable for any shares of capital stock of such Person.
"Order" means any writ, judgment, decree, injunction or
similar order of any Governmental or Regulatory Authority (in each such case
whether preliminary or final).
"PBGC" means the Pension Benefit Guaranty Corporation
established under ERISA.
"Permitted Lien" means (i) any Lien for Taxes not yet due or
delinquent or being contested in good faith by appropriate proceedings for which
adequate reserves have been established in accordance with GAAP, (ii) any
statutory Lien arising in the ordinary course of business by operation of Law
with respect to a Liability that is not yet due or delinquent and (iii) any
minor imperfection of title or similar Lien which individually or in the
aggregate with other such Liens could not reasonably be expected to materially
adversely affect the Business or Condition of the Company.
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"Person" means any natural person, corporation, general
partnership, limited partnership, limited liability company, proprietorship,
other business organization, trust, union, association or Governmental or
Regulatory Authority.
"Purchase Price" has the meaning ascribed to it in Section
1.02.
"Purchaser" has the meaning ascribed to it in the forepart of
this Agreement.
"Representatives" has the meaning ascribed to it in Section
4.03.
"Restricted Business" means the marketing and distribution of
cigarette papers.
"Restricted Region" means the United States of America and
Canada.
"Seller" has the meaning ascribed to it in the forepart of
this Agreement.
"Seller's Accountant" has the meaning specified in Section
1.02(c).
"Shares" has the meaning ascribed to it in the forepart of
this Agreement.
"Statement of Net Assets" has the meaning specified in Section
1.02(c).
"Subsidiary" means North Atlantic Trading Company, Inc., a
Delaware corporation.
"Tax Returns" means any return, report, information return or
other document filed or required to be filed with any federal, state, local or
foreign Governmental or Regulatory Authority in connection with the
determination, assessment or collection of any Taxes.
"Taxes" means any and all federal, state, local or foreign
taxes of any kind (together with any interest, penalties, or additional amounts
imposed on or with respect thereto) imposed by any government or taxing
authority including without limitation, all federal, state, foreign and local
income, profits, franchise, sales, use, occupation, property, excise, ad
valorem, employment or other taxes.
"Transfer Taxes" means any sales, use, transfer, real property
transfer, recording, stock transfer and other similar taxes and fees.
"USTC" means United States Tobacco Company.
"USTC Amendment" means that certain Amendment No. 3 to Asset
Purchase Agreement dated as of April 9, 1997 among the Subsidiary, USTC and
certain subsidiaries of USTC, a copy of which is attached hereto as Exhibit H.
"UST Obligation" means the obligations of the Subsidiary to
make the Trademark Contingent Royalty Payments to USTC pursuant to Section 1.06
of that certain Asset Purchase
32
<PAGE>
Agreement dated as of November 25, 1992 among the Subsidiary, USTC and certain
subsidiaries of USTC, as amended.
(b) Unless the context of this Agreement otherwise requires,
(i) words of any gender include each other gender; (ii) words using the singular
or plural number also include the plural or singular number, respectively; (iii)
the terms "hereof," "herein," "hereby" and derivative or similar words refer to
this entire Agreement; (iv) the terms "Article" or "Section" refer to the
specified Article or Section of this Agreement; and (v) the phrase "ordinary
course of business" refers to the business of the Company or a Subsidiary. All
accounting terms used herein and not expressly defined herein shall have the
meanings given to them under GAAP. Any representation or warranty contained
herein as to the enforceability of a Contract shall be subject to the effect of
any bankruptcy, insolvency, reorganization, moratorium or other similar law
affecting the enforcement of creditors' rights generally and to general
equitable principles (regardless of whether such enforceability is considered in
a proceeding in equity or at Law).
ARTICLE XII.
MISCELLANEOUS
12.01 Notices. All notices, requests and other communications
hereunder must be in writing and will be deemed to have been duly given only if
delivered personally or by facsimile transmission or mailed (first class postage
prepaid) to the parties at the following addresses or facsimile numbers:
If to Seller, to:
NATC Holding Company, Ltd.
c/o NATC Holdings USA, Inc.
630 Fifth Avenue, 29th Floor
New York, New York 10111
Facsimile No.: 212-218-1610
Attn: Mr. Mark Graham
with a copy to:
Rogers & Wells
200 Park Avenue
New York, New York 10166
Facsimile No.: 212-878-8375
Attn: Steven A. Hobbs, Esq.
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If to Purchaser, to:
NTC Holding L.L.C.
257 Park Avenue South
New York, New York 10010
Facsimile No.: 212-428-1460
Attn: Thomas F. Helms, Jr.
with copies to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Facsimile No.: 212-310-8007
Attn: David E. Zeltner, Esq.
- and -
Fennebresque, Clark, Swindell & Hay
NationsBank Corporate Center
100 North Tryon Street, Suite 2900
Charlotte, North Carolina 28202
Facsimile No.: 704-347-3838
Attn: Jeffrey S. Hay, Esq.
All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section, be deemed given upon
delivery, (ii) if delivered by facsimile transmission to the facsimile number as
provided in this Section, be deemed given upon receipt, and (iii) if delivered
by mail in the manner described above to the address as provided in this
Section, be deemed given upon receipt (in each case regardless of whether such
notice is received by any other Person to whom a copy of such notice, request or
other communication is to be delivered pursuant to this Section). Any party from
time to time may change its address, facsimile number or other information for
the purpose of notices to that party by giving notice specifying such change to
the other party hereto.
12.02 Entire Agreement. This Agreement supersedes all prior
discussions and agreements between the parties with respect to the subject
matter hereof, and contains the sole and entire agreement between the parties
hereto with respect to the subject matter hereof.
12.03 Expenses. Except as otherwise expressly provided in this
Agreement, Seller agrees to pay, without right of reimbursement from Purchaser,
the Company or the Subsidiary, the costs incurred by Seller, the Company and the
Subsidiary, and Purchaser agrees to pay, without right of reimbursement from
Seller, the costs incurred by it, incident to the preparation and execution of
this Agreement and performance of their respective obligations hereunder,
whether or not the transaction contemplated by this Agreement shall be
consummated, including, without limitation, the fees and disbursements or legal
counsel, accountants and consultants
34
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employed by the respective parties in connection with the transactions
contemplated by this Agreement.
12.04. Transfer Taxes. Purchaser agrees to pay any Transfer
Taxes arising out of or in connection with the transactions effected pursuant to
the Agreement, and shall indemnify, defend, and hold harmless Seller with
respect to such Transfer Taxes.
12.05 Public Announcements. At all times at or before the
Closing, Seller and Purchaser will not issue or make any release to the press or
other public disclosure with respect to this Agreement or the transaction
contemplated hereby without the consent of the other party and Purchaser will
not make any statement to any employee, customer, supplier of the Company or the
Subsidiary or other Person with respect to this Agreement or the transactions
contemplated hereby without the consent of Seller, which consents shall not be
unreasonably withheld. Seller and Purchaser will also obtain the other party's
prior approval of any press release to be issued immediately following the
Closing announcing the consummation of the transactions contemplated by this
Agreement. Notwithstanding the foregoing provisions of this Section 12.05,
Seller consents to Purchaser discussing the transactions contemplated hereby
with the following: (i) Purchaser's current or proposed debt and equity
providers and Purchaser's management committee members and professional
advisors; (ii) any of Seller's top ten customers; provided, however, that such
communications are made in the presence of Africk; provided further, however,
that in the event that Purchaser reasonably requires further access to Seller's
customers, Purchaser's financial advisor, UBS, shall be permitted to contact any
of Seller's next top twenty customers so long as such communications are made in
the presence of Africk or Smith Barney, Inc. and the reason for or context of
such communications disclosed by UBS or any other party in connection with such
communications are limited to a potential refinancing of the Company and (iii)
Messrs. Africk, Beasly, Dixson, and each of the Seller's five regional sales
directors.
12.06 Confidentiality Each party hereto will hold, and will
cause its Affiliates, and their respective Representatives to hold, in strict
confidence from any Person (other than any such Affiliate, or Representative),
unless (a) compelled to disclose by judicial or administrative process
(including without limitation in connection with obtaining the necessary
approvals of this Agreement and the transactions contemplated hereby of
Governmental or Regulatory Authorities) or by other requirements of Law or (b)
disclosed in an Action or Proceeding brought by a party hereto in pursuit of its
rights or in the exercise of its remedies hereunder, all documents and
information concerning the other party or any of its Affiliates furnished to it
by the other party or such other party's Representatives in connection with this
Agreement or the transactions contemplated hereby, except to the extent that
such documents or information can be shown to have been (i) previously known by
the party receiving such documents or information, (ii) in the public domain
(either prior to or after the furnishing of such documents or information
hereunder) through no fault of such receiving party or (iii) later acquired by
the receiving party from another source if the receiving party is not aware that
such source is under an obligation to another party hereto to keep such
documents and information confidential; provided that following the Closing the
foregoing restrictions will not apply to Purchaser's use of documents and
information concerning the Company and the Subsidiaries furnished by Seller
hereunder. In the event the transactions contemplated hereby are not
consummated, upon the request of the other party, each party hereto will, and
will cause its Affiliates and their respective Representatives to, promptly
35
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redeliver or cause to be redelivered all copies of confidential documents and
information furnished by the other party in connection with this Agreement or
the transactions contemplated hereby and destroy or cause to be destroyed all
notes, memoranda, summaries, analyses, compilations and other writings related
thereto or based thereon prepared by the party furnished such documents and
information or its Representatives.
12.07 Further Assurances; Post-Closing Cooperation. (a)
Subject to the terms and conditions of this Agreement, at any time or from time
to time after the Closing, each of the parties hereto shall execute and deliver
such other documents and instruments, provide such materials and information and
take such other actions as may reasonably be necessary, proper or advisable, to
the extent permitted by Law, to fulfill its obligations under this Agreement.
(b) Following the Closing, each party will afford the other
party, its counsel and its accountants, during normal business hours, reasonable
access to the books, records and other data relating to the Business or
Condition of the Company in its possession with respect to periods prior to the
Closing and the right to make copies and extracts therefrom, to the extent that
such access may be reasonably required by the requesting party in connection
with (i) the preparation of Tax Returns, (ii) the determination or enforcement
of rights and obligations under this Agreement, (iii) compliance with the
requirements of any Governmental or Regulatory Authority or (iv) the
determination or enforcement of the rights and obligations of any Indemnified
Party. Further, each party agrees for a period extending six (6) years after the
Closing Date not to destroy or otherwise dispose of any such books, records and
other data unless such party shall first offer in writing to surrender such
books, records and other data to the other party and such other party shall not
agree in writing to take possession thereof during the ten (10) day period after
such offer is made.
(c) If, in order properly to prepare its Tax Returns, other
documents or reports required to be filed with Governmental or Regulatory
Authorities or its financial statements or to fulfill its obligations hereunder,
it is necessary that a party be furnished with additional information, documents
or records relating to the Business or Condition of the Company not referred to
in paragraph (b) above, and such information, documents or records are in the
possession or control of the other party, such other party agrees to use its
best efforts to furnish or make available such information, documents or records
(or copies thereof) at the recipient's request, cost and expense. Any
information obtained by Seller in accordance with this paragraph shall be held
confidential by Seller in accordance with Section 12.06.
(d) Notwithstanding anything to the contrary contained
in this Section, if the parties are in an adversarial relationship in litigation
or arbitration, the furnishing of information, documents or records in
accordance with any provision of this Section shall be subject to applicable
rules relating to discovery.
12.08 Waiver. Any term or condition of this Agreement may be
waived at any time by the party that is entitled to the benefit thereof, but no
such waiver shall be effective unless set forth in a written instrument duly
executed by or on behalf of the party waiving such term or condition. No waiver
by any party of any term or condition of this Agreement, in any one or more
instances, shall be deemed to be or construed as a waiver of the same or any
other
36
<PAGE>
term or condition of this Agreement on any future occasion. All remedies, either
under this Agreement or by Law or otherwise afforded, will be cumulative and not
alternative.
12.09 Amendment. This Agreement may be amended, supplemented
or modified only by a written instrument duly executed by or on behalf of each
party hereto.
12.10 No Third Party Beneficiary. The terms and provisions of
this Agreement are intended solely for the benefit of each party hereto and
their respective successors or permitted assigns, and it is not the intention of
the parties to confer third-party beneficiary rights upon any other Person other
than any Person entitled to indemnity under Article IX.
12.11 No Assignment; Binding Effect. Neither this Agreement
nor any right, interest or obligation hereunder may be assigned by any party
hereto without the prior written consent of the other party hereto and any
attempt to do so will be void. Notwithstanding the preceding sentence, Purchaser
may assign any or all of its rights, interests and obligations hereunder to (x)
any successor in interest, prior to the Closing, to all or substantially all of
the assets and properties of Purchaser or (y) any wholly-owned subsidiary of
Purchaser or any such successor, in each case without the consent of (but with
notice to) Seller; provided, however, that Purchaser shall remain primarily
liable hereunder following each such assignment referred to in clause (x) or
clause (y). This Agreement is binding upon, inures to the benefit of and is
enforceable by the parties hereto and their respective successors and permitted
assigns.
12.12 Headings. The headings used in this Agreement have been
inserted for convenience of reference only and do not define or limit the
provisions hereof.
12.13 Invalid Provisions. If any provision of this Agreement
is held to be illegal, invalid or unenforceable under any present or future Law,
and if the rights or obligations of any party hereto under this Agreement will
not be materially and adversely affected thereby, (a) such provision will be
fully severable, (b) this Agreement will be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part hereof,
(c) the remaining provisions of this Agreement will remain in full force and
effect and will not be affected by the illegal, invalid or unenforceable
provision or by its severance herefrom and (d) in lieu of such illegal, invalid
or unenforceable provision, there will be added automatically as a part of this
Agreement a legal, valid and enforceable provision as similar in terms to such
illegal, invalid or unenforceable provision as may be possible.
12.14 Governing Law. This Agreement shall be governed by and
construed in accordance with the Laws of the State of New York applicable to a
Contract executed and performed in such State without giving effect to the
conflicts of laws principles thereof.
12.15 Counterparts. This Agreement may be executed in any
number of counterparts, each of which will be deemed an original, but all of
which together will constitute one and the same instrument.
12.16 Name Change. At or prior to the Closing, the Company
shall change its name to exclude, and shall thereafter cease to use, the name
"NATC"; it being understood and
37
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agreed that Seller shall retain all rights to the use of the name "NATC" and
that, after the Closing, none of Purchaser, the Company, the Subsidiary or any
of their Affiliates shall be entitled to use the name "NATC" but they shall be
entitled to use the name "North Atlantic Trading Company, Inc." and the Seller
and its Affiliates shall not be entitled to use such name.
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officer of each party hereto as of the date
first above written.
NATC HOLDING COMPANY, LTD.
By:/s/ Mark R. Graham
-----------------------
Name: Mark R. Graham
Title: Vice President
NTC HOLDING, L.L.C.
By:/s/ Thomas F. Helms, Jr.
---------------------------
Name: Thomas F. Helms, Jr.
Title: President and Manager
38
<PAGE>
ASSIGNMENT AND ASSUMPTION
THIS ASSIGNMENT AND ASSUMPTION made as of this 25th day of
June, 1997, between NTC HOLDING, LLC, a Delaware limited liability company
("Assignor"), and NORTH ATLANTIC TRADING ACQUISITION COMPANY, INC., a Delaware
corporation to be renamed North Atlantic Trading Company, Inc. ("Assignee").
W I T N E S S E T H:
WHEREAS, contemporaneously herewith, Assignee is effectuating
the refinancing of certain indebtedness and obligations of Assignor and its
subsidiaries, among other things; and
WHEREAS, Assignor desires to assign and transfer to Assignee
all of its rights, title and interests in and to all of its assets and
properties (collectively, the "Assets"), including, without limitation, all of
(i) its limited partnership interests in National Tobacco Company, L.P., a
Delaware limited partnership ("LP"), (ii) all of the issued and outstanding
shares of capital stock of National Tobacco Finance Corporation, a Delaware
corporation (the "NTFC Shares") and (iii) all of its rights, interests and
obligations under a certain Stock Purchase Agreement, dated as of April 17,
1997 (the "Stock Purchase Agreement"), between the Assignor and NATC Holding
Company, Ltd., a Bermuda corporation; and
WHEREAS, Assignee desires to accept such assignment, and, in
consideration thereof, Assignee desires to assume all of
<PAGE>
the obligations of Assignor of any nature whatsoever, relating to, or arising
out of, the Assets, including, without limitation, any obligations relating to,
or arising out of, the Operating Agreement of Assignor dated as of May 17, 1996
(collectively, the "Obligations");
NOW, THEREFORE, in consideration of the foregoing premises
and mutual covenants contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto hereby agree as follows:
1. Assignor hereby assigns, transfers and conveys to Assignee
all of Assignor's right, title and interest in and to the Assets.
2. Assignee accepts said assignment by Assignor of all of
Assignor's right, title and interest in the Assets and Assignee hereby assumes,
and agrees to perform, all of the Obligations.
3. Assignor and Assignee hereby agree to take any and all
action as may be necessary and appropriate to more fully effectuate the
assignment of the Assets and the assumption of the Obligations hereunder,
including, without limitation, (i) the execution and delivery by Assignor to
Assignee of a stock power with respect to the transfer of the NTFC Shares and
(ii) the execution and delivery by Assignor of an amendment to the Third
Amended Limited Partnership Agreement of National Tobacco Company, L.P.
relating to the transfer of the Partnership
2
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Interest.
4. Anything to the contrary contained herein notwithstanding,
as required pursuant to Section 12.11 of the Stock Purchase Agreement, Assignor
shall remain primarily liable thereunder.
5. This Assignment and Assumption shall be binding upon
Assignor and Assignee and shall be governed by the laws of the State of New
York without regard to principles of conflict of law thereunder.
3
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this
Assignment and Assumption as of the date first stated above.
NTC HOLDING, LLC
By: /s/ Thomas F. Helms, Jr.
-------------------------------
Thomas F. Helms, Jr.
Manager and President
NORTH ATLANTIC TRADING
ACQUISITION COMPANY, INC.
By: /s/ Thomas F. Helms, Jr.
-------------------------------
Thomas F. Helms, Jr.
President
4
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ASSIGNMENT AND ASSUMPTION OF
STOCK PURCHASE AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION OF STOCK PURCHASE AGREEMENT
made as of this 25th day of June, 1997, between NORTH ATLANTIC TRADING
ACQUISITION COMPANY, INC., a Delaware corporation to be renamed North Atlantic
Trading Company, Inc. and the successor in interest to NTC Holding, LLC
("Assignor"), and NORTH ATLANTIC OPERATING COMPANY, INC., a Delaware corporation
and wholly-owned subsidiary of Assignor ("Assignee").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, reference is made to a certain Assignment and
Assumption, dated as of the date hereof, whereby NTC Holding, LLC ("LLC")
assigned to Assignor, as its successor in interest, all of its rights, title and
interests in and to, and Assignee assumed all obligations relating thereto, all
of the assets and properties LLC, including, without limitation, all of LLC's
rights interests, and obligations under that certain Stock Purchase Agreement
(the "Stock Purchase Agreement"), dated as of April 17, 1997, between NATC
Holding Company, Ltd., a Bermuda corporation, and LLC; and
WHEREAS, Section 12.11 of the Stock Purchase Agreement
permits Assignor to assign all of its rights, interest and obligations under
the Stock Purchase Agreement to a wholly-owned
<PAGE>
subsidiary of Assignor; and
WHEREAS, Assignee is a wholly-owned subsidiary of
Assignor; and
WHEREAS, Assignor desires to assign all of its right, title
and interest in and to the Stock Purchase Agreement to Assignee as a
contribution to its capital, and Assignee desires to accept such assignment and
assume all of the obligations of Assignor under the Stock Purchase Agreement;
NOW, THEREFORE, in consideration of the foregoing premises and
mutual covenants contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto hereby agree as follows:
1. Assignor hereby assigns, transfers and conveys to Assignee
all of Assignor's rights, title and interests under the Stock Purchase
Agreement.
2. Assignee accepts said assignment by Assignee of all of
Assignor's rights, title and interests in the Stock Purchase Agreement and
Assignee hereby agrees to assume and perform all of Assignor's obligations under
the Stock Purchase Agreement; provided, however, that, as required pursuant to
Section 12.11 of the Stock Purchase Agreement, LLC shall remain primarily liable
thereunder.
3. This Assignment and Assumption of Stock Purchase Agreement
shall be binding upon Assignor and Assignee and shall
2
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be governed by the laws of the State of New York without regard to its
principles of conflict of laws.
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IN WITNESS WHEREOF, the undersigned have executed this
Assignment and Assumption of Stock Purchase Agreement as of the date first
stated above.
NORTH ATLANTIC TRADING
ACQUISITION COMPANY, INC.
By: /s/ Thomas F. Helms, Jr.
--------------------------------
Thomas F. Helms, Jr.
President
NORTH ATLANTIC OPERATING COMPANY, INC.
By: /s/ Thomas F. Helms, Jr.
--------------------------------
Thomas F. Helms, Jr.
President
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NORTH ATLANTIC HOLDING COMPANY, INC.
1997 SHARE INCENTIVE PLAN
1. Purpose. North Atlantic Holding Company, Inc. 1997 Share Incentive
Plan (the "Plan") is intended to provide incentives which will attract, retain
and motivate highly competent persons as key employees of North Atlantic Holding
Company, Inc. (the "Corporation") and of any subsidiary corporation now existing
or hereafter formed or acquired, by providing them opportunities to acquire
shares of the Common Stock, par value $.01 per share, of the Corporation
("Common Stock") or to receive monetary payments based on the value of such
shares pursuant to the Benefits (as defined below) described herein.
Furthermore, the Plan is intended to assist in aligning the interests of the
Corporation's key employees to those of its stockholders.
2. Administration.
(a) The Plan will be administered by a committee (the
"Committee") appointed by the Board of Directors of the Corporation from among
its members. The Committee is authorized, subject to the provisions of the Plan,
to establish such rules and regulations as it deems necessary for the proper
administration of the Plan and to make such determinations and interpretations
and to take such action in connection with the Plan and any Benefits (as defined
below) granted hereunder as it deems necessary or advisable. All determinations
and interpretations made by the Committee shall be binding and conclusive on all
participants and their legal representatives. No member of the Board of
Directors, no member of the Committee and no employee of the Corporation shall
be liable for any act or failure to act hereunder, except in circumstances
involving his or her bad faith, gross negligence or willful misconduct, or for
any act or failure to act hereunder by any other member or employee or by any
agent to whom duties in connection with the administration of this Plan have
been delegated. The Corporation shall indemnify members of the Committee and any
agent of the Committee who is an employee of the Corporation, against any and
all liabilities or expenses to which they may be subjected by reason of any act
or failure to act with respect to their duties on behalf of the Plan, except in
circumstances involving such person's bad faith, gross negligence or willful
misconduct.
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(b) The Committee may delegate to one or more of its members,
or to one or more agents, such administrative duties as it may deem advisable,
and the Committee, or any person to whom it has delegated duties as aforesaid,
may employ one or more persons to render advice with respect to any
responsibility the Committee or such person may have under the Plan. The
Committee may employ such legal or other counsel, consultants and agents as it
may deem desirable for the administration of the Plan and may rely upon any
opinion or computation received from any such counsel, consultant or agent.
Expenses incurred by the Committee in the engagement of such counsel, consultant
or agent shall be paid by the Corporation, or the subsidiary or affiliate whose
employees have benefitted from the Plan, as determined by the Committee.
3. Participants. Participants will consist of such key employees of the
Corporation and any subsidiary corporation of the Corporation as the Committee
in its sole discretion determines to be significantly responsible for the
success and future growth and profitability of the Corporation and whom the
Committee may designate from time to time to receive Benefits under the Plan.
Designation of a participant in any year shall not require the Committee to
designate such person to receive a Benefit in any other year or, once
designated, to receive the same type or amount of Benefit as granted to the
participant in any other year. The Committee shall consider such factors as it
deems pertinent in selecting participants and in determining the type and amount
of their respective Benefits.
4. Type of Benefits. Benefits under the Plan may be granted in any one
or a combination of (a) Stock Options, (b) Stock Appreciation Rights, (c) Stock
Awards, (d) Performance Awards and (e) Stock Units (each as described below, and
collectively, the "Benefits"). Benefits shall be evidenced by agreements (which
need not be identical) in such forms as the Committee may from time to time
approve; provided, however, that in the event of any conflict between the
provisions of the Plan and any such agreements, the provisions of the Plan shall
prevail.
5. Common Stock Available Under the Plan. The aggregate number of
shares of Common Stock that may be subject to Benefits, including Stock Options,
granted under this Plan shall be 61,856 shares of Common Stock, which may be
authorized and unissued or treasury shares, subject to any adjustments made in
accordance with Section 11 hereof.
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Any shares of Common Stock subject to a Stock Option or Stock Appreciation Right
which for any reason is cancelled or terminated without having been exercised,
any shares subject to Stock Awards, Performance Awards or Stock Units which are
forfeited and any shares subject to Performance Awards settled in cash or any
shares delivered to the Corporation as part of full payment for the exercise of
a Stock Option or Stock Appreciation Right, shall again be available for
Benefits under the Plan.
6. Stock Options. Stock Options will consist of awards from the
Corporation that will enable the holder to purchase a specific number of shares
of Common Stock, at set terms and at a fixed purchase price. Stock Options may
be "incentive stock options" ("Incentive Stock Options"), within the meaning of
Section 422 of the Code, or Stock Options which do not constitute Incentive
Stock Options ("Nonqualified Stock Options"). The Committee will have the
authority to grant to any participant one or more Incentive Stock Options,
Nonqualified Stock Options, or both types of Stock Options (in each case with or
without Stock Appreciation Rights). Each Stock Option shall be subject to such
terms and conditions consistent with the Plan as the Committee may impose from
time to time, subject to the following limitations:
(a) Exercise Price. Each Stock Option granted hereunder shall
have such per-share exercise price as the Committee may determine at the date
of grant.
(b) Payment of Exercise Price. The option exercise price may
be paid in cash or, in the discretion of the Committee determined at the date of
grant, by the delivery of shares of Common Stock of the Corporation then owned
by the participant, by the withholding of shares of Common Stock for which a
Stock Option is exercisable, or by a combination of these methods. In the
discretion of the Committee determined at the date of grant, payment may also be
made by delivering a properly executed exercise notice to the Corporation
together with a copy of irrevocable instructions to a broker to deliver promptly
to the Corporation the amount of sale or loan proceeds to pay the exercise
price. To facilitate the foregoing, the Corporation may enter into agreements
for coordinated procedures with one or more brokerage firms. The Committee may
prescribe any other method of paying the exercise price that it determines to be
consistent with applicable law and the purpose of the Plan, including, without
limitation, in
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lieu of the exercise of a Stock Option by delivery of shares of Common Stock of
the Corporation then owned by a participant, providing the Corporation with a
notarized statement attesting to the number of shares owned, where, upon
verification by the Corporation, the Corporation would issue to the participant
only the number of incremental shares to which the participant is entitled upon
exercise of the Stock Option. In determining which methods a participant may
utilize to pay the exercise price, the Committee may consider such factors as it
determines are appropriate.
(c) Exercise Period. Stock Options granted under the Plan
shall be exercisable at such time or times and subject to such terms and
conditions as shall be determined by the Committee; provided, however, that no
Stock Option shall be exercisable later than ten years after the date it is
granted. All Stock Options shall terminate at such earlier times and upon such
conditions or circumstances as the Committee shall in its discretion set forth
in such option agreement at the date of grant.
(d) Limitations on Incentive Stock Options. Incentive Stock
Options may be granted only to participants who are key employees of the
Corporation or subsidiary corporation of the Corporation at the date of grant.
The aggregate Fair Market Value (determined as of the time the option is
granted) of the Common Stock with respect to which Incentive Stock Options are
exercisable for the first time by a participant during any calendar year (under
all option plans of the Corporation) shall not exceed $100,000. For purposes of
the preceding sentence, Incentive Stock Options will be taken into account in
the order in which they are granted. Incentive Stock Options may not be granted
to any participant who, at the time of grant, owns stock possessing (after the
application of the attribution rules of Section 424(d) of the Code) more than
10% of the total combined voting power of all outstanding classes of stock of
the Corporation or any subsidiary corporation of the Corporation, unless the
option price is fixed at not less than 110% of the Fair Market Value of the
Common Stock on the date of grant and the exercise of such option is prohibited
by its terms after the expiration of five years from the date of grant of such
option. Notwithstanding anything to the contrary contained herein, no Incentive
Stock Option may be exercised later than ten years after the date it is granted.
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7. Stock Appreciation Rights. The Committee may, in its discretion,
grant Stock Appreciation Rights to the holders of any Stock Options granted
hereunder. In addition, Stock Appreciation Rights may be granted independently
of, and without relation to, options. A Stock Appreciation Right means a right
to receive a payment, in cash, Common Stock or a combination thereof, in an
amount equal to the excess of (x) the Fair Market Value, or other specified
valuation, of a specified number of shares of Common Stock on the date the right
is exercised over (y) the Fair Market Value, or other specified valuation, of
such shares of Common Stock on the date the right is granted, all as determined
by the Committee. Each Stock Appreciation Right shall be subject to such terms
and conditions as the Committee shall impose from time to time.
8. Stock Awards. The Committee may, in its discretion, grant Stock
Awards (which may include mandatory payment of bonus incentive compensation in
stock) consisting of Common Stock issued or transferred to participants with or
without other payments therefor as additional compensation for services to the
Corporation. Stock Awards may be subject to such terms and conditions as the
Committee determines appropriate, including, without limitation, restrictions on
the sale or other disposition of such shares, the right of the Corporation to
reacquire such shares for no consideration upon termination of the participant's
employment within specified periods. The Committee may require the participant
to deliver a duly signed stock power, endorsed in blank, relating to the Common
Stock covered by such an Award. The Committee may also require that the stock
certificates evidencing such shares be held in custody or bear restrictive
legends until the restrictions thereon shall have lapsed. The Stock Award shall
specify whether the participant shall have, with respect to the shares of Common
Stock subject to a Stock Award, all of the rights of a holder of shares of
Common Stock of the Corporation, including the right to receive dividends and to
vote the shares.
9. Performance Awards.
(a) Performance Awards may be granted to participants at any
time and from time to time, as shall be determined by the Committee. The
Committee shall have complete discretion in determining the number, amount and
timing of awards granted to each participant. Such Performance Awards may be in
the form of shares of Common
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Stock or Stock Units. Performance Awards may be awarded as short-term or
long-term incentives. Performance targets may be based upon, without limitation,
Corporation-wide, divisional and/or individual performance.
(b) The Committee shall have the authority at any time to make
adjustments to performance targets for any outstanding Performance Awards which
the Committee deems necessary or desirable unless at the time of establishment
of goals the Committee shall have precluded its authority to make such
adjustments.
(c) Payment of earned Performance Awards shall be made in
accordance with terms and conditions prescribed or authorized by the Committee.
The participant may elect to defer, or the Committee may require or permit the
deferral of, the receipt of Performance Awards upon such terms as the Committee
deems appropriate.
10. Stock Units.
(a) The Committee may, in its discretion, grant Stock Units to
participants hereunder. Stock Units may, as determined by the Committee in its
sole discretion, constitute Performance-Based Awards. The Committee shall
determine the criteria for the vesting of Stock Units. A Stock Unit granted by
the Committee shall provide payment in shares of Common Stock at such time as
the award agreement shall specify. Shares of Common Stock issued pursuant to
this Section 10 may be issued with or without other payments therefor as may be
required by applicable law or such other consideration as may be determined by
the Committee. The Committee shall determine whether a participant granted a
Stock Unit shall be entitled to a Dividend Equivalent Right (as defined below).
(b) Upon vesting of a Stock Unit, unless the Committee has
determined to defer payment with respect to such unit or a Participant has
elected to defer payment under subsection (c) below, shares of Common Stock
representing the Stock Units shall be distributed to the participant unless the
Committee, with the consent of the participant, provides for the payment of the
Stock Units in cash or partly in cash and partly in shares of Common Stock equal
to the value of the shares of Common Stock which would otherwise be distributed
to the participant.
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(c) Prior to the year with respect to which a Stock Unit may
vest, the participant may elect not to receive Common Stock upon the vesting of
such Stock Unit and for the Corporation to continue to maintain the Stock Unit
on its books of account. In such event, the value of a Stock Unit shall be
payable in shares of Common Stock pursuant to the agreement of deferral.
(d) A "Stock Unit" means a notational account representing one
share of Common Stock. A "Dividend Equivalent Right" means the right to receive
the amount of any dividend paid on the share of Common Stock underlying a Stock
Unit, which shall be payable in cash or in the form of additional Stock Units.
11. Adjustment Provisions; Change in Control.
(a) If there shall be any change in the Common Stock of the
Corporation, through merger, consolidation, reorganization, recapitalization,
stock dividend, stock split, reverse stock split, split up, spinoff, combination
of shares, exchange of shares, dividend in kind or other like change in capital
structure or distribution (other than in connection with a public offering or
normal cash dividends) to stockholders of the Corporation, an adjustment shall
be made to each outstanding Stock Option and Stock Appreciation Right such that
each such Stock Option and Stock Appreciation Right shall thereafter be
exercisable for such securities, cash and/or other property as would have been
received in respect of the Common Stock subject to such Stock Option or Stock
Appreciation Right had such Stock Option or Stock Appreciation Right been
exercised in full immediately prior to such change or distribution, and such an
adjustment shall be made successively each time any such change shall occur. In
addition, in the event of any such change or distribution, in order to prevent
dilution or enlargement of participants' rights under the Plan, the Committee
will have authority to adjust, in an equitable manner, the number and kind of
shares that may be issued under the Plan, the exercisability and vesting
provisions of such Benefits, the number and kind of shares subject to
outstanding Benefits, the exercise price applicable to outstanding Benefits, and
the Fair Market Value of the Common Stock and other value determinations
applicable to outstanding Benefits. Appropriate adjustments may also be made by
the Committee in the terms of any Benefits under the Plan to reflect such
changes or distributions and to modify any other terms of outstanding Benefits
on an equitable
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basis, including modifications of performance targets and changes in the length
of performance periods. In addition, the Committee is authorized to make
adjustments to the terms and conditions of, and the criteria included in,
Benefits in recognition of unusual or nonrecurring events affecting the
Corporation or the financial statements of the Corporation, or in response to
changes in applicable laws, regulations, or accounting principles.
Notwithstanding the foregoing, (i) any adjustment with respect to an Incentive
Stock Option shall comply with the rules of Section 424(a) of the Code, and (ii)
in no event shall any adjustment be made which would render any Incentive Stock
Option granted hereunder other than an incentive stock option for purposes of
Section 422 of the Code.
(b) In the event of a Change in Control (as defined below),
the Committee, in its discretion, may take such actions as it deems appropriate
with respect to outstanding Benefits, including, without limitation,
accelerating the exercisability or vesting of such Benefits.
The Committee, in its discretion, may determine that, upon the
occurrence of a Change in Control of the Corporation, each Stock Option and
Stock Appreciation Right outstanding hereunder shall terminate within a
specified number of days after notice to the holder, and such holder shall
receive, with respect to each share of Common Stock subject to such Stock Option
or Stock Appreciation Right, an amount equal to the excess of the Fair Market
Value of such shares of Common Stock immediately prior to the occurrence of such
Change in Control over the exercise price per share of such Stock Option or
Stock Appreciation Right; such amount to be payable in cash, in one or more
kinds of property (including the property, if any, payable in the transaction)
or in a combination thereof, as the Committee, in its discretion, shall
determine.
For purposes of this Section 12(b), a "Change in Control" of the
Corporation shall be deemed to have occurred upon any of the following events:
(A) The majority of the Corporation's Board of Directors is no
longer comprised of the incumbent directors who constitute the Board of
Directors on the Effective Date (as hereinafter defined) and any other
individual(s) who becomes a director subsequent to the date of this
Agreement whose initial election or nomination for election as a
director, as the case may
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be, was approved by at least a majority of the
directors who comprised the incumbent directors as of
the date of such election or nomination; or
(B) A sale of all or substantially all of the
assets of the Corporation; or
(C) The Board of Directors shall approve any merger,
consolidation, or like business combination or reorganization of the
Corporation, the consummation of which would result in the occurrence
of any event described in clause (B) above, and such transaction shall
have been consummated.
12. Transferability. Each Benefit granted under the Plan to a
participant shall not be transferable otherwise than by will or the laws of
descent and distribution, and shall be exercisable, during the participant's
lifetime, only by the participant. In the event of the death of a participant,
each Stock Option or Stock Appreciation Right theretofore granted to him or her
shall be exercisable during such period after his or her death as the Committee
shall in its discretion set forth in such option or right at the date of grant
and then only by the executor or administrator of the estate of the deceased
participant or the person or persons to whom the deceased participant's rights
under the Stock Option or Stock Appreciation Right shall pass by will or the
laws of descent and distribution. Notwithstanding the foregoing, at the
discretion of the Committee, an award of a Benefit other than an Incentive Stock
Option may permit the transferability of a Benefit by a participant solely to
the participant's spouse, siblings, parents, children and grandchildren or
trusts for the benefit of such persons or partnerships, corporations, limited
liability companies or other entities owned solely by such persons, including
trusts for such persons, subject to any restriction included in the award of the
Benefit.
13. Other Provisions. The award of any Benefit under the Plan may also
be subject to such other provisions (whether or not applicable to the Benefit
awarded to any other participant) as the Committee determines, at the date of
grant, as may be appropriate, including, without limitation, for the installment
purchase of Common Stock under Stock Options, for the installment exercise of
Stock Appreciation Rights, to assist the participant in financing the
acquisition of Common Stock, for the forfeiture of, or restrictions on resale or
other disposition of, Common Stock
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acquired under any form of Benefit, for the acceleration of exercisability or
vesting of Benefits in the event of a Change in Control of the Corporation, for
the payment of the value of Benefits to participants in the event of a Change in
Control of the Corporation, or to comply with federal and state securities laws,
or understandings or conditions as to the participant's employment in addition
to those specifically provided for under the Plan.
14. Fair Market Value. For purposes of this Plan and any Benefits
awarded hereunder, Fair Market Value shall mean the amount determined in good
faith by the Committee as the fair market value of the Common Stock of the
Corporation.
15. Withholding. All payments or distributions of Benefits made
pursuant to the Plan shall be net of any amounts required to be withheld
pursuant to applicable federal, state and local tax withholding requirements. If
the Corporation proposes or is required to distribute Common Stock pursuant to
the Plan, it may require the recipient to remit to it or to the corporation that
employs such recipient an amount sufficient to satisfy such tax withholding
requirements prior to the delivery of any certificates for such Common Stock. In
lieu thereof, the Corporation or the employing corporation shall have the right
to withhold the amount of such taxes from any other sums due or to become due
from such corporation to the recipient as the Committee shall prescribe. The
Committee may, in its discretion and subject to such rules as it may adopt
(including any as may be required to satisfy applicable tax and/or non-tax
regulatory requirements), permit an optionee or award or right holder to pay all
or a portion of the federal, state and local withholding taxes arising in
connection with any Benefit consisting of shares of Common Stock by electing to
have the Corporation withhold shares of Common Stock having a Fair Market Value
equal to the amount of tax to be withheld, such tax calculated at rates required
by statute or regulation.
16. Tenure. A participant's right, if any, to continue to serve the
Corporation as a director, officer, employee, or otherwise, shall not be
enlarged or otherwise affected by his or her designation as a participant under
the Plan.
17. Unfunded Plan. Participants shall have no right, title, or
interest whatsoever in or to any investments which the Corporation may make to
aid it in meeting its
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obligations under the Plan. Nothing contained in the Plan, and no action taken
pursuant to its provisions, shall create or be construed to create a trust of
any kind, or a fiduciary relationship between the Corporation and any
participant, beneficiary, legal representative or any other person. To the
extent that any person acquires a right to receive payments from the Corporation
under the Plan, such right shall be no greater than the right of an unsecured
general creditor of the Corporation. All payments to be made hereunder shall be
paid from the general funds of the Corporation and no special or separate fund
shall be established and no segregation of assets shall be made to assure
payment of such amounts except as expressly set forth in the Plan. The Plan is
not intended to be subject to the Employee Retirement Income Security Act of
1974, as amended.
18. No Fractional Shares. No fractional shares of Common Stock shall be
issued or delivered pursuant to the Plan or any Benefit. The Committee shall
determine whether cash, or Benefits, or other property shall be issued or paid
in lieu of fractional shares or whether such fractional shares or any rights
thereto shall be forfeited or otherwise eliminated.
19. Duration, Amendment and Termination. No Benefit shall be granted
more than ten years after the Effective Date; provided, however, that the terms
and conditions applicable to any Benefit granted prior to such date may
thereafter be amended or modified by mutual agreement between the Corporation
and the participant or such other persons as may then have an interest therein;
provided, however, that the foregoing shall not permit such parties to agree to
amend or modify the exercise price of a Stock Option previously granted
hereunder, except as provided in Section 11. Also, by mutual agreement between
the Corporation and a participant hereunder, under this Plan or under any other
present or future plan of the Corporation, Benefits may be granted to such
participant in substitution and exchange for, and in cancellation of, any
Benefits previously granted such participant under this Plan, or any other
present or future plan of the Corporation. The Committee may amend the Plan from
time to time or suspend or terminate the Plan at any time. However, no action
authorized by this Section 19 shall reduce the amount of any existing Benefit or
change the terms and conditions thereof without the participant's consent. No
amendment of the Plan shall, without approval of the stockholders of the
Corporation, (i) increase the total number of shares which
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may be issued under the Plan or the maximum number of shares with respect to
Stock Options, Stock Appreciation Rights and other Benefits that may be granted
to any individual under the Plan or (ii) modify the requirements as to
eligibility for Benefits under the Plan; provided, however, that no amendment
may be made without approval of the stockholders of the Corporation if the
amendment will disqualify any Incentive Stock Options granted hereunder.
20. Governing Law. This Plan, Benefits granted hereunder and actions
taken in connection herewith shall be governed and construed in accordance with
the laws of the State of Delaware (regardless of the law that might otherwise
govern under applicable Delaware principles of conflict of laws).
21. Effective Date.
(a) The Plan shall be effective as of June 25, 1997, the date
on which the Plan was adopted by the Committee (the "Effective Date"), provided
that the Plan is approved by the stockholders of the Corporation at an annual
meeting or any special meeting of stockholders of the Corporation within 12
months of the Effective Date, and such approval of stockholders shall be a
condition to the right of each participant to receive any Benefits hereunder.
Any Benefits granted under the Plan prior to such approval of stockholders shall
be effective as of the date of grant (unless, with respect to any Benefit, the
Committee specifies otherwise at the time of grant), but no such Benefit may be
exercised or settled and no restrictions relating to any Benefit may lapse prior
to such stockholder approval, and if stockholders fail to approve the Plan as
specified hereunder, any such Benefit shall be cancelled.
(b) This Plan shall terminate on June 25, 2007 (unless sooner
terminated by the Committee).
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Employment Agreement
THIS EMPLOYMENT AGREEMENT (the "Agreement") dated as of May 17, 1996,
between NATIONAL TOBACCO COMPANY, L.P. (the "Company") and THOMAS F. HELMS, JR.
(the "Executive").
STATEMENT OF PURPOSE
In connection with the recapitalization of the Company and the formation of
NTC Holding, LLC as the parent of the Company, the Company and the Executive
desire to enter into this Agreement.
AGREEMENT
1. Employment, Duties and Acceptance. (a) The Company shall employ the
Executive during the Term (as hereinafter defined) as the President and Chief
Executive Officer of the Company.
(b) The Executive hereby accepts such employment and agrees to render his
services to the Company on a full-time basis. The Executive further agrees to
accept election and to serve during all or any part of the Term or any Renewal
Term as an officer, director or representative of any subsidiary or affiliate of
the Company, without any compensation therefor other than that specified in this
Agreement. The Executive shall report directly to the management committee (the
"Management Committee") of NTC Holding, LLC, the parent of the Company.
(c) The duties to be performed by the Executive hereunder shall be
performed primarily in New York, New York, subject to reasonable travel
requirements on behalf of the Company. The Company shall not relocate the
Executive outside of New York, New York, without his prior written consent,
which may be withheld in the Executive's discretion. The Executive shall be
entitled to such amounts of paid vacation time as are comparable to that
provided to other senior executives of the same or similar stature.
2. Term of Employment. As used herein, the "Term" means the period
commencing as of May 17, 1996, and ending on May 16, 1999, and shall
automatically renew thereafter for successive periods of one (1) year (each a
"Renewal Term") unless either party gives written notice of termination of the
Agreement at least ninety (90) days prior to the end of the Term or any Renewal
Term. Unless otherwise specified, further references in this Agreement to the
Term shall include any applicable Renewal Term.
3. Compensation. (a) During the Term, the Company agrees to pay to the
Executive a salary in cash (the "Salary") as compensation for the services to be
performed by him as provided herein. The Salary shall be paid at the rate of
$300,000 per annum (it being understood that the Salary for 1996 shall be in
proportion to the number of days remaining in the year), less such deductions or
amounts to be withheld as shall be required by applicable
<PAGE>
law and regulations. The Salary shall be paid in equal monthly installments or
more frequently in accordance with the Company's salaried payroll payment
policy. The Salary shall be reviewed annually and may be increased at the sole
discretion of the Compensation Committee of the Management Committee.
(b) In addition to the Salary, the Executive shall also be eligible
throughout the Term to receive cash bonuses (each a "Bonus") in accordance with
the Company's Bonus Plan, attached hereto as Exhibit A, based on the Company's
audited financial statements for the applicable year and payable after delivery
of such financial statements.
(c) In addition to the foregoing, the Executive shall be entitled to all
rights and benefits for which he shall be eligible under any other incentive
program, retirement, retirement savings, profit-sharing, pension or welfare
benefit plan, life, disability, health, dental, hospitalization and other forms
of insurance and all other so-called "fringe" benefits or perquisites, in each
case at the highest level which the Company shall from time to time provide for
any of its senior executives of the same or similar stature.
4. Termination. (a) If during the Term the Executive shall die, the
Executive's legal representative shall be entitled to receive in cash an amount
calculated as the sum of (i) any accrued and unpaid Salary to the date of such
death and (ii) any accrued and unpaid Bonus to the date of such death, including
any Bonus for the year in which the termination occurs, calculated by reviewing
the Company's performance for such entire year and prorating any such Bonus for
the number of days elapsed during such year prior to such termination. In
addition, the Executive (or his legal representative) shall be entitled to
receive any insurance proceeds payable pursuant to any insurance provided
pursuant to Section 3(c) hereof.
(b) If during the Term the Executive shall become physically or mentally
disabled, whether totally or partially, so that he is unable substantially to
perform his services hereunder for a period of at least 90 days out of any
twelve consecutive months (which condition is referred to herein as the
Executive becoming "Disabled"), the Company may at any time prior to the 90th
day after the last day of such twelfth consecutive month, by written notice to
the Executive, terminate the Executive's employment, in which event the
Executive (or his legal representative) shall be entitled to receive in cash an
amount calculated as the sum of (i) any accrued and unpaid Salary to the date of
such notice and (ii) any accrued and unpaid Bonus to the date of such notice,
including any Bonus for the year in which the termination occurs, calculated by
reviewing the Company's performance for such entire year and prorating any such
Bonus for the number of days elapsed during such year prior to such termination.
In addition, the Executive (or his legal representative) shall be entitled to
receive any disability benefits payable pursuant to any plan referred to in
Section 3(c) hereof. Nothing herein contained shall be deemed to limit or
abrogate any insurance or other similar benefits available to the Executive.
(c) The Executive's employment may be terminated by the Company during the
Term for Cause (as hereinafter defined). If during the Term the Executive's
employment shall be lawfully terminated by the Company for Cause or the
Executive shall voluntarily resign without Good Reason (as hereinafter defined),
the Company's obligation to pay Salary
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and Bonus for the benefit of the Executive, and the Executive's obligation to
render services hereunder for the benefit of the Company, shall cease on the
date of such termination or resignation; provided, however, that within 30 days
of the date of such termination or resignation, the Company shall pay the
Executive in cash (i) an amount calculated as the sum of any accrued and unpaid
Salary to such date and (B) any accrued and unpaid Bonus for any year preceding
such termination or resignation and (ii) all business expenses, amounts payable
under any benefit plan or program or other amounts that were accrued or incurred
but unpaid or unreimbursed at such date.
As used herein, the term "Cause" shall mean only (i) a felony conviction of
the Executive (as determined by a court of competent jurisdiction, not subject
to further appeal), (ii) the commission by the Executive of an act of fraud or
embezzlement against the Company or any of its affiliates (as determined by a
court of competent jurisdiction, not subject to further appeal), (iii) gross
misconduct which is demonstrably willful and deliberate on the Executive's part
and which is materially detrimental to the Company or any of its affiliates,
(iv) any material breach by the Executive of any agreement with the Company or
any affiliate thereof not cured within 20 days after receiving written notice
thereof or (v) gross insubordination to the organizational authority of the
Company consisting of the Executive's continued failure to take specific action
which is within his individual control and consistent with his status as a
senior executive of the Company and his duties and responsibilities hereunder
after written notice from the Company of not less than 20 days, provided that
such notice shall clearly specify that a failure to take such action may
constitute "Cause" for termination under this Agreement.
As used herein, the term "Good Reason" means any of the following:
(i) the assignment to the Executive of any duties inconsistent with
his status as President and Chief Executive Officer of the Company or a
material adverse alteration in the nature or status of his responsibilities
from those provided herein or the transfer of a significant portion of such
responsibilities to one or more other persons;
(ii) the failure by the Company to pay or provide to the Executive,
within 30 days of a written demand therefor, any amount of compensation or
any benefit which is due, owing and payable pursuant to the terms hereof or
of any applicable plan, program, arrangement or policy; or
(iii) the breach in any material respect by the Company of any of its
other obligations or agreements set forth herein and the failure by the
Company to cure such breach within 20 days after written notice thereof
from the Executive.
(d) If during the Term the Executive's employment shall be terminated by
the Company without Cause (and other than pursuant to Section 4(b)) or by the
Executive for Good Reason, the Executive shall be entitled to receive in cash
severance pay equal to 12 months of the Executive's then current Salary, payable
in monthly installments. The Executive shall also receive any benefits under any
benefit plan or program of the Company to which the Executive would otherwise be
entitled pursuant to the terms of such plan or program through the Term, or
pursuant to any applicable state or federal law; provided, that
-3-
<PAGE>
the Executive shall only be entitled to receive a Bonus for the year in which
the termination occurs, prorated and calculated as provided in Sections 4(a) and
(b).
(e) During the term of the Executive's employment with Company and for
twelve months after the date of termination of Executive's employment (the
"Noncompetition Period"), Executive hereby agrees not to Compete with the
Company. For purposes of this section, the term Compete means:
(i) soliciting or counseling, personally or by or on behalf of any
person, firm or corporation, the employment of any employee of Company, or
requesting, inducing or attempting to influence any employee of the Company
to terminate his employment with Company; or
(ii) directly or indirectly (A) requesting, inducing or attempting to
influence any supplier of goods or services to Company to curtail or cancel
any business it transacts with Company; or (B) requesting, inducing or
attempting to influence any customer of Company to curtail or cancel any
business they may transact with Company; or (C) engaging in any business
that the Company is engaged in as of the date of such termination (whether
as an officer, director, partner, emploee or other owner).
Notwithstanding the foregoing, the provisions of this Section 4(e) shall be
effective only during such period for which the Executive receives severance pay
pursuant to Section 4(d) hereof.
(f) The Company acknowledges and agrees that the Executive shall have no
duty at any time to seek other employment or to mitigate his damages hereunder.
The amounts payable to the Executive under this Agreement shall be paid
regardless of whether the Executive obtains other employment.
5. Expenses. In the event that the Executive institutes any legal action to
enforce his rights under, or to recover damages from breach of, this Agreement,
the Executive, if he is the prevailing party, shall be entitled to recover from
the Company any actual expenses for attorneys' fees and disbursements reasonably
incurred by him.
6. Assignment. This Agreement is binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns.
Notwithstanding the foregoing, neither party shall assign or transfer any rights
or obligations hereunder, except that the Company may assign or transfer this
Agreement to (a) a successor corporation in the event of a merger,
consolidation, or transfer or sale of all or substantially all of the assets, of
the Company or (b) an affiliate of the Company; provided that no such assignment
referred to in the foregoing clause (a) or (b) shall relieve the Company from
liability for its obligations hereunder. Any purported assignment, other than as
provided above, shall be null and void.
7. Indemnification. The Company shall indemnify the Executive in accordance
with its Third Amended and Restated Agreement of Limited Partnership, a copy of
which has
-4-
<PAGE>
been delivered to the Executive, against all costs, charges and expenses
incurred or sustained by him in connection with any action, suit or proceeding
to which he may be made a party by reason of his being an officer, director or
employee of the Company or of any subsidiary or affiliate of the Company. The
Company's obligations under this Section 7 shall survive any termination of this
Agreement or the Executive's employment hereunder.
9. Notices. All notices, requests, consents and other communications,
required or permitted to be given hereunder, shall be in writing and shall be
delivered personally or sent by prepaid telegram, telex, facsimile transmission,
overnight courier or mailed, first-class, postage prepaid by registered or
certified mail, as follows:
If to the Company: National Tobacco Company, L.P.
444 Park Avenue South
New York, New York 10016
If to the Executive: Thomas F. Helms, Jr.
Rt. 4, Box 156
Elba, Alabama 36323
Fax: (334) 897-2174
or such other address as either party shall designate by notice in writing to
the other in accordance herewith. Any such notice shall be deemed given when so
delivered personally, by telex, facsimile transmission or telegram, or if sent
by overnight courier, one day after delivery to such courier by the sender or if
mailed, five days after deposit by the sender in the U.S. mails.
10. Waiver. No waiver of any provision of this Agreement or modification or
amendment of the same shall be effective, binding or enforceable unless in
writing and signed by the party to be charged therewith.
11. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York applicable to
agreements made and to be performed entirely within such State.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first written above.
NATIONAL TOBACCO COMPANY, L.P.
By its General Partner:
NATIONAL TOBACCO FINANCE CORPORATION
By:/s/ Thomas F. Helms, Jr.
---------------------------------
Name: Thomas F. Helms, Jr.
Title: President
/s/ Thomas F. Helms, Jr.
---------------------------------
Thomas F. Helms, Jr.
-6-
<PAGE>
April 14, 1997
Mr. David I. Brunson
4 Hawthorne Road
Bronxville, New York 10708
Dear David:
In connection with your employment with NTC Holding, LLC ("NTC Holding")
and National Tobacco Company, L.P. ("NTC"), we have reached certain agreements
on a personal basis, and this letter is written to set forth the terms of those
agreements:
1. In the event of a sale of substantially all the issued and outstanding
equity of NTC Holding or a sale of all or substantially all the assets of NTC
Holding prior to the earlier of a refinancing of the Company's indebtedness
(other than the refinancing anticipated in connection with the North Atlantic
Trading Company ("NATC") transaction) or May 17, 2001, I agree to pay to you an
amount equal to 1.78% of the value of the common equity of the Company (based on
the transaction valuation at that time and subject to dilution for stock
issuances between the date hereof and the closing date of the sale) minus
$445,000.00. No payment will be required to be made pursuant to this agreement
in the event of (a) a sale of the Company following the occurrence of an Adverse
Condition, as defined in the Operating Agreement, (b) a sale of the Company
pursuant to which I receive gross proceeds of less than $25 million, or (c)
pursuant to a merger or consolidation in which management of NTC Holding
receives a significant equity stake in the resulting company and you are offered
employment terms comparable to the terms of your employment with the Company.
2. It is anticipated that NTC Holding will be recapitalized after the NATC
transaction but prior to
<PAGE>
Mr. David I. Brunson
April 14, 1997
Page 2
May 17, 2001 (the "First Recap"). In the event the Company is recapitalized
following the first recap and as a result of the second recapitalization a
dividend of at least $25 million is paid to the equity holders of the Company, I
agree to increase your equity ownership in the Company by 1%.
3. In connection with the documentation of the Company's acquisition of
NATC, if I am advised by the Company's attorneys or accountants that the payment
described in Paragraph 1 above should be documented as a stock option, you agree
to enter into a stock option agreement with me so long as the financial impact
of the stock option is neutral to you.
4. Except as set forth below, the agreements set forth above are
conditioned on your being an employee of the Company at the time any payment is
required to be made. In the event your employment with the Company is terminated
for any reason other than Cause within eighteen months of the date payment is
required to be made pursuant to this agreement, you will be entitled to receive
payment even though you are no longer employed by the Company.
If the foregoing accurately sets forth our agreement relating to the
subject matter hereof, please execute both copies of this letter in the space
provided below and return a copy to me for my files.
Very truly yours,
/s/ Thomas F. Helms, Jr.
------------------------
Thomas F. Helms, Jr.
<PAGE>
Employment Agreement
THIS EMPLOYMENT AGREEMENT (the "Agreement") dated as of April 23, 1997,
between NATIONAL TOBACCO COMPANY, L.P. (the "Company") and DAVID I. BRUNSON (the
"Executive").
AGREEMENT
1. Employment, Duties and Acceptance. (a) The Company shall employ the
Executive during the Term (as hereinafter defined) as the Executive Vice
President Finance and Administration and Chief Financial Officer of the Company.
(b) The Executive hereby accepts such employment and agrees to render his
services to the Company on a full-time basis. The Executive further agrees to
accept election and to serve during all or any part of the Term or any Renewal
Term as an officer, director or representative of any subsidiary or affiliate of
the Company, without any compensation therefor other than that specified in this
Agreement. The Executive shall report directly to the Chief Executive Officer of
the Company.
(c) The duties to be performed by the Executive hereunder shall be
performed primarily in New York, New York, subject to reasonable travel
requirements on behalf of the Company. The Executive acknowledges that he may be
required to spend a significant amount of time periodically in the Company's
Louisville facility. The Company shall not relocate the Executive outside of New
York, New York, without his prior written consent, which may be withheld in the
Executive's discretion. The Executive shall be entitled to four (4) weeks of
paid vacation time annually.
2. Term of Employment. As used herein, the "Term" means the period
commencing as of April 23, 1997, and ending on April 30, 1999, and shall
automatically renew thereafter for successive periods of one (1) year (each a
"Renewal Term") unless either party gives written notice of termination of the
Agreement at least ninety (90) days prior to the end of the Term or any Renewal
Term. Unless other-
<PAGE>
wise specified, further references in this Agreement to the Term shall include
any applicable Renewal Term.
3. Compensation. (a) During the Term, the Company agrees to pay to the
Executive a salary in cash (the "Salary") as compensation for the services to be
performed by him as provided herein. The Salary shall be paid at the rate of
$300,000 per annum (it being understood that the Salary for 1997 shall be in
proportion to the number of days remaining in the year), less such deductions or
amounts to be withheld as shall be required by applicable law and regulations.
The Salary shall be paid in equal monthly installments or more frequently in
accordance with the Company's salaried payroll payment policy. The Salary shall
be reviewed annually and may be increased at the sole discretion of the
Compensation Committee of the Management Committee; provided, however, that
assuming that the Company has met its EBITDA budget and Executive's performance
is deemed satisfactory by the Company's Chief Executive Officer, the Chief
Executive Officer will propose to the Compensation Committee that the Salary be
increased by not less than 10% on the first anniversary of the date hereof.
(b) In addition to the Salary, the Executive shall also be eligible
throughout the Term to receive cash bonuses (each a "Bonus") as a member of
Group A in accordance with the Company's Bonus Plan (as in effect from time to
time) based on the Company's audited financial statements for the applicable
year and payable after delivery of such financial statements. The Executive's
bonus for 1997 will not be prorated because Executive was not employed for a
full year and Executive shall be paid a guaranteed bonus for 1997 in an amount
equal to the greater of the amount otherwise payable pursuant to the Bonus Plan
or $50,000.00.
(c) In addition to the foregoing, the Executive shall be entitled to all
rights and benefits for which he shall be eligible under any other incentive
program, retirement, retirement savings, profit-sharing, pension or welfare
benefit plan, life, disability, health, dental, hospitalization and other forms
of insurance and all other so-called "fringe" benefits or perquisites, including
an automobile allowance and reimbursement of the costs of one club membership in
each case at the highest level which the Company shall from time to time provide
for any of its senior executives of the same or similar stature. The Executive
shall be entitled to receive stock options to the extent and
2
<PAGE>
on the terms outlined in the Company's offer letter dated April 14, 1997. In
addition, to the extent obtainable at reasonable premiums, the Company shall
provide the Executive with a term life insurance policy in an amount equal to
$2,000,000.00, with Executive's estate being the beneficiary. The Company shall
also reimburse Executive for the one time cost of refinancing his existing
mortgage to the extent such refinancing is required as a result of Executive's
termination of his existing employment, in an amount not to exceed $40,000.00.
4. Termination. (a) If during the Term the Executive shall die, the
Executive's legal representative shall be entitled to receive in cash an amount
calculated as the sum of (i) any accrued and unpaid Salary to the date of such
death and (ii) any accrued and unpaid Bonus to the date of such death, including
any Bonus for the year in which the termination occurs, calculated by reviewing
the Company's performance for such entire year and prorating any such Bonus for
the number of days elapsed during such year prior to such termination. In
addition, the Executive (or his legal representative) shall be entitled to
receive any insurance proceeds payable pursuant to any insurance provided
pursuant to Section 3(c) hereof.
(b) If during the Term the Executive shall become physically or mentally
disabled, whether totally or partially, so that he is unable substantially to
perform his services hereunder for a period of at least 90 days out of any
twelve consecutive months (which condition is referred to herein as the
Executive becoming "Disabled"), the Company may at any time prior to the 90th
day after the last day of such twelfth consecutive month, by written notice to
the Executive, terminate the Executive's employment, in which event the
Executive (or his legal representative) shall be entitled to receive in cash an
amount calculated as the sum of (i) any accrued and unpaid Salary to the date of
such notice and (ii) any accrued and unpaid Bonus to the date of such notice,
including any Bonus for the year in which the termination occurs, calculated by
reviewing the Company's performance for such entire year and prorating any such
Bonus for the number of days elapsed during such year prior to such termination.
In addition, the Executive (or his legal representative) shall be entitled to
receive any disability benefits payable pursuant to any plan referred to in
Section 3(c) hereof. Nothing herein contained shall be deemed to limit or
abrogate any insurance or other similar benefits available to the Executive.
3
<PAGE>
(c) The Executive's employment may be terminated by the Company during the
Term for Cause (as hereinafter defined). If during the Term the Executive's
employment shall be lawfully terminated by the Company for Cause or the
Executive shall voluntarily resign without Good Reason (as hereinafter defined),
the Company's obligation to pay Salary and Bonus for the benefit of the
Executive, and the Executive's obligation to render services hereunder for the
benefit of the Company, shall cease on the date of such termination or
resignation; provided, however, that within 30 days of the date of such
termination or resignation, the Company shall pay the Executive in cash (i) an
amount calculated as the sum of any accrued and unpaid Salary to such date and
(B) any accrued and unpaid Bonus for any year preceding such termination or
resignation and (ii) all business expenses, amounts payable under any benefit
plan or program or other amounts that were accrued or incurred but unpaid or
unreimbursed at such date.
As used herein, the term "Cause" shall mean only (i) a felony conviction of
the Executive (as determined by a court of competent jurisdiction, not subject
to further appeal), (ii) the commission by the Executive of an act of fraud or
embezzlement against the Company or any of its affiliates (as determined by a
court of competent jurisdiction, not subject to further appeal), (iii) gross
misconduct which is demonstrably willful and deliberate on the Executive's part
and which is materially detrimental to the Company or any of its affiliates,
(iv) any material breach by the Executive of any agreement with the Company or
any affiliate thereof not cured within 10 days after receiving written notice
thereof or any material violation of any policies or procedures of the Company
if the Company has given Executive written notice of such violation and
Executive persists in such violation or (v) insubordination consisting of the
Executive's continued failure to take specific action which is within his
individual control and consistent with his status as a senior executive of the
Company and his duties and responsibilities hereunder after written notice from
the Chief Executive Officer of the Company of not less than 10 days.
As used herein, the term "Good Reason" means any of the following:
(i) the assignment to the Executive of any duties inconsistent with
his status as Executive Vice President - Finance and Administration and
Chief
4
<PAGE>
Financial Officer of the Company or a material adverse alteration in the
nature or status of his responsibilities from those provided herein or the
transfer of a significant portion of such responsibilities to one or more
other persons;
(ii) the failure by the Company to pay or provide to the Executive,
within 30 days of a written demand therefor, any amount of compensation or
any benefit which is due, owing and payable pursuant to the terms hereof or
of any applicable plan, program, arrangement or policy; or
(iii) the breach in any material respect by the Company of any of its
other obligations or agreements set forth herein and the failure by the
Company to cure such breach within 20 days after written notice thereof
from the Executive.
(d) If during the Term the Executive's employment shall be terminated by
the Company without Cause (and other than pursuant to Section 4(b)) or by the
Executive for Good Reason, the Executive shall be entitled to receive in cash
severance pay equal to 12 months of the Executive's then current Salary, payable
in monthly installments. The Executive shall also receive any benefits under any
benefit plan or program of the Company to which the Executive would otherwise be
entitled pursuant to the terms of such plan or program through the Term, or
pursuant to any applicable state or federal law; provided, that the Executive
shall only be entitled to receive a Bonus for the year in which the termination
occurs, prorated and calculated as provided in Sections 4(a) and (b).
(e) During the term of the Executive's employment with Company and for
twelve months after the date of termination of Executive's employment (the
"Noncompetition Period"), Executive hereby agrees not to Compete with the
Company. For purposes of this section, the term Compete means:
(i) soliciting or counseling, personally or by or on behalf of any
person, firm or corporation, the employment of any employee of Company, or
requesting, inducing or attempting to influence any employee of the Company
to terminate his employment with Company; or
5
<PAGE>
(ii) directly or indirectly (A) requesting, inducing or attempting to
influence any supplier of goods or services to Company to curtail or cancel
any business it transacts with Company; or (B) requesting, inducing or
attempting to influence any customer of Company to curtail or cancel any
business they may transact with Company; or (C) engaging in any business
that the Company is engaged in as of the date of such termination (whether
as an officer, director, partner, employee or other owner).
Notwithstanding the foregoing, the provisions of this Section 4(e) shall be
effective only during such period for which the Executive receives severance pay
pursuant to Section 4(d) hereof.
(f) The Company acknowledges and agrees that the Executive shall have no
duty at any time to seek other employment or to mitigate his damages hereunder.
The amounts payable to the Executive under this Agreement shall be paid
regardless of whether the Executive obtains other employment.
5. Expenses. In the event that the Executive institutes any legal action to
enforce his rights under, or to recover damages from breach of, this Agreement,
the Executive, if he is the prevailing party, shall be entitled to recover from
the Company any actual expenses for attorneys' fees and disbursements reasonably
incurred by him.
6. Assignment. This Agreement is binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns.
Notwithstanding the foregoing, neither party shall assign or transfer any rights
or obligations hereunder, except that the Company may assign or transfer this
Agreement to (a) a successor corporation in the event of a merger,
consolidation, or transfer or sale of all or substantially all of the assets, of
the Company or (b) an affiliate of the Company; provided that no such assignment
referred to in the foregoing clause (a) or (b) shall relieve the Company from
liability for its obligations hereunder. Any purported assignment, other than as
provided above, shall be null and void.
7. Indemnification. The Company shall indemnify the Executive in accordance
with its Third Amended and Restated Agreement of Limited Partnership, a copy of
which
6
<PAGE>
has been delivered to the Executive, against all costs, charges and expenses
incurred or sustained by him in connection with any action, suit or proceeding
to which he may be made a party by reason of his being an officer, director or
employee of the Company or of any subsidiary or affiliate of the Company. The
Company's obligations under this Section 7 shall survive any termination of this
Agreement or the Executive's employment hereunder.
9. Notices. All notices, requests, consents and other communications,
required or permitted to be given hereunder, shall be in writing and shall be
delivered personally or sent by prepaid telegram, telex, facsimile transmission,
overnight courier or mailed, first-class, postage prepaid by registered or
certified mail, as follows:
If to the Company: National Tobacco Company, L.P.
257 Park Avenue South
New York, New York 10016
If to the Executive: David I. Brunson
4 Hawthorne Road
Bronxville, New York 10708
or such other address as either party shall designate by notice in writing to
the other in accordance herewith. Any such notice shall be deemed given when so
delivered personally, by telex, facsimile transmission or telegram, or if sent
by overnight courier, one day after delivery to such courier by the sender or if
mailed, five days after deposit by the sender in the U.S. mails.
10. Waiver. No waiver of any provision of this Agreement or modification or
amendment of the same shall be effective, binding or enforceable unless in
writing and signed by the party to be charged therewith.
11. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York applicable to
agreements made and to be performed entirely within such State.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first written above.
NATIONAL TOBACCO COMPANY, L.P.
By its General Partner
NATIONAL TOBACCO FINANCE
CORPORATION
By:/s/ Thomas J. Helms
-------------------------------
Name: Thomas Helms
Title: President and CEO
/s/ David I. Brunson
----------------------------------
David I. Brunson
8
<PAGE>
NONQUALIFIED STOCK OPTION AGREEMENT
GRANTED TO: David I. Brunson
EFFECTIVE DATE OF April 23, 1997
GRANT:
GRANTED PURSUANT TO: NORTH ATLANTIC TRADING COMPANY 1997
SHARE INCENTIVE PLAN
NUMBER OF UNDERLYING 30,928
SHARES:
EXERCISE PRICE: 18.19 per share
VESTING SCHEDULE: One third commencing on April 23, 1997 and each
of the first two anniversaries thereafter
1. This Nonqualified Stock Option Agreement (the "Agreement") is made
and entered into as of June 25, 1997 between North Atlantic Trading Company,
Inc., a Delaware corporation (the "Company") and David I. Brunson (the
"Employee"). It is the intent of the Company and the Employee that this Option
(as defined in Paragraph 2 below) will not qualify as an "incentive stock
option" under Section 422 of the Internal Revenue Code of 1986, as amended from
time to time.
2. The Employee is granted an option to purchase 30,928 shares of the
Common Stock (the "Option"). The Option is granted under the Company's 1997
Share Incentive Plan (the "Plan") and is subject to the terms of the Plan and of
this Agreement. Capitalized terms not defined herein shall have the meanings
ascribed thereto in the Plan.
3. The Option's Exercise Price is $18.19 per share.
4. Subject to Paragraph 5 below, the Option shall become exercisable
according to the vesting schedule set forth below:
10,309 shares of Common Stock shall become exercisable and remain exercisable on
April 23, 1997
10,310 shares of Common Stock shall become exercisable and remain exercisable on
April 23, 1998
10,309 shares of Common Stock shall become exercisable and remain exercisable on
April 23, 1999.
5. The Option, unless sooner terminated or exercised in full, shall expire
on April 23, 2012 and, notwithstanding anything herein to the contrary, no
portion of the Option may
<PAGE>
be exercised after such date.
6. (a) In the event of death of the Employee, or if the Employee's
employment is terminated due to disability, each stock option theretofore
granted to him shall be exercisable until April 23, 2012, and then only by the
executor or administrator of the estate of the deceased participant or the
person or persons to whom the deceased participant's rights under the Option
shall pass by will or the laws of descent or distribution or the disabled
employee or his legal guardian.
(b) In the event the Employee's employment is terminated due to
retirement, the unexercisable portion of the Option held by the Employee on the
date of termination of employment shall immediately be forfeited by the Employee
and the exercisable portion of the Option held by the Employee on the date of
termination of employment shall remain exercisable until the earlier of (i) 90
days after the Employee's termination of employment or (ii) the date the Option
would otherwise expire.
(c) In the event the Employee's employment is terminated by the Company
without Cause or by the Executive for Good Reason (as defined in the Executive's
Employment Agreement) and not by reason of the Employee's death or disability,
the unexercisable portion of the Option held by the Employee on the date of
termination of employment shall immediately become exercisable and the entire
Option held by the Employee on the date of termination of employment shall
remain exercisable until the date the Option would otherwise expire.
(d) In the event the Employee's employment is terminated by the Company
or any Subsidiary for Cause or is terminated by the Employee for any reason
other than Retirement, Good Reason, death or Disability, the unvested portion of
the Option held by the Employee at the time of termination of employment shall
immediately be forfeited by the Employee. The vested portion of the Option shall
remain exercisable until the earlier of (i) the end of the 90 day period
following the Employee's termination of employment or (ii) the date the Option
would otherwise expire.
7. The Employee may exercise the Option regardless of whether any other
option that the Employee has been granted by the Company remains unexercised. In
no event may the Employee exercise the Option for a fraction of a share or for
less than 100 shares.
8. The Option's Exercise Price shall be paid by the Employee on the date
the Option is exercised, in cash, in shares of Common Stock owned by the
Employee or by a combination of the foregoing. Any shares of Common Stock
delivered in payment of the Exercise Price shall be valued at Fair Market Value.
2
<PAGE>
9. The Employee may pay the amount of taxes required to be withheld upon
exercise of the Option by (i) delivering a check made payable to the Company or
(ii) delivering to the Company at the time of such exercise shares of Common
Stock having a Fair Market Value equal to the amount of such withholding taxes.
10. The Employee shall not have any of the rights of a shareholder with
respect to the shares of Common Stock underlying the Option while the Option is
unexercised.
11. Any exercise of this Option shall be in writing addressed to the
Corporate Secretary of the Company at the principal place of business of the
Company, specifying the Option being exercised and the number of shares to be
purchased.
12. If the Company, in its sole discretion, shall determine that it is
necessary, to comply with applicable securities laws, the certificate or
certificates representing the shares purchased pursuant to the exercise of this
Option shall bear an appropriate legend in form and substance, as determined by
the Company, giving notice of applicable restrictions on transfer under or in
respect of such laws.
13. The Employee covenants and agrees with the Company that if, at the time
of exercise of this Option, there does not exist a Registration Statement on an
appropriate form under the Securities Act of 1933, as amended (the "Act"), which
Registration Statement shall have become effective and shall include a
prospectus that is current with respect to the shares subject to this Option,
(i) that he is purchasing the shares for his own account and not with a view to
the resale or distribution thereof, (ii) that any subsequent offer for sale or
sale of any such shares shall be made either pursuant to (x) a Registration
Statement on an appropriate form under the Act, which Registration Statement
shall have become effective and shall be current with respect to the shares
being offered and sold, or (y) a specific exemption from the registration
requirements of the Act, but in claiming such exemption, the Employee shall,
prior to any offer for sale or sale of such shares, obtain a favorable written
opinion from counsel for or approved by the Company as to the applicability of
such exemption and (iii) that the Employee agrees that the certificates
evidencing such shares shall bear a legend to the effect of the foregoing.
14. This Agreement is subject to all terms, conditions, limitations and
restrictions contained in the Plan, which shall be controlling in the event of
any conflicting or inconsistent provisions.
15. This Agreement is not a contract of employment and the terms of the
Employee's employment shall not be affected hereby or by any agreement referred
to herein except to the extent specifically so provided herein or therein.
Nothing herein shall be construed to impose any obligation on the Company to
continue the Employee's employment,
3
<PAGE>
and it shall not impose any obligation on the Employee's part to remain in the
employ of the Company.
17. Employee acknowledges and agrees that neither the Company, its
shareholders nor its directors and officers, has any duty or obligation to
disclose to the Employee any material information regarding the business of the
Company or affecting the value of the Common Stock before or at the time of a
termination of the employment of the Employee by the Company, including, without
limitation, any information concerning plans for the Company to make a public
offering of its securities or to be acquired by or merged with or into another
firm or entity.
4
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first written above.
NORTH ATLANTIC TRADING COMPANY, INC.
By /s/ Thomas F. Helms, Jr.
-----------------------------------
Thomas F. Helms, Jr.
President
ACCEPTED:
/s/ David I. Brunson
- ----------------------------------
Signature of Employee
David I. Brunson
- ----------------------------------
Name of Employee - Please Print
Date: June 25, 1997
5
<PAGE>
AMENDMENT NO. 1 TO THE
NONQUALIFIED STOCK OPTION AGREEMENT
GRANTED TO: David I. Brunson
EFFECTIVE DATE OF ORIGINAL GRANT: April 23, 1997
GRANTED PURSUANT TO: NORTH ATLANTIC TRADING
COMPANY 1997 SHARE INCENTIVE
PLAN
DATE OF AMENDMENT: September 2, 1997
Amendment No. 1 (the "Amendment"), dated and effective September 2,
1997, to the Nonqualified Stock Option Agreement, made and entered into as of
June 25, 1997, between North Atlantic Trading Company, Inc., a Delaware
corporation (the "Company"), and David I. Brunson. Paragraph 9 of the Agreement
is hereby amended in its entirety to read as follows:
9. (a) The Employee may pay within thirty (30) days following the
exercise of the Option the amount of taxes required to be withheld upon exercise
of the Option by (i) delivering a check made payable to the Company or (ii)
delivering to the Company shares of Common Stock having a Fair Market Value
equal to the amount of such withholding taxes; provided, however, that at the
Employee's election, any amount due to the Company under this Section 9(a) may
be reduced in whole or part by any amounts the Company owes such Employee under
subparagraph (b) below.
(b) Unless otherwise agreed to by the parties, on or before
April 15 of the calendar year following the year in which the Option is
exercised (the "Payment Date"), the Company shall pay the Employee an amount
(the "Payment") equal to the sum of:
(i) the difference between (A) the amount of taxable
income reportable by the Employee in connection with the
exercise of the Option multiplied by the highest aggregate
marginal statutory federal, state and local income tax rate
(determined by taking into account the deductibility of
state and local income taxes for federal income tax
purposes) to which such Employee is subject at the time of
exercise (the "Marginal Ordinary Tax Rate") and
(B) the amount of taxable income reportable by the Employee
in connection with the exercise of the Option multiplied by
the highest aggregate marginal statutory federal, state and
local income tax rate (determined by taking into account the
<PAGE>
deductibility of state and local income taxes for federal
income tax purposes) to which such Employee would be subject
at the time of exercise if such taxable income was
characterized as long-term capital gain (the "Marginal
Capital Gain Tax Rate") (such difference referred to as the
"Incremental Tax Amount"); and
(ii) (A) the Incremental Tax Amount divided by (B)
one minus the Employee's marginal Ordinary Tax Rate.
(c) The payment shall not be made pursuant to Section 9(b) in
the event the Option is exercised (i) within 180 days prior to the Employee's
termination of employment described in Section 6(d) of the Agreement or (ii)
following the Employee's termination of employment described in Section 6(d) of
the Agreement. Notwithstanding the foregoing, if the Payment Date falls within
180 days from the date of exercise, the Company shall only make the Payment to
Employee upon the signing of an undertaking, reasonably satisfactory to the
Company, by the Employee to repay the Payment to the Company if Employee
terminates his employment as described with Section 6(d) of the Agreement within
180 days of the date of the exercise of the Option.
(d) The Company shall treat the amount paid in 9(b) as
compensation payable to the Employee.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of
the date first written above.
NORTH ATLANTIC TRADING COMPANY
By /s/ Thomas F. Helms, Jr.
---------------------------
Thomas F. Helms, Jr.
President
ACCEPTED:
/s/ David I. Brunson
- -------------------------------
Signature of Employee
David I. Brunson
- -------------------------------
Name of Employee - Please Print
<PAGE>
Date: September 2, 1997
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into this 1st day of January, 1997, between NTC
HOLDING, LLC, a Delaware limited liability company (the "Company"), and JAY
MARTIN (the "Employee").
1. Employment. Unless sooner terminated as set forth in Section 9, the
Company agrees to employ the Employee and the Employee agrees to be employed by
the Company as Executive Vice President and Chief Operating Officer upon the
terms and conditions of this Agreement for a period of one year from and after
the date of this Agreement. Thereafter, this Agreement shall automatically be
renewed for one year terms on the anniversaries of the date hereof for each
succeeding year unless either party gives the other written notice to terminate
this Agreement at least sixty (60) days prior to the end of the initial period
or the then existing term, as the case may be. If either party gives the other
written notice of termination within such 60-day period, the parties agree to
negotiate in good faith a mutually acceptable consulting arrangement pursuant to
which the Employee will provide consulting services to the Company.
2. Compensation. For all services rendered by the Employee to the Company,
the Company shall pay the Employee a salary of Two Hundred Thousand Dollars
($200,000) per annum, payable in accordance with the Company's then existing
payroll policy. Salary payments shall be subject to withholding and other
applicable taxes.
3. Additional Benefits. The Employee shall be eligible for such fringe
benefits, if any, by way of insurance, retirement, hospitalization and annual
bonuses normally provided to executive officers of the Company generally having
responsibility commensurate to that of the Employee and such additional benefits
as may be from time to time agreed upon in writing between the Employee and the
Company; provided, however, that for the first year of the term of this
Agreement, Employee shall be guaranteed an annual bonus of at least Forty
Thousand Dollars ($40,000) per annum under the Company's bonus plan. Employee
shall be entitled to four weeks paid vacation annually.
4. Duties. The Employee agrees that so long as he is employed under this
Agreement he will (a) to the satisfaction of the Company devote his best efforts
and his entire business time to further the interest of the Company, (b) at all
times be subject to the Company's direction and control with respect to his
activities on behalf of the Company, (c) comply with all rules, orders and
regulations of the Company, (d) truthfully and accurately maintain and preserve
such records and make all reports as the Company may require, and (e) fully
account for all monies and other property of the Company of which he may from
time to time have custody and deliver the same to the Company whenever and
however directed to do so. It is understood and agreed that the Company cannot
require the Employee to relocate to New York City or any other location.
5. Covenant Not to Disclose Confidential Information. The Employee
acknowledges that during the course of his affiliation with the Company he has
or will have access to and knowledge of certain information and data which the
Company considers
<PAGE>
confidential and the release of such information or data to unauthorized persons
would be extremely detrimental to the Company. As a consequence, the Employee
hereby agrees and acknowledges that he owes a duty to the Company not to
disclose, and agrees that without the prior written consent of the Company he
will not communicate, publish or disclose, to any person anywhere or use, any
Confidential Information (as hereinafter defined), except as may be necessary or
appropriate to conduct his duties hereunder, provided the Employee is acting in
good faith and in the best interest of the Company. The Employee will use his
best efforts at all times to hold in confidence and to safeguard any
Confidential Information from falling into the hands of any unauthorized person
and, in particular, will not permit any Confidential Information to be read,
duplicated or copied. The Employee will return to the Company all Confidential
Information in the Employee's possession or under the Employee's control when
the duties of the Employee no longer require the Employee's possession thereof,
or whenever the Company shall so request, and in any event will promptly return
all such Confidential Information if the Employee's relationship with the
Company is terminated for any or no reason and will not retain any copies
thereof. For purposes hereof the term "Confidential Information" shall mean any
information or data used by or belonging or relating to the Company that is not
known generally to the industry in which the Company is or may be engaged,
including without limitation, any and all trade secrets, proprietary data and
information relating to the Company's business and products, price list,
customer lists, processes, procedures or standards, know-how, manuals, business
strategies, records, drawings, specifications, designs, financial information,
whether or not reduced to writing, or information or data which the Company
advises the Employee should be treated as confidential information.
6. Covenant Not to Compete. The Employee acknowledges that he, at the
expense of the Company, has been and will be specially trained in the business
of the Company, has established and will continue to establish favorable
relations with the customers, clients and accounts of the Company and will have
access to trade secrets of the Company. Therefore, in consideration of such
training and relations and to further protect trade secrets, directly or
indirectly, of the Company, the Employee agrees that during the term of his
employment by the Company and for a period of one (1) year from and after the
voluntary or involuntary termination of such employment for any or no reason, he
will not, directly or indirectly, without the express written consent of the
Company:
(a) own or have any interest in or act as an officer, director,
partner, principal, employee, agent, representative, consultant or
independent contractor of, or in any way assist in, any business located in
or doing business in the United States of America which is engaged,
directly or indirectly, in the smokeless tobacco business;
(b) solicit clients, customers (whether or not such persons have done
business with the Company once or more than once within the last twelve
(12) months) or accounts of the Company; or
(c) solicit, employ or in any manner influence or encourage any person
who is or shall be in the employ or service of the Company to leave such
employ or service for any other employment opportunity.
2
<PAGE>
7. Specific Performance. Recognizing that irreparable damage will result to
the Company in the event of the breach or threatened breach of any of the
foregoing covenants and assurances by the Employee contained in Sections 5 or 6
hereof, and that the Company's remedies at law for any such breach or threatened
breach will be inadequate, the Company and its successors and assigns, in
addition to such other remedies which may be available to them, shall be
entitled to an injunction, including a mandatory injunction, to be issued by any
court of competent jurisdiction ordering compliance with this Agreement or
enjoining and restraining the Employee, and each and every person, firm or
Company acting in concert or participation with him, from the continuation of
such breach and, in addition thereto, he shall pay to the Company all
ascertainable damages, including costs and reasonable attorneys' fees sustained
by the Company by reason of the breach or threatened breach of said covenants
and assurances. The obligations of the Employee and the rights of the Company,
its successors and assigns under Sections 5, 6, 8 and 9 of this Agreement shall
survive the termination of this Agreement. The covenants and obligations of the
Employee set forth in Sections 5, 6 and 7 hereof are in addition to and not in
lieu of or exclusive of any other obligations and duties of the Employee to the
Company, whether express or implied in fact or in law.
8. Potential Unenforceability of Any Provision. If a final judicial
determination is made that any provision of this Agreement is an unenforceable
restriction against the Employee, the provisions hereof shall be rendered void
only to the extent that such judicial determination finds such provisions
unenforceable, and such unenforceable provisions shall automatically be
reconstituted and become a part of this Agreement, effective as of the date
first written above, to the maximum extent in favor of the Company that is
lawfully enforceable. A judicial determination that any provision of this
Agreement is unenforceable shall in no instance render the entire Agreement
unenforceable, but rather the Agreement will continue in full force and effect
absent any unenforceable provision to the maximum extent permitted by law.
9. Termination.
(a) This Agreement shall terminate immediately upon the death,
permanent and total disability or adjudication of legal incompetence of the
Employee.
(b) (i) This Agreement may be terminated by the Employee upon sixty
(60) days' written notice to the Company.
(ii) This Agreement may be terminated by the Company promptly
upon notice to the Employee for "Cause" as defined below. Solely in
the event that the Company terminates the Employee's employment
without Cause prior to its expiration, at a time when he is fully
willing and able to perform his duties as an employee of the Company
(and in no other circumstances, e.g., the Employee's voluntary
termination, disability or death), the Company shall be required to
pay to the Employee, as "severance pay," an amount equal to the
greater of (x) his salary for the remainder of the existing term or
(y) sixty (60) days, at the rate then in effect pursuant to Section 2
above.
3
<PAGE>
(iii) "Cause," for the purpose of this Agreement, shall mean the
occurrence of any of the following events:
(A) Performance by the Employee of illegal or fraudulent
acts, criminal conduct or willful misconduct or gross negligence
relating to the activities of the Company;
(B) Performance by the Employee of any criminal acts
involving moral turpitude having a material adverse effect upon
the Company, including, without limitation, upon its
profitability, reputation or goodwill;
(C) Willful or grossly negligent failure by the Employee to
perform his duties in a manner which he knows, or has reason to
know, to be in the Company's best interests;
(D) Willful and bad faith refusal by the Employee to carry
out reasonable instructions of the Chief Executive Officer of the
Company not inconsistent with the provisions of this Agreement;
or
(E) Any material breach of the Employee's obligations
hereunder which are incurable or which he fails to cure promptly
after receiving written notice thereof.
(c) In the event this Agreement is terminated, the parties'
obligations under this Agreement shall terminate immediately (except as
otherwise provided herein), and neither the Employee nor his estate, heirs,
successors or assigns shall be entitled to any further compensation
hereunder. In the event of a termination as hereinabove provided, the
Company shall be obligated to pay the Employee only (i) such salary and
bonus as shall have been earned by him up to the effective date of
termination, and (ii) any amount payable pursuant to Section 9(b)(ii)
above. In computing the amount of the Employee's bonus, if any, the Net
Income of the Company shall be determined from the beginning of the
relevant fiscal year to the date of termination as herein provided.
10. Waiver of Breach. Failure of the Company to demand strict compliance
with any of the terms, covenants or conditions hereof shall not be deemed a
waiver of such term, covenant or condition, nor shall any waiver or
relinquishment by the Company of any right or power hereunder at any one time or
more times be deemed a waiver or relinquishment of such right or power at any
other time or times.
4
<PAGE>
11. No Conflicts. The Employee represents and warrants to the Company that
neither the execution nor delivery of this Agreement, nor the performance of the
Employee's obligations hereunder will conflict with, or result in a breach of,
any term, condition, or provision of, or constitute a default under, any
obligation, contract, agreement, covenant or instrument to which the Employee is
a party or under which the Employee is bound, including without limitation, the
breach by the Employee of a fiduciary duty to any former employers.
12. Entire Agreement; Amendment. This Agreement cancels and supersedes all
previous agreements relating to the subject matter of this Agreement, written or
oral, between the parties hereto and contains the entire understanding of the
parties hereto and shall not be amended, modified or supplemented in any manner
whatsoever except as otherwise provided herein or in writing signed by each of
the parties hereto.
13. Captions. The headings of the sections of this Agreement have been
inserted for convenience of reference only and shall in no way restrict or
otherwise modify any of the terms or provisions thereof.
14. Governing Law. This Agreement and all rights and obligations of the
parties hereunder shall be governed by, and construed and interpreted in
accordance with, the laws of the State of New York applicable to agreements made
and to be performed entirely within such State, including all matters of
enforcement, validity and performance.
15. Notice. All notices, requests, demands and other communications
hereunder shall be deemed duly given if delivered by hand or if mailed by
certified or registered mail with postage prepaid as follows:
If to the Company:
NTC Holding, LLC
444 Park Avenue
New York, New York
Attn: Thomas F. Helms, Jr., President
If to the Employee:
Mr. Jay Martin
4-A Oxford Street
Chevy Chase, Maryland 20815
or to such other address as either party may provide to the other in writing.
16. Assignment. This Agreement is personal and not assignable by the
Employee but it may be assigned by the Company without notice to or
5
<PAGE>
consent of the Employee to, and shall thereafter be binding upon and enforceable
by, any person which shall acquire or succeed to substantially all of the
business or assets of the Company (and such person shall be deemed included in
the definition of the "Company" for all purposes of this Agreement) but is not
otherwise assignable by the Company.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed in duplicate, and the Employee has hereunto set his hand, on the day
and year first above written.
COMPANY:
NTC HOLDING LLC
By: /s/ Thomas F. Helms, Jr.
--------------------------------
Thomas F. Helms, Jr., President
EMPLOYEE:
/s/ Jay Martin
----------------------------------
Jay Martin
6
<PAGE>
CONSULTING AGREEMENT
AGREEMENT made as of this 25th day of June, 1997 between NORTH
ATLANTIC TRADING COMPANY, INC., a Delaware corporation with offices at 257 Park
Avenue South, New York, New York 10010, (the "Company"), and JACK AFRICK, who
resides at 16680 Echo Hollow Circle, Polo Club, Del Ray, Florida 33484 (the
"Consultant").
W I T N E S E T H
WHEREAS, this Agreement is being entered into simultaneously
with the closing (the "Closing") of the Company's acquisition of all of the
shares of NATC Holdings USA, Inc., a Delaware corporation ("NATC Holdings"),
from NATC Holding Company, Ltd., a Bermuda corporation, pursuant to a Stock
Purchase Agreement dated as of April 17, 1997 (the "Stock Purchase Agreement")
between the Company and NATC Holding Company Ltd.; and
WHEREAS, the Company desires to retain the Consultant to
perform consulting services for the Company after the Closing, and the
Consultant desires to render such services to the Company after the Closing, in
each case upon the terms and subject to the conditions hereinafter set
<PAGE>
forth;
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants and conditions hereinafter set forth, the parties hereto,
intending to be legally bound, hereby agree as follows:
1. Retention as Consultant. The Company agrees to retain the
Consultant to perform consulting services after the Closing, and the Consultant
agrees to render such services to the Company after the Closing, upon the terms
and subject to the conditions hereinafter set forth. The retention of the
Consultant by the Company hereunder shall be effective and shall commence
immediately following the Closing until the first anniversary of the date of the
Closing (the "Initial Term"), and, thereafter, for successive periods of 12
months each (each such successive period of 12 months being referred to as an
"Additional Term") unless either party notifies the other party in writing at
least 90 days prior to the expiration of the Initial Term or any Additional Term
of its or his election not to renew the Consulting Term, in which event the
retention of the Consultant by the Company hereunder shall terminate as of the
conclusion of the Initial Term or such Additional Term, as the case may be.
For purposes hereof,
2
<PAGE>
the period of the Consultant's retention hereunder shall be referred to as the
"Consulting Term."
2. Duties and Extent of Services. The Consultant agrees that,
during the Consulting Term, he shall act as a consultant to the Company under
the direction of the Chief Executive Officer, and shall serve as a director of
the Company, provided the Company has directors' and officers' liability
insurance. The Consultant shall have responsibility and authority to manage and
direct the business of the Company, subject to the supervision of the Chief
Executive Officer of Company (who may also serve as Chief Executive Officer of
the Company). In addition, the Consultant shall have such other or more specific
responsibilities with respect to the business of the Company or any of its
affiliates as may be determined and assigned to the Consultant from time to time
by or upon the authority of the Chief Executive Officer of Company. The
Consultant shall serve the Company faithfully and to the best of his ability in
such capacities, devoting such portion of his business time, attention,
knowledge, energy and skills to such service as shall be reasonable to perform
his duties hereunder, consistent with the level of services rendered by the
Consultant to the corporation formally known as North Atlantic Trading Company,
Inc., a Delaware corporation,
3
<PAGE>
during the twelve month period prior to the date of the Closing. The Consultant
shall travel as reasonably required in connection with the performance of his
duties hereunder, including to Company's executive offices in New York, New
York. The Consultant also shall serve during any part of the Consulting Term as
a director of the Company or any other subsidiary of Company without any
compensation therefor other than as specified in this Agreement; provided the
Company has directors' and officers' liability insurance.
3. Compensation and Benefits. The Company agrees to pay
the Consultant, as compensation for consulting services to be rendered by the
Consultant under and pursuant to this Agreement, a consulting fee consisting of
the following salary and compensation benefits:
(a) A base fee, payable in accordance with the Company's
standard payroll practices for senior executive employees, at an annual rate of
$300,000 during the Consulting Term (the "Consulting Fee"); provided, however,
that such a Consulting Fee shall be subject to review from time to time for a
possible increase by the Board of Directors of the Company or the Compensation
Committee thereof.
4
<PAGE>
(b) An annual bonus of a minimum of $75,000 (a "Bonus")
subject to and conditioned upon the Company satisfying the EDITDA Budget for
Company in accordance with the terms and conditions set forth in the senior
management bonus plan of Company from time to time in effect.
(c) Prompt reimbursement for all reasonable business-related
expenses incurred by the Consultant in accordance with the policies and
procedures of the Company as in effect with respect to key senior executives of
the Company.
(d) A car allowance of $1,000 per month.
(e) Prompt reimbursement for all reasonable office expenses
incurred by the Consultant in connection with maintaining an office in Florida
and in connection with the business of the Company, of $500 per month for the
rental of office space and $400 per month for secretarial assistance.
(f) Vacation in accordance with the policies of the Company
as in effect with respect to key senior executives.
5
<PAGE>
4. Confidentiality; Non-Competition.
(a) The Consultant agrees that during the Consulting Term and
for a period of five years commencing upon the termination of the Consulting
Term, the Consultant will not, directly or indirectly, without the prior written
consent of the Company:
(i) disclose (unless required by law or court
order or other judicial or administrative process) or
use any confidential or secret information relating to
Company or any of its subsidiaries; or
(ii) engage in (other than through the ownership
of five percent (5%) or less or any class of securities
registered under the Securities Exchange Act of 1934, as
amended), the marketing and distribution of cigarette
papers in the United States and Canada.
(b) The Consultant consents and agrees that if it violates any
of the provisions of Section 4(a), the Company would sustain irreparable harm
and, therefore, in addition
6
<PAGE>
to any other remedies which the Company may have under this Agreement or
otherwise, the Company shall be entitled to apply to any court of competent
jurisdiction for an injunction restraining the Consultant from committing or
continuing any such violation of this Agreement, and the Consultant shall not
object to any such application. Nothing in this Agreement shall be construed as
prohibiting the Company from pursuing any other remedy or remedies including,
without limitation, recovery of damages.
5. Errors and Omissions. As a further inducement for the
Consultant to enter into this Agreement and as a condition precedent to the
Consultant's obligations hereunder, the Company shall cause the Consultant to be
included under the coverage of any directors' and officers' or similar errors
and omissions insurance policy of the Company for activities taken or omitted
to be taken by the Consultant pursuant to this Agreement.
6. Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be delivered personally
or sent by registered or certified mail, return receipt requested, to the other
party hereto at its address as set forth at the beginning of this Agreement, in
either case with a copy to counsel at the following address: (a) with respect to
the Company, North Atlantic
7
<PAGE>
Operating Company Inc., c/o National Tobacco Company, L.P., 257 Park Avenue
South, New York, NY 10026 and (b) with respect to the Consultant, Attention:
Jack Africk at the address set forth in the recital. Any party may change the
address to which notices, requests, demands and other communications hereunder
shall be sent by sending written notice of such change of address to the other
parties hereto.
7. Assignability, Binding Effect and Survival. This
Agreement shall inure to the benefit of and shall be binding upon the Company,
the Consultant and their respective heirs, successors and assigns.
Notwithstanding the foregoing, the obligations of the Consultant may not be
delegated and the Consultant may not assign, transfer, pledge, encumber,
hypothecate or otherwise dispose of this Agreement, or any of his rights
hereunder, and any such attempted delegation or disposition shall be null and
void and without effect; provided, however, the Company shall be permitted to
assign or transfer this Agreement to Company or any of its subsidiaries so long
as the duties and responsibilities of the Consultant remain substantially
similar to those contained in this Agreement. The provisions of Sections 4 and 6
shall survive the termination of the Consultant's consulting services pursuant
to this
8
<PAGE>
Agreement and, to the extent appropriate to the intention of the parties and the
subject matter of this Agreement, other rights and obligations of the parties
may survive the termination of this Agreement.
8. Complete Understanding; Amendment. This Agreement
constitutes the complete understanding and agreement between the parties hereto
with respect to the subject matter hereof and supersedes all prior negotiations,
representations and agreements made by and between such parties. This Agreement
shall not be altered, modified, amended or terminated except by written
instrument signed by each of the parties hereto. Waiver by either party hereto
of any breach hereunder by the other party shall not operate as a waiver of
any other breach, whether similar to or different from the breach waived.
9. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
10. Section Headings. The Section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
9
<PAGE>
11. Severability. If any provision of this Agreement or the
application of any such provision to any party or circumstances shall be
determined by any court of competent jurisdiction to be invalid and
unenforceable to any extent, the remainder of this Agreement or the application
of such provision to such person or circumstances other than those to which it
is so determined to be invalid and enforceable, shall not be affected thereby,
and each provision hereof shall be validated and shall be enforced for the
maximum period and to the fullest extent permitted by law.
12. Counterparts. This Agreement may be executed in one or
more counterparts, each of which will be deemed an original, but all of which
taken together shall constitute one and the same instrument.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
NORTH ATLANTIC TRADING
COMPANY, INC.
By: /s/ Thomas F. Helms, Jr.
---------------------------
Name: Thomas F. Helms, Jr.
Title: President
By: /s/ Jack Africk
---------------------------
Jack Africk
11
<PAGE>
CREDIT AGREEMENT
among
NORTH ATLANTIC TRADING COMPANY, INC.,
VARIOUS LENDING INSTITUTIONS,
GLEACHER NATWEST, INC.
AS ARRANGING AGENT,
and
NATIONAL WESTMINSTER BANK PLC,
AS ADMINISTRATIVE AGENT
------------------------------------
Dated as of June 25, 1997
------------------------------------
$110,000,000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 1. Amount and Terms of Credit............................................................... 1
1.01 Commitment............................................................................ 1
1.02 Minimum Borrowing Amounts, etc........................................................ 2
1.03 Notice of Borrowing................................................................... 2
1.04 Disbursement of Funds................................................................. 3
1.05 Notes ................................................................................ 3
1.06 Conversions........................................................................... 4
1.07 Pro Rata Borrowings................................................................... 5
1.08 Interest.............................................................................. 5
1.09 Interest Periods...................................................................... 6
1.10 Increased Costs, Illegality, etc...................................................... 7
1.11 Compensation.......................................................................... 9
1.12 Change of Lending Office.............................................................. 10
1.13 Replacement of Lenders................................................................ 10
SECTION 2. Letters of Credit........................................................................ 11
2.01 Letters of Credit..................................................................... 11
2.02 Minimum Initial Stated Amount......................................................... 12
2.03 Letter of Credit Requests; Notices of Issuance........................................ 12
2.04 Agreement to Repay Letter of Credit Drawings.......................................... 12
2.05 Letter of Credit Participations....................................................... 13
2.06 Increased Costs....................................................................... 15
SECTION 3. Fees; Commitments........................................................................ 16
3.01 Fees ................................................................................ 16
3.02 Voluntary Reduction of Commitments.................................................... 17
3.03 Mandatory Adjustments of Commitments, etc............................................. 17
SECTION 4. Payments................................................................................. 18
4.01 Voluntary Prepayments................................................................. 18
4.02 Mandatory Prepayments................................................................. 19
4.03 Method and Place of Payment........................................................... 22
4.04 Net Payments.......................................................................... 22
SECTION 5. Conditions Precedent..................................................................... 24
5.01 Conditions Precedent to Initial Borrowing Date........................................ 24
5.02 Conditions Precedent to All Credit Events............................................. 30
</TABLE>
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SECTION 6. Representations, Warranties and Agreements............................................... 30
6.01 Status................................................................................ 30
6.02 Power and Authority................................................................... 31
6.03 No Violation.......................................................................... 31
6.04 Litigation............................................................................ 31
6.05 Use of Proceeds; Margin Regulations................................................... 31
6.06 Governmental Approvals................................................................ 32
6.07 Investment Company Act................................................................ 32
6.08 National Tobacco Partnership Agreement; Bollore Distribution
Agreements...................................................................... 32
6.09 True and Complete Disclosure.......................................................... 32
6.10 Financial Condition; Financial Statements............................................. 33
6.11 Security Interests.................................................................... 34
6.12 Representations and Warranties in Acquisition Documents............................... 34
6.13 Tax Returns and Payments.............................................................. 34
6.14 Pension and Welfare Plans............................................................. 35
6.15 Subsidiaries.......................................................................... 35
6.16 Intellectual Property................................................................. 35
6.17 Environmental Matters................................................................. 36
6.18 Properties............................................................................ 38
6.19 Labor Relations....................................................................... 38
6.20 Compliance with Statutes, etc......................................................... 38
SECTION 7. Affirmative Covenants.................................................................... 38
7.01 Information Covenants........................................................... 39
7.02 Books, Records and Inspections........................................................ 41
7.03 Insurance............................................................................. 41
7.04 Payment of Taxes...................................................................... 42
7.05 Corporate Franchises.................................................................. 43
7.06 Compliance with Statutes, etc......................................................... 43
7.07 Good Repair........................................................................... 43
7.08 End of Fiscal Years; Fiscal Quarters.................................................. 43
7.09 Additional Security; Further Assurances............................................... 43
7.10 Compliance with Environmental Laws. .................................................. 44
SECTION 8. Negative Covenants....................................................................... 45
8.01 Changes in Business................................................................... 45
8.02 Consolidation, Merger, Sale or Purchase of Assets, etc................................ 45
8.03 Liens ................................................................................ 46
8.04 Indebtedness.......................................................................... 47
8.05 Capital Expenditures.................................................................. 48
8.06 Advances, Investments and Loans....................................................... 49
8.07 Leases................................................................................ 50
</TABLE>
(ii)
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8.08 Prepayments of Indebtedness, etc...................................................... 50
8.09 Dividends, etc........................................................................ 51
8.10 Transactions with Affiliates.......................................................... 52
8.11 Interest Coverage Ratio............................................................... 52
8.12 Leverage Ratio........................................................................ 53
8.13 Minimum Consolidated EBITDA........................................................... 54
8.14 Fixed Charge Coverage Ratio........................................................... 55
8.15 Limitation on Issuance of Stock....................................................... 55
8.16 Creation of Subsidiaries.............................................................. 55
SECTION 9. Events of Default........................................................................ 55
9.01 Payments.............................................................................. 55
9.02 Representations, etc.................................................................. 55
9.03 Covenants............................................................................. 55
9.04 Default Under Other Agreements........................................................ 56
9.05 Bankruptcy, etc....................................................................... 56
9.06 Pension Plans......................................................................... 56
9.07 Security Documents.................................................................... 57
9.08 Subsidiary Guaranty................................................................... 57
9.09 Judgments............................................................................. 57
9.10 Bollore Distribution Agreements....................................................... 57
SECTION 10. Definitions............................................................................. 58
SECTION 11. The Administrative Agent................................................................ 79
11.01 Appointment.......................................................................... 79
11.02 Nature of Duties..................................................................... 79
11.03 Lack of Reliance on the Agents....................................................... 80
11.04 Certain Rights of the Agents......................................................... 80
11.05 Reliance............................................................................. 80
11.06 Indemnification...................................................................... 80
11.07 The Agents in Their Individual Capacities............................................ 81
11.08 Holders.............................................................................. 81
11.09 Resignation by an Agent.............................................................. 81
SECTION 12. Miscellaneous........................................................................... 82
12.01 Payment of Expenses, etc............................................................. 82
12.02 Right of Setoff...................................................................... 83
12.03 Notices.............................................................................. 83
12.04 Benefit of Agreement................................................................. 83
12.05 No Waiver; Remedies Cumulative....................................................... 85
</TABLE>
(iii)
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12.06 Payments Pro Rata.................................................................... 86
12.07 Calculations; Computations........................................................... 86
12.08 Governing Law; Submission to Jurisdiction; Venue; Waiver of
Jury Trial...................................................................... 87
12.09 Counterparts......................................................................... 87
12.10 Effectiveness........................................................................ 88
12.11 Headings Descriptive................................................................. 88
12.12 Amendment or Waiver.................................................................. 88
12.13 Survival............................................................................. 88
12.14 Domicile of Loans.................................................................... 88
12.15 Confidentiality...................................................................... 89
12.16 Lender Register...................................................................... 89
</TABLE>
ANNEX I -- Commitments
ANNEX II -- Lender and Agent Addresses
ANNEX III -- Government Approvals
ANNEX IV -- Subsidiaries
ANNEX V -- Properties
ANNEX VI -- Existing Indebtedness
ANNEX VII -- Insurance Policies
ANNEX VIII -- Existing Liens
ANNEX IX -- Existing Investments
ANNEX X -- Litigation
ANNEX XI -- Consolidated EBITDA Adjustments
ANNEX XII -- Employee Benefit Plans
ANNEX XIII -- Environmental Matters
EXHIBIT A -- Form of Notice of Borrowing
EXHIBIT B-1 -- Form of Term Note
EXHIBIT B-2 -- Form of Revolving Note
EXHIBIT C -- Form of Letter of Credit Request
EXHIBIT D -- Form of Section 4.04 Certificate
EXHIBIT E-1 -- Form of Opinion of Weil, Gotshal & Manges, LLP
EXHIBIT E-2 -- Form of Opinion of White & Case
EXHIBIT F -- Form of Officers' Certificate
EXHIBIT G -- Form of Subsidiary Guaranty
EXHIBIT H -- Form of Pledge Agreement
EXHIBIT I -- Form of Security Agreement
EXHIBIT J -- Form of Consent Letter
EXHIBIT K -- Form of Assignment Agreement
(iv)
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CREDIT AGREEMENT, dated as of June 25, 1997, among NORTH
ATLANTIC TRADING COMPANY, INC. (formerly known as North Atlantic Trading
Acquisition Company, Inc.), a Delaware corporation, the lenders from time to
time party hereto (each, a "Lender" and, collectively, the "Lenders"), GLEACHER
NATWEST, INC., as Arranging Agent (the "Arranging Agent"), and NATIONAL
WESTMINSTER BANK PLC, as Administrative Agent (the "Administrative Agent" and
together with the Arranging Agent, collectively, the "Agents"). Unless
otherwise defined herein, all capitalized terms used herein and defined in
Section 10 are used herein as so defined.
W I T N E S S E T H :
WHEREAS, subject to and upon the terms and conditions herein
set forth, the Lenders are willing to make available to the Borrower the credit
facilities provided for herein; and
NOW, THEREFORE, IT IS AGREED:
SECTION 1. Amount and Terms of Credit.
1.01 Commitment. Subject to and upon the terms and conditions
herein set forth, each Lender severally agrees to make a loan or loans (each, a
"Loan" and, collectively, the "Loans") to the Borrower, which Loans shall be
drawn, to the extent such Lender has a commitment under such Facility, under
the Term Facility and the Revolving Facility, as set forth below:
(a) Loans under the Term Facility (each, a "Term Loan" and,
collectively, the "Term Loans") (i) shall be made pursuant to a single
borrowing on the Initial Borrowing Date, (ii) except as hereinafter
provided, may, at the option of the Borrower, be incurred and
maintained as, and or converted into, Base Rate Loans or LIBOR Loans,
provided that all Term Loans made pursuant to the same Borrowing
shall, unless otherwise specifically provided herein, consist entirely
of Loans of the same Type and (iii) shall not exceed in aggregate
principal amount for any Lender at the time of incurrence thereof the
Term Commitment, if any, of such Lender as in effect on such date.
Once repaid, Term Loans may not be reborrowed.
<PAGE>
(b) Loans under the Revolving Facility (each, a "Revolving
Loan" and, collectively, the "Revolving Loans") (i) shall be made at
any time and from time to time on and after the Initial Borrowing Date
and prior to the Final Maturity Date, (ii) except as hereinafter
provided, may, at the option of the Borrower, be incurred and
maintained as, and/or converted into, Base Rate Loans or LIBOR Loans,
provided that all Revolving Loans made as part of the same Borrowing
shall, unless otherwise specifically provided herein, consist of
Revolving Loans of the same Type, (iii) may be repaid and reborrowed
in accordance with the provisions hereof and (iv) shall not exceed for
any Lender, after giving effect to any incurrence thereof and the use
of the proceeds thereof, that aggregate principal amount which, when
combined with the aggregate outstanding principal amount of all other
Revolving Loans of such Lender and such Lender's Percentage, if any,
of the Letter of Credit Outstandings at such time, equals the
Revolving Commitment, if any, of such Lender at such time.
1.02 Minimum Borrowing Amounts, etc. The aggregate principal
amount of each Borrowing under a Facility shall not be less than the Minimum
Borrowing Amount for such Facility. More than one Borrowing may be incurred on
any day, provided that at no time shall there be outstanding more than 10
Borrowings of LIBOR Loans.
1.03 Notice of Borrowing. (a) Whenever the Borrower desires
to incur Loans under any Facility, it shall give the Administrative Agent at
its Notice Office, (x) prior to 11:00 A.M. (New York time), at least three
Business Days' prior written notice (or telephonic notice promptly confirmed in
writing) of each Borrowing of LIBOR Loans and (y) prior to 10:00 A.M. (New York
time) on the proposed date thereof, written notice (or telephonic notice
promptly confirmed in writing) of each Borrowing of Base Rate Loans to be made
hereunder. Each such notice (each, a "Notice of Borrowing") shall be in the
form of Exhibit A and shall be irrevocable and shall specify (i) the Facility
pursuant to which such Borrowing is being made, (ii) the aggregate principal
amount of the Loans to be made pursuant to such Borrowing, (iii) the date of
Borrowing (which shall be a Business Day) and (iv) whether the respective
Borrowing shall consist of Base Rate Loans or LIBOR Loans and, if LIBOR Loans,
the Interest Period to be initially applicable thereto. The Administrative
Agent shall promptly give each Lender written notice (or telephonic notice
promptly confirmed in writing) of each proposed Borrowing, of such Lender's
proportionate share thereof and of the other matters covered by the Notice of
Borrowing.
(b) Without in any way limiting the obligation of the
Borrower to confirm in writing any telephonic notice permitted to be given
hereunder, the Administrative Agent or the Letter of Credit Issuer (in the case
of the issuance of Letters of Credit) may prior to receipt of written
confirmation act without liability upon the basis of such telephonic notice,
believed by the Administrative Agent or the Letter of Credit Issuer in good
faith to be from an Authorized Officer of the Borrower. In each such case, the
Borrower hereby
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waives the right to dispute the Administrative Agent's or the Letter of Credit
Issuer's record of the terms of such telephonic notice.
1.04 Disbursement of Funds. (a) No later than 12:00 noon (New
York time) (1:00 P.M. (New York time) in the case of Base Rate Loans made
pursuant to same day notice) on the date specified in each Notice of Borrowing,
each Lender with a Commitment under the respective Facility will make available
its pro rata share of each Borrowing requested to be made on such date in the
manner provided below. All such amounts shall be made available to the
Administrative Agent in U.S. dollars and immediately available funds at the
Payment Office and the Administrative Agent promptly will make available to the
Borrower by depositing to its account at the Payment Office the aggregate of
the amounts so made available in the type of funds received. Unless the
Administrative Agent shall have been notified by any Lender prior to the date
of Borrowing that such Lender does not intend to make available to the
Administrative Agent its portion of the Borrowing or Borrowings to be made on
such date, the Administrative Agent may assume that such Lender has made such
amount available to the Administrative Agent on such date of Borrowing, and the
Administrative Agent, in reliance upon such assumption, may (in its sole
discretion and without any obligation to do so) make available to the Borrower
a corresponding amount. If such corresponding amount is not in fact made
available to the Administrative Agent by such Lender and the Administrative
Agent has made available same to the Borrower, the Administrative Agent shall
be entitled to recover such corresponding amount from such Lender. If such
Lender does not pay such corresponding amount forthwith upon the Administrative
Agent's demand therefor, the Administrative Agent shall promptly notify the
Borrower, and the Borrower shall immediately pay such corresponding amount to
the Administrative Agent. The Administrative Agent shall also be entitled to
recover on demand from such Lender or the Borrower, as the case may be,
interest on such corresponding amount in respect of each day from the date such
corresponding amount was made available by the Administrative Agent to the
Borrower to the date such corresponding amount is recovered by the
Administrative Agent, at a rate per annum equal to (x) if paid by such Lender,
the overnight Federal Funds Effective Rate or (y) if paid by the Borrower, the
then applicable rate of interest, calculated in accordance with Section 1.08,
for the respective Loans.
(b) Nothing herein shall be deemed to relieve any Lender from
its obligation to fulfill its commitments hereunder or to prejudice any rights
which the Borrower may have against any Lender as a result of any default by
such Lender hereunder.
1.05 Notes. (a) The Borrower's obligation to pay the
principal of, and interest on, the Loans made to it by each Lender shall be
evidenced (i) if Term Loans, by a promissory note substantially in the form of
Exhibit B-1 with blanks appropriately completed in conformity herewith (each, a
"Term Note" and, collectively, the "Term Notes")
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and (ii) if Revolving Loans, by a promissory note substantially in the form of
Exhibit B-2 with blanks appropriately completed in conformity herewith (each, a
"Revolving Note" and, collectively, the "Revolving Notes").
(b) The Term Note issued to a Lender shall (i) be executed by
the Borrower, (ii) be payable to the order of such Lender and be dated the
Initial Borrowing Date, (iii) be in a stated principal amount equal to the Term
Loans made by such Lender on the Initial Borrowing Date (or in the case of a
new Term Note issued pursuant to Section 1.13 or 12.04, the Term Loans
evidenced thereby at the time of issuance) and be payable in the principal
amount of Term Loans evidenced thereby, (iv) mature on the Final Maturity Date,
(v) bear interest as provided in the appropriate clause of Section 1.08 in
respect of the Base Rate Loans and LIBOR Loans, as the case may be, evidenced
thereby, (vi) be subject to mandatory repayment as provided in Section 4.02 and
(vii) be entitled to the benefits of this Agreement and the other Credit
Documents.
(c) The Revolving Note issued to each RF Lender shall (i) be
executed by the Borrower, (ii) be payable to the order of such Lender and be
dated the Initial Borrowing Date, (iii) be in a stated principal amount equal
to the Revolving Commitment of such Lender and be payable in the principal
amount of the Revolving Loans evidenced thereby, (iv) mature on the Final
Maturity Date, (v) bear interest as provided in the appropriate clause of
Section 1.08 in respect of the Base Rate Loans and LIBOR Loans, as the case may
be, evidenced thereby, (vi) be subject to mandatory repayment as provided in
Section 4.02 and (vii) be entitled to the benefits of this Agreement and the
other Credit Documents.
(d) Each Lender will note on its internal records the amount
of each Loan made by it and each payment in respect thereof and will, prior to
any transfer of any of its Notes, endorse on the reverse side thereof the
outstanding principal amount of Loans evidenced thereby. Failure to make any
such notation shall not affect the Borrower's obligations in respect of such
Loans.
1.06 Conversions. The Borrower shall have the option to
convert on any Business Day all or a portion at least equal to the applicable
Minimum Borrowing Amount of the outstanding principal amount of the Loans owing
pursuant to a single Facility into a Borrowing or Borrowings pursuant to such
Facility of another Type of Loan, provided that (i) no partial conversion of a
Borrowing of LIBOR Loans shall reduce the outstanding principal amount of the
LIBOR Loans made pursuant to such Borrowing to less than the Minimum Borrowing
Amount applicable thereto, (ii) Base Rate Loans may not be converted into LIBOR
Loans if a Default under Section 9.01 or an Event of Default is then in
existence and the Administrative Agent or the Required Lenders shall have
determined in its or their sole discretion not to permit such conversion and
(iii) Borrowings of LIBOR Loans resulting from this Section 1.06 shall be
limited in number as provided in Section 1.02. Each such conversion shall be
effected by the Borrower giving the Administrative Agent
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at its Notice Office, prior to 11:00 A.M. (New York time), at least three
Business Days' (or two Business Days', in the case of a conversion into Base
Rate Loans) prior written notice (or telephonic notice promptly confirmed in
writing) (each, a "Notice of Conversion") specifying the Loans to be so
converted, the Type of Loans to be converted into and, if to be converted into
a Borrowing of LIBOR Loans, the Interest Period to be initially applicable
thereto. The Administrative Agent shall give each Lender prompt notice of any
such proposed conversion affecting any of its Loans.
1.07 Pro Rata Borrowings. All Loans under this Agreement
shall be made by the Lenders pro rata on the basis of their Term Commitments or
Revolving Commitments, as the case may be. It is understood that no Lender
shall be responsible for any default by any other Lender in its obligation to
make Loans hereunder and that each Lender shall be obligated to make the Loans
provided to be made by it hereunder, regardless of the failure of any other
Lender to fulfill its commitments hereunder.
1.08 Interest. (a) The unpaid principal amount of each Base
Rate Loan shall bear interest from the date of the Borrowing thereof until
maturity (whether by acceleration or otherwise) at a rate per annum which shall
at all times be the Base Rate Margin plus the Base Rate in effect from time to
time.
(b) The unpaid principal amount of each LIBOR Loan shall bear
interest from the date of the Borrowing thereof until maturity (whether by
acceleration or otherwise) at a rate per annum which shall at all times be the
LIBOR Margin plus LIBOR.
(c) All overdue principal and, to the extent permitted by
law, overdue interest in respect of each Loan and any other overdue amount
payable hereunder shall bear interest at a rate per annum equal to the Base
Rate in effect from time to time plus the Base Rate Margin plus 2.0%, provided
that each LIBOR Loan shall bear interest after maturity (whether by
acceleration or otherwise) until the end of the Interest Period applicable to
it at such maturity at a rate per annum equal to 2.0% in excess of the rate of
interest applicable thereto at such maturity.
(d) Interest shall accrue from and including the date of any
Borrowing to but excluding the date of any repayment thereof and shall be
payable (i) in respect of each Base Rate Loan, quarterly in arrears on the last
Business Day of each March, June, September and December, (ii) in respect of
each LIBOR Loan, on the last day of each Interest Period applicable thereto
and, in the case of an Interest Period in excess of three months, on each date
occurring at three month intervals after the first day of such Interest Period
and (iii) in respect of each Loan, on any prepayment or conversion (other than
the prepayment or conversion of any Base Rate Loan) (on the amount prepaid or
converted), at maturity (whether by acceleration or otherwise) and, after such
maturity, on demand.
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(e) All computations of interest hereunder shall be made in
accordance with Section 12.07(b).
(f) The Administrative Agent, upon determining the interest
rate for any Borrowing of LIBOR Loans for any Interest Period, shall promptly
notify the Borrower and the Lenders thereof.
1.09 Interest Periods. (a) At the time the Borrower gives a
Notice of Borrowing or Notice of Conversion in respect of the making of, or
conversion into, a Borrowing of LIBOR Loans (in the case of the initial
Interest Period applicable thereto) or prior to 11:00 A.M. (New York time) on
the third Business Day prior to the expiration of an Interest Period applicable
to a Borrowing of LIBOR Loans, it shall have the right to elect by giving the
Administrative Agent written notice (or telephonic notice promptly confirmed in
writing) of the Interest Period applicable to such Borrowing, which Interest
Period shall, at the option of the Borrower, be a one, three, six or, to the
extent available to all Lenders under the respective Facility (as determined by
the Administrative Agent), nine or twelve month period. Notwithstanding
anything to the contrary contained above:
(i) the initial Interest Period for any Borrowing of LIBOR
Loans shall commence on the date of such Borrowing (including the date
of any conversion from a Borrowing of Base Rate Loans) and each
Interest Period occurring thereafter in respect of such Borrowing
shall commence on the day on which the next preceding Interest Period
expires;
(ii) if any Interest Period begins on a day for which there is
no numerically corresponding day in the calendar month at the end of
such Interest Period, such Interest Period shall end on the last
Business Day of such calendar month;
(iii) if any Interest Period would otherwise expire on a day
which is not a Business Day, such Interest Period shall expire on the
next succeeding Business Day, provided that if any Interest Period
would otherwise expire on a day which is not a Business Day but is a
day of the month after which no further Business Day occurs in such
month, such Interest Period shall expire on the next preceding
Business Day;
(iv) no Interest Period with respect to a Borrowing of
Revolving Loans may be elected that would extend beyond the Final
Maturity Date;
(v) no Interest Period with respect to any Borrowing of Term
Loans may be elected that would extend beyond any date upon which a
Scheduled Repayment is required to be made if, after giving effect to
the selection of such Interest Period, the aggregate principal amount
of Term Loans maintained as LIBOR Loans with
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Interest Periods ending after such date would exceed the aggregate
principal amount of Term Loans permitted to be outstanding after such
Scheduled Repayment; and
(vi) no Interest Period may be elected if a Default under
Section 9.01 or an Event of Default is then in existence and the
Administrative Agent or the Required Lenders shall have determined in
its or their sole discretion not to permit such election.
(b) If upon the expiration of any Interest Period, the
Borrower is not permitted to elect a new Interest Period to be applicable to
the respective Borrowing of LIBOR Loans, or in the case of Revolving Loans, has
failed to elect a new Interest Period to be applicable to the respective
Borrowing of LIBOR Loans, the Borrower shall be deemed to have elected to
convert such Borrowing into a Borrowing of Base Rate Loans effective as of the
expiration date of such current Interest Period. If upon the expiration of any
Interest Period in respect of Term Loans, the Borrower has failed to elect a
new Interest Period to be applicable to the respective Borrowing of LIBOR Loans
as provided above, the Borrower shall be deemed to have elected a new Interest
Period of (x) three months for such Borrowing (to the extent the expiring
Interest Period was three months or longer) or (y) one month (to the extent the
expiring Interest Period was one month), in each case effective as of the
expiration date of such expiring Interest Period.
1.10 Increased Costs, Illegality, etc. (a) In the event that
(x) in the case of clause (i) below, the Administrative Agent or (y) in the
case of clauses (ii) and (iii) below, any Lender shall have determined (which
determination shall, absent manifest error, be final and conclusive and binding
upon all parties hereto):
(i) on any date for determining LIBOR for any Interest Period
that, by reason of any changes arising after the date of this
Agreement affecting the interbank Eurodollar market, adequate and fair
means do not exist for ascertaining the applicable interest rate on
the basis provided for in the definition of LIBOR; or
(ii) at any time, that such Lender shall incur increased costs
or reductions in the amounts received or receivable hereunder with
respect to any LIBOR Loans (other than any increased cost or reduction
in the amount received or receivable resulting from the imposition of
or a change in the rate of taxes or similar charges) because of (x)
any change since the Effective Date in any applicable law,
governmental rule, regulation, guideline or order (or in the
interpretation or administration thereof and including the
introduction of any new law or governmental rule, regulation,
guideline or order) (such as, for example, but not limited to, a
change in official reserve requirements, but in any event excluding
reserves payable pursuant to Section 1.10(c)) and/or (y) other
circumstances affecting such Lender or the interbank Eurodollar
market; or
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(iii) at any time, that the making or continuance of any LIBOR
Loan has become unlawful by compliance by such Lender in good faith
with any law, governmental rule, regulation, guideline (or would
conflict with any such governmental rule, regulation, guideline or
order not having the force of law but with which such Lender
customarily complies even though the failure to comply therewith would
not be unlawful), or has become impracticable as a result of a
contingency occurring after the Effective Date which materially and
adversely affects the interbank Eurodollar market;
then, and in any such event, such Lender (or the Administrative Agent in the
case of clause (i) above) shall (x) on such date and (y) within ten Business
Days of the date on which such event no longer exists give notice (by telephone
confirmed in writing) to the Borrower and to the Administrative Agent of such
determination (which notice the Administrative Agent shall promptly transmit to
each of the other Lenders). Thereafter (x) in the case of clause (i) above,
LIBOR Loans shall no longer be available until such time as the Administrative
Agent notifies the Borrower and the Lenders that the circumstances giving rise
to such notice by the Administrative Agent no longer exist, and any Notice of
Borrowing or Notice of Conversion given by the Borrower with respect to LIBOR
Loans which have not yet been incurred shall be deemed rescinded by the
Borrower, (y) in the case of clause (ii) above, the Borrower shall pay to such
Lender, upon written demand therefor, such additional amounts (in the form of
an increased rate of, or a different method of calculating, interest or
otherwise as such Lender in its sole discretion shall determine) as shall be
required to compensate such Lender for such increased costs or reductions in
amounts receivable hereunder (a written notice as to the additional amounts
owed to such Lender, showing the basis for the calculation thereof, submitted
to the Borrower by such Lender shall, absent manifest error, be final and
conclusive and binding upon all parties hereto) and (z) in the case of clause
(iii) above, the Borrower shall take one of the actions specified in Section
1.10(b) as promptly as possible and, in any event, within the time period
required by law.
(b) At any time that any LIBOR Loan is affected by the
circumstances described in Section 1.10(a)(ii) or (iii), the Borrower may (and
in the case of a LIBOR Loan affected pursuant to Section 1.10(a)(iii), the
Borrower shall) either (i) if the affected LIBOR Loan is then being made
pursuant to a Borrowing, cancel said Borrowing by giving the Administrative
Agent telephonic notice (confirmed promptly in writing) thereof on the same
date that the Borrower was notified by a Lender pursuant to Section 1.10(a)(ii)
or (iii), or (ii) if the affected LIBOR Loan is then outstanding, upon at least
three Business Days' notice to the Administrative Agent, require the affected
Lender to convert each such LIBOR Loan into a Base Rate Loan, provided that if
more than one Lender is affected at any time, then all affected Lenders must be
treated the same pursuant to this Section 1.10(b).
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(c) In the event that any Lender shall reasonably determine
(which determination shall, absent manifest error, be final and conclusive and
binding on all parties hereto) at any time that by reason of Regulation D such
Lender is required to maintain reserves in respect of LIBOR loans or
liabilities during any period it has LIBOR Loan outstanding, then such Lender
shall promptly notify the Borrower by telephone confirmed in writing specifying
the additional amounts required to indemnify such Lender against the cost of
maintaining such reserves (such written notice to set forth in reasonable
detail a computation of such additional amounts) and the Borrower shall
directly pay to such Lender such specified amounts as additional interest at
the time that it is otherwise required to pay interest in respect of such LIBOR
Loan or, if later, on demand.
(d) If any Lender shall have determined that after the
Effective Date, the adoption or effectiveness of any applicable law, rule or
regulation regarding capital adequacy, or any change therein, or any change in
the interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by such Lender or any corporation
controlling such Lender with any request or directive regarding capital
adequacy (whether or not having the force of law) of any such authority,
central bank or comparable agency, has or would have the effect of reducing the
rate of return on such Lender's or such corporation's capital or assets as a
consequence of its commitments or obligations hereunder to a level below that
which such Lender or such other corporation could have achieved but for such
adoption, effectiveness, change or compliance (taking into consideration such
Lender's or such other corporation's policies with respect to capital
adequacy), then from time to time, within 15 days after demand by such Lender
(with a copy to the Administrative Agent), the Borrower shall pay to such
Lender such additional amount or amounts as will compensate such Lender or such
other corporation for such reduction. Each Lender, upon determining in good
faith that any additional amounts will be payable pursuant to this Section
1.10(c), will give prompt written notice thereof to the Borrower, which notice
shall set forth the basis of the calculation of such additional amounts,
although the failure to give any such notice shall not release or diminish any
of the Borrower's obligations to pay additional amounts pursuant to this
Section 1.10(c) upon the subsequent receipt of such notice.
(e) Notwithstanding anything in this Agreement to the
contrary, to the extent any notice required by Section 1.10, 2.06 or 4.04 is
given by any Lender more than 180 days after such Lender obtained, or
reasonably should have obtained, knowledge of the occurrence of the event
giving rise to the additional costs of the type described in such Section, such
Lender shall not be entitled to compensation under Section 1.10, 2.06 or 4.04
for any amounts incurred or accruing prior to the giving of such notice to the
Borrower.
1.11 Compensation. The Borrower shall compensate each Lender,
upon its written request (which request shall set forth the basis for
requesting such
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compensation), for all reasonable losses, expenses and liabilities (including,
without limitation, any loss, expense or liability incurred by reason of the
liquidation or reemployment of deposits or other funds required by such Lender
to fund its LIBOR Loans but excluding in any event the loss of anticipated
profits) which such Lender may sustain: (i) if for any reason (other than a
default by such Lender or the Administrative Agent) a Borrowing of LIBOR Loans
does not occur on a date specified therefor in a Notice of Borrowing or Notice
of Conversion (whether or not withdrawn by the Borrower or deemed withdrawn
pursuant to Section 1.10(a)); (ii) if any prepayment, repayment or conversion
of any of its LIBOR Loans occurs on a date which is not the last day of an
Interest Period applicable thereto; (iii) if any prepayment of any of its LIBOR
Loans is not made on any date specified in a notice of prepayment given by the
Borrower; or (iv) as a consequence of (x) any other default by the Borrower to
repay its LIBOR Loans when required by the terms of this Agreement or (y) an
election made pursuant to Section 1.10(b).
1.12 Change of Lending Office. Each Lender agrees that, upon
the occurrence of any event giving rise to the operation of Section 1.10(a)(ii)
or (iii), 1.10(d), 2.06 or 4.04 with respect to such Lender, it will, if
requested by the Borrower, use reasonable efforts (subject to overall policy
considerations of such Lender) to designate another lending office for any
Loans affected by such event, provided that such designation is made on such
terms that such Lender and its lending office suffer no economic, legal or
regulatory disadvantage, with the object of avoiding the consequence of the
event giving rise to the operation of any such Section. Nothing in this Section
1.12 shall affect or postpone any of the obligations of the Borrower or the
right of any Lender provided in Section 1.10, 2.06 or 4.04.
1.13 Replacement of Lenders. (x) Upon the occurrence of any
event giving rise to the operation of Section 1.10(a)(ii) or (iii), Section
1.10(d), Section 2.06 or Section 4.04 with respect to any Lender which results
in such Lender charging to the Borrower increased costs in excess of those
being generally charged by the other Lenders, (y) if a RF Lender becomes a
Defaulting RF Lender and/or (z) in the case of a refusal by a Lender to consent
to a proposed change, waiver, discharge or termination with respect to this
Agreement which has been approved by the Required Lenders, the Borrower shall
have the right, if no Default or Event of Default then exists, to replace such
Lender (the "Replaced Lender") with one or more other Eligible Transferees,
none of whom shall constitute a Defaulting RF Lender at the time of such
replacement (collectively, the "Replacement Lender") reasonably acceptable to
the Administrative Agent provided that (i) at the time of any replacement
pursuant to this Section 1.13, the Replacement Lender shall enter into one or
more Assignment Agreements pursuant to Section 12.04(b) (and with all fees
payable pursuant to said Section 12.04(b) to be paid by the Replacement Lender)
pursuant to which the Replacement Lender shall acquire all of the Commitments
and outstanding Loans of, and in each case participations in Letters of Credit
by, the Replaced Lender and, in connection therewith, shall pay to (x) the
Replaced Lender in respect thereof the sum of (A)
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an amount equal to the principal of, and all accrued interest on, all
outstanding Loans of the Replaced Lender, (B) an amount equal to all Unpaid
Drawings that have been funded by (and not reimbursed to) such Replaced Lender,
together with all then unpaid interest with respect thereto at such time and
(C) an amount equal to all accrued, but theretofore unpaid, Fees owing to the
Replaced Lender pursuant to Section 3.01 and (y) the Letter of Credit Issuer an
amount equal to such Replaced Lender's Percentage of any Unpaid Drawing (which
at such time remains an Unpaid Drawing) to the extent such amount was not
theretofore funded by such Replaced Lender, and (ii) all obligations of the
Borrower owing to the Replaced Lender (other than those specifically described
in clause (i) above in respect of which the assignment purchase price has been,
or is concurrently being, paid) shall be paid in full to such Replaced Lender
concurrently with such replacement. Upon the execution of the respective
Assignment Agreements, the payment of amounts referred to in clauses (i) and
(ii) above and, if so requested by the Replacement Lender, delivery to the
Replacement Lender of the appropriate Note or Notes executed by the Borrower,
the Replacement Lender shall become a Lender hereunder and the Replaced Lender
shall cease to constitute a Lender hereunder, except with respect to
indemnification provisions applicable to the Replaced Lender under this
Agreement, which shall survive as to such Replaced Lender.
SECTION 2. Letters of Credit.
2.01 Letters of Credit. (a) Subject to and upon the terms and
conditions herein set forth, the Borrower may request that the Letter of Credit
Issuer at any time and from time to time on or after the Initial Borrowing Date
and prior to the Final Maturity Date issue, for the account of the Borrower and
in support of working capital obligations of the Borrower and such other
obligations of the Borrower that are acceptable to the Administrative Agent
and, subject to and upon the terms and conditions herein set forth, the Letter
of Credit Issuer agrees to issue from time to time, irrevocable standby letters
of credit in such form as may be approved by the Letter of Credit Issuer (each
such letter of credit, a "Letter of Credit" and, collectively, the "Letters of
Credit"). All Letters of Credit shall be denominated in U.S. dollars.
(b) Notwithstanding the foregoing, (i) no Letter of Credit
shall be issued if after giving effect thereto, the Letter of Credit
Outstandings would exceed either (x) $10,000,000 or (y) when added to the
aggregate outstanding principal amount of all Revolving Loans, the Total
Revolving Commitment at such time and (ii) each Letter of Credit shall have an
expiry date occurring not later than one year after such Letter of Credit's
date of issuance, provided that any such Letter of Credit may be extendable for
successive periods of up to 12 months on terms acceptable to the Letter of
Credit Issuer and in no event shall any Letter of Credit have an expiry date
occurring later than the fifth Business Day preceding the Final Maturity Date.
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(c) Notwithstanding the foregoing, in the event a Lender
Default exists, the Letter of Credit Issuer shall not be required to issue any
Letter of Credit unless the Letter of Credit Issuer has entered into
arrangements satisfactory to it and the Borrower to eliminate the Letter of
Credit Issuer's risk with respect to the participation in Letters of Credit of
the Defaulting RF Lender or Lenders, including by cash collateralizing such
Defaulting RF Lender's or Lenders' Percentage of the Letter of Credit
Outstandings.
2.02 Minimum Initial Stated Amount. The initial Stated Amount
of each Letter of Credit shall be not less than $100,000 or such lesser amount
acceptable to the Letter of Credit Issuer.
2.03 Letter of Credit Requests; Notices of Issuance. (a)
Whenever it desires that a Letter of Credit be issued, the Borrower shall give
the Administrative Agent and the Letter of Credit Issuer written notice
(including by way of facsimile transmission) in the form of Exhibit C thereof
prior to 11:00 A.M. (New York time) at least three Business Days (or such
shorter period as may be acceptable to the Letter of Credit Issuer) prior to
the proposed date of issuance (which shall be a Business Day) (each, a "Letter
of Credit Request"), which Letter of Credit Request shall include any other
documents that the Letter of Credit Issuer customarily requires in connection
therewith.
(b) The Letter of Credit Issuer shall, promptly after each
issuance of or amendment to a Letter of Credit by it, give the Administrative
Agent, each RF Lender and the Borrower written notice of such issuance or
amendment, accompanied by a copy to the Administrative Agent of such Letter of
Credit or amendment.
2.04 Agreement to Repay Letter of Credit Drawings. (a) The
Borrower hereby agrees to reimburse the Letter of Credit Issuer, by making
payment to the Administrative Agent at the Payment Office, for any payment or
disbursement made by the Letter of Credit Issuer under any Letter of Credit
(each such amount so paid or disbursed until reimbursed, an "Unpaid Drawing")
immediately after, and in any event on the date on which the Borrower is
notified by the Letter of Credit Issuer of such payment or disbursement, with
interest on the amount so paid or disbursed by the Letter of Credit Issuer to
the extent not reimbursed prior to 12:00 Noon (New York time) on the date of
such payment or disbursement, from and including the date paid or disbursed to
but not including the date the Letter of Credit Issuer is reimbursed therefor
at a rate per annum which shall be the Base Rate as in effect from time to time
plus 2.0% (plus an additional 2.0% per annum if not reimbursed by the third
Business Day after the date of such notice of payment or disbursement), such
interest also to be payable on demand.
(b) The Borrower's obligation under this Section 2.04 to
reimburse the Letter of Credit Issuer with respect to Unpaid Drawings
(including, in each case, interest thereon) shall be absolute and unconditional
under any and all circumstances and
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irrespective of any setoff, counterclaim or defense to payment which the
Borrower may have or have had against the Letter of Credit Issuer, the
Administrative Agent or any Lender, including, without limitation, any defense
based upon the failure of any drawing under a Letter of Credit to conform
substantially to the terms of the Letter of Credit or any non-application or
misapplication by the beneficiary of the proceeds of such drawing; provided,
however, that the Borrower shall not be obligated to reimburse the Letter of
Credit Issuer for any wrongful payment made by the Letter of Credit Issuer
under a Letter of Credit as a result of acts or omissions constituting willful
misconduct or gross negligence on the part of the Letter of Credit Issuer as
determined by a court of competent jurisdiction.
2.05 Letter of Credit Participations. (a) Immediately upon
the issuance of any Letter of Credit, the Letter of Credit Issuer shall be
deemed to have sold and transferred to each other RF Lender, and each such RF
Lender (each, a "Participant") shall be deemed irrevocably and unconditionally
to have purchased and received from such Letter of Credit Issuer, without
recourse or warranty, an undivided interest and participation, to the extent of
such Participant's Percentage, in such Letter of Credit, each substitute letter
of credit, each drawing made thereunder and the obligations of the Borrower
under this Agreement with respect thereto (although the Letter of Credit Fee
shall be payable directly to the Administrative Agent for the account of the RF
Lenders as provided in Section 3.01(b) and the Participants shall have no right
to receive any portion of any Facing Fees) and any security therefor or
guaranty pertaining thereto. Upon any change in the Revolving Commitments
pursuant to Section 1.13 and/or 12.04(b), it is hereby agreed that, with
respect to all outstanding Letters of Credit and Unpaid Drawings, there shall
be an automatic adjustment to the participations pursuant to this Section 2.05
to reflect the new Percentages of the assigning and assignee RF Lender or of
all RF Lenders, as the case may be.
(b) In determining whether to pay under any Letter of Credit,
the Letter of Credit Issuer shall not have any obligation relative to the
Participants other than to determine that any documents required to be
delivered under such Letter of Credit have been delivered and that they
substantially comply on their face with the requirements of such Letter of
Credit. Any action taken or omitted to be taken by the Letter of Credit Issuer
under or in connection with any Letter of Credit if taken or omitted in the
absence of gross negligence or willful misconduct, shall not create for the
Letter of Credit Issuer any resulting liability.
(c) In the event that the Letter of Credit Issuer makes any
payment under any Letter of Credit and the Borrower shall not have reimbursed
such amount in full to the Letter of Credit Issuer pursuant to Section 2.04(a),
the Letter of Credit Issuer shall promptly notify the Administrative Agent, and
the Administrative Agent shall promptly notify each Participant of such
failure, and each Participant shall promptly and unconditionally pay to the
Administrative Agent for the account of the Letter of Credit
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Issuer, the amount of such Participant's Percentage of such payment in U.S.
dollars and in same day funds provided that no Participant shall be obligated
to pay to the Administrative Agent its Percentage of such unreimbursed amount
for any wrongful payment made by the Letter of Credit Issuer under a Letter of
Credit as a result of acts or omissions constituting willful misconduct or
gross negligence on the part of the Letter of Credit Issuer. If the
Administrative Agent so notifies any Participant required to fund an Unpaid
Drawing under a Letter of Credit prior to 11:00 A.M. (New York time) on any
Business Day, such Participant shall make available to the Administrative Agent
for the account of the Letter of Credit Issuer such Participant's Percentage of
the amount of such payment on such Business Day in same day funds. If and to
the extent such Participant shall not have so made its Percentage of the amount
of such Unpaid Drawing available to the Administrative Agent for the account of
the Letter of Credit Issuer, such Participant agrees to pay to the
Administrative Agent for the account of the Letter of Credit Issuer, forthwith
on demand such amount, together with interest thereon, for each day from such
date until the date such amount is paid to the Administrative Agent for the
account of the Letter of Credit Issuer at the overnight Federal Funds Effective
Rate. The failure of any Participant to make available to the Administrative
Agent for the account of the Letter of Credit Issuer its Percentage of any
Unpaid Drawing under any Letter of Credit shall not relieve any other
Participant of its obligation hereunder to make available to the Administrative
Agent for the account of the Letter of Credit Issuer its Percentage of any
payment under any Letter of Credit on the date required, as specified above,
but no Participant shall be responsible for the failure of any other
Participant to make available to the Administrative Agent for the account of
the Letter of Credit Issuer such other Participant's Percentage of any such
payment.
(d) Whenever the Letter of Credit Issuer receives a payment
of a reimbursement obligation as to which the Administrative Agent has received
for the account of the Letter of Credit Issuer any payments from the
Participants pursuant to clause (c) above, the Letter of Credit Issuer shall
pay to the Administrative Agent and the Administrative Agent shall promptly pay
to each Participant which has paid its Percentage thereof, in U.S. dollars and
in same day funds, an amount equal to such Participant's Percentage of the
principal amount thereof and interest thereon accruing after the purchase of
the respective participations.
(e) The obligations of the Participants to make payments to
the Administrative Agent for the account of the Letter of Credit Issuer with
respect to Letters of Credit shall be irrevocable and not subject to
counterclaim, set-off or other defense or any other qualification or exception
whatsoever (provided that no Participant shall be required to make payments
resulting from the Administrative Agent's gross negligence or willful
misconduct) and shall be made in accordance with the terms and conditions of
this Agreement under all circumstances, including, without limitation, any of
the following circumstances:
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(i) any lack of validity or enforceability of this Agreement
or any of the other Credit Documents;
(ii) the existence of any claim, set-off, defense or other
right which the Borrower or any of its Subsidiaries may have at any
time against a beneficiary named in a Letter of Credit, any transferee
of any Letter of Credit (or any Person for whom any such transferee
may be acting), the Administrative Agent, the Letter of Credit Issuer,
any Lender or other Person, whether in connection with this Agreement,
any Letter of Credit, the transactions contemplated herein or any
unrelated transactions (including any underlying transaction between
the Borrower and the beneficiary named in any such Letter of Credit);
(iii) any draft, certificate or other document presented under
the Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
(iv) the surrender or impairment of any security for the
performance or observance of any of the terms of any of the Credit
Documents; or
(v) the occurrence of any Default or Event of Default.
(f) To the extent the Letter of Credit Issuer is not
indemnified by the Borrower, each Participant will reimburse and indemnify the
Letter of Credit Issuer, in proportion to its Percentage of the Total Revolving
Commitment, for and against any and all liabilities, obligations, losses,
damages, penalties, claims, actions, judgments, costs, expenses or
disbursements of whatsoever kind or nature which may be imposed on, asserted
against or incurred by the Letter of Credit Issuer in performing its respective
duties in any way relating to or arising out of its issuance of Letters of
Credit; provided that no Participants shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements resulting from the Letter of Credit
Issuer's gross negligence or willful misconduct.
2.06 Increased Costs. If at any time after the Effective
Date, the adoption or effectiveness of any applicable law, rule or regulation,
or any change therein, or any change in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency
charged with the interpretation or administration thereof, or compliance by the
Letter of Credit Issuer or any Participant with any request or directive
(whether or not having the force of law) by any such authority, central bank or
comparable agency shall either (i) impose, modify or make applicable any
reserve, deposit, capital adequacy or similar requirement against Letters of
Credit issued by the Letter of Credit Issuer or such Participant's
participation therein, or (ii) shall impose on the Letter of Credit Issuer or
any Participant any other conditions affecting this Agreement, any Letter of
Credit
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or such Participant's participation therein; and the result of any of the
foregoing is to increase the cost to the Letter of Credit Issuer or such
Participant of issuing, maintaining or participating in any Letter of Credit,
or to reduce the amount of any sum received or receivable by the Letter of
Credit Issuer or such Participant hereunder (other than any increased cost or
reduction in the amount received or receivable resulting from the imposition of
or a change in the rate of taxes or similar charges), then, upon demand to the
Borrower by the Letter of Credit Issuer or such Participant (a copy of which
notice shall be sent by the Letter of Credit Issuer or such Participant to the
Administrative Agent), the Borrower shall pay to the Letter of Credit Issuer or
such Participant such additional amount or amounts as will compensate the
Letter of Credit Issuer or such Participant for such increased cost or
reduction. A certificate submitted to the Borrower by the Letter of Credit
Issuer or such Participant, as the case may be (a copy of which certificate
shall be sent by the Letter of Credit Issuer or such Participant to the
Administrative Agent), setting forth the basis for the determination of such
additional amount or amounts necessary to compensate the Letter of Credit
Issuer or such Participant as aforesaid shall be conclusive and binding on the
Borrower absent manifest error, although the failure to deliver any such
certificate shall not release or diminish any of the Borrower's obligations to
pay additional amounts pursuant to this Section 2.06 upon the subsequent
receipt thereof.
SECTION 3. Fees; Commitments.
3.01 Fees. (a) The Borrower agrees to pay to the
Administrative Agent a commitment fee (the "Commitment Fee") for the account of
each Non-Defaulting RF Lender for the period from and including the Initial
Borrowing Date to, but not including, the date upon which the Total Revolving
Commitment has been terminated, computed at a per annum rate equal to 0.50%
multiplied by the average daily Unutilized Revolving Commitment of such Lender.
Such Commitment Fees shall be due and payable in arrears on the last Business
Day of each March, June, September and December and on the date upon which the
Total Revolving Commitment is terminated.
(b) The Borrower agrees to pay to the Administrative Agent,
for the account of each Non-Defaulting RF Lender, pro rata on the basis of
their respective Percentages, a fee in respect of each Letter of Credit (the
"Letter of Credit Fee") computed at a per annum rate equal to 3.0% multiplied
by the average daily Stated Amount of such Letter of Credit. Accrued Letter of
Credit Fees shall be due and payable quarterly in arrears on the last Business
Day of each March, June, September and December of each year and on the date
upon which the Total Revolving Commitment is terminated.
(c) The Borrower agrees to pay to the Letter of Credit Issuer
a fee in respect of each Letter of Credit (the "Facing Fee") equal to 0.25% of
the Stated Amount of such Letter of Credit, such fee to be payable upon the
issuance of such Letter of Credit.
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(d) The Borrower agrees to pay directly to the Letter of
Credit Issuer upon each issuance of, payment under, and/or amendment of, a
Letter of Credit such amount as shall at the time of such issuance, payment or
amendment be the administrative charge which the Letter of Credit Issuer is
customarily charging for issuances of, drawings under or amendments of, letters
of credit issued by it.
(e) The Borrower shall pay to (x) each Agent on the Initial
Borrowing Date, for its own account and/or for distribution to the Lenders,
such fees as heretofore agreed by the Borrower and the Agents and (y) the
Administrative Agent from time to time when and as due, for its own account,
such other fees as agreed to between the Borrower and the Administrative Agent.
(f) All computations of Fees shall be made in accordance with
Section 12.07(b).
3.02 Voluntary Reduction of Commitments. Upon at least three
Business Days' prior written notice (or telephonic notice confirmed in writing)
to the Administrative Agent at its Notice Office (which notice shall be deemed
to be given on a certain day only if given before 12:00 Noon (New York time) on
such day and shall be promptly transmitted by the Administrative Agent to each
of the Lenders), the Borrower shall have the right, without premium or penalty,
to terminate or partially reduce the Total Unutilized Revolving Commitment,
provided that (x) any such termination shall apply to proportionately and
permanently reduce the Revolving Commitment of each RF Lender, (y) no such
reduction shall reduce any Non-Defaulting RF Lender's Revolving Commitment to
an amount that is less than the outstanding Revolving Loans of such Lender and
(z) any partial reduction pursuant to this Section 3.02 shall be in the amount
of at least $1,000,000.
3.03 Mandatory Adjustments of Commitments, etc. (a) The Total
Commitment (and the Term Commitment and Revolving Commitment of each Lender)
shall terminate in its entirety on the Expiration Date unless the Initial
Borrowing Date has occurred on or before such date.
(b) The Total Term Commitment shall terminate in its entirety
on the Initial Borrowing Date (after giving effect to the making of Term Loans
on such date).
(c) The Total Revolving Commitment shall terminate in its
entirety on the the Final Maturity Date.
(d) On each date upon which a mandatory repayment of Term
Loans pursuant to Section 4.02(A)(c), (d), (e), (f) or (g) is required (and
exceeds in amount the aggregate principal amount of Term Loans then
outstanding) or would be required if Term Loans were then outstanding, the
Total Revolving Commitment shall be permanently
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reduced by the amount, if any, by which the amount required to be applied
pursuant to said Section (determined as if an unlimited amount of Term Loans
were actually outstanding) exceeds the aggregate principal amount of Term Loans
then outstanding.
(e) If a Change of Control shall occur, the Borrower shall,
within five Business Days after the occurrence thereof, give each Lender notice
thereof and shall describe in reasonable detail the facts and circumstances
giving rise thereto. If, within 30 days of the giving of such notice the
Administrative Agent, at the request of the Required Lenders, shall have given
written notice to the Borrower that the provisions of this Section 3.03(e) and
of Section 4.02(A)(i) shall apply, then each RF Lender may, by written notice
to the Borrower and the Administrative Agent given not later than 60 days after
such Change of Control, terminate its Revolving Commitment effective on the
tenth day following the giving of such notice by an RF Lender.
(f) Each partial reduction of the Total Revolving Commitment
pursuant to this Section 3.03 shall apply proportionately to the Revolving
Commitment of each RF Lender.
SECTION 4. Payments.
4.01 Voluntary Prepayments. The Borrower shall have the right
to prepay Loans in whole or in part, without premium or penalty, from time to
time on the following terms and conditions: (i) the Borrower shall give the
Administrative Agent at the Payment Office at least one Business Day's prior
written notice (or telephonic notice promptly confirmed in writing) of its
intent to prepay the Loans, whether such Loans are Term Loans or Revolving
Loans, the amount of such prepayment and (in the case of LIBOR Loans) the
specific Borrowing(s) pursuant to which made, which notice shall be given by
the Borrower no later than 11:00 A.M. on the Business Day prior to the date of
such prepayment (which notice shall promptly be transmitted by the
Administrative Agent to each of the Lenders); (ii) each partial prepayment of
any Borrowing shall be in an aggregate principal amount of at least (x)
$400,000, in the case of Revolving Loans and (y) $1,000,000, in the case of
Term Loans, provided that no partial prepayment of LIBOR Loans made pursuant to
a Borrowing shall reduce the aggregate principal amount of the Loans
outstanding pursuant to such Borrowing to an amount less than the Minimum
Borrowing Amount applicable thereto; (iii) each prepayment in respect of any
Loans made pursuant to a Borrowing shall be applied pro rata among such Loans,
provided, that at the Borrower's election in connection with any prepayment of
Revolving Loans pursuant to this Section 4.01, such prepayment shall not be
applied to any Revolving Loans of a Defaulting RF Lender; and (iv) each
prepayment of Term Loans pursuant to this Section 4.01 shall reduce the
remaining Scheduled Repayments of the Term Loans on a pro rata basis (based
upon the then remaining principal amount of each such Scheduled Repayment).
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4.02 Mandatory Prepayments.
(A) Requirements:
(a) (i) If on any date the sum of the aggregate outstanding
principal amount of Revolving Loans made by Non-Defaulting RF Lenders and the
Letter of Credit Outstandings exceeds the Adjusted Total Revolving Commitment
as then in effect, the Borrower shall repay on such date the principal of
Revolving Loans made by Non-Defaulting RF Lenders (and after all such
Revolving Loans have been repaid in full, Unpaid Drawings), in an aggregate
amount equal to such excess. If, after giving effect to the repayment of all
such Revolving Loans and Unpaid Drawings, the aggregate amount of Letter of
Credit Outstandings exceeds the Total Revolving Commitment then in effect, the
Borrower shall pay to the Administrative Agent an amount in cash and/or Cash
Equivalents equal to such excess and the Administrative Agent shall hold such
payment as security for the obligations of the Borrower hereunder pursuant to a
cash collateral agreement to be entered into in form and substance satisfactory
to the Administrative Agent (which shall permit certain investments in Cash
Equivalents satisfactory to the Administrative Agent, until the proceeds are
applied to the secured obligations).
(ii) If on any date the aggregate outstanding principal
amount of the Revolving Loans made by a Defaulting RF Lender exceeds the
Revolving Commitment of such Defaulting RF Lender, the Borrower shall repay
principal of the Revolving Loans of such Defaulting Lender in an amount equal
to such excess.
(b) On each date set forth below, the Borrower shall be
required to repay the principal amount of Term Loans set forth opposite such
date (each such repayment, as the same may be reduced as provided in Sections
4.01 and 4.02(B), a "Scheduled Repayment"):
Date Amount
September 30, 1997 $2,500,000
December 31, 1997 $2,500,000
March 31, 1998 $2,500,000
June 30, 1998 $2,500,000
September 30, 1998 $2,500,000
December 31, 1998 $2,500,000
March 31, 1999 $3,750,000
June 30, 1999 $3,750,000
September 30, 1999 $3,750,000
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Date Amount
December 31, 1999 $3,750,000
March 31, 2000 $4,375,000
June 30, 2000 $4,375,000
September 30, 2000 $4,375,000
December 31, 2000 $4,375,000
March 31, 2001 $5,625,000
June 30, 2001 $5,625,000
September 30, 2001 $5,625,000
December 31, 2001 $5,625,000
March 31, 2002 $7,500,000
Final Maturity Date $7,500,000
(c) On the Business Day (or the fifth Business Day to the
extent the Cash Proceeds constitute insurance payments) following the date of
receipt thereof by the Borrower and/or any of its Subsidiaries of the Cash
Proceeds from any Asset Sale, an amount equal to 100% of the Net Cash Proceeds
from such Asset Sale shall be applied as a mandatory repayment of principal of
the then outstanding Term Loans, provided that the Net Cash Proceeds from any
Asset Sale shall not be required to be used to so repay Term Loans to the
extent the Borrower elects, as hereinafter provided, to cause such Net Cash
Proceeds to be reinvested in Reinvestment Assets (a "Reinvestment Election").
The Borrower may exercise its Reinvestment Election with respect to an Asset
Sale if (x) no Event of Default exists and (y) the Borrower delivers a
Reinvestment Notice to the Administrative Agent on or prior to the Business Day
following the date of the consummation of the respective Asset Sale, with such
Reinvestment Election being effective with respect to the Net Cash Proceeds of
such Asset Sale equal to the Anticipated Reinvestment Amount specified in such
Reinvestment Notice.
(d) On the date following the date of receipt thereof by the
Borrower and/or any of its Subsidiaries, an amount equal to 100% of the
proceeds (net of underwriting discounts and commissions and other reasonable
fees and costs associated therewith) of the incurrence of Indebtedness by the
Borrower and/or any of its Subsidiaries (other than Indebtedness permitted by
Section 8.04 as in effect on the Effective Date), shall be applied as a
mandatory repayment of principal of the then outstanding Term Loans.
(e) On the date following the date of receipt thereof by the
Borrower and/or any of its Subsidiaries, an amount equal to 100% of the
proceeds (net of
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underwriting discounts and commissions and other reasonable fees and costs
associated therewith) of any sale or issuance of its equity or of any equity
contribution (other than (x) equity issued in connection with the Transaction
and (y) proceeds from issuances of Borrower Common Stock to shareholders,
directors and employees of the Borrower and its Subsidiaries and other
individuals as a result of the exercise of any options with respect thereto of
up to $500,000 in the aggregate in any fiscal year) shall be applied as a
mandatory repayment of principal of the then outstanding Term Loans.
(f) On each date which is 105 days after the last day of each
fiscal year of the Borrower (commencing with the fiscal year ending on December
31, 1997), 80% of Excess Cash Flow for the fiscal year then last ended (or in
the case of the first payment to be made hereunder, the period commencing on
the Initial Borrowing Date and ending December 31, 1997) shall be applied as a
mandatory repayment of principal of the then outstanding Term Loans.
(g) On the Reinvestment Prepayment Date with respect to a
Reinvestment Election, an amount equal to the Reinvestment Prepayment Amount,
if any, for such Reinvestment Election shall be applied as a mandatory
repayment of principal amount of the then outstanding Term Loans.
(h) Notwithstanding anything to the contrary contained
elsewhere in this Agreement, all outstanding Revolving Loans shall be repaid in
full on the Final Maturity Date.
(i) If, within 30 days of the giving of notice required to be
given by the Borrower pursuant to Section 3.03(e), the Administrative Agent, at
the request of the Required Lenders, shall have given written notice to the
Borrower that the provisions of this Section 4.02(A)(i) and of Section 3.03(e)
shall apply, then, upon written notice to the Borrower and the Administrative
Agent by any Lender given not later than 60 days after such Change of Control,
the outstanding principal amount of Term Loans of such Lender shall become due
and payable in full on the tenth day following the giving of such notice.
(B) Application:
(a) Each mandatory repayment of Term Loans required to be
made pursuant to Section 4.02(A)(c), (d), (e), (f) and (g) shall be applied to
reduce the then remaining Scheduled Repayments on a pro rata basis (based upon
the then remaining Scheduled Repayments).
(b) With respect to each prepayment of Loans required by
Section 4.02, the Borrower may designate the Types of Loans which are to be
prepaid and the specific Borrowing(s) under the affected Facility pursuant to
which made, provided that (i) if any
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prepayment of LIBOR Loans made pursuant to a single Borrowing shall reduce the
outstanding Loans made pursuant to such Borrowing to an amount less than the
Minimum Borrowing Amount for such Borrowing, such Borrowing shall be
immediately converted into Base Rate Loans; (ii) each prepayment of any Loans
made pursuant to a Borrowing shall be applied pro rata among such Loans; and
(iii) notwithstanding the provisions of the preceding clause (ii), no
prepayment of Revolving Loans made pursuant to Section 4.02(A)(a)(i) shall be
applied to the Revolving Loans of any Defaulting RF Lender. In the absence of a
designation by the Borrower as described in the preceding sentence, the
Administrative Agent shall, subject to the above, make such designation in its
sole discretion with a view, but no obligation, to minimize breakage costs
owing under Section 1.11.
4.03 Method and Place of Payment. Except as otherwise
specifically provided herein, all payments under this Agreement shall be made
to the Administrative Agent for the ratable (based on its pro rata share)
account of the Lenders entitled thereto, not later than 1:00 P.M. (New York
time) on the date when due and shall be made in immediately available funds and
in lawful money of the United States of America at the Payment Office, it being
understood that written notice by the Borrower to the Administrative Agent to
make a payment from the funds in the Borrower's account at the Payment Office
shall constitute the making of such payment to the extent of such funds held in
such account. Any payments under this Agreement which are made later than 1:00
P.M. (New York time) shall be deemed to have been made on the next succeeding
Business Day. Whenever any payment to be made hereunder shall be stated to be
due on a day which is not a Business Day, the due date thereof shall be
extended to the next succeeding Business Day and, with respect to payments of
principal, interest shall be payable during such extension at the applicable
rate in effect immediately prior to such extension.
4.04 Net Payments. (a) All payments made by the Borrower
hereunder or under any Note will be made without setoff, counterclaim or other
defense. Except as provided in Section 4.04(b), all such payments will be made
free and clear of, and without deduction or withholding for, any present or
future taxes, levies, imposts, duties, fees, assessments or other charges of
whatever nature now or hereafter imposed by any jurisdiction (or by any
political subdivision or taxing authority thereof or therein) with respect to
such payments (but excluding, except as provided in the second succeeding
sentence, any tax imposed on or measured by the net income or net profits of a
Lender 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
Lender is located (or any subdivision or taxing authority thereof or therein))
and all interest, penalties or similar liabilities with respect to such
non-excluded taxes, levies, imposts, duties, fees, assessments or other charges
(all such non-excluded taxes, levies, imposts, duties, fees, assessments or
other charges being referred to collectively as "Taxes"). If any Taxes are so
levied or imposed, the Borrower agrees to pay the full amount of such Taxes,
and such additional amounts as may be
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necessary so that every payment of all amounts due under this Agreement or
under any Note, after withholding or deduction for or on account of any Taxes,
will not be less than the amount provided for herein or in such Note. If any
amounts are payable in respect of Taxes pursuant to the preceding sentence, the
Borrower agrees to reimburse each Lender, upon the written request of such
Lender, for taxes imposed on or measured by the net income or net profits of
such Lender pursuant to the laws of the jurisdiction in which such Lender is
organized or in which the principal office or applicable lending office of such
Lender is located (or of any subdivision or taxing authority therein or
thereof) and for any withholding of taxes as such Lender shall determine are
payable by, or withheld from, such Lender in respect of such amounts so paid to
or on behalf of such Lender pursuant to the preceding sentence and in respect
of any amounts paid to or on behalf of such Lender pursuant to this sentence.
The Borrower will furnish to the Administrative Agent within 45 days after the
date the payment of any Taxes is due pursuant to applicable law certified
copies of tax receipts evidencing such payment by the Borrower. The Borrower
agrees to indemnify and hold harmless each Lender, and reimburse such Lender
upon its written request, for the amount of any Taxes so levied or imposed and
paid by such Lender.
(b) Each Lender that is not a United States person (as such
term is defined in Section 7701(a)(30) of the Code) for Federal income tax
purposes agrees to deliver to the Borrower and the Administrative Agent on or
prior to the Effective Date, or in the case of a Lender that is an assignee or
transferee of an interest under this Agreement pursuant to Section 1.13 or
12.04 (unless the respective Lender was already a Lender hereunder immediately
prior to such assignment or transfer), on the date of such assignment or
transfer to such Lender, (i) two accurate and complete original signed copies
of Internal Revenue Service Form 4224 or 1001 (or successor forms) certifying
to such Lender's entitlement to a complete exemption from United States
withholding tax with respect to payments to be made under this Agreement and
under any Note or (ii) if the Lender is not a "bank" within the meaning of
Section 881(c)(3)(A) of the Code and cannot deliver either Internal Revenue
Service Form 1001 or 4224 pursuant to clause (i) above, (x) a certificate
substantially in the form of Exhibit D (any such certificate, a "Section 4.04
Certificate") and (y) two accurate and complete original signed copies of
Internal Revenue Service Form W-8 (or successor form) certifying to such
Lender's entitlement to a complete exemption from United States withholding tax
with respect to payments of interest to be made under this Agreement and under
any Note. In addition, each such Lender agrees that, from time to time after
the Effective Date, when a lapse in time or change in circumstances renders the
previous certification obsolete or inaccurate in any material respect, it will
deliver to the Borrower and the Administrative Agent two new accurate and
complete original signed copies of Internal Revenue Service Form 4224 or 1001,
or Form W-8 and a Section 4.04 Certificate, as the case may be, and such other
forms as may be required in order to confirm or establish the entitlement of
such Lender to a continued exemption from or reduction in United States
withholding tax with respect to payments under this Agreement and any Note, or
it shall immediately notify the Borrower and the Administrative Agent of
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its inability to deliver any such Form or Certificate in which case such Lender
shall not be required to deliver any such Form or Certificate pursuant to this
Section 4.04(b). Notwithstanding anything to the contrary contained in Section
4.04(a), but subject to Section 12.04(b) and the immediately succeeding
sentence, (x) the Borrower shall be entitled, to the extent it is required to
do so by law, to deduct or withhold income or similar taxes imposed by the
United States from interest, fees or other amounts payable hereunder for the
account of any Lender which is not a United States person (as such term is
defined in Section 7701(a)(30) of the Code) for Federal income tax purposes to
the extent that such Lender has not provided to the Borrower Internal Revenue
Service Forms that establish a complete exemption from such deduction or
withholding and (y) the Borrower shall not be obligated pursuant to Section
4.04(a) hereof to gross-up payments to be made to any such Lender in respect of
income or similar taxes imposed by the United States if (I) such Lender has not
provided to the Borrower the Internal Revenue Service Forms required to be
provided to the Borrower pursuant to this Section 4.04(b) or (II) in the case
of a payment, other than interest, to a Lender described in clause (ii) of the
last sentence of this Section 4.04(b) above, to the extent that such Forms do
not establish a complete exemption from withholding of such taxes.
Notwithstanding anything to the contrary contained in the preceding sentence or
elsewhere in this Section 4.04 and except as set forth in Section 12.04(b), the
Borrower agrees to pay additional amounts and to indemnify each Lender in the
manner set forth in Section 4.04(a) (without regard to the identity of the
jurisdiction requiring the deduction or withholding) in respect of any Taxes
deducted or withheld by it as described in the immediately preceding sentence
as a result of any changes after the Effective Date in any applicable law,
treaty, governmental rule, regulation, guideline or order, or in the
interpretation thereof, relating to the deducting or withholding of such Taxes.
SECTION 5. Conditions Precedent.
5.01 Conditions Precedent to Initial Borrowing Date. The
obligation of the Lenders to make Loans, and of the Letter of Credit Issuer to
issue Letters of Credit, on the Initial Borrowing Date is subject to the
satisfaction of each of the following conditions at such time:
(a) Effectiveness; Notes. On or prior to the Initial
Borrowing Date, (i) the Effective Date shall have occurred and (ii) there shall
have been delivered to the Administrative Agent for the account of each Lender
the appropriate Note or Notes executed by the Borrower, in each case, in the
amount, maturity and as otherwise provided herein.
(b) Opinions of Counsel. On the Initial Borrowing Date, the
Administrative Agent shall have received opinions, addressed to each Agent and
each of the Lenders and dated the Initial Borrowing Date, from (i) Weil,
Gotshal & Manges, LLP, special counsel
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to the Credit Parties, which opinion shall cover the matters contained in
Exhibit E-1 hereto, (ii) White & Case, special counsel to the Administrative
Agent, which opinion shall cover the matters contained in Exhibit E-2 hereto
and (iii) such local counsel satisfactory to the Administrative Agent as the
Administrative Agent may request, which opinions shall cover the perfection of
the security interests granted pursuant to the Security Documents and such
other matters incident to the transactions contemplated herein as the Agents
may reasonably request and shall be in form and substance satisfactory to the
Administrative Agent.
(c) Proceedings. (I) On the Initial Borrowing Date, the
Administrative Agent shall have received from the Borrower a certificate, dated
the Initial Borrowing Date, signed by the President, any Executive
Vice-President, any Senior Vice-President or any Vice-President of the Borrower
in the form of Exhibit F with appropriate insertions and deletions, together
with (x) copies of the certificate of incorporation, by-laws or equivalent
organizational documents of each Credit Party, (y) the resolutions of each
Credit Party referred to in such certificate and all of the foregoing shall be
satisfactory to the Administrative Agent and (z) a statement that all of the
applicable conditions set forth in Sections 5.01(g) and (h) and 5.02 exist as
of such date.
(II) On the Initial Borrowing Date, all corporate,
partnership and legal proceedings and all instruments and agreements in
connection with the transactions contemplated by this Agreement shall be
satisfactory in form and substance to the Administrative Agent, and the
Administrative Agent shall have received all information and copies of all
certificates, documents and papers, including good standing certificates and
any other records of corporate and partnership proceedings and governmental
approvals, if any, which the Administrative Agent may have requested in
connection therewith, such documents and papers, where appropriate, to be
certified by proper corporate or governmental authorities.
(d) Adverse Change, etc. Since December 31, 1996, nothing
shall have occurred (and neither any Lender nor the Administrative Agent shall
have become aware of any facts or conditions not previously known) which the
Administrative Agent or the Required Lenders shall determine has had, or is
reasonably likely to have, (i) a Material Adverse Effect or (ii) a material
adverse effect on the rights or remedies of the Lenders or the Administrative
Agent hereunder or under any other Credit Document, or on the ability of the
Credit Parties to perform their obligations to the Lenders and the
Administrative Agent.
(e) Litigation. On the Initial Borrowing Date, there shall be
no actions, suits or proceedings pending or notified to the Borrower in writing
(a) with respect to the Transaction, this Agreement or any other Credit
Document or (b) which the Administrative Agent or the Required Lenders shall
reasonably determine has had, or is reasonably likely to have, (i) a Material
Adverse Effect or (ii) a material adverse effect on the rights or remedies of
the Lenders or the Administrative Agent hereunder or under any other Credit
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Document or on the ability of the Credit Parties to perform their respective
obligations to the Lenders and the Administrative Agent.
(f) Approvals. Except as set forth on Annex III, on the
Initial Borrowing Date, all material necessary governmental and third party
approvals in connection with the Transaction and the Credit Documents shall
have been obtained and remain in effect, and all applicable waiting periods
shall have expired without any action being taken by any competent authority
which restrains or prevents the Transaction or imposes, in the reasonable
judgment of the Required Lenders or the Administrative Agent, materially
adverse conditions upon the consummation of the Transaction.
(g) Capitalization. (I) On or prior to the Initial Borrowing
Date, the Borrower shall have issued 1,360 Units and received gross cash
proceeds of at least $34,000,000 therefrom.
(II) On or prior to the Initial Borrowing Date, the Borrower
shall have received gross cash proceeds of at least $155,000,000 from the
issuance by the Borrower of the Senior Notes.
(h) Consummation of Acquisition, Refinancing, etc. (I) On the
Initial Borrowing Date, (i) all conditions precedent set forth in the
Acquisition Documents shall have been satisfied and not waived (unless waived
with the consent of the Administrative Agent) and (ii) the Acquisition shall
have been consummated in accordance with the Acquisition Documents and all
applicable laws.
(II) On the Initial Borrowing Date and concurrently with the
incurrence of Loans on such date, (i) the commitments under the Existing Credit
Agreement shall have been terminated, all loans thereunder shall have been
repaid in full, together with interest thereon, all letters of credit issued
thereunder shall have been terminated (or supported by Letters of Credit issued
hereunder) and all other amounts owing pursuant to the Existing Credit
Agreement shall have been repaid in full, (ii) the Lancaster Facility shall
have been modified (in a manner reasonably satisfactory to the Administrative
Agent) to eliminate the inventory financing provisions thereunder, (iii) the
LLC Subordinated Notes shall have been repaid in full, all of the issued and
outstanding LLC Preferred Stock shall have been redeemed in full and all of the
issued and outstanding LLC Warrants shall have been repurchased by the
Borrower, (iv) all of the Existing NATC Indebtedness shall have been repaid in
full and all agreements relating thereto terminated, (v) the UST Agreement
shall have been amended to terminate NATC's future royalty obligations
thereunder in return for a payment of $32 million and (vi) the creditors under
the Existing Credit Agreement and the Lancaster Facility and/or holding all
Existing NATC Indebtedness shall have terminated and released all security
interests in and Liens on the capital stock of and/or assets to be owned by the
Borrower and/or any of its Subsidiaries after giving effect to the Transaction,
and the Administrative Agent shall have received evidence (including releases)
in form,
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scope and substance satisfactory to it that the matters set forth in this
Section 5.01(h) have been satisfied at such time.
(III) On the Initial Borrowing Date the Reorganization shall
have been consummated in accordance with the Reorganization Documents and all
applicable laws.
(IV) On or prior to the Initial Borrowing Date, the
Administrative Agent shall have received true and correct copies of each of the
Transaction Documents certified as such by an Authorized Officer of the
Borrower, each of which shall have been duly authorized, executed and delivered
by the parties thereto and shall be in full force and effect and as described
in the Offering Memorandum and otherwise reasonably satisfactory to the
Administrative Agent.
(i) Subsidiary Guaranty. On the Initial Borrowing Date, each
Domestic Subsidiary of the Borrower (other than an Excluded Subsidiary) shall
have duly authorized, executed and delivered a Subsidiary Guaranty in the form
of Exhibit G hereto (as modified, amended or supplemented from time to time in
accordance with the terms hereof and thereof, the "Subsidiary Guaranty"), and
the Subsidiary Guaranty shall be in full force and effect.
(j) Security Documents. (I) On the Initial Borrowing Date,
each Credit Party shall have each duly authorized, executed and delivered a
Pledge Agreement in the form of Exhibit H (as modified, amended or supplemented
from time to time in accordance with the terms thereof and hereof, the "Pledge
Agreement") and shall have delivered to the Collateral Agent, as pledgee
thereunder, all of the certificates representing the Pledged Securities
referred to therein, endorsed in blank or accompanied by executed and undated
stock powers, and the Pledge Agreement shall be in full force and effect.
(II) On the Initial Borrowing Date, each Credit Party shall
have each duly authorized, executed and delivered a Security Agreement
substantially in the form of Exhibit I (as modified, supplemented or amended
from time to time, the "Security Agreement") covering all of such Credit
Party's present and future Security Agreement Collateral, in each case together
with:
(i) executed copies of Financing Statements (Form UCC-1) in
appropriate form for filing under the UCC of each jurisdiction as may
be necessary to perfect the security interests purported to be created
by the Security Agreement;
(ii) certified copies of Requests for Information or Copies
(Form UCC-11), or equivalent reports, each of recent date listing all
effective financing statements that name any Credit Party as debtor
and that are filed in the jurisdictions referred to in clause (i),
together with copies of such financing statements (none of which shall
cover the Collateral except (x) those with respect to which
appropriate termin-
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ation statements executed by the secured lender thereunder have been
filed or delivered to the Administrative Agent and (y) to the extent
evidencing Permitted Liens);
(iii) evidence of the completion of all other recordings and
filings of, or with respect to, the Security Agreement as may be
necessary or, in the reasonable opinion of the Collateral Agent,
desirable to perfect the security interests intended to be created by
the Security Agreement; and
(iv) evidence that all other actions necessary or, in the
reasonable opinion of the Collateral Agent, desirable to perfect and
protect the security interests purported to be created by the Security
Agreement have been taken;
and the Security Agreement shall be in full force and effect.
(III) On the Initial Borrowing Date, the Collateral Agent
shall have received:
(i) fully executed counterpart of deed of trust, mortgage
or similar document in form and substance satisfactory to the
Collateral Agent (as amended, modified or supplemented from time to
time in accordance with the terms thereof and hereof, a "Mortgage")
with respect to the Mortgaged Property and arrangements satisfactory
to the Collateral Agent shall be in place to provide that counterparts
of the Mortgage shall be recorded on the Initial Borrowing Date in all
places to the extent necessary or desirable, in the judgment of the
Collateral Agent, effectively to create a valid and enforceable first
priority mortgage Lien, subject only to Permitted Encumbrances, on
such Mortgaged Property in favor of the Collateral Agent (or such
other trustee as may be required or desired under local law) for the
benefit of the Administrative Agent and the Lenders;
(ii) a mortgagee title insurance policy (or binding
commitment to issue such title insurance policy) issued by title
insurers reasonably satisfactory to the Collateral Agent (the
"Mortgage Policy") in amounts reasonably satisfactory to the
Collateral Agent and assuring the Collateral Agent that the Mortgage
is a valid and enforceable first priority mortgage Lien on the
Mortgaged Property, free and clear of all defects and encumbrances
except Permitted Encumbrances, and the Mortgage Policy shall be in
form and substance reasonably satisfactory to the Collateral Agent and
(A) shall include (to the extent available in the respective
jurisdiction of the Mortgaged Property) an endorsement for future
advances under this Agreement, the Notes and the Mortgage, and for
such other matters that the Collateral Agent in its discretion may
reasonably request, (B) shall not include an exception for mechanics'
liens, and (C) shall provide for affirmative insurance and such
reinsurance (includ-
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ing direct access agreements) as the Collateral Agent in its
discretion may reasonably request;
(iii) such estoppel letters, landlord waiver letters,
non-disturbance letters and similar assurances as may have been
requested by the Collateral Agent, which letters shall be in form and
substance satisfactory to the Collateral Agent; and
(iv) a survey in form and substance satisfactory to the
Collateral Agent of the Mortgaged Property, dated a recent date and
certified in a manner acceptable to the Collateral Agent by a licensed
professional surveyor satisfactory to the Administrative Agent.
(k) Solvency. On the Initial Borrowing Date, the
Administrative Agent shall receive from Valuation Research Corporation an
opinion, expressing opinions of value and other appropriate facts or
information regarding the solvency of the Borrower and its Subsidiaries taken
as a whole, after giving effect to the Transaction, in form and substance
satisfactory to the Administrative Agent.
(l) Insurance Policies. On the Initial Borrowing Date, the
Collateral Agent shall have received evidence of insurance complying with the
requirements of Section 7.03 for the business and properties of the Borrower
and its Subsidiaries, in form and substance satisfactory to the Administrative
Agent and, with respect to all casualty insurance, naming the Collateral Agent
as an additional insured and/or loss payee, and stating that such insurance
shall not be cancelled or revised without at least 30 days' prior written
notice by the insurer to the Collateral Agent.
(m) Environmental Assessments. On or prior to the Initial
Borrowing Date, the Administrative Agent shall have received environmental
assessments from environmental consultants satisfactory to the Administrative
Agent and in form, scope and substance reasonably satisfactory to the
Administrative Agent and the Required Lenders, together with reliance letters
with respect thereto.
(n) Consent Letter. On the Initial Borrowing Date, the
Administrative Agent shall have received a letter from CT Corporation System,
substantially in the form of Exhibit J hereto, indicating its consent to its
appointment by each Credit Party as its agent to receive service of process.
(o) Fees. On the Initial Borrowing Date, the Borrower shall
have paid to the Agents and the Lenders all Fees and expenses agreed upon by
such parties to be paid on or prior to such date.
(p) Bollore Consent Letter. Bollore shall have duly
authorized, executed and delivered the Bollore Consent Letter.
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5.02 Conditions Precedent to All Credit Events. The
obligation of each Lender to make Loans and the obligation of the Letter of
Credit Issuer to issue any Letter of Credit (including in each case Loans made,
and Letters of Credit issued, on the Initial Borrowing Date) is subject, at the
time of each such Credit Event, to the satisfaction of the following
conditions:
(a) Notice of Borrowing; Letter of Credit Request. The
Administrative Agent shall have received a Notice of Borrowing meeting the
requirements of Section 1.02 with respect to the incurrence of Term Loans or
Revolving Loans, as the case may be, or a Letter of Credit Request meeting the
requirements of Section 2.03 with respect to the issuance of a Letter of
Credit.
(b) No Default; Representations and Warranties. At the time
of each Credit Event and also after giving effect thereto, (i) there shall
exist no Default or Event of Default and (ii) all representations and
warranties made by any Credit Party contained herein or in the other Credit
Documents shall be true and correct in all material respects with the same
effect as though such representations and warranties had been made on and as of
the date of such Credit Event, except to the extent that such representations
and warranties expressly relate to an earlier date.
The acceptance of the benefits of each Credit Event shall
constitute a representation and warranty by the Borrower to the Agents and each
of the Lenders that all of the applicable conditions specified in Section 5.01
(in the case of the Credit Events occurring on the Initial Borrowing Date)
and/or 5.02, as the case may be, exist as of that time. All of the
certificates, legal opinions and other documents and papers referred to in
Section 5.01, unless otherwise specified, shall be delivered to the
Administrative Agent at its Notice Office for the account of each of the
Lenders and, except for the Notes, in sufficient counterparts for each of the
Lenders and shall be satisfactory in form and substance to the Administrative
Agent.
SECTION 6. Representations, Warranties and Agreements. In
order to induce the Lenders to enter into this Agreement and to make the Loans
and issue and/or participate in Letters of Credit provided for herein, the
Borrower makes the following representations and warranties to, and agreements
with, the Lenders, all of which shall survive the execution and delivery of
this Agreement and the making of the Loans:
6.01 Status. Each of the Borrower and each of its
Subsidiaries (i) is a duly organized and validly existing corporation or
limited partnership, as the case may be, in good standing under the laws of the
jurisdiction of its organization (in the case of each corporate subsidiary) and
has the power and authority to own its property and assets and to transact the
business in which it is engaged and presently proposes to engage and (ii) has
duly qualified and is authorized to do business and is in good standing in all
jurisdictions
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where it is required to be so qualified and where the failure to be so
qualified would have a Material Adverse Effect.
6.02 Power and Authority. Each Credit Party has the power and
authority to execute, deliver and carry out the terms and provisions of the
Credit Documents to which it is a party and has taken all necessary action to
authorize the execution, delivery and performance of the Credit Documents to
which it is a party. Each Credit Party has duly executed and delivered each
Credit Document to which it is a party and each such Credit Document
constitutes the legal, valid and binding obligation of such Person enforceable
in accordance with its terms, subject to the effect of any applicable
bankruptcy, insolvency, reorganization, moratorium or similar law affecting
creditors' rights generally, and subject to the effect of general principles of
equity (regardless of whether considered in a proceeding in equity or at law).
6.03 No Violation. Neither the execution, delivery and
performance by any Credit Party of the Credit Documents to which it is a party
nor compliance with the terms and provisions thereof (i) will contravene any
applicable provision of any law, statute, rule, regulation, order, writ,
injunction or decree of any court or governmental instrumentality, (ii) will
conflict with or result in any breach of, any of the terms, covenants,
conditions or provisions of, or constitute a default under, or (other than
pursuant to the Security Documents) result in the creation or imposition of (or
the obligation to create or impose) any Lien upon any of the property or assets
of the Borrower or any of its Subsidiaries pursuant to the terms of any
indenture, mortgage, deed of trust, agreement or other instrument to which the
Borrower or any of its Subsidiaries is a party or by which it or any of its
property or assets are bound or to which it may be subject or (iii) will
violate any provision of the certificate of incorporation, by-laws or
equivalent organizational documents of the Borrower or any of its Subsidiaries.
6.04 Litigation. Except as set forth on Annex X hereto, there
are no actions, suits or proceedings pending or, to the knowledge of the
Borrower, threatened with respect to the Borrower or any of its Subsidiaries
that are reasonably likely to have (i) a Material Adverse Effect or (ii) a
material adverse effect on the rights or remedies of the Lenders or on the
ability of any Credit Party to perform its respective obligations to them
hereunder and under the other Credit Documents to which it is a party.
6.05 Use of Proceeds; Margin Regulations. (a) The proceeds of
all Term Loans shall be utilized on the Initial Borrowing Date (i) to finance,
in part, the cash portion of the Transactions and (ii) to pay certain fees and
expenses relating to the Transaction, the Borrower hereby representing that the
aggregate of the fees and expenses relating to the Transaction shall not exceed
$15.0 million.
(b) The proceeds of all Revolving Loans may be used (i) for
the purposes described in clause (a) above, provided that no more than
$5,000,000 of such proceeds may
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be used for such purposes and (ii) for the general corporate and working
capital purposes of the Borrower and its Subsidiaries, it being understood and
agreed that the proceeds of Revolving Loans may not be used to effect
acquisitions.
(c) Neither the making of any Loan hereunder, nor the use of
the proceeds thereof, will violate or be inconsistent with the provisions of
Regulation G, T, U or X of the Board of Governors of the Federal Reserve System
and no part of the proceeds of any Loan will be used to purchase or carry any
Margin Stock or to extend credit for the purpose of purchasing or carrying any
Margin Stock.
6.06 Governmental Approvals. Except for filings and
recordings in connection with the Security Documents, and those, if any,
required with the Bureau of Alcohol, Tobacco and Firearms within 30 days of the
Effective Date, no order, consent, approval, license, authorization, or
validation of, or filing, recording or registration with, or exemption by, any
foreign or domestic governmental or public body or authority, or any
subdivision thereof, is required to authorize or is required in connection with
(i) the execution, delivery and performance of any Credit Document or (ii) the
legality, validity, binding effect or enforceability of any Credit Document.
6.07 Investment Company Act. Neither the Borrower nor any of
its Subsidiaries is an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
6.08 National Tobacco Partnership Agreement; Bollore
Distribution Agreements. The National Tobacco Partnership Agreement and the
Bollore Distribution Agreements are in full force and effect and no material
breach has occurred and is continuing under the National Tobacco Partnership
Agreement and/or the Bollore Distribution Agreements.
6.09 True and Complete Disclosure. All factual information
(taken as a whole) heretofore or contemporaneously furnished by or on behalf of
the Borrower or any of its Subsidiaries in writing to the Agents for purposes
of or in connection with this Agreement or any transaction contemplated herein
is, and all other such factual information (taken as a whole) hereafter
furnished by or on behalf of any such Person in writing to any Lender will be,
true and accurate in all material respects on the date as of which such
information is dated or certified and not incomplete by omitting to state any
material fact necessary to make such information (taken as a whole) not
misleading at such time in light of the circumstances under which such
information was provided. The projections and pro forma financial information
contained in such materials are based on good faith estimates and assumptions
believed by the Borrower to be reasonable at the time made, it being recognized
by the Lenders that such projections as to future events are not to be viewed
as facts and that actual results during the period or periods covered by any
such projections may differ from the projected results. There is no fact known
to the Borrower which
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would have a Material Adverse Effect, which has not been disclosed herein or in
such other documents, certificates and statements furnished to the Lenders for
use in connection with the transactions contemplated hereby.
6.10 Financial Condition; Financial Statements. (a) On and as
of the Initial Borrowing Date, on a pro forma basis after giving effect to the
Transaction and all Indebtedness incurred, and to be incurred (including,
without limitation, the Loans), and Liens created, and to be created, by each
Credit Party in connection therewith, (x) the sum of the assets, at a fair
valuation, of the Borrower and its Subsidiaries (on a consolidated basis) will
exceed their debts, (y) the Credit Parties will not have incurred or intended
to, or believe that they will, incur debts beyond their ability to pay such
debts as such debts mature and (z) the Credit Parties will not have
unreasonably small capital with which to conduct their business. For purposes
of this Section 6.10, "debt" means any liability on a claim, and "claim" means
(i) right to payment whether or not such a right is reduced to judgment,
liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed,
undisputed, legal, equitable, secured or unsecured; or (ii) right to an
equitable remedy for breach of performance if such breach gives rise to a
payment, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured
or unsecured.
(b) (I) (i) The audited consolidated balance sheets of each
of LLC and its Subsidiaries and NATC Holdings-USA and its Subsidiaries for the
fiscal years ending December 31, 1995 and 1996, (ii) the consolidated
statements of operations, cash flows and changes of equity of LLC and its
Subsidiaries for the year ended December 31, 1995 and the periods from January
1, 1996 to May 17, 1996 and May 17, 1996 to December 31, 1996 and (iii) the
consolidated statements of operations, cash flows and changes in stockholders'
equity of NATC Holdings-USA and its Subsidiaries for the fiscal years ended
December 31, 1995 and 1996, all of which financial statements have been
examined by Coopers & Lybrand L.L.P., who delivered an unqualified opinion in
respect thereof, (II) (i) the unaudited condensed balance sheet of LLC and its
Subsidiaries for the three month period ended March 31, 1997 and the unaudited
condensed statements of operations, cash flows and changes in equity of LLC and
its Subsidiaries for the three month period ended March 31, 1997 and (ii) the
unaudited consolidated condensed balance sheet of NATC Holdings-USA and its
Subsidiaries for the three month period ended March 31, 1997 and the unaudited
consolidated condensed statements of operations, cash flows and changes in
stockholders' equity of NATC Holdings-USA for the three month period ended
March 31, 1997, which have been certified by the chief financial officer of the
Borrower, and (III) the pro forma consolidated balance sheet of the Borrower
and its Subsidiaries (after giving effect to the Transaction) as of March 31,
1997, certified by the chief financial officer of the Borrower, copies of which
have heretofore been furnished to each Lender, present fairly the financial
position of such entities at the dates of said statements and the results for
the periods covered thereby (or, in the case of the pro forma balance sheet,
presents a good faith estimate of the consolidated pro forma consolidated
financial condition of the Borrower
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(after giving effect to the Transaction) at the date thereof) in accordance
with GAAP, except to the extent provided in the notes to said financial
statements. All such financial statements (other than the aforesaid pro forma
balance sheet) have been prepared in accordance with generally accepted
accounting principles and practices consistently applied except to the extent
provided in the notes to said financial statements. Nothing has occurred since
December 31, 1996 (other than the issuance of Indebtedness to consummate the
Transaction) that has had or is reasonably likely to have a Material Adverse
Effect.
(c) Except as reflected in the financial statements and the
notes thereto described in Section 6.10(b), there were as of the Initial
Borrowing Date no liabilities or obligations with respect to the Borrower or
any of its Subsidiaries of a nature (whether absolute, accrued, contingent or
otherwise and whether or not due) which, either individually or in aggregate,
would be material to the Borrower and its Subsidiaries taken as a whole, except
as incurred in the ordinary course of business consistent with past practices
subsequent to December 31, 1996, and as incurred hereunder and under the Senior
Notes on such date.
6.11 Security Interests. On and after the Initial Borrowing
Date and after giving effect to the filings described in the following
sentence, each of the Security Documents creates, as security for the
Obligations purported to be secured thereby, a valid and enforceable perfected
security interest in and Lien on all of the Collateral subject thereto,
superior to and prior to the rights of all third Persons and subject to no
other Liens (except (x) that the Security Agreement Collateral may be subject
to the security interests evidenced by Permitted Liens relating thereto and (y)
the Mortgaged Properties may be subject to Permitted Encumbrances relating
thereto), in favor of the Collateral Agent for the benefit of the Lenders. No
filings or recordings are required in order to perfect the security interests
created under any Security Document except for filings or recordings required
in connection with any such Security Document (other than the Pledge Agreement)
which shall have been made upon or prior to (or are the subject of
arrangements, satisfactory to the Administrative Agent, for filing on or
promptly after the date of) the execution and delivery thereof.
6.12 Representations and Warranties in Acquisition Documents.
All representations and warranties of the Borrower set forth in the Acquisition
Documents were true and correct in all material respects as of the time such
representations and warranties were made and shall be true and correct in all
material respects as of the Initial Borrowing Date as if such representations
and warranties were made on and as of such date, unless stated to relate to a
specific earlier date, in which case such representations and warranties shall
be true and correct in all material respects as of such earlier date.
6.13 Tax Returns and Payments. Each of the Borrower and each
of its Subsidiaries (other than National Tobacco which at all times has been a
partnership for all income tax purposes) has filed all federal income tax
returns and all other material tax
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returns, domestic and foreign, required to be filed by it and has paid all
material taxes and assessments payable by it which have become due, except for
those contested in good faith and adequately disclosed and fully provided for
on the financial statements of the Borrower and its Subsidiaries in accordance
with generally accepted accounting principles. Each of the Borrower and each of
its Subsidiaries has at all times paid, or has provided adequate reserves (in
the good faith judgment of the management of the Borrower) for the payment of,
all federal, state and foreign income taxes applicable for all prior fiscal
years and for the current fiscal year to date except such taxes or charges
which are being diligently contested in good faith by appropriate proceedings
and for which adequate reserves in accordance with GAAP shall have been set
aside on its books.
6.14 Pension and Welfare Plans. During the
twelve-consecutive-month period prior to the date of the execution and delivery
of this Agreement and prior to the date of any Credit Event hereunder, no steps
have been taken to terminate any Pension Plan, and no contribution failure has
occurred with respect to any Pension Plan sufficient to give rise to a Lien
under Section 302(f) of ERISA. No condition exists or event or transaction has
occurred with respect to any Pension Plan which might result in the incurrence
by the Borrower or any member of the Controlled Group of any material
liability, fine or penalty. Except as disclosed on Annex XII, none of the
Borrower, any of its Subsidiaries or any member of the Controlled Group has any
contingent liability with respect to any post-retirement benefit under a
Welfare Plan, other than liability for continuation coverage described in Part
6 of Title I of ERISA.
6.15 Subsidiaries. On and as of the Initial Borrowing Date
and after giving effect to the consummation of the Transaction, the Borrower
has no Subsidiaries other than those Subsidiaries listed on Annex IV. Annex IV
correctly sets forth, as of the Initial Borrowing Date and after giving effect
to the Transaction, the percentage ownership (direct and indirect) of the
Borrower in each class of capital stock and/or partnership interests of each of
its Subsidiaries and also identifies the direct owner thereof. The Borrower
will at all times own directly the percentages specified in said Annex IV of
the outstanding capital stock of all of said entities, except to the extent
otherwise permitted pursuant to Section 8.02. No Subsidiary of the Borrower has
outstanding any securities convertible into or exchangeable for its capital
stock or outstanding any right to subscribe for or to purchase, or any options
or warrants for the purchase of, or any agreement providing for the issuance
(contingent or otherwise) of or any calls, commitments or claims of any
character relating to, its capital stock or any stock appreciation or similar
rights.
6.16 Intellectual Property. Except as set forth on Annex V,
the Borrower and each of its Subsidiaries have obtained all material patents,
trademarks, service marks, trade names, copyrights, licenses and other rights,
free from burdensome restrictions, that are necessary for the operation of
their businesses taken as a whole as presently conducted and as proposed to be
conducted.
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6.17 Environmental Matters. Except as set forth on Annex XIII:
(a) all facilities and property (including underlying
groundwater) owned or leased by the Borrower or any of its
Subsidiaries have been, and continue to be, owned or leased by the
Borrower and such Subsidiaries in compliance with all Environmental
Laws;
(b) there have been no past, and there are no pending or
threatened:
(i) claims, complaints, notices or requests for information
received by the Borrower or any of its Subsidiaries with respect to
any alleged violation of any Environmental Law, or
(ii) complaints, notices or inquiries to the Borrower or any
of its Subsidiaries regarding potential liability under any
Environmental Law or, with regard to contamination, any common or
civil law;
(c) there is no claim, complaint, notice, request for
information or inquiry that has been received by or made to the
Borrower or any of its Subsidiaries with respect to any alleged
violation of any Environmental Law or regarding potential liability
under any Environmental Law or, with regard to contamination, any
common or civil law;
(d) there have been no Releases of Hazardous Materials at, on
or under any property now or previously owned or leased by the
Borrower or any of its Subsidiaries;
(e) the Borrower and its Subsidiaries have been issued and
are in compliance in all material respects with all permits,
certificates, approvals, licenses and other authorizations relating to
environmental matters and necessary or desirable for their businesses;
(f) no property now or previously owned or leased by the
Borrower or any of its Subsidiaries is listed or proposed for listing
(with respect to owned property only) on the National Priorities List
pursuant to CERCLA, on the CERCLIS or on any similar state list of
sites requiring investigation or clean-up;
(g) there are no underground storage tanks (including
petroleum storage tanks) that are abandoned or that have been inactive
for greater than one year on or under any property now or previously
owned or leased by the Borrower or any of its Subsidiaries;
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(h) there are no underground storage tanks, active or
abandoned, including petroleum storage tanks, on or under any property
now or previously owned or leased by the Borrower or any of its
Subsidiaries that do not have leak detection systems as required by
and in compliance with all Environmental Laws;
(i) there are no underground storage tanks, active or
abandoned, including petroleum storage tanks, on or under any property
now or previously owned or leased by the Borrower or any of its
Subsidiaries that have Released or suffered Release(s) of Hazardous
Materials;
(j) there are no underground storage tanks, active or
abandoned, including petroleum storage tanks, on or under any property
now or previously owned or leased by the Borrower or any of its
Subsidiaries that have Released Hazardous Materials and have not or
would not qualify and be eligible for the funding (subject to
applicable deductibles) of the cleanup of Release(s) and third party
liability by a State fund;
(k) there are no underground storage tanks, active or
abandoned, including petroleum storage tanks, on or under any property
now or previously owned or leased by the Borrower or any of its
Subsidiaries that have Release(s) the cleanup of which will or is
reasonably expected to exceed the maximum funding of cleanup by a
State fund;
(l) there are no septic systems, cesspools, underground
systems or underground injection wells on or under any property now or
previously owned or leased by the Borrower or any of its Subsidiaries
that have Released or suffered Releases of Hazardous Materials;
(m) there are no fuel pumps, underground storage tanks, or
above ground storage tanks, including petroleum storage tanks, on or
under any property now owned or leased by the Borrower or any of its
Subsidiaries that required or are reasonably expected to be required
to be modified, upgraded or replaced to include emission control
devices in a manner (including as to costs and expenses);
(n) neither the Borrower nor any Subsidiary of the Borrower
has directly transported or directly arranged for the transportation
of any Hazardous Material to any location which is listed or proposed
for listing on the National Priorities List pursuant to CERCLA, on the
CERCLIS or on any similar state list or which is the subject of
federal, state or local enforcement actions or other investigations
which may lead to material claims against the Borrower or such
Subsidiary thereof for any remedial work, damage to natural resources
or personal injury, including claims under CERCLA;
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(o) there are no polychlorinated biphenyls or friable
asbestos present at any property now or previously owned or leased by
the Borrower or any of its Subsidiaries; and
(p) no conditions (other than those covered in the preceding
clauses (a) through (o)) exist at, on or under any property now or
previously owned or leased by the Borrower or any of its Subsidiaries
which, with the passage of time, or the giving of notice or both,
would give rise to any material liability under any Environmental Law.
6.18 Properties. Except as set forth on Annex V, the Borrower
and each of its Subsidiaries have good and marketable title to, or a validly
subsisting leasehold interest in, all properties owned or leased by them, as
the case may be, including all Real Property reflected in the consolidated
balance sheet referred to in Section 6.10(b), free and clear of all Liens,
other than (i) as referred to in the consolidated balance sheet or in the notes
thereto or (ii) otherwise permitted by Section 8.03. Annex V contains a true
and complete list of each Real Property owned or leased by the Borrower or any
of its Subsidiaries as of the Initial Borrowing Date and after giving effect to
the Transaction, and the type of interest therein held by the Borrower or the
respective Subsidiary.
6.19 Labor Relations. No Credit Party is engaged in any
unfair labor practice that could reasonably be expected to have a Material
Adverse Effect. Except as set forth on Annex X hereto, there is (i) no unfair
labor practice complaint pending against any Credit Party or threatened against
any of them, before the National Labor Relations Board, and no grievance or
arbitration proceeding arising out of or under any collective bargaining
agreement is so pending against any Credit Party or threatened against any of
them, (ii) no strike, labor dispute, slowdown or stoppage pending against any
Credit Party or threatened against any Credit Party and (iii) no union
representation question existing with respect to the employees of any Credit
Party and no union organizing activities are taking place, except with respect
to any matter specified in clause (i), (ii) or (iii) above, either individually
or in the aggregate, such as is not reasonably likely to have a Material
Adverse Effect.
6.20 Compliance with Statutes, etc. Each of the Borrower and
each of its Subsidiaries is in compliance with all applicable statutes,
regulations and orders of, and all applicable restrictions imposed by, all
governmental bodies, domestic or foreign, in respect of the conduct of its
business and the ownership of its property, except such non-compliance as is
not likely to, individually or in the aggregate, have a Material Adverse
Effect.
SECTION 7. Affirmative Covenants. The Borrower hereby
covenants and agrees that on the Initial Borrowing Date and thereafter for so
long as this Agreement is in effect and until the Commitments have terminated,
no Letters of Credit or Notes are
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outstanding and the Loans and Unpaid Drawings, together with interest, Fees and
all other Obligations incurred hereunder, are paid in full:
7.01 Information Covenants. The Borrower will furnish to each
Lender:
(a) Annual Financial Statements. As soon as available and in
any event within 105 days after the close of each fiscal year of the Borrower,
the consolidated and consolidating balance sheets of the Borrower and its
Subsidiaries, as at the end of such fiscal year and the related consolidated
and consolidating statements of earnings and cash flow for such fiscal year, in
each case setting forth comparative figures for the preceding fiscal year, and,
in the case of such consolidated statements examined by Coopers & Lybrand,
L.L.P. or such other independent certified public accountants of recognized
national standing whose opinion shall not be qualified as to the scope of audit
and as to the status of the Borrower or any of its Subsidiaries as a going
concern, (or, in the case of such consolidating statements, certified by the
chief financial officer of the Borrower), together with a certificate of such
accounting firm stating that in the course of its regular audit of the business
of the Borrower and its Subsidiaries, which audit was conducted in accordance
with generally accepted auditing standards, such accounting firm has obtained
no knowledge of any Default or Event of Default which has occurred and is
continuing or, if in the opinion of such accounting firm such a Default or
Event of Default has occurred and is continuing, a statement as to the nature
thereof.
(b) Quarterly Financial Statements. As soon as available and
in any event within 45 days after the close of each fiscal quarter in each
fiscal year, the consolidated balance sheet of the Borrower and its
Subsidiaries as at the end of such quarter and the related consolidated
statements of earnings and cash flow for such quarter and for the elapsed
portion of the fiscal year ended with the last day of such quarter, and in each
case setting forth comparative figures for the corresponding periods in the
prior fiscal year and in the budget delivered in respect of the current fiscal
year, all of which shall be certified by the chief financial officer or
controller of the Borrower, subject to changes resulting from audit and normal
year-end audit adjustments.
(c) Monthly Reports. As soon as practicable, and in any event
within 45 days, after the end of each month the consolidated balance sheet of
the Borrower and its Subsidiaries, as at the end of such month, and the related
consolidated statements of earnings for such month and for the elapsed portion
of the fiscal year ended with the last day of such month, setting forth
comparative figures for the corresponding periods in the prior fiscal year and
in the budget delivered in respect of the current fiscal year, all of which
shall be certified by the chief financial officer or controller of the Borrower
subject to changes resulting from audit and normal year-end audit adjustments.
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(d) Budgets; etc. Not more than 30 days after the
commencement of each fiscal year of the Borrower, a consolidated budget of the
Borrower and its Subsidiaries in reasonable detail for such fiscal year.
(e) Officer's Certificates. At the time of the delivery of
the financial statements provided for in Sections 7.01(a), (b) and (c), a
certificate of the chief financial officer, controller or other Authorized
Officer of the Borrower to the effect that no Default or Event of Default
exists or, if any Default or Event of Default does exist, specifying the nature
and extent thereof, which certificate (x) in the case of the certificate
delivered pursuant to Sections 7.01(a) and (b), shall set forth the
calculations required to establish whether the Borrower and its Subsidiaries
were in compliance with the provisions of Sections 8.05, 8.07, 8.09(a), 8.11,
8.12, 8.13 and 8.14 as at the end of such fiscal year or quarter, as the case
may be and (y) in the case of the certificate delivered pursuant to Section
7.01(a), shall set forth the amount of the Excess Cash Flow for the fiscal year
covered by such financial statements.
(f) Notice of Default or Litigation. Promptly, and in any
event within three Business Days after any officer of the Borrower obtains
knowledge thereof, notice of (x) the occurrence of any event which constitutes
a Default or Event of Default which notice shall specify the nature thereof,
the period of existence thereof and what action the Borrower proposes to take
with respect thereto and (y) the commencement of or any materially adverse
development in any litigation or governmental proceeding pending against the
Borrower or any of its Subsidiaries which is likely to have a Material Adverse
Effect or is likely to have a material adverse effect on the ability of the
Borrower or any of its Subsidiaries to perform its obligations hereunder or
under any other Credit Document.
(g) Management Letters, etc. As soon as available and in any
event within 120 days after the end of each fiscal year, a copy of each
"management letter" and internal control or similar memoranda submitted to the
Borrower or any of its Subsidiaries by its independent accountants in
connection with the annual audit made by it of the books of the Borrower or any
of its Subsidiaries.
(h) Pension Plans. Immediately upon becoming aware of the
institution of any steps by the Borrower or any other Person to terminate any
Pension Plan, or the failure to make a required contribution to any Pension
Plan if such failure is sufficient to give rise to a Lien under Section 302(f)
of ERISA, or the taking of any action with respect to a Pension Plan which
could result in the requirement that the Borrower furnish a bond or other
security to the PBGC or such Pension Plan, or the occurrence of any event with
respect to any Pension Plan which could result in the incurrence by the
Borrower of any material liability, fine or penalty, or any material increase
in the contingent liability of the Borrower with respect to any post-retirement
Welfare Plan benefit, notice thereof and copies of all documentation relating
thereto;
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(i) Other Information. Promptly upon transmission thereof,
(i) copies of any filings and registrations with, and reports to, the
Securities and Exchange Commission or any successor thereto (the "SEC") by the
Borrower or any of its Subsidiaries, (ii) copies of all financial statements,
proxy statements, notices and reports as the Borrower or any of its
Subsidiaries shall send generally to analysts and the holders of the Senior
Notes in their capacity as such holders (to the extent not theretofore
delivered to the Lenders pursuant to this Agreement) and with reasonable
promptness, such other information or documents (financial or otherwise) as the
Administrative Agent on its own behalf or on behalf of the Required Lenders may
reasonably request from time to time.
7.02 Books, Records and Inspections. The Borrower will, and
will cause its Subsidiaries to, permit, upon reasonable notice to the Borrower
specifying that the provisions of this Section 7.02 are being exercised,
officers and designated representatives of the Administrative Agent or the
Required Lenders to (at the Borrower's expense) visit and inspect any of the
properties or assets of the Borrower and any of its Subsidiaries in
whomsoever's possession, and to examine (and at the Borrower's expense copy
extracts from) the books of account of the Borrower and any of its Subsidiaries
and discuss the affairs, finances and accounts of the Borrower and of any of
its Subsidiaries with, and be advised as to the same by, its and their officers
and independent accountants (the Borrower hereby authorizing such accountants
to comply with the foregoing), all at such reasonable times and intervals and
to such reasonable extent as the Administrative Agent or the Required Lenders
may desire, it being understood and agreed that so long as no Event of Default
is then in existence, only one representative of each Lender shall be permitted
to participate at the Borrower's expense in any such visitation, inspection
and/or examination.
7.03 Insurance. (a) The Borrower will, and will cause each of
its Subsidiaries to, at all times maintain in full force and effect, with
responsible and reputable insurance carriers licensed to write insurance with
respect to their property, business and assets against such casualties and
contingencies and of such type and in such amounts as are customary in the case
of similar businesses (including key-man life insurance on the life of Thomas
F. Helms, Jr. in the amount of $6,000,000 and collaterally assigned to the
Collateral Agent on behalf of the Secured Creditors).
(b) All premiums on insurance policies required under this
Section shall be paid by the Borrower and its Subsidiaries. Each policy for
property insurance maintained by the Borrower and its Subsidiaries shall (i)
name the Administrative Agent (as Administrative Agent for the Lenders) as loss
payee under a lenders loss payable clause, (ii) provide that no cancellation,
reduction in amount or material change in coverage thereof or any portion
thereof shall be effective until at least 30 days after receipt by the
Administrative Agent of written notice thereof, (iii) provide that any notice
under such policies relating to cancellation, reduction or material change in
coverage or the occurrence of any loss in excess of $500,000 shall be
simultaneously delivered to the Administrative Agent and (iv) be reasonably
satisfactory in all other respects to the Administrative Agent.
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Each policy for liability insurance maintained by the Borrower and its
Subsidiaries shall (i) name the Administrative Agent as an additional insured,
(ii) provide that no cancellation, reduction in amount or material change in
coverage thereof or any portion thereof shall occur by reason of any breach of
any representation or warranty, nor shall any thereof be effective until at
least 30 days after receipt by the Administrative Agent of written notice
thereof, (iii) provide that any notice under such policies relating to
cancellation, reduction or material change in coverage or the occurrence of any
loss in excess of $500,000 shall be simultaneously delivered to the
Administrative Agent and (iv) be reasonably satisfactory in all other respects
to the Administrative Agent.
(c) The Borrower will deliver, and will cause its
Subsidiaries to deliver, to the Administrative Agent, promptly upon request,
(i) the originals of all policies evidencing all insurance required to be
maintained under clause (a) or certificates thereof by the insurers together
with a counterpart of each policy, (ii) a satisfactory insurance broker's
letter as to the adequacy of the insurance being maintained by the Borrower and
its Subsidiaries and as to the compliance of the same with the requirements of
this Section and (iii) evidence as to the payment of all premiums then due
thereon (or with respect to any insurance policies providing for payment other
than by a single lump sum, all installments for the current year due thereon to
such date), provided that neither the Administrative Agent nor any Lender shall
be deemed by reason of its custody of such policies to have knowledge of the
contents thereof. The Borrower will also deliver, and will cause its
Subsidiaries to deliver, to the Administrative Agent not later than five days
prior to the expiration of any policy a binder or certificate of the insurer
evidencing the replacement thereof.
(d) All proceeds of property insurance (other than any such
proceeds which reimburse the Borrower or any other applicable Subsidiary of the
Borrower for environmental liabilities or remediation costs previously paid by
the Borrower or such Subsidiary) paid on account of the loss of or damage to
any property or asset of the Borrower or any of its Subsidiaries shall be paid
to the Borrower or other applicable Subsidiary of the Borrower, and the
Borrower or such Subsidiary shall promptly use such proceeds to repair, restore
or replace such property or asset or otherwise comply with Section 4.02(A)(c).
7.04 Payment of Taxes. The Borrower will pay and discharge,
and will cause each of its Subsidiaries to pay and discharge, all taxes,
assessments and governmental charges or levies imposed upon it or upon its
income or profits, or upon any properties belonging to it, prior to the date on
which penalties attach thereto, and all lawful claims which, if unpaid, might
become a Lien or charge upon any properties of the Borrower or any of its
Subsidiaries, provided that neither the Borrower nor any Subsidiary shall be
required to pay any such tax, assessment, charge, levy or claim which is being
contested in good faith and by proper proceedings if it has maintained adequate
reserves (in the good
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faith judgment of the management of the Borrower) with respect thereto in
accordance with GAAP.
7.05 Corporate Franchises. The Borrower will do, and will
cause each Subsidiary to do, or cause to be done, all things necessary to
preserve and keep in full force and effect its existence, material rights,
franchises and authority, provided that any transaction permitted by Section
8.02 will not constitute a breach of this Section 7.05.
7.06 Compliance with Statutes, etc. The Borrower will, and
will cause each Subsidiary to, comply with all applicable statutes, regulations
and orders of, and all applicable restrictions imposed by, all governmental
bodies, domestic or foreign, in respect of the conduct of its business and the
ownership of its property other than those the non-compliance with which would
not have a Material Adverse Effect or would not have a material adverse effect
on the ability of any Credit Party to perform its obligations under any Credit
Document to which it is a party.
7.07 Good Repair. The Borrower will, and will cause each of
its Subsidiaries to, ensure that its properties and equipment used or useful in
its business in whomsoever's possession they may be, are kept in good repair,
working order and condition, normal wear and tear excepted, and, subject to
Section 8.05, that from time to time there are made in such properties and
equipment all needful and proper repairs, renewals, replacements, extensions,
additions, betterments and improvements thereto, to the extent and in the
manner useful or customary for companies in similar businesses.
7.08 End of Fiscal Years; Fiscal Quarters. The Borrower will,
for financial reporting purposes, cause (i) each of its, and each of its
Subsidiaries' fiscal years to end on December 31 of each year and (ii) each of
its, and each of its Subsidiaries' fiscal quarters to end on March 31, June 30,
September 30 and December 31 of each year.
7.09 Additional Security; Further Assurances. (a) The
Borrower will, and will cause its Subsidiaries to, grant to the Collateral
Agent security interests and mortgages in material Real Property acquired after
the Initial Borrowing Date as may be requested from time to time by the
Administrative Agent (collectively, the "Additional Mortgages"). All such
security interests and mortgages shall be granted pursuant to documentation
reasonably satisfactory in form and substance to the Administrative Agent and
shall constitute valid and enforceable Liens superior to and prior to the
rights of all third Persons and subject to no other Liens except as are
permitted by Section 8.03. The Additional Mortgages or instruments related
thereto shall have been duly recorded or filed in such manner and in such
places as are required by law to establish, perfect, preserve and protect the
Liens in favor of the Collateral Agent required to be granted pursuant to the
Additional Mortgages and all taxes, fees and other charges payable in
connection therewith shall have been paid in full.
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(b) The Borrower will, and will cause its Subsidiaries to, at
the expense of the Borrower make, execute, endorse, acknowledge, file and/or
deliver to the Collateral Agent from time to time such vouchers, invoices,
schedules, confirmatory assignments, conveyances, financing statements,
transfer endorsements, powers of attorney, certificates, real property surveys,
reports and other assurances or instruments and take such further steps
relating to the collateral covered by any of the Security Documents as the
Collateral Agent may reasonably require. Furthermore, the Borrower shall cause
to be delivered to the Collateral Agent such opinions of counsel, title
insurance and other related documents as may be requested by the Administrative
Agent to assure itself that this Section 7.09 has been complied with.
(c) The Borrower agrees that each action required above by
this Section 7.09 shall be completed as soon as possible, but in no event later
than 30 days after such action is requested to be taken by the Administrative
Agent or the Collateral Agent, provided that in no event shall the Borrower be
required to take any action, other than using its reasonable commercial efforts
without any material expenditure, to obtain consents from third parties with
respect to its compliance with this Section 7.09.
7.10 Compliance with Environmental Laws. The Borrower will,
and will cause each of its Subsidiaries to,
(a) use and operate all of their respective facilities and
properties in compliance in all material respects with all
Environmental Laws, keep (and, when applicable, obtain in a timely
manner) all necessary material permits, approvals, certificates,
licenses and other authorizations relating to environmental matters in
effect and remain in compliance in all material respects therewith,
and handle all Hazardous Materials (including the disposition and
storing thereof) in compliance in all material respects with all
applicable Environmental Laws;
(b) respond to all Releases upon or from the Real Property in
accordance with law and in a manner that assures and will assure that,
to the maximum extent possible, state funds pay for the response to
Releases;
(c) immediately notify the Administrative Agent and provide
copies upon receipt of all written claims, complaints, notices or
inquiries relating to the condition of its facilities and properties
or compliance with Environmental Laws;
(d) comply in all material respects with all governmental
requirements regarding notification and reporting of spills and
releases of Hazardous Materials and provide to the Administrative
Agent promptly after the receipt thereof, a copy of all required
notices and reports in the event of any spill or release of Hazardous
Material upon or from the Real Property;
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(e) promptly notify the Administrative Agent of any notice of
violation, order or other enforcement action under the Environmental
Laws or any request for information or notification that the Borrower
or any of its Subsidiaries is a potentially responsible party at any
site, or request or requirement for corrective or response action
which comes to the attention of the Borrower or any of its
Subsidiaries in connection with any Environmental Laws, and the
Borrower will, and will cause each of its Subsidiaries to, notify the
Administrative Agent of any action or proceeding, which to its
knowledge is threatened or pending, of any claim relating to the
existence in, on or under the Real Property or any property adjoining
the Real Property of, or the spilling, discharge or emission on or
from the Real Property or any such adjoining property of, any
Hazardous Material; and
(f) provide such information and certifications which the
Administrative Agent may reasonably request from time to time to
evidence compliance with this Section 7.10.
7.11. Repayments under Lancaster Facility. The Borrower shall
repay in full all loans and other credit advances outstanding on the Initial
Borrowing Date under the Lancaster Facility no later than July 7, 1997.
SECTION 8. Negative Covenants. The Borrower hereby covenants
and agrees that on the Initial Borrowing Date and thereafter for so long as
this Agreement is in effect and until the Commitments have terminated, no
Letters of Credit or Notes are outstanding and the Loans and Unpaid Drawings,
together with interest, Fees and all other Obligations incurred hereunder, are
paid in full:
8.01 Changes in Business. The Borrower will not, and will not
permit any of its Subsidiaries to engage in any business other than a Permitted
Business, provided that NAOC shall engage in no business other than that in
which (after giving effect to the Acquisition) it is engaged on the Initial
Borrowing Date, other businesses involving the distribution of Bollore products
and such activities incidental or related to any of the foregoing.
8.02 Consolidation, Merger, Sale or Purchase of Assets, etc.
The Borrower will not, and will not permit any Subsidiary to, wind up,
liquidate or dissolve its affairs, or enter into any transaction of merger or
consolidation, or sell or otherwise dispose of all or any part of its property
or assets (other than inventory or obsolete equipment or excess equipment in
the ordinary course of business) or purchase, lease or otherwise acquire all or
any part of the property or assets of any Person (other than purchases or other
acquisitions of inventory, leases, materials and equipment in the ordinary
course of business) or agree to do any of the foregoing at any future time,
except that the following shall be permitted:
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(a) any Subsidiary Guarantor may be merged or consolidated
with or into, or be liquidated into, the Borrower (so long as the
Borrower is the surviving corporation) or another Subsidiary
Guarantor, or all or any part of the business, properties and assets
of a Subsidiary Guarantor may be conveyed, leased, sold or transferred
to the Borrower or any Subsidiary Guarantor;
(b) Consolidated Capital Expenditures to the extent within
the limitations set forth in Section 8.05 hereof;
(c) the investments, acquisitions and transfers or
dispositions of properties permitted pursuant to Section 8.06;
(d) each of the Borrower and the Subsidiary Guarantors may
lease (as lessee) real or personal property in the ordinary course of
business (so long as such lease does not create a Capitalized Lease
Obligation not otherwise permitted by Section 8.04(d) or would not
violate Section 8.07);
(e) licenses or sublicenses by the Borrower and its
Subsidiary Guarantors of intellectual property in the ordinary course
of business, provided that such licenses or sublicenses shall not
interfere with the business of the Borrower or any Subsidiary
Guarantor;
(f) any Subsidiary may be liquidated into the Borrower or a
Subsidiary Guarantor;
(g) the Acquisition; and
(h) other sales or dispositions of assets provided that (v)
no Event of Default is then in existence, (w) the aggregate fair
market value for all properties the subject of such sales and
dispositions shall not exceed $1,000,000 in any fiscal year of the
Borrower, (x) the consideration for each such sale shall be in an
amount at least equal to the fair market value thereof, (y) the Net
Cash Proceeds of any such sale are applied to repay the Loans to the
extent required by Section 4.02(A)(c) and (z) the sale or disposition
of the capital stock of any Subsidiary of the Borrower shall be
prohibited unless it is for all of the outstanding capital stock of
such Subsidiary owned by the Borrower.
8.03 Liens. The Borrower will not, and will not permit any of
its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or
with respect to any property, revenues or assets of any kind (real or personal,
tangible or intangible) of the Borrower or any such Subsidiary whether now
owned or hereafter acquired, except:
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(a) Liens securing payment of the Obligations granted
pursuant to any Credit Document;
(b) Liens granted to secure payment of the Indebtedness of
the type permitted and described in Section 8.04(d) and covering only
those assets acquired with the proceeds of such Indebtedness;
(c) Liens for taxes, assessments or other governmental
charges or levies not at the time delinquent or thereafter payable
without penalty or being diligently contested in good faith by
appropriate proceedings and for which adequate reserves in accordance
with GAAP shall have been set aside on its books;
(d) Liens of carriers, warehousemen, mechanics, materialmen
and landlords incurred in the ordinary course of business for sums not
overdue or being diligently contested in good faith by appropriate
proceedings and for which adequate reserves in accordance with GAAP
shall have been set aside on its books;
(e) Liens incurred in the ordinary course of business in
connection with worker's compensation, unemployment insurance or other
forms of governmental insurance or benefits (excluding any Liens in
favor of a Pension Plan or PBGC), or to secure performance of tenders,
statutory obligations, leases and contracts (other than for borrowed
money) entered into in the ordinary course of business or to secure
obligations on surety or appeal bonds;
(f) judgment Liens in existence less than 30 days after the
entry thereof or with respect to which execution has been stayed or
the payment of which is covered in full (subject to a customary
deductible) by insurance maintained with responsible insurance
companies;
(g) easements, rights-of-way, zoning and similar restrictions
and other similar encumbrances or title defects which, in the
aggregate, are not substantial in amount, and which do not in any case
materially detract from the value of the property subject thereto or
interfere with the ordinary conduct of the business of the Borrower or
its Subsidiaries; and
(h) Liens arising out of leases or subleases granted by the
Borrower to others in the ordinary course of business of the Borrower
and its Subsidiaries.
8.04 Indebtedness. The Borrower will not, and will not permit
any of its Subsidiaries to, contract, create, incur, assume or suffer to exist
any Indebtedness, except:
(a) Indebtedness incurred pursuant to this Agreement and the
other Credit Documents;
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(b) Indebtedness owing by (i) any Subsidiary Guarantor to
another Subsidiary Guarantor or the Borrower and/or (ii) the Borrower
to any Subsidiary Guarantor, so long as any notes evidencing
intercompany indebtedness are pledged to the Collateral Agent pursuant
to the Pledge Agreement;
(c) Indebtedness of the Borrower evidenced by (x) the Senior
Notes, in an aggregate principal amount at any time outstanding not to
exceed $155,000,000 and (y) the Senior Guaranties;
(d) (i) Capitalized Lease Obligations of the Borrower and its
Subsidiary Guarantors to the extent permitted by Section 8.05 and (ii)
Indebtedness incurred pursuant to purchase money mortgages or security
interests permitted by Section 8.03(b), provided that the aggregate
Indebtedness permitted by this clause (d) shall not exceed $500,000 at
any time outstanding;
(e) Indebtedness outstanding on the Initial Borrowing Date
representing loans and advances to the Borrower under the Lexington
Facility until repaid as required by Section 7.11 [and other Existing
Indebtedness as set forth on Annex VI hereto, without giving effect to
any subsequent extension, renewal or refinancing thereof;]
(f) unsecured Indebtedness incurred in the ordinary course of
business (including open accounts extended by suppliers on normal
trade terms in connection with purchases of goods and services, but
excluding all Indebtedness incurred through the borrowing of money and
all Contingent Obligations);
(g) additional Indebtedness of the Borrower and the
Subsidiary Guarantors not to exceed an aggregate outstanding principal
amount of $5,000,000 at any time.
8.05 Capital Expenditures. (a) The Borrower will not, and
will not permit any of its Subsidiaries to, incur Consolidated Capital
Expenditures provided that the Borrower and the Subsidiary Guarantors may make
Consolidated Capital Expenditures of up to $500,000 in any fiscal year (or,
$750,000, in the case of the fiscal year ended December 31, 1997).
(b) In the event that the maximum amount which is permitted
to be expended in respect of Consolidated Capital Expenditures during any
fiscal year pursuant to Section 8.05(a) (without giving effect to this clause
(b)) is not fully expended during such fiscal year, the maximum amount which
may be expended during the immediately succeeding fiscal year pursuant to
Section 8.05(a) shall be increased by such unutilized amount.
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(c) Notwithstanding the foregoing, the Borrower and its
Subsidiaries may at any time make Consolidated Capital Expenditures out of
Retained ECF at such time.
8.06 Advances, Investments and Loans. The Borrower, will not
permit any of its Subsidiaries to, lend money or credit or make advances to any
Person, or purchase or acquire any stock, obligations or securities of, or any
other interest in, or make any capital contribution to any Person, except:
(a) the Borrower or any Subsidiary may invest in cash and
Cash Equivalents;
(b) the Borrower and any Subsidiary may acquire and hold
accounts, chattel paper (as defined in the UCC) and note receivables
owing to them, if created or acquired in the ordinary course of
business and payable or dischargeable in accordance with customary
trade terms;
(c) the intercompany Indebtedness described in Section
8.04(b) shall be permitted;
(d) the Borrower and each Subsidiary Guarantor may acquire
and own investments (including stock, securities and/or debt
obligations) received in settlement of debts created in the ordinary
course of business or in satisfaction of judgments;
(e) advances, loans and investments in existence on the
Initial Borrowing Date and listed on Annex IX shall be permitted,
without giving effect to any additions thereto or replacements thereof
(except those additions or replacements which are existing obligations
as of the Initial Borrowing Date);
(f) the Borrower may make capital contributions of cash, Cash
Equivalents and other assets in Subsidiary Guarantors;
(g) loans and advances to officers, directors and employees
so long as (x) the proceeds thereof are used to pay taxes of such
persons and/or to finance the purchase by any such person from the
Borrower of Borrower Common Stock and (y) the aggregate principal of
all such loans and advances does not exceed $1,500,000 at any time
outstanding; and
(h) so long as no Event of Default exists or would exist
immediately after giving effect to the respective investment, the
Borrower and the Subsidiary Guarantors may make additional investments
(i) in an aggregate amount not to exceed at any time $500,000 and (ii)
on any date in an amount not to exceed the
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Retained ECF on such date (after giving effect to all prior and
contemporaneous adjustments thereto, except as a result of such
investment).
8.07 Leases. The Borrower will not, and will not permit any
of its Subsidiaries to, enter into at any time any arrangement which does not
create a Capitalized Lease Obligation and which involves the leasing by the
Borrower or any Subsidiary of the Borrower from any lessor of any real or
personal property (or any interest therein), except (a) warehouse leases for
the storage of tobacco, cigarette rolling paper booklets, rag tobacco and other
inventory entered into in the ordinary course of business, (b) the lease for
the Borrower's corporate headquarters located in New York City or any
replacement lease (on substantially similar terms to the existing lease at such
time of replacement), (c) the lease for NAOC's warehouse located in Raleigh,
North Carolina or any replacement lease on substantially the same terms, (d)
the lease of vehicles in the ordinary course of the business of the Borrower
and its Subsidiaries and (e) arrangements which, together with all other such
arrangements which shall then be in effect (other than the leases described in
clauses (a), (b), (c) and (d)), will not require the payment of an aggregate
amount of rentals by the Borrower and such other Subsidiaries in excess of
(excluding escalations resulting from a rise in the consumer price or similar
index) $250,000 for any fiscal year of the Borrower; provided, that any
calculation made for purposes of this Section shall exclude any amounts
required to be expended for maintenance and repairs, insurance, taxes,
assessments, and other similar charges.
8.08 Prepayments of Indebtedness, etc. The Borrower will not,
and will not permit any of its Subsidiaries to:
(a) make (or give any notice in respect thereof) any
voluntary or optional payment or prepayment or redemption or
acquisition for value of (including, without limitation, by way of
depositing with the trustee with respect thereto money or securities
before due for the purpose of paying when due) or exchange of the
Senior Notes or any Existing Indebtedness (other than Indebtedness
under the Lancaster Facility), provided, that so long as no Default or
Event of Default is then in existence or would exist after giving
effect to the respective prepayment, the Borrower shall be permitted
to prepay Senior Notes in an aggregate principal amount at any time
not to exceed the Retained ECF at such time (after giving effect to
all prior and contemporaneous adjustments thereto, except as a result
of such prepayment);
(b) amend or modify, or permit the amendment or modification
of, any provisions of any Senior Note Documents and/or the Borrower
Preferred Stock; and/or
(c) amend, modify or change in any manner adverse to the
interests of the Lenders the certificate of incorporation (including,
without limitation, by the filing
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of any certificate of designation), by-laws or equivalent
organizational document of any Credit Party or any agreement entered
into by the Borrower with respect to its capital stock, or any of the
Acquisition Documents, the Bollore Distribution Agreements, the
National Tobacco Partnership Agreement or the Lexington Facility or
enter into any new agreement in any manner adverse to the interests of
the Lenders with respect to the capital stock of the Borrower.
8.09 Dividends, etc. (a) The Borrower will not, and will not
permit any of its Subsidiaries to, declare or pay any dividends or
distributions (other than dividends or distributions payable solely in capital
stock of such Person) or return any capital to, its stockholders or authorize
or make any other distribution, payment or delivery of property or cash to its
stockholders as such, or redeem, retire, purchase or otherwise acquire,
directly or indirectly, for a consideration, any shares of any class of its
capital stock now or hereafter outstanding (or any warrants for or options or
stock appreciation rights in respect of any of such shares), or set aside any
funds for any of the foregoing purposes, or permit any of its Subsidiaries to
purchase or otherwise acquire for consideration any shares of any class of the
capital stock of the Borrower or any other Subsidiary, as the case may be, now
or hereafter outstanding (or any options or warrants or stock appreciation
rights issued by such Person with respect to its capital stock) (all of the
foregoing "Dividends"), except that:
(i) any Subsidiary of the Borrower may pay dividends to the
Borrower or to a Subsidiary Guarantor; and
(ii) the Borrower may redeem or repurchase Borrower Common
Stock (or options to purchase such Borrower Common Stock) from
officers, employees and directors (or their estates) upon the death,
permanent disability, retirement or termination of employment of any
such Person, provided that in all such cases (x) no Default or Event
of Default is then in existence or would arise therefrom and (y) the
aggregate amount of all cash paid in respect of all such shares so
redeemed or repurchased after the Initial Borrowing Date does not
exceed $500,000 in any fiscal year of the Borrower, provided that to
the extent that any portion of such $500,000 is not utilized during
such fiscal year to effect such redemptions and repurchases, such
unutilized portion may be utilized for such purposes in any subsequent
fiscal year;
(iii) the Borrower may pay Dividends on Borrower Preferred
Stock solely through the issuance of additional shares of Borrower
Preferred Stock; and
(iv) in addition to all of the foregoing, so long as no
Default or Event of Default is in existence or would exist immediately
after giving effect to the respective Dividend, the Borrower shall be
permitted to pay cash Dividends at any time in an amount not to exceed
the Retained ECF at such time (after giving effect
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to all prior and contemporaneous adjustments thereto, except
as a result of such Dividend).
(b) The Borrower will not, and will not permit any of its
Subsidiaries to, create or otherwise cause or suffer to exist any encumbrance
or restriction which prohibits or otherwise restricts (A) the ability of any
Subsidiary to (a) pay dividends or make other distributions or pay any
Indebtedness owed to the Borrower or any Subsidiary, (b) make loans or advances
to the Borrower or any Subsidiary or (c) transfer any of its properties or
assets to the Borrower or any Subsidiary or (B) the ability of the Borrower or
any Subsidiary of the Borrower to create, incur, assume or suffer to exist any
Lien upon its property or assets to secure the Obligations or (C) the ability
of the Borrower or Subsidiary to amend any Credit Document, other than
prohibitions or restrictions existing under or by reason of (i) this Agreement,
the other Credit Documents and the Senior Note Documents; (ii) applicable law;
(iii) customary non-assignment provisions entered into in the ordinary course
of business and consistent with past practices; (iv) any restriction or
encumbrance with respect to a Subsidiary imposed pursuant to an agreement which
has been entered into for the sale or disposition of all or substantially all
of the capital stock or assets of such Subsidiary, so long as such sale or
disposition is permitted under this Agreement; and (v) Liens permitted under
Section 8.03 and any documents or instruments governing the terms of any
Indebtedness or other obligations secured by any such Liens, provided that such
prohibitions or restrictions apply only to the assets subject to such Liens.
8.10 Transactions with Affiliates. The Borrower will not, and
will not permit any Subsidiary to, (x) enter into any tax sharing agreement or
similar arrangement (other than such agreements and arrangements solely among
the Borrower and the Subsidiary Guarantors) unless the same has been reviewed
by and consented to by the Administrative Agent (which consent shall not be
unreasonably withheld) or (y) enter into, or cause, suffer or permit to exist
any arrangement or contract with, any of its other Affiliates unless such
arrangement or contract is on fair and reasonable terms, is an arrangement or
contract of the kind which would be entered into by a prudent Person in the
position of the Borrower or such Subsidiary with a Person which is not one of
its Affiliates and is approved by the independent directors of the Borrower.
8.11 Interest Coverage Ratio. The Borrower will not permit
the ratio of (i) Consolidated EBITDA to (ii) Consolidated Interest Expense for
any Test Period ending at the end of any fiscal quarter of the Borrower set
forth below, to be less than the ratio set forth opposite such fiscal quarter:
Fiscal Quarter Ratio
September 30, 1997 1.50:1.0
December 31, 1997 1.50:1.0
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March 31, 1998 1.50:1.0
June 30, 1998 1.50:1.0
September 30, 1998 1.60:1.0
December 31, 1998 1.60:1.0
March 31, 1999 1.60:1.0
June 30, 1999 1.70:1.0
September 30, 1999 1.75:1.0
December 31, 1999 1.80:1.0
March 31, 2000 1.80:1.0
June 30, 2000 1.90:1.0
September 30, 2000 2.00:1.0
December 31, 2000 2.10:1.0
March 31, 2001 2.10:1.0
June 30, 2001 2.20:1.0
September 30, 2001 2.30:1.0
December 31, 2001 2.40:1.0
March 31, 2002 2.40:1.0
8.12 Leverage Ratio. The Borrower will not permit the
Leverage Ratio to exceed, as of the end of any fiscal quarter of the Borrower
set forth below, the ratio set forth opposite such fiscal quarter:
Fiscal Quarter Ratio
September 30, 1997 6.25:1.0
December 31, 1997 6.25:1.0
March 31, 1998 6.25:1.0
June 30, 1998 6.10:1.0
September 30, 1998 5.90:1.0
December 31, 1998 5.65:1.0
March 31, 1999 5.65:1.0
June 30, 1999 5.40:1.0
September 30, 1999 5.20:1.0
December 31, 1999 4.90:1.0
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March 31, 2000 4.90:1.0
June 30, 2000 4.70:1.0
September 30, 2000 4.50:1.0
December 31, 2000 4.25:1.0
March 31, 2001 4.25:1.0
June 30, 2001 4.00:1.0
September 30, 2001 3.75:1.0
December 31, 2001 3.50:1.0
March 31, 2002 3.50:1.0
8.13 Minimum Consolidated EBITDA. The Borrower will not
permit Modified Consolidated EBITDA, for any Test Period ending at the end of
any fiscal quarter of the Borrower set forth below, to be less than the amount
set forth opposite such fiscal quarter:
Fiscal Quarter Amount
September 30, 1997 $36,000,000
December 31, 1997 $36,000,000
March 31, 1998 $36,000,000
June 30, 1998 $37,000,000
September 30, 1998 $37,000,000
December 31, 1998 $38,000,000
March 31, 1999 $38,000,000
June 30, 1999 $39,000,000
September 30, 1999 $40,000,000
December 31, 1999 $41,000,000
March 31, 2000 $41,000,000
June 30, 2000 $42,000,000
September 30, 2000 $43,000,000
December 31, 2000 $44,000,000
March 31, 2001 $44,000,000
June 30, 2001 $45,000,000
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September 30, 2001 $46,000,000
December 31, 2001 $47,000,000
March 31, 2002 $47,000,000
8.14 Fixed Charge Coverage Ratio. The Borrower will not
permit the ratio of (i) Consolidated EBITDA less Consolidated Capital
Expenditures (other than Consolidated Capital Expenditure made pursuant to
Section 8.05(c)) to (ii) Consolidated Fixed Charges for any Test Period to be
less than the 1.05:1.0.
8.15 Limitation on Issuance of Stock. The Borrower will not,
and will not permit any of its Subsidiaries, directly or indirectly, to issue,
sell, assign, pledge or otherwise encumber or dispose of any shares of its
capital stock or other securities (or warrants, rights or options to acquire
shares or other equity securities), except, to the extent permitted by Section
8.06, or to qualify directors if required by applicable law.
8.16 Creation of Subsidiaries. The Borrower will not, and
will not permit any Subsidiary to, create or acquire any Subsidiary other than
a Wholly-Owned Subsidiary that executes a counterpart of the Subsidiary
Guaranty, Pledge Agreement and Security Agreement. Each new Subsidiary
Guarantor created as permitted by this Section 8.16 shall execute and deliver,
or cause to be executed, all other relevant documentation of the type described
in Section 5 as such new Subsidiary Guarantor would have had to deliver if such
new Subsidiary were a Credit Party on the Initial Borrowing Date.
SECTION 9. Events of Default. Upon the occurrence of any of
the following specified events (each, an "Event of Default"):
9.01 Payments. The Borrower shall (i) default in the payment
when due of any principal of the Loans or (ii) default, and such default shall
continue for three or more Business Days, in the payment when due of any Unpaid
Drawing, any interest on the Loans or any Fees or any other amounts owing
hereunder or under any other Credit Document; or
9.02 Representations, etc. Any representation, warranty or
statement made by any Credit Party herein or in any other Credit Document or in
any statement or certificate delivered, or required to be delivered, by it
pursuant hereto or thereto shall prove to be untrue in any material respect on
the date as of which made or deemed made; or
9.03 Covenants. (a) The Borrower shall default in the due
performance or observance by it of any term, covenant or agreement contained in
Section 7.09 or 8, or (b) any Credit Party default in the due performance or
observance by it of any term, covenant or agreement (other than those referred
to in Section 9.01, 9.02 or clause (a) of
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this Section 9.03) contained in this Agreement or any other Credit Document and
such default shall continue unremedied for a period of at least 30 days after
notice to the defaulting party by the Administrative Agent or the Required
Lenders;
9.04 Default Under Other Agreements. (a) The Borrower or any
of its Subsidiaries shall (i) default in any payment with respect to any
Indebtedness (other than the Obligations) beyond the period of grace, if any,
applicable thereto or (ii) default in the observance or performance of any
agreement or condition relating to any such Indebtedness or contained in any
instrument or agreement evidencing, securing or relating thereto, or any other
event shall occur or condition exist, the effect of which default or other
event or condition is to cause, or to permit the holder or holders of such
Indebtedness (or a trustee or agent on behalf of such holder or holders) to
cause any such Indebtedness to become due prior to its stated maturity; or (b)
any such Indebtedness of the Borrower or any of its Subsidiaries shall be
declared to be due and payable provided that it shall not constitute an Event
of Default pursuant to this Section 9.04 unless the aggregate principal amount
of all Indebtedness referred to in clauses (a) and (b) above exceeds $2,000,000
at any one time; or
9.05 Bankruptcy, etc. The Borrower or any of its Subsidiaries
shall commence a voluntary case concerning itself under Title 11 of the United
States Code entitled "Bankruptcy", as now or hereafter in effect, or any
successor thereto (the "Bankruptcy Code"); or an involuntary case is commenced
against the Borrower or any of its Subsidiaries and the petition is not
controverted within 10 days, or is not dismissed within 60 days, after
commencement of the case; or a custodian (as defined in the Bankruptcy Code) is
appointed for, or takes charge of, all or substantially all of the property of
the Borrower or any of its Subsidiaries; or the Borrower or any of its
Subsidiaries commences any other proceeding under any reorganization,
arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or
liquidation or similar law of any jurisdiction whether now or hereafter in
effect relating to or any of its Subsidiaries; or there is commenced against
the Borrower or any of its Subsidiaries any such proceeding which remains
undismissed for a period of 60 days; or the Borrower or any of its Subsidiaries
is adjudicated insolvent or bankrupt; or any order of relief or other order
approving any such case or proceeding is entered; the Borrower or any of its
Subsidiaries suffers any appointment of any custodian or the like for it or any
substantial part of its property to continue undischarged or unstayed for a
period of 60 days; or the Borrower or any of its Subsidiaries makes a general
assignment for the benefit of creditors; or any corporate action is taken by
the Borrower or any of its Subsidiaries for the purpose of effecting any of the
foregoing; or
9.06 Pension Plans. With respect to any Pension Plan:
(a) the institution of any steps by the Borrower any member
of its Controlled Group, any other Credit Party, or any other Person to
terminate a Pension Plan
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if, as a result of such termination, the Borrower or any.such member could be
required to make a contribution to such Pension Plan, or could reasonably
expect to incur a liability or obligation to such Pension Plan, in excess of
$500,000; or
(b) a contribution failure occurs with respect to any Pension
Plan sufficient to give rise to a Lien on property of the Borrower or any of
its Controlled Group under Section 302(f) of ERISA; or
9.07 Security Documents. Any Security Document shall cease to
be in full force and effect, or shall cease to give the Collateral Agent the
Liens, rights, powers and privileges purported to be created thereby in favor
of the Collateral Agent; or
9.08 Subsidiary Guaranty. The Subsidiary Guaranty or any
provision thereof shall cease to be in full force and effect, or any Subsidiary
Guarantor or any Person acting by or on behalf of such Subsidiary Guarantor
shall deny or disaffirm such Subsidiary Guarantor's obligations under the
Subsidiary Guaranty; or
9.09 Judgments. One or more judgments or decrees shall be
entered against the Borrower or any of its Subsidiaries involving a liability
of $2,000,000 or more in the aggregate for all such judgments and decrees for
the Borrower and its Subsidiaries (not paid or to the extent not covered by
insurance) and any such judgments or decrees shall not have been vacated,
discharged or stayed or bonded pending appeal within 60 days from the entry
thereof; or
9.10 Bollore Distribution Agreements. A material breach under
the Bollore Distribution Agreements shall occur that the Administrative Agent
or the Required Lenders reasonably determine to be adverse to the interests of
the Lenders;
then, and in any such event, and at any time thereafter, if any Event of
Default shall then be continuing, the Administrative Agent shall, upon the
written request of the Required Lenders, by written notice to the Borrower,
take any or all of the following actions, without prejudice to the rights of
the Administrative Agent or any Lender to enforce its claims against any
Subsidiary Guarantor or the Borrower, except as otherwise specifically provided
for in this Agreement (provided that, if an Event of Default specified in
Section 9.05 shall occur with respect to the Borrower, the result which would
occur upon the giving of written notice by the Administrative Agent as
specified in clauses (i) and (ii) below shall occur automatically without the
giving of any such notice): (i) declare the Total Commitment terminated,
whereupon the Commitment of each Lender shall forthwith terminate immediately
and any Commitment Fee shall forthwith become due and payable without any other
notice of any kind; (ii) declare the principal of and any accrued interest in
respect of all Loans and all obligations owing hereunder (including Unpaid
Drawings) and thereunder to be, whereupon the same shall become, forthwith due
and payable without presentment, demand, protest or other notice of any kind,
all of which are hereby waived by the
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Borrower; (iii) enforce, as Collateral Agent (or direct the Collateral Agent to
enforce), any or all of the Liens and security interests created pursuant to
the Security Documents; (iv) terminate any Letter of Credit which may be
terminated in accordance with its terms; and (v) direct the Borrower to pay
(and the Borrower hereby agrees upon receipt of such notice, or upon the
occurrence of any Event of Default specified in Section 9.05 in respect of the
Borrower, it will pay) to the Collateral Agent at the Payment Office such
additional amounts of cash, to be held as security for the Borrower's
reimbursement obligations in respect of Letters of Credit then outstanding
equal to the aggregate Stated Amount of all Letters of Credit then outstanding.
SECTION 10. Definitions. As used herein, the following terms
shall have the meanings herein specified unless the context otherwise requires.
Defined terms in this Agreement shall include in the singular number the plural
and in the plural the singular:
"Acquisition Documents" shall mean the Stock Purchase
Agreement, dated as of April 17, 1997 among LLC and NATC Holding Company, Ltd,
with LLC's interests and rights transferred to the Borrower, and all other
agreements relating to the Acquisition, as in effect on the Initial Borrowing
Date and as the same may be supplemented, amended or modified from time to time
in accordance with the terms hereof and thereof.
"Acquisition" shall mean the acquisition by Acquisition Sub
of all of the capital stock of NATC Holdings-USA and the concurrent merger (the
"NAOC Merger") of Acquisition Sub, NATC Holdings-USA and NATC, with Acquisition
Sub as the surviving entity.
"Acquisition Sub" shall mean North Atlantic Operating
Company, Inc., a Delaware corporation and wholly-owned subsidiary of the
Borrower.
"Additional Mortgages" shall have the meaning provided in
Section 7.10.
"Adjusted Cash Flow" for any fiscal year shall mean
Consolidated Net Income for such fiscal year (after provision for taxes) plus
the amount of all net non-cash charges (including, without limitation,
depreciation, deferred tax expense, non-cash interest expense, amortization and
other non-cash charges) that were deducted in arriving at Consolidated Net
Income for such fiscal year, minus the amount of all non-cash gains and gains
from sales of assets (other than sales of inventory and equipment in the normal
course of business) that were added in arriving at Consolidated Net Income for
such fiscal year.
"Adjusted Total Revolving Commitment" shall mean at any time
the Total Revolving Commitment less the aggregate Revolving Commitments of all
Defaulting RF Lenders.
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"Administrative Agent" shall have the meaning provided in the
first paragraph of this Agreement and shall include any successor to the
Administrative Agent appointed pursuant to Section 11.09.
"Affiliate" shall mean, with respect to any Person, any other
Person directly or indirectly controlling (including but not limited to all
directors and officers of such Person), controlled by, or under direct or
indirect common control with such Person. A Person shall be deemed to control a
corporation if such Person possesses, directly or indirectly, the power (i) to
vote 10% or more of the securities having ordinary voting power for the
election of directors of such corporation or (ii) to direct or cause the
direction of the management and policies of such corporation, whether through
the ownership of voting securities, by contract or otherwise.
"Agents" shall have the meaning provided in the first
paragraph of this Agreement.
"Agreement" shall mean this Credit Agreement, as the same may
be from time to time further modified, amended and/or supplemented.
"Anticipated Reinvestment Amount" shall mean, with respect to
any Reinvestment Election, the amount specified in the Reinvestment Notice
delivered by the Borrower in connection therewith as the amount of the Net Cash
Proceeds from the related Asset Sale that the Borrower intends to use to
purchase, construct or otherwise acquire Reinvestment Assets.
"Arranging Agent" shall mean Gleacher NatWest, Inc.
"Asset Sale" shall mean and include (x) the sale, transfer or
other disposition by the Borrower or any Subsidiary to any Person other than
the Borrower or any Subsidiary Guarantor of any asset of the Borrower or such
Subsidiary (other than (i) sales, transfers or other dispositions in the
ordinary course of business of inventory and/or obsolete or excess equipment
and (ii) any other sale that generates in the aggregate less than $500,000 of
proceeds) and (y) the receipt by the Borrower or any of its Subsidiaries of (i)
key-man life insurance proceeds in excess of $500,000 and/or (ii) casualty
insurance and/or condemnation proceeds in excess of $500,000 that do not
reimburse the Borrower and/or its Subsidiaries for costs already expended and
are not to be promptly utilized to repair or replace the asset damaged or
condemned.
"Assignment Agreement" shall mean the Assignment Agreement in
the form of Exhibit K (appropriately completed).
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"Authorized Officer" shall mean any senior officer of the
Borrower or the Borrower designated as such in writing to the Administrative
Agent by the Borrower or the Borrower, in each case to the extent acceptable to
the Administrative Agent.
"Bankruptcy Code" shall have the meaning provided in
Section 9.05.
"Base Rate" shall mean the higher of (i) the Prime Lending
Rate and (ii) the Federal Funds Effective Rate plus 1/2 of 1%.
"Base Rate Loan" shall mean each Loan bearing interest at the
rates provided in Section 1.08(a).
"Base Rate Margin" shall mean 2.0%.
"Bollore" shall mean Bollore Technologies, S.A.
"Bollore Distribution Agreements" means the three Amended and
Restated Distribution and License Agreements, each dated as of November 30,
1992, as amended prior to the date hereof, between Bollore and NATC, as
amended, supplemented, modified or otherwise modified from time to time in
accordance with the terms hereof and thereof.
"Bollore Consent Letter" shall mean the Letter Agreement,
dated as of June 25, 1997, among Bollore, the Borrower and Acquisition Sub.
"Borrower" shall mean North Atlantic Trading Acquisition
Company, Inc., a Delaware corporation (which will be renamed "North Atlantic
Trading Company, Inc." immediately following the consummation of the
Transaction).
"Borrower Common Stock" shall mean the common stock of
Borrower.
"Borrower Preferred Stock" shall mean the 12% Senior PIK
Preferred Stock of the Borrower.
"Borrowing" shall mean the incurrence of one Type of Loan
pursuant to a single Facility by the Borrower from all of the Lenders having
Commitments with respect to such Facility on a pro rata basis on a given date
(or resulting from conversions on a given date), having in the case of LIBOR
Loans the same Interest Period; provided that Base Rate Loans incurred pursuant
to Section 1.10(b) shall be considered part of any related Borrowing of LIBOR
Loans.
"Business Day" shall mean (i) for all purposes other than as
covered by clause (ii) below, any day excluding Saturday, Sunday and any day
which shall be in the City of New York a legal holiday or a day on which
banking institutions are authorized by
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law or other governmental actions to close and (ii) with respect to all notices
and determinations in connection with, and payments of principal and interest
on, LIBOR Loans, any day which is a Business Day described in clause (i) and
which is also a day for trading by and between banks in U.S. dollar deposits in
the interbank Eurodollar market.
"Capital Lease" as applied to any Person shall mean any lease
of any property (whether real, personal or mixed) by that Person as lessee
which, in conformity with GAAP, is accounted for as a capital lease on the
balance sheet of that Person.
"Capitalized Lease Obligations" shall mean all obligations
under Capital Leases of the Borrower or any of its Subsidiaries in each case
taken at the amount thereof accounted for as liabilities in accordance with
GAAP.
"Cash Equivalents" shall mean (i) securities issued or
directly and fully guaranteed or insured by the United States of America or any
agency or instrumentality thereof (provided that the full faith and credit of
the United States of America is pledged in support thereof) having maturities
of not more than six months from the date of acquisition, (ii) U.S. dollar
denominated time deposits, certificates of deposit and bankers' acceptances of
(x) any Lender or (y) any bank (or the parent company of such bank) whose
short-term commercial paper rating from Standard & Poor's Ratings Services, a
division of McGraw-Hill, Inc. ("S&P") is at least A-1 or the equivalent thereof
or from Moody's Investors Service, Inc. ("Moody's") is at least P-1 or the
equivalent thereof (any such bank, an "Approved Lender"), in each case with
maturities of not more than six months from the date of acquisition, (iii)
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clause (i) above entered into with any
bank meeting the qualifications specified in clause (ii) above, (iv) commercial
paper issued by any Lender or Approved Lender or by the parent company of any
Lender or Approved Lender and commercial paper issued by, or guaranteed by, any
industrial or financial company with a short-term commercial paper rating of at
least A-1 or the equivalent thereof by S&P or at least P-1 or the equivalent
thereof by Moody's (any such company, an "Approved Company"), or guaranteed by
any industrial company with a long term unsecured debt rating of at least A or
A2, or the equivalent of each thereof, from S&P or Moody's, as the case may be,
and in each case maturing within six months after the date of acquisition and
(v) investments in money market funds substantially all of whose assets are
comprised of securities of the type described in clauses (i) through (iv)
above.
"Cash Proceeds" shall mean, with respect to any Asset Sale,
the aggregate cash payments (including insurance proceeds and any cash received
by way of deferred payment pursuant to a note receivable issued in connection
with such Asset Sale, other than the portion of such deferred payment
constituting interest, but only as and when so received) received by the
Borrower and/or any Subsidiary from such Asset Sale.
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"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended, 42 U.S.C. ss. 9601 et seq.
"CERCLIS" means the Comprehensive Environmental Response
Compensation Liability Information System List.
"Change of Control" shall mean (i) any sale, lease, exchange
or other transfer (in one transaction or a series of related transactions) of
all or substantially all of the assets of the Borrower and its Subsidiaries; or
(ii) a majority of the Board of Directors of the Borrower or of any direct or
indirect holding company thereof shall consist of Persons who are not
Continuing Directors of the Borrower; or (iii) the acquisition by any Person or
group of related Persons (other than the Management Group) for purposes of
Section 13(d) of the Exchange Act, of the power, directly or indirectly, to
vote or direct the voting of securities having more than 50% of the ordinary
voting power for the election of directors of the Borrower or of any direct or
indirect holding company thereof.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time and the regulations promulgated and the rulings
issued thereunder. Section references to the Code are to the Code, as in effect
at the Effective Date and any subsequent provisions of the Code, amendatory
thereof, supplemental thereto or substituted therefor.
"Collateral" shall mean all of the Collateral as defined in
each of the Security Documents.
"Collateral Agent" shall mean the Administrative Agent acting
as collateral agent for the Lenders.
"Commitment" shall mean, with respect to each Lender, such
Lender's Term Commitment and Revolving Commitment.
"Commitment Fee" shall have the meaning provided in
Section 3.01(a).
"Consolidated Capital Expenditures" shall mean, for any
period, the aggregate of all cash expenditures including in all events all
amounts expended or capitalized under Capital Leases but excluding any amount
representing capitalized interest) by the Borrower and its Subsidiaries during
that period that, in conformity with GAAP, are or are required to be included
in the property, plant or equipment reflected in the consolidated balance sheet
of the Borrower and its Subsidiaries.
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"Consolidated Current Assets" shall mean, as to any Person at
any time, the current assets (other than cash and Cash Equivalents) of such
Person and its Subsidiaries determined on a consolidated basis in accordance
with GAAP.
"Consolidated Current Liabilities" shall mean, as to any
Person at any time, the current liabilities of such Person and its Subsidiaries
determined on a consolidated basis in accordance with GAAP, but excluding all
short-term Indebtedness for borrowed money and the current portion of any
long-term Indebtedness of such Person or its Subsidiaries, in each case to the
extent otherwise included therein.
"Consolidated Debt" shall mean, as of any date of
determination, the aggregate stated balance sheet amount of all Indebtedness of
the Borrower and its Subsidiaries on a consolidated basis as determined in
accordance with GAAP plus any Indebtedness for borrowed money of any other
Person as to which the Borrower and/or any of its Subsidiaries has created a
guarantee or other Contingent Obligation.
"Consolidated EBIT" shall mean, for any period, (A) the sum
of the amounts for such period of (i) Consolidated Net Income, (ii) provisions
for taxes based on income, (iii) Consolidated Interest Expense, (iv)
amortization or write-off of deferred financing costs to the extent deducted in
determining Consolidated Net Income and (v) losses on sales of assets
(excluding sales in the ordinary course of business) and other extraordinary
losses less (B) the amount for such period of gains on sales of assets
(excluding sales in the ordinary course of business) and other extraordinary
gains, all as determined on a consolidated basis in accordance with GAAP.
"Consolidated EBITDA" shall mean, for any period, the sum of
the amounts for such period of (i) Consolidated EBIT, (ii) depreciation expense
and (iii) amortization expense, all as determined on a consolidated basis in
accordance with GAAP. Consolidated EBITDA for any fiscal quarter ending prior
to June 30, 1998 shall mean the sum of (x) Consolidated EBITDA for the period
commencing July 1, 1997 and ending on such date, as determined without regard
to this proviso plus (y) the amounts set forth in Annex XI hereto as applicable
to Consolidated EBITDA for such 12-month period.
"Consolidated Fixed Charges" shall mean for any Test Period,
the sum, without duplication, of the amount for such period of (i) Consolidated
Interest Expense, (ii) Dividends paid on all capital stock of the Borrower,
(iii) the consolidated cash tax expense of the Borrower and its Subsidiaries,
and (iv) scheduled principal payments on Consolidated Debt, all as determined
for the Borrower and its Subsidiaries on a consolidated basis in accordance
with GAAP.
"Consolidated Interest Expense" shall mean, for any period,
(i) total interest expense (including that attributable to Capital Leases in
accordance with GAAP) of the Borrower and its Subsidiaries on a consolidated
basis with respect to all outstanding
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Indebtedness of the Borrower and its Subsidiaries, including, without
limitation, all commitment fees owed with respect to Indebtedness for borrowed
money, commissions, discounts and other fees and charges owed with respect to
letters of credit and bankers' acceptance financing and net costs under
Interest Rate Agreements less (ii) interest income of the Borrower and its
Subsidiaries on a consolidated basis.
"Consolidated Net Income" shall mean for any period, the net
income (or loss) of the Borrower and its Subsidiaries on a consolidated basis
for such period taken as a single accounting period determined in conformity
with GAAP, plus all net non-cash charges, and less all net non-cash gains,
included in determining such net income (or loss) to the extent relating to
inventory LIFO reserves, provided that there shall be excluded from the
calculation thereof (without duplication) (i) the income (or loss) of any
Person (other than Subsidiaries of the Borrower) in which any other Person
(other than the Borrower or any of its Subsidiaries) has a joint interest,
except to the extent of the amount of dividends or other distributions actually
paid to the Borrower or any of its Subsidiaries by such Person during such
period, (ii) the income (or loss) of any Person accrued prior to the date it
becomes a Subsidiary of the Borrower or is merged into or consolidated with the
Borrower or any of its Subsidiaries or that Person's assets are acquired by the
Borrower or any of its Subsidiaries, (iii) the income of any Subsidiary of the
Borrower to the extent that the declaration or payment of dividends or similar
distributions by that Subsidiary of that income is not at the time permitted by
operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to that
Subsidiary, (iv) Transaction Expenses and (v) any one-time non-cash expenses
incurred or payments made in connection with the Transaction.
"Contingent Obligations" shall mean as to any Person any
obligation of such Person guaranteeing or intending to guarantee any
Indebtedness, leases, dividends or other obligations ("primary obligations") of
any other Person (the "primary obligor") in any manner, whether directly or
indirectly, including, without limitation, any obligation of such Person,
whether or not contingent, (a) to purchase any such primary obligation or any
property constituting direct or indirect security therefor, (b) to advance or
supply funds (i) for the purchase or payment of any such primary obligation or
(ii) to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency of the primary obligor, (c) to
purchase property, securities or services primarily for the purpose of assuring
the owner of any such primary obligation of the ability of the primary obligor
to make payment of such primary obligation or (d) otherwise to assure or hold
harmless the owner of such primary obligation against loss in respect thereof,
provided that the term Contingent Obligation shall not include endorsements of
instruments for deposit or collection in the ordinary course of business. The
amount of any Contingent Obligation shall be deemed to be an amount equal to
the stated or determinable amount of the primary obligation in respect of which
such Contingent Obligation is made or, if not stated or determinable, the
maximum reasonably anticipated liability in respect thereof
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(assuming such Person is required to perform thereunder) as determined by such
Person in good faith.
"Continuing Director" of any Person means, as of the date of
determination, any Person who (i) was a member of the Board of Directors of
such Person on the Initial Borrowing Date or (ii) was nominated for election or
elected to the Board of Directors of such Person with the affirmative vote of a
majority of the Continuing Directors of such Person who were members of such
Board of Directors at the time of such nomination or election.
"Controlled Group" shall mean all members of a controlled
group of corporations and all members of a controlled group of trades or
businesses (whether or not incorporated) under common control which, together
with the Borrower or any Subsidiary, are treated as a single employer under
Section 414(b) or (c) of the Code or Section 4001 of ERISA.
"Credit Documents" shall mean this Agreement, the Notes, the
Security Documents and the Subsidiary Guaranty.
"Credit Event" shall mean and include the making of a Loan or
the issuance of a Letter of Credit.
"Credit Party" shall mean the Borrower and the Subsidiary
Guarantors.
"Default" shall mean any event, act or condition which with
notice or lapse of time, or both, would constitute an Event of Default.
"Defaulting RF Lender" shall mean any RF Lender with respect
to which a Lender Default is in effect.
"Designated Proceeds" shall mean any proceeds of an Asset
Sale that are to be reinvested pursuant to a Reinvestment Election to the
extent such proceeds would, pursuant to the Senior Notes Indentures, have to be
applied by the Borrower to make an offer to repurchase Senior Notes if, within
180 days from the later of the date of such Asset Sale or the receipt of such
proceeds, such proceeds were not actually reinvested or used to repay senior
secured Indebtedness.
"Dividends" shall have the meaning provided in Section 8.09.
"Domestic Subsidiary" shall mean any Subsidiary organized
under the laws of the United States of America or any State or territory
thereof.
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"Effective Date" shall have the meaning provided in
Section 12.10.
"Eligible Transferee" shall mean and include a commercial
bank, financial institution or other institutional "accredited investor" as
defined in Regulation D of the Securities Act.
"Environmental Claims" means any and all administrative,
regulatory or judicial actions, suits, demands, demand letters, claims, liens,
notices of noncompliance or violation, investigations (other than internal
reports prepared by the Borrower or any of its Subsidiaries solely in the
ordinary course of such Person's business and not in response to any third
party action or request of any kind) or proceedings relating in any way to any
Environmental Law or any permit issued, or any approval given, under any such
Environmental Law (hereafter, "Claims"), including, without limitation, (a) any
and all Claims by governmental or regulatory authorities for enforcement,
cleanup, removal, response, remedial or other actions or damages pursuant to
any applicable Environmental Law, and (b) any and all Claims by any third party
seeking damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from Hazardous Materials arising from alleged
injury or threat of injury to health, safety or the environment.
"Environmental Law" means any applicable Federal, state,
foreign or local statute, law, rule, regulation, ordinance, code, guide, policy
and rule of common law now or hereafter in effect and in each case as amended,
and any judicial or administrative interpretation thereof, including any
judicial or administrative order, consent decree or judgment, relating to the
environment, health, safety or Hazardous Materials, including, without
limitation, CERCLA; RCRA; the Federal Water Pollution Control Act, as amended,
33 U.S.C. ss. 1251 et seq.; the Toxic Substances Control Act, 15 U.S.C. ss.
7401 et seq.; the Clean Air Act, 42 U.S.C. ss. 7401 et seq.; the Safe Drinking
Water Act, 42 U.S.C. ss. 3808 et seq.; the Oil Pollution Act of 1990, 33 U.S.C.
ss. 2701 et seq. and any applicable state and local or foreign counterparts or
equivalents.
"ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended from time to time, and the regulations promulgated and
rulings issued thereunder. Section references to ERISA are to ERISA, as in
effect as of the Effective Date and any subsequent provisions of ERISA,
amendatory thereof, supplemental thereto or substituted therefor.
"Event of Default" shall have the meaning provided in
Section 9.
"Excess Cash Flow" shall mean, for any fiscal year, the
remainder of (i) the sum of (x) Adjusted Cash Flow for such fiscal year and
(y)(I) the decrease, if any, in Working Capital less (II) the decrease, if any,
in the principal amount of Revolving Loans, in each case from the first day to
the last day of such fiscal year, and (z) to the extent not
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included in (x) above, the aggregate amount received by the Borrower and its
Subsidiaries during such fiscal year on account of business interruption
insurance minus (ii) the sum of (x) the amount of Consolidated Capital
Expenditures (except to the extent financed through the incurrence of
Indebtedness or from Retained ECF) made during such fiscal year and (y)(I) the
increase, if any, in Working Capital less (II) the increase, if any, in the
principal amount of Revolving Loans, in each case from the first day to the
last day of such fiscal year and (z) any scheduled repayments or prepayments of
the principal amount of Term Loans and/or other Indebtedness.
"Excluded Subsidiary" shall mean any Subsidiary existing on
the Initial Borrowing Date to the extent (i) the Borrower specifies to the
Administrative Agent in writing on the Initial Borrowing Date that such
Subsidiary is an Excluded Subsidiary and (ii) such Subsidiary owns no assets
(other than the capital stock of another Excluded Subsidiary) in excess of
$1,000 and owes no Indebtedness, it being agreed that at any time an Excluded
Subsidiary ceases to satisfy the requirements of clause (ii) above it will, to
the extent not thereupon liquidated or otherwise dissolved, be deemed to have
been then created for the purposes of Section 8.16.
"Existing Credit Agreement" shall mean the Credit and
Guaranty Agreement, dated as of May 17, 1996, among National Tobacco, LLC,
NTFC, the lenders party thereto, Sanwa Business Credit Corporation, as Co-Agent
and Societe General, as Agent, as in effect on the Effective Date.
"Existing NATC Indebtedness" shall mean the approximately $31
million of term loan and note obligations of NATC outstanding on the Effective
Date.
"Expiration Date" shall mean July 1, 1997.
"Facility" shall mean any of the credit facilities
established under this Agreement, i.e., the Term Facility or the Revolving
Facility.
"Facing Fee" shall have the meaning provided in
Section 3.01(c).
"Federal Funds Effective Rate" shall mean for any period, a
fluctuating interest rate equal for each day during such period to the weighted
average of the rates on overnight Federal Funds transactions with members of
the Federal Reserve System arranged by Federal Funds brokers, as published for
such day (or, if such day is not a Business Day, for the next preceding
Business Day) by the Federal Reserve Bank of New York, or, if such rate is not
so published for any day which is a Business Day, the average of the quotations
for such day on such transactions received by the Administrative Agent from
three Federal Funds brokers of recognized standing selected by the
Administrative Agent.
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"Fees" shall mean all amounts payable pursuant to, or
referred to in, Section 3.01.
"Final Maturity Date" shall mean June 30, 2002.
"GAAP" shall mean generally accepted accounting principles in
the United States of America as in effect on the date of this Agreement; it
being understood and agreed that determinations in accordance with GAAP for
purposes of Section 8, including defined terms as used therein, are subject (to
the extent provided therein) to Section 12.07(a).
"Hazardous Materials" means (a) any petroleum or petroleum
products, radioactive materials, asbestos in any form that is or could become
friable, urea formaldehyde foam insulation, transformers or other equipment
that contained, electric fluid containing levels of polychlorinated biphenyls,
and radon gas; (b) any chemicals, materials or substances defined as or
included in the definition of "hazardous substances," "hazardous waste,"
"hazardous materials," "extremely hazardous waste," "restricted hazardous
waste," "toxic substances," "toxic pollutants," "contaminants," or
"pollutants," or words of similar import, under any applicable Environmental
Law; and (c) any other chemical, material or substance, exposure to which is
prohibited, limited or regulated by any governmental authority.
"Indebtedness" of any Person shall mean, without duplication,
(i) all indebtedness of such Person for borrowed money, (ii) the deferred
purchase price of assets or services which in accordance with GAAP would be
shown on the liability side of the balance sheet of such Person, (iii) the face
amount of all letters of credit issued for the account of such Person and,
without duplication, all drafts drawn thereunder, (iv) all Indebtedness of a
second Person secured by any Lien on any property owned by such first Person,
whether or not such indebtedness has been assumed, (v) all Capitalized Lease
Obligations of such Person, (vi) all obligations of such Person to pay a
specified purchase price for goods or services whether or not delivered or
accepted, i.e., take-or-pay and similar obligations, (vii) all net obligations
of such Person under Interest Rate Agreements and (viii) all Contingent
Obligations of such Person, (other than Contingent Obligations arising from the
guaranty by such Person of the obligations of the Borrower and/or its
Subsidiaries to the extent such guaranteed obligations do not constitute
Indebtedness and are otherwise permitted hereunder), provided that Indebtedness
shall not include trade payables and accrued expenses, in each case arising in
the ordinary course of business.
"Initial Borrowing Date" shall mean the date upon which the
initial Borrowing of Loans occurs.
"Interest Period" with respect to any Loan shall mean the
interest period applicable thereto, as determined pursuant to Section 1.09.
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"Interest Rate Agreement" shall mean any interest rate swap
agreement, any interest rate cap agreement, any interest rate collar agreement
or other similar agreement or arrangement designed to protect the Borrower
against fluctuations in interest rates.
"Lancaster Facility" shall mean the Second Amended and
Restated Purchasing and Processing Agreement, dated as of May 17, 1996, between
National Tobacco and Lancaster Leaf Tobacco Company of Pennsylvania, Inc., as
amended and in effect on the Initial Borrowing Date and as the same may be
amended, modified or supplemented from time to time pursuant to the terms
hereof and thereof.
"Leasehold" of any Person means all of the right, title and
interest of such Person as lessee or licensee in, to and under leases or
licenses of land, improvements and/or fixtures.
"Lender" shall have the meaning provided in the first
paragraph of this Agreement.
"Lender Default" shall mean (i) the refusal (which has not
been retracted) of a RF Lender to make available its portion of any incurrence
of Revolving Loans or to fund its portion of any unreimbursed payment under
Section 2.05(c) or (ii) a RF Lender having notified the Administrative Agent
and/or the Borrower that it does not intend to comply with the obligations
under Section 1.01(b) or under Section 2.05(c), in each case for any reason,
including or as a result of the appointment of a receiver or conservator with
respect to such Lender at the direction or request of any regulatory agency or
authority.
"Lender Register" shall have the meaning provided in
Section 12.16.
"Letter of Credit" shall have the meaning provided in
Section 2.01(a).
"Letter of Credit Fee" shall have the meaning provided in
Section 3.01(b).
"Letter of Credit Issuer" shall mean NatWest.
"Letter of Credit Outstandings" shall mean, at any time, the
sum of, without duplication, (i) the aggregate Stated Amount of all outstanding
Letters of Credit and (ii) the aggregate amount of all Unpaid Drawings in
respect of all Letters of Credit.
"Letter of Credit Request" shall have the meaning provided in
Section 2.03(a).
"Leverage Ratio" shall mean, at any date of determination,
the ratio of Consolidated Debt on such date to Modified Consolidated EBITDA for
the Test Period ending on such date (or most recently ended).
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"Lien" shall mean any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including any agreement to give any of
the foregoing, any conditional sale or other title retention agreement or any
lease in the nature thereof).
"LIBOR" shall mean with respect to each Interest Period for a
LIBOR Loan, [the offered quotation to first-class banks in the interbank
Eurodollar market by the Administrative Agent for dollar deposits of amounts in
same day funds comparable to the outstanding principal amount of the LIBOR Loan
of the Administrative Agent for which an interest rate is then being determined
with maturities comparable to the Interest Period to be applicable to such
LIBOR Loan, determined as of 10:00 A.M. (London time) on the date which is two
Business Days prior to the commencement of such Interest Period].
"LIBOR Loans" shall mean each Loan bearing interest at the
rates provided in Section 1.08(b).
"LIBOR Margin" shall mean 3.0%.
"LLC" shall mean NTC Holding, LLC, a Delaware limited
liability company.
"LLC Preferred Stock" shall mean the preferred stock of LLC
outstanding immediately prior to the Initial Borrowing Date.
"LLC Subordinated Notes" shall mean each of the promissory
notes and the deferred interest payment notes (payable-in-kind) of LLC
outstanding immediately prior to the Initial Borrowing Date.
"LLC Warrants" shall mean warrants of LLC outstanding
immediately prior to the Initial Borrowing Date.
"Loan" shall have the meaning provided in Section 1.01.
"Management Group" shall mean Thomas F. Helms, Jr. and other
members of senior management of the Borrower.
"Margin Stock" shall have the meaning provided in
Regulation U.
"Material Adverse Effect" shall mean a material adverse
effect on the business, property, assets, liabilities, operations, condition
(financial or otherwise) or prospects of the Borrower and its Subsidiaries
taken as a whole after giving effect to the Transaction.
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"Minimum Borrowing Amount" shall mean (i) for Revolving
Loans, $400,000 and (ii) for Term Loans, $2,500,000.
"Modified Consolidated EBITDA" shall mean (x) for each Test
Period ending on or prior to March 31, 1998, Consolidated EBITDA for such Test
Period plus the amount set forth in Annex XI hereto as applicable to such Test
Period and (y) for each other Test Period, Consolidated EBITDA for such Test
Period.
"Mortgage" shall have the meaning provided in Section
5.01(j)(III).
"Mortgage Policy" shall have the meaning provided in Section
5.01(j)(III).
"Mortgaged Property" shall mean the Real Property of the
Borrower listed on Annex V and designated as the "Mortgaged Property" therein.
"NAOC" shall mean Acquisition Sub as the survivor of the NAOC
Merger.
"NAOC Merger" shall have the meaning provided in the
definition of Acquisition.
"NATC" shall mean North Atlantic Trading Company, Inc., a
Delaware corporation, which corporation shall cease to exist upon the NAOC
Merger.
"NATC Holdings-USA" shall mean NATC Holdings USA, Inc., a
Delaware corporation.
"National Tobacco" shall mean National Tobacco Company, L.P.,
a Delaware limited partnership.
"National Tobacco Partnership Agreement" shall mean the
[Third] Amended and Restated Partnership Agreement of National Tobacco, dated
as of June __, 1997, between the NTFC, as the sole general partner, and the
Borrower, as the limited partner of National Tobacco, as amended, supplemented,
restated or otherwise modified from time to time in accordance with the terms
hereof and thereof.
"NatWest" shall mean National Westminster Bank Plc.
"Net Cash Proceeds" shall mean, with respect to any Asset
Sale, the Cash Proceeds resulting therefrom net of expenses of sale (including
payment of principal, premium and interest of Indebtedness secured by the
assets the subject of the Asset Sale and required to be, and which is, repaid
under the terms thereof as a result of such Asset Sale), and incremental taxes
paid or payable as a result thereof.
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"Non-Defaulting RF Lender" shall mean each RF Lender other
than a Defaulting RF Lender.
"Note" shall mean and include each Term Note and each
Revolving Note.
"Notice of Borrowing" shall have the meaning provided in
Section 1.03.
"Notice of Conversion" shall have the meaning provided in
Section 1.06.
"Notice Office" shall mean the office of the Administrative
Agent at 175 Water Street, New York, New York or such other office as the
Administrative Agent may designate to the Borrower from time to time.
"NTFC" shall mean National Tobacco Finance Corporation, a
Delaware corporation.
"Obligations" shall mean all amounts, direct or indirect,
contingent or absolute, of every type or description, and at any time existing,
owing to the Administrative Agent, the Arranging Agent, the Collateral Agent or
any Lender pursuant to the terms of this Agreement or any other Credit
Document.
"Offering Memorandum" shall mean the Offering Memorandum,
dated June 18, 1997, in connection with the private placement of the Senior
Notes.
"Participant" shall have the meaning provided in Section
2.05(a).
"Payment Office" shall mean the office of the Administrative
Agent at 175 Water Street, New York, New York or such other office as the
Administrative Agent may designate to the Borrower from time to time.
"PBGC" shall mean the Pension Benefit Guaranty Corporation
established pursuant to Section 4002 of ERISA, or any successor thereto.
"Pension Plan" means a "pension plan", as such term is
defined in Section 3(2) of ERISA, which is subject to Title IV of ERISA (other
than a multiemployer plan as defined in Section 4001(a)(3) of ERISA), and to
which the Borrower or any Subsidiary or any corporation, trade or business that
is, along with the Borrower or any Subsidiary, a member of a Controlled Group,
may have liability, including any liability by reason of having been a
substantial employer within the meaning of Section 4063 of ERISA at any time
during the preceding five years, or by reason of being deemed to be a
contributing sponsor under Section 4069 of ERISA.
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"Percentage" shall mean at any time for each RF Lender, the
percentage obtained by dividing such RF Lender's Revolving Commitment by the
Total Revolving Commitment, provided that if the Total Revolving Commitment has
been terminated, the Percentage of each RF Lender shall be determined by
dividing such RF Lender's Revolving Commitment immediately prior to such
termination by the Total Revolving Commitment immediately prior to such
termination.
"Permitted Business" shall mean any business which is the
same as, or related, ancillary or complementary to any business of the Borrower
and its Subsidiaries (after giving effect to the Acquisition) on the Initial
Borrowing Date.
"Permitted Encumbrances" shall mean, with respect to the
Mortgaged Properties, such exceptions to title as are set forth in the title
insurance policy or title commitment delivered with respect thereto, all of
which exceptions must be reasonably acceptable to the Administrative Agent.
"Permitted Liens" shall mean Liens described in Section 8.03.
"Person" shall mean any individual, partnership, joint
venture, firm, corporation, association, trust or other enterprise or any
government or political subdivision or any agency, department or
instrumentality thereof.
"Pledge Agreement" shall have the meaning provided in Section
5.01(j)(I).
"Pledged Securities" shall mean all the Pledged Securities as
defined in the relevant Pledge Agreement.
"Prime Lending Rate" shall mean, at any time, the bank prime
loan rate published by the Board of Governors of the Federal Reserve System in
Federal Reserve Statistical Release H.15(519) entitled "Selected Interest
Rates" on such day (or if not a Business Day, on the last preceding Business
Day) or, if no such rate is published, the prime lending rate or base rate as
announced from time to time by the Administrative Agent (or by a New York money
market bank selected by the Administrative Agent).
"RCRA" shall mean the Resource Conservation and Recovery Act,
as amended, 42 U.S.C. ss. 6901 et seq.
"Real Property" of any Person shall mean all of the right,
title and interest of such Person in and to land, improvements and fixtures,
including Leaseholds.
"Refinancing" shall mean the refinancing transactions
described in Section 5.01(h)(II).
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"Refinancing Documents" shall mean all of the agreements
governing, or relating to, the Refinancing.
"Regulation D" shall mean Regulation D of the Board of
Governors of the Federal Reserve System as from time to time in effect and any
successor to all or a portion thereof establishing reserve requirements.
"Regulation U" shall mean Regulation U of the Board of
Governors of the Federal Reserve System as from time to time in effect and any
successor to all or a portion thereof establishing margin requirements.
"Reinvestment Assets" shall mean any assets to be employed in
the business of the Borrower and its Subsidiaries as described in Section 8.01.
"Reinvestment Election" shall have the meaning provided in
Section 4.02(A)(c).
"Reinvestment Notice" shall mean a written notice signed by
an Authorized Officer of the Borrower stating that the Borrower, in good faith,
intends and expects to use all or a specified portion of the Net Cash Proceeds
of an Asset Sale to purchase, construct or otherwise acquire Reinvestment
Assets.
"Reinvestment Prepayment Amount" shall mean, with respect to
any Reinvestment Election, the amount, if any, on the Reinvestment Prepayment
Date relating thereto by which (a) the Anticipated Reinvestment Amount in
respect of such Reinvestment Election exceeds (b) the aggregate amount thereof
expended by the Borrower and its Subsidiaries to acquire Reinvestment Assets.
"Reinvestment Prepayment Date" shall mean, with respect to
any Reinvestment Election, the earliest of (i) the date, if any, upon which the
Administrative Agent, on behalf of the Required Lenders, shall have delivered a
written termination notice to the Borrower, provided that such notice may only
be given while an Event of Default exists, (ii) the date occurring 365 days (or
175 days to the extent in respect of Designated Proceeds) after such
Reinvestment Election and (iii) the date on which the Borrower shall have
determined not to, or shall have otherwise ceased to, proceed with the
purchase, construction or other acquisition of Reinvestment Assets with the
related Anticipated Reinvestment Amount.
"Release" means any spilling, leaking, pumping, pouring
emitting, emptying, discharging, injecting, escaping, leaching, dumping or
disposing of any Hazardous Material or pollutant or contaminant into the
environment (including the abandonment or discarding of barrels, containers,
and other closed receptacles containing any Hazardous Material or pollutant or
contaminant).
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"Reorganization" shall mean the reorganization of LLC and its
Subsidiaries so that (i) the Borrower will acquire indirectly all of the
membership interests in LLC and (ii) the Borrower will acquire all of the
capital stock of NTFC and the 99% limited partnership interest in National
Tobacco, with NTFC to own the 1% general partnership interest in National
Tobacco.
"Reorganization Documents" shall mean the documents entered
into in connection with the Reorganization.
"Required Lenders" shall mean Lenders (other than any
Defaulting RF Lenders) whose outstanding Term Loans and Revolving Commitments
(or, if after the Total Revolving Commitment has been terminated, Percentages)
constitute greater than 50% of the sum of (i) the total outstanding Term Loans
and (ii) the Adjusted Total Revolving Commitment (or, if after the Total
Revolving Commitment has been terminated, the aggregate Percentages of
Non-Defaulting RF Lenders).
"Retained ECF" shall mean, at any time, (x) the aggregate
amount of Excess Cash Flow for the then completed fiscal years of the Borrower
commencing with the fiscal year ending December 31, 1997 and not required to be
used to repay Term Loans pursuant to Section 4.02(A)(f) less (y) the sum of the
aggregate amount of Consolidated Capital Expenditures theretofore made pursuant
to Section 8.05(c), the aggregate amount of investments theretofore made
pursuant to Section 8.06(h)(ii), the aggregate amount of Dividends theretofore
made pursuant to Section 8.09(a)(iv) and the aggregate principal amount of
repayments of Senior Notes theretofore made pursuant to Section 8.08(a).
"Revolving Commitment" shall mean, with respect to each
Lender, the amount set forth opposite such Lender's name in Annex I hereto
directly below the column entitled "Revolving Commitment," as the same may be
reduced or terminated from time to time pursuant to Section 3.02, 3.03 and/or 9
or (y) adjusted from time to time as a result of assignments to or from such
Lender pursuant to Section 1.13 and/or 12.04.
"Revolving Facility" shall mean the facility evidenced by the
Total Revolving Commitment.
"Revolving Loan" shall have the meaning provided in Section
1.01(b).
"Revolving Note" shall have the meaning provided in Section
1.05(a).
"RF Lender" shall mean each Lender with a Revolving
Commitment.
"Scheduled Repayment" shall have the meaning provided in
Section 4.02(A)(b).
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"SEC" shall have the meaning provided in Section 7.01(i).
"SEC Regulation D" shall mean Regulation D as promulgated
under the Securities Act of 1933, as amended, as the same may be in effect from
time to time.
"Section 4.04 Certificate" shall have the meaning provided in
Section 4.04(b)(ii).
"Security Agreement" shall have the meaning provided in
Section 5.01(j)(II).
"Security Agreement Collateral" shall mean all "Collateral"
as defined in the relevant Security Agreement.
"Security Documents" shall mean the Pledge Agreement, the
Security Agreement, each Mortgage and each Additional Mortgage, if any.
"Senior Guaranties" shall mean the unsecured guaranty or
guaranties by the Subsidiary Guarantors of the Senior Notes.
"Senior Notes Documents" shall mean and include each of the
other documents, instruments (including the Senior Notes) and other agreements
entered into by the Borrower (including without limitation, the Senior Notes
Indenture) relating to the issuance by the Borrower of the Senior Notes, as in
effect on the Initial Borrowing Date and as the same may be supplemented,
amended or modified from time to time in accordance with the terms hereof and
thereof.
"Senior Notes" shall mean the 11% Senior Notes due 2004
issued by the Borrower.
"Senior Notes Indenture" shall mean the Senior Note
Indenture, dated as of June 25, 1997, between the Borrower and United States
Trust Company of New York as trustee thereunder, with respect to the Senior
Notes.
"Stated Amount" of each Letter of Credit shall mean the
maximum available amount to be drawn thereunder (regardless of whether any
conditions for drawing could then be met).
"Subsidiary" of any Person shall mean and include (i) any
corporation more than 50% of whose stock of any class or classes having by the
terms thereof ordinary voting power to elect a majority of the directors of
such corporation (irrespective of whether or not at the time stock of any class
or classes of such corporation shall have or might have voting power by reason
of the happening of any contingency) is at the time owned by such Person
directly or indirectly through Subsidiaries and (ii) any partnership,
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association, joint venture or other entity in which such Person directly or
indirectly through Subsidiaries, has more than a 50% equity interest at the
time. Unless otherwise expressly provided, all references herein to
"Subsidiary" shall mean a Subsidiary of the Borrower.
"Subsidiary Guarantor" shall mean each Subsidiary of the
Borrower that has executed and delivered a counterpart of the Subsidiary
Guaranty.
"Subsidiary Guaranty" shall have the meaning provided in
Section 5.01(i).
"Taxes" shall have the meaning provided in Section 4.04(a).
"Term Commitment" shall mean, at any time, with respect to
each Lender, the amount, if any, set forth opposite such lender's name on Annex
I hereto directly below the column entitled "Term Commitment" as the same may
be terminated pursuant to Section 3.03.
"Term Facility" shall mean the Facility evidenced by the
Total Term Commitment.
"Term Loan" shall have the meaning provided in Section
1.01(a).
"Term Note" shall have the meaning provided in Section
1.05(a).
"Test Period" shall mean (i) the period (taken as one
accounting period) commencing July 1, 1997 and ending September 30, 1997, (ii)
the period (taken as one accounting period) commencing July 1, 1997 and ending
December 31, 1997, (iii) the period (taken as one accounting period) commencing
July 1, 1997 and ending March 31, 1998, (iv) the period (taken as one
accounting period) commencing July 1, 1997 and ending June 30, 1998 and (v) for
any determination thereafter, the four consecutive fiscal quarters of the
Borrower (taken as one accounting period) ending on the date of such
determination.
"Total Commitment" shall mean the sum of the Total Term
Commitment, and the Total Revolving Commitment.
"Total Term Commitment" shall mean the sum of the Term
Commitments of each of the Lenders.
"Total Revolving Commitment" shall mean the sum of the
Revolving Commitments of each of the Lenders.
"Total Unutilized Revolving Commitment" shall mean, at any
time, (i) the Total Revolving Commitment at such time less (ii) the sum of the
aggregate principal
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amount of all Revolving Loans at such time plus the Letter of Credit
Outstandings at such time.
"Transaction" shall mean (i) the Acquisition, (ii) the
Refinancing, (iii) the issuance of the Senior Notes, (iv) the equity issuances
described in Section 5.01(g)(I), (v) the Reorganization and (vi) the incurrence
of Term Loans on the Initial Borrowing Date.
"Transaction Documents" shall mean the Acquisition Documents,
the Refinancing Documents, the Senior Note Documents, the Reorganization
Documents and the other documents entered into in connection with the
transactions described in Section 5.01(g)(I).
"Transaction Expenses" shall mean all fees and expenses
incurred in connection with, and payable in cash prior to or substantially
concurrently with the closing of, the Transaction, and including all fees paid
to any of the Lenders, the Administrative Agent and the Arranging Agent
hereunder, attorney's fees, accountants' fees, placement agents' fees,
discounts and commissions and brokerage, and consultant fees.
"Type" shall mean any type of Loan determined with respect to
the interest option applicable thereto, i.e., a Base Rate Loan or LIBOR Loan.
"UCC" shall mean the Uniform Commercial Code.
"Unit" shall mean a unit consisting of 1000 shares of
Borrower Preferred Stock and one warrant to purchase 32.6765 shares of Borrower
common stock.
"Unpaid Drawing" shall have the meaning provided in Section
2.04(a).
"Unutilized Revolving Commitment" for any RF Lender at any
time shall mean the excess of (i) the Revolving Commitment of such Lender over
(ii) the sum of (x) the aggregate outstanding principal amount of Revolving
Loans made by such Lender plus (y) an amount equal to such Lender's Percentage
of the Letter of Credit Outstandings at such time.
"UST Agreement" shall mean Asset Purchase Agreement dated as
of November 25, 1992 among, inter alia, NATC and UST, Inc.
"Voting Stock" shall mean, with respect to any corporation,
the outstanding stock of all classes (or equivalent interests) which
ordinarily, in the absence of contingencies, entitles holders thereof to vote
for the election of directors (or Persons performing similar functions) of such
corporation, even though the right so to vote has been suspended by the
happening of such a contingency.
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"Welfare Plan" means a "welfare plan" (as such term is
defined in Section 3(a) of ERISA, maintained by the Borrower or for which the
Borrower or any of its Subsidiaries has any contractual liability.
"Wholly-Owned Subsidiary" of any Person shall mean any
Subsidiary of such Person to the extent all of the capital stock or other
ownership interests in such Subsidiary, other than directors' qualifying
shares, is owned directly or indirectly by such Person.
"Working Capital" shall mean the excess of Consolidated
Current Assets over Consolidated Current Liabilities.
"Written" or "in writing" shall mean any form of written
communication or a communication by means of telex, facsimile transmission,
telegraph or cable.
SECTION 11. The Administrative Agent.
11.01 Appointment. The Lenders hereby designate NatWest as
Administrative Agent (for purposes of this Section 11, the terms
"Administrative Agent" shall include NatWest in its capacity as Collateral
Agent pursuant to the Security Documents) and Gleacher NatWest, Inc. as
Arranging Agent to act as specified herein and in the other Credit Documents.
Each Lender hereby irrevocably authorizes, and each holder of any Note by the
acceptance of such Note shall be deemed irrevocably to authorize, each Agent to
take such action on its behalf under the provisions of this Agreement, the
other Credit Documents and any other instruments and agreements referred to
herein or therein and to exercise such powers and to perform such duties
hereunder and thereunder as are specifically delegated to or required of such
Agent by the terms hereof and thereof and such other powers as are reasonably
incidental thereto. The Agents may perform any of their duties hereunder by or
through their respective officers, directors, agents, employees or affiliates.
11.02 Nature of Duties. No Agent shall have any duties or
responsibilities except those expressly set forth in this Agreement and the
Security Documents. No Agent or any of its respective officers, directors,
agents, employees or affiliates shall be liable for any action taken or omitted
by them hereunder or under any other Credit Document or in connection herewith
or therewith, unless caused by their gross negligence or willful misconduct.
The duties of each Agent shall be mechanical and administrative in nature; no
Agent shall have by reason of this Agreement or any other Credit Document a
fiduciary relationship in respect of any Lender or the holder of any Note; and
nothing in this Agreement or any other Credit Document, expressed or implied,
is intended to or shall be so construed as to impose upon either Agent any
obligations in respect of this Agreement or any other Credit Document except as
expressly set forth herein or therein with respect to such Agent.
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11.03 Lack of Reliance on the Agents. Independently and
without reliance upon either Agent, each Lender and the holder of each Note, to
the extent it deems appropriate, has made and shall continue to make (i) its
own independent investigation of the financial condition and affairs of the
Borrower and its Subsidiaries in connection with the making and the continuance
of the Loans and the taking or not taking of any action in connection herewith
and (ii) its own appraisal of the creditworthiness of the Borrower and its
Subsidiaries and, except as expressly provided in this Agreement, no Agent
shall have any duty or responsibility, either initially or on a continuing
basis, to provide any Lender or the holder of any Note with any credit or other
information with respect thereto, whether coming into its possession before the
making of the Loans or at any time or times thereafter. No Agent shall be
responsible to any Lender or the holder of any Note for any recitals,
statements, information, representations or warranties herein or in any
document, certificate or other writing delivered in connection herewith or for
the execution, effectiveness, genuineness, validity, enforceability,
perfection, collectibility, priority or sufficiency of this Agreement or any
other Credit Document or the financial condition of the Borrower and its
Subsidiaries or be required to make any inquiry concerning either the
performance or observance of any of the terms, provisions or conditions of this
Agreement or any other Credit Document, or the financial condition of the
Borrower and its Subsidiaries or the existence or possible existence of any
Default or Event of Default.
11.04 Certain Rights of the Agents. If the Administrative
Agent shall request instructions from the Required Lenders with respect to any
act or action (including failure to act) in connection with this Agreement or
any other Credit Document, the Administrative Agent shall be entitled to
refrain from such act or taking such action unless and until such Agent shall
have received instructions from the Required Lenders; and the Administrative
Agent shall not incur liability to any Person by reason of so refraining.
Without limiting the foregoing, neither any Lender nor the holder of any Note
shall have any right of action whatsoever against the Administrative Agent as a
result of Administrative Agent acting or refraining from acting hereunder or
under any other Credit Document in accordance with the instructions of the
Required Lenders.
11.05 Reliance. Each Agent shall be entitled to rely, and
shall be fully protected in relying, upon any note, writing, resolution,
notice, statement, certificate, telex, teletype, facsimile or telecopier
message, cablegram, radiogram, order or other document or telephone message
signed, sent or made by any Person that such Agent believed to be the proper
Person, and, with respect to all legal matters pertaining to this Agreement and
any other Credit Document and its duties hereunder and thereunder, upon advice
of counsel selected by such Agent.
11.06 Indemnification. To the extent an Agent is not
reimbursed and indemnified by the Borrower, the Lenders will reimburse and
indemnify such Agent, in proportion to their respective "percentages" as used
in determining the Required Lenders, for and against any and all liabilities,
obligations, losses, damages, penalties, claims,
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actions, judgments, costs, expenses or disbursements of whatsoever kind or
nature which may be imposed on, asserted against or incurred by such Agent in
performing its respective duties hereunder or under any other Credit Document,
in any way relating to or arising out of this Agreement or any other Credit
Document provided that no Lender shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements resulting from the gross negligence or
willful misconduct of such Agent.
11.07 The Agents in Their Individual Capacities. With respect
to its obligation to make Loans under this Agreement, each Agent shall have the
rights and powers specified herein for a "Lender" and may exercise the same
rights and powers as though it were not performing the duties specified herein;
and the term "Lenders," "Required Lenders," "holders of Notes" or any similar
terms shall, unless the context clearly otherwise indicates, include the Agents
in their individual capacities. Each Agent may accept deposits from, lend money
to, and generally engage in any kind of banking, trust or other business with
any Credit Party or any Affiliate of any Credit Party as if they were not
performing the duties specified herein, and may accept fees and other
consideration from the Borrower or any other Credit Party for services in
connection with this Agreement and otherwise without having to account for the
same to the Lenders.
11.08 Holders. The Administrative Agent may deem and treat
the payee of any Note as the owner thereof for all purposes hereof unless and
until a written notice of the assignment, transfer or endorsement thereof, as
the case may be, shall have been filed with the Administrative Agent. Any
request, authority or consent of any Person who, at the time of making such
request or giving such authority or consent, is the holder of any Note shall be
conclusive and binding on any subsequent holder, transferee, assignee or
indorsee, as the case may be, of such Note or of any Note or Notes issued in
exchange therefor.
11.09 Resignation by an Agent. (a) The Administrative Agent
may resign from the performance of all its functions and duties hereunder
and/or under the other Credit Documents at any time by giving 15 Business Days'
prior written notice to the Borrower and the Lenders. Such resignation shall
take effect upon the appointment of a successor Administrative Agent pursuant
to clauses (b) and (c) below or as otherwise provided below.
(b) Upon any such notice of resignation, the Required Lenders
shall appoint a successor Administrative Agent hereunder or thereunder who
shall be a commercial bank or trust company reasonably acceptable to the
Borrower.
(c) If a successor Administrative Agent shall not have been
so appointed within such 15 Business Day period, the Administrative Agent, with
the consent of the Borrower, shall then appoint a successor Administrative
Agent who shall serve as
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Administrative Agent hereunder or thereunder until such time, if any, as the
Lenders appoint a successor Administrative Agent as provided above.
(d) If no successor Administrative Agent has been appointed
pursuant to clause (b) or (c) above by the 20th Business Day after the date
such notice of resignation was given by the Administrative Agent, the
Administrative Agent's resignation shall become effective and the Required
Lenders shall thereafter perform all the duties of the Administrative Agent
hereunder and/or under any other Credit Document until such time, if any, as
the Lenders appoint a successor Administrative Agent as provided above.
(e) The Arranging Agent shall have no duties or
responsibilities hereunder or under the other Credit Documents.
SECTION 12. Miscellaneous.
12.01 Payment of Expenses, etc. The Borrower agrees to: (i)
whether or not the transactions herein contemplated are consummated, pay all
reasonable out-of-pocket costs and expenses of the Agents in connection with
the negotiation, preparation, execution and delivery of the Credit Documents
and the documents and instruments referred to therein and any amendment, waiver
or consent relating thereto (including, without limitation, the reasonable fees
and disbursements of White & Case) and of the Agents and each of the Lenders in
connection with the enforcement of the Credit Documents and the documents and
instruments referred to therein (including, without limitation, the reasonable
fees and disbursements of counsel for each Agent and for each of the Lenders);
(ii) pay and hold each of the Agents and Lenders harmless from and against any
and all present and future stamp and other similar taxes with respect to the
foregoing matters and save each of the Lenders harmless from and against any
and all liabilities with respect to or resulting from any delay or omission
(other than to the extent attributable to such Lender) to pay such taxes; and
(iii) indemnify the Arranging Agent and each Lender (including in its capacity
as Agent or Letter of Credit Issuer), its officers, directors, employees,
representatives and agents from and hold each of them harmless against any and
all losses, liabilities, claims, damages or expenses incurred by any of them as
a result of, or arising out of, or in any way related to, or by reason of, (a)
an investigation, litigation or other proceeding (whether or not the Arranging
Agent, an Agent or any Lender is a party thereto and whether or not any such
investigation, litigation or other proceeding is between or among the Arranging
Agent, an Agent, any Lender, any Credit Party or any third Person or otherwise)
related to the entering into and/or performance of any Document or the use of
the proceeds of any Loans hereunder or the Transaction or the consummation of
any transactions contemplated in any Credit Document, and (b) any such
investigation, litigation or other proceeding relating to the violation of,
noncompliance with or liability under, any Environmental Law applicable to the
operations of the Borrower, any of its Subsidiaries or any Real Property owned
or operated by them, or the actual or alleged presence or release of Hazardous
Materials on, under or from any Real Property at any time owned or operated by
the
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Borrower or any of its Subsidiaries, and in each case including, without
limitation, the reasonable fees and disbursements of counsel incurred in
connection with any such investigation, litigation or other proceeding (but
excluding any such losses, liabilities, claims, damages or expenses to the
extent incurred by reason of the gross negligence or willful misconduct of the
Person to be indemnified).
12.02 Right of Setoff. In addition to any rights now or
hereafter granted under applicable law or otherwise, and not by way of
limitation of any such rights, if an Event of Default then exists, each Lender
is hereby authorized at any time or from time to time, without presentment,
demand, protest or other notice of any kind to any Credit Party or to any other
Person, any such notice being hereby expressly waived, to set off and to
appropriate and apply any and all deposits (general or special) and any other
Indebtedness at any time held or owing by such Lender (including, without
limitation, by branches and agencies of such Lender wherever located) to or for
the credit or the account of any Credit Party against and on account of the
Obligations and liabilities of such Credit Party to such Lender under this
Agreement or under any of the other Credit Documents, including, without
limitation, all interests in Obligations of such Credit Party purchased by such
Lender pursuant to Section 12.06(b), and all other claims of any nature or
description arising out of or connected with this Agreement or any other Credit
Document, irrespective of whether or not such Lender shall have made any demand
hereunder and although said Obligations, liabilities or claims, or any of them,
shall be contingent or unmatured.
12.03 Notices. Except as otherwise expressly provided herein,
all notices and other communications provided for hereunder shall be in writing
(including telegraphic, telex, telecopier, facsimile or cable communication)
and mailed, telegraphed, telexed, telecopied, faxed, cabled or delivered, if to
a Credit Party, at the address specified opposite its signature below or in the
other relevant Credit Documents, as the case may be; if to any Lender or Agent,
at its address specified for such Lender or Agent on Annex II hereto; or, at
such other address as shall be designated by any party in a written notice to
the other parties hereto. All such notices and communications shall be mailed,
telegraphed, telexed, telecopied, or cabled or sent by overnight courier, and
shall be effective when received.
12.04 Benefit of Agreement. (a) This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the respective
successors and assigns of the parties hereto, provided that the Borrower may
not assign or transfer any of its rights or obligations hereunder without the
prior written consent of the Lenders. Each Lender may at any time grant
participations in any of its rights hereunder or under any of the Notes to
another financial institution, provided that (x) in the case of any such
participation, the participant shall not have any rights under this Agreement
or any of the other Credit Documents (the participant's rights against such
Lender in respect of such participation to be those set forth in the agreement
executed by such Lender in favor of the participant relating thereto) and all
amounts payable by the Borrower hereunder shall be determined as if such Lender
had not sold such participation, except that the participant shall be entitled
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to the benefits of Sections 1.10, 2.06 and 4.04 of this Agreement to the extent
that such Lender would be entitled to such benefits if the participation had
not been entered into or sold and (y) no Lender shall transfer, grant or assign
any participation under which the participant shall have rights to approve any
amendment to or waiver of this Agreement or any other Credit Document except to
the extent such amendment or waiver would (i) extend the final scheduled
maturity of any Loan or Note in which such participant is participating (it
being understood that any waiver of the application of any prepayment or the
method of any application of any prepayment to, the amortization of the Term
Loans shall not constitute an extension of the final maturity date), or reduce
the rate or extend the time of payment of interest or Fees thereon (except in
connection with a waiver of the applicability of any post-default increase in
interest rates), or reduce the principal amount thereof, or increase such
participant's participating interest in any Commitment over the amount thereof
then in effect (it being understood that a waiver of any Default or Event of
Default or of a mandatory reduction in the Total Commitment, or a mandatory
prepayment, shall not constitute a change in the terms of any Commitment), (ii)
release all or substantially all of the Collateral or (iii) consent to the
assignment or transfer by any Credit Party of any of its rights and obligations
under this Agreement or any other Credit Document.
(b) Notwithstanding the foregoing, (x) any Lender may assign
all or a portion of its outstanding Term Loans and/or Revolving Commitment and
its rights and obligations hereunder to another Lender (or an Affiliate of such
assigning Lender), and (y) with the consent of the Borrower and the
Administrative Agent (which consents shall not be unreasonably withheld), any
Lender may assign all or a portion of its outstanding Term Loans and/or
Revolving Commitment and its rights and obligations hereunder to one or more
Eligible Transferees (including one or more Lenders). No assignment pursuant to
the immediately preceding sentence by a Lender (or by Lenders which are
Affiliates of each other) shall to the extent such assignment represents an
assignment to an institution other than one or more Lenders hereunder (or to an
Affiliate of an assigning Lender), be in an aggregate amount less than
$5,000,000 unless the entire Commitment of the assigning Lender (or group of
Lenders which are Affiliates) is so assigned. If any Lender so sells or assigns
all or a part of its rights hereunder or under the Notes, any reference in this
Agreement or the Notes to such assigning Lender shall thereafter refer to such
Lender and to the respective assignee to the extent of their respective
interests and the respective assignee shall have, to the extent of such
assignment (unless otherwise provided therein), the same rights and benefits as
it would if it were such assigning Lender. Each assignment pursuant to this
Section 12.04(b) shall be effected by the assigning Lender and the assignee
Lender executing an Assignment Agreement (appropriately completed). At the time
of any such assignment, (i) either the assigning or the assignee Lender shall
pay to the Administrative Agent a nonrefundable assignment fee of $3,500, (ii)
Annex I shall be deemed to be amended to reflect the Commitment of the
respective assignee (which shall result in a direct reduction to the Commitment
of the assigning Lender) and of the other Lenders, and (iii) the Borrower will
issue new Notes to the respective assignee and to the assigning Lender in
conformity with the requirements of Section 1.05. To the extent of any
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assignment pursuant to this Section 12.04(b) to a Person which is not already a
Lender hereunder and which is not a United States Person (as such term is
defined in Section 7701(a)(30) of the Code) for Federal income tax purposes,
the respective assignee Lender shall provide to the Borrower and the
Administrative Agent the appropriate Internal Revenue Service Forms (and, if
applicable, a Section 4.04 Certificate) described in Section 4.04(b). To the
extent that an assignment of all or any portion of a Lender's Commitments and
related outstanding Obligations pursuant to this Section 12.04(b) would, at the
time of such assignment, result in increased costs under Section 1.10, 2.06 or
4.04 from those being charged by the respective assigning bank prior to such
assignment, then the Borrower shall not be obligated to pay such increased
costs (although the Borrower shall be obligated to pay any other increased
costs of the type described above resulting from the changes specified in said
Section 1.10, 2.06 or 4.04 after the date of the respective assignment). Each
Lender and the Borrower agree to execute such documents (including without
limitation amendments to this Agreement and the other Credit Documents) as
shall be necessary to effect the foregoing. Nothing in this clause (b) shall
prevent or prohibit any Lender from pledging its Notes or Loans to a Federal
Reserve Bank in support of borrowings made by such Lender from such Federal
Reserve Bank.
(c) Notwithstanding any other provisions of this Section
12.04, no transfer or assignment of the interests or obligations of any Lender
hereunder or any grant of participation therein shall be permitted if such
transfer, assignment or grant would require the Borrower to file a registration
statement with the SEC or to qualify the Loans under the "Blue Sky" laws of any
State.
(d) Each Lender initially party to this Agreement hereby
represents, and each Person that became a Lender pursuant to an assignment
permitted by this Section 12 will, upon its becoming party to this Agreement,
represent that it is an Eligible Transferee which makes loans in the ordinary
course of its business and that it will make or acquire Loans for its own
account in the ordinary course of such business, provided that subject to the
preceding clauses (a) and (b), the disposition of any promissory notes or other
evidences of or interests in Indebtedness held by such Lender shall at all
times be within its exclusive control.
12.05 No Waiver; Remedies Cumulative. No failure or delay on
the part of any Agent or any Lender in exercising any right, power or privilege
hereunder or under any other Credit Document and no course of dealing between
any Credit Party and either Agent or any Lender shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder or under any other Credit Document preclude any other or
further exercise thereof or the exercise of any other right, power or privilege
hereunder or thereunder. The rights and remedies herein expressly provided are
cumulative and not exclusive of any rights or remedies which either Agent or
any Lender would otherwise have. No notice to or demand on any Credit Party in
any case shall entitle any Credit Party to any other or further notice or
demand in similar or other circumstances
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or constitute a waiver of the rights of the Agents or the Lenders to any other
or further action in any circumstances without notice or demand.
12.06 Payments Pro Rata. (a) The Administrative Agent agrees
that promptly after its receipt of each payment from or on behalf of any Credit
Party in respect of any Obligations of such Credit Party hereunder, it shall
distribute such payment to the Lenders (other than any Lender that has
expressly waived its right to receive its pro rata share thereof) pro rata
based upon their respective shares, if any, of the Obligations with respect to
which such payment was received.
(b) Each of the Lenders agrees that, if it should receive any
amount hereunder (whether by voluntary payment, by realization upon security,
by the exercise of the right of setoff or banker's lien, by counterclaim or
cross action, by the enforcement of any right under the Credit Documents, or
otherwise) which is applicable to the payment of the principal of, or interest
on, the Loans or Fees, of a sum which with respect to the related sum or sums
received by other Lenders is in a greater proportion than the total of such
Obligation then owed and due to such Lender bears to the total of such
Obligation then owed and due to all of the Lenders immediately prior to such
receipt, then such Lender receiving such excess payment shall purchase for cash
without recourse or warranty from the other Lenders an interest in the
Obligations of the respective Credit Party to such Lenders in such amount as
shall result in a proportional participation by all of the Lenders in such
amount, provided that if all or any portion of such excess amount is thereafter
recovered from such Lender, such purchase shall be rescinded and the purchase
price restored to the extent of such recovery, but without interest.
(c) Notwithstanding anything to the contrary contained
herein, the provisions of the preceding Sections 12.06(a) and (b) shall be
subject to the express provisions of this Agreement which require, or permit,
differing payments to be made to Non-Defaulting Lenders as opposed to
Defaulting Lenders.
12.07 Calculations; Computations. (a) The financial
statements to be furnished to the Lenders pursuant hereto shall be made and
prepared in accordance with GAAP consistently applied throughout the periods
involved (except as set forth in the notes thereto or as otherwise disclosed in
writing by the Borrower to the Lenders), provided that (x) except as otherwise
specifically provided herein, all computations determining compliance with
Section 8, including definitions used therein, shall utilize accounting
principles and policies in effect at the time of the preparation of, and in
conformity with those used to prepare, the December 31, 1996 historical
financial statements delivered to the Lenders pursuant to Section 6.10(b) and
(y) that if at any time the computations determining compliance with Section 8
utilize accounting principles different from those utilized in the financial
statements furnished to the Lenders, such financial statements shall be
accompanied by reconciliation work-sheets.
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(b) All computations of interest and Fees hereunder shall be
made on the actual number of days elapsed over a year of 360 days (or in the
case of interest determined by reference to a Base Rate based on the Prime
Lending Rate, 365 or 366 days, as the case may be).
12.08 Governing Law; Submission to Jurisdiction; Venue;
Waiver of Jury Trial. (a) This Agreement and the other Credit Documents and the
rights and obligations of the parties hereunder and thereunder shall be
construed in accordance with and be governed by the law of the state of New
York. Any legal action or proceeding with respect to this Agreement or any
other Credit Document may be brought in the courts of the State of New York or
of the United States for the Southern District of New York, and, by execution
and delivery of this Agreement, the Borrower hereby irrevocably accepts for
itself and in respect of its property, generally and unconditionally, the
jurisdiction of the aforesaid courts. The Borrower further irrevocably consents
to the service of process out of any of the aforementioned courts in any such
action or proceeding by the mailing of copies thereof by registered or
certified mail, postage prepaid, to it, to the extent located outside New York
City, or by hand, to the extent located within New York City, at its address
for notices pursuant to Section 12.03, such service to become effective 30 days
after such mailing. The Borrower hereby irrevocably designates appoints and
empowers CT Corporation System, with offices on the date hereof located at 1633
Broadway, New York, New York 10019, as its agent for service of process in
respect of any such action or proceeding. Nothing herein shall affect the right
of any Agent or any Lender to serve process in any other manner permitted by
law or to commence legal proceedings or otherwise proceed against the Borrower
in any other jurisdiction.
(b) The Borrower hereby irrevocably waives any objection
which it may now or hereafter have to the laying of venue of any of the
aforesaid actions or proceedings arising out of or in connection with this
Agreement or any other Credit Document brought in the courts referred to in
clause (a) above and hereby further irrevocably waives and agrees not to plead
or claim in any such court that any such action or proceeding brought in any
such court has been brought in an inconvenient forum.
(c) Each of the parties to this Agreement hereby irrevocably
waives all right to a trial by jury in any action, proceeding or counterclaim
arising out of or relating to this Agreement, the other Credit Documents or the
transactions contemplated hereby or thereby.
12.09 Counterparts. This Agreement may be executed in any
number of counterparts and by the different parties hereto on separate
counterparts, each of which when so executed and delivered shall be an
original, but all of which shall together constitute one and the same
instrument. A set of counterparts executed by all the parties hereto shall be
lodged with the Borrower and the Administrative Agent.
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12.10 Effectiveness. This Agreement shall become effective on
the date (the "Effective Date") on which, the Borrower, each Agent and each of
the Lenders shall have signed a copy hereof (whether the same or different
copies) and shall have delivered the same to the Administrative Agent at its
Notice Office or, in the case of the Lenders and the Agents, shall have given
to the Administrative Agent telephonic (confirmed in writing), written telex or
facsimile transmission notice (actually received) at such office that the same
has been signed and mailed to it.
12.11 Headings Descriptive. The headings of the several
sections and subsections of this Agreement are inserted for convenience only
and shall not in any way affect the meaning or construction of any provision of
this Agreement.
12.12 Amendment or Waiver. Neither this Agreement nor any
other Credit Document nor any terms hereof or thereof may be changed, waived,
discharged or terminated unless such change, waiver, discharge or termination
is in writing signed by the Borrower and the Required Lenders, provided that no
such change, waiver, discharge or termination shall, without the consent of
each Lender (other than a Defaulting Lender) directly affected thereby, (i)
extend the Final Maturity Date (it being understood that any waiver of any
prepayment of, or the method of application of any prepayment to the
amortization of, the Loans shall not constitute any such extension), or extend
the stated maturity of any Letter of Credit beyond the Final Maturity Date, or
reduce the rate or extend the time of payment of interest (other than as a
result of waiving the applicability of any post-default increase in interest
rates) or Fees thereon, or reduce the principal amount thereof, or increase the
Commitment of any Lender over the amount thereof then in effect (it being
understood that a waiver of any Default or Event of Default or of a mandatory
reduction in the Total Commitment shall not constitute a change in the terms of
any Commitment of any Lender), (ii) amend, modify or waive any provision of
this Section 12.12, (iii) reduce the percentage specified in, or (except to
give effect to any additional facilities hereunder) otherwise modify, the
definition of Required Lenders, (iv) consent to the assignment or transfer by
the Borrower of any of its rights and obligations under this Agreement or (v)
release all or substantially all of the Collateral. No provision of Section 2
or 11 may be amended without the consent of the Letter of Credit Issuer or the
Agents, respectively.
12.13 Survival. All indemnities set forth herein including,
without limitation, in Section 1.10, 1.11, 2.06, 4.04, 11.06 or 12.01 shall
survive the execution and delivery of this Agreement and the making and
repayment of the Loans.
12.14 Domicile of Loans. Each Lender may transfer and carry
its Loans at, to or for the account of any branch office, subsidiary or
affiliate of such Lender, provided that the Borrower shall not be responsible
for costs arising under Section 1.10, 2.06 or 4.04 resulting from any such
transfer (other than a transfer pursuant to Section 1.12 or 1.13) to the extent
not otherwise applicable to such Lender prior to such transfer.
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12.15 Confidentiality. Subject to Section 12.04, the Lenders
shall hold all non-public information obtained pursuant to the requirements of
this Agreement which has been identified as such by the Borrower in accordance
with its customary procedure for handling confidential information of this
nature and in accordance with safe and sound banking practices and in any event
may make disclosure to its Affiliates, employees, auditors, advisors or counsel
or as reasonably required by any bona fide transferee or participant in
connection with the contemplated transfer of any Loans or participation therein
(so long as such transferee or participant agrees to be bound by the provisions
of this Section 12.15) or as required or requested by any governmental agency
or representative thereof or pursuant to legal process, provided that, unless
specifically prohibited by applicable law or court order, each Lender shall
notify the Borrower of any request by any governmental agency or representative
thereof (other than any such request in connection with an examination of the
financial condition of such Lender by such governmental agency) for disclosure
of any such non-public information prior to disclosure of such information, and
provided further that in no event shall any Lender be obligated or required to
return any materials furnished by the Borrower or any Subsidiary.
12.16 Lender Register. The Borrower hereby designates the
Administrative Agent to serve as its agent, solely for purposes of this Section
12.16, to maintain a register (the "Lender Register") on which it will record
the Commitments from time to time of each of the Lenders, the Loans made by
each of the Lenders and each repayment in respect of the principal amount of
the Loans of each Lender. Failure to make any such recordation, or any error in
such recordation, shall not affect the Borrower's obligations in respect of
such Loans. With respect to any Lender, the transfer of the Commitments of such
Lender and the rights to the principal of, and interest on, any Loan made
pursuant to such Commitments shall not be effective until such transfer is
recorded on the Lender Register maintained by the Administrative Agent with
respect to ownership of such Commitments and Loans and prior to such
recordation all amounts owing to the transferor with respect to such
Commitments and Loans shall remain owing to the transferor. The registration of
assignment or transfer of all or part of any Commitments and Loans shall be
recorded by the Administrative Agent on the Lender Register only upon the
acceptance by the Administrative Agent of a properly executed and delivered
Assignment Agreement pursuant to Section 12.04(b). The Borrower agrees to
indemnify the Administrative Agent from and against any and all losses, claims,
damages and liabilities of whatsoever nature which may be imposed on, asserted
against or incurred by the Administrative Agent in performing its duties under
this Section 12.16 other than those resulting from the Administrative Agent's
willful misconduct or gross negligence.
* * *
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IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Agreement to be duly executed and delivered as of the date
first above written.
NORTH ATLANTIC TRADING ACQUISITION
COMPANY, INC.
By: /s/ David Brunson
---------------------------------
Name: David Brunson
Title: Chief Financial Officer
NATIONAL WESTMINSTER BANK PLC,
Individually and as Administrative Agent
By: /s/ Ronan Agnew
-----------------------------------
Name: Ronan Agnew
Title: Vice President
<PAGE>
GOLDMAN SACHS CREDIT PARTNERS, L.P.
By: /s/ Jonathan Kolatch
------------------------------------
Name: Jonathan Kolatch
Title: Managing Director
<PAGE>
HCM HIGH YIELD OPPORTUNITY FUND, L.P.
By: /s/ Michael E. Lewitt
------------------------------------
Name: Michael E. Lewitt
Title: Executive Vice President
<PAGE>
ING BARING (U.S.) CAPITAL CORP.
By: /s/ Joan M. Chiappe
-------------------------------------
Name: Joan M. Chiappe
Title: Vice President
<PAGE>
BANK ONE KENTUCKY, NA
By: /s/ Joseph Brenner
-------------------------------------
Name: Joseph Brenner
Title: Senior Vice President
<PAGE>
OAK HILL SECURITIES FUND, L.P.
By: Oak Hill Securities GenPar, L.P.,
its General Partner
By: Oak Hill Securities MGP, Inc.,
its General Partner
By: /s/ Scott Krase
------------------------------------
Name: Scott Krase
Title: Vice President
<PAGE>
CRESCENT/MACH I PARTNERS, L.P.
By TCW Asset Management Company
its Investment Manager
By: /s/ Justin Driscoll
-------------------------------------
Title: Senior Vice President
<PAGE>
SUBSIDIARY GUARANTY
SUBSIDIARY GUARANTY, dated as of June 25, 1997 (as amended,
modified or supplemented from time to time, this "Guaranty"), made by each of
the undersigned (each, a "Guarantor" and together with any other entity that
becomes a party hereto pursuant to Section 26 hereof, collectively, the
"Guarantors"). Except as otherwise defined herein, terms used herein and defined
in the Credit Agreement (as defined below) shall be used herein as therein
defined.
W I T N E S S E T H :
WHEREAS North Atlantic Trading Company, Inc. (the "Borrower"),
the lenders from time to time party thereto (the "Lenders"), Gleacher NatWest,
Inc. as Arranging Agent (the "Arranging Agent"), and National Westminster Bank
Plc, as Administrative Agent (the "Administrative Agent", and together with the
Lenders and the Arranging Agent, the "Lender Creditors"), have entered into a
Credit Agreement, dated as of June 25, 1997 (as amended, modified or
supplemented from time to time, the "Credit Agreement"), providing for the
making of Loans and the issuance of, and participation in, Letters of Credit as
contemplated therein;
WHEREAS, the Borrower may from time to time be party to one or
more Interest Rate Agreements (each such Interest Rate Agreement with an
Interest Rate Creditor (as defined below), a "Secured Interest Rate Agreement")
with National Westminster Bank Plc, in its individual capacity ("NatWest"), any
Lender or a syndicate of financial institutions organized by NatWest or such
Lender or an affiliate of NatWest or such Lender (even if NatWest or any such
Lender ceases to be a Lender under the Credit Agreement for any reason), and any
institution that participates therein, and in each case their subsequent assigns
(collectively, the "Interest Rate Creditors," and together with the Lender
Creditors, collectively, the "Creditors");
WHEREAS, each Guarantor is a wholly-owned direct or indirect
Subsidiary of the Borrower;
WHEREAS, it is a condition to the making of Loans and the
issuance of, and participation in, Letters of Credit under the Credit Agreement
that each Guarantor shall have executed and delivered this Guaranty; and
<PAGE>
Page 2
WHEREAS, each Guarantor will obtain benefits from the
incurrence of Loans by, and the issuance of Letters of Credit to, the Borrower
under the Credit Agreement and the entering into of Secured Interest Rate
Agreements and, accordingly, desires to execute this Guaranty in order to
satisfy the conditions described in the preceding paragraph and to induce the
Lenders to make Loans to, and to issue and participate in Letters of Credit for
the account of, the Borrower and Interest Rate Creditors to enter into Secured
Interest Rate Agreements;
NOW, THEREFORE, in consideration of the foregoing and other
benefits accruing to each Guarantor, the receipt and sufficiency of which are
hereby acknowledged, each Guarantor hereby makes the following representations
and warran-ties to the Creditors and hereby covenants and agrees with each
Creditor as follows:
1. Each Guarantor irrevocably and unconditionally, and
jointly and severally, guarantees:
(i) to the Lender Creditors, the full and prompt payment when
due (whether at the stated maturity, by acceleration or otherwise) of
(a) the principal of and interest on the Notes issued by, and the Loans
made to, the Borrower under the Credit Agreement, (b) all reimbursement
obligations and Unpaid Drawings with respect to Letters of Credit
issued under the Credit Agreement and (c) all other obligations
(including obligations which, but for any automatic stay under Section
362(a) of the Bankruptcy Code, would become due) and liabilities owing
by the Borrower to the Lender Creditors under the Credit Agreement and
the Credit Documents (including, without limitation, indemnities, Fees
and interest thereon) now existing or hereafter incurred under, arising
out of or in connection with the Credit Agreement or any other Credit
Document and the due performance and compliance with the terms of the
Credit Documents (all such principal, interest, liabilities and
obligations, the "Credit Document Obligations"); and
(ii) to the Interest Rate Creditors, the full and prompt
payment when due (whether at the stated maturity, by acceleration or
otherwise) of all obligations (including obligations which, but for any
automatic stay under Section 362(a) of the Bankruptcy Code, would
become due) and liabilities owing by the Borrower under any Secured
Interest Rate Agreement, whether now in existence or hereafter arising,
and the due performance and compliance by the Borrower with all terms,
conditions and agreements contained therein (all such obligations and
liabilities, the "Interest Rate Obligations", and the Interest Rate
Obligations
<PAGE>
Page 3
together with the Credit Document Obligations, collectively, the
"Guaranteed Obligations").
Each Guarantor understands, agrees and confirms that the Creditors may enforce
this Guaranty up to the full amount of the Guaranteed Obligations against each
Guarantor without proceeding against the Borrower, any other Guarantor or any
security for the Guaranteed Obligations, or under any other guaranty covering
all or a portion of the Guaranteed Obligations. All payments by each Guarantor
under this Guaranty shall be made on the same basis as payments by the Borrower
under Sections 4.03 and 4.04 of the Credit Agreement.
2. Additionally, each Guarantor, jointly and severally,
unconditionally and irrevocably, guarantees the payment of any and all
Guaranteed Obligations whether or not due or payable by the Borrower (subject to
the proviso contained above) upon the occurrence in respect of the Borrower of
any of the events specified in Section 9.05 of the Credit Agreement, and
unconditionally and irrevocably, jointly and severally, promises to pay such
Guaranteed Obligations to the Creditors, on demand, in lawful money of the
United States.
3. The liability of each Guarantor hereunder is exclusive and
independent of any security for or other guaranty of the indebtedness of the
Borrower whether executed by such Guarantor, any other Guarantor, any other
guarantor or by any other party, and the liability of each Guarantor hereunder
shall not be affected or impaired by (a) any direction as to application of
payment by the Borrower or by any other party, (b) any other continuing or other
guaranty, undertaking or maximum liability of a guarantor or of any other party
as to the indebtedness of the Borrower, (c) any payment on or in reduction of
any such other guaranty or undertaking, (d) any dissolution, termination or
increase, decrease or change in personnel by the Borrower or (e) any payment
made to any Creditor on the indebtedness which any Creditor repays to the
Borrower pursuant to court order in any bankruptcy, reorganization, arrangement,
moratorium or other debtor relief proceeding, and each Guarantor waives any
right to the deferral or modification of its obligations hereunder by reason of
any such proceeding.
4. The obligations of each Guarantor hereunder are independent
of the obligations of any other Guarantor, any other guarantor or the Borrower,
and a separate action or actions may be brought and prosecuted against each
Guarantor whether or not action is brought against any other Guarantor, any
other guarantor or the Borrower and whether or not any other Guarantor, any
other guarantor of the Borrower or the Borrower be joined in any such action or
actions.
<PAGE>
Page 4
5. Each Guarantor hereby waives notice of acceptance of this
Guaranty and notice of any liability to which it may apply, and waives
promptness, diligence, presentment, demand of payment, protest, notice of
dishonor or nonpayment of any such liabilities, suit or taking of other action
by the Administrative Agent or any other Creditor against, and any other notice
to, any party liable thereon (including such Guarantor or any other guarantor of
the Borrower).
6. Any Creditor may at any time and from time to time without
the consent of, or notice to, any Guarantor, without incurring responsibility to
such Guarantor, without impairing or releasing the obligations of such Guarantor
hereunder, upon or without any terms or conditions and in whole or in part:
(i) change the manner, place or terms of payment of, and/or
change or extend the time of payment of, renew or alter, any of the
Guaranteed Obligations, any security therefor, or any liability
incurred directly or indirectly in respect thereof, and the guaranty
herein made shall apply to the Guaranteed Obligations as so changed,
extended, renewed or altered;
(ii) sell, exchange, release, surrender, realize upon or
otherwise deal with in any manner and in any order any property by
whomsoever at any time pledged or mortgaged to secure, or howsoever
securing, the Guaranteed Obligations or any liabilities (including any
of those hereunder) incurred directly or indirectly in respect thereof
or hereof, and/or any offset thereagainst;
(iii) exercise or refrain from exercising any rights against
the Borrower, any other guarantor or others or otherwise act or refrain
from acting;
(iv) settle or compromise any of the Guaranteed Obligations,
any security therefor or any liability (including any of those
hereunder) incurred directly or indirectly in respect thereof or
hereof, and may subordinate the payment of all or any part thereof to
the payment of any liability (whether due or not) of the Borrower to
creditors of the Borrower (other than the Creditors);
(v) apply any sums by whomsoever paid or howsoever realized
to any liability or liabilities of the Borrower to the Creditors
regardless of what liabilities of the Borrower remain unpaid;
(vi) consent to or waive any breach of, or any act, omission
or default under, any of the Credit Documents, the Secured Interest
Rate Agreements or any of the instruments or agreements referred to
therein, or otherwise amend,
<PAGE>
Page 5
modify or supplement any of the Credit Documents, the Secured Interest
Rate Agreements or any of such other instruments or agreements; and/or
(vii) act or fail to act in any manner referred to in this
Guaranty which may deprive such Guarantor of its right to subrogation
against the Borrower to recover full indemnity for any payments made
pursuant to this Guaranty.
7. No invalidity, irregularity or unenforceability of all or
any part of the Guaranteed Obligations or of any security therefor shall affect,
impair or be a defense to this Guaranty, and this Guaranty shall be primary,
absolute and unconditional notwithstanding the occurrence of any event or the
existence of any other circumstances which might constitute a legal or equitable
discharge of a surety or guarantor except payment in full of the Guaranteed
Obligations.
8. This Guaranty is a continuing one and all liabilities to
which it applies or may apply under the terms hereof shall be conclusively
presumed to have been created in reliance hereon. No failure or delay on the
part of any Creditor in exercising any right, power or privilege hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, power or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein expressly specified are cumulative and not exclusive of any
rights or remedies which any Creditor would otherwise have. No notice to or
demand on any Guarantor in any case shall entitle such Guarantor to any other
further notice or demand in similar or other circumstances or constitute a
waiver of the rights of any Creditor to any other or further action in any
circumstances without notice or demand. It is not necessary for any Creditor to
inquire into the capacity or powers of the Borrower or any of its Subsidiaries
or the officers, directors, partners or agents acting or purporting to act on
its behalf, and any indebtedness made or created in reliance upon the professed
exercise of such powers shall be guaranteed hereunder.
9. Any indebtedness of the Borrower now or hereafter held by
any Guarantor is hereby subordinated to the indebtedness of the Borrower to the
Creditors; and such Indebtedness of the Borrower to any Guarantor, if the
Collateral Agent, after an Event of Default (as hereinafter defined) has
occurred, so requests, shall be collected, enforced and received by such
Guarantor as trustee for the Creditors and be paid over to the Creditors on
account of the Indebtedness of the Borrower to the Creditors, but without
affecting or impairing in any manner the liability of such Guarantor under the
other provisions of this Guaranty. Prior to the transfer by any Guarantor of any
note or negotiable instrument evidencing any Indebtedness of the
<PAGE>
Page 6
Borrower to such Guarantor, such Guarantor shall mark such note or negotiable
instrument with a legend that the same is subject to this subordination.
10. (a) Each Guarantor hereby waives any right (except as
shall be required by applicable statute and cannot be waived) to require the
Creditors to: (i) proceed against the Borrower, any other Guarantor, any other
guarantor of the Borrower or any other party; (ii) proceed against or exhaust
any security held from the Borrower, any other Guarantor, any other guarantor of
the Borrower or any other party; or (iii) pursue any other remedy in the
Creditors' power whatsoever. Each Guarantor waives any defense based on or
arising out of any defense of the Borrower, any other Guarantor, any other
guarantor of the Borrower or any other party other than payment in full of the
Guaranteed Obligations, including, without limitation, any defense based on or
arising out of the disability of the Borrower, any other Guarantor, any other
guarantor of the Borrower or any other party, or the unenforceability of the
Guaranteed Obligations or any part thereof from any cause, or the cessation from
any cause of the liability of the Borrower other than payment in full of the
Guaranteed Obligations. The Creditors may, at their election, foreclose on any
security held by the Administrative Agent, the Collateral Agent or the other
Creditors by one or more judicial or nonjudicial sales, whether or not every
aspect of any such sale is commercially reasonable (to the extent such sale is
permitted by applicable law), or exercise any other right or remedy the
Creditors may have against the Borrower or any other party, or any security,
without affecting or impairing in any way the liability of any Guarantor
hereunder except to the extent the Guaranteed Obligations have been paid in
full. Each Guarantor waives any defense arising out of any such election by the
Administrative Agent, the Collateral Agent and the other Creditors, even though
such election operates to impair or extinguish any right of reimbursement or
subrogation or other right or remedy of such Guarantor against the Borrower, any
other Guarantor or any other party or any security.
(b) Each Guarantor waives all presentments, demands for
performance, protests and notices, including, without limitation, notices of
nonperformance, notices of protest, notices of dishonor, notices of acceptance
of this Guaranty, and notices of the existence, creation or incurring of new or
additional Indebtedness. Each Guarantor assumes all responsibility for being and
keeping itself informed of the Borrower's financial condition and assets, and of
all other circumstances bearing upon the risk of nonpayment of the Guaranteed
Obligations and the nature, scope and extent of the risks which any Guarantor
assumes and incurs hereunder, and agrees that the Creditors shall have no duty
to advise such Guarantor of information known to them regarding such
circumstances or risks.
<PAGE>
Page 7
(c) Until such time as the Guaranteed Obligations have been
paid in full in cash or Cash Equivalents, each Guarantor hereby waives all
rights of subrogation which it may at any time otherwise have as a result of
this Guaranty (whether contractual, under Section 509 of the Bankruptcy Code, or
otherwise) to the claims of the Creditors against the Borrower, any other
Guarantor or any other guarantor of the Guaranteed Obligations and all
contractual, statutory or common law rights of reimbursement, contribution or
indemnity from the Borrower or any other Guarantor which it may at any time
otherwise have as a result of this Guaranty.
11. If and to the extent that any Guarantor makes any payment
to any Creditor or to any other Person pursuant to or in respect of this
Guaranty, any claim which such Guarantor may have against the Borrower by reason
thereof shall be subject and subordinate to the prior payment in full of the
Guaranteed Obligations to each Creditor. Prior to the transfer by any Guarantor
of any note or negotiable instrument evidencing any indebtedness of the Borrower
to such Guarantor, such Guarantor shall mark such note or negotiable instrument
with a legend that the same is subject to this subordination.
12. Each Guarantor covenants and agrees that on and after the
date hereof and until the Total Commitment and all Secured Interest Rate
Agreements have been terminated, no Note remains outstanding and all Guaranteed
Obligations have been paid in full, such Guarantor shall take, or will refrain
from taking, as the case may be, all actions that are necessary to be taken or
not taken so that no violation of any provision, covenant or agreement contained
in Section 7 or 8 of the Credit Agreement, and so that no Event of Default, is
caused by the actions of such Guarantor or any of its Subsidiaries.
13. Each Guarantor hereby jointly and severally agrees to pay
all reasonable out-of-pocket costs and expenses (including, without limitation,
the reasonable fees and disbursements of counsel) of each Creditor in connection
with the enforcement of this Guaranty and in connection with any amendment,
waiver or consent relating to this Guaranty.
14. This Guaranty shall be binding upon each Guarantor and its
successors and assigns and shall inure to the benefit of the Creditors and their
successors and assigns to the extent permitted under the Credit Agreement.
15. Neither this Guaranty nor any provision hereof may be
changed, waived, discharged or terminated except with the written consent of the
Required Lenders (or to the extent required by Section 12.12 of the Credit
Agreement, with the
<PAGE>
Page 8
written consent of each Lender) and each Guarantor affected thereby (it being
understood that the addition or release of any Guarantor hereunder shall not
constitute a change, waiver, discharge or termination affecting any Guarantor
other than the Guarantor so added or released), provided that (x) no such
change, waiver, modification or variance shall be made to this Section 15
without the consent of each Creditor affected thereby and (y) any change,
waiver, modification or variance affecting the rights and benefits of a single
Class (as defined below) of Creditors (and not all Creditors in a like or
similar manner) shall require the written consent of the Requisite Creditors (as
defined below) of such Class. For the purpose of this Guaranty, the term "Class"
shall mean each class of Creditors, i.e., whether (i) the Lender Creditors as
holders of the Credit Document Obligations or (ii) the Interest Rate Creditors
as holders of the Interest Rate Obligations. For the purpose of this Guaranty,
the term "Requisite Creditors" of any Class shall mean (i) with respect to the
Credit Document Obligations, the Required Lenders and (ii) with respect to the
Interest Rate Obligations, the holders of at least a majority of all obligations
outstanding from time to time under the Secured Interest Rate Agreements.
16. Each Guarantor acknowledges that an executed (or
conformed) copy of each of the Credit Documents and the Secured Interest Rate
Agreements has been made available to its principal executive officers and such
officers are familiar with the contents thereof.
17. In addition to any rights now or hereafter granted under
applicable law (including, without limitation, Section 151 of the New York
Debtor and Creditor Law) and not by way of limitation of any such rights, upon
the occurrence and during the continuance of an Event of Default (such term
shall mean and include any "Event of Default" as defined in the Credit Agreement
or any payment default under any Secured Interest Rate Agreement continuing
after any applicable grace period), each Creditor is hereby authorized, at any
time or from time to time, without notice to any Guarantor or to any other
Person, any such notice being expressly waived, to set off and to appropriate
and apply any and all deposits (general or special) and any other indebtedness
at any time held or owing by such Creditor to or for the credit or the account
of any Guarantor, against and on account of the obligations and liabilities of
such Guarantor to such Creditor under this Guaranty, irrespective of whether or
not such Creditor shall have made any demand hereunder and although said
obligations, liabilities, deposits or claims, or any of them, shall be
contingent or unmatured. Each Creditor agrees to promptly notify the relevant
Guarantor after any such set off and application, provided that the failure to
give such notice shall not affect the validity of such set off and application.
<PAGE>
Page 9
18. All notices, requests, demands or other communications
provided for hereunder made in writing (including communications by facsimile
transmission) shall be deemed to have been duly given or made when delivered to
the Person to which such notice, request, demand or other communication is
required or permitted to be given or made under this Guaranty, addressed to such
party at (i) in the case of any Lender Creditor, as provided in the Credit
Agreement, (ii) in the case of each Guarantor, at its address set forth opposite
its signature below and (iii) in the case of any Interest Rate Creditor, at such
address as such Interest Rate Creditor shall have specified in writing to the
Guarantors; or in any case at such other address as any of the Persons listed
above may hereafter notify the others in writing.
19. If claim is ever made upon any Creditor for repayment or
recovery of any amount or amounts received in payment or on account of any of
the Guaranteed Obligations and any such Creditor repays all or part of said
amount by reason of (i) any judgment, decree or order of any court or
administrative body having jurisdiction over such Creditor or any of its
property or (ii) any settlement or compromise of any such claim effected by such
Creditor with any such claimant (including the Borrower), then and in such event
each Guarantor agrees that any such judgment, decree, order, settlement or
compromise shall be binding upon such Guarantor, notwithstanding any revocation
hereof or other instrument evidencing any liability of the Borrower, and each
Guarantor shall be and remain liable to such Creditor hereunder for the amount
so repaid or recovered to the same extent as if such amount had never originally
been received by any such Creditor.
20. (a) THIS GUARANTY AND THE RIGHTS AND OBLIGATIONS OF THE
CREDITORS AND OF THE UNDERSIGNED HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK. Any legal action or proceeding
with respect to this Guaranty may be brought in the courts of the State of New
York or of the United States of America for the Southern District of New York,
and, by execution and delivery of this Guaranty, each Guarantor hereby
irrevocably accepts for itself and in respect of its property, generally and
unconditionally, the jurisdiction of the aforesaid courts. Each Guarantor hereby
irrevocably designates, appoints and empowers CT Corporation System with offices
on the date hereof at 1633 Broadway, New York, NY 10019, as its designee,
appointee and agent to receive, accept and acknowledge for and on its behalf,
and in respect of its property, service of any and all legal process, summons,
notices and documents which may be served in any such action or proceeding. If
for any reason such designee, appointee and agent shall cease to be available to
act as such, each Guarantor agrees to designate a new designee, appointee and
agent in New York City on the terms and for the purposes of this provision
satisfactory to the Administrative Agent under this
<PAGE>
Page 10
Agreement. Each Guarantor further irrevocably consents to the service of process
out of any of the aforementioned courts in any such action or proceeding by the
mailing of copies thereof by registered or certified mail, postage prepaid, to
each Guarantor at its address set forth opposite its signature below, such
service to become effective 30 days after such mailing. Nothing herein shall
affect the right of any of the Creditors to serve process in any other manner
permitted by law or to commence legal proceedings or otherwise proceed against
any Guarantor in any other jurisdiction.
(b) Each Guarantor hereby irrevocably waives any objection
which it may now or hereafter have to the laying of venue of any of the
aforesaid actions or proceedings arising out of or in connection with this
Guaranty or any other Credit Document brought in the courts referred to in
clause (a) above and hereby further irrevocably waives and agrees not to plead
or claim in any such court that such action or proceeding brought in any such
court has been brought in an inconvenient forum.
(c) Each Guarantor hereby irrevocably waives all rights to a
trial by jury in any action, proceeding or counterclaim arising out of or
relating to this Guaranty, the other Credit Documents or the transactions
contemplated hereby or thereby.
21. In the event that all of the capital stock of one or more
Guarantors is sold or otherwise disposed of or liquidated in compliance with the
requirements of Section 8.02 of the Credit Agreement (or such sale or other
disposition has been approved in writing by the Required Lenders (or all Lenders
if required by Section 12.12 of the Credit Agreement)) and the proceeds of such
sale, disposition or liquidation are applied, to the extent applicable, in
accordance with the provisions of the Credit Agreement, such Guarantor shall be
released from this Guaranty and this Guaranty shall, as to each such Guarantor
or Guarantors, terminate, and have no further force or effect (it being
understood and agreed that the sale of one or more Persons that own, directly or
indirectly, all of the capital stock or partnership interests of any Guarantor
shall be deemed to be a sale of such Guarantor for the purposes of this Section
21).
22. Each Guarantor, in addition to the subrogation rights it
shall have against the Borrower under applicable law as a result of any payment
it makes hereunder, shall also have a right of contribution against all other
Guarantors in respect of any such payment pro rata among same based on their
respective net fair value as enterprises, provided any such right of
contribution shall be subject and subordinate to the prior payment in full of
the Guaranteed Obligations (and such Guarantor's obligations in respect
thereof). It is the desire and intent of each Guarantor and the Creditors that
this Guaranty shall be enforced to the fullest extent permissible under the laws
and public policies applied in each jurisdiction in which enforcement is sought.
If
<PAGE>
Page 11
and to the extent that the obligations of any Guarantor under this Guaranty
would, in the absence of this sentence, be adjudicated to be invalid or
unenforceable because of any applicable state or federal law relating to
fraudulent conveyances or transfers, then the amount of such Guarantor's
liability hereunder in respect of the Guaranteed Obligations shall be deemed to
be reduced ab initio to that maximum amount which would be permitted without
causing such Guarantor's obligations hereunder to be so invalidated.
23. The Creditors agree that this Guaranty may be enforced
only by the action of the Administrative Agent or the Collateral Agent, in each
case acting upon the instructions of the Required Lenders and that no other
Creditor shall have any right individually to seek to enforce or to enforce this
Guaranty or to realize upon the security to be granted by the Security
Documents, it being understood and agreed that such rights and remedies may be
exercised by the Administrative Agent or the Collateral Agent for the benefit of
the Creditors upon the terms of this Guaranty and the Security Documents. The
Creditors further agree that this Guaranty may not be enforced against any
director, officer or employee of any Guarantor.
24. This Guaranty may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A set of counterparts
executed by all the parties hereto shall be lodged with the Borrower and the
Administrative Agent.
25. All payments made by any Guarantor hereunder will be made
without setoff, counterclaim or other defense.
26. It is understood and agreed that any Subsidiary of the
Borrower that is required to execute a counterpart of this Guaranty pursuant to
the Credit Agreement shall automatically become a Guarantor hereunder by
executing a counterpart hereof and delivering the same to the Administrative
Agent.
<PAGE>
Page 12
IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to
be executed and delivered as of the date first above written.
257 Park Avenue South NATIONAL TOBACCO COMPANY, L.P.
7th Floor as a Guarantor
New York, NY 10010-7304
BY: NATIONAL TOBACCO
FINANCE CORPORATION, as its
General Partner
By: /s/ David Brunson
-------------------------------
Title: Chief Financial Officer
257 Park Avenue South NORTH ATLANTIC OPERATING
7th Floor COMPANY, as a Guarantor
New York, NY 10010-7304
By: /s/ David Brunson
-------------------------------
Title: Chief Financial Officer
257 Park Avenue South NATIONAL TOBACCO FINANCE
7th Floor CORPORATION, as a Guarantor
New York, NY 10010-7304
By: /s/ David Brunson
-------------------------------
Title: Chief Financial Officer
Accepted and Agreed to:
NATIONAL WESTMINSTER BANK PLC,
as Administrative Agent for the Lenders
By: /s/ Ronan Agnew
----------------------------
Name: Ronan Agnew
Title: Vice President
<PAGE>
===============================================================================
SECURITY AGREEMENT
among
NORTH ATLANTIC TRADING COMPANY, INC.
VARIOUS SUBSIDIARIES OF NORTH ATLANTIC
TRADING COMPANY, INC.,
and
NATIONAL WESTMINSTER BANK PLC,
as Collateral Agent
Dated as of June 25, 1997
===============================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I SECURITY INTERESTS.................................................................. 2
1.1 Grant of Security Interests.................................................... 2
1.2 Power of Attorney.............................................................. 3
ARTICLE II GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS................................... 3
2.1 Necessary Filings.............................................................. 3
2.2 No Liens....................................................................... 3
2.3 Other Financing Statements..................................................... 4
2.4 Chief Executive Office; Records................................................ 4
2.5 Location of Inventory and Equipment............................................ 4
2.6 Trade Names; Change of Name.................................................... 5
2.7 Recourse....................................................................... 5
ARTICLE III SPECIAL PROVISIONS CONCERNING
RECEIVABLES; CONTRACT RIGHTS; INSTRUMENTS........................................... 6
3.1 Additional Representations and Warranties...................................... 6
3.2 Maintenance of Records......................................................... 6
3.3 Modification of Terms; etc..................................................... 7
3.4 Collection..................................................................... 7
3.5 Direction to Account Debtors; etc.............................................. 7
3.6 Instruments.................................................................... 8
3.7 Further Actions................................................................ 8
ARTICLE IV SPECIAL PROVISIONS CONCERNING TRADEMARKS............................................ 8
4.1 Additional Representations and Warranties...................................... 8
4.2 Licenses and Assignments....................................................... 9
4.3 Infringements.................................................................. 9
4.4 Preservation of Marks.......................................................... 9
4.5 Maintenance of Registration.................................................... 9
4.6 Future Registered Marks........................................................ 9
4.7 Remedies....................................................................... 10
ARTICLE V SPECIAL PROVISIONS CONCERNING TRADE SECRET RIGHTS,
PATENTS AND COPYRIGHTS.............................................................. 10
5.1 Additional Representations and Warranties...................................... 10
5.2 Licenses and Assignments....................................................... 11
5.3 Infringements.................................................................. 11
5.4 Maintenance of Patents and Copyrights.......................................... 11
5.5 Prosecution of Patent Applications and Copyright Applications.................. 11
5.6 Other Patents and Copyrights................................................... 12
5.7 Remedies....................................................................... 12
</TABLE>
(i)
<PAGE>
<TABLE>
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Page
<S> <C>
ARTICLE VI PROVISIONS CONCERNING ALL COLLATERAL................................................ 12
6.1 Protection of Collateral Agent's Security...................................... 12
6.2 Warehouse Receipts Non-Negotiable.............................................. 13
6.3 Further Actions................................................................ 13
6.4 Financing Statements........................................................... 13
ARTICLE VII REMEDIES UPON OCCURRENCE OF EVENT OF DEFAULT........................................ 14
7.1 Remedies; Obtaining the Collateral Upon Default................................ 14
7.2 Remedies; Disposition of the Collateral........................................ 15
7.3 Waiver of Claims............................................................... 16
7.4 Application of Proceeds........................................................ 17
7.5 Remedies Cumulative............................................................ 19
7.6 Discontinuance of Proceedings.................................................. 19
ARTICLE VIII INDEMNITY........................................................................... 19
8.1 Indemnity...................................................................... 19
8.2 Indemnity Obligations Secured by Collateral; Survival.......................... 21
ARTICLE IX DEFINITIONS......................................................................... 21
ARTICLE X MISCELLANEOUS....................................................................... 27
10.1 Notices....................................................................... 27
10.2 Waiver; Amendment............................................................. 27
10.3 Obligations Absolute.......................................................... 28
10.4 Successors and Assigns........................................................ 28
10.5 Headings Descriptive.......................................................... 29
10.6 Severability.................................................................. 29
10.7 GOVERNING LAW................................................................. 29
10.8 Assignors' Duties............................................................. 29
10.9 Termination; Release.......................................................... 29
10.10 Collateral Agent............................................................. 30
10.11 Counterparts................................................................. 30
10.12 Additional Assignors......................................................... 31
ANNEX A Schedule of Chief Executive Offices; Record Locations
ANNEX B Schedule of Equipment and Inventory Locations
ANNEX C Schedule of Trade and Fictitious Names
ANNEX D Schedule of Marks
ANNEX E Schedule of Patents and Applications
ANNEX F Schedule of Copyrights and Applications
</TABLE>
(ii)
<PAGE>
SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of June 25, 1997, among each of
the undersigned (each, an "Assignor" and, together with any other entity that
becomes a party hereto pursuant to Section 10.12 hereof, collectively, the
"Assignors") and NATIONAL WESTMINSTER BANK PLC, as Collateral Agent (the
"Collateral Agent") for the Secured Creditors (as defined below). Capitalized
terms used herein shall have the meaning specified in Article IX herein or, if
not defined therein, as specified in the Credit Agreement.
W I T N E S S E T H :
WHEREAS, North Atlantic Trading Company, Inc. (the
"Borrower"), the financial institutions from time to time party thereto (the
"Lenders"), Gleacher NatWest, Inc. as Arranging Agent (the "Arranging Agent"),
and National Westminster Bank Plc, as Administrative Agent (the "Administrative
Agent" and together with the Lenders and the Arranging Agent, the "Lender
Creditors"), have entered into a Credit Agreement, dated as of June 25, 1997
(as amended, modified or supplemented from time to time, the "Credit
Agreement"), providing, inter alia, for the making of Loans and the issuance
of, and participation in, Letters of Credit as contemplated therein;
WHEREAS, the Borrower may from time to time be party to one
or more Interest Rate Agreements (each such Interest Rate Agreement with an
Interest Rate Creditor (as defined below), a "Secured Interest Rate Agreement")
with National Westminster Bank Plc, in its individual capacity ("NatWest"), any
Lender or a syndicate of financial institutions organized by NatWest or such
Lender or an affiliate of NatWest or such Lender (even if NatWest or any such
Lender ceases to be a Lender under the Credit Agreement for any reason), and
any institution that participates therein, and in each case their subsequent
assigns (collectively, the "Interest Rate Creditors," and together with the
Lender Creditors, collectively, the "Secured Creditors");
WHEREAS, pursuant to the Subsidiary Guaranty, dated as of
June 25, 1997 (as amended, modified or supplemented from time to time, the
"Subsidiary Guaranty"), each Assignor (other than the Borrower) has jointly and
severally guaranteed to the Secured
<PAGE>
Page 2
Creditors the payment when due of the Guaranteed Obligations (as defined in the
Subsidiary Guaranty);
WHEREAS, it is a condition precedent to the making of Loans
and the issuance of, and participation in, Letters of Credit under the Credit
Agreement that each Assignor shall have executed and delivered to the
Collateral Agent this Agreement;
WHEREAS, each Assignor desires to execute this Agreement to
satisfy the conditions described in the preceding paragraph;
NOW, THEREFORE, in consideration of the benefits accruing to
each Assignor, the receipt and sufficiency of which are hereby acknowledged,
each Assignor hereby makes the following representations and warranties and
hereby covenants and agrees as follows:
ARTICLE I
SECURITY INTERESTS
1.1 Grant of Security Interests. (a) As security for the
prompt and complete payment and performance when due of all of its Obligations,
each Assignor does hereby sell, assign and transfer unto the Collateral Agent,
and does hereby grant to the Collateral Agent for the benefit of the Secured
Creditors, a continuing first priority security interest in, all of the right,
title and interest of such Assignor in, to and under all of the following,
whether now existing or hereafter from time to time acquired: (i) each and
every Receivable, (ii) all Contracts, together with all Contract Rights arising
thereunder, (iii) all Inventory, (iv) all Equipment, (v) all Marks, together
with the registrations and right to all renewals thereof, and the goodwill of
the business of such Assignor symbolized by the Marks, (vi) the Cash Collateral
Account established for such Assignor and all monies, securities and
instruments deposited or required to be deposited in such Cash Collateral
Account, (vii) all Patents and Copyrights and all reissues, renewals or
extensions thereof, (viii) all computer programs of such Assignor and all
intellectual property rights therein and all other proprietary information of
such Assignor, including, but not limited to, Trade Secret Rights, (ix) all
insurance policies, (x) all Permits, (xi) all other Goods, General Intangibles,
Chattel Paper, Documents and Instruments (other than the Pledged Securities),
and (xii) all Proceeds and products of any and all of the foregoing (all of the
above collectively, the "Collateral").
<PAGE>
Page 3
(b) The security interest of the Collateral Agent under this
Agreement extends to all Collateral of the kind which is the subject of this
Agreement which any Assignor may acquire at any time during the continuation of
this Agreement.
1.2 Power of Attorney. Each Assignor hereby appoints the
Collateral Agent its true and lawful attorney, irrevocably, with full power
after the occurrence of and during the continuance of an Event of Default (in
the name of such Assignor or otherwise) to act, require, demand, receive,
compound and give acquittance for any and all monies and claims for monies due
or to become due to such Assignor under or arising out of the Collateral, to
endorse any checks or other instruments or orders in connection therewith and
to file any claims or take any action or institute any proceedings which the
Collateral Agent may deem to be necessary or advisable in the premises, which
appointment as attorney is coupled with an interest.
ARTICLE II
GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS
Each Assignor represents, warrants and covenants, which
representations, warranties and covenants shall survive execution and delivery
of this Agreement, as follows:
2.1 Necessary Filings. All filings, registrations and
recordings necessary or appropriate to create, preserve, protect and perfect
the security interest granted by such Assignor to the Collateral Agent hereby
in respect of the Collateral have been accomplished and the security interest
granted to the Collateral Agent pursuant to this Agreement in and to the
Collateral constitutes a perfected security interest therein superior and prior
to the rights of all other Persons therein and subject to no other Liens (other
than Permitted Liens) and is entitled to all the rights, priorities and
benefits afforded by the Uniform Commercial Code or other relevant law as
enacted in any relevant jurisdiction to perfected security interests.
2.2 No Liens. Such Assignor is, and as to Collateral acquired
by it from time to time after the date hereof such Assignor will be, the owner
of all Collateral free from any Lien, security interest, encumbrance or other
right, title or interest of any Person (other than Permitted Liens), and such
Assignor shall defend the Collateral against all claims and demands of all
Persons at any time claiming the same or any interest therein adverse to the
Collateral Agent.
<PAGE>
Page 4
2.3 Other Financing Statements. There is no financing
statement (or similar statement or instrument of registration under the law of
any jurisdiction) covering or purporting to cover any interest of any kind in
the Collateral (other than financing statements filed in respect of Permitted
Liens) and so long as the Total Commitment has not been terminated or any Note
remains unpaid or any Letter of Credit remains outstanding or any of the
Obligations remain unpaid or any Secured Interest Rate Agreement remains in
effect, such Assignor will not execute or authorize to be filed in any public
office any financing statement (or similar statement or instrument of
registration under the law of any jurisdiction) or statements relating to the
Collateral, except financing statements filed or to be filed in respect of and
covering the security interests granted hereby by such Assignor or as permitted
by the Credit Agreement.
2.4 Chief Executive Office; Records. The chief executive
office of such Assignor is located at the address or addresses indicated on
Annex A hereto. Such Assignor will not move its chief executive office except
to such new location as such Assignor may establish in accordance with the last
sentence of this Section 2.4. The originals of all documents evidencing all
Receivables and Contract Rights and Trade Secret Rights of such Assignor and
the only original books of account and records of such Assignor relating
thereto are, and will continue to be, kept at such chief executive office
and/or one or more of the locations shown on Annex A, or at such new locations
as such Assignor may establish in accordance with the last sentence of this
Section 2.4. All Receivables and Contract Rights and Trade Secret Rights of
such Assignor are, and will continue to be, maintained at, and controlled and
directed (including, without limitation, for general accounting purposes) from,
the office locations described above, or such new locations as such Assignor
may establish in accordance with the last sentence of this Section 2.4. Such
Assignor shall not establish new locations for such offices until (i) it shall
have given to the Collateral Agent not less than 30 days' prior written notice
(or such lesser notice as shall be acceptable to the Collateral Agent in the
case of a new record location to be established in connection with
newly-acquired Contracts) of its intention to do so, clearly describing such
new location and providing such other information in connection therewith as
the Collateral Agent may reasonably request and (ii) with respect to such new
location, it shall have taken all action, satisfactory to the Collateral Agent,
to maintain the security interest of the Collateral Agent in the Collateral
intended to be granted hereby at all times fully perfected and in full force
and effect.
2.5 Location of Inventory and Equipment. All Inventory and
Equipment held on the date hereof by such Assignor is located at one of the
locations shown on Annex B attached hereto. Such Assignor agrees that all
Inventory and Equipment now held or subsequently acquired by it shall be kept
at (or shall be in transport to or from) any one of
<PAGE>
Page 5
the locations shown on Annex B hereto, or such new location as such Assignor
may establish in accordance with the last sentence of this Section 2.5. Such
Assignor may establish a new location for Inventory and Equipment only if (i)
it shall have given to the Collateral Agent not less than 30 days' prior
written notice of its intention to do so, clearly describing such new location
and providing such other information in connection therewith as the Collateral
Agent may reasonably request, and (ii) with respect to such new location, it
shall have taken all action reasonably satisfactory to the Collateral Agent to
maintain the security interest of the Collateral Agent in the Collateral
intended to be granted hereby at all times fully perfected and in full force
and effect.
2.6 Trade Names; Change of Name. Such Assignor does not have
or operate in any jurisdiction under, or in the preceding 2 years has not had
or has not operated in any jurisdiction under, any trade names, fictitious
names or other names (including, without limitation, any names of divisions or
operations) except its legal name and such other trade, fictitious or other
names as are listed on Annex C hereto. Such Assignor has only operated under
each name set forth in Annex C in the jurisdiction or jurisdictions set forth
opposite each such name on Annex C. Such Assignor shall not change its legal
name or assume or operate in any jurisdiction under any trade, fictitious or
other name except those names listed on Annex C hereto in the jurisdictions
listed with respect to such names and new names (including, without limitation,
any names of divisions or operations) and/or jurisdictions established in
accordance with the last sentence of this Section 2.6. Such Assignor shall not
assume or operate in any jurisdiction under any new trade, fictitious or other
name or operate under any existing name in any additional jurisdiction until
(i) it shall have given to the Collateral Agent not less than 30 days' prior
written notice of its intention to do so, clearly describing such new name
and/or jurisdiction and, in the case of a new name, the jurisdictions in which
such new name shall be used and providing such other information in connection
therewith as the Collateral Agent may reasonably request and (ii) with respect
to such new name and/or new jurisdiction, it shall have taken all action to
maintain the security interest of the Collateral Agent in the Collateral
intended to be granted hereby at all times fully perfected and in full force
and effect.
2.7 Recourse. This Agreement is made with full recourse to
such Assignor and pursuant to and upon all the warranties, representations,
covenants, and agreements on the part of such Assignor contained herein, in the
Secured Interest Rate Agreements and otherwise in writing in connection
herewith or therewith.
<PAGE>
Page 6
ARTICLE III
SPECIAL PROVISIONS CONCERNING
RECEIVABLES; CONTRACT RIGHTS; INSTRUMENTS
3.1 Additional Representations and Warranties. As of the time
when each of its Receivables arises, each Assignor shall be deemed to have
represented and warranted that such Receivable, and all records, papers and
documents relating thereto (if any) are genuine and in all respects what they
purport to be, and that all papers and documents (if any) relating thereto (i)
will represent the genuine, legal, valid and binding obligation of the account
debtor, subject to adjustments customary in the business of such Assignor, and
evidencing indebtedness unpaid and owed by the respective account debtor
arising out of the performance of labor or services or the sale or lease and
delivery of the merchandise listed therein, or both, (ii) will be the only
original writings evidencing and embodying such obligation of the account
debtor named therein (other than copies created for general accounting
purposes), (iii) will evidence true and legally valid obligations, enforceable
in accordance with their respective terms, subject to adjustments customary in
the business of such Assignor and (iv) will be in compliance and will conform
with all applicable federal, state and local laws and applicable laws of any
relevant foreign jurisdiction.
3.2 Maintenance of Records. Each Assignor will keep and
maintain at its own cost and expense satisfactory and complete records of its
Receivables and Contracts, including, but not limited to, the originals of all
documentation (including each Contract) with respect thereto, records of all
payments received, all credits granted thereon, all merchandise returned and
all other dealings therewith, and such Assignor will make the same available to
the Collateral Agent for inspection, at such Assignor's own cost and expense,
at any and all reasonable times upon demand. If requested by the Collateral
Agent while an Event of Default is in existence, such Assignor shall, at its
own cost and expense, deliver all tangible evidence of its Receivables and
Contract Rights (including, without limitation, copies of all documents
evidencing the Receivables and all Contracts, such copies to be certified as
true and complete by an appropriate officer of such Assignor) and such books
and records to the Collateral Agent or to its representatives (copies of which
evidence and books and records may be retained by such Assignor) at any time
upon its demand. If the Collateral Agent so directs while an Event of Default
is in existence, such Assignor shall legend, in form and manner reasonably
satisfactory to the Collateral Agent, the Receivables and Contracts, as well as
books, records and documents of such Assignor evidencing or pertaining to such
Receivables with an appropriate reference to the fact that such Receivables and
Contracts have been assigned to the Collateral Agent and that the Collateral
Agent has a security interest therein.
<PAGE>
Page 7
3.3 Modification of Terms; etc. No Assignor shall rescind or
cancel any indebtedness evidenced by any Receivable or under any Contract, or
modify any term thereof or make any adjustment with respect thereto, or extend
or renew the same, or compromise or settle any material dispute, claim, suit or
legal proceeding relating thereto, or sell any Receivable or Contract, or
interest therein, without the prior written consent of the Collateral Agent,
except (i) as permitted by Section 3.4 hereof and (ii) so long as no Event of
Default is then in existence, such Assignor may modify, make adjustments with
respect to, extend or renew any Contracts in the ordinary course of business.
Each Assignor will duly fulfill all obligations on its part to be fulfilled
under or in connection with the Receivables and Contracts and will do nothing
to impair the rights of the Collateral Agent in the Receivables or Contracts.
3.4 Collection. Each Assignor shall endeavor to cause to be
collected from the account debtor named in each of its Receivables or obligor
under any Contract, as and when due (including, without limitation, amounts
which are delinquent, such amounts to be collected in accordance with generally
accepted lawful collection procedures) any and all amounts owing under or on
account of such Receivable or Contract, and apply forthwith upon receipt
thereof all such amounts as are so collected to the outstanding balance of such
Receivable or under such Contract, except that, so long as no Event of Default
is then in existence, any Assignor may allow in the ordinary course of business
as adjustments to amounts owing under its Receivables and Contracts (i) an
extension or renewal of the time or times of payment, or settlement for less
than the total unpaid balance, which such Assignor finds appropriate in
accordance with sound business judgment and (ii) a refund or credit due as a
result of returned or damaged merchandise or improperly performed services. The
costs and expenses (including, without limitation, attorneys' fees) of
collection, whether incurred by any Assignor or the Collateral Agent, shall be
borne by such Assignor.
3.5 Direction to Account Debtors; etc. Upon the occurrence
and during the continuance of an Event of Default, and if the Collateral Agent
so directs any Assignor, to the extent permitted by applicable law, such
Assignor agrees (x) to cause all payments on account of the Receivables and
Contracts to be made directly to the Cash Collateral Account, (y) that the
Collateral Agent may, at its option, directly notify the obligors with respect
to any Receivables and/or under any Contracts to make payments with respect
thereto as provided in preceding clause (x) and (z) that the Collateral Agent
may enforce collection of any Receivables or Contracts and may adjust, settle
or compromise the amount of payment thereof. The Collateral Agent may apply any
or all amounts then in, or thereafter deposited in, the Cash Collateral Account
in the manner provided in Section 7.4
<PAGE>
Page 8
of this Agreement. The costs and expenses (including attorneys' fees) of
collection, whether incurred by any Assignor or the Collateral Agent, shall be
borne by such Assignor.
3.6 Instruments. If any Assignor owns or acquires any
Instrument, such Assignor will within 10 Business Days notify the Collateral
Agent thereof and, upon request by the Collateral Agent, promptly deliver such
Instrument to the Collateral Agent appropriately endorsed to the order of the
Collateral Agent as further security hereunder.
3.7 Further Actions. Each Assignor will, at its own expense,
make, execute, endorse, acknowledge, file and/or deliver to the Collateral
Agent from time to time such vouchers, invoices, schedules, confirmatory
assignments, conveyances, financing statements, transfer endorsements, powers
of attorney, certificates, reports and other assurances or instruments and take
such further steps relating to its Receivables, Contracts, Instruments and
other property or rights covered by the security interest hereby granted, as
the Collateral Agent may reasonably require to give effect to the purposes of
this Agreement.
ARTICLE IV
SPECIAL PROVISIONS CONCERNING TRADEMARKS
4.1 Additional Representations and Warranties. Each Assignor
represents and warrants that it is the true, lawful and exclusive owner or
licensee of the Marks listed in Annex D attached hereto and that Annex D lists
all the Marks registered in the United States Patent and Trademark Office or
the equivalent thereof in any foreign country and all unregistered Marks that
such Assignor now owns, licenses or uses for products developed by such
Assignor in connection with its business. Each Assignor further warrants that
it is aware of no third party claim that any aspect of such Assignor's present
or contemplated business operations infringes or will infringe any trademark or
service mark. Each Assignor represents and warrants that it is the true and
lawful owner of or otherwise has the right to use all U.S. trademark
registrations and applications listed in Annex D hereto and that said
registrations are valid, subsisting, have not been cancelled and that such
Assignor is not aware of any third-party claim that any of said registration is
invalid or unenforceable, or is not aware that there is any reason that any of
said registrations is invalid or unenforceable, or is not aware that there is
any reason that any of said applications will not pass to registration. Each
Assignor hereby grants to the Collateral Agent an absolute power of attorney to
sign, upon the occurrence and during the continuance of an Event of Default,
any document which may be required by the United
<PAGE>
Page 9
States Patent and Trademark Office in order to effect an absolute assignment of
all right, title and interest in each Mark owned by an Assignor, and record the
same.
4.2 Licenses and Assignments. Each Assignor hereby agrees not
to divest itself of any right under a Mark other than in the ordinary course of
business absent prior written approval of the Collateral Agent.
4.3 Infringements. Each Assignor agrees, promptly upon
learning thereof, to notify the Collateral Agent in writing of the name and
address of, and to furnish such pertinent information that may be available
with respect to, any party who may be infringing or otherwise violating in any
material respect any of such Assignor's rights in and to any Mark, or with
respect to any party claiming that such Assignor's use of any Mark violates in
any material respect any property right of that party. Each Assignor further
agrees, unless otherwise directed by the Collateral Agent, diligently to
prosecute any Person infringing any Mark owned by such Assignor in a manner
consistent with its past practice and in accordance with reasonable business
practices.
4.4 Preservation of Marks. Each Assignor agrees to use or
license the use of its Marks in interstate commerce during the time in which
this Agreement is in effect, sufficiently to preserve such Marks as trademarks
or service marks registered under the laws of the United States or the relevant
foreign jurisdiction.
4.5 Maintenance of Registration. Each Assignor shall, at its
own expense, diligently process all documents required by the Trademark Act of
1946, 15 U.S.C. ss.ss. 1051 et seq. and any foreign equivalent thereof to
maintain trademark registrations, including but not limited to affidavits of
use and applications for renewals of registration in the United States Patent
and Trademark Office or equivalent governmental agency in any foreign
jurisdiction for all of its Marks (excluding unregistered Marks) pursuant to 15
U.S.C. ss.ss. 1058(a), 1059 and 1065 and any foreign equivalent thereof, and
shall pay all fees and disbursements in connection therewith, and shall not
abandon any such filing of affidavit of use or any such application of renewal
prior to the exhaustion of all administrative and judicial remedies without
prior written consent of the Collateral Agent.
4.6 Future Registered Marks. If any Mark registration issues
hereafter to any Assignor as a result of any application now or hereafter
pending before the United States Patent and Trademark Office or equivalent
governmental agency in any foreign jurisdiction, within thirty (30) days of
receipt of such certificate such Assignor shall deliver a copy of such
certificate, and a grant of security in such Mark to the Collateral Agent,
<PAGE>
Page 10
confirming the grant thereof hereunder, the form of such confirmatory grant to
be substantially the same as the form hereof.
4.7 Remedies. If an Event of Default shall occur and be
continuing, the Collateral Agent may, by written notice to the relevant
Assignor, take any or all of the following actions: (i) declare the entire
right, title and interest of such Assignor in and to each of the Marks,
together with all trademark rights and rights of protection to the same,
vested, in which event such rights, title and interest shall immediately vest,
in the Collateral Agent for the benefit of the Secured Creditors pursuant to a
trademark security agreement in form and substance satisfactory to the
Collateral Agent, executed by such Assignor and filed on the date hereof,
pursuant to which all of such Assignor's rights, title and interest in and to
the Marks are assigned to the Collateral Agent for the benefit of the Secured
Creditors; (ii) take and use or sell the Marks and the goodwill of such
Assignor's business symbolized by the Marks and the right to carry on the
business and use the assets of such Assignor in connection with which the Marks
have been used; and (iii) direct such Assignor to refrain, in which event such
Assignor shall refrain, from using the Marks in any manner whatsoever, directly
or indirectly, and, if requested by the Collateral Agent, change such
Assignor's corporate name to eliminate therefrom any use of any Mark and
execute such other and further documents that the Collateral Agent may request
to further confirm this and to transfer ownership of the Marks and
registrations and any pending trademark application in the United States Patent
and Trademark Office or any equivalent governmental agency or office in any
foreign jurisdiction to the Collateral Agent.
ARTICLE V
SPECIAL PROVISIONS CONCERNING
TRADE SECRET RIGHTS, PATENTS AND COPYRIGHTS
5.1 Additional Representations and Warranties. Each Assignor
represents and warrants that it is the true and lawful owner or licensee of all
rights in (i) Trade Secret Rights, (ii) the Patents of such Assignor listed in
Annex E attached hereto and that said Patents constitute all the patents and
applications for patents that such Assignor now owns and (iii) the Copyrights
of such Assignor listed in Annex F attached hereto and that said Copyrights
constitute all the registered copyrights and applications for copyright
registrations that such Assignor now owns. Each Assignor represents and
warrants that it has the exclusive right to use and practice under all Patents
and Copyrights that it now owns, uses or under which it practices. Each
Assignor further warrants that it is aware of no third party claim that any
aspect of such Assignor's present or contemplated business
<PAGE>
Page 11
operations infringes or will infringe any patent or any copyright or that such
Assignor has misappropriated any Trade Secret Rights. Each Assignor hereby
grants to the Collateral Agent an absolute power of attorney to sign, upon the
incurrence and during the continuance of an Event of Default, any document
which may be required by the United States Patent and Trademark Office or the
United States Copyright Office in order to effect an absolute assignment of all
right, title and interest in each Patent and Copyright, as the case may be, and
record the same.
5.2 Licenses and Assignments. Each Assignor hereby agrees not
to divest itself of any right under a Patent or Copyright other than in the
ordinary course of business absent prior written approval of the Collateral
Agent.
5.3 Infringements. Each Assignor agrees, promptly upon
learning thereof, to furnish the Collateral Agent in writing with all pertinent
information available to such Assignor with respect to any infringement or
other violation of such Assignor's rights in any Patent or Copyright, or with
respect to any claim that the practice of any Patent or the use of any
Copyright violates in any material respect any property right of a third party
or with respect to any misappropriation of any Trade Secret Right or any claim
that the practice of any Trade Secret Right violates any property right of a
third party. Each Assignor further agrees, absent direction of the Collateral
Agent to the contrary, diligently to prosecute any Person infringing any Patent
or Copyright owned by such Assignor or any Person misappropriating any Trade
Secret Right in a manner consistent with its past practice and in accordance
with reasonable business practices.
5.4 Maintenance of Patents and Copyrights. At its own
expense, each Assignor shall make timely payment of all post-issuance fees
required pursuant to 35 U.S.C. 41 and any foreign equivalent thereof to
maintain in force rights under each of its Patents and to apply as permitted
pursuant to applicable law for any renewal of each Copyright.
5.5 Prosecution of Patent Applications and Copyright
Applications. At its own expense, each Assignor shall diligently prosecute all
applications for Patents of such Assignor listed on Annex E hereto and for
copyrights of such Assignor listed on Annex F hereto, and shall not abandon any
such application prior to exhaustion of all administrative and judicial
remedies, absent written consent of the Collateral Agent.
5.6 Other Patents and Copyrights. Within thirty (30) days of
the acquisition or issuance of a Patent or Copyright registration, or of filing
of an application for a Patent or Copyright registration, the relevant Assignor
shall deliver to the Collateral Agent a copy
<PAGE>
Page 12
of said Patent or Copyright registration or application, as the case may be,
with a grant of security as to such Patent or Copyright, as the case may be,
confirming the grant thereof hereunder, the form of such confirmatory grant to
be substantially the same as the form hereof.
5.7 Remedies. If an Event of Default shall occur and be
continuing, the Collateral Agent may by written notice to the relevant Assignor
take any or all of the following actions: (i) declare the entire right, title
and interest of such Assignor in each of the Patents and Copyrights vested, in
which event such right, title and interest shall immediately vest in the
Collateral Agent for the benefit of the Secured Creditors, pursuant to a patent
security agreement in form and substance satisfactory to the Collateral Agent,
executed by such Assignor and filed on the date hereof, pursuant to which all
of such Assignor's right, title, and interest to such Patents and Copyrights
are assigned to the Collateral Agent for the benefit of the Secured Creditors;
(ii) take and practice, use or sell the Patents and Copyrights; (iii) direct
such Assignor to refrain, in which event such Assignor shall refrain, from
practicing the Patents and using the Copyrights directly or indirectly, and
such Assignor shall execute such other and further documents as the Collateral
Agent may request further to confirm this and to transfer ownership of the
Patents and Copyrights to the Collateral Agent for the benefit of the Secured
Creditors.
ARTICLE VI
PROVISIONS CONCERNING ALL COLLATERAL
6.1 Protection of Collateral Agent's Security. Each Assignor
will do nothing to impair the rights of the Collateral Agent in the Collateral.
Each Assignor will at all times keep its Inventory and Equipment insured in
favor of the Collateral Agent, at its own expense, to the extent required by
the Credit Agreement against fire, theft and all other risks to which such
Collateral may be subject. All policies or certificates with respect to such
insurance (i) shall be endorsed to the Collateral Agent's satisfaction for the
benefit of the Collateral Agent (including, without limitation, by naming the
Collateral Agent as additional insured and loss payee), (ii) shall state that
such insurance policies shall not be cancelled or revised without at least 30
days' (or at least 10 days' in the case of nonpayment of premium) prior written
notice thereof by the insurer to the Collateral Agent and (iii) shall be
deposited with the Collateral Agent. If any Assignor shall fail to insure such
Inventory or Equipment to the extent required by the Credit Agreement, or if
any Assignor shall fail to so endorse and deposit all policies or certificates
with respect thereto, the Collateral Agent shall have the right (but shall be
under no obligation) to procure such
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insurance and such Assignor agrees to reimburse the Collateral Agent for all
costs and expenses of procuring such insurance. The Collateral Agent may apply
any proceeds of such insurance required after an Event of Default in accordance
with Section 7.4. Each Assignor assumes all liability and responsibility in
connection with the Collateral acquired by it and the liability of such
Assignor to pay its Obligations shall in no way be affected or diminished by
reason of the fact that such Collateral may be lost, destroyed, stolen, damaged
or for any reason whatsoever unavailable to such Assignor.
6.2 Warehouse Receipts Non-Negotiable. Each Assignor agrees
that if any warehouse receipt or receipt in the nature of a warehouse receipt
is issued with respect to any of its Inventory, such warehouse receipt or
receipt in the nature thereof shall not be "negotiable" (as such term is used
in Section 7-104 of the Uniform Commercial Code as in effect in any relevant
jurisdiction or under other relevant law).
6.3 Further Actions. Each Assignor will, at its own expense,
make, execute, endorse, acknowledge, file and/or deliver to the Collateral
Agent from time to time such lists, descriptions and designations of its
Collateral, warehouse receipts, receipts in the nature of warehouse receipts,
bills of lading, documents of title, vouchers, invoices, schedules,
confirmatory assignments, conveyances, financing statements, transfer
endorsements, powers of attorney, certificates, reports and other assurances or
instruments and take such further steps relating to the Collateral and other
property or rights covered by the security interest hereby granted, which the
Collateral Agent deems reasonably appropriate or advisable to perfect, preserve
or protect its security interest in the Collateral.
6.4 Financing Statements. Each Assignor agrees to execute and
deliver to the Collateral Agent such financing statements, in form acceptable
to the Collateral Agent, as the Collateral Agent may from time to time
reasonably request or as are necessary or desirable in the opinion of the
Collateral Agent to establish and maintain a valid, enforceable, first priority
perfected security interest in the Collateral as provided herein and the other
rights and security contemplated hereby all in accordance with the Uniform
Commercial Code as enacted in any and all relevant jurisdictions or any other
relevant law. Each Assignor will pay any applicable filing fees, recordation
taxes and related expenses. Each Assignor hereby authorizes the Collateral
Agent to file any such financing statements without the signature of such
Assignor.
ARTICLE VII
REMEDIES UPON OCCURRENCE OF EVENT OF DEFAULT
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7.1 Remedies; Obtaining the Collateral Upon Default. Each
Assignor agrees that, if any Event of Default shall have occurred and be
continuing, then and in every such case, subject to any mandatory requirements
of applicable law then in effect, the Collateral Agent, in addition to any
rights now or hereafter existing under applicable law, shall have all rights as
a secured creditor under the Uniform Commercial Code in all relevant
jurisdictions and may:
(i) personally, or by agents or attorneys, immediately take
possession of the Collateral or any part thereof, from such Assignor
or any other Person who then has possession of any part thereof with
or without notice or process of law, and for that purpose may enter
upon such Assignor's premises where any of the Collateral is located
and remove the same and use in connection with such removal any and
all services, supplies, aids and other facilities of such Assignor;
(ii) instruct the obligor or obligors on any agreement,
instrument or other obligation (including, without limitation, the
Receivables and the Contracts) constituting the Collateral to make any
payment required by the terms of such instrument or agreement directly
to the Collateral Agent;
(iii) withdraw all moneys, securities and/or other
instruments in the Cash Collateral Account for application to the
Obligations in accordance with Section 7.4 hereof;
(iv) sell, assign or otherwise liquidate, or direct such
Assignor to sell, assign or otherwise liquidate, any or all of the
Collateral or any part thereof in accordance with Section 7.2 hereof,
and take possession of the proceeds of any such sale or liquidation;
(v) take possession of the Collateral or any part thereof, by
directing such Assignor in writing to deliver the same to the
Collateral Agent at any place or places designated by the Collateral
Agent, in which event such Assignor shall at its own expense:
(A) forthwith cause the same to be moved to the
place or places so designated by the Collateral Agent and
there delivered to the Collateral Agent,
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(B) store and keep any Collateral so delivered to
the Collateral Agent at such place or places pending further
action by the Collateral Agent as provided in Section 7.2,
and
(C) while the Collateral shall be so stored and
kept, provide such guards and maintenance services as shall
be necessary to protect the same and to preserve and maintain
them in good condition; and
(vi) license or sublicense whether on an exclusive or
nonexclusive basis, any Marks, Patents or Copyrights included in the
Collateral for such term and on such conditions and in such manner as
the Collateral Agent shall in its sole judgment determine;
it being understood that such Assignor's obligation so to deliver the
Collateral is of the essence of this Agreement and that, accordingly, upon
application to a court of equity having jurisdiction, the Collateral Agent
shall be entitled to a decree requiring specific performance by such Assignor
of said obligation. The Secured Creditors agree that this Agreement may be
enforced only by the action of the Administrative Agent or the Collateral
Agent, in each case acting upon the instructions of the Required Lenders (or,
after the date on which all Credit Document Obligations have been paid in full,
the holders of at least the majority of the outstanding Interest Rate
Obligations) and that no other Secured Creditor shall have any right
individually to seek to enforce or to enforce this Agreement or to realize upon
the security to be granted hereby, it being understood and agreed that such
rights and remedies may be exercised by the Administrative Agent or the
Collateral Agent or the holders of at least a majority of the outstanding
Interest Rate Obligations, as the case maybe, for the benefit of the Secured
Creditors upon the terms of this Agreement.
7.2 Remedies; Disposition of the Collateral. Upon the
occurrence and continuance of an Event of Default, any Collateral repossessed
by the Collateral Agent under or pursuant to Section 7.1 and any other
Collateral whether or not so repossessed by the Collateral Agent, may be sold,
assigned, leased or otherwise disposed of under one or more contracts or as an
entirety, and without the necessity of gathering at the place of sale the
property to be sold, and in general in such manner, at such time or times, at
such place or places and on such terms as the Collateral Agent may, in
compliance with any mandatory requirements of applicable law, determine to be
commercially reasonable. Any of the Collateral may be sold, leased or otherwise
disposed of, in the condition in which the same existed when taken by the
Collateral Agent or after any overhaul or repair which the Collateral Agent
shall determine to be commercially reasonable. Any such disposition
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which shall be a private sale or other private proceedings permitted by such
requirements shall be made upon not less than ten (10) days' written notice to
the relevant Assignor specifying the time at which such disposition is to be
made and the intended sale price or other consideration therefor, and shall be
subject, for the ten (10) days after the giving of such notice, to the right of
the relevant Assignor or any nominee of such Assignor to acquire the Collateral
involved at a price or for such other consideration at least equal to the
intended sale price or other consideration so specified. Any such disposition
which shall be a public sale permitted by such requirements shall be made upon
not less than ten (10) days' written notice to the relevant Assignor specifying
the time and place of such sale and, in the absence of applicable requirements
of law, shall be by public auction (which may, at the Collateral Agent's
option, be subject to reserve), after publication of notice of such auction not
less than 10 days prior thereto in two newspapers in general circulation in the
City of New York. To the extent permitted by any such requirement of law, the
Collateral Agent on behalf of the Secured Creditors (or certain of them) may
bid for and become the purchaser (by bidding in the Obligations or otherwise)
of the Collateral or any item thereof, offered for sale in accordance with this
Section without accountability to the relevant Assignor (except to the extent
of surplus money received as provided in Section 7.4). If, under mandatory
requirements of applicable law, the Collateral Agent shall be required to make
a disposition of the Collateral within a period of time which does not permit
the giving of notice to the relevant Assignor as hereinabove specified, the
Collateral Agent need give such Assignor only such notice of disposition as
shall be reasonably practicable in view of such mandatory requirements of
applicable law. Each Assignor agrees to do or cause to be done all such other
acts and things as may be reasonably necessary to make such sale or sales of
all or any portion of the Collateral valid and binding and in compliance with
any and all applicable laws, regulations, orders, writs, injunctions, decrees
or awards of any and all courts, arbitrations or governmental
instrumentalities, domestic or foreign, having jurisdiction over any such sale
or sales, all at such Assignor's expense.
7.3 Waiver of Claims. Except as otherwise provided in this
Agreement, EACH ASSIGNOR HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE
LAW, NOTICE AND JUDICIAL HEARING IN CONNECTION WITH THE COLLATERAL AGENT'S
TAKING POSSESSION OR THE COLLATERAL AGENT'S DISPOSITION OF ANY OF THE
COLLATERAL, INCLUDING, WITHOUT LIMITATION, ANY AND ALL PRIOR NOTICE AND HEARING
FOR ANY PREJUDGMENT REMEDY OR REMEDIES AND ANY SUCH RIGHT WHICH SUCH ASSIGNOR
WOULD OTHERWISE HAVE UNDER THE CONSTITUTION OR ANY STATUTE OF THE UNITED STATES
OR OF ANY STATE, and such Assignor hereby further waives, to the extent
permitted by law:
(i) all damages occasioned by such taking of possession
except any damages which are the direct result of the Collateral
Agent's gross negligence or wilful misconduct;
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(ii) all other requirements as to the time, place and terms
of sale or other requirements with respect to the enforcement of the
Collateral Agent's rights hereunder; and
(iii) all rights of redemption, appraisement, valuation,
stay, extension or moratorium now or hereafter in force under any
applicable law in order to prevent or delay the enforcement of this
Agreement or the absolute sale of the Collateral or any portion
thereof, and each Assignor, for itself and all who may claim under it,
insofar as it or they now or hereafter lawfully may, hereby waives the
benefit of all such laws.
Any sale of, or the grant of options to purchase, or any other realization
upon, any Collateral shall operate to divest all right, title, interest, claim
and demand, either at law or in equity, of the relevant Assignor therein and
thereto, and shall be a perpetual bar both at law and in equity against such
Assignor and against any and all Persons claiming or attempting to claim the
Collateral so sold, optioned or realized upon, or any part thereof, from,
through and under such Assignor.
7.4 Application of Proceeds. (a) All moneys collected by the
Collateral Agent (or, to the extent the Pledge Agreement or the Mortgage
requires proceeds of collateral thereunder to be applied in accordance with the
provisions of this Agreement, the Pledgee or Collateral Agent, as the case may
be, thereunder) upon any sale or other disposition of the Collateral, together
with all other moneys received by the Collateral Agent hereunder, shall be
applied as follows:
(i) first, to the payment of all Obligations owing to the
Pledgee or the Collateral Agent of the type described in clauses (iii)
and (iv) of the definition of "Obligations" contained in Article IX
hereof;
(ii) second, to the extent proceeds remain after the
application pursuant to preceding clause (i), an amount equal to the
outstanding Obligations to the Secured Creditors shall be paid to the
Secured Creditors as provided in Section 7.4(c) with each Secured
Creditor receiving an amount equal to its outstanding Obligations or,
if the proceeds are insufficient to pay in full all such Obligations,
its Pro Rata Share of the amount remaining to be distributed to be
applied, with respect to the Credit Document Obligations, firstly to
the payment of interest in respect of the unpaid principal amount of
Loans outstanding, secondly to the payment of principal of Loans
outstanding, then to the other Credit Document Obligations; and
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(iii) third, to the extent proceeds remain after the
application pursuant to the preceding clauses (i) and (ii) and
following the termination of this Agreement pursuant to Section 10.9
hereof, to the relevant Assignor or, to the extent directed by such
Assignor or a court of competent jurisdiction, to whomever may be
lawfully entitled to receive such surplus.
(b) For purposes of this Agreement, "Pro Rata Share" shall
mean, when calculating a Secured Creditor's portion of any distribution or
amount, the amount (expressed as a percentage) equal to a fraction the
numerator of which is the then outstanding amount of the relevant Obligations
owed such Secured Creditor and the denominator of which is the then outstanding
amount of all Obligations.
(c) All payments required to be made to the (i) Lender
Creditors hereunder shall be made to the Administrative Agent for the account
of the respective Lender Creditors and (ii) Interest Rate Creditors hereunder
shall be made to the paying agent under the applicable Secured Interest Rate
Agreement or, in the case of Secured Interest Rate Agreements without a paying
agent, directly to the applicable Interest Rate Creditor.
(d) For purposes of applying payments received in accordance
with this Section 7.4, the Collateral Agent shall be entitled to rely upon (i)
the Administrative Agent for a determination (which the Administrative Agent
agrees to provide upon request to the Collateral Agent) of the outstanding
Credit Document Obligations and (ii) upon any Interest Rate Creditor for a
determination (which each Interest Rate Creditor agrees to provide upon request
to the Collateral Agent) of the outstanding Interest Rate Obligations owed to
such Interest Rate Creditor. Unless it has actual knowledge (including by way
of written notice from a Secured Creditor) to the contrary, the Administrative
Agent under the Credit Agreement, in furnishing information pursuant to the
preceding sentence, and the Collateral Agent, in acting hereunder, shall be
entitled to assume that (x) no Credit Document Obligations other than
principal, interest and regularly accruing fees are owing to any Lender
Creditor and (y) no Secured Interest Rate Agreements or Interest Rate
Obligations with respect thereto are in existence.
(e) It is understood that the Assignors shall remain jointly
and severally liable to the extent of any deficiency between (x) the amount of
the Obligations for which it is liable directly or as a Guarantor that are
satisfied with proceeds of the Collateral and (y) the aggregate outstanding
amount of the Obligations.
7.5 Remedies Cumulative. Each and every right, power and
remedy hereby specifically given to the Collateral Agent shall be in addition
to every other right, power
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and remedy specifically given under this Agreement, any Secured Interest Rate
Agreement or the other Credit Documents or now or hereafter existing at law or
in equity, or by statute and each and every right, power and remedy whether
specifically herein given or otherwise existing may be exercised from time to
time or simultaneously and as often and in such order as may be deemed
expedient by the Collateral Agent. All such rights, powers and remedies shall
be cumulative and the exercise or the beginning of exercise of one shall not be
deemed a waiver of the right to exercise of any other or others. No delay or
omission of the Collateral Agent in the exercise of any such right, power or
remedy and no renewal or extension of any of the Obligations shall impair any
such right, power or remedy or shall be construed to be a waiver of any Default
or Event of Default or an acquiescence therein. In the event that the
Collateral Agent shall bring any suit to enforce any of its rights hereunder
and shall be entitled to judgment, then in such suit the Collateral Agent may
recover reasonable expenses, including attorneys' fees, and the amounts thereof
shall be included in such judgment.
7.6 Discontinuance of Proceedings. In case the Collateral
Agent shall have instituted any proceeding to enforce any right, power or
remedy under this Agreement by foreclosure, sale, entry or otherwise, and such
proceeding shall have been discontinued or abandoned for any reason or shall
have been determined adversely to the Collateral Agent, then and in every such
case the relevant Assignor, the Collateral Agent and each holder of any of the
Obligations shall be restored to their former positions and rights hereunder
with respect to the Collateral subject to the security interest created under
this Agreement, and all rights, remedies and powers of the Collateral Agent
shall continue as if no such proceeding had been instituted.
ARTICLE VIII
INDEMNITY
8.1 Indemnity. (a) Each Assignor jointly and severally agrees
to indemnify, reimburse and hold the Collateral Agent, each other Secured
Creditor and their respective successors, assigns, employees, agents and
servants (hereinafter in this Section 8.1 referred to individually as
"Indemnitee," and collectively as "Indemnitees") harmless from any and all
liabilities, obligations, losses, damages, penalties, claims, demands, actions,
suits, judgments and any and all costs and expenses (including reasonable
attorneys' fees and expenses) (for the purposes of this Section 8.1, the
foregoing are collectively called "expenses") of whatsoever kind and nature
imposed on, asserted against or incurred by any of the Indemnitees in any way
relating to or arising out of this Agreement, any
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Secured Interest Rate Agreement, any other Credit Document or the documents
executed in connection herewith and therewith or in any other way connected
with the enforcement of any of the terms of, or the preservation of any rights
hereunder or thereunder, or in any way relating to or arising out of the
manufacture, ownership, ordering, purchase, delivery, control, acceptance,
lease, financing, possession, operation, condition, sale, return or other
disposition, or use of the Collateral (including, without limitation, latent or
other defects, whether or not discoverable), the violation of the laws of any
country, state or other governmental body or unit, any tort (including, without
limitation, claims arising or imposed under the doctrine of strict liability,
or for or on account of injury to or the death of any Person (including any
Indemnitee), or property damage), or contract claim; provided that no
Indemnitee shall be indemnified pursuant to this Section 8.1(a) for expenses,
losses, obligations, penalties, damages or liabilities to the extent caused by
the gross negligence or wilful misconduct of such Indemnitee. Each Assignor
agrees that upon written notice by any Indemnitee of the assertion of such a
liability, obligation, loss, damage, penalty, claim, demand, action, judgment
or suit, such Assignor shall assume full responsibility for the defense
thereof. Each Indemnitee agrees to use its best efforts to promptly notify such
Assignor of any such assertion of which such Indemnitee has knowledge.
(b) Without limiting the application of Section 8.1(a), each
Assignor agrees, jointly and severally, to pay, or reimburse the Collateral
Agent for (if the Collateral Agent shall have incurred fees, costs or expenses
because such Assignor shall have failed to comply with its obligations under
this Agreement or any Credit Document), any and all fees, costs and expenses of
whatever kind or nature incurred in connection with the creation, preservation
or protection of the Collateral Agent's Liens on, and security interest in, the
Collateral, including, without limitation, all fees and taxes in connection
with the recording or filing of instruments and documents in public offices,
payment or discharge of any taxes or Liens upon or in respect of the
Collateral, premiums for insurance with respect to the Collateral and all other
fees, costs and expenses in connection with protecting, maintaining or
preserving the Collateral and the Collateral Agent's interest therein, whether
through judicial proceedings or otherwise, or in defending or prosecuting any
actions, suits or proceedings arising out of or relating to the Collateral.
(c) Without limiting the application of Section 8.1(a) or
(b), each Assignor jointly and severally agrees to pay, indemnify and hold each
Indemnitee harmless from and against any loss, costs, damages and expenses
which such Indemnitee may suffer, expend or incur in consequence of or growing
out of any material misrepresentation by an Assignor in this Agreement, or in
any statement or writing contemplated by or made or delivered pursuant to or in
connection with this Agreement.
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(d) If and to the extent that the obligations of any Assignor
under this Section 8.1 are unenforceable for any reason, each Assignor hereby
agrees to make the maximum contribution to the payment and satisfaction of such
obligations which is permissible under applicable law.
8.2 Indemnity Obligations Secured by Collateral; Survival.
Any amounts paid by any Indemnitee as to which such Indemnitee has the right to
reimbursement shall constitute Obligations secured by the Collateral. The
indemnity obligations of each Assignor contained in this Article VIII shall
continue in full force and effect notwithstanding the full payment of all the
Notes issued under the Credit Agreement, the termination of all Secured
Interest Rate Agreements and the payment of all of the other Obligations and
notwithstanding the discharge thereof.
ARTICLE IX
DEFINITIONS
The following terms shall have the meanings herein specified
unless the context otherwise requires. Such definitions shall be equally
applicable to the singular and plural forms of the terms defined.
"Administrative Agent" shall have the meaning provided in the
first WHEREAS clause of this Agreement.
"Agreement" shall mean this Security Agreement, as the same
may be modified, supplemented or amended from time to time in accordance with
its terms.
"Arranging Agent" shall have the meaning provided in the
first WHEREAS clause of this Agreement.
"Assignor" shall have the meaning specified in the first
paragraph of this Agreement.
"Borrower" shall have the meaning provided in the first
WHEREAS clause of this Agreement.
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"Business Day" means any day excluding Saturday, Sunday and
any day which shall be in the City of New York a legal holiday or a day on
which banking institutions are authorized by law to close.
"Cash Collateral Account" shall mean a non-interest bearing
cash collateral account maintained with, and in the sole dominion and control
of, the Collateral Agent for the benefit of the Secured Creditors.
"Chattel Paper" shall have the meaning assigned that term
under the Uniform Commercial Code as in effect on the date hereof in the State
of New York.
"Class" shall have the meaning provided in Section 10.2 of
this Agreement.
"Collateral" shall have the meaning provided in Section
1.1(a).
"Collateral Agent" shall have the meaning specified in the
first paragraph of this Agreement.
"Contract Rights" shall mean all rights of an Assignor
(including, without limitation, all rights to payment) under each Contract.
"Contracts" shall mean all contracts between an Assignor and
one or more additional parties (including, without limitation, any Secured
Interest Rate Agreement and related documents entered into in connection
therewith) to the extent the grant by an Assignor of a security interest
pursuant to this Agreement in its right, title and interest in any such
contract is not prohibited by such contract without the consent of any other
party thereto or would not give any other party to such contract the right to
terminate its obligations thereunder; provided, that the foregoing limitation
shall not affect, limit, restrict or impair the grant by an Assignor of a
security interest pursuant to this Agreement in any Account or any money or
other amounts due or to become due under any such contract, agreement,
instrument or indenture.
"Copyrights" shall mean any United States or foreign
copyright owned by any Assignor now or hereafter, including any registration of
any copyrights, in the United States Copyright Office or the equivalent thereof
in any foreign country, as well as any application for a United States or
foreign copyright registration now or hereafter made with the United States
Copyright Office or the equivalent thereof in any foreign jurisdiction by any
Assignor.
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"Credit Agreement" shall have the meaning provided in the
first WHEREAS clause of this Agreement.
"Credit Document Obligations" shall have the meaning provided
in the definition of "Obligations" in this Article IX.
"Documents" shall have the meaning assigned that term under
the Uniform Commercial Code as in effect on the date hereof in the State of New
York.
"Equipment" shall mean any "equipment," as such term is
defined in the Uniform Commercial Code as in effect on the date hereof in the
State of New York, now or hereafter owned by any Assignor and, in any event,
shall include, but shall not be limited to, all machinery, equipment,
furnishings, fixtures and vehicles now or hereafter owned by such Assignor and
any and all additions, substitutions and replacements of any of the foregoing,
wherever located, together with all attachments, components, parts, equipment
and accessories installed thereon or affixed thereto.
"Event of Default" shall mean any Event of Default under, and
as defined in, the Credit Agreement or any payment default, after any
applicable grace period, under any Secured Interest Rate Agreement.
"General Intangibles" shall have the meaning assigned that
term under the Uniform Commercial Code as in effect on the date hereof in the
State of New York.
"Goods" shall have the meaning assigned that term under the
Uniform Commercial Code as in effect on the date hereof in the State of New
York.
"Indemnitee" shall have the meaning provided in Section 8.1.
"Instrument" shall have the meaning assigned that term under
the Uniform Commercial Code as in effect on the date hereof in the State of New
York.
"Interest Rate Creditors" shall have the meaning provided in
the second WHEREAS clause of this Agreement.
"Interest Rate Obligations" shall have the meaning provided
in the definition of "Obligations" in this Article IX.
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"Inventory" shall mean merchandise, inventory and goods, and
all additions, substitutions and replacements thereof, wherever located,
together with all goods, supplies, incidentals, packaging materials, labels,
materials and any other items used or usable in manufacturing, processing,
packaging or shipping same; in all stages of production -- from raw materials
through work-in-process to finished goods -- and all products and proceeds of
whatever sort and wherever located and any portion thereof which may be
returned, rejected, reclaimed or repossessed by the Collateral Agent from an
Assignor's customers, and shall specifically include all "inventory" as such
term is defined in the Uniform Commercial Code as in effect on the date hereof
in the State of New York, now or hereafter owned by an Assignor.
"Lender Creditor" shall have the meaning provided in the
first WHEREAS clause of this Agreement.
"Lenders" shall have the meaning provided in the first
WHEREAS clause of this Agreement.
"Liens" shall mean any security interest, mortgage, pledge,
lien, claim, charge, encumbrance, title retention agreement, lessor's interest
in a financing lease or analogous instrument, in, of, or on an Assignor's
property.
"Marks" shall mean all right, title and interest in and to
any United States or foreign trademarks, service marks and trade names now held
or hereafter acquired by any Assignor, including any registration or
application for registration of any trademarks and service marks now held or
hereafter acquired by an Assignor, which are registered in the United States
Patent and Trademark Office or the equivalent thereof in any State of the
United States or in any foreign country, as well as any unregistered marks used
by any Assignor, and any trade dress including logos, designs, company names,
business names, fictitious business names and other business identifiers used
by any Assignor in the United States or any foreign country.
"Obligations" shall mean (i) the full and prompt payment when
due (whether at stated maturity, by acceleration or otherwise) of all
obligations (including obligations which, but for the automatic stay under
Section 362(a) of the Bankruptcy Code, would become due) and liabilities of
each Assignor, now existing or hereafter incurred under, arising out of or in
connection with any Credit Document to which it is a party and the due
performance and compliance by such Assignor with the terms of each such Credit
Document (all such obligations and liabilities under this clause (i), except to
the extent consisting of obligations or indebtedness with respect to Interest
Rate Agreements, being
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herein collectively called the "Credit Document Obligations"); (ii) the full
and prompt payment when due (whether at the stated maturity, by acceleration or
otherwise) of all obligations (including obligations which, but for the
automatic stay under Section 362(a) of the Bankruptcy Code, would become due)
and liabilities of each Assignor, now existing or hereafter incurred under,
arising out of or in connection with any Secured Interest Rate Agreement,
including all obligations, if any, under a Guaranty in respect of any Secured
Interest Rate Agreement (all such obligations and indebtedness under this
clause (ii) being herein collectively called the "Interest Rate Obligations");
(iii) any and all sums advanced by the Collateral Agent or the Pledgee in order
to preserve the Collateral or preserve its security interest in the Collateral;
(iv) in the event of any proceeding for the collection or enforcement of any
indebtedness, obligations, or liabilities of each Assignor referred to in
clauses (i), (ii), (iii) and (iv), after an Event of Default shall have
occurred and be continuing, the reasonable expenses of re-taking, holding,
preparing for sale or lease, selling or otherwise disposing of or realizing on
the Collateral, or of any exercise by the Collateral Agent or the Pledgee of
its rights hereunder, together with reasonable attorneys' fees and court costs;
and (v) all amounts paid by any Indemnitee as to which such Indemnitee has the
right to reimbursement under Section 8.1 of this Agreement.
"Patents" shall mean any United States or foreign patent to
which any Assignor now or hereafter has title and any divisions or
continuations thereof, as well as any application for a United States or
foreign patent now or hereafter made by such Assignor.
"Permits" shall mean, to the extent permitted to be assigned
by the terms thereof or by applicable law, all licenses, permits, rights,
orders, variances, franchises or authorizations of or from any governmental
authority or agency.
"Pledgee" shall have the meaning provided in the Pledge
Agreement.
"Proceeds" shall have the meaning assigned that term under
the Uniform Commercial Code as in effect in the State of New York on the date
hereof or under other relevant law and, in any event, shall include, but not be
limited to, (i) any and all proceeds of any insurance, indemnity, warranty or
guaranty payable to the Collateral Agent or an Assignor from time to time with
respect to any of the Collateral, (ii) any and all payments (in any form
whatsoever) made or due and payable to an Assignor from time to time in
connection with any requisition, confiscation, condemnation, seizure or
forfeiture of all or any part of the Collateral by any governmental authority
(or any person acting under color of governmental authority) and (iii) any and
all other amounts from time to time paid or payable under or in connection with
any of the Collateral.
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Page 26
"Pro Rata Share" shall have the meaning provided in Section
7.4(b) of this Agreement.
"Receivables" shall mean any "account" as such term is
defined in the Uniform Commercial Code as in effect on the date hereof in the
State of New York, now or hereafter owned by an Assignor and, in any event,
shall include, but shall not be limited to, all of such Assignor's rights to
payment for goods sold or leased or services performed by such Assignor,
whether now in existence or arising from time to time hereafter, including,
without limitation, rights evidenced by an account, note, contract, security
agreement, chattel paper, or other evidence of indebtedness or security,
together with (a) all security pledged, assigned, hypothecated or granted to or
held by such Assignor to secure the foregoing, (b) all of such Assignor's
right, title and interest in and to any goods, the sale of which gave rise
thereto, (c) all guarantees, endorsements and indemnifications on, or of, any
of the foregoing, (d) all powers of attorney for the execution of any evidence
of indebtedness or security or other writing in connection therewith, (e) all
books, records, ledger cards, and invoices relating thereto, (f) evidences of
the filing of financing statements and other statements and the registration of
other instruments in connection therewith and amendments thereto, all notices
to other creditors or secured parties, and certificates from filing or other
registration officers, (g) all credit information, reports and memoranda
relating thereto and (h) all other writings related in any way to the
foregoing.
"Requisite Creditors" shall have the meaning provided in
Section 10.2 of this Agreement.
"Secured Creditors" shall have the meaning provided in the
second WHEREAS clause of this Agreement.
"Secured Interest Rate Agreements" shall have the meaning
provided in the second WHEREAS clause of this Agreement.
"Trade Secret Rights" shall mean the rights of an Assignor in
any Trade Secret it holds.
"Trade Secrets" means any secretly held existing engineering
and other data, information, production procedures and other know-how relating
to the design, manufacture, assembly, installation, use, operation, marketing,
sale and servicing of any products or business of an Assignor worldwide,
whether written or not written.
<PAGE>
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ARTICLE X
MISCELLANEOUS
10.1 Notices. Except as otherwise specified herein, all
notices, requests, demands or other communications to or upon the respective
parties hereto shall be deemed to have been duly given or made when delivered
to the party to which such notice, request, demand or other communication is
required or permitted to be given or made under this Agreement, addressed:
(i) if to any Assignor, at its address contained in the
Credit Agreement (for the Borrower) or the
Subsidiary Guaranty (for the other Assignors);
(ii) if to the Collateral Agent, at:
National Westminster Bank Plc
175 Water Street
New York, New York 10038
Attn.: [_________________]
Tel. No.: [______________]
Fax. No.: [______________]
(iii) if to any Lender (other than the Collateral Agent),
at such address as such Lender shall have specified in the Credit Agreement;
(iv) if to any Interest Rate Creditor, at such address as
such Interest Rate Creditor shall have specified in writing to the Assignors
and the Collateral Agent; or at such other address as shall have been furnished
in writing by any Person described above to the party required to give notice
hereunder.
10.2 Waiver; Amendment. (a) None of the terms and conditions
of this Agreement may be changed, waived, modified or varied in any manner
whatsoever unless in writing duly signed by the Collateral Agent (with the
consent of the Required Lenders or, to the extent required by Section 12.12 of
the Credit Agreement, all of the Lenders) and each Assignor affected thereby,
provided that (i) no such change, waiver, modification or variance shall be
made to Section 7.4 or this Section 10.2(a) without the consent of each Secured
Creditor adversely affected thereby and (ii) any change, waiver, modification
or
<PAGE>
Page 28
variance affecting the rights and benefits of a single Class of Secured
Creditors (and not all Secured Creditors in a like or similar manner) shall
require the written consent of the Requisite Creditors of such Class of Secured
Creditors. For the purpose of this Agreement, the term "Class" shall mean each
class of Secured Creditors, i.e., whether (x) the Lender Creditors as holders
of the Credit Document Obligations or (y) the Interest Rate Creditors as
holders of the Interest Rate Obligations. For the purpose of this Agreement,
the term "Requisite Creditors" of any Class shall mean each of (x) with respect
to the Credit Document Obligations, the Required Lenders and (y) with respect
to the Interest Rate Obligations, the holders of at least a majority of all
obligations outstanding from time to time under the Secured Interest Rate
Agreements.
(b) No delay on the part of the Collateral Agent in
exercising any of its rights, remedies, powers and privileges hereunder or
partial or single exercise thereof, shall constitute a waiver thereof. No
notice to or demand on any Assignor in any case shall entitle it to any other
or further notice or demand in similar or other circumstances or constitute a
waiver of any of the rights of the Collateral Agent to any other or further
action in any circumstances without notice or demand.
10.3 Obligations Absolute. The obligations of each Assignor
hereunder shall remain in full force and effect without regard to, and shall
not be impaired by, (a) any bankruptcy, insolvency, reorganization,
arrangement, readjustment, composition, liquidation or the like of any other
Assignor; (b) any exercise or non-exercise, or any waiver of, any right,
remedy, power or privilege under or in respect of this Agreement or any other
Credit Document or any Secured Interest Rate Agreement except as specifically
set forth in a waiver granted pursuant to the restrictions of Section 10.2
hereof; or (c) any amendment to or modification of any other Credit Document or
any Secured Interest Rate Agreement or any security for any of the Obligations;
whether or not any Assignor shall have notice or knowledge of any of the
foregoing. The rights and remedies of the Collateral Agent herein provided are
cumulative and not exclusive of any rights or remedies which the Collateral
Agent would otherwise have.
10.4 Successors and Assigns. This Agreement shall be binding
upon each Assignor and its successors and assigns and shall inure to the
benefit of the Collateral Agent and its successors and assigns, provided that
no Assignor may transfer or assign any or all of its rights or obligations
hereunder without the written consent of the Collateral Agent. All agreements,
statements, representations and warranties made by such Assignor herein or in
any certificate or other instrument delivered by each Assignor or on its behalf
under this Agreement shall be considered to have been relied upon by the
Secured Creditors and shall survive the execution and delivery of this
Agreement, the other Credit Documents and
<PAGE>
Page 29
the Secured Interest Rate Agreements regardless of any investigation made by
the Secured Creditors on their behalf.
10.5 Headings Descriptive. The headings of the several
sections of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any provision of this Agreement.
10.6 Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
10.7 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND
BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK.
10.8 Assignors' Duties. It is expressly agreed, anything
herein contained to the contrary notwithstanding, that each Assignor shall
remain liable to perform all of the obligations, if any, assumed by it with
respect to the Collateral and the Collateral Agent shall not have any
obligations or liabilities with respect to any Collateral by reason of or
arising out of this Agreement, nor shall the Collateral Agent be required or
obligated in any manner to perform or fulfill any of the obligations of any
Assignor under or with respect to any Collateral.
10.9 Termination; Release. (a) After the termination of the
Total Commitment and all Secured Interest Rate Agreements, when no Note or
Letter of Credit is outstanding and when all Loans and other Obligations have
been paid in full, this Agreement shall terminate (provided that all
indemnities set forth herein including, without limitation, in Section 8.1
hereof shall survive such termination), and the Collateral Agent, at the
request and expense of the relevant Assignor, will execute and deliver to such
Assignor a proper instrument or instruments (including Uniform Commercial Code
termination statements on form UCC-3) acknowledging the satisfaction and
termination of this Agreement, and will duly assign, transfer and deliver to
such Assignor (without recourse and without any representation or warranty)
such of the Collateral as may be in the possession of the Collateral Agent and
as has not theretofore been sold or otherwise applied or released pursuant to
this Agreement.
(b) So long as no Default or Event of Default is in existence
or would exist after the application of proceeds as provided below, the
Collateral Agent shall, at the
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Page 30
request of the relevant Assignor, release any or all of the Collateral,
provided that (x) such release is permitted by the terms of the Credit
Agreement (it being agreed for such purposes that a release will be deemed
"permitted by the terms of the Credit Agreement" if the proposed transaction
constitutes an exception to Section 8.02 of the Credit Agreement) or otherwise
has been approved in writing by the Required Lenders and (y) the proceeds of
such Collateral are applied as required pursuant to the Credit Agreement or any
consent or waiver with respect thereto.
(c) At any time that the relevant Assignor desires that the
Collateral Agent take any action to give effect to any release of Collateral
pursuant to the foregoing Section 10.9(a) or (b), it shall deliver to the
Collateral Agent a certificate signed by an authorized officer stating that the
release of the respective Collateral is permitted pursuant to Section 10.9(a)
or (b). In the event that any part of the Collateral is released as provided in
the preceding paragraph (b), the Collateral Agent, at the request and expense
of such Assignor, will duly release such Collateral and assign, transfer and
deliver to such Assignor or its designee (without recourse and without any
representation or warranty) such of the Collateral as is then being (or has
been) so sold and as may be in the possession of the Collateral Agent and has
not theretofore been released pursuant to this Agreement. The Collateral Agent
shall have no liability whatsoever to any Secured Creditor as the result of any
release of Collateral by it as permitted by this Section 10.9. Upon any release
of Collateral pursuant to Section 10.9(a) or (b), none of the Secured Creditors
shall have any continuing right or interest in such Collateral, or the proceeds
thereof.
10.10 Collateral Agent. By accepting the benefits of this
Agreement, each Secured Creditor acknowledges and agrees that the rights and
obligations of the Collateral Agent shall be as set forth in Section 11 of the
Credit Agreement. Notwithstanding anything to the contrary contained in Section
10.2 of this Agreement or Section 12.12 of the Credit Agreement, this Section
10.10, and the duties and obligations of the Collateral Agent set forth in this
Section 10.10, may not be amended or modified without the consent of the
Collateral Agent.
10.11 Counterparts. This Agreement may be executed in any
number of counterparts and by the different parties hereto on separate
counterparts, each of which when so executed and delivered shall be an
original, but all of which shall together constitute one and the same
instrument. A set of counterparts executed by all the parties hereto shall be
lodged with the Borrower and the Collateral Agent.
10.12 Additional Assignors. It is understood and agreed that
any Subsidiary of the Borrower that is required to execute a counterpart of
this Agreement after
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the date hereof pursuant to Section 8.16 of the Credit Agreement shall
automatically become an Assignor hereunder by executing a counterpart hereof
and delivering the same to the Collateral Agent.
* * *
<PAGE>
Page 32
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered by their duly authorized officers as of
the date first above written.
Addresses: NORTH ATLANTIC TRADING
257 Park Avenue South ACQUISITION COMPANY,
7th Floor INC., as Assignor
New York, NY 10010-7304
By: /s/ David Brunson
--------------------------------
Name: David Brunson
Title: Chief Financial Officer
257 Park Avenue South NATIONAL TOBACCO COMPANY, L.P.,
7th Floor as Assignor
New York, NY 10010-7304
BY: NATIONAL TOBACCO FINANCE
CORPORATION, as its General Partner
By: /s/ David Brunson
--------------------------------
Name: David Brunson
Title: Chief Financial Officer
257 Park Avenue South NORTH ATLANTIC OPERATING
7th Floor COMPANY, as Assignor
New York, NY 10010-7304
By: /s/ David Brunson
--------------------------------
Name: David Brunson
Title: Chief Financial Officer
<PAGE>
257 Park Avenue South NATIONAL TOBACCO FINANCE CORPORATION,
7th Floor as Assignor
New York, NY 10010-7304
By: /s/ David Brunson
--------------------------------
Name: David Brunson
Title: Chief Financial Officer
175 Water Street NATIONAL WESTMINSTER BANK PLC,
New York, New York 10038 as Collateral Agent, as Assignee
Attention: Ronan Agnew
Tel: (212) 602-5542
Fax: (212) 602-4319
By: /s/ Ronan Agnew
---------------------------------
Name: Ronan Agnew
Title: Vice President
<PAGE>
PLEDGE AGREEMENT
PLEDGE AGREEMENT, dated as of June 25, 1997 (as amended, modified or
supplemented from time to time, the "Agreement"), made by each of the
undersigned (each, a "Pledgor" and together with any other entity that becomes a
party hereto pursuant to Section 24 hereof, collectively, the "Pledgors"), in
favor of NATIONAL WESTMINSTER BANK PLC, as Collateral Agent (including any
successor collateral agent, the "Pledgee") for the benefit of the Secured
Creditors (as defined below). Except as otherwise defined herein, terms used
herein and defined in the Credit Agreement shall be used herein as therein
defined.
W I T N E S S E T H :
WHEREAS, North Atlantic Trading Company, Inc. (the "Borrower"), the
lenders from time to time party thereto (the "Lenders"), Gleacher NatWest, Inc.,
as Arranging Agent (the "Arranging Agent"), and National Westminster Bank Plc,
as Administrative Agent (the "Administrative Agent" and together with the
Lenders, the Arranging Agent and the Pledgee, the "Lender Creditors"), have
entered into a Credit Agreement, dated as of June 25, 1997 (as amended, modified
or supplemented from time to time, the "Credit Agreement"), providing for the
making of Loans and the issuance of, and participation in, Letters of Credit as
contemplated therein;
WHEREAS, the Borrower may from time to time be a party to one or more
Interest Rate Agreements (each such Interest Rate Agreement with an Interest
Rate Creditor (as defined below), a "Secured Interest Rate Agreement") with
National Westminster Bank Plc, in its individual capacity ("NatWest"), any
Lender or a syndicate of financial institutions organized by NatWest or such
Lender or an affiliate of NatWest or such Lender (even if NatWest or any such
Lender ceases to be a Lender under the Credit Agreement for any reason), and any
institution that participates therein, and in each case their subsequent assigns
(collectively, the "Interest Rate Creditors," and together with the Lender
Creditors, collectively, the "Secured Creditors");
<PAGE>
Page 2
WHEREAS, pursuant to the Subsidiary Guaranty, dated as of June 25,
1997 (as amended, modified or supplemented from time to time, the "Subsidiary
Guaranty"), each Pledgor (other than the Borrower) has jointly and severally
guaranteed to the Secured Creditors the payment when due of the Guaranteed
Obligations (as defined in the Subsidiary Guaranty);
WHEREAS, it is a condition precedent to the making of Loans and the
issuance of, and participation in, Letters of Credit under the Credit Agreement
that each Pledgor shall have executed and delivered to the Pledgee this
Agreement;
WHEREAS, each Pledgor desires to execute this Agreement to satisfy
the conditions described in the preceding paragraph;
NOW, THEREFORE, in consideration of the benefits accruing to each
Pledgor, the receipt and sufficiency of which are hereby acknowledged, each
Pledgor hereby makes the following representations and warranties to the Pledgee
and hereby covenants and agrees with the Pledgee as follows:
1. SECURITY FOR OBLIGATIONS. This Agreement is made by each
Pledgor for the benefit of the Secured Creditors to secure:
(i) the full and prompt payment when due (whether at the stated
maturity, by acceleration or otherwise) of all obligations (including
obligations which, but for the automatic stay under Section 362(a) of the
Bankruptcy Code, would become due) and liabilities of such Pledgor, now
existing or hereafter incurred under, arising out of or in connection with
any Credit Document to which such Pledgor is a party and the due
performance of and compliance by such Pledgor with the terms of each such
Credit Document by such Pledgor (all such obligations and liabilities under
this clause (i), except to the extent consisting of obligations or
indebtedness with respect to Secured Interest Rate Agreements, being herein
collectively called the "Credit Document Obligations");
(ii) the full and prompt payment when due (whether at the stated
maturity, by acceleration or otherwise) of all obligations (including
obligations which, but for the automatic stay under Section 362(a) of the
Bankruptcy Code, would become due) and liabilities of such Pledgor, now
existing or hereafter
<PAGE>
Page 3
incurred under, arising out of or in connection with any Secured Interest
Rate Agreement, including all obligations, if any, of such Pledgor under
its Guaranty in respect of Secured Interest Rate Agreements (all such
obligations and liabilities under this clause (ii) being herein
collectively called the "Interest Rate Obligations");
(iii) any and all sums advanced by the Pledgee in order to preserve the
Collateral (as hereinafter defined) and/or its security interest therein;
(iv) in the event of any proceeding for the collection of the
Obligations (as defined below) or the enforcement of this Agreement, after
an Event of Default (such term, as used in this Agreement, shall mean any
Event of Default under the Credit Agreement or any payment default by the
Borrower under any Secured Interest Rate Agreement after the expiration of
any applicable grace period) shall have occurred and be continuing, the
reasonable expenses of retaking, holding, preparing for sale or lease,
selling or otherwise disposing of or realizing on the Collateral, or of any
exercise by the Pledgee of its rights hereunder, together with reasonable
attorneys' fees and court costs; and
(v) all amounts paid by any Secured Creditor as to which such Secured
Creditor has the right to reimbursement under Section 11 of this Agreement;
all such obligations, liabilities, sums and expenses set forth in clauses (i)
through (v) of this Section 1 being herein collectively called the
"Obligations".
2. DEFINITION OF STOCK, NOTES, PARTNERSHIP INTERESTS, MEMBERSHIP
INTERESTS, SECURITIES, ETC. As used herein, (i) the term "Stock" shall mean (x)
all of the issued and outstanding shares of stock at any time owned by any
Pledgor of any corporation (other than a corporation that is not organized under
the laws of the United States or any State or territory thereof (a "Foreign
Corporation")) and (y) with respect to a Foreign Corporation that is a
first-tier Foreign Subsidiary, all of the issued and outstanding shares of
capital stock at any time owned by any Pledgor of any Foreign Corporation,
provided that such Pledgor shall not be required to pledge hereunder (and the
term "Stock" shall not include) more than 65% of the total combined voting power
of all classes of capital stock of any Foreign Corporation entitled to vote;
(ii) the term "Notes" shall mean all promissory notes at any time issued to, or
held by, any Pledgor, provided that such Pledgor shall not be required to pledge
hereunder (and the term "Notes" shall not include) any promissory notes issued
to such Pledgor by any Subsidiary of such Pledgor which is a Foreign
<PAGE>
Page 4
Corporation; (iii) the term "Partnership Interest" shall mean the entire
partnership interest at any time owned by any Pledgor in any partnership (any
such partnership, a "Pledged Partnership"); (iv) the term "Membership Interest"
shall mean the entire membership interest at any time owned by any Pledgor in
any limited liability company (any such limited liability company, a "Pledged
LLC"); and (v) the term "Securities" shall mean all of the Stock, Notes,
Partnership Interests and Membership Interests. Each Pledgor represents and
warrants that on the date hereof: (a) each Subsidiary of such Pledgor, and the
direct ownership thereof, is listed on Annex A hereto; (b) the Stock held by
such Pledgor consists of the number and type of shares of the stock of the
corporations as described in Annex B hereto; (c) such Stock constitutes that
percentage of the issued and outstanding capital stock of the issuing
corporation as set forth in Annex B hereto; (d) the Notes held by such Pledgor
consist of the promissory notes described in Annex C hereto; (e) such Pledgor is
the holder of record and sole beneficial owner of the Stock and Notes held by
such Pledgor and there exists no options or preemption rights in respect of any
of the Stock; (f) the Partnership Interests and Membership Interests, as the
case may be, held by such Pledgor constitute that percentage of the entire
interest of the respective Pledged Partnership or Pledged LLC, as the case may
be, as is set forth under its name in Annex D hereto; and (g) on the date
hereof, such Pledgor owns or possesses no other Securities except as described
on Annexes B, C and D hereto.
3. PLEDGE OF SECURITIES, ETC.
3.1 Pledge. To secure the Obligations and for the purposes set
forth in Section 1, each Pledgor hereby:
(i) grants and pledges to the Pledgee a security interest in all
of the Collateral owned by such Pledgor;
(ii) pledges and deposits as security with the Pledgee the
Securities owned by such Pledgor on the date hereof, if any, and delivers
to the Pledgee certificates or instruments therefor, duly endorsed in blank
in the case of Notes and accompanied by undated stock or other powers duly
executed in blank by such Pledgor in the case of Stock, Partnership
Interests or Membership Interests, as the case may be, or such other
instruments of transfer as are acceptable to the Pledgee;
(iii) assigns, transfers, hypothecates, mortgages, charges and sets
over to the Pledgee all of such Pledgor's right, title and interest in and
to
<PAGE>
Page 5
such Securities (and in and to all certificates or instruments evidencing
such Securities), to be held by the Pledgee, upon the terms and
conditions set forth in this Agreement;
(iv) grants, pledges, assigns and transfers to the Pledgee all of
such Pledgor's (x) Partnership Interest and all of such Pledgor's right,
title and interest in each Pledged Partnership and (y) Membership Interest
and all of such Pledgor's right, title and interest in each Pledged LLC, in
each case including, without limitation:
(a) all the capital thereof and its interest in all profits, losses
and other distributions to which such Pledgor shall at any time be entitled
in respect of such Partnership Interest and/or Membership Interest;
(b) all other payments due or to become due to such Pledgor in respect
of such Partnership Interest and/or Membership Interest, whether under any
partnership agreement, limited liability company agreement or otherwise,
whether as contractual obligations, damages, insurance proceeds or
otherwise;
(c) all of its claims, rights, powers, privileges, authority, options,
security interest, liens and remedies, if any, under any partnership
agreement, limited liability company agreement or at law or otherwise in
respect of such Partnership Interest and/or Membership Interest;
(d) all present and future claims, if any, of the Pledgor against any
Pledged Partnership and any Pledged LLC for moneys loaned or advanced, for
services rendered or otherwise;
(e) all of such Pledgor's rights under any partnership agreement or
limited liability company agreement or at law to exercise and enforce every
right, power, remedy, authority, option and privilege of such Pledgor
relating to the Partnership Interest and/or Membership Interest, including
any power to terminate, cancel or modify any partnership agreement or any
limited liability company agreement, to execute any instruments and to take
any and all other action on behalf of and in the name of such Pledgor in
respect of any Partnership Interest or Membership Interest and any Pledged
Partnership and any Pledged LLC to make determinations, to exercise any
election (including, but not limited to, election of remedies) or option or
to give or receive any notice, consent, amendment, waiver or approval,
together with full power and authority to
<PAGE>
Page 6
demand, receive, enforce, collect or receipt for any of the foregoing, to
enforce or execute any checks, or other instruments or orders, to file
any claims and to take any action in connection with any of the foregoing;
(f) all other property hereafter delivered in substitution for or in
addition to any of the foregoing, all certificates and instruments
representing or evidencing such other property and all cash, securities,
interest, dividends, rights and other property at any time and from time to
time received, receivable or otherwise distributed in respect of or in
exchange for any or all thereof; and
(g) to the extent not otherwise included, all proceeds of any or all
of the foregoing.
3.2 Subsequently Acquired Securities. If any Pledgor shall acquire
(by purchase, stock dividend or otherwise) any additional Securities at any time
or from time to time after the date hereof, such Pledgor will forthwith pledge
and deposit such Securities (or certificates or instruments representing such
Securities) as security with the Pledgee and deliver to the Pledgee certificates
or instruments thereof, duly endorsed in blank in the case of Notes and
accompanied by undated stock or other powers duly executed in blank by such
Pledgor (and accompanied by any transfer tax stamps required in connection with
the pledge of such Securities) in the case of Stock, Partnership Interests or
Membership Interests, as the case may be, or such other instruments of transfer
as are acceptable to the Pledgee, and will promptly thereafter deliver to the
Pledgee a certificate executed by a principal executive officer of such Pledgor
describing such Securities and certifying that the same have been duly pledged
with the Pledgee hereunder. No Pledgor shall be required at any time to pledge
hereunder (x) any Stock which is more than 65% of the total combined voting
power of all classes of capital stock of any Foreign Corporation entitled to
vote or (y) any promissory notes issued to such Pledgor by any Subsidiary of
such Pledgor which is a Foreign Corporation.
3.3 Uncertificated Securities. Notwithstanding anything to the
contrary contained in Sections 3.1 and 3.2, if any Securities (whether or not
now owned or hereafter acquired) are uncertificated securities, the respective
Pledgor shall promptly notify the Pledgee thereof, and shall promptly take all
actions required to perfect the security interest of the Pledgee under
applicable law (including, in any event, under Sections 8-313 and 8-321 of the
New York Uniform Commercial Code if applicable). Each Pledgor further agrees to
take such actions as the Pledgee deems necessary or desirable to effect the
foregoing and to permit the Pledgee to exercise any of its rights and remedies
hereunder, and agrees to provide an opinion of counsel reasonably
<PAGE>
Page 7
satisfactory to the Pledgee with respect to any such pledge of uncertificated
Securities promptly upon request of the Pledgee.
3.4 Definitions of Pledged Stock, Pledged Notes, Pledged Partnership
Interests, Pledged Membership Interests, Pledged Securities and Collateral. All
Stock at any time pledged or required to be pledged hereunder is hereinafter
called the "Pledged Stock, all Notes at any time pledged or required to be
pledged hereunder are hereinafter called the "Pledged Notes", all Partnership
Interests at any time pledged or required to be pledged hereunder are
hereinafter called the "Pledged Partnership Interests," all Membership Interests
at any time pledged or required to be pledged hereunder are hereinafter called
the "Pledged Membership Interests", all Pledged Stock, Pledged Notes, Pledged
Partnership Interests and Pledged Membership Interests, together are called the
"Pledged Securities"; and the Pledged Securities, together with all proceeds
thereof, including any securities and moneys received and at the time held by
the Pledgee hereunder, are hereinafter called the "Collateral."
4. APPOINTMENT OF SUB-AGENTS; ENDORSEMENTS,
ETC. The Pledgee shall have the right to appoint one or more sub-agents for the
purpose of retaining physical possession of the Pledged Securities, which may be
held (in the discretion of the Pledgee) in the name of the relevant Pledgor,
endorsed or assigned in blank or in favor of the Pledgee or any nominee or
nominees of the Pledgee or a sub-agent appointed by the Pledgee.
5. VOTING, ETC., WHILE NO EVENT OF DEFAULT. Unless and
until there shall have occurred and be continuing an Event of Default, each
Pledgor shall be entitled to exercise all voting rights attaching to any and all
Pledged Securities owned by it, and to give consents, waivers or ratifications
in respect thereof, provided that no vote shall be cast or any consent, waiver
or ratification given or any action taken which would violate, result in breach
of any covenant contained in, or be inconsistent with, any of the terms of this
Agreement, the Credit Agreement, any other Credit Document or any Secured
Interest Rate Agreement (collectively, the "Secured Debt Agreements"), or which
would have the effect of impairing the value of the Collateral or any part
thereof or the position or interests of the Pledgee or any other Secured
Creditor therein. All such rights of a Pledgor to vote and to give consents,
waivers and ratifications shall cease in case an Event of Default shall occur
and be continuing and Section 7 hereof shall become applicable.
6. DIVIDENDS AND OTHER DISTRIBUTIONS. Unless and until an Event of
Default shall have occurred and be continuing, all cash dividends, distributions
<PAGE>
Page 8
or other amounts payable in respect of the Pledged Securities shall be paid to
the respective Pledgor, provided that all dividends, distributions or other
amounts payable in respect of the Pledged Securities which are determined by the
Pledgee, in its absolute discretion, to represent in whole or in part an
extraordinary, liquidating or other distribution in return of capital not
permitted by the Credit Agreement shall be paid, to the extent so determined to
represent an extraordinary, liquidating or other distribution in return of
capital, to the Pledgee and retained by it as part of the Collateral (unless
such cash dividends or distributions are applied to repay the Obligations
pursuant to Section 9 of this Agreement). The Pledgee shall also be entitled to
receive directly, and to retain as part of the Collateral:
(i) all other or additional stock, or other securities or property
(other than cash) paid or distributed by way of dividend or otherwise in
respect of the Collateral;
(ii) all other or additional stock or other securities or property
(including cash) paid or distributed in respect of the Collateral by way of
stock-split, spin-off, split-up, reclassification, combination of shares or
similar rearrangement; and
(iii) all other or additional stock or other securities or property
(including cash) which may be paid in respect of the Collateral by reason
of any consolidation, merger, exchange of stock, conveyance of assets,
liquidation or similar corporate reorganization.
Nothing contained in this Section 6 shall limit or restrict in any way the
Pledgee's right to receive the proceeds of the Collateral in any form in
accordance with Section 3 of this Agreement. All dividends, distributions or
other payments which are received by the respective Pledgor contrary to the
provisions of this Section 6 or Section 7 shall be received in trust for the
benefit of the Pledgee, shall be segregated from other property or funds of such
Pledgor and shall be forthwith paid over to the Pledgee as Collateral in the
same form as so received (with any necessary endorsement).
7. REMEDIES IN CASE OF AN EVENT OF DEFAULT. (a) In case an Event of
Default shall have occurred and be continuing, the Pledgee shall be entitled to
exercise all of the rights, powers and remedies (whether vested in it by this
Agreement or any other Secured Debt Agreement or by law) for the protection and
enforcement of its rights in respect of the Collateral, including, without
limitation, all the rights and remedies of a secured party upon default under
the Uniform Commercial
<PAGE>
Page 9
Code of the State of New York, and the Pledgee shall be entitled, without
limitation, to exercise any or all of the following rights, which each Pledgor
hereby agrees to be commercially reasonable:
(i) to receive all amounts payable in respect of the Collateral
otherwise payable under Section 6 to such Pledgor;
(ii) to transfer all or any part of the Collateral into the Pledgee's
name or the name of its nominee or nominees;
(iii) to accelerate any Pledged Note which may be accelerated in
accordance with its terms, and take any other lawful action to collect upon
any Pledged Note (including, without limitation, to make any demand for
payment thereon);
(iv) to vote all or any part of the Pledged Stock, Pledged Partnership
Interests and Pledged Membership Interests (whether or not transferred into
the name of the Pledgee) and give all consents, waivers and ratifications
in respect of the Collateral and otherwise act with respect thereto as
though it were the outright owner thereof (each Pledgor hereby irrevocably
constituting and appointing the Pledgee the proxy and attorney-in-fact of
such Pledgor, with full power of substitution to do so); and
(v) at any time or from time to time to sell, assign and deliver, or
grant options to purchase, all or any part of the Collateral, or any
interest therein, at any public or private sale, without demand of
performance, advertisement or notice of intention to sell or of the time or
place of sale or adjournment thereof or to redeem or otherwise (all of
which are hereby waived by each Pledgor), for cash, on credit or for other
property, for immediate or future delivery without any assumption of credit
risk, and for such price or prices and on such terms as the Pledgee in its
absolute discretion may determine, provided that at least 10 days' notice
of the time and place of any such sale shall be given to such Pledgor. The
Pledgee shall not be obligated to make such sale of Collateral regardless
of whether any such notice of sale has theretofore been given. Each
purchaser at any such sale shall hold the property so sold absolutely free
from any claim or right on the part of any Pledgor, and each Pledgor hereby
waives and releases to the fullest extent permitted by law any right or
equity of redemption with respect to the Collateral, whether before or
after sale hereunder, all rights, if any, of marshalling the Collateral and
any other security for the
<PAGE>
Page 10
Obligations or otherwise, and all rights, if any, of stay and/or
appraisal which it now has or may at any time in the future have under
rule of law or statute now existing or hereafter enacted. At any such
sale, unless prohibited by applicable law, the Pledgee on behalf of all
Secured Creditors (or certain of them) may bid for and purchase (by
bidding in Obligations or otherwise) all or any part of the Collateral so
sold free from any such right or equity of redemption. Neither the
Pledgee nor any Secured Creditor shall be liable for failure to collect
or realize upon any or all of the Collateral or for any delay in so doing
nor shall it be under any obligation to take any action whatsoever with
regard thereto.
8. REMEDIES, ETC., CUMULATIVE. Each right, power and remedy of the
Pledgee provided for in this Agreement or any other Secured Debt Agreement, or
now or hereafter existing at law or in equity or by statute shall be cumulative
and concurrent and shall be in addition to every other such right, power or
remedy. The exercise or beginning of the exercise by the Pledgee or any other
Secured Creditor of any one or more of the rights, powers or remedies provided
for in this Agreement or any other Secured Debt Agreement or now or hereafter
existing at law or in equity or by statute or otherwise shall not preclude the
simultaneous or later exercise by the Pledgee or any other Secured Creditor of
all such other rights, powers or remedies, and no failure or delay on the part
of the Pledgee or any other Secured Creditor to exercise any such right, power
or remedy shall operate as a waiver thereof. Unless otherwise required by the
Credit Documents, no notice to or demand on any Pledgor in any case shall
entitle it to any other or further notice or demand in similar other
circumstances or constitute a waiver of any of the rights of the Pledgee or any
other Secured Creditor to any other further action in any circumstances without
demand or notice. The Secured Creditors agree that this Agreement may be
enforced only by the action of the Administrative Agent or the Pledgee, in each
case acting upon the instructions of the Required Lenders (or, after the date on
which all Credit Document Obligations have been paid in full, the holders of at
least the majority of the outstanding Interest Rate Obligations) and that no
other Secured Creditor shall have any right individually to seek to enforce or
to enforce this Agreement or to realize upon the security to be granted hereby,
it being understood and agreed that such rights and remedies may be exercised by
the Administrative Agent or the Pledgee or the holders of at least a majority of
the outstanding Interest Rate Obligations, as the case may be, for the benefit
of the Secured Creditors upon the terms of this Agreement.
9. APPLICATION OF PROCEEDS. (a) All moneys collected by the
Pledgee upon any sale or other disposition of the Collateral pursuant to the
terms of this
<PAGE>
Page 11
Agreement, together with all other moneys received by the Pledgee hereunder,
shall be applied in the manner provided in Section 7.4 of the Security
Agreement.
(b) It is understood and agreed that the Pledgor shall remain liable
to the extent of any deficiency between (x) the amount of the Obligations for
which it is responsible directly or as a Guarantor that are satisfied with
proceeds of the Collateral hereunder and (y) the aggregate outstanding amount of
the Obligations.
10. PURCHASERS OF COLLATERAL. Upon any sale of the Collateral by the
Pledgee hereunder (whether by virtue of the power of sale herein granted,
pursuant to judicial process or otherwise), the receipt of the Pledgee or the
officer making the sale shall be a sufficient discharge to the purchaser or
purchasers of the Collateral so sold, and such purchaser or purchasers shall not
be obligated to see to the application of any part of the purchase money paid
over to the Pledgee or such officer or be answerable in any way for the
misapplication or nonapplication thereof.
11. INDEMNITY. Each Pledgor jointly and severally agrees (i) to
indemnify and hold harmless the Pledgee and the other Secured Creditors from and
against any and all claims, demands, losses, judgments and liabilities
(including liabilities for penalties) of whatsoever kind or nature, and (ii) to
reimburse the Pledgee and the other Secured Creditors for all reasonable costs
and expenses, including reasonable attorneys' fees, growing out of or resulting
from this Agreement or the exercise by the Pledgee of any right or remedy
granted to it hereunder or under any other Secured Debt Agreement except, with
respect to clauses (i) and (ii) above, for those arising from the Pledgee's
gross negligence or willful misconduct. In no event shall the Pledgee be liable,
in the absence of gross negligence or willful misconduct on its part, for any
matter or thing in connection with this Agreement other than to account for
moneys or other property actually received by it in accordance with the terms
hereof. If and to the extent that the obligations of any Pledgor under this
Section 11 are unenforceable for any reason, such Pledgor hereby agrees to make
the maximum contribution to the payment and satisfaction of such obligations
which is permissible under applicable law.
12. FURTHER ASSURANCES; POWER OF ATTORNEY. (a) Each
Pledgor agrees that it will join with the Pledgee in executing and, at such
Pledgor's own expense, file and refile under the Uniform Commercial Code such
financing statements, continuation statements and other documents in such
offices as the Pledgee may deem necessary or appropriate and wherever required
or permitted by law in order to perfect and preserve the Pledgee's security
interest in the Collateral hereunder and hereby
<PAGE>
Page 12
authorizes the Pledgee to file financing statements and amendments thereto
relative to all or any part of the Collateral without the signature of such
Pledgor where permitted by law, and agrees to do such further acts and things
and to execute and deliver to the Pledgee such additional conveyances,
assignments, agreements and instruments as the Pledgee may reasonably require
or deem advisable to carry into effect the purposes of this Agreement or to
further assure and confirm unto the Pledgee its rights, powers and remedies
hereunder or thereunder.
(b) Each Pledgor hereby appoints the Pledgee, such Pledgor's
attorney-in-fact, with full authority in the place and stead of such Pledgor and
in the name of such Pledgor or otherwise, from time to time after the occurrence
and during the continuance of an Event of Default, in the Pledgee's reasonable
discretion to take any action and to execute any instrument which the Pledgee
may reasonably deem necessary or advisable to accomplish the purposes of this
Agreement.
13. THE PLEDGEE AS COLLATERAL AGENT. The Pledgee will
hold in accordance with this Agreement all items of the Collateral at any time
received under this Agreement. It is expressly understood and agreed that the
obligations of the Pledgee as holder of the Collateral and interests therein and
with respect to the disposition thereof, and otherwise under this Agreement, are
only those expressly set forth in this Agreement. The Pledgee shall act
hereunder on the terms and conditions set forth herein and in Section 11 of the
Credit Agreement.
14. TRANSFER BY THE PLEDGORS. No Pledgor will sell or
otherwise dispose of, grant any option with respect to, or mortgage, pledge or
otherwise encumber any of the Collateral or any interest therein (except in
accordance with the terms of this Agreement and the other Secured Debt
Agreements).
15. REPRESENTATIONS, WARRANTIES AND COVENANTS OF
THE PLEDGORS. (a) Each Pledgor represents, warrants and covenants that:
(i) it is, or at the time when pledged hereunder will be, the legal,
beneficial and record owner of, and has (or will have) good and marketable
title to, all Securities pledged by it hereunder, subject to no pledge,
lien, mortgage, hypothecation, security interest, charge, option or other
encumbrance whatsoever, except the liens and security interests created by
this Agreement;
(ii) it has full power, authority and legal right to pledge all
the Securities pledged by it pursuant to this Agreement;
<PAGE>
Page 13
(iii) this Agreement has been duly authorized, executed and delivered
by such Pledgor and constitutes a legal, valid and binding obligation of
such Pledgor enforceable in accordance with its terms, except to the extent
that the enforceability thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws generally
affecting creditors' rights and by equitable principles (regardless of
whether enforcement is sought in equity or at law);
(iv) except to the extent already obtained or made, no consent of any
other party (including, without limitation, any stockholder, limited or
general partner, member or creditor of such Pledgor or any of its
Subsidiaries) and no consent, license, permit, approval or authorization
of, exemption by, notice or report to, or registration, filing or
declaration with, any governmental authority is required to be obtained by
such Pledgor in connection with (a) the execution, delivery or performance
of this Agreement, (b) the validity or enforceability of this Agreement,
(c) the perfection or enforceability of the Pledgee's security interest in
the Collateral or (d) except for compliance with or as may be required by
applicable securities laws, the exercise by the Pledgee of any of its
rights or remedies provided herein;
(v) the execution, delivery and performance of this Agreement will
not violate any provision of any applicable law or regulation or of any
order, judgment, writ, award or decree of any court, arbitrator or
governmental authority, domestic or foreign, applicable to such Pledgor, or
of the certificate of incorporation, certificate of formation, by-laws,
certificate of limited partnership, partnership agreement or limited
liability company agreement, as the case may be, of such Pledgor or of any
securities issued by such Pledgor or any of its Subsidiaries, or of any
mortgage, indenture, lease, loan agreement, credit agreement or other
contract, agreement or instrument or undertaking to which such Pledgor or
any of its Subsidiaries is a party or which purports to be binding upon
such Pledgor or any of its Subsidiaries or upon any of their respective
assets and will not result in the creation or imposition of (or the
obligation to create or impose) any lien or encumbrance on any of the
assets of such Pledgor or any of its Subsidiaries except as contemplated by
this Agreement;
(vi) all the shares of the Stock have been duly and validly issued,
are fully paid and non-assessable and are subject to no options to purchase
or similar rights;
<PAGE>
Page 14
(vii) each of the Pledged Notes constitutes, or when executed by the
obligor thereof will constitute, the legal, valid and binding obligation of
such obligor, enforceable in accordance with its terms, except to the
extent that the enforceability thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
generally affecting creditors' rights and by equitable principles
(regardless of whether enforcement is sought in equity or at law);
(viii) the pledge, assignment and delivery to the Pledgee of the
Securities (other than uncertificated securities) pursuant to this
Agreement creates a valid and perfected first priority Lien in the
Securities and the proceeds thereof, subject to no other Lien or to any
agreement purporting to grant to any third party a Lien on the property or
assets of such Pledgor which would include the Securities; and
(ix) it will defend the Pledgee's right, title and interest in and to
the Partnership Interests, the Membership Interests and in and to the other
Collateral pledged by it pursuant hereto or in which it has granted a
security interest pursuant hereto against the claims and demands of all
other persons whomsoever, and that it will have like title to and right to
pledge any other property at any time hereafter pledged to the Pledgee as
Collateral hereunder and will likewise defend the right thereto and
security interest therein of the Pledgee and the Secured Creditors;
(x) it is the legal and beneficial owner of and has good title to its
Partnership Interests and Membership Interests and has good title to all of
the other Collateral pledged by it pursuant hereto or in which it has
granted a security interest pursuant hereto, free and clear of all claims,
pledges, liens, encumbrances and security interests of every nature
whatsoever, except such as are created pursuant to this Agreement, and has
the unqualified right to pledge and grant a security interest in the same
as herein provided without the consent of any other Person, firm,
association or entity which has not been obtained;
(xi) it has full power, authority and legal right to pledge the
Partnership Interests and the Membership Interests pledged by it pursuant
to this Agreement and such Partnership Interest and Membership Interests
have been validly acquired and is fully paid for and is duly and validly
pledged hereunder;
<PAGE>
Page 15
(xii)it is not in default in the payment of any portion of any
mandatory capital contribution, if any, required to be made under any
partnership agreement or limited liability company agreement to which such
Pledgor is a party, and such Pledgor is not in violation of any other
material provisions of any partnership agreement or limited liability
company agreement to which such Pledgor is a party, or otherwise in default
or violation thereunder, no Partnership Interest or Membership Interest is
subject to any defense, offset or counterclaim, nor have any of the
foregoing been asserted or alleged against such Pledgor by any Person with
respect thereto and as of the Closing Date, there are no certificates,
instruments, documents or other writings (other than the partnership
agreements and certificates, if any, delivered to the Collateral Agent)
which evidence any Partnership Interest or Membership Interest of such
Pledgor;
(xiii)the pledge and assignment of the Partnership Interests and the
Membership Interests pursuant to this Agreement, together with the relevant
filings, consents or recordings (which filings and recordings have been
made or obtained), creates a valid, perfected and continuing first security
interest in such Partnership Interests and Membership Interest and the
proceeds thereof, subject to no prior lien or encumbrance or to any
agreement purporting to grant to any third party a lien or encumbrance on
the property or assets of such Pledgor which would include the Collateral;
(xiv)there are no currently effective financing statements under the
UCC covering any property which is now or hereafter may be included in the
Collateral and such Pledgor will, without the prior written consent of the
Pledgee, execute and, until the Termination Date (as hereinafter defined),
there will not ever be on file in any public office, any enforceable
financing statement or statements covering any or all of the Collateral,
except financing statements filed or to be filed in favor of the Pledgee as
secured party;
(xv) it shall give the Pledgee prompt notice of any written claim
relating to the Collateral and shall deliver to the Pledgee a copy of each
other demand, notice or document received by it which may adversely affect
the Pledgee's interest in the Collateral promptly upon, but in any event
within 10 days after, such Pledgor's receipt thereof;
(xvi)it shall not withdraw as a partner of any Pledged Partnership or
member of any Pledged LLC, or file or pursue or take any action which may,
directly or indirectly, cause a dissolution or liquidation of or with
respect to any
<PAGE>
Page 16
Pledged Partnership or Pledged LLC or seek a partition of any property of
any Pledged Partnership or Pledged LLC, except as permitted by the Credit
Agreement;
(xvii)a notice in the form set forth in Annex E attached hereto and
by this reference made a part hereof (such notice, the "Pledge Notice"),
appropriately completed, notifying each Pledged Partnership and Pledged LLC
of the existence of this Agreement and attached thereto a copy of this
Agreement have been delivered by such Pledgor to the relevant Pledged
Partnership or Pledged LLC, and such Pledgor has received and delivered to
the Pledgee an acknowledgment in the form set forth in Annex F attached
hereto (such acknowledgement, the "Pledge Acknowledgement"), duly executed
by the relevant Pledged Partnership or Pledged LLC; and
(xviii)as of the date hereof, all of its Partnership Interest and
Membership Interests are uncertificated and each Pledgor covenants and
agrees that it will not approve of any action by any Pledged Partnership or
Pledged LLC to convert such uncertificated interests into certificated
interests; and
(xix) it will take no action which would violate or be inconsistent
with any of the terms of any Secured Debt Agreement, or which would have
the effect of impairing the position or interests of the Pledgee or any
other Secured Creditor under any Secured Debt Agreement except as permitted
by the Credit Agreement.
16. PLEDGORS' OBLIGATIONS ABSOLUTE, ETC. The obligations of each
Pledgor under this Agreement shall be absolute and unconditional and shall
remain in full force and effect without regard to, and shall not be released,
suspended, discharged, terminated or otherwise affected by, any circumstance or
occurrence whatsoever, including, without limitation:
(i) any renewal, extension, amendment or modification of, or
addition or supplement to or deletion from any of the Secured Debt
Agreements, or any other instrument or agreement referred to therein, or
any assignment or transfer of any thereof;
(ii) any waiver, consent, extension, indulgence or other action or
inaction under or in respect of any such agreement or instrument or this
Agreement;
<PAGE>
Page 17
(iii) any furnishing of any additional security to the Pledgee or
its assignee or any acceptance thereof or any release of any security by
the Pledgee or its assignee;
(iv) any limitation on any party's liability or obligations under any
such instrument or agreement or any invalidity or unenforceability, in
whole or in part, of any such instrument or agreement or any term thereof;
or
(v) any bankruptcy, insolvency, reorganization, composition,
adjustment, dissolution, liquidation or other like proceeding relating to
such Pledgor or any Subsidiary of such Pledgor, or any action taken with
respect to this Agreement by any trustee or receiver, or by any court, in
any such proceeding, whether or not such Pledgor shall have notice or
knowledge of any of the foregoing.
17. REGISTRATION, ETC. (a) If an Event of Default shall have occurred
and be continuing and any Pledgor shall have received from the Pledgee a written
request or requests that such Pledgor cause any registration, qualification or
compliance under any Federal or state securities law or laws to be effected with
respect to all or any part of the Pledged Stock, such Pledgor as soon as
practicable and at its expense will use its best efforts to cause such
registration to be effected (and be kept effective) and will use its best
efforts to cause such qualification and compliance to be effected (and be kept
effective) as may be so requested and as would permit or facilitate the sale and
distribution of such Pledged Stock, including, without limitation, registration
under the Securities Act of 1933, as then in effect (or any similar statute then
in effect), appropriate qualifications under applicable blue sky or other state
securities laws and appropriate compliance with any other governmental
requirements, provided that the Pledgee shall furnish to such Pledgor such
information regarding the Pledgee as such Pledgor may request in writing and as
shall be required in connection with any such registration, qualification or
compliance. Each Pledgor will cause the Pledgee to be kept reasonably advised in
writing as to the progress of each such registration, qualification or
compliance and as to the completion thereof, will furnish to the Pledgee such
number of prospectuses, offering circulars and other documents incident thereto
as the Pledgee from time to time may reasonably request, and will indemnify, to
the extent permitted by law, the Pledgee, each other Secured Creditor and all
others participating in the distribution of such Pledged Stock against all
claims, losses, damages or liabilities caused by any untrue statement (or
alleged untrue statement) of a material fact contained therein (or in any
related registration statement, notification or the like) or by any omission (or
alleged omission) to state therein (or in any related registration statement,
notification or the like) a material fact required to be
<PAGE>
Page 18
stated therein or necessary to make the statements therein not misleading,
except insofar as the same may have been caused by an untrue statement or
omission based upon information furnished in writing to such Pledgor by the
Pledgee or such other Secured Creditor expressly for use therein.
(b) If at any time when the Pledgee shall determine to exercise its
right to sell all or any part of the Pledged Securities pursuant to Section 7,
and such Pledged Securities or the part thereof to be sold shall not, for any
reason whatsoever, be effectively registered under the Securities Act of 1933,
as then in effect, the Pledgee may, in its sole and absolute discretion, sell
such Pledged Securities or part thereof by private sale in such manner and under
such circumstances as Pledgee may deem necessary or advisable in order that such
sale may legally be effected without such registration. Without limiting the
generality of the foregoing, in any such event the Pledgee, in its sole and
absolute discretion, (i) may proceed to make such private sale notwithstanding
that a registration statement for the purpose of registering such Pledged
Securities or part thereof shall have been filed under such Securities Act, (ii)
may approach and negotiate with a single possible purchaser to effect such sale
and (iii) may restrict such sale to a purchaser who will represent and agree
that such purchaser is purchasing for its own account, for investment, and not
with a view to the distribution or sale of such Pledged Securities or part
thereof. In the event of any such sale, the Pledgee shall incur no
responsibility or liability for selling all or any part of the Pledged
Securities at a price which the Pledgee, in its sole and absolute discretion,
may in good faith deem reasonable under the circumstances, notwithstanding the
possibility that a substantially higher price might be realized if the sale were
deferred until the registration as aforesaid.
18. TERMINATION; RELEASE. (a) After the Termination Date (as defined
below), this Agreement shall terminate (provided that all indemnities set forth
herein including, without limitation, in Section 11 hereof shall survive any
such termination) and the Pledgee, at the request and expense of the respective
Pledgor, will execute and deliver to such Pledgor a proper instrument or
instruments acknowledging the satisfaction and termination of this Agreement as
provided above, and will duly assign, transfer and deliver to such Pledgor
(without recourse and without any representation or warranty) such of the
Collateral as may be in the possession of the Pledgee and as has not theretofore
been sold or otherwise applied or released pursuant to this Agreement, together
with any moneys at the time held by the Pledgee hereunder. As used in this
Agreement, "Termination Date" shall mean the date upon which the Total
Commitment and all Secured Interest Rate Agreements have been terminated, no
Letter of Credit or no Note under the Credit Agreement is outstanding (and all
Loans
<PAGE>
Page 19
have been paid in full) and all other Obligations have been paid in full
(other than arising from indemnities for which no request has been made).
(b) In the event that any part of the Collateral is sold in
connection with a sale permitted by Section 8.02 of the Credit Agreement or is
otherwise released at the direction of the Required Lenders (or all the Lenders
if required by Section 12.12 of the Credit Agreement), and the proceeds of such
sale or sales or from such release are applied in accordance with the terms of
the Credit Agreement to the extent required to be so applied, the Pledgee, at
the request and expense of the respective Pledgor will release such Collateral
from this Agreement, duly assign, transfer and deliver to such Pledgor (without
recourse and without any representation or warranty) such of the Collateral as
is then being (or has been) so sold or released and as may be in possession of
the Pledgee and has not theretofore been released pursuant to this Agreement.
(c) At any time that any Pledgor desires that Collateral be released
as provided in the foregoing Section 18(a) or (b), it shall deliver to the
Pledgee a certificate signed by a principal executive officer stating that the
release of the respective Collateral is permitted pursuant to Section 18(a) or
(b). The Pledgee shall have no liability whatsoever to any Secured Creditor as
the result of any release of Collateral by it as permitted by this Section 18.
19. NOTICES, ETC. All notices and other communications hereunder
shall be in writing and shall be delivered or mailed by first class mail,
postage prepaid, addressed:
(i) if to any Pledgor, at its address set forth opposite its signature
below;
(ii) if to the Pledgee, at:
National Westminster Bank Plc
[175 Water Street]
New York, New York 10038
Attention: ______________________
Tel: (212)
Fax: (212)
(iii) if to any Lender (other than the Pledgee), at such address as such
Lender shall have specified in the Credit Agreement;
<PAGE>
Page 20
(iv) if to any Interest Rate Creditor, at such address as such Interest
Rate Creditor shall have specified in writing to the Pledgors and the
Pledgee;
or at such other address as shall have been furnished in writing by any Person
described above to the party required to give notice hereunder.
20. WAIVER; AMENDMENT. None of the terms and conditions of this
Agreement may be changed, waived, modified or varied in any manner whatsoever
unless in writing duly signed by the Pledgee (with the consent of the Required
Lenders or, to the extent required by Section 12.12 of the Credit Agreement, all
of the Lenders) and each Pledgor affected thereby, provided that (i) no such
change, waiver, modification or variance shall be made to Section 9 hereof or
this Section 20 without the consent of each Secured Creditor adversely affected
thereby and (ii) any change, waiver, modification or variance affecting the
rights and benefits of a single Class of Secured Creditors (and not all Secured
Creditors in a like or similar manner) shall require the written consent of the
Requisite Creditors of such Class of Secured Creditors. For the purpose of this
Agreement, the term "Class" shall mean each class of Secured Creditors, i.e.,
whether (x) the Lender Creditors as holders of the Credit Document Obligations
or (y) the Interest Rate Creditors as holders of the Interest Rate Obligations.
For the purpose of this Agreement, the term "Requisite Creditors" of any Class
shall mean each of (x) with respect to each of the Credit Document Obligations,
the Required Lenders and (y) with respect to the Interest Rate Obligations, the
holders of at least a majority of all obligations outstanding from time to time
under the Secured Interest Rate Agreements.
21. PLEDGEE NOT BOUND. (a) Nothing herein shall be construed to make
the Pledgee or any other Secured Creditor liable as a general partner or limited
partner of any Pledged Partnership or a member of any Pledged LLC or a
shareholder of any corporation, and neither the Pledgee nor any Secured Creditor
by virtue of this Agreement or otherwise (except as referred to in the following
sentence) shall have any of the duties, obligations or liabilities of a general
partner or limited partner of any Pledged Partnership or a member of any Pledged
LLC or a stockholder of any corporation. The parties hereto expressly agree
that, unless the Pledgee shall become the absolute owner of a Partnership
Interest, a Membership Interest or Stock pursuant hereto, this Agreement shall
not be construed as creating a partnership or joint venture or membership
agreement among the Pledgee, any other Secured Creditor and/or a Pledgor.
<PAGE>
Page 21
(b) Except as provided in the last sentence of paragraph (a) of this
Section 21, the Pledgee, by accepting this Agreement, did not intend to become a
general partner or limited partner of any Pledged Partnership or a member of any
Pledged LLC or a shareholder of any corporation or otherwise be deemed to be a
co-venturer with respect to any Pledgor or any Pledged Partnership or a member
of any Pledged LLC or a shareholder of any corporation either before or after an
Event of Default shall have occurred. The Pledgee shall have only those powers
set forth herein and shall assume none of the duties, obligations or liabilities
of a general partner or limited partner of any Pledged Partnership or of a
member of any Pledged LLC or of a Pledgor.
(c) The Pledgee shall not be obligated to perform or discharge any
obligation of a Pledgor as a result of the collateral assignment hereby
effected.
(d) The acceptance by the Pledgee of this Agreement, with all the
rights, powers, privileges and authority so created, shall not at any time or in
any event obligate the Pledgee to appear in or defend any action or proceeding
relating to the Collateral to which it is not a party, or to take any action
hereunder or thereunder, or to expend any money or incur any expenses or perform
or discharge any obligation, duty or liability under the Collateral.
22. MISCELLANEOUS. This Agreement shall create a continuing
security interest in the Collateral and shall (i) remain in full force and
effect, subject to release and/or termination as set forth in Section 18, (ii)
be binding upon each Pledgor, its successors and assigns; provided that no
Pledgor shall assign any of its rights or obligations hereunder without the
prior written consent of the Pledgee (with the prior written consent of the
Required Lenders or to the extent required by Section 12.12 of the Credit
Agreement, all of the Lenders), and (iii) inure, together with the rights and
remedies of the Pledgee hereunder, to the benefit of the Pledgee, the other
Secured Creditors and their respective successors, transferees and assigns. THIS
AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE
STATE OF NEW YORK. The headings of the several sections and subsections in this
Agreement are for purposes of reference only and shall not limit or define the
meaning hereof. This Agreement may be executed in any number of counterparts,
each of which shall be an original, but all of which together shall constitute
one instrument. In the event that any provision of this Agreement shall prove to
be invalid or unenforceable, such provision shall be deemed to be severable from
the other provisions of this Agreement which shall remain binding on all parties
hereto.
<PAGE>
Page 22
23. WAIVER OF JURY TRIAL. Each Pledgor and the Pledgee hereby
irrevocably waive all right to a trial by jury in any action, proceeding or
counterclaim arising out of or relating to this agreement or the transactions
contemplated hereby.
24. ADDITIONAL PLEDGORS. It is understood and agreed that any
Subsidiary of the Borrower that is required to execute a counterpart of this
Agreement pursuant to the Credit Agreement shall become a Pledgor hereunder by
executing a counterpart hereof and delivering the same to the Pledgee and
Annexes A, B, C and D will be modified at such time in a manner acceptable to
the Pledgee to give effect to such additional Pledgor.
25. AUTHORIZATION AND DIRECTION. Each Pledged Partnership and each
Pledged LLC is hereby authorized and directed to register the respective
Pledgor's pledge to the Pledgee on behalf of the Secured Creditors of the
interest of such Pledgor on such entity's books. Each Pledgor agrees to give the
respective Pledged Partnership or Pledged LLC, as the case may be, a Pledge
Notice, and to cause each such Pledged Partnership or Pledged LLC, as the case
may be, to acknowledge such notice with a Pledge Acknowledgement.
* * *
<PAGE>
Page 23
IN WITNESS WHEREOF, each Pledgor and the Pledgee have caused this Agreement to
be executed and delivered by their duly authorized officers as of the date first
above written.
257 Park Avenue South, 7th Fl. NORTH ATLANTIC TRADING
New York, New York 10010-7304 ACQUISITION COMPANY, INC.,
as a Pledgor
By: /s/ David Brunson
----------------------------
Title: Chief Financial Officer
257 Park Avenue South, 7th Fl. NORTH ATLANTIC OPERATING
New York, New York 10010-7304 COMPANY, INC., as a Pledgor
By: /s/ David Brunson
----------------------------
Title: Chief Financial Officer
257 Park Avenue South, 7th Fl. NATIONAL TOBACCO COMPANY,
New York, New York 10010-7304 L.P., as a Pledgor
BY: NATIONAL TOBACCO
FINANCE CORPORATION, as its
General Partner
By: /s/ David Brunson
----------------------------
Title: Chief Financial Officer
257 Park Avenue South, 7th Fl. NATIONAL TOBACCO FINANCE
New York, New York 10010-7304 CORPORATION, as a Pledgor
By: /s/ David Brunson
----------------------------
Title: Chief Financial Officer
<PAGE>
175 Water Street NATIONAL WESTMINSTER BANK PLC,
New York, New York 10038 as Collateral Agent, as Pledgee
By: /s/ Ronan Agnew
---------------------------
Title: Vice President
<PAGE>
NATIONAL TOBACCO COMPANY MANAGEMENT BONUS PROGRAM
THIS PROGRAM WILL BE BASED ON ANNUAL EBITDA PERFORMANCE WITH ELIGIBLE
PARTICIPANTS BEING THE PARTICIPANTS AS DETERMINED BY THE BOARD OF DIRECTORS FROM
TIME TO TIME.
<TABLE>
<S> <C> <C>
1. GROUP PARTICIPANTS
A. President
Executive Vice-President and Chief Financial Officer
Executive Vice-President and General Council
B. Executive Vice-President, Sales
Executive Vice-President and COO
Senior Vice-President and CFO
Vice-President, Marketing
Vice-President and General Manager-Operations
C. Participants and the level of bonus pay in this group are to be
determined by the Management Committee on an annual basis, not to
exceed $50,000.
</TABLE>
II. Bonus EBITDA target level: 1996--$15.1MM, 1997--$15.8MM,
1998--$16.6MM, 1999--$17.4MM, 2000--$18.2MM, 2001--$19.0MM.
III. For any year in which the minimum EBITDA target is not reached, the
Compensation Committee of the Board of Directors shall have the right
to allocate bonuses on a discretionary basis.
IV. All dollar payouts above 100% shall be on a graduated basis in whole
percent increments.
V. LEVEL OF PERFORMANCE
GROUP A GROUP B
% OF BASE % OF BASE
% EBITDA SALARY SALARY
-------- --------- ---------
100% 50% 25%
105% 60% 30%
110% 70% 35%
(greater than) 110% Board Discretion Board Discretion
<PAGE>
Exhibit 12
Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends
and Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
The Company (Pro Forma):
Six months
Year ended Ended
12/31/96 6/30/97
-------- -------
<S> <C> <C>
Earnings:
Income (loss) from continuing
operations before taxes $5,251 ($2,666)
Adjusted combined fixed charges
and preferred stock dividends 25,654 14,794
------- --------
$30,905 $12,128
======= ========
Combined fixed charges and
preferred stock dividends:
Interest expense $25,435 $14,682
Interest portion of rent expense 219 112
Preferred stock dividend
requirements 4,325 2,468
------- --------
$29,979 $17,262
======= ========
Adjusted combined fixed charges
and preferred stock dividends:
Fixed charges and
preferred stock dividends $29,979 $17,262
Preferred stock dividend
requirements (4,325) (2,468)
------- --------
$25,654 $14,794
======= ========
Ratio of earnings to combined fixed charges
and preferred stock dividends (1) 1.03 --
</TABLE>
<TABLE>
<CAPTION>
Six months
Year ended Ended
12/31/96 6/30/97
-------- -------
<S> <C> <C>
Earnings:
Income (loss) from continuing
operations before taxes $5,251 ($2,666)
Fixed charges 25,654 14,794
-------- -------
$30,905 $12,128
======= =======
Fixed charges:
Interest expense $25,435 $14,682
Interest portion of rent expense 219 112
-------- -------
$25,654 $14,794
======= =======
Ratio of earnings to fixed charges (2) 1.20 --
</TABLE>
<TABLE>
<CAPTION>
National Tobacco:
Predecessor 2 Predecessor 1
---------------------------------------------------------------------------------------
Period from Period from
Period from 4/15/92 Period from 5/17/96 to
1/1/92 to (Inception) Year ended Year ended Year ended 1/1/96 to (inception)
4/15/92 12/31/92 12/31/93 12/31/94 12/31/95 5/17/96 6/30/96
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Income (loss) before income
taxes and cumulative effect of
change in accounting principle
and extraordinary loss ($45) $2,301 ($1,465) $5,812 $2,628 $1,132 $1,247
Fixed charges 1,266 5,357 7,134 7,087 7,464 2,565 1,070
------ ------ ------ ------- ------- ------ ------
$1,221 $7,658 $5,669 $12,899 $10,092 $3,697 $2,317
====== ====== ====== ======= ======= ====== ======
Fixed charges:
Interest expense $1,198 $5,210 $6,896 $6,834 $7,239 $2,453 $1,035
Interest portion of rent expense 68 147 238 253 225 112 35
------ ------ ------ ------- ------- ------ ------
$1,266 $5,357 $7,134 $7,087 $7,464 $2,565 $1,070
====== ====== ====== ======= ======= ====== ======
Ratio of earnings to fixed charges (3) -- 1.43 -- 1.82 1.35 1.44 2.17
<CAPTION>
National Tobacco:
NTC Holding, LLC
------------------------
Period from Six months
6/30/96 Ended
to 12/31/96 6/30/97
------------------------
<S> <C> <C>
Earnings:
Income (loss) before income
taxes and cumulative effect of
change in accounting principle
and extraordinary loss ($864) ($571)
Fixed charges 5,470 5,306
------ ------
$4,606 $4,735
====== ======
Fixed charges:
Interest expense $5,363 $5,194
Interest portion of rent expense 107 112
------ ------
$5,470 $5,306
====== ======
Ratio of earnings to fixed charges (3) -- --
</TABLE>
<TABLE>
<CAPTION>
Six months
Ended 6/30/97
-----------------
<S> <C>
Earnings:
Income (loss) before income
taxes and cumulative effect of
change in accounting principle
and extraordinary loss ($571)
Adjusted combined fixed charges
and preferred stock dividends 5,307
------------------
$4,736
==================
Combined fixed charges and
preferred stock dividends:
Interest expense $5,195
Interest portion of rent expense 112
Preferred stock dividend
requirements 58
------------------
$5,365
==================
Adjusted combined fixed charges
and preferred stock dividends:
Fixed charges and
preferred stock dividends $5,365
Preferred stock dividend
requirements (58)
------------------
$5,307
==================
Ratio of earnings to combined fixed charges
and preferred stock dividends (1) ---
</TABLE>
<TABLE>
<CAPTION>
NAOC:
Period from
(Inception) Three months Three months
3/31/93 to Year ended Year ended Ended Year ended Ended
12/31/93 12/31/94 12/31/95 3/31/97 12/31/96 3/31/97
-------- -------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Income (loss) before income taxes
and extraordinary loss $2,032 $13,231 $12,423 $4,170 $14,474 $2,737
Fixed charges 3,541 4,493 4,992 1,326 5,001 1,156
------ ------- ------- ------ ------- ------
$5,573 $17,724 $17,415 $5,496 $19,475 $3,893
====== ======= ======= ====== ======= ======
Fixed charges:
Interest expense $3,541 $4,471 $4,967 $1,321 $4,976 $1,151
Interest portion of rent expense 0 22 25 5 25 5
------ ------ ------ ------ ------ ------
$3,541 $4,493 $4,992 $1,326 $5,001 $1,156
====== ====== ====== ====== ====== ======
Ratio of earnings to fixed charges 1.57 3.94 3.49 4.14 3.89 3.37
</TABLE>
For the purposes of computing the above ratios, interest expense represents all
interest expense on borrowings, including the amortization of debt discounts and
deferred debt costs. Preferred stock dividend requirements include the
dividends payable on the preferred stock plus the accretion necessary to
increase the recorded value of the preferred stock to its redemption value,
adjusted to represent the pretax earnings necessary to cover such dividend and
accretion by dividing the sum of the dividend and accretion by 100% minus the
ratio of the provision for income taxes to income before income taxes for the
appropriate periods. Interest portion of rent expense represents one-third of
rent expense, which is the portion deemed to be representative of the interest
portion.
(1) The Company had pro forma earnings deficiencies which were inadequate
to cover combined fixed charges and preferred stock dividends by
approximately $5,134 for the six months ended June 30, 1997.
(2) The Company had pro forma earnings deficiencies which were inadequate
to cover fixed charges by approximately $2,666 for the six months
ended June 30, 1997.
(3) The Company had earnings deficiencies which were inadequate to cover
fixed charges by approximately $45, $1,465, $864 and $571 for the
period from January 1, 1992 to April 15, 1992; the year ended December
31, 1993; the period from 5/17/96 to 6/30/97; and the period from
6/30/96 to 12/31/96, respectively.
<PAGE>
Exhibit 15.(a)
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: North Atlantic Trading Company, Inc.
Registration on Form S- 4
We are aware that our report dated August 27, 1997, on our review of interim
consolidated financial information of North Atlantic Trading Company, Inc. and
Subsidiaries for the period ended June 30, 1997 is included in this amendment to
the registration statement. Pursuant to Rule 436(c) under the Securities Act of
1933, this report should not be considered a part of the registration statement
prepared or certified by us within the meaning of Sections 7 and 11 of that Act.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Louisville, Kentucky
August 27, 1997
<PAGE>
Exhibit 15.(b)
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: North Atlantic Trading Company, Inc.
Registration on Form S- 4
We are aware that our report dated April 29, 1997, on our review of interim
consolidated financial information of NATC Holdings USA, Inc. for the period
ended Marh 31, 1997 is included in this amendment to the registration statement.
Pursuant to Rule 436(c) under the Securities Act of 1933, this report should not
be considered a part of the registration statement prepared or certified by us
within the meaning of Sections 7 and 11 of that Act.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Raleigh, North Carolina
August 27, 1997
<PAGE>
Exhibit 23.1(a)
Consent of Independent Accountants
We consent to the inclusion in this amendment to the registration statement on
Form S-4 of our report, which includes an explanatory paragraph concerning
National Tobacco Company, L.P.'s adoption of Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits Other than
Pensions," dated January 24, 1997, on our audits of the consolidated financial
statements of NTC Holding, LLC and the financial statements of National Tobacco
Company, L.P. We also consent to the references to our firm under the caption
"Independent Public Accountants."
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Louisville, Kentucky
August 27, 1997
<PAGE>
Exhibit 23.1(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this amendment to the registration statement on
Form S-4 of our report dated April 29, 1997, on our audits of the consolidated
financial statements of NATC Holdings USA, Inc. We also consent to the
references to our firm under the caption 'Independent Public Accountants.'
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Raleigh, North Carolina
August 27, 1997
<PAGE>
FORM T-1
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
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) _______
------------------
UNITED STATES TRUST COMPANY OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-3818954
(Jurisdiction of incorporation (I.R.S. employer
if not a U.S. national bank) identification No.)
114 West 47th Street 10036-1532
New York, NY (Zip Code)
(Address of principal
executive offices)
------------------
___________________________________________________________
(Exact name of obligor as specified in its charter)
_______________________________ ___________________
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
________________________________________ ____________
(Address of principal executive offices) (Zip Code)
_________________________________________
(Title of the indenture securities)
===============================================================================
<PAGE>
- 2 -
GENERAL
1. General Information
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
Federal Reserve Bank of New York (2nd District), New York, New York
(Board of Governors of the Federal Reserve System)
Federal Deposit Insurance Corporation, Washington, D.C.
New York State Banking Department, Albany, New York
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. Affiliations with the Obligor
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None
3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15:
___________________________ Inc. currently is not in default under any of
its outstanding securities for which United States Trust Company of New
York is Trustee. Accordingly, responses to Items 3, 4, 5, 6, 7, 8, 9, 10,
11, 12, 13, 14 and 15 of Form T-1 are not required under General
Instruction B.
16. List of Exhibits
T-1.1 -- Organization Certificate, as amended, issued by
the State of New York Banking Department to transact
business as a Trust Company, is incorporated by
reference to Exhibit T-1.1 to Form T-1 filed on
September 15, 1995 with the Commission pursuant to
the Trust Indenture Act of 1939, as amended by the
Trust Indenture Reform Act of 1990 (Registration No.
33-97056).
T-1.2 -- Included in Exhibit T-1.1.
T-1.3 -- Included in Exhibit T-1.1.
<PAGE>
- 3 -
16. List of Exhibits
(cont'd)
T-1.4 -- The By-Laws of United States Trust Company of New
York, as amended, is incorporated by reference to
Exhibit T-1.4 to Form T-1 filed on September 15,
1995 with the Commission pursuant to the Trust
Indenture Act of 1939, as amended by the Trust
Indenture Reform Act of 1990 (Registration No.
33-97056).
T-1.6 -- The consent of the trustee required by Section
321(b) of the Trust Indenture Act of 1939, as
amended by the Trust Indenture Reform Act of 1990.
T-1.7 -- A copy of the latest report of condition of the
trustee pursuant to law or the requirements of its
supervising or examining authority.
NOTE
As of ________________ _____, 199___, the trustee had 2,999,020 shares of
Common Stock outstanding, all of which are owned by its parent company, U.S.
Trust Corporation. The term "trustee" in Item 2, refers to each of United
States Trust Company of New York and its parent company, U. S. Trust
Corporation.
In answering Item 2 in this statement of eligibility as to matters peculiarly
within the knowledge of the obligor or its directors, the trustee has relied
upon information furnished to it by the obligor and will rely on information to
be furnished by the obligor and the trustee disclaims responsibility for the
accuracy or completeness of such information.
------------------
Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee,
United States Trust Company of New York, a corporation organized and existing
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 ________
day of____________________, 199___.
UNITED STATES TRUST COMPANY
OF NEW YORK, Trustee
By: ________________________
<PAGE>
Exhibit T-1.6
The consent of the trustee required by Section 321(b) of the Act.
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
September 1, 1995
Securities and Exchange Commission
450 5th Street, N.W.
Washington, DC 20549
Gentlemen:
Pursuant to the provisions of Section 321(b) of the Trust Indenture Act of
1939, as amended by the Trust Indenture Reform Act of 1990, and subject to the
limitations set forth therein, United States Trust Company of New York ("U.S.
Trust") hereby consents that reports of examinations of U.S. Trust by Federal,
State, Territorial or District authorities may be furnished by such authorities
to the Securities and Exchange Commission upon request therefor.
Very truly yours,
UNITED STATES TRUST COMPANY
OF NEW YORK
By: /s/Gerard F. Ganey
-------------------------
Senior Vice President
<PAGE>
EXHIBIT T-1.7
UNITED STATES TRUST COMPANY OF NEW YORK
CONSOLIDATED STATEMENT OF CONDITION
MARCH 31, 1997
(IN THOUSANDS)
ASSETS
Cash and Due from Banks $ 59,856
Short-Term Investments 213,333
Securities, Available for Sale 968,413
Loans 1,370,272
Less: Allowance for Credit Losses 13,614
-----------
Net Loans 1,356,658
Premises and Equipment 61,183
Other Assets 125,938
-----------
Total Assets $ 2,785,381
===========
LIABILITIES
Deposits:
Non-Interest Bearing $ 480,539
Interest Bearing 1,738,130
-----------
Total Deposits 2,218,669
Short-Term Credit Facilities 271,567
Accounts Payable and Accrued Liabilities 131,642
-----------
Total Liabilities $ 2,621,878
===========
STOCKHOLDER'S EQUITY
Common Stock 14,995
Capital Surplus 42,541
Retained Earnings 101,577
Unrealized Gains (Losses) on Securities
Available for Sale, Net of Taxes (2,610)
-----------
Total Stockholder's Equity 163,503
-----------
Total Liabilities and
Stockholder's Equity $ 2,785,381
===========
I, Richard E. Brinkmann, Senior Vice President & Comptroller of the named bank
do hereby declare that this Statement of Condition has been prepared in
conformance with the instructions issued by the appropriate regulatory
authority and is true to the best of my knowledge and belief.
/s/ Richard E. Brinkman
- -----------------------
Richard E. Brinkmann, SVP & Controller
June 22, 1997
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 JUN-30-1997
<CASH> 2,209 3,547
<SECURITIES> 0 0
<RECEIVABLES> 3,533 5,031
<ALLOWANCES> 0 0
<INVENTORY> 42,020 52,909
<CURRENT-ASSETS> 51,173 69,066
<PP&E> 10,040 10,613
<DEPRECIATION> 1,034 1,934
<TOTAL-ASSETS> 96,553 274,554
<CURRENT-LIABILITIES> 25,923 19,867
<BONDS> 0 0
<COMMON> 2,737 32,308
0 0
0 5
<OTHER-SE> 4,875 (24,630)
<TOTAL-LIABILITY-AND-EQUITY> 96,553 274,554
<SALES> 55,936 25,938
<TOTAL-REVENUES> 55,936 25,938
<CGS> 23,254 9,300
<TOTAL-COSTS> 23,254 9,300
<OTHER-EXPENSES> 22,315 12,015
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 8,851 5,194
<INCOME-PRETAX> 1,515 (571)
<INCOME-TAX> 0 5,017
<INCOME-CONTINUING> 1,515 (5,588)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 (8,262)
<CHANGES> 0 0
<NET-INCOME> 1,515 (13,850)
<EPS-PRIMARY> 0 (10.69)
<EPS-DILUTED> 0 0
</TABLE>
<PAGE>
LETTER OF TRANSMITTAL
NORTH ATLANTIC TRADING COMPANY, INC.
Offer to Exchange its Shares of 12% Senior Exchange Payment-In-Kind Preferred
Stock ('New Preferred Stock'), which have been registered under the Securities
Act, for any and all of its outstanding Shares of 12% Senior Payment-In-Kind
Preferred Stock ('Old Preferred Stock'), pursuant to the Prospectus dated
September , 1997
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1997 OR SUCH LATER DATE AND TIME TO WHICH THE EXCHANGE OFFER
MAY BE EXTENDED (THE 'EXPIRATION DATE'). TENDERS MAY BE WITHDRAWN PRIOR TO THE
EXPIRATION DATE.
To:
United States Trust Company of New York, Exchange Agent
<TABLE>
<S> <C>
By Mail: By Facsimile:
United States Trust Company of New York (212) 780-0592
P.O. Box 843 (For Eligible Institutions Only)
Cooper Station
New York, N.Y. 10276
Attention: Corporate Trust Services
By Overnight Courier or
By Hand after 4:30 p.m.: By Hand to 4:30 p.m.:
United States Trust Company of New York United States Trust Company of New York
770 Broadway, 13th Floor 111 Broadway
New York, N.Y. 10003 New York, N.Y. 10006
Attention: Corporate Trust Redemption Unit Attention: Lower Level Corporate Trust Window
For Information Call:
(800) 548-6565
</TABLE>
------------------------
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE COMPLETING
ANY BOX BELOW.
List below the Old Preferred Stock to which this Letter of Transmittal
relates. If the space provided below is inadequate, the certificate number(s)
and number of shares(s) of Old Preferred Stock should be listed on a separate
signed schedule affixed hereto.
<TABLE>
<CAPTION>
DESCRIPTION OF OLD PREFERRED STOCK TENDERED
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S), EXACTLY AS NAME(S)
APPEAR(S) ON OLD PREFERRED STOCK CERTIFICATE (PLEASE FILL IN, IF
BLANK) (1) (2) (3) (4)
AGGREGATE
NUMBER OF
SHARES
OF OLD
AGGREGATE PREFERRED
NUMBER OF STOCK
CERTIFICATE SHARES TENDERED IN
NUMBER(S) OF OLD EXCHANGE FOR
OF PREFERRED AGGREGATE CERTIFICATED
OLD STOCK NUMBER OF NEW
PREFERRED REPRESENTED BY SHARES PREFERRED
STOCK* CERTIFICATE TENDERED** STOCK***
<S> <C> <C> <C> <C>
</TABLE>
* Need not be completed if Old Preferred Stock are being tendered by
book-entry transfer in accordance with DTC's ATOP procedures for transfer.
** Unless otherwise indicated in this column, the number of shares represented
by all Old Preferred Stock Certificates identified in Column 1 or delivered
to the Exchange Agent shall be deemed tendered.
*** Unless otherwise indicated, the holder will be deemed to have tendered
shares of Old Preferred Stock in exchange for a beneficial interest in one
or more fully registered global certificates, which will be deposited with,
or on behalf of, The Depository Trust Company ('DTC') and registered in the
name of Cede & Co., its nominee.
The undersigned acknowledges that he, she or it has received and reviewed
the Prospectus, dated , 1997 (the 'Prospectus'), of North Atlantic
Trading Company, Inc., a Delaware corporation (the 'Company'), and this Letter
of Transmittal (the 'Letter of Transmittal'), which together constitute the
Company's offer (the 'Exchange Offer') to exchange one share of its 12% Senior
Exchange Payment-In-Kind Preferred Stock (the 'New Preferred Stock'), for each
issued and outstanding share of its 12% Senior Payment-In-Kind Preferred Stock
(the 'Old Preferred Stock'). The New Preferred Stock and the Old Preferred Stock
are collectively referred to as the 'Preferred Stock.' Capitalized terms used
but not defined herein have the meanings ascribed to them in the Prospectus.
The undersigned has completed the appropriate boxes above and below and
signed this Letter of Transmittal to indicate the action the undersigned desires
to take with respect to the Exchange Offer.
<PAGE>
This Letter of Transmittal is to be used by holders of Old Preferred Stock
to accept the Exchange Offer if: (i) tender of Old Preferred Stock is to be made
according to the Automated Tender Offer Program ('ATOP') of the Depository Trust
Company ('DTC'), for which the transaction is eligible, pursuant to the
procedures set forth in the Prospectus under the caption 'Exchange
Offer--Procedures for Tendering--Unregistered Securities held through DTC'; (ii)
certificates representing Old Preferred Stock are to be physically delivered to
the Exchange Agent herewith by such holders, pursuant to the procedures set
forth in the Prospectus under the caption 'Exchange Offer--Procedures for
Tendering--Unregistered Securities held by Holders'; or (iii) tender of Old
Preferred Stock is to be made according to the guaranteed delivery procedures
set forth in the Prospectus under the caption 'Exchange Offer--Guaranteed
Delivery Procedures.' NOTWITHSTANDING THE FOREGOING, VALID ACCEPTANCE OF THE
TERMS OF THE EXCHANGE OFFER MAY BE EFFECTED BY A PARTICIPANT IN DTC (A 'DTC
PARTICIPANT') TENDERING OLD PREFERRED STOCK THROUGH ATOP WHERE THE EXCHANGE
AGENT RECEIVES AN AGENT'S MESSAGE (AS DEFINED IN THE PROSPECTUS) PRIOR TO THE
EXPIRATION DATE. ACCORDINGLY, SUCH DTC PARTICIPANT MUST ELECTRONICALLY TRANSMIT
ITS ACCEPTANCE TO DTC THOUGH ATOP, AND THEN DTC WILL EDIT AND VERIFY THE
ACCEPTANCE, EXECUTE A BOOK-ENTRY DELIVERY TO THE EXCHANGE AGENT'S ACCOUNT AT DTC
AND SEND AN AGENT'S MESSAGE TO THE EXCHANGE AGENT FOR ITS ACCEPTANCE. BY
TENDERING THROUGH ATOP, DTC PARTICIPANTS WILL EXPRESSLY ACKNOWLEDGE RECEIPT OF
THIS LETTER OF TRANSMITTAL AND AGREE TO BE BOUND BY ITS TERMS AND THE COMPANY
WILL BE ABLE TO ENFORCE SUCH AGREEMENT AGAINST SUCH DTC PARTICIPANTS.
DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE
AGENT.
DTC Participants who wish to cause their Old Preferred Stock to be tendered,
but who cannot transmit their acceptances through ATOP prior to the Expiration
Date, may effect a tender in accordance with the guaranteed delivery procedures
set forth in the Prospectus under the caption 'Exchange Offer--Guaranteed
Delivery Procedures--Unregistered Securities held through DTC.' Holders who wish
to tender their Old Preferred Stock but (i) whose Old Preferred Stock are not
immediately available and will not be available for tendering prior to the
Expiration Date, or (ii) who cannot deliver their Old Preferred Stock, the
Letter of Transmittal, or any other required documents to the Exchange Agent
prior to the Expiration Date, may effect a tender in accordance with the
guaranteed delivery procedures set forth in the Prospectus under the caption
'Exchange Offer--Guaranteed Delivery Procedures--Unregistered Securities held by
Holders.'
The undersigned must complete the appropriate boxes above and below and sign
this Letter of Transmittal to indicate the action the undersigned desires to
take with respect to the Exchange Offer.
/ / CHECK HERE IF TENDERED SHARES OF OLD PREFERRED STOCK ARE BEING DELIVERED TO
THE EXCHANGE AGENT IN EXCHANGE FOR CERTIFICATED NEW PREFERRED STOCK.
Unless the undersigned (i) has completed item (4) in the box entitled
'Description of Old Preferred Stock Tendered' and (ii) has checked the box
above, the undersigned will be deemed to have tendered Old Preferred Stock in
exchange for a beneficial interest in one or more fully registered global
certificates, which will be deposited with, or on behalf of, DTC and registered
in the name of Cede & Co., its nominee. Beneficial interests in such registered
global certificates will be shown on, and transfers thereof will be effected
only through, records maintained by DTC and its participants. See 'Book-Entry;
Delivery and Form' as set forth in the Prospectus.
/ / CHECK HERE IF TENDERED SHARES OF OLD PREFERRED STOCK ARE BEING DELIVERED BY
BOOK-ENTRY TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH
A BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution __________________________________________________
The Depository Trust Company Account Number ____________________________________
Transaction Code Number _______________________________________________________.
/ / CHECK HERE IF TENDERED SHARES OF OLD PREFERRED STOCK ARE BEING DELIVERED
PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE
AGENT AND COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s):________________________________________________
Window Ticket Number (if any):__________________________________________________
Date of Execution of Notice of Guaranteed Delivery:_____________________________
Name of Eligible Institution that Guaranteed Delivery:__________________________
If delivered by book-entry transfer:
Account Number ____________________ Transaction Code Number ____________________
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the shares of Old Preferred Stock
indicated above. Subject to, and effective upon, the acceptance for exchange of
the Old Preferred Stock tendered hereby, the undersigned hereby sells, assigns
and transfers to, or upon the order of, the Exchange Agent, as agent of the
Company, all right, title and interest in and to such Old Preferred Stock as are
being tendered hereby, and irrevocably constitutes and appoints the Exchange
Agent as the agent and attorney-in-fact of the undersigned to cause the Old
Preferred Stock tendered hereby to be transferred and exchanged.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, exchange, sell, assign and transfer the Old
Preferred Stock tendered hereby and to acquire the New Preferred Stock issuable
upon the exchange of such tendered Old Preferred Stock, and that the Exchange
Agent, as agent of the Company, will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claim when the same are accepted by the Exchange
Agent, as agent of the Company. The undersigned will, upon request, execute and
deliver any additional documents deemed by the Company or the Exchange Agent to
be necessary or desirable to complete the exchange, sale, assignment and
transfer of the Old Preferred Stock tendered hereby.
The undersigned also acknowledges that this Exchange Offer is being made in
reliance on the interpretation of the staff of the Securities and Exchange
Commission (the 'SEC'), as set forth in Exxon Capital Holdings Corporation
(available May 13, 1988) or similar no-action letters issued to third parties.
Based on such interpretation of the staff of the SEC set forth in such no-action
letters, the Company believes that the New Preferred Stock issued in exchange
for the Old Preferred Stock pursuant to the Exchange Offer may be offered for
resale, resold and otherwise transferred by a holder thereof (other than any (i)
a broker-dealer who purchases such New Notes from the Company to resell pursuant
to Rule 144A or any other available exemption under the Securities Act, or (ii)
a person that is an 'affiliate' of the Company within the meaning of Rule 405
under the Securities Act of 1933, as amended (the 'Securities Act')) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that (i) such New Preferred Stock is acquired in the
ordinary course of such holder's business, (ii) at the time of the commencement
of the Exchange Offer such holder has no arrangement with any person to
participate in a distribution of the New Preferred Stock and (iii) such holder
is not engaged in, and does not intend to engage, in a distribution of the New
Preferred Stock. By tendering Old Preferred Stock in exchange for New Preferred
Stock, each holder will represent to the Company that: (i) it is not such an
affiliate of the Company, (ii) any New Preferred Stock to be received by it will
be acquired in the ordinary course of business and (iii) at the time of the
commencement of the Exchange Offer it had no arrangement with any person to
participate in a distribution of the New Preferred Stock. If the undersigned is
not a broker-dealer or is a broker-dealer but will not receive New Preferred
Stock for its own account in exchange for Old Preferred Stock, the undersigned
represents that it is not engaged in, and does not intend to engage in, a
distribution of New Preferred Stock.
If the undersigned is a broker-dealer that will receive New Preferred Stock
for its own account in exchange for Old Preferred Stock, where such Old
Preferred Stock were acquired as a result of market-making activities or other
trading activities, it acknowledges that it will deliver a prospectus meeting
the requirements of the Securities Act in connection with any resale of such New
Preferred Stock; however, by so acknowledging and by delivering a prospectus,
the undersigned will not be deemed to admit that it is an 'underwriter' within
the meaning of the Securities Act. Nevertheless a broker-dealer may be deemed to
be an underwriter under the Securities Act notwithstanding such disclaimer. The
SEC has taken the position that such broker-dealers may fulfill their prospectus
delivery requirements with respect to the New Preferred Stock (other than a
resale of New Preferred Stock received in exchange for an unsold allotment from
the original sale of the Old Preferred Stock) with the Prospectus. The
Prospectus, as it may be amended or supplemented from time to time, may be used
by such broker-dealers for a period of time, starting on the Expiration Date and
ending on the close of business 180 days after the date the Registration
Statement relating to the Exchange Offer has become effective. The Company has
agreed that for such period of time, it will make the Prospectus (as it may be
amended or supplemented) available to each broker-dealer which, with the
Company's prior written consent, makes a market in the Old Preferred Stock and
receives New Preferred Stock pursuant to the Exchange Offer (each a
'Participating Broker-Dealer') for use in connection with any resale of such New
Preferred Stock. By acceptance of the Exchange
<PAGE>
Offer, each broker-dealer that receives New Preferred Stock pursuant to the
Exchange Offer hereby acknowledges and agrees to notify the Company prior to
using the Prospectus in connection with the sale or transfer of New Preferred
Stock and that, upon receipt of notice from the Company of the happening of any
event which makes any statement in the Prospectus untrue in any material respect
or which requires the making of any changes in the Prospectus in order to make
the statements therein not misleading, such broker-dealer will suspend use of
the Prospectus until (i) the Company has amended or supplemented the Prospectus
to correct such misstatement or omission and (ii) either the Company has
furnished copies of the amended or supplemented Prospectus to such broker-dealer
or, if the Company has not otherwise agreed to furnish such copies and declines
to do so after such broker-dealer so requests, such broker-dealer has obtained a
copy of such amended or supplemented Prospectus as filed with the SEC. The
Company agrees to deliver such notice and such amended or supplemented
Prospectus promptly to any Participating Broker-Dealer that has so notified the
Company. Except as described above, the Prospectus may not be used for or in
connection with an offer to resell, a resale or any other retransfer of New
Preferred Stock.
The undersigned represents that (i) the New Preferred Stock acquired
pursuant to the Exchange Offer are being obtained in the ordinary course of such
holder's business, (ii) such holder has no arrangements with any person to
participate in the distribution of such New Preferred Stock or, if such holder
intends to participate in the Exchange Offer for the purpose of distributing the
New Preferred Stock, such holder will comply with the registration and
prospectus delivery requirements of the Securities Act to the extent applicable
and (iii) (x) such holder is not (a) a broker-dealer that will receive New
Preferred Stock for its own account in exchange for Old Preferred Stock that
were acquired as a result of market-making activities or other trading
activities, or (b) an 'affiliate,' as defined in Rule 405 under the Securities
Act, of the Company or (y) if such holder is such a broker-dealer or an
affiliate, such holder will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable.
All authority conferred or agreed to be conferred in this Letter of
Transmittal and every obligation of the undersigned hereunder shall be binding
upon the successors, assigns, heirs, executors, administrators, trustees in
bankruptcy and legal representatives of the undersigned and shall not be
affected by, and shall survive, the death or incapacity of the undersigned. This
tender may be withdrawn only in accordance with the procedures set forth in the
instructions contained in this Letter of Transmittal.
The undersigned understands that tenders of the Old Preferred Stock
pursuant to any one of the procedures described under 'The Exchange
Offer--Procedures for Tendering' in the Prospectus and in the instructions
hereto will constitute a binding agreement between the undersigned and the
Company in accordance with the terms and subject to the conditions of the
Exchange Offer.
The undersigned understands that if its Old Preferred Stock are accepted
for exchange, dividends on the New Preferred Stock will accumulate from the last
dividend payment date on which dividends were paid on the shares of Old
Preferred Stock surrendered in exchange thereof, or if no dividends have been
paid, from the original date of issuance of the Old Preferred Stock.
The undersigned recognizes that unless the holder of Old Preferred Stock
(i) completes item (4) of the Box entitled 'Description of Old Preferred Stock
Tendered' above and (ii) checks the box entitled 'Check here if tendered shares
of Old Preferred Stock are being delivered to the Exchange Agent in exchange for
certificated New Preferred Stock' above, such holder, when tendering such shares
of Old Preferred Stock, will be deemed to have tendered such Old Preferred Stock
in exchange for a beneficial interest in one or more fully registered global
certificates, which will be deposited with, or on behalf of, DTC and registered
in the name of Cede & Co., its nominee. Beneficial interests in such registered
global certificates will be shown on, and transfers thereof will be effected
only through, records maintained by DTC and its participants. See 'Book-Entry;
Delivery and Form' in the Prospectus.
The undersigned recognizes that, under certain circumstances set forth in
the Prospectus under 'The Exchange Offer--Conditions,' the Company may not be
required to accept for exchange any of the Old Preferred Stock tendered. Old
Preferred Stock not accepted for exchange or withdrawn will be returned to the
undersigned at the address set forth below unless otherwise indicated under
'Special Delivery Instructions' below.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptability of any tender will be determined by the Company, in
its sole discretion, and such determination will be final and binding.
<PAGE>
Unless waived by the Company, irregularities and defects must be cured by the
Expiration Date. The Company shall not be obligated to give notice of any
defects or irregularities in tenders and shall not incur any liability for
failure to give any such notice.
Unless otherwise indicated herein in the box entitled 'Special Issuance
Instructions' below, the undersigned hereby requests that the New Preferred
Stock (and, if applicable, substitute certificates representing Old Preferred
Stock for any Old Preferred Stock not exchanged) be issued in the name of the
undersigned. Similarly, unless otherwise indicated under the box entitled
'Special Delivery Instructions' below, the undersigned hereby requests that the
New Preferred Stock (and, if applicable, substitute certificates representing
Old Preferred Stock for any Old Preferred Stock not exchanged) be sent to the
undersigned at the address shown above in the box entitled 'Description of Old
Preferred Stock Tendered.'
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED 'DESCRIPTION OF OLD
PREFERRED STOCK TENDERED' ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE
TENDERED THE OLD PREFERRED STOCK AS SET FORTH IN SUCH BOX(ES) ABOVE.
<PAGE>
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9)
X -------------------------------- ----------------------------------
X -------------------------------- ----------------------------------
SIGNATURE(S) OF OWNER(S) DATE
Area Code and Telephone Number -----------------------------------------------
If a holder is tendering any Old Preferred Stock, this Letter of Transmittal
must be signed by the registered holder(s) as the name(s) appear(s) on the
certificate(s) for the Old Preferred Stock or by any person(s) authorized to
become registered holder(s) by endorsements and documents transmitted herewith.
If signature is by a trustee, executor, administrator, guardian, officer or
other person acting in a fiduciary or representative capacity, please set forth
full title below. See Instruction 3.
Name(s): ---------------------------------------------------------------------
- ------------------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
Capacity: --------------------------------------------------------------------
Address: ---------------------------------------------------------------------
(INCLUDE ZIP CODE)
SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 3)
Signature(s) Guaranteed by
an Eligible Institution:
- ------------------------------------------------------------------------------
(AUTHORIZED SIGNATURE)
- ------------------------------------------------------------------------------
(TITLE)
- ------------------------------------------------------------------------------
(NAME OF FIRM)
Dated: -----------------------------------------------------------------------
<PAGE>
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if New Preferred Stock (and, if applicable, substitute
certificates representing Old Preferred Stock for any Old Preferred Stock not
exchanged) are to be issued in the name of and sent to someone other than the
person or persons whose signature(s) appear(s) on this Letter of Transmittal
above.
Issue New Preferred Stock to:
Name(s):______________________________________________________________________
(PLEASE TYPE OR PRINT)
______________________________________________________________________________
(PLEASE TYPE OR PRINT)
Address:______________________________________________________________________
______________________________________________________________________________
(ZIP CODE)
(COMPLETE SUBSTITUTE FORM W-9)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates for New Preferred Stock (and, if
applicable, substitute certificates representing Old Preferred Stock for any
Old Preferred Stock not exchanged) are to be sent to someone other than the
person or persons whose signature(s) appear(s) on this Letter of Transmittal
above or to such person or persons at an address other than shown in the box
entitled 'Description of Old Preferred Stock Tendered' on this Letter of
Transmittal above.
Mail New Preferred Stock to:
Name(s):______________________________________________________________________
(PLEASE TYPE OR PRINT)
______________________________________________________________________________
(PLEASE TYPE OR PRINT)
Address:______________________________________________________________________
______________________________________________________________________________
(ZIP CODE)
IMPORTANT: EITHER (1) (A) THIS LETTER OF TRANSMITTAL (OR A FACSIMILE
HEREOF) TOGETHER WITH CERTIFICATES REPRESENTING OLD PREFERRED STOCK OR (B) A
BOOK-ENTRY CONFIRMATION INCLUDING BY MEANS OF AN AGENT'S MESSAGE, MUST BE
RECEIVED BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE
EXPIRATION DATE TOGETHER WITH ALL OTHER REQUIRED DOCUMENTS, OR (2) THE TENDERING
HOLDER MUST COMPLY WITH THE GUARANTEED DELIVERY PROCEDURES SET FORTH HEREIN. BY
TENDERING THROUGH ATOP, DTC PARTICIPANTS WILL EXPRESSLY ACKNOWLEDGE RECEIPT OF
THIS LETTER OF TRANSMITTAL AND AGREE TO BE BOUND BY ITS TERMS AND THE ISSUER
WILL BE ABLE TO ENFORCE SUCH AGREEMENT AGAINST SUCH DTC PARTICIPANTS.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX ABOVE.
<PAGE>
<TABLE>
<CAPTION>
TO BE COMPLETED BY ALL TENDERING HOLDERS
(SEE INSTRUCTION 5)
PAYOR'S NAME: NORTH ATLANTIC TRADING COMPANY, INC.
<S> <C> <C>
PART I--Taxpayer Identification Number
Enter your taxpayer identification ________________________________
number in the appropriate box. For Social Security Number
SUBSTITUTE most individuals, this is your social
security number. If you do not have a OR
FORM W-9 number, see how to obtain a 'TIN' in
the enclosed Guidelines. ________________________________
DEPARTMENT OF THE TREASURY Employer Identification Number
INTERNAL REVENUE SERVICE
NOTE: If the account is in more than
one name, see the chart on page 2 of
PAYOR'S REQUEST FOR TAXPAYER the enclosed Guidelines to determine
IDENTIFICATION NUMBER ('TIN') what number to give.
AND CERTIFICATION
PART II--FOR PAYEES EXEMPT FROM BACKUP PART 3--Awaiting TIN
WITHHOLDING (See enclosed Guidelines)
/ /
Certification--Under the penalties of perjury, I
certify that:
(1) The number shown on this form is my correct
Taxpayer Identification Number (or I am waiting
for a number to be issued to me), and (2) I am
not subject to backup withholding either because
I have not been notified by the Internal Revenue
Service (the 'IRS') that I am subject to backup
withholding as a result of a failure to report
all interest or dividends or the IRS has notified
me that I am no longer subject to backup
withholding.
SIGNATURE_________________________________________________________________
DATE______________________________________________________________________
CERTIFICATION GUIDELINES--You must cross out Item (2) of the above
certification if you have been notified by the IRS that you are subject to
backup withholding because of underreporting of interest or dividends on your
tax return. However, if after being notified by the IRS that you were subject
to backup withholding you received another notification from the IRS that you
are no longer subject to backup withholding, do not cross out item (2).
</TABLE>
CERTIFICATION OF PAYEE AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify, under penalties of perjury, that a Taxpayer Identification Number
has not been issued to me, and that I mailed or delivered an application to
receive a Taxpayer Identification Number to the appropriate Internal Revenue
Service Center or Social Security Administration Office (or I intend to mail or
deliver an application in the near future). I understand that if I do not
provide a Taxpayer Identification Number to the payer, 31 percent of all
payments made to me on account of the New Preferred Stock shall be retained
until I provide a Taxpayer Identification Number to the payer and that, if I do
not provide my Taxpayer Identification Number within sixty (60) days, such
retained amounts shall be remitted to the Internal Revenue Service as backup
withholding and 31 percent of all reportable payments made to me thereafter will
be withheld and remitted to the Internal Revenue Service until I provide a
Taxpayer Identification Number.
Signature________________________ Date_________________________
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU ON ACCOUNT OF THE NEW
PREFERRED STOCK. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR
CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM
W-9 FOR ADDITIONAL DETAILS.
<PAGE>
INSTRUCTIONS
Forming Part of the Terms and Conditions of the Exchange Offer
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND OLD PREFERRED STOCK;
GUARANTEED DELIVERY PROCEDURE. This Letter of Transmittal is to be completed by
holders of Old Preferred Stock to accept the Exchange Offer if: (i) tender of
Old Preferred Stock is to be made by DTC Participants through ATOP, for which
the transaction is eligible, pursuant to the procedures set forth in the
Propectus under the caption 'Exchange Offer--Unregistered Securities held
through DTC'; (ii) certificates representing Old Preferred Stock, are to be
physically delivered to the Exchange Agent herewith by such holders, pursuant to
the procedures set forth in the Prospectus under the caption 'Exchange
Offer--Unregistered Securities held by Holders'; or (iii) tender of Old
Preferred Stock is to be made according to the guaranteed delivery procedures
set forth in the Prospectus under the caption 'Exchange Offer--Guaranteed
Delivery Procedures.' Notwithstanding the foregoing, valid acceptance of the
terms of the Exchange Offer may be effected by a DTC Participant tendering Old
Preferred Stock through ATOP where the Exchange Agent receives an Agent's
Message prior to the Expiration Date. Accordingly, such DTC Participant must
electronically transmit its acceptance to DTC through ATOP, and then DTC will
edit and verify the acceptance, execute a book-entry delivery to the Exchange
Agent's account at DTC and send an Agent's Message to the Exchange Agent for its
acceptance. By tendering through ATOP, DTC Participants will expressly
acknowledge receipt of this Letter of Transmittal and agree to be bound by its
terms and the Company will be able to enforce such agreement against such DTC
Participants.
In order to validly tender Old Preferred Stock pursuant the Exchange Offer,
either (i) (A) this Letter of Transmittal, or a facsimile hereof, together with
certificates representing Old Preferred Stock or (B) a Book-Entry Confirmation,
including by means of an Agent's Message, of the transfer into the Exchange
Agent's account at DTC of all Old Preferred Stock delivered electronically must
be received by the Exchange Agent at its address set forth herein prior to 5:00
p.m., New York City time, on the Expiration Date, together with all other
required documents, or (ii) the tendering holder must comply with the guaranteed
delivery procedures set forth below. Delivery of documents to DTC does not
constitute delivery to the Exchange Agent.
If a holder or DTC Participant desires to tender Old Preferred Stock
pursuant to the Exchange Offer and time will not permit this Letter of
Transmittal, certificates representing such Old Preferred Stock and all other
required documents to reach the Exchange Agent, or the procedures for book-entry
transfer, including those with respect to tenders through ATOP, cannot be
completed, prior to the Expiration Date, such holder or DTC Participant, as the
case may be, must tender such Old Preferred Stock pursuant to the guaranteed
delivery procedures set forth in the Prospectus under the caption 'Exchange
Offer--Guaranteed Delivery Procedures.' Pursuant to such procedures (i) such
tender must be made by or through an Eligible Institution; (ii) a properly
completed and duly executed Notice of Guaranteed Delivery, substantially in the
form provided by the Company, must be received by the Exchange Agent either by
hand delivery, mail, facsimile transmission or overnight courier, prior to the
Expiration Date; and (iii) within three NYSE trading days after the date of the
execution of the Notice of Guaranteed Delivery, (A) holders must deliver to the
Exchange Agent a properly completed and duly executed Letter of Transmittal, as
well as the certificate(s) representing all tendered shares of Old Preferred
Stock in proper form for transfer, and all other documents required by the
Letter of Transmittal or (B) DTC Participants must effect a Book-Entry
Confirmation, including through ATOP by means of an Agent's Message, of the
transfer of such shares of Old Preferred Stock into the Exchange Agent's account
at DTC as set forth in the Prospectus.
The method of delivery of this Letter of Transmittal, the shares of Old
Preferred Stock and all other required documents, including delivery through DTC
and any acceptance or Agent's Message transmitted through ATOP, is at the option
and risk of the tendering holder. If delivery is by mail, registered mail with
return receipt requested, properly insured, is recommended. In all cases,
sufficient time should be allowed for such documents to reach the Exchange Agent
prior to the Expiration Date. Except as otherwise provided in this Instruction
1, delivery will be deemed made only when actually received by the Exchange
Agent.
No alternative, conditional or contingent tenders will be accepted. All
tendering holders, by execution of this Letter of Transmittal (or a facsimile
hereof), waive any right to receive any notice of the acceptance of their shares
of Old Preferred Stock for exchange.
See 'The Exchange Offer' in the Prospectus.
<PAGE>
2. WITHDRAWALS. Tenders of Old Preferred Stock may be withdrawn at any
time prior to 5:00 p.m., New York City time, on the Expiration Date. For a
withdrawal of a tender of Old Preferred Stock to be effective, a letter, telex,
telegram or facsimile transmission notice of withdrawal must be received by the
Exchange Agent at its address set forth above prior to 5:00 p.m., New York City
time, on the Expiration Date. Any such notice of withdrawal by a DTC Participant
must contain the name and number of the DTC Participant, the aggregate
liquidation preference of Old Preferred Stock to which such withdrawal relates
and the signature of the DTC Participant. Any such notice of withdrawal by a
holder of Old Preferred Stock must (i) specify the name of the person who
tendered the Old Preferred Stock to be withdrawn, (ii) contain a description of
the Old Preferred Stock to be withdrawn (including the certificate number or
numbers and aggregate liquidation preference of such Old Preferred Stock) and
(iii) be signed by the holder of such Old Preferred Stock in the same manner as
the original signature on this Letter of Transmittal (including any required
signature guaranties), or be accompanied by (x) documents of transfer in a form
acceptable to the Company, in its sole discretion and (y) a properly completed
irrevocable proxy that authorized such person to effect such revocation on
behalf of such holder. Any Old Preferred Stock so withdrawn will be deemed not
to have been validly tendered for exchange for purposes of the Exchange Offer.
Any Old Preferred Stock which have been tendered for exchange but which are not
exchanged for any reason will be returned to the holder thereof without cost to
such holder as soon as practicable after withdrawal, rejection of tender, or
termination of the Exchange Offer. Properly withdrawn Old Preferred Stock may be
retendered by following the procedures described above at any time on or prior
to 5:00 p.m., New York City time, on the Expiration Date.
See 'The Exchange Offer--Withdrawal of Tenders' in the Prospectus.
3. SIGNATURES ON THIS LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS;
GUARANTEE OF SIGNATURES. If this Letter of Transmittal is signed by the
registered holder of the Old Preferred Stock tendered hereby, the signature must
correspond exactly with the name as written on the face of the certificates
without any change whatsoever.
If any tendered Old Preferred Stock are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If any tendered Old Preferred Stock are registered in different names on
several certificates, it will be necessary to complete, sign and submit as many
separate copies of this Letter of Transmittal as there are different
registrations of certificates.
If this Letter of Transmittal or any Old Preferred Stock or powers of
attorney are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should indicate when signing, and unless
waived by the Company, proper evidence satisfactory to the Company of their
authority so to act must be submitted.
The signatures on this Letter of Transmittal or a notice of withdrawal, as
the case may be, must be guaranteed unless the Old Preferred Stock surrendered
for exchange pursuant thereto are tendered (i) by a registered holder of the Old
Preferred Stock who has not completed the box entitled 'Special Issuance
Instructions' or 'Special Delivery Instructions' in this Letter of Transmittal
or (ii) for the account of an Eligible Institution. In the event that the
signatures in this Letter of Transmittal or a notice of withdrawal, as the case
may be, are required to be guaranteed, such guarantees must be by a firm which
is a member of a registered national securities exchange or a member of the
National Association of Securities Dealers, Inc., or by a commercial bank or
trust company having an office or correspondent in the United States, or an
'eligible institution' within the meaning of Rule l7Ad-l5 of the Securities
Exchange Act of 1934, as amended (each an 'Eligible Institution'). If Old
Preferred Stock are registered in the name of a person other than the signer of
this Letter of Transmittal, the Old Preferred Stock 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 Company 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 of Old
Preferred Stock should indicate in the applicable box the name and address to
which New Preferred Stock issued pursuant to the Exchange Offer are to be issued
or sent, if different from the name or address of the person signing this Letter
of Transmittal. In the case of issuance in a different name, the employer
identification or social security number of the person named must also be
indicated. If no such instructions are given, any New Preferred Stock will be
issued in the name of, and delivered to, the name or address of the person
signing this Letter of Transmittal and any Old
<PAGE>
Preferred Stock not accepted for exchange will be returned to the name or
address of the person signing this Letter of Transmittal.
5. BACKUP FEDERAL INCOME TAX WITHHOLDING AND SUBSTITUTE FORM W-9. Under
the federal income tax laws, payments that may be made by the Company on account
of New Preferred Stock issued pursuant to the Exchange Offer may be subject to
backup withholding at the rate of 31%. In order to avoid such backup
withholding, each tendering holder should complete and sign the Substitute Form
W-9 included in this Letter of Transmittal and either (a) provide the correct
taxpayer identification number ('TIN') and certify, under penalties of perjury,
that the TIN provided is correct and that (i) the holder has not been notified
by the Internal Revenue Service (the 'IRS') that the holder is subject to backup
withholding as a result of failure to report all interest or dividends or (ii)
the IRS has notified the holder that the holder is no longer subject to backup
withholding; or (b) provide an adequate basis for exemption. If the tendering
holder has not been issued a TIN and has applied for one, or intends to apply
for one in the near future, such holder should write 'Applied For' in the space
provided for the TIN in Part I of the Substitute Form W-9, sign and date the
Substitute Form W-9 and sign the Certificate of Payee Awaiting Taxpayer
Identification Number. If 'Applied For' is written in Part I, the Company (or
the Transfer Agent with respect to the New Preferred Stock or a broker or
custodian) may still withhold 31% of the amount of any payments made on account
of the New Preferred Stock until the holder furnishes the Company or the
Transfer Agent with respect to the New Preferred Stock, broker or custodian with
its TIN. In general, if a holder is an individual, the taxpayer identification
number is the Social Security number of such individual. If the Exchange Agent
or the Company is not provided with the correct TIN, the holder may be subject
to a $50 penalty imposed by the IRS. Certain holders (including, among others,
all corporations and certain foreign individuals) are not subject to these
backup withholding and reporting requirements. In order for a foreign individual
to qualify as an exempt recipient, such holder must submit a statement
(generally, IRS Form W-8), signed under penalties of perjury, attesting to that
individual's exempt status. Such statements can be obtained from the Exchange
Agent. For further information concerning backup withholding and instructions
for completing the Substitute Form W-9 (including how to obtain a taxpayer
identification number if you do not have one and how to complete the Substitute
Form W-9 if Old Preferred Stock are registered in more than one name), consult
the enclosed Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
Failure to complete the Substitute Form W-9 will not, by itself, cause Old
Preferred Stock to be deemed invalidly tendered, but may require the Company or
the Transfer Agent with respect to the New Preferred Stock, broker or custodian
to withhold 31% of the amount of any payments made on account of the New
Preferred Stock. Backup withholding is not an additional federal income tax.
Rather, the federal income tax liability of a person subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained from the IRS.
6. TRANSFER TAXES. The Company will pay all transfer taxes, if any,
applicable to the transfer of Old Preferred Stock to it or its order pursuant to
the Exchange Offer. If, however, New Preferred Stock and/or substitute Old
Preferred Stock not exchanged are to be delivered to, or are to be registered or
issued in the name of, any person other than the registered holder of the Old
Preferred Stock tendered hereby, or if tendered Old Preferred Stock are
registered in the name of any person other than the person signing this Letter
of Transmittal, or if a transfer tax is imposed for any reason other than the
transfer of Old Preferred Stock to the Company or its order pursuant to the
Exchange Offer, the amount of any such transfer taxes (whether imposed on the
registered holder or any other person) will be payable by the tendering holder.
If satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted herewith, the amount of such transfer taxes will be billed directly to
such tendering holder.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the Old Preferred Stock specified in this
Letter of Transmittal.
7. WAIVER OF CONDITIONS. The Company reserves the absolute right to waive
satisfaction of any or all conditions enumerated in the Prospectus.
8. NO CONDITIONAL TENDERS. No alternative, conditional, irregular or
contingent tenders will be accepted. All tendering holders of Old Preferred
Stock, by execution of this Letter of Transmittal, shall waive any right to
receive notice of the acceptance of their Old Preferred Stock for exchange.
Neither the Company nor any other person is 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.
<PAGE>
9. INADEQUATE SPACE. If the space provided herein is inadequate, the
aggregate liquidation preference of Old Preferred Stock being tendered and the
certificate number or numbers (if available) should be listed on a separate
schedule attached hereto and separately signed by all parties required to sign
this Letter of Transmittal.
10. MUTILATED, LOST, STOLEN OR DESTROYED OLD PREFERRED STOCK. Any holder
whose Old Preferred Stock have been mutilated, lost, stolen or destroyed should
contact the Exchange Agent at the address indicated above for further
instructions.
11. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to
the procedure for tendering, as well as requests for additional copies of the
Prospectus and this Letter of Transmittal, may be directed to the Exchange Agent
at the address and telephone number indicated above.
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC.
All tendered Old Preferred Stock, executed Letters of Transmittal and other
related documents should be directed to the Exchange Agent. Requests for
assistance and additional copies of the Prospectus, the Letter of Transmittal
and other related documents should be directed to the Exchange Agent.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
THE UNITED STATES TRUST COMPANY OF NEW YORK
By Facsimile:
(212) 420-6152
(For Eligible Institutions Only)
By Telephone:
(800) 548-6565
By Mail:
United States Trust Company of New York
P.O. Box 843
Cooper Station
New York, New York 10276
Attn: Corporate Trust Services
By Hand to 4:30 p.m.:
United States Trust Company of New York
111 Broadway
New York, New York 10006
Attention: Lower Level Corporate Trust Window
By Overnight Courier and By Hand after 4:30 p.m.:
United States Trust Company of New York
770 Broadway, 13th Floor
New York, New York 10003
Attn: Corporate Trust Redemption Unit
<PAGE>
LETTER OF TRANSMITTAL
NORTH ATLANTIC TRADING COMPANY, INC.
Offer to Exchange its 11% Senior Notes due 2004, Series B ('New Notes'), which
are fully and unconditionally guaranteed by certain of its wholly-owned
subsidiaries and have been registered under the Securities Act, for any and all
of its outstanding Shares of 11% Senior Notes due 2004, Series A ('Old Notes'),
which are fully and unconditionally guaranteed by certain of its wholly-owned
subsidiaries and have not been so registered, pursuant to the Prospectus dated
September , 1997
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
1997 OR SUCH LATER DATE AND TIME TO WHICH THE EXCHANGE OFFER
MAY BE EXTENDED (THE 'EXPIRATION DATE'). TENDERS MAY BE WITHDRAWN PRIOR TO THE
EXPIRATION DATE.
To:
United States Trust Company of New York, Exchange Agent
<TABLE>
<S> <C>
By Mail: By Facsimile:
United States Trust Company of New York (212) 780-0592
P.O. Box 843 (For Eligible Institutions Only)
Cooper Station
New York, N.Y. 10276
Attention: Corporate Trust Services
By Overnight Courier or
By Hand after 4:30 p.m.: By Hand to 4:30 p.m.:
United States Trust Company of New York United States Trust Company of New York
770 Broadway, 13th Floor 111 Broadway
New York, N.Y. 10003 New York, N.Y. 10006
Attention: Corporate Trust Redemption Unit Attention: Lower Level Corporate Trust Window
For Information Call:
(800) 548-6565
</TABLE>
------------------------
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE COMPLETING
ANY BOX BELOW.
List below the Old Notes to which this Letter of Transmittal relates. If the
space provided below is inadequate, the certificate number(s) and aggregate
principal of Old Notes should be listed on a separate signed schedule affixed
hereto.
<TABLE>
<CAPTION>
DESCRIPTION OF OLD NOTES TENDERED
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S), EXACTLY AS NAME(S)
APPEAR(S) ON OLD NOTES CERTIFICATE (PLEASE FILL IN, IF BLANK) (1) (2) (3) (4)
AGGREGATE
PRINCIPAL
AMOUNT OF OLD
AGGREGATE NOTES
CERTIFICATE PRINCIPAL AGGREGATE TENDERED IN
NUMBER(S) AMOUNT PRINCIPAL EXCHANGE FOR
OF REPRESENTED BY AMOUNT CERTIFICATED
OLD NOTES* CERTIFICATE TENDERED** NEW NOTES***
<S> <C> <C> <C> <C>
</TABLE>
* Need not be completed if Old Notes are being tendered by book-entry transfer
in accordance with DTC's ATOP's procedures for transfer.
** Unless otherwise indicated in this column, the aggregate principal amount
represented by all Old Notes Certificates identified in Column 1 or
delivered to the Exchange Agent shall be deemed tendered.
*** Unless otherwise indicated, the holder will be deemed to have tendered
shares of Old Notes in exchange for a beneficial interest in one or more
fully registered global certificates, which will be deposited with, or on
behalf of, The Depository Trust Company ('DTC') and registered in the name
of Cede & Co., its nominee.
The undersigned acknowledges that he, she or it has received and reviewed
the Prospectus, dated , 1997 (the 'Prospectus'), of North Atlantic
Trading Company, Inc., a Delaware corporation (the 'Company'), and this Letter
of Transmittal (the 'Letter of Transmittal'), which together constitute the
Company's offer (the 'Exchange Offer') to exchange its 11% Senior Notes due
2004, Series B (the 'New Notes') for an equal principal amount of its 11% Senior
Notes due 2004, Series A (the 'Old Notes'). The terms of the New Notes are
identical in all material respects to the Old Notes, except that the New Notes
have been registered under the Securities Act of 1933, as amended (the
'Securities Act'), and, therefore, will not bear legends restricting their
transfer and will not contain certain provisions providing for an increase in
the interest rate on the Old Notes under certain circumstances relating to the
Registration Rights Agreement (as defined in the Prospectus). The New Notes and
the Old Notes are collectively referred to as the 'Notes.' Capitalized terms
used but not defined herein have the meanings ascribed to them in the
Prospectus.
The undersigned has completed the appropriate boxes above and below and
signed this Letter of Transmittal to indicate the action the undersigned desires
to take with respect to the Exchange Offer.
<PAGE>
This Letter of Transmittal is to be used by holders of Old Notes to accept
the Exchange Offer if: (i) tender of Old Notes is to be made according to the
Automated Tender Offer Program ('ATOP') of the Depository Trust Company ('DTC'),
for which the transaction is eligible, pursuant to the procedures set forth in
the Prospectus under the caption 'Exchange Offer--Procedures for
Tendering--Unregistered Securities held through DTC'; (ii) certificates
representing Old Notes are to be physically delivered to the Exchange Agent
herewith by such holders, pursuant to the procedures set forth in the Prospectus
under the caption 'Exchange Offer--Procedures for Tendering--Unregistered
Securities held by Holders'; or (iii) tender of Old Notes is to be made
according to the guaranteed delivery procedures set forth in the Prospectus
under the caption 'Exchange Offer--Guaranteed Delivery Procedures.'
NOTWITHSTANDING THE FOREGOING, VALID ACCEPTANCE OF THE TERMS OF THE EXCHANGE
OFFER MAY BE EFFECTED BY A PARTICIPANT IN DTC (A 'DTC PARTICIPANT') TENDERING
OLD NOTES THROUGH ATOP WHERE THE EXCHANGE AGENT RECEIVES AN AGENT'S MESSAGE (AS
DEFINED IN THE PROSPECTUS) PRIOR TO THE EXPIRATION DATE. ACCORDINGLY, SUCH DTC
PARTICIPANT MUST ELECTRONICALLY TRANSMIT ITS ACCEPTANCE TO DTC THOUGH ATOP, AND
THEN DTC WILL EDIT AND VERIFY THE ACCEPTANCE, EXECUTE A BOOK-ENTRY DELIVERY TO
THE EXCHANGE AGENT'S ACCOUNT AT DTC AND SEND AN AGENT'S MESSAGE TO THE EXCHANGE
AGENT FOR ITS ACCEPTANCE. BY TENDERING THROUGH ATOP, DTC PARTICIPANTS WILL
EXPRESSLY ACKNOWLEDGE RECEIPT OF THIS LETTER OF TRANSMITTAL AND AGREE TO BE
BOUND BY ITS TERMS AND THE COMPANY WILL BE ABLE TO ENFORCE SUCH AGREEMENT
AGAINST SUCH DTC PARTICIPANTS.
DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE
AGENT.
DTC Participants who wish to cause their Old Notes to be tendered, but who
cannot transmit their acceptances through ATOP prior to the Expiration Date, may
effect a tender in accordance with the guaranteed delivery procedures set forth
in the Prospectus under the caption 'Exchange Offer--Guaranteed Delivery
Procedures--Unregistered Securities held through DTC.' Holders who wish to
tender their Old Notes but (i) whose Old Notes are not immediately available and
will not be available for tendering prior to the Expiration Date, or (ii) who
cannot deliver their Old Notes, the Letter of Transmittal, or any other required
documents to the Exchange Agent prior to the Expiration Date, may effect a
tender in accordance with the guaranteed delivery procedures set forth in the
Prospectus under the caption 'Exchange Offer--Guaranteed Delivery
Procedures--Unregistered Securities held by Holders.'
The undersigned must complete the appropriate boxes above and below and sign
this Letter of Transmittal to indicate the action the undersigned desires to
take with respect to the Exchange Offer.
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED TO THE EXCHANGE AGENT
IN EXCHANGE FOR CERTIFICATED NEW NOTES.
Unless the undersigned (i) has completed item (4) in the box entitled
'Description of Old Notes Tendered' and (ii) has checked the box above, the
undersigned will be deemed to have tendered Old Notes in exchange for a
beneficial interest in one or more fully registered global certificates, which
will be deposited with, or on behalf of, DTC and registered in the name of Cede
& Co., its nominee. Beneficial interests in such registered global certificates
will be shown on, and transfers thereof will be effected only through, records
maintained by DTC and its participants. See 'Book-Entry; Delivery and Form' as
set forth in the Prospectus.
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK- ENTRY TRANSFER
MADE TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH A BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution __________________________________________________
The Depository Trust Company Account Number ____________________________________
Transaction Code Number ________________________________________________________
/ / CHECK HERE IF TENDERED OLD 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 Holder(s): _______________________________________________
Window Ticket Number (if any): _________________________________________________
Date of Execution of Notice of Guaranteed Delivery: ____________________________
Name of Eligible Institution that Guaranteed Delivery: _________________________
If delivered by book-entry transfer:
Account Number ____________________ Transaction Code Number ____________________
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the Old Notes indicated above. Subject
to, and effective upon, the acceptance for exchange of the Old Notes tendered
hereby, the undersigned hereby sells, assigns and transfers to, or upon the
order of, the Exchange Agent, as agent of the Company, all right, title and
interest in and to such Old Notes as are being tendered hereby, and irrevocably
constitutes and appoints the Exchange Agent as the agent and attorney-in-fact of
the undersigned to cause the Old Notes tendered hereby to be transferred and
exchanged.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, exchange, sell, assign and transfer the Old
Notes tendered hereby and to acquire the New Notes issuable upon the exchange of
such tendered Old Notes, and that the Exchange Agent, as agent of the Company,
will acquire good and unencumbered title thereto, free and clear of all liens,
restrictions, charges and encumbrances and not subject to any adverse claim when
the same are accepted by the Exchange Agent, as agent of the Company. The
undersigned will, upon request, execute and deliver any additional documents
deemed by the Company or the Exchange Agent to be necessary or desirable to
complete the exchange, sale, assignment and transfer of the Old Notes tendered
hereby.
The undersigned also acknowledges that this Exchange Offer is being made in
reliance on the interpretation of the staff of the Securities and Exchange
Commission (the 'SEC'), as set forth in Exxon Capital Holdings Corporation
(available May 13, 1988) or similar no-action letters issued to third parties.
Based on such interpretation of the staff of the SEC set forth in such no-action
letters, the Company believes that the New Notes issued in exchange for the Old
Notes pursuant to the Exchange Offer may be offered for resale, resold and
otherwise transferred by a holder thereof (other than (i) a broker-dealer who
purchases such New Notes from the Company to resell pursuant to Rule 144A or any
other available exemption under the Securities Act, or (ii) a person that is an
'affiliate' of the Company within the meaning of Rule 405 under the Securities
Act of 1933, as amended (the 'Securities Act')) without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that (i) such New Notes are acquired in the ordinary course of such holder's
business, (ii) at the time of the commencement of the Exchange Offer such holder
has no arrangement with any person to participate in a distribution of the New
Notes and (iii) such holder is not engaged in, and does not intend to engage in,
a distribution of the New Notes. By tendering Old Notes in exchange for New
Notes, each holder will represent to the Company that: (i) it is not such an
affiliate of the Company, (ii) any New Notes to be received by it will be
acquired in the ordinary course of business and (iii) at the time of the
commencement of the Exchange Offer it had no arrangement with any person to
participate in a distribution of the New Notes. If the undersigned is not a
broker-dealer or is a broker-dealer but will not receive New Notes for its own
account in exchange for Old Notes, the undersigned represents that it is not
engaged in, and does not intend to engage in, a distribution of New Notes.
If the undersigned is a broker-dealer that will receive New Notes for its
own account in exchange for Old Notes, where such Old Notes were acquired as a
result of market-making activities or other trading activities, it acknowledges
that it will deliver a prospectus meeting the requirements of the Securities Act
in connection with any resale of such New Notes; however, by so acknowledging
and by delivering a prospectus, the undersigned will not be deemed to admit that
it is an 'underwriter' within the meaning of the Securities Act. Nevertheless a
broker-dealer may be deemed to be an 'underwriter' under the Securities Act
notwithstanding such disclaimer. The SEC has taken the position that such
broker-dealers may fulfill their prospectus delivery requirements with respect
to the New Notes (other than a resale of New Notes received in exchange for an
unsold allotment from the original sale of the Old Notes) with the Prospectus.
The Prospectus, as it may be amended or supplemented from time to time, may be
used by such broker-dealers for a period of time, starting on the Expiration
Date and ending on the close of business 180 days after the date the
Registration Statement relating to the Exchange Offer has become effective. The
Company has agreed that for such period of time, it will make the Prospectus (as
it may be amended or supplemented) available to each broker-dealer which, with
the Company's prior written consent, makes a market in the Old Notes and
receives New Notes pursuant to the Exchange Offer (each a 'Participating
Broker-Dealer') for use in connection with any resale of such New Notes. By
acceptance of the Exchange Offer, each broker-dealer that receives New Notes
pursuant to the Exchange Offer hereby acknowledges and agrees to notify the
Company prior to using the Prospectus in connection with the sale or transfer of
New Notes and that, upon receipt of notice from the Company of the happening of
any event which makes any statement in the Prospectus untrue in any material
respect or which requires the making of any changes in the Prospectus in order
to make the statements therein not misleading, such broker-dealer will suspend
use of the Prospectus until (i) the Company has amended or supplemented the
Prospectus to correct such
<PAGE>
mistatement or omission and (ii) either the Company has furnished copies of the
amended or supplemented Prospectus to such broker-dealer or, if the Company has
not otherwise agreed to furnish such copies and declines to do so after such
broker-dealer so requests, such broker-dealer has obtained a copy of such
amended or supplemented Prospectus as filed with the SEC. The Company agrees to
deliver such notice and such amended or supplemented Prospectus promptly to any
Participating Broker-Dealer that has so notified the Company. Except as
described above, the Prospectus may not be used for or in connection with an
offer to resell, a resale or any other retransfer of New Notes.
The undersigned represents that (i) the New Notes acquired pursuant to the
Exchange Offer are being obtained in the ordinary course of such holder's
business, (ii) such holder has no arrangements with any person to participate in
the distribution of such New Notes or, if such holder intends to participate in
the Exchange Offer for the purpose of distributing the New Notes, such holder
will comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable, and (iii) (x) such holder is not (a) a
broker-dealer that will receive New Notes for its own account in exchange for
Old Notes that were acquired as a result of market-making activities or other
trading activities, or (b) an 'affiliate,' as defined in Rule 405 under the
Securities Act, of the Company or (y) if such holder is such a broker-dealer or
an affiliate, such holder will comply with the registration and prospectus
delivery requirements of the Securities Act to the extent applicable.
All authority conferred or agreed to be conferred in this Letter of
Transmittal and every obligation of the undersigned hereunder shall be binding
upon the successors, assigns, heirs, executors, administrators, trustees in
bankruptcy and legal representatives of the undersigned and shall not be
affected by, and shall survive, the death or incapacity of the undersigned. This
tender may be withdrawn only in accordance with the procedures set forth in the
instructions contained in this Letter of Transmittal.
The undersigned understands that tenders of the Old Notes pursuant to any
one of the procedures described under 'The Exchange Offer--Procedures for
Tendering' in the Prospectus and in the instructions hereto will constitute a
binding agreement between the undersigned and the Company in accordance with the
terms and subject to the conditions of the Exchange Offer.
The undersigned understands that if its Old Notes are accepted for
exchange, interest on the New Notes will accumulate from the last interest
payment date on which interest was paid on the Old Notes surrendered in exchange
therefore, or if no interest has been paid, from the original date of issuance
of the Old Notes.
The undersigned recognizes that unless the holder of Old Notes (i)
completes item (4) of the Box entitled 'Description of Old Notes Tendered' above
and (ii) checks the box entitled 'Check here if tendered shares of Old Notes are
being delivered to the Exchange Agent in exchange for certificated New Notes'
above, such holder, when tendering such shares of Old Notes, will be deemed to
have tendered such Old Notes in exchange for a beneficial interest in one or
more fully registered global certificates, which will be deposited with, or on
behalf of, DTC and registered in the name of Cede & Co., its nominee. Beneficial
interests in such registered global certificates will be shown on, and transfers
thereof will be effected only through, records maintained by DTC and its
participants. See 'Book-Entry; Delivery and Form' in the Prospectus.
The undersigned recognizes that, under certain circumstances set forth in
the Prospectus under 'The Exchange Offer--Conditions,' the Company may not be
required to accept for exchange any of the Old Notes tendered. Old Notes not
accepted for exchange or withdrawn will be returned to the undersigned at the
address set forth below unless otherwise indicated under 'Special Delivery
Instructions' below.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptability of any tender will be determined by the Company, in
its sole discretion, and such determination will be final and binding. Unless
waived by the Company, irregularities and defects must be cured by the
Expiration Date. The Company shall not be obligated to give notice of any
defects or irregularities in tenders and shall not incur any liability for
failure to give any such notice.
Unless otherwise indicated herein in the box entitled 'Special Issuance
Instructions' below, the undersigned hereby requests that the New Notes (and, if
applicable, substitute certificates representing Old Notes for any Old Notes not
exchanged) be issued in the name of the undersigned. Similarly, unless otherwise
indicated under the box entitled 'Special Delivery Instructions' below, the
undersigned hereby requests that the New Notes (and, if applicable, substitute
certificates representing Old Notes for any Old Notes not exchanged) be sent to
the undersigned at the address shown above in the box entitled 'Description of
Old Notes Tendered.'
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED 'DESCRIPTION OF OLD NOTES
TENDERED' ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD
NOTES AS SET FORTH IN SUCH BOX(ES) ABOVE.
<PAGE>
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9)
X
------------------------------------ --------------------------------
X
----------------------------------- --------------------------------
SIGNATURE(S) OF OWNER(S) DATE
Area Code and Telephone Number
--------------------------------------------------
If a holder is tendering any Old Notes, this Letter of Transmittal must be
signed by the registered holder(s) as the name(s) appear(s) on the
certificate(s) for the Old Notes or by any person(s) authorized to become
registered holder(s) by endorsements and documents transmitted herewith. If
signature is by a trustee, executor, administrator, guardian, officer or other
person acting in a fiduciary or representative capacity, please set forth full
title below. See Instruction 3.
Name(s):
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
Capacity:
-----------------------------------------------------------------------
Address:
------------------------------------------------------------------------
(INCLUDE ZIP CODE)
SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 3)
Signature(s) Guaranteed by
an Eligible Institution:
--------------------------------------------------------
(AUTHORIZED SIGNATURE)
- --------------------------------------------------------------------------------
(TITLE)
- --------------------------------------------------------------------------------
(NAME OF FIRM)
Dated: -------------------------------------------------------------------------
<PAGE>
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if New Notes (and, if applicable, substitute certificates
representing Old Notes for any Old Notes not exchanged) are to be issued in
the name of and sent to someone other than the person or persons whose
signature(s) appear(s) on this Letter of Transmittal above.
Issue New Notes to:
Name(s):______________________________________________________________________
(PLEASE TYPE OR PRINT)
______________________________________________________________________________
(PLEASE TYPE OR PRINT)
Address:______________________________________________________________________
______________________________________________________________________________
(ZIP CODE)
(COMPLETE SUBSTITUTE FORM W-9)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates for New Notes (and, if applicable,
substitute certificates representing Old Notes for any Old Notes not
exchanged) are to be sent to someone other than the person or persons
whose signature(s) appear(s) on this Letter of Transmittal above or to
such person or persons at an address other than shown in the box entitled
'Description of Old Notes Tendered' on this Letter of Transmittal above.
Mail New Notes to:
Name(s):______________________________________________________________________
(PLEASE TYPE OR PRINT)
______________________________________________________________________________
(PLEASE TYPE OR PRINT)
Address:______________________________________________________________________
______________________________________________________________________________
(ZIP CODE)
IMPORTANT: EITHER (1) (A) THIS LETTER OF TRANSMITTAL (OR A FACSIMILE
HEREOF) TOGETHER WITH CERTIFICATES REPRESENTING OLD NOTES OR (B) A BOOK-ENTRY
CONFIRMATION INCLUDING BY MEANS OF AN AGENT'S MESSAGE, MUST BE RECEIVED BY THE
EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE
TOGETHER WITH ALL OTHER REQUIRED DOCUMENTS, OR (2) THE TENDERING HOLDER MUST
COMPLY WITH THE GUARANTEED DELIVERY PROCEDURES SET FORTH HEREIN. BY TENDERING
THROUGH ATOP, DTC PARTICIPANTS WILL EXPRESSLY ACKNOWLEDGE RECEIPT OF THIS LETTER
OF TRANSMITTAL AND AGREE TO BE BOUND BY ITS TERMS AND THE ISSUER WILL BE ABLE TO
ENFORCE SUCH AGREEMENT AGAINST SUCH DTC PARTICIPANTS.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX ABOVE.
<PAGE>
<TABLE>
<CAPTION>
TO BE COMPLETED BY ALL TENDERING HOLDERS
(SEE INSTRUCTION 5)
PAYOR'S NAME: NORTH ATLANTIC TRADING COMPANY, INC.
<S> <C> <C>
PART I--Taxpayer
Identification
Number
Enter your taxpayer
identification
number in the
appropriate box. For
most individuals, this
SUBSTITUTE your social security Social Security Number
number. If you do
not have a number,
FORM W-9 see how to obtain a OR
'TIN' in the
enclosed Guidelines.
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE Employer Identification Number
NOTE: If the account
is in more than one
name, see the chart
on page 2 of the
PAYOR'S REQUEST FOR enclosed Guidelines
TAXPAYER IDENTIFICATION to determine what
NUMBER ('TIN') AND number to give.
CERTIFICATION
</TABLE>
<TABLE>
<S> <C>
PART II--FOR PAYEES EXEMPT FROM BACKUP WITHHOLDING
(See enclosed Guidelines) Certification under the
penalties of perjury, I certify that: (1) The number
shown on this form is my correct Taxpayer
Identification Number (or I am waiting for a number
to be issued to me), and (2) I am not subject to
backup withholding either because I have not been
notified by the Internal Revenue Service (the 'IRS')
that I am subject to backup withholding as a result
of a failure to report all interest or dividends or
the IRS has notified me that I am no longer subject
to backup withholding.
SIGNATURE __________________________________________
DATE _______________________________________________
CERTIFICATION GUIDELINES--You must cross out item
(2) of the above certification if you have been
notified by the IRS that you are subject to backup
withholding because of underreporting of interest or
dividends on your tax return. However, if after
being notified by the IRS that you were subject to
backup withholding you received another notification
from the IRS that you are not longer subject to
backup withholding, do not cross our item (2).
</TABLE>
CERTIFICATION OF PAYEE AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify, under penalties of perjury, that a Taxpayer Identification Number
has not been issued to me, and that I mailed or delivered an application to
receive a Taxpayer Identification Number to the appropriate Internal Revenue
Service Center or Social Security Administration Office (or I intend to mail or
deliver an application in the near future). I understand that if I do not
provide a Taxpayer Identification Number to the payer, 31 percent of all
payments made to me on account of the New Notes shall be retained until I
provide a Taxpayer Identification Number to the payer and that, if I do not
provide my Taxpayer Identification Number within sixty (60) days, such retained
amounts shall be remitted to the Internal Revenue Service as backup withholding
and 31 percent of all reportable payments made to me thereafter will be withheld
and remitted to the Internal Revenue Service until I provide a Taxpayer
Identification Number.
Signature______________________________________ Date_______________________
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU ON ACCOUNT OF THE NEW
NOTES. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.
<PAGE>
INSTRUCTIONS
Forming Part of the Terms and Conditions of the Exchange Offer
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND OLD NOTES; GUARANTEED
DELIVERY PROCEDURE. This Letter of Transmittal is to be completed by holders of
Old Notes to accept the Exchange Offer if: (i) tender of Old Notes is to be made
by DTC Participants through ATOP, for which the transaction is eligible,
pursuant to the procedures set forth in the Propectus under the caption
'Exchange Offer--Procedures for Tendering-- Unregistered Securities held through
DTC'; (ii) certificates representing Old Notes are to be physically delivered to
the Exchange Agent herewith by such holders, pursuant to the procedures set
forth in the Prospectus under the caption 'Exchange Offer--Procedures for
Tendering--Unregistered Securities held by Holders'; or (iii) tender of Old
Notes is to be made according to the guaranteed delivery procedures set forth in
the Prospectus under the caption 'Exchange Offer--Guaranteed Delivery
Procedures.' Notwithstanding the foregoing, valid acceptance of the terms of the
Exchange Offer may be effected by a DTC Participant tendering Old Notes through
ATOP where the Exchange Agent receives an Agent's Message prior to the
Expiration Date. Accordingly, such DTC Participant must electronically transmit
its acceptance to DTC through ATOP, and then DTC will edit and verify the
acceptance, execute a book-entry delivery to the Exchange Agent's account at DTC
and send an Agent's Message to the Exchange Agent for its acceptance. By
tendering through ATOP, DTC Participants will expressly acknowledge receipt of
this Letter of Transmittal and agree to be bound by its terms and the Company
will be able to enforce such agreement against such DTC Participants.
In order to validly tender Old Notes pursuant to the Exchange Offer, either
(i) (A) this Letter of Transmittal, or a facsimile hereof, together with
certificates representing Old Notes or (B) a Book-Entry Confirmation, including
by means of an Agent's Message, of the transfer into the Exchange Agent's
account at DTC of all Old Notes delivered electronically must be received by the
Exchange Agent at its address set forth herein prior to 5:00 p.m., New York City
time, on the Expiration Date, together with all other required documents, or
(ii) the tendering holder must comply with the guaranteed delivery procedures
set forth below. Delivery of documents to DTC does not constitute delivery to
the Exchange Agent.
If a holder or DTC Participant desires to tender Old Notes pursuant to the
Exchange Offer and time will not permit this Letter of Transmittal, certificates
representing such Old Notes and all other required documents to reach the
Exchange Agent, or the procedures for book-entry transfer, including those with
respect to tenders through ATOP, cannot be completed, prior to the Expiration
Date, such holder or DTC Participant, as the case may be, must tender such Old
Notes pursuant to the guaranteed delivery procedures set forth in the Prospectus
under the caption 'Exchange Offer--Procedures for Tendering--Guaranteed Delivery
Procedures.' Pursuant to such procedures (i) such tender must be made by or
through an Eligible Institution; (ii) a properly completed and duly executed
Notice of Guaranteed Delivery, substantially in the form provided by the
Company, must be received by the Exchange Agent either by hand delivery, mail,
facsimile transmission or overnight courier, prior to the Expiration Date; and
(iii) within three NYSE trading days after the date of the execution of the
Notice of Guaranteed Delivery, (A) holders must deliver to the Exchange Agent a
properly completed and duly executed Letter of Transmittal as well as the
certificate(s) representing all tendered Old Notes in proper form for transfer,
and all other documents required by the Letter of Transmittal or (B) DTC
Participants must effect a Book-Entry Confirmation, including through ATOP by
means of an Agent's Message, of the transfer of such Old Notes into the Exchange
Agent's account at DTC as set forth in the Prospectus.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, THE OLD NOTES AND ALL
OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH DTC AND ANY ACCEPTANCE OR
AGENT'S MESSAGE TRANSMITTED THROUGH ATOP, IS AT THE OPTION AND RISK OF THE
TENDERING HOLDER. If delivery is by mail, registered mail with return receipt
requested, properly insured, is recommended. In all cases, sufficient time
should be allowed for such documents to reach the Exchange Agent prior to the
Expiration Date. Except as otherwise provided in this Instruction 1, delivery
will be deemed made only when actually received by the Exchange Agent.
No alternative, conditional or contingent tenders will be accepted. All
tendering holders, by execution of this Letter of Transmittal (or a facsimile
hereof), waive any right to recieve any notice of the acceptance of their Old
Notes for exchange.
See 'The Exchange Offer' in the Prospectus.
2. WITHDRAWALS. Tenders of Old Notes may be withdrawn at any time prior to
5:00 p.m., New York City time, on the Expiration Date. For a withdrawal of a
tender of Old Notes to be effective, a letter, telex, telegram or
<PAGE>
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth above prior to 5:00 p.m., New York City time, on
the Expiration Date. Any such notice of withdrawal by a DTC Participant must
contain the name and number of the DTC Participant, the principal amount due at
the stated maturity of Old Notes to which such withdrawal relates and the
signature of the DTC Participant. Any such notice of withdrawal by a holder of
Old Notes must (i) specify the name of the person who tendered the Old Notes to
be withdrawn, (ii) contain a description of the Old Notes to be withdrawn
(including the certificate number or numbers and principal amount due at the
stated maturity of such Old Notes) and (iii) be signed by the holder of such Old
Notes in the same manner as the original signature on this Letter of Transmittal
(including any required signature guaranties), or be accompanied by (x)
documents of transfer in a form acceptable to the Company, in its sole
discretion and (y) a properly completed irrevocable proxy that authorized such
person to effect such revocation on behalf of such holder. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for exchange for
purposes of the Exchange Offer. Any Old Notes which have been tendered for
exchange but which are not exchanged for any reason will be returned to the
holder thereof without cost to such holder as soon as practicable after
withdrawal, rejection of tender, or termination of the Exchange Offer. Properly
withdrawn Old Notes may be retendered by following the procedures described
above at any time on or prior to 5:00 p.m., New York City time, on the
Expiration Date.
3. SIGNATURES ON THIS LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS;
GUARANTEE OF SIGNATURES. If this Letter of Transmittal is signed by the
registered holder of the Old Notes tendered hereby, the signature must
correspond exactly with the name as written on the face of the certificates
without any change whatsoever.
If any tendered Old Notes are owned of record by two or more joint owners,
all such owners must sign this Letter of Transmittal.
If any tendered Old Notes are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
copies of this Letter of Transmittal as there are different registrations of
certificates.
If this Letter of Transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should indicate when signing, and unless waived by the
Company, proper evidence satisfactory to the Company of their authority so to
act must be submitted.
The signatures on this Letter of Transmittal or a notice of withdrawal, as
the case may be, must be guaranteed unless the Old Notes surrendered for
exchange pursuant thereto are tendered (i) by a registered holder of the Old
Notes who has not completed the box entitled 'Special Issuance Instructions' or
'Special Delivery Instructions' in this Letter of Transmittal or (ii) for the
account of an Eligible Institution. In the event that the signatures in this
Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantees must be by a firm which is a member
of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc., or by a commercial bank or trust
company having an office or correspondent in the United States, or an 'eligible
institution' within the meaning of Rule l7Ad-l5 of the Securities Exchange Act
of 1934, as amended (each an 'Eligible Institution'). If Old Notes are
registered in the name of a person other than the signer of this Letter of
Transmittal, the Old 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 Company 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 of Old
Notes should indicate in the applicable box the name and address to which New
Notes issued pursuant to the Exchange Offer are to be issued or sent, if
different from the name or address of the person signing this Letter of
Transmittal. In the case of issuance in a different name, the employer
identification or social security number of the person named must also be
indicated. If no such instructions are given, any New Notes will be issued in
the name of, and delivered to, the name or address of the person signing this
Letter of Transmittal and any Old Notes not accepted for exchange will be
returned to the name or address of the person signing this Letter of
Transmittal.
5. BACKUP FEDERAL INCOME TAX WITHHOLDING AND SUBSTITUTE FORM W-9. Under
the federal income tax laws, payments that may be made by the Company on account
of New Notes issued pursuant to the Exchange Offer may be subject to backup
withholding at the rate of 31%. In order to avoid such backup withholding, each
<PAGE>
tendering holder should complete and sign the Substitute Form W-9 included in
this Letter of Transmittal and either (a) provide the correct taxpayer
identification number ('TIN') and certify, under penalties of perjury, that the
TIN provided is correct and that (i) the holder has not been notified by the
Internal Revenue Service (the 'IRS') that the holder is subject to backup
withholding as a result of failure to report all interest or dividends or (ii)
the IRS has notified the holder that the holder is no longer subject to backup
withholding; or (b) provide an adequate basis for exemption. If the tendering
holder has not been issued a TIN and has applied for one, or intends to apply
for one in the near future, such holder should write 'Applied For' in the space
provided for the TIN in Part I of the Substitute Form W-9, sign and date the
Substitute Form W-9 and sign the Certificate of Payee Awaiting Taxpayer
Identification Number. If 'Applied For' is written in Part I, the Company (or
the Transfer Agent with respect to the New Notes or a broker or custodian) may
still withhold 31% of the amount of any payments made on account of the New
Notes until the holder furnishes the Company or the Transfer Agent with respect
to the New Notes, broker or custodian with its TIN. In general, if a holder is
an individual, the taxpayer identification number is the Social Security number
of such individual. If the Exchange Agent or the Company is not provided with
the correct TIN, the holder may be subject to a $50 penalty imposed by the IRS.
Certain holders (including, among others, all corporations and certain foreign
individuals) are not subject to these backup withholding and reporting
requirements. In order for a foreign individual to qualify as an exempt
recipient, such holder must submit a statement (generally, IRS Form W-8), signed
under penalties of perjury, attesting to that individual's exempt status. Such
statements can be obtained from the Exchange Agent. For further information
concerning backup withholding and instructions for completing the Substitute
Form W-9 (including how to obtain a taxpayer identification number if you do not
have one and how to complete the Substitute Form W-9 if Old Notes are registered
in more than one name), consult the enclosed Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9.
Failure to complete the Substitute Form W-9 will not, by itself, cause Old
Notes to be deemed invalidly tendered, but may require the Company or the
Transfer Agent with respect to the New Notes, broker or custodian to withhold
31% of the amount of any payments made on account of the New Notes. Backup
withholding is not an additional federal income tax. Rather, the federal income
tax liability of a person subject to backup withholding will be reduced by the
amount of tax withheld. If withholding results in an overpayment of taxes, a
refund may be obtained from the IRS.
6. TRANSFER TAXES. The Company will pay all transfer taxes, if any,
applicable to the transfer of Old Notes to it or its order pursuant to the
Exchange Offer. If, however, New Notes and/or substitute Old Notes not exchanged
are to be delivered to, or are to be registered or issued in the name of, any
person other than the registered holder of the Old Notes tendered hereby, or if
tendered Old Notes are registered in the name of any person other than the
person signing this Letter of Transmittal, or if a transfer tax is imposed for
any reason other than the transfer of Old Notes to the Company or its order
pursuant to the Exchange Offer, the amount of any such transfer taxes (whether
imposed on the registered holder or any other person) will be payable by the
tendering holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted herewith, the amount of such transfer taxes will be
billed directly to such tendering holder.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes specified in this Letter of
Transmittal.
7. WAIVER OF CONDITIONS. The Company reserves the absolute right to waive
satisfaction of any or all conditions enumerated in the Prospectus.
8. NO CONDITIONAL TENDERS. No alternative, conditional, irregular or
contingent tenders will be accepted. All tendering holders of Old Notes, by
execution of this Letter of Transmittal, shall waive any right to receive notice
of the acceptance of their Old Notes for exchange.
Neither the Company nor any other person is 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.
9. INADEQUATE SPACE. If the space provided herein is inadequate, the
aggregate principal amount of Old Notes being tendered and the certificate
number or numbers (if available) should be listed on a separate schedule
attached hereto and separately signed by all parties required to sign this
Letter of Transmittal.
10. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES. Any holder whose Old
Notes have been mutilated, lost, stolen or destroyed should contact the Exchange
Agent at the address indicated above for further instructions.
<PAGE>
11. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to
the procedure for tendering, as well as requests for additional copies of the
Prospectus and this Letter of Transmittal, may be directed to the Exchange Agent
at the address and telephone number indicated above.
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC.
All tendered Old Notes, executed Letters of Transmittal and other related
documents should be directed to the Exchange Agent. Requests for assistance and
additional copies of the Prospectus, the Letter of Transmittal and other related
documents should be directed to the Exchange Agent.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
THE UNITED STATES TRUST COMPANY OF NEW YORK
By Facsimile:
(212) 420-6152
(For Eligible Institutions Only)
By Telephone:
(800) 548-6565
By Mail:
United States Trust Company of New York
P.O. Box 843
Cooper Station
New York, New York 10276
Attn: Corporate Trust Services
By Hand to 4:30 p.m.:
United States Trust Company of New York
111 Broadway
New York, New York 10006
Attention: Lower Level Corporate Trust Window
By Overnight Courier and By Hand after 4:30 p.m.:
United States Trust Company of New York
770 Broadway, 13th Floor
New York, New York 10003
Attn: Corporate Trust Redemption Unit
<PAGE>
NOTICE OF GUARANTEED DELIVERY
WITH RESPECT TO
NORTH ATLANTIC TRADING COMPANY, INC.
12% SENIOR PAYMENT-IN-KIND PREFERRED STOCK
This form or a form substantially similar hereto must be used by a holder
of the 12% Senior Payment-In-Kind Preferred Stock, par value $.01 per share,
liquidation preference $25.00 per share (the 'Old Preferred Stock') of North
Atlantic Trading Company, Inc., a Delaware corporation ('NATC'), that wishes to
tender Old Preferred Stock to the Exchange Agent pursuant to the guaranteed
delivery procedures described in 'The Exchange Offer--Guaranteed Delivery
Procedures' of the Prospectus dated July , 1997 (the 'Prospectus') and in
Instruction 1 to the accompanying Letter of Transmittal. Any holder that wishes
to tender Old Preferred Stock pursuant to such guaranteed delivery procedures
must ensure that the Exchange Agent receives this Notice of Guaranteed Delivery
prior to 5:00 p.m., New York City time, on the Expiration Date of the Exchange
Offer. Capitalized terms not defined herein have the meaning ascribed to them in
the Prospectus or the Letter of Transmittal.
To: United States Trust Company of New York, Exchange Agent
<TABLE>
<S> <C>
By Mail: By Facsimile:
United States Trust Company of New York (212) 780-0592
P.O. Box 843 (For Eligible Institutions Only)
Cooper Station
New York, N.Y. 10276
Attention: Corporate Trust Services
By Overnight Courier or By Hand to 4:30 p.m.: By Hand after 4:30 p.m.:
United States Trust Company of New York United States Trust Company of New York
770 Broadway, 13th Floor 111 Broadway
New York, N.Y. 10003 New York, N.Y. 10006
Attention: Corporate Trust Redemption Unit Attention: Lower Level Corporate
Trust Window
</TABLE>
For Information Call:
(800) 548-6565
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION VIA A FACSIMILE NUMBER OTHER THAN AS SET FORTH
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
Please read the accompanying instructions carefully.
Ladies and Gentlemen:
The undersigned hereby tenders to NATC, upon the terms and subject to the
conditions set forth in the Prospectus and the related Letter of Transmittal,
receipt of which is hereby acknowledged, the principal amount of Old Preferred
Stock specified below pursuant to the guaranteed delivery procedures set forth
in the Prospectus and in Instruction 1 of the Letter of Transmittal. The
undersigned hereby tenders the Old Preferred Stock listed below:
<TABLE>
<CAPTION>
CERTIFICATE NUMBER(S) (IF KNOWN)
OF OLD PREFERRED STOCK OR AGGREGATE NUMBER OF AGGREGATE PRINCIPAL
ACCOUNT NUMBER AT THE SHARES REPRESENTED AMOUNT OF SHARES
BOOK-ENTRY FACILITY BY CERTIFICATE TENDERED
<S> <C> <C>
</TABLE>
<PAGE>
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned and every obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors
and assigns of the undersigned.
SIGN HERE
Name of Registered or Acting Holder: ___________________________________________
Signature(s): __________________________________________________________________
Name(s) (please print): ________________________________________________________
Address: _______________________________________________________________________
_______________________________________________________________________
Telephone Number: ______________________________________________________________
Date: __________________________________________________________________________
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm which is a member of a registered national
securities exchange or of the National Associates of Securities Dealers, Inc.,
or is a commercial bank or trust company having an office or correspondent in
the United States, or is otherwise an 'eligible guarantor institution' within
the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as
amended, guarantees deposit with the Exchange Agent of the Letter of Transmittal
(or facsimile thereof), together with the Old Preferred Stock tendered hereby in
proper form for transfer (or confirmation of the book-entry transfers of such
Old Preferred Stock into the Exchange Agent's account at the book-entry transfer
facility described in the Prospectus under the caption 'The Exchange
Offer--Procedures for Tendering' and in the Letter of Transmittal) and any other
required documents, within three New York Stock Exchange trading days after the
date of execution of the Notice of Guaranteed Delivery.
SIGN HERE
Name of firm: __________________________________________________________________
Authorized Signature: __________________________________________________________
Name (please print): ___________________________________________________________
_______________________________________________________________________________
Telephone Number: ______________________________________________________________
Date: __________________________________________________________________________
DO NOT SEND SHARES WITH THIS FORM. ACTUAL SURRENDER OF SHARES
MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, AN EXECUTED
LETTER OF TRANSMITTAL.
INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY
1. Delivery of this Notice of Guaranteed Delivery. A properly completed and
duly executed copy of this Notice of Guaranteed Delivery and any other documents
required by this Notice of Guaranteed Delivery must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New
2
<PAGE>
York City time, on the Expiration Date. The method of delivery of this Notice of
Guaranteed Delivery and any other required documents to the Exchange Agent is at
the election and risk of the holder and the delivery will be deemed made only
when actually received by the Exchange Agent. If delivery is by mail, registered
or certified mail properly insured, with return receipt requested, is
recommended. In all cases sufficient time should be allowed to assure timely
delivery. For a description of the guaranteed delivery procedure, see
Instruction 1 of the Letter of Transmittal.
2. Signatures on this Notice of Guaranteed Delivery. If this Notice of
Guaranteed Delivery is signed by the registered holder(s) of the Old Preferred
Stock referred to herein, the signature must correspond with the name(s) written
on the face of the Old Preferred Stock without alteration, enlargement, or any
change whatsoever. If this Notice of Guaranteed Delivery is signed by a
participant of the book-entry transfer facility whose name appears on a security
position listing as the owner of Old Preferred Stock, the signature must
correspond with the name shown on the security position listing as the owner of
the Old Preferred Stock.
If this Notice of Guaranteed Delivery is signed by a person other than the
registered holder(s) of any Old Preferred Stock listed or a participant of the
book-entry transfer facility, this Notice of guaranteed Delivery must be
accompanied by appropriate stock powers, signed as the name of the registered
holder(s) appears on the Old Preferred Stock or signed as the name of the
participant shown on the book-entry transfer facility's security position
listing.
If this Notice of Guaranteed Delivery is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation, or other
person acting in a fiduciary or representative capacity, such person should so
indicate when signing.
3. Requests for Assistance or Additional Copies. Questions and requests for
assistance and requests for additional copies of the Prospectus may be directed
to the Exchange Agent at the address specified in the Prospectus. Holders may
also contact their broker, dealer, commercial bank, trust company, or other
nominee for assistance concerning the Exchange Offer.
3
<PAGE>
NOTICE OF GUARANTEED DELIVERY
WITH RESPECT TO
NORTH ATLANTIC TRADING COMPANY, INC.
11% SENIOR NOTES DUE 2004, SERIES A
This form or a form substantially similar hereto must be used by a holder
of the 11% Senior Notes Due 2004, Series A (the 'Old Notes') of North Atlantic
Trading Company, Inc., a Delaware corporation ('NATC'), that wishes to tender
Old Notes to the Exchange Agent pursuant to the guaranteed delivery procedures
described in 'The Exchange Offer--Guaranteed Delivery Procedures' of the
Prospectus dated July , 1997 (the 'Prospectus') and in Instruction 1 to the
accompanying Letter of Transmittal. Any holder that wishes to tender Old Notes
pursuant to such guaranteed delivery procedures must ensure that the Exchange
Agent receives this Notice of Guaranteed Delivery prior to 5:00 p.m., New York
City time, on the Expiration Date of the Exchange Offer. Capitalized terms not
defined herein have the meaning ascribed to them in the Prospectus or the Letter
of Transmittal.
To: United States Trust Company of New York, Exchange Agent
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<S> <C>
By Mail: By Facsimile:
United States Trust Company of New York (212) 780-0592
P.O. Box 843 (For Eligible Institutions Only)
Cooper Station
New York, N.Y. 10276
Attention: Corporate Trust Services
By Overnight Courier or By Hand to 4:30 p.m.: By Hand after 4:30 p.m.:
United States Trust Company of New York United States Trust Company of New York
770 Broadway, 13th Floor 111 Broadway
New York, N.Y. 10003 New York, N.Y. 10006
Attention: Corporate Trust Redemption Unit Attention: Lower Level Corporate
Trust Window
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For Information Call:
(800) 548-6565
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION VIA A FACSIMILE NUMBER OTHER THAN AS SET FORTH
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
Please read the accompanying instructions carefully.
Ladies and Gentlemen:
The undersigned hereby tenders to NATC, upon the terms and subject to the
conditions set forth in the Prospectus and the related Letter of Transmittal,
receipt of which is hereby acknowledged, the principal amount of Old Notes
specified below pursuant to the guaranteed delivery procedures set forth in the
Prospectus and in Instruction 1 of the Letter of Transmittal. The undersigned
hereby tenders the Old Notes listed below:
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<S> <C> <C>
CERTIFICATE NUMBER(S) (IF KNOWN)
OF OLD NOTES OR AGGREGATE PRINCIPAL AMOUNT AGGREGATE PRINCIPAL
ACCOUNT NUMBER AT THE OF OLD NOTES REPRESENTED AMOUNT OF OLD NOTES
BOOK-ENTRY FACILITY BY CERTIFICATE TENDERED
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All authority herein conferred or agreed to be conferred shall survive the death
or incapacity of the undersigned and every obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors
and assigns of the undersigned.
<PAGE>
SIGN HERE
Name of Registered or Acting Holder: ___________________________________________
Signature(s): __________________________________________________________________
Name(s) (please print): ________________________________________________________
Address: _______________________________________________________________________
________________________________________________________________________________
Telephone Number: ______________________________________________________________
Date: __________________________________________________________________________
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm which is a member of a registered national
securities exchange or of the National Associates of Securities Dealers, Inc.,
or is a commercial bank or trust company having an office or correspondent in
the United States, or is otherwise an 'eligible guarantor institution' within
the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as
amended, guarantees deposit with the Exchange Agent of the Letter of Transmittal
(or facsimile thereof), together with the Old Notes tendered hereby in proper
form for transfer (or confirmation of the book-entry transfers of such Old Notes
into the Exchange Agent's account at the book-entry transfer facility described
in the Prospectus under the caption 'The Exchange Offer--Procedures for
Tendering' and in the Letter of Transmittal) and any other required documents,
within three New York Stock Exchange trading days after the date of execution of
the Notice of Guaranteed Delivery.
SIGN HERE
Name of firm: __________________________________________________________________
Authorized Signature: __________________________________________________________
Name (please print): ___________________________________________________________
_______________________________________________________________________________
Telephone Number: ______________________________________________________________
Date: __________________________________________________________________________
DO NOT SEND NOTES WITH THIS FORM. ACTUAL SURRENDER OF NOTES
MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, AN EXECUTED
LETTER OF TRANSMITTAL.
INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY
1. Delivery of this Notice of Guaranteed Delivery. A properly completed and
duly executed copy of this Notice of Guaranteed Delivery and any other documents
required by this Notice of Guaranteed Delivery must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the Expiration Date. The method of delivery of this Notice of Guaranteed
Delivery and any other required documents to the Exchange Agent is at the
election and risk of the holder and the delivery will be deemed made only when
actually received by the Exchange Agent. If delivery is by mail, registered or
certified mail properly insured, with return receipt requested, is recommended.
In all cases
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<PAGE>
sufficient time should be allowed to assure timely delivery. For a description
of the guaranteed delivery procedure, see Instruction 1 of the Letter of
Transmittal.
2. Signatures on this Notice of Guaranteed Delivery. If this Notice of
Guaranteed Delivery is signed by the registered holder(s) of the Old Notes
referred to herein, the signature must correspond with the name(s) written on
the face of the Old Notes without alteration, enlargement, or any change
whatsoever. If this Notice of Guaranteed Delivery is signed by a participant of
the book-entry transfer facility whose name appears on a security position
listing as the owner of Old Notes, the signature must correspond with the name
shown on the security position listing as the owner of the Old Notes.
If this Notice of Guaranteed Delivery is signed by a person other than the
registered holder(s) of any Old Notes listed or a participant of the book-entry
transfer facility, this Notice of guaranteed Delivery must be accompanied by
appropriate bond powers, signed as the name of the registered holder(s) appears
on the Old Notes or signed as the name of the participant shown on the
book-entry transfer facility's security position listing.
If this Notice of Guaranteed Delivery is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation, or other
person acting in a fiduciary or representative capacity, such person should so
indicate when signing.
3. Requests for Assistance or Additional Copies. Questions and requests for
assistance and requests for additional copies of the Prospectus may be directed
to the Exchange Agent at the address specified in the Prospectus. Holders may
also contact their broker, dealer, commercial bank, trust company, or other
nominee for assistance concerning the Exchange Offer.
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