<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 7, 1997
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
------------------
LEINER HEALTH PRODUCTS INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 2834 95-3431709
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
------------------------
901 EAST 233RD STREET
CARSON, CALIFORNIA 90745
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------------------------
WILLIAM B. TOWNE
LEINER HEALTH PRODUCTS INC.
901 EAST 233RD STREET
CARSON, CALIFORNIA 90745
(310) 952-1341
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------
COPY TO:
DAVID A. BRITTENHAM
DEBEVOISE & PLIMPTON
875 THIRD AVENUE
NEW YORK, NEW YORK 10022
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED
TITLE OF EACH CLASS AMOUNT TO BE OFFERING MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED PRICE PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
9 5/8% Senior Subordinated Notes due
2007.................................... $85,000,000 100% $85,000,000 $25,758.00
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f) under the Securities Act of 1933, as amended.
------------------------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 7, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS
TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS
LEINER HEALTH PRODUCTS INC.
OFFER TO EXCHANGE 9 5/8% SENIOR SUBORDINATED NOTES DUE 2007
FOR ANY AND ALL EXISTING NOTES (AS DEFINED BELOW)
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ,
1997, UNLESS EXTENDED.
AS DESCRIBED HEREIN, WITHDRAWAL RIGHTS WITH RESPECT TO THE EXCHANGE OFFER ARE
EXPECTED TO
EXPIRE AT THE EXPIRATION OF THE EXCHANGE OFFER.
--------------------------
Leiner Health Products Inc., a Delaware corporation ("LHP," and collectively
with its subsidiaries, the "Company"), hereby offers (the "Exchange Offer"),
upon the terms and subject to the conditions set forth in this Prospectus (the
"Prospectus") and the accompanying Letter of Transmittal (the "Letter of
Transmittal") to exchange up to $85,000,000 aggregate principal amount of its
9 5/8% Senior Subordinated Notes due 2007 (the "New Notes"), which have been
registered under the Securities Act of 1933, as amended (the "Securities Act")
pursuant to a Registration Statement of which this Prospectus is a part, for a
like principal amount of its issued and outstanding 9 5/8% Senior Subordinated
Notes due 2007 (the "Existing Notes"). The New Notes and the Existing Notes, as
the case may be, are referred to herein as the "Notes." The Existing Notes were
originally issued and sold by Leiner Health Products Group Inc., LHP's indirect
corporate parent ("Leiner Group"), in a transaction that was exempt from
registration under the Securities Act (the "Offering") and resold to certain
qualified institutional buyers and institutional accredited investors in
reliance on, and subject to the restrictions imposed pursuant to, Rule 144A
under the Securities Act ("Rule 144A") and other applicable exemptions from the
registration requirements of such Act. Immediately following the consummation of
the Offering, Leiner Group assigned to its wholly-owned indirect subsidiary LHP,
and LHP assumed, all of Leiner Group's obligations in respect of the Existing
Notes (the "Assumption") and LHP became the obligor on the Existing Notes. The
terms of the New Notes are identical in all material respects to the terms of
the Existing Notes for which they may be exchanged pursuant to the Exchange
Offer, except that the New Notes will have been registered under the Securities
Act, and thus will not bear restrictive legends restricting their transfer
pursuant to the Securities Act.
Interest on each of the New Notes issued pursuant to the Exchange Offer will
accrue from the last interest payment date to which interest was paid or duly
provided for on the Existing Notes surrendered in exchange therefor or, if no
interest has been paid or duly provided for, from the original date of issuance
of the Existing Notes.
Interest on the Notes is payable semiannually in cash on January 1 and July
1 of each year, commencing January 1, 1998. The Notes will be redeemable at the
option of LHP, in whole or in part, at any time on or after July 1, 2002 at the
redemption prices set forth herein, together with accrued and unpaid interest,
if any, to the date of redemption. In addition, on or prior to July 1, 2000,
LHP, at its option, may redeem in the aggregate up to 30% of the original
principal amount of the Notes at a redemption price equal to 109 5/8% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of redemption, with the net cash proceeds of one or more Public Equity Offerings
(as defined herein); PROVIDED, HOWEVER, that at least $60.0 million aggregate
principal amount of Notes remains outstanding immediately after giving effect to
such redemption. See "Description of the Notes--Redemption." Upon a Change of
Control (as defined herein), (i) LHP will have the option prior to July 1, 2002,
to redeem the Notes, in whole, at a redemption price equal to 100% of the
principal amount thereof plus the Applicable Premium (as defined herein) as of,
and accrued and unpaid interest (if any) to, the date of redemption, and (ii) if
LHP does not redeem the Notes, subject to certain conditions, each holder of
Notes will have the right to require LHP to purchase such holder's Notes at a
price equal to 101% of the principal amount thereof, together with accrued and
unpaid interest to the date of purchase. See "Description of the Notes--Change
of Control."
The Notes will be unsecured senior subordinated obligations of LHP and will
be subordinated in right of payment to all existing and future Senior Debt (as
defined herein) of LHP, and will rank PARI PASSU in right of payment with all
other existing and future senior subordinated indebtedness of LHP. As of March
31, 1997, on a pro forma basis after giving effect to the Recapitalization (as
defined herein) and the financing therefor, the Company would have had
approximately $160.4 million of Senior Debt outstanding and approximately $245.4
million of aggregate indebtedness outstanding.
The Exchange Offer is not conditioned upon any minimum number of Existing
Notes tendered. The Exchange Offer will expire at 5:00 p.m., New York City time,
on , 1997, unless extended by LHP (such date as it may be so extended,
the "Expiration Date"). As soon as practicable after the Expiration Date, LHP
will accept all Existing Notes properly tendered and not validly withdrawn for
Exchange (the "Exchange Date") and deliver or cause the delivery of New Notes in
exchange therefor. Existing Notes tendered pursuant to the Exchange Offer may be
withdrawn at any time prior to 5:00 p.m. New York City time or the Expiration
Date; otherwise such tenders are irrevocable. New Notes to be issued in exchange
for validly tendered Existing Notes will be delivered through the facilities of
The Depository Trust Company by the Exchange Agent (as defined herein).
--------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN EVALUATING AN INVESTMENT
IN THE NOTES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------------
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE>
The Existing Notes were originally issued and sold in a transaction that was
exempt from registration under the Securities Act (the "Offering") and resold to
certain qualified institutional buyers and institutional accredited investors in
reliance on, and subject to the restrictions imposed pursuant to, Rule 144A
under the Securities Act ("Rule 144A") and other applicable exemptions from the
registration requirements of such Act. Based on interpretations by the Staff of
the Securities and Exchange Commission (the "Commission") as set forth in
no-action letters issued to third parties (including EXXON CAPITAL HOLDINGS
CORPORATION (available May 13, 1988), MORGAN STANLEY & CO. INCORPORATED
(available June 5, 1991), K-III COMMUNICATIONS CORPORATION (available July 2,
1993) and SHEARMAN & STERLING (available July 2, 1993)), LHP believes that New
Notes issued pursuant to the Exchange Offer in exchange for the Existing Notes
may be offered for resale, resold and otherwise transferred by holders thereof
(other than any such holder which is (i) an "affiliate" of LHP within the
meaning of Rule 405 under the Securities Act, (ii) a broker-dealer who acquired
Existing Notes directly from LHP or (iii) a broker-dealer who acquired Existing
Notes as a result of market-making or other trading activities) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that (a) such New Notes are acquired in the ordinary
course of such holder's business, (b) 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 (c) such holder is not engaged in, and does
not intend to engage in, a distribution of the New Notes. Holders of the
Existing Notes that, at the time of the commencement of the Exchange Offer, are
engaged in, intend to engage in, or have an arrangement to engage in, a
distribution of the New Notes may not rely on the applicable interpretations of
the Staff of the Commission and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any secondary
resale transaction. In addition, since the Commission has not considered the
Exchange Offer in the context of a no-action letter, there can be no assurance
that the Staff of the Commission would make a similar determination with respect
to the Exchange Offer as in such other circumstances. Each holder of Existing
Notes that desires to participate in the Exchange Offer will be required to make
certain representations described in "The Exchange Offer -- Terms of the
Exchange Offer."
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer in exchange for Existing Notes, where such Existing Notes
were acquired by such broker-dealer as a result of market-making activities or
other trading activities, must acknowledge that it will deliver a prospectus
meeting the requirements of the Securities Act and that it has not entered into
any arrangement or understanding with LHP or any affiliate of LHP to distribute
New Notes in connection with any resale of such New Notes. A broker-dealer that
acquired Existing Notes in a transaction other than as part of its market-making
activities or other trading activities will not be able to participate in the
Exchange Offer. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of New Notes received in exchange for
Existing Notes where such Existing Notes were acquired by such broker-dealer as
a result of market-making activities or other trading activities. LHP has agreed
that, for a period of 180 days after the Expiration Date (as defined herein), it
will make this Prospectus available to any such participating broker-dealer for
use in connection with any such resale. Any holder that cannot rely upon such
interpretations must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction. See "The Exchange Offer" and "Plan of Distribution."
The New Notes will be represented by one or more Global Certificate (as
defined herein) registered in the name of a nominee of The Depository Trust
Company, as Depository. Beneficial interest in the Global Certificates will be
shown on, and transfers will be effected only through, records maintained by the
Depository and its participants. See "Description of New Notes -- Book-Entry,
Delivery and Form."
There has not previously been any public market for the New Notes. LHP does
not intend to list the New Notes on any securities exchange or to seek approval
for quotation through any automated quotation system. There can be no assurance
that an active market for the New Notes will develop. Moreover, to the extent
that Existing Notes are tendered and accepted in the Exchange Offer, a holder's
ability to sell untendered, and tendered but unaccepted, Existing Notes could be
adversely affected. See "Risk Factors -- Absence of Public Market."
LHP will not receive any proceeds from the Exchange Offer. LHP has agreed to
pay the expenses it incurs for the Exchange Offer. No dealer manager is being
utilized in connection with the Exchange Offer.
ii
<PAGE>
THE EXCHANGE OFFER IS NOT BEING MADE, NOR WILL LHP ACCEPT SURRENDERS FOR
EXCHANGE FROM HOLDERS OF EXISTING NOTES, IN ANY JURISDICTION IN WHICH THE
EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR "BLUE SKY" LAWS OF SUCH JURISDICTION.
------------------------
AVAILABLE INFORMATION
LHP has filed with the Commission a Registration Statement (together with
any amendments thereto, the "Registration Statement") on Form S-4 under the
Securities Act, with respect to the New Notes offered hereby. As permitted by
the rules and regulations of the Commission, this Prospectus does not contain
all of the information included in the Registration Statement and the exhibits
and schedules thereto. Statements contained in this Prospectus as to the
contents of any contract or other document referred to herein or therein and
filed as an exhibit to the Registration Statement are not necessarily complete
and, in each instance, reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference. For further information with
respect to LHP and the New Notes, reference is hereby made to the Registration
Statement and the exhibits and schedules thereto.
LHP is not currently subject to the periodic reporting and other
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). Pursuant to the Indenture (as defined herein), LHP has
agreed to file with the Commission (so long as it is permitted to do so) and
provide to the holders of the Notes annual reports and the information,
documents and other reports that are specified in Sections 13 and 15(d) of the
Exchange Act. Reports, proxy statements and other information may be inspected
and copied at the public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549 and
at the regional offices of the Commission located at 7 World Trade Center, 13th
Floor, New York, New York 10048 and Suite 1400, Northwestern Atrium Center, 14th
Floor, 500 West Madison Street, Chicago, Illinois 60661. Copies of such material
can also be obtained at prescribed rates by writing to the Commission, Public
Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549 and such
material is contained on the worldwide web site maintained by the Commission at
http://www.sec.gov.
------------------------
YOUR LIFE-REGISTERED TRADEMARK-, PHARMACIST FORMULA-REGISTERED TRADEMARK-,
PROVEN RELEASE-REGISTERED TRADEMARK-, DAILY PAK-REGISTERED TRADEMARK-,
NATURALIZED-REGISTERED TRADEMARK-, MY-A-MULTI-REGISTERED TRADEMARK-,
CENTRAL-VITE-REGISTERED TRADEMARK-, THERA PLUS-REGISTERED TRADEMARK-, MAXIMUM
PAK-REGISTERED TRADEMARK-, SELECT DAILY PAK-REGISTERED TRADEMARK-, MEN'S DAILY
PAK-REGISTERED TRADEMARK-, WOMEN'S DAILY PAK-REGISTERED TRADEMARK-,
PHYTOGRAPH-REGISTERED TRADEMARK-, BODYCOLOGY-REGISTERED TRADEMARK-, are
registered trademarks of the Company and FE-TABS-TM-, ANTIOXIDANT PAK-TM-,
PHARMACEUTICAL GRADE CALCIUM-TM-, CENTRAL-VITE SELECT-TM-, BODY SYSTEMS-TM-,
STANDARDIZED HERBAL EXTRACTS-TM-, SPACE KIDS-TM-, GER-TAB-TM-, PAPAYAZYME-TM-,
STRESS PAK-TM- and LUBRICARE-TM- are trademarks of the Company. Other brand or
product names used herein are trademarks or registered trademarks of their
respective companies.
iii
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND CONSOLIDATED FINANCIAL
STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS THE
CONTEXT OTHERWISE REQUIRES, REFERENCES TO THE "COMPANY" OR "LEINER" SHALL MEAN
LHP AND ITS SUBSIDIARIES. REFERENCES HEREIN TO A "FISCAL" YEAR REFER TO THE
COMPANY'S FISCAL YEAR ENDED MARCH 31 IN THE CALENDAR YEAR INDICATED (E.G.,
REFERENCES TO FISCAL 1997 ARE REFERENCES TO THE COMPANY'S FISCAL YEAR ENDED
MARCH 31, 1997). REFERENCES HEREIN TO "PRO FORMA 1997" ARE REFERENCES TO FISCAL
1997, PRESENTED ON A PRO FORMA BASIS GIVING EFFECT TO THE COMPANY'S JANUARY 1997
ACQUISITION OF VITA HEALTH COMPANY (1985) LTD. ("VITA HEALTH"), THE COMPANY'S
CANADIAN SUBSIDIARY, AS WELL AS THE RECAPITALIZATION (AS DEFINED HEREIN) AND
RELATED TRANSACTIONS. SEE "SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA" AND
"UNAUDITED PRO FORMA FINANCIAL INFORMATION." THE MARKET SHARE AND COMPETITIVE
POSITION DATA CONTAINED IN THIS PROSPECTUS ARE APPROXIMATIONS BASED ON COMPANY
ESTIMATES AND THE INDUSTRY SOURCES SPECIFIED HEREIN, INCLUDING FIND/SVP
("PACKAGED FACTS"), INFORMATION RESOURCES, INC. ("IRI INFOSCAN"), MULTI-SPONSOR
SURVEY, INC. ("GALLUP"), COUNCIL FOR RESPONSIBLE NUTRITION ("CRN DATA") AND
MARKETING AND MANAGEMENT INFORMATION, INC. ("MMI DATA"). THE COMPANY BELIEVES
THAT SUCH DATA ARE INHERENTLY IMPRECISE, BUT ARE GENERALLY INDICATIVE OF ITS
RELATIVE MARKET SHARE AND COMPETITIVE POSITION. MARKET SHARE DATA ARE FOR THE
U.S. MASS MARKET ONLY (WHICH INCLUDES SUPERMARKETS, DRUG STORES, MASS
MERCHANDISERS AND WAREHOUSE CLUBS) AND DO NOT INCLUDE CANADIAN MARKET SHARE
INFORMATION FOR VITA HEALTH.
THE COMPANY
Leiner is the nation's largest manufacturer of vitamins, minerals, and
nutritional supplements (collectively "vitamins," "vitamin products" or "VMS")
and distributes its products primarily through mass market retailers. The
Company has a 23% share of all mass market vitamin sales in the United States,
50% larger than its next closest competitor's share. Additionally, Leiner's 50%
share of the mass market private label segment is more than two times the size
of its next closest competitor's share. Leiner has increased its market share
over the last five years, with its U.S. vitamin sales growing at a compound
annual rate of 18.9% per year through fiscal 1997, over one and one half times
the U.S. industry growth rate. Leiner is also one of the nation's largest
private label over-the-counter ("OTC") pharmaceuticals manufacturers, with 20%
of its sales in OTC pharmaceutical and other products. In January 1997, the
Company acquired Vita Health, the second largest private label vitamin and OTC
pharmaceuticals manufacturer in the Canadian market. The Company's sales and
EBITDA (as defined herein) have grown from $230.8 million and $14.0 million,
respectively, in fiscal 1993, to $416.9 million and $43.4 million, respectively,
through Pro Forma 1997.
The Company's products are sold in more than 50,000 of the nation's leading
retail outlets, including the 20 largest drug store chains, 18 of the 20 largest
supermarket chains, 10 of the largest mass merchandising chains, and the two
largest warehouse club chains, as well as in convenience stores and through
United States military outlets worldwide. Leiner is the vitamin category manager
for many leading retailers.
COMPETITIVE STRENGTHS
During the last five fiscal years, Leiner acquired two companies, built its
Your Life-Registered Trademark- product line into a $100 million broadline
vitamin brand, and invested significantly in plant and equipment. These
initiatives transformed Leiner from a marketing and sales oriented organization
into a fully integrated, low cost manufacturer and marketer of vitamins. The
Company attributes its leadership position to the following competitive
strengths:
- LOW COST MANUFACTURING: During the last five years, in addition to
maintenance capital expenditures, the Company has invested $29.5 million
primarily to increase capacity, as well as to consolidate plants and
modernize equipment. The Company's overall tableting capacity has been
increased by
1
<PAGE>
45% and packaging capacity by 66%. The Company's overall tableting costs
have been reduced by 8%, and packaging and distribution costs in its
western U.S. facilities have been reduced by approximately 10% and 20%,
respectively.
- HIGH QUALITY PRODUCTS: Quality is a critical factor in the customer
purchase decision, particularly for private label products, which are
marketed under the brand names of the Company's mass market retail
customers. The Company was the first major vitamin product supplier to be
certified as being in compliance with the United States Pharmacopoeial
Conventions' ("USP") vitamin manufacturing standards. The Company believes
this certification has enhanced its reputation as a premier quality
manufacturer of vitamins.
- ADVANCED CATEGORY MANAGEMENT: Through its sophisticated information
systems, the Company seeks to optimize the application of emerging
science, new product introductions, merchandising opportunities, shelf
space profitability and inventory management for its customers. The
Company produces over 6,000 stock keeping units ("SKUs"), ships
approximately 1,500 orders per week to over 200 customers and has
established a reputation for consistent on-time delivery.
- HIGH MARGIN NEW PRODUCTS: The Company identifies new products in non-mass
market distribution channels and introduces proven items at the cost,
quality and delivery standards required by mass market retailers. These
new products, typically introduced under Leiner's YOUR
LIFE-Registered Trademark- brand, produce the highest margins of all the
Company's products and represent an increasing percentage of sales. To
evaluate nutritional research and advise the Company on emerging science,
Leiner created a Scientific Advisory Board comprised of nationally
recognized authorities on nutrition and science. In the last two fiscal
years, the Company introduced 52 new products (including 18 herbal
products) which generated $32 million of fiscal 1997 net sales. As a
result, in the mass market, Leiner's share of the high growth herbal
products segment has grown from 9% in 1994 to 16% in 1996.
THE VITAMIN INDUSTRY
Vitamins are one of the nation's fastest growing consumer product
categories. According to industry sources, between 1992 and 1996, sales for the
vitamin industry grew at a compound annual rate of approximately 11.2% to $4.1
billion, as the percentage of American adults regularly using vitamins grew from
34% to 40%. This growth is expected to continue as more of the baby boom
generation reaches age fifty and vitamin usage continues to increase for all age
groups.
Between 1996 and 2005, the 50 to 64 age group is projected to be the fastest
growing segment of the United States population. Gallup polling data shows that
vitamin usage increases significantly with age, with 47% of individuals over age
50 regularly using vitamins, compared with 36% of younger adults.
Increasing vitamin usage among the general population is linked to three
major factors. First, research expenditures devoted to the positive effects of
vitamin products have increased dramatically. Such research has been described
in major medical journals and reported in the popular media. Second, the
national trend towards improved fitness, greater self-care and preventive
medicine has increased the general population's focus on nutritional products
consumption. Finally, the more favorable regulatory environment resulting from
the Dietary Supplement Health and Education Act of 1994 has generated increased
new product introductions and more effective point of sale communication of the
health benefits of vitamins to consumers. See "Industry."
BUSINESS STRATEGY
The Company's business strategy includes the following principal elements:
- INTRODUCING NEW PRODUCTS: Leiner has successfully introduced herb and
nutritional supplements into the mass market that were originally
available only in non-mass market channels. Mass market sales of
high-margin herbal products increased 29% between 1995 and 1996 and
represent a significant
2
<PAGE>
growth opportunity for the Company. The Company believes that the 30 new
products it introduced in fiscal 1997 and its planned new product
introductions for fiscal 1998 will further strengthen its position in the
mass market channel.
- EXPANDING DISTRIBUTION IN NON-MASS MARKET DOMESTIC CHANNELS: In addition
to its growth in the mass market channel, Leiner has a proven record of
growing sales in non-mass market channels. For example, Leiner's sales
through United States military outlets worldwide have grown from $9.1
million in fiscal 1994 to $18.9 million in fiscal 1997. The Company has
contractual agreements to (i) sell vitamins directly through television
retailing, (ii) distribute products through direct mail to customers of a
managed care provider, (iii) sell vitamins to companies that market
directly to consumers and (iv) contract manufacture products for major
pharmaceutical companies. The Company is also negotiating arrangements to
market vitamin products through the health food store channel.
- GROWING INTERNATIONAL SALES: Leiner plans to (i) expand its leading
position in Canada established through its recent acquisition of Vita
Health, a major manufacturer of private label and branded vitamins and OTC
pharmaceuticals in Canada, (ii) distribute YOUR LIFE-Registered Trademark-
brand products in Japan through a joint venture established with Takeda
Chemical Industries, Ltd., (iii) supply vitamins to Teva Pharmaceutical
Industries Ltd. for distribution in Israel and (iv) follow its existing
retail customers into international markets including Mexico, Brazil and
Indonesia.
- BUILDING THE YOUR LIFE-REGISTERED TRADEMARK- Brand: Between fiscal 1993
and fiscal 1997, the Company expanded sales of the YOUR
LIFE-Registered Trademark- brand from $40 million to $104 million. Between
fiscal 1996 and fiscal 1997, YOUR LIFE-Registered Trademark- sales grew
approximately 50%, driven primarily by increasing sales to mass
merchandisers and warehouse clubs. In fiscal 1997, the Company spent
approximately $12 million in advertising and promotional sales support to
further enhance the YOUR LIFE-Registered Trademark- brand.
- SELECTIVELY PURSUING ADD-ON ACQUISITIONS: The Company has successfully
purchased and integrated five companies since 1988, including the
acquisition of Vita Health in January 1997. With this acquisition, Leiner
gained (i) a leading competitive position in the Canadian market, (ii)
distribution through nearly all of the significant mass market retailers
in Canada, (iii) an extensive herb and nutritional supplement product line
and (iv) an established brand in the Canadian health food store segment.
Leiner intends to continue to pursue selective acquisition opportunities
to complement its business strategy.
- INCREASING OPERATING MARGINS AND REDUCING WORKING CAPITAL REQUIREMENTS:
The Company plans to pursue initiatives to (i) consolidate its eastern
U.S. packaging and distribution facilities, (ii) continue to reduce
selling, marketing, distribution, general and administrative ("SG&A")
expense as a percentage of sales, (iii) continue to reduce its raw
material costs, (iv) achieve savings from the integration of Vita Health
and (v) increase the proportion of its overall sales represented by sales
of YOUR LIFE-Registered Trademark- branded products and other higher
margin products, including new products and products sold through new
channels.
3
<PAGE>
THE RECAPITALIZATION
On June 30, 1997 (the "Recapitalization Closing Date") Leiner Group, LHP's
indirect corporate parent, completed a leveraged recapitalization (the
"Recapitalization") sponsored by North Castle Partners I, L.L.C. ("North
Castle"). The Recapitalization was effected pursuant to a Stock Purchase
Agreement and Plan of Merger, dated as of May 31, 1997 (the "Recapitalization
Agreement"), among Leiner Group, North Castle and LHP Acquisition Corp., a
wholly-owned subsidiary of North Castle (the "Merger Entity"). North Castle, a
Delaware limited liability company, is an investment fund formed by Charles F.
Baird, Jr. for the purpose of participating in the Recapitalization. Mr. Baird
was formerly a Managing Director of AEA Investors Inc. ("AEA"), which, together
with management, arranged the 1992 acquisition of LHP. Prior to the
Recapitalization, the common stock of Leiner Group (the "Existing Common Stock")
had been held by Mr. Baird, certain current and former managers and employees of
the Company, and AEA and certain of its co-investors (collectively, the
"Existing Shareholders").
Upon consummation of the Recapitalization, (i) certain current managers and
employees of the Company who had been Existing Shareholders had some of their
Existing Common Stock exchanged for cash, but together with Mr. Baird, retained
common stock of the recapitalized Leiner Group ("Group Common Stock") and
received rights under certain circumstances to receive Group Common Stock
("Equity Rights") equal to approximately 16% of the Group Common Stock
outstanding or issuable under Equity Rights (the "Group Equity"), as well as
certain warrants to acquire Group Common Stock ("Warrants"); (ii) AEA and
certain of its co-investors (the "AEA Group") and certain former managers of the
Company, all of whom had been Existing Shareholders, had most of their Existing
Common Stock purchased for cash, but retained Group Common Stock equal to
approximately 10% of the Group Equity, as well as Warrants; and (iii) North
Castle purchased Group Common Stock from Leiner Group representing the balance
of the Group Equity for a cash investment of $80.4 million. The Warrants provide
the Existing Shareholders, the right to purchase 20% of the Group Common Stock
on a fully-diluted basis giving effect to the exercise of such Warrants and of
the Management Options (as defined herein). The initial exercise price of the
Warrants is 125% of the purchase price per share paid by North Castle for its
investment in the Recapitalization. Commencing on the first anniversary of the
Recapitalization Closing Date, the exercise price will compound at a rate of 25%
per year in years two and three and then at a rate of 10% per year for the
subsequent two years.
The cash sources of financing for the Recapitalization consisted of North
Castle's investment in Group Common Stock, the proceeds of the Existing Notes,
and term and revolving credit borrowings under a senior secured credit facility
(the "New Credit Facility") provided by a syndicate of financial institutions
and The Bank of Nova Scotia as administrative agent, Merrill Lynch Capital
Corporation as documentation agent and Salomon Brothers Holding Company Inc as
syndication agent. See "Description of New Credit Facility." These funds were
applied to acquire Existing Common Stock for cash, to cash out options for
Existing Common Stock and redeem preferred stock of Leiner Group and Vita
Health, to refinance substantially all existing indebtedness of the Company
other than certain capitalized leases, and to pay transaction-related fees and
expenses.
4
<PAGE>
The following table sets forth the approximate sources and uses of funds for
the Recapitalization, which closed on June 30, 1997. For a presentation of the
effect of the Recapitalization on the consolidated financial statements of the
Company, on a pro forma basis as of March 31, 1997, see "Unaudited Pro Forma
Financial Information."
<TABLE>
<CAPTION>
SOURCES OF FUNDS AMOUNT USES OF FUNDS AMOUNT
- ---------------------------------- ------------------- ---------------------------------- -------------------
<S> <C> <C> <C>
(DOLLARS IN
MILLIONS)
Revolving Credit Facility......... $ 71.9(a) Repurchased and Retained Equity of
Leiner Group.................... $ 208.1(d)
Term Loans........................ 85.0(b) Repayment of Debt and Preferred
Stock........................... 119.9(e)
Existing Notes.................... 85.0 Management Transaction Bonuses.... 5.1(f)
------
Total Debt...................... 241.9 Estimated Fees and Expenses....... 17.8(g)
------ ------
------ ------
Total Common Equity of Leiner
Group........................... 109.0(c)
------
------
TOTAL SOURCES OF FUNDS.......... $ 350.9 TOTAL USES OF FUNDS............... $ 350.9
------ ------
------ ------
</TABLE>
- ------------------------
(a) Consists of borrowings under the new $125.0 million U.S. and Canadian
revolving credit facilities (collectively, the "Revolving Credit Facility")
provided under the New Credit Facility. See "Description of New Credit
Facility."
(b) Consists of borrowings under a $45.0 million term B loan facility and a
$40.0 million term C loan facility under the New Credit Facility, which were
fully drawn on the Recapitalization Closing Date. See "Description of New
Credit Facility."
(c) Consists of the Group Equity, comprised of (1) a new equity investment by
North Castle in Group Common Stock for cash of $80.4 million, (2) a retained
equity investment in Group Common Stock and Equity Rights with a value of
$17.6 million (based on the per share value of the North Castle equity
investment), held by certain current managers and employees of the Company
and Mr. Baird (the "Management Retained Equity"), and (3) a retained equity
investment in Group Common Stock with a value of $11.0 million (based on the
per share value of the North Castle equity investment), held by the AEA
Group and certain former managers of the Company (together with the
Management Retained Equity, the "Retained Equity"). See "The
Recapitalization."
(d) Includes transaction-related fees and expenses of $6.1 million, incurred by
Leiner, that were an adjustment to the price paid to the Existing
Shareholders. See "The Recapitalization."
(e) Consists of $102.3 million in outstanding borrowings and accrued interest
under the Company's existing senior credit agreement, an aggregate $13.9
million redemption price for outstanding pay-in-kind redeemable preferred
stock of Leiner Group held by AEA and an aggregate $3.7 million redemption
price for a minority preferred stock interest in Vita Health.
(f) Members of the Company's management received $5.1 million in transaction
bonuses ($3.1 million on an after-tax basis), which were paid by the Company
following the Recapitalization Closing Date.
(g) Does not include any fees and expenses that were an adjustment to the price
paid to the Existing Shareholders, which are included in (d) above.
5
<PAGE>
THE EXCHANGE OFFERING
<TABLE>
<S> <C>
Registration Rights The Existing Notes were issued on June 30, 1997 to Merrill
Agreement................ Lynch, Pierce, Fenner & Smith Incorporated, Salomon Brothers
Inc and Scotia Capital Markets (USA) Inc. (the "Initial
Purchasers"). The Initial Purchasers resold the Existing
Notes to certain qualified institutional buyers and
institutional accredited investors in reliance on, and
subject to the restrictions imposed pursuant to, Rule 144A
of the Securities Act and other applicable exemptions from
the registration requirements of the Act. In connection
therewith, Leiner Group, LHP and the Initial Purchasers
entered into the Registration Rights Agreement, dated as of
June 30, 1997 (the "Registration Rights Agreement"),
providing, among other things, for the Exchange Offer. See
"The Exchange Offer."
The Exchange Offer......... New Notes are being offered in exchange for an equal
principal amount of Existing Notes. As of the date hereof,
$85,000,000 aggregate principal amount of Existing Notes is
outstanding.
Resale of New Notes........ Based on interpretations by the Staff of the Commission as
set forth in no-action letters issued to third parties
(including EXXON CAPITAL HOLDINGS CORPORATION (available May
13, 1988), MORGAN STANLEY & CO. INCORPORATED (available June
5, 1991), K-III COMMUNICATIONS CORPORATION (available July
2, 1993) and SHEARMAN & STERLING (available July 2, 1993)),
LHP believes that the New Notes issued pursuant to the
Exchange Offer may be offered for resale, resold or
otherwise transferred by any holder thereof (other than any
such holder that is a broker-dealer or an "affiliate" of LHP
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 (i)
such New Notes are acquired in the ordinary course of
business, (ii) at the time of the commencement of the
Exchange Offer such holder has no arrangement or
understanding 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 Existing Notes in exchange
for New Notes, each holder will represent to LHP that: (i)
it is not such an affiliate of LHP, (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 and, if such
holder is not a broker-dealer, it is not engaged in, and
does not intend to engage in, a distribution of New Notes.
If a holder of Existing Notes is unable to make the
foregoing representations, such holder may not rely on the
applicable interpretations of the Staff of the Commission as
set forth in such no-action letters, and must comply with
the registration and prospectus delivery requirements of the
Securities Act in connection with any secondary resale
transaction.
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
Each broker-dealer that receives New Notes for its own
account pursuant to the Exchange Offer in exchange for
Existing Notes, where such Existing Notes were acquired by
such broker-dealer as a result of market-making activities
or other activities, must acknowledge that it will deliver a
prospectus meeting the requirements of the Securities Act
and that it has not entered into any arrangement or
understanding with LHP or an affiliate of LHP to distribute
the New Notes in connection with any resale of such New
Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer in connection with
resales of New Notes where such Existing Notes were acquired
by such broker-dealer as a result of market-making
activities or other trading activities. LHP has agreed that,
starting on the Expiration Date, and ending on the close of
business 180 days after the Expiration Date, it will make
this Prospectus available to any such participating
broker-dealer for use in connection with any such resale.
See "Plan of Distribution."
To comply with the securities laws of certain jurisdictions,
it may be necessary to qualify for sale or register the New
Notes prior to offering or selling such New Notes in such
jurisdictions. LHP has agreed, pursuant to the Registration
Rights Agreement and subject to certain specified
limitations therein, to register or qualify the New Notes
for offer or sale under the securities or "blue sky" laws of
such jurisdictions as may be necessary to permit the holders
of New Notes to trade the New Notes without any material
restrictions or limitations under the securities laws of the
several states of the United States.
Consequences of Failure to Upon consummation of the Exchange Offer, subject to certain
Exchange Existing limited exceptions, holders of Existing Notes who do not
Notes.................... exchange their Existing Notes for New Notes in the Exchange
Offer will no longer be entitled to registration rights and
will not be able to offer or sell their Existing Notes,
unless such Existing Notes are subsequently registered under
the Securities Act (which, subject to certain limited
exceptions, the Company will have no obligation to do),
except pursuant to an exemption from, or in a transaction
not subject to, the Securities Act and applicable state
securities laws. See "The Exchange Offer--Terms of the
Exchange Offer" and "--Consequences of Failure to Exchange."
Expiration Date............ 5:00 p.m., New York City time, on , 1997 (30 days
following the commencement of the Exchange Offer), unless
the Exchange Offer is extended by LHP in its sole
discretion, in which case the term "Expiration Date" means
the latest date and time to which the Exchange Offer is
extended.
Interest on the New The New Notes will accrue interest at a rate of 9 5/8% per
Notes.................... annum from June 30, 1997, the issue date of the Existing
Notes, or from the most recent date to which interest has
been paid or duly provided for on the Existing Notes.
Interest on the New Notes is payable on January 1 and July 1
of each year, commencing on January 1, 1998.
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
Conditions to the The Exchange Offer is not conditioned upon any minimum
Exchange Offer........... principal amount of Existing Notes being tendered for
exchange. However, the Exchange Offer is subject to certain
customary conditions, which may be waived by LHP. See "The
Exchange Offer--Conditions." Except for the requirements of
applicable federal and state securities laws, there are no
federal or state regulatory requirements to be complied with
by the Company in connection with the Exchange Offer.
Procedures for Tendering Each holder of Existing Notes wishing to accept the Exchange
Existing Notes........... Offer must complete, sign and date the Letter of
Transmittal, or a facsimile thereof, in accordance with the
instructions contained herein and therein, and mail or
otherwise deliver such Letter of Transmittal, or such
facsimile, together with any other required documentation to
the Exchange Agent (as defined herein) at the address set
forth herein and effect a tender of Existing Notes pursuant
to the procedures for book-entry transfer as provided for
herein. See "The Exchange Offer--Procedures for Tendering"
and "--Book Entry Transfer." Certain other procedures may
apply with respect to certain book-entry transfers. See "The
Exchange Offer--Exchanging Book-Entry Notes."
Guaranteed Delivery Holders of Existing Notes who wish to tender their Existing
Procedures............... Notes and who cannot deliver their Existing Notes and a
properly completed Letter of Transmittal or any other
documents required by the Letter of Transmittal to the
Exchange Agent prior to the Expiration Date may tender their
Existing Notes according to the guaranteed delivery
procedures set forth in "The Exchange Offer--Guaranteed
Delivery Procedures."
Withdrawal Rights.......... Tenders of Existing Notes may be withdrawn to any time prior
to 5:00 p.m., New York City time, on the Expiration Date. To
withdraw a tender of Existing Notes, a written or facsimile
transmission notice of withdrawal must be received by the
Exchange Agent at its address set forth herein under "The
Exchange Offer--Exchange Agent" prior to 5:00 p.m., New York
City time, on the Expiration Date.
Acceptance of Existing Subject to certain conditions, any and all Existing Notes
Notes and Delivery of that are validly tendered in the Exchange Offer prior to
New Notes................ 5:00 p.m., New York City time, on the Expiration Date will
be accepted for exchange. The New Notes issued pursuant to
the Exchange Offer will be delivered as soon as practicable
following the Expiration Date. See "The Exchange
Offer--Terms of the Exchange Offer."
Certain U.S. Tax The exchange of Existing Notes for New Notes should not
Consequences............. constitute a taxable exchange for U.S. federal income tax
purposes. See "Certain Federal Income Tax Considerations."
Exchange Agent/Trustee..... United States Trust Company of New York, the trustee under
the indenture governing the Notes (the "Trustee") is serving
as exchange agent, (in such capacity the "Exchange Agent"),
in connection with the Exchange Offer.
Fees and Expenses.......... Expenses incident to LHP's consummation of the Exchange
Offer and compliance with the Registration Rights Agreement
will be borne by LHP. See "The Exchange Offer--Fees and
Expenses."
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
Use of Proceeds............ LHP will not receive any proceeds from the Exchange Offer.
The net proceeds from the sale of the Existing Notes
comprised a portion of the financing for the
Recapitalization and related transactions.
</TABLE>
SUMMARY OF TERMS OF NEW NOTES
The Exchange Offer relates to the exchange of up to $85,000,000 aggregate
principal amount of Existing Notes for an equal aggregate principal amount of
New Notes. New Notes will be entitled to the benefits of the same Indenture that
governs the Existing Notes and that will govern the New Notes. The form and
terms of the New Notes are identical in all material respects to the form and
terms of the Existing Notes, except that the New Notes will have been registered
under the Securities Act, and thus will not bear restrictive legends restricting
their transfer pursuant to the Securities Act. See "Description of the Notes."
<TABLE>
<S> <C>
Maturity Date.............. July 1, 2007.
Interest Payment Dates..... January 1 and July 1 of each year, commencing January 1,
1998.
Optional Redemption........ The Notes will be redeemable at the option of LHP, in whole
or in part, at any time on or after July 1, 2002 at the
redemption prices set forth herein, together with accrued
and unpaid interest, if any, to the date of redemption. In
addition, on or prior to July 1, 2000, LHP, at its option,
may redeem in the aggregate up to 30% of the original
principal amount of the Notes at a redemption price equal to
109 5/8% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the date of redemption, with the
net cash proceeds of one or more Public Equity Offerings;
PROVIDED, HOWEVER, that at least $60.0 million aggregate
principal amount of Notes remains outstanding immediately
after giving effect to such redemption. See "Description of
the Notes--Redemption--Optional Redemption."
Ranking.................... The Notes will be unsecured senior subordinated obligations
of LHP and will be subordinated in right of payment to all
existing and future Senior Debt of LHP, including borrowings
under the New Credit Facility, and will rank PARI PASSU in
right of payment with all other existing and future senior
subordinated indebtedness of LHP. As of March 31, 1997,
after giving pro forma effect to the Recapitalization and
the financing therefor, the Company would have had
approximately $160.4 million of Senior Debt outstanding and
approximately $245.4 million of aggregate indebtedness
outstanding. See "Description of the Notes--Subordination."
Change of Control.......... Upon the occurrence of a Change of Control (as defined
herein), (i) LHP will have the option, prior to July 1,
2002, to redeem the Notes, in whole, at a redemption price
equal to 100% of the principal amount thereof plus the
Applicable Premium, as of, and accrued and unpaid interest
(if any) to, the date of redemption and (ii) if LHP does not
redeem the Notes, subject to certain conditions, each holder
of Notes will have the right to require LHP to purchase such
holder's Notes at a purchase price equal to 101% of the
principal amount thereof, together with accrued and unpaid
interest, if any, to the date of purchase. See "Description
of the Notes--Change of Control."
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
Covenants.................. The Indenture pursuant to which the New Notes will be
issued, contains certain covenants that, among other things,
will limit the ability of LHP and any Restricted Subsidiary
(as defined herein) to (i) incur additional indebtedness,
(ii) issue preferred stock in Restricted Subsidiaries, (iii)
pay dividends or make other distributions, (iv) repurchase
equity interests or subordinated indebtedness, (v) create
certain liens, (vi) enter into certain transactions with
affiliates, (vii) consummate certain asset sales and (viii)
merge or consolidate with any person. See "Description of
the Notes--Certain Covenants."
Absence of a Public Market The New Notes will be new securities for which there
for currently is no market. Although the Initial Purchasers have
the Notes................ informed LHP that they currently intend to make a market in
the New Notes, they are not obligated to do so, and any such
market making may be discontinued at any time without
notice. Accordingly, there can be no assurance as to the
development or liquidity of any market for the New Notes.
The Existing Notes are eligible for trading in the Private
Offerings, Resale and Trading through Automated Linkages
(PORTAL) market. LHP does not intend to apply for listing of
the New Notes on any securities exchange or for quotation
through the National Association of Securities Dealers
Automated Quotation System. See "Plan of Distribution."
</TABLE>
10
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table presents summary historical financial data derived from
the consolidated financial statements of the Company. The statement of
operations data for the fiscal years ended March 31, 1993, 1994, 1995, 1996, and
1997, and the balance sheet data as of March 31, 1997, except for the unaudited
pro forma financial information as of and for the fiscal year ended March 31,
1997, were derived from the consolidated financial statements of the Company
audited by Ernst & Young LLP, independent auditors.
The following table also presents summary unaudited pro forma financial data
as of and for the fiscal year ended March 31, 1997. The unaudited pro forma
consolidated statement of operations data for the fiscal year ended March 31,
1997 give effect to the Recapitalization with respect to the Company, and the
acquisition of Vita Health on January 30, 1997, as if those transactions had
occurred on April 1, 1996 (excluding certain non-recurring bonuses paid to Vita
Health's former owners of $2.4 million). The unaudited pro forma consolidated
balance sheet data as of March 31, 1997 give effect to the Recapitalization with
respect to the Company, assuming that the realization and application of net
proceeds, as described in "Use of Proceeds," had occurred on March 31, 1997. The
summary unaudited pro forma financial data should be read in conjunction with
the historical consolidated financial statements of the Company and notes
thereto, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Unaudited Pro Forma Financial Information" contained
elsewhere in this Prospectus, as well as the information concerning the
Recapitalization (including the approximate sources and uses therefor) contained
in "The Recapitalization." The summary unaudited pro forma financial data do not
reflect those Recapitalization-related transactions that only affected Leiner
Group, and do not necessarily reflect the results of operations or financial
position of the Company that would have actually resulted had the events
referred to above or in the notes to the unaudited pro forma financial
information been consummated as of the date and for the period indicated and are
not intended to project the Company's financial position or results of
operations for any future period.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MARCH 31, UNAUDITED
------------------------------------------------------- PRO FORMA
1993(1) 1994 1995 1996 1997 1997(2)
----------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN MILLIONS)
STATEMENT OF OPERATIONS DATA:
Net sales
Vitamins............................................ $ 159.5 $ 217.3 $ 239.6 $ 267.7 $ 321.7 $ 333.7
OTC pharmaceuticals................................. 53.0 67.4 63.1 58.8 61.3 68.6
Other............................................... 18.3 18.9 12.0 11.9 9.8 14.6
----------- --------- --------- --------- --------- -----------
Total net sales......................................... 230.8 303.6 314.7 338.4 392.8 416.9
Gross profit............................................ 59.2 77.6 78.1 85.1 104.2 110.5
SG&A.................................................... 48.0 59.5 59.7 62.6 72.7 76.8
Impairment and closure of OTC facility(3)............... -- -- -- 4.7 1.4 1.4
Management reorganization(4)............................ -- -- -- -- 1.0 1.0
Amortization of goodwill................................ 1.4 1.6 1.6 1.6 1.5 1.7
Other charges(5)........................................ 4.0 2.4 0.5 0.5 0.9 2.1
----------- --------- --------- --------- --------- -----------
Operating income........................................ 5.8 14.1 16.3 15.8 26.7 27.6
Interest expense, net(6)................................ 5.8 7.1 9.0 9.9 8.3 23.1
----------- --------- --------- --------- --------- -----------
Income before income taxes and extraodinary item........ $ -- $ 7.0 $ 7.3 $ 5.9 $ 18.4 $ 4.4
----------- --------- --------- --------- --------- -----------
----------- --------- --------- --------- --------- -----------
Income (loss) before extraordinary item................. $ (1.0) $ 3.4 $ 3.8 $ 1.2 $ 10.4 $ 1.9
----------- --------- --------- --------- --------- -----------
----------- --------- --------- --------- --------- -----------
OTHER DATA:
Gross margin............................................ 25.6% 25.6% 24.8% 25.2% 26.5% 26.5%
Adjusted operating income(7)............................ $ 9.4 $ 16.2 $ 16.5 $ 20.6 $ 29.6 $ 30.5
Adjusted operating income margin(7)..................... 4.1% 5.3% 5.2% 6.1% 7.5% 7.3%
EBITDA(7)(8)............................................ $ 14.0 $ 23.4 $ 27.0 $ 32.9 $ 42.0 $ 43.4
EBITDA margin(7)(8)..................................... 6.1% 7.7% 8.6% 9.7% 10.7% 10.4%
Depreciation and amortization(9)........................ $ 4.6 $ 7.2 $ 10.5 $ 12.3 $ 12.3 $ 12.9
Capital expenditures.................................... 3.3 15.0 16.7 3.5 3.5 3.8
Ratio of total debt to EBITDA(7)(8)..................... 5.4x 4.2x 4.0x 3.2x 2.5x 5.7x
Ratio of EBITDA to interest expense(7)(8)............... 2.4 3.3 3.1 3.4 5.2 2.0
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
----------------------
<S> <C> <C>
UNAUDITED
ACTUAL PRO FORMA
--------- -----------
<CAPTION>
(DOLLARS IN MILLIONS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital......................................................................... $ 79.4 $ 90.4
Total assets............................................................................ 284.6 299.9
Total debt(10).......................................................................... 106.3 245.4
Minority interest in subsidiary......................................................... 4.7 1.0
Total common shareholder's equity (deficit)............................................. 80.2 (39.9)
</TABLE>
- ------------------------
(1) The May 1992 acquisitions by Leiner Group of LHP and XCEL Laboratories, Inc.
("XCEL"), an OTC pharmaceuticals manufacturer, were accounted for under the
purchase method of accounting and new bases of accounting were established
at the time of each such acquisition. See "The Company-- History."
Accordingly, the statement of operations data for the fiscal year ended
March 31, 1993 represent the results of operations of the Company, the
results of operations for XCEL from the date of its acquisition, and
purchase accounting for the acquisitions of LHP and XCEL during that fiscal
year.
(2) On January 30, 1997, the Company purchased Vita Health. This column gives
effect to the acquisition of Vita Health, as well as the Recapitalization
and related transactions with respect to the Company. See "Unaudited Pro
Forma Financial Information." The Vita Health acquisition was accounted for
under the purchase method of accounting. Consequently, the results of
operations of Vita Health were included in the consolidated financial
results of the Company for the two months ended March 31, 1997. The pro
forma column includes the operating results of Vita Health for the
additional ten months ended January 30, 1997 and excludes certain
non-recurring bonuses paid to the former owners of Vita Health of $2.4
million.
(3) During fiscal 1996, the Company decided to significantly reduce the size of
its OTC liquid pharmaceuticals manufacturing business. Accordingly, the
Company determined that certain long-lived assets with a carrying amount of
$8.3 million were impaired and wrote them down by $4.7 million to their
estimated fair value. During fiscal 1997, the Company closed the
manufacturing facility and out-sourced the production to a third party. The
costs incurred of $1.4 million include (i) the write-off of fixed assets of
$0.8 million and (ii) closure costs including salaries in conjunction with
the facility closing of $0.6 million. The expense does not include an
additional charge to cost of sales of $0.5 million for the write-off of
certain liquid OTC inventory which was no longer being manufactured by the
Company.
(4) During fiscal 1997, the Company reorganized the management team. Expenses of
$1.0 million include severance expense for the previous Chief Financial
Officer, Vice President of Product Development and Vice President of
Corporate Development and include the hiring and relocation expenses for the
new Chief Financial Officer and other corporate officers.
(5) Other charges for the fiscal years ended March 31, 1993 through March 31,
1997 include management fees paid to AEA that were discontinued upon
consummation of the Recapitalization. Other charges also include costs
related to the original acquisition of Leiner by the AEA Group and
compensation expense arising from the sale of shares of Common Stock to
management in connection with the acquisition of Leiner by the AEA Group in
the fiscal year ended March 31, 1993, the write-off of deferred charges
associated with the refinancing of the Company's revolving credit facility
in the fiscal year ended March 31, 1994 and expenses incurred in connection
with the withdrawn initial public offering in the fiscal year ended March
31, 1997. Other charges also include, in the fiscal years ended March 31,
1994 through March 31, 1997, non-cash compensation expense arising from the
granting of stock options. Other charges in the fiscal year ended March 31,
1995 do not include $0.5 million in
12
<PAGE>
other charges incurred by Leiner Group in connection with its withdrawn
initial public offering in that fiscal year, which are reflected in the
consolidated financial statements of Leiner Group.
(6) Net interest expense in the fiscal year ended March 31, 1994 does not
reflect $0.1 million in interest income received by Leiner Group in that
year, which is reflected in the consolidated financial statements of Leiner
Group.
(7) Historical adjusted operating income, adjusted operating income margin,
EBITDA and EBITDA margin exclude expenses that are not expected to be
continued, including expenses related to the impairment and closure of the
OTC liquid pharmaceuticals manufacturing facility in fiscal 1996 and 1997
(see Note 3), the reorganization of the management team in fiscal 1997 (see
Note 4) and, (except for the management fees of $0.35 million per year paid
to AEA, which are included), other charges for the fiscal years ended March
31, 1993 through March 31, 1997 (see Note 5). Unaudited pro forma financial
data includes an annual management fee of $1.5 million payable to North
Castle Partners, L.L.C., an affiliate of North Castle, following the
Recapitalization and excludes the annual management fee of AEA. See "Certain
Transactions."
(8) For purposes of calculating the ratio of EBITDA to interest expense,
interest expense excludes the amortization of deferred financing fees, which
is included in interest expense in the income statement in the audited
consolidated financial statements.
"EBITDA," as presented, represents earnings before interest expense, income
taxes, depreciation and amortization and extraordinary item, and also
excludes certain expenses that are not expected to be continued (see Note
5). EBITDA is included because management understands that such information
is considered by certain investors to be an additional basis for evaluating
the Company's ability to pay interest, repay debt and make capital
expenditures. EBITDA should not be considered an alternative to measures of
operating performance as determined in accordance with generally accepted
accounting principles, including net income as a measure of the Company's
operating results and cash flows as a measure of the Company's liquidity.
Because EBITDA is not calculated identically by all companies, the
presentation herein may not be comparable to other similarly titled measures
of other companies.
(9) Depreciation and amortization as presented does not include the amortization
of deferred financing fees. In the cash flow statement in the audited
consolidated financial statements, the amortization of deferred financing
fees is included in depreciation and amortization.
(10) Actual total debt includes accrued interest of $0.9 million.
RISK FACTORS
Prospective investors should carefully consider the matters set forth under
"Risk Factors," beginning on page 14, in evaluating an investment in the Notes.
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RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, BEFORE TENDERING
THEIR EXISTING NOTES FOR NEW NOTES, HOLDERS OF EXISTING NOTES SHOULD CONSIDER
CAREFULLY THE FOLLOWING FACTORS, WHICH ARE GENERALLY APPLICABLE TO THE EXISTING
NOTES AND THE NEW NOTES.
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE INDEBTEDNESS
As a result of the Recapitalization, the Company is highly leveraged, with
indebtedness that is very substantial in relation to its shareholder's equity.
After giving pro forma effect to the Recapitalization, as of March 31, 1997, the
Company's aggregate outstanding indebtedness would have been $245.4 million and
the Company's shareholder's equity would have been a deficit of $39.9 million.
The New Credit Facility and the Indenture will permit the Company to incur or
guarantee certain additional indebtedness, subject to certain limitations. The
Company will be required to repay the $85.0 million in term loans under the New
Credit Facility over the eight and one-half year period following June 30, 1997,
with scheduled principal payments of $850,000 annually for the first six years,
$27.4 million in the seventh year, $39.3 million in the eighth year, and $13.2
million in the final six months. In addition, the Company will be required to
apply certain asset sale proceeds, as well as 50% of its excess cash flow (as
defined in the New Credit Facility) unless a leverage ratio test is met, to
prepay the borrowings under the New Credit Facility. All outstanding revolving
credit borrowings under the New Credit Facility will become due on June 30,
2003. The Company expects that its working capital needs will require it to
obtain replacement revolving credit facilities at that time. See "Selected
Historical and Pro Forma Financial Information," "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources," "Description of New Credit Facility" and "Description of the Notes."
The Company's high degree of leverage could have important consequences to
holders of Notes, including but not limited to the following: (i) the Company's
ability to obtain additional financing for working capital, capital
expenditures, acquisitions or general corporate purposes may be impaired in the
future; (ii) a substantial portion of the Company's cash flow from operations
must be dedicated to the payment of principal and interest on its indebtedness,
thereby reducing the funds available to the Company for its operations and other
purposes, including investments in research and development and capital
spending; (iii) the Company may be substantially more leveraged than certain of
its competitors, which may place the Company at a competitive disadvantage; (iv)
the Company may be hindered in its ability to adjust rapidly to changing market
conditions; and (v) the Company's substantial degree of leverage could make it
more vulnerable in the event of a downturn in general economic conditions or its
business or changing market conditions and regulations.
The Company's ability to repay or to refinance its obligations with respect
to its indebtedness will depend on its future financial and operating
performance, which, in turn, will be subject to prevailing economic and
competitive conditions and to certain financial, business, legislative,
regulatory and other factors, many of which are beyond the Company's control.
These factors could include operating difficulties, increased operating costs,
product pricing pressures, the response of competitors, regulatory developments,
and delays in implementing strategic projects. The Company's ability to meet its
debt service and other obligations may depend in significant part on the extent
to which the Company can implement successfully its business strategy. There can
be no assurance that the Company will be able to implement its strategy fully or
that the anticipated results of its strategy will be realized. See
"Business--Business Strategy."
If the Company's cash flow and capital resources are insufficient to fund
its debt service obligations, the Company may be forced to reduce or delay
capital expenditures, sell assets, or seek to obtain additional equity capital,
or to refinance or restructure its debt. There can be no assurance that the
Company's cash flow and capital resources will be sufficient for the payment of
principal of, and premium, if any, and interest on, its indebtedness in the
future, or that any such alternative measures would be
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successful or would permit the Company to meet its scheduled debt service
obligations. In addition, because the Company's obligations under the New Credit
Facility will bear interest at floating rates, an increase in interest rates
could adversely affect, among other things, the Company's ability to meet its
debt service obligations. The Company entered into an interest protection
arrangement effective July 30, 1997 for a period of three years with respect to
$29.4 million of its indebtedness under the New Credit Facility that provides a
cap of 6.17% on the interest rates payable thereon. See "Description of New
Credit Facility."
SUBORDINATION OF NOTES
The Notes will be unsecured, senior subordinated obligations of LHP, and as
such, will be subordinated in right of payment to all existing and future Senior
Debt of LHP, including indebtedness of LHP under the New Credit Facility and
LHP's guarantee of indebtedness of Vita Health under the New Credit Facility.
The Notes will rank PARI PASSU with all senior subordinated indebtedness of LHP,
if any, and will rank senior to all subordinated indebtedness of LHP, if any.
The Notes will also be effectively subordinated to all secured indebtedness of
LHP to the extent of the value of the assets securing such indebtedness, and to
all existing and future obligations and liabilities of LHP's subsidiaries. The
obligations of LHP under the New Credit Facility will be secured by
substantially all of the assets of LHP and any future U.S. subsidiary of LHP and
a pledge of the capital stock of LHP and any such subsidiary and 65% of the
capital stock of any direct foreign subsidiary of LHP. The obligations of Vita
Health under the New Credit Facility will be additionally secured by
substantially all of the assets of Vita Health and its parents and subsidiaries.
As of March 31, 1997, after giving pro forma effect to the Recapitalization, the
aggregate amount of Senior Debt and indebtedness of subsidiaries (other than
intercompany debt) that would have effectively ranked senior to the Notes would
have been approximately $160.4 million.
In the event of bankruptcy, liquidation, dissolution, reorganization or any
similar proceeding regarding LHP, or any default in payment or acceleration of
any debt thereof, the assets of LHP will be available to pay obligations on the
Notes only after the Senior Debt of LHP has been paid in full, and there may not
be sufficient assets remaining to pay amounts due on all or any of the Notes.
See "Description of the Notes--Subordination."
RESTRICTIVE FINANCING COVENANTS
The New Credit Facility contains a number of covenants that significantly
restrict the operations of the Company. In addition, the Company is required to
comply with specified financial ratios and tests, including minimum net worth
requirements, maximum leverage ratios, minimum fixed charge coverage ratios and
minimum EBITDA to cash interest expense ratios, and certain of these ratios and
tests may be more restrictive in future years. There can be no assurance that
the Company will be able to comply with such covenants or restrictions in the
future. The Company's ability to comply with such covenants and other
restrictions may be affected by events beyond its control, including prevailing
economic, financial and industry conditions. The breach of any such covenants or
restrictions could result in a default under the New Credit Facility that would
permit the lenders thereunder to declare all amounts outstanding thereunder to
be immediately due and payable, together with accrued and unpaid interest, and
terminate their commitments to make further extensions of credit thereunder, and
the Company could be prohibited from making any payments on the Notes. See
"Description of New Credit Facility." In addition, the Indenture contains a
number of restrictive covenants relating to the Company. See "Description of the
Notes."
CHANGE OF CONTROL
Upon the occurrence of a Change of Control (as defined in the Indenture),
the Company will be required to make an offer to purchase all of the outstanding
Notes at a price equal to 101% of the principal amount thereof at the date of
purchase plus accrued and unpaid interest, if any, to the date of
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purchase. The occurrence of certain of the events that would constitute a Change
of Control would constitute a default under the New Credit Facility and might
constitute a default under other indebtedness of the Company. In addition, the
New Credit Facility will prohibit the purchase of the Notes by the Company in
the event of a Change of Control, unless and until such time as the indebtedness
under the New Credit Facility is repaid in full. The Company's failure to
purchase the Notes in such instance would result in a default under each of the
Indenture and the New Credit Facility. The inability to repay the indebtedness
under the New Credit Facility, if accelerated, could have material adverse
consequences to the Company and to the holders of the Notes. Future indebtedness
of the Company may also contain prohibitions of certain events or transactions
that could constitute a Change of Control or require such indebtedness to be
repurchased upon a Change of Control. See "Description of New Credit Facility"
and "Description of the Notes--Change of Control." In the event of a Change of
Control, there can be no assurance that the Company would have sufficient assets
to satisfy all of its obligations under the New Credit Facility and the Notes.
FRAUDULENT TRANSFER CONSIDERATIONS
The incurrence of indebtedness by the Company, such as the Notes, may be
subject to review under federal bankruptcy law or relevant state fraudulent
conveyance laws if a bankruptcy case or lawsuit is commenced by or on behalf of
unpaid creditors of the Company. Under these laws, if, in a bankruptcy or
reorganization case or a lawsuit by or on behalf of unpaid creditors of the
Company, a court were to find that, at the time the Company incurred
indebtedness, including indebtedness under the Notes, (i) the Company incurred
such indebtedness with the intent of hindering, delaying or defrauding current
or future creditors or (ii) (a) the Company received less than reasonably
equivalent value or fair consideration for incurring such indebtedness and (b)
the Company (1) was insolvent or was rendered insolvent by reason of any of the
transactions, (2) was engaged, or about to engage, in a business or transaction
for which its assets constituted unreasonably small capital, (3) intended to
incur, or believed that it would incur, debts beyond its ability to pay as such
debts matured (as all of the foregoing terms are defined in or interpreted under
the relevant fraudulent transfer or conveyance statutes) or (4) was a defendant
in an action for money damages, or had a judgment for money damages docketed
against it (if, in either case, after final judgment the judgment is
unsatisfied), then such court could avoid or subordinate the amounts owing under
the Notes to presently existing and future indebtedness of the Company and take
other actions detrimental to the holders of the Notes.
The measure of insolvency for purposes of the foregoing considerations will
vary depending upon the law of the jurisdiction that is being applied in any
such proceeding. Generally, however, the Company would be considered insolvent
if, at the time it incurred the indebtedness, either (i) the sum of its debts
(including contingent liabilities) is greater than its assets, at a fair
valuation, or (ii) the present fair saleable value of its assets is less than
the amount required to pay the probable liability on its total existing debts
and liabilities (including contingent liabilities) as they become absolute and
matured. There can be no assurance as to what standards a court would use to
determine whether the Company was solvent at the relevant time, or whether,
whatever standard was used, the Notes would not be avoided or further
subordinated on another of the grounds set forth above. In rendering their
opinions in connection with the initial financing of the Recapitalization,
counsel for the Company and counsel for the lenders did not express any opinion
as to the applicability of federal or state fraudulent transfer and conveyance
laws.
The Company believes that at the time the indebtedness constituting the
Existing Notes was incurred initially by the Company, the Company (i) was (a)
neither insolvent nor rendered insolvent thereby, (b) in possession of
sufficient capital to run its businesses effectively and (c) incurring debts
within its ability to pay as the same matured or became due, and (ii) had
sufficient assets to satisfy any probable money judgment against it in any
pending action. The Company also believes that at the time it initially will
incur indebtedness constituting the New Notes that the Company (i) will be (a)
neither insolvent nor rendered insolvent thereby, (b) in possession of
sufficient capital to run its businesses effectively and (c) incurring
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debts within its ability to pay as the same mature or become due and (ii) will
have sufficient assets to satisfy any probable money judgment against it in any
pending action. In reaching the foregoing conclusions, the Company has relied
upon its analyses of internal cash flow projections and estimated values of
assets and liabilities of the Company. There can be no assurance, however, that
a court passing on such questions would reach the same conclusions.
CONTROL OF THE COMPANY
North Castle holds approximately 73% of the issued and outstanding Group
Common Stock on a fully diluted basis. Pursuant to the terms of a stockholders
agreement (the "Stockholders Agreement") entered in connection with the
Recapitalization, the AEA Group has the power to elect one member of Leiner
Group's Board of Directors and North Castle has the power to elect the remaining
directors of Leiner Group, and through Leiner Group, all the directors of LHP.
Accordingly, North Castle controls the Company and has the power to appoint new
management and approve any action requiring the approval of the holders of Group
Common Stock, including adopting amendments to Leiner Group's certificate of
incorporation and approving mergers or sales of substantially all of the
Company's assets. There can be no assurance that the interests of North Castle
will not conflict with the interests of the holders of the Notes. Under North
Castle's operating agreement, Mr. Baird has authority and discretion over the
business, affairs and operations of North Castle. See "Management" and "Certain
Transactions."
EFFECT OF RESEARCH AND PUBLICITY ON VITAMIN PRODUCT BUSINESS
The Company believes the growth experienced in the last several years by the
vitamin product business is based largely on national media attention regarding
recent scientific research suggesting potential health benefits from regular
consumption of certain vitamin products. Various studies published since 1992 by
researchers at major universities have suggested an association between regular
consumption of antioxidant supplements such as vitamins E and C and selenium and
a reduced risk of certain diseases and including heart disease, cancer and
Alzheimer's disease. In addition, certain other studies have reported that
consumption of folic acid (a B vitamin) can aid prevention of heart disease and
neural tube birth defects. Such research has been described in major medical
journals, magazines, newspapers and television programs. However, certain recent
studies relating to certain antioxidants have produced results contrary to the
favorable indications of other prior and subsequent studies. The scientific
research to date with respect to antioxidants and certain other of the Company's
products, including Dehydroepiandrosterone ("DHEA") is not conclusive, and there
can be no assurance of future favorable scientific results and media attention,
or the absence of unfavorable or inconsistent findings. In the event of future
unfavorable scientific results or media attention, the Company's sales of
vitamin products could be materially adversely affected.
POTENTIAL FOR INCREASED GOVERNMENT REGULATION
The manufacturing, processing, formulation, packaging, labeling, advertising
and sale of the Company's products are subject to regulation by one or more
United States and Canadian federal agencies, including the United States Food
and Drug Administration (the "FDA"), the United States Federal Trade Commission
(the "FTC"), the United States Consumer Product Safety Commission (the "CPSC")
and Health Canada. The Company's activities are also regulated by various
agencies of the states, provinces, localities and countries in which the
Company's products are sold. In addition, the Company manufactures and markets
certain of its products in compliance with the guidelines promulgated by
voluntary standard organizations, such as the USP.
The Dietary Supplement Health and Education Act of 1994 ("DSHEA") was
enacted on October 25, 1994. DSHEA amended the Federal Food, Drug, and Cosmetic
Act to (i) define dietary supplements, (ii) expand with certain limitations the
number of products that can be marketed as dietary supplements, (iii) permit
"structure/function" statements for all vitamin products, including herbal
products and other
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nutritional supplements, and (iv) permit the use of published literature in the
sale of vitamin products. The FDA has proposed, but not yet promulgated,
regulations to implement the labeling requirements of DSHEA. Since its adoption,
certain aspects of DSHEA have been subject to criticism as a result of the
increased distribution of certain products that have been linked to harmful
effects, including death. A possible effect of such criticism may be that
regulations, when promulgated by the FDA, may significantly limit certain
provisions of DSHEA beneficial to the Company. The Company cannot determine what
effect regulations promulgated to implement DSHEA will have on its business in
the future. Such regulations are likely, among other things, to require expanded
or different labeling and could require expanded documentation of the properties
of certain products and scientific substantiation regarding ingredients, product
claims or safety. The Company believes that it is in material compliance with
all applicable laws.
In Canada, the Company's products are subject to government regulation under
the Food and Drug Act and the regulations thereunder (the "Canadian Act") which
require regulatory approvals of such products through a drug identification
number ("DIN") or general proprietary number ("GP") by Health Canada. The loss
of a particular DIN or GP would adversely affect the ability to continue to sell
the particular product to which it was assigned. Material noncompliance with the
provisions of the Canadian Act may result in the loss of a DIN or GP or the
seizure and forfeiture of products which are sold in noncompliance with the
Canadian Act. The Company is currently seeking regulatory approvals for certain
of its products. There can be no assurance that such regulatory approvals will
be received and receipt of such approvals may be subject to significant delays.
Certain of the Company's products are subject to government regulation under
the Canadian Controlled Drugs and Substances Act and the regulations thereunder
(the "CDSA") which includes requirements for licenses of the factory, approved
security, a qualified person in charge of the factory and detailed record
keeping in connection with the manufacturing of controlled substances. The loss
of a license or the failure to meet any of these requirements would adversely
affect the ability to continue to manufacture and to sell products containing
controlled substances.
In response to the Canadian government's concern that a growing number of
unlabeled and incorrectly labeled herbal products are for sale to the Canadian
public which should have, but have not, received regulatory approval, a panel
has been established to review the regulatory framework for herbal products. The
Canadian government may implement new or amended requirements. There is, in
addition, the risk of stricter government enforcement of existing requirements
for herbal products. This may result in additional costs to the Company, delay
the entry of some products into the market or adversely affect sales of herbal
products.
In addition, the Company cannot predict whether new legislation or
regulation governing the Company's activities will be enacted by legislative
bodies or promulgated by agencies regulating the Company's activities, or what
the effect of any such legislation or regulation on the Company's business would
be. There can be no assurance that new legislation or regulation, including
changes to existing laws and regulations, will not materially adversely affect
the Company's results of operations or business.
RELIANCE ON CERTAIN CUSTOMERS AND CERTAIN PRODUCTS
The Company has approximately 200 active U.S. customers. In fiscal 1997,
Wal-Mart Stores, Inc. and Walgreen Co. accounted for approximately 27% and 12%,
respectively, of the Company's sales. Each of the Company's other major
customers accounted for less than 10% of the Company's sales for fiscal 1997.
The Company's top ten customers in the aggregate accounted for approximately 71%
of the Company's sales for fiscal 1997. Sales of vitamins C and E, in the
aggregate, accounted for approximately 34% of the Company's sales in fiscal 1997
(excluding sales by Vita Health). If one or more of the Company's major
customers substantially reduced their volume of purchases from the Company, or
if sales of vitamin C or E were substantially reduced, the Company's results of
operations could be materially adversely affected.
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DISRUPTION OF OPERATIONS
Beginning in fiscal 1994, the Company implemented a major facilities
consolidation, capacity expansion and equipment modernization program with
respect to its western U.S. facilities, whereby the Company consolidated its
western U.S. facilities into a smaller number of larger units with modern
equipment and expanded capacity for the purpose of realizing certain cost
savings and manufacturing efficiencies. The Company believes further cost
reduction opportunities exist with respect to its eastern U.S. facilities and
plans to consolidate its three existing eastern U.S. packaging and distribution
facilities into a new facility in York County, South Carolina, an area just
south of Charlotte, North Carolina. While the Company believes that this program
will reduce the Company's manufacturing and distribution costs, there can be no
assurance that the expected cost reductions will be realized or that this
program will result in improved profit margins. A significant, unexpected
disruption during the expansion of this program to the Company's eastern U.S.
facilities could have a material adverse effect on the Company's results of
operations.
POTENTIAL FOR INCREASED COMPETITION
The market for the Company's products is highly competitive. The Company
competes with other vitamin product and OTC pharmaceuticals manufacturers. Among
other factors, competition among these manufacturers is based upon price. If one
or more manufacturers significantly reduce their prices in an effort to gain
market share, the Company's results of operations or market position could be
adversely affected. Certain of the Company's competitors, particularly
manufacturers of nationally advertised brand name products, are larger and have
resources substantially greater than those of the Company, and are less
leveraged than the Company will be following the Recapitalization. In the
future, one or more of these companies could seek to compete more directly with
the Company by manufacturing private label products or by significantly lowering
the prices of their national brand products.
The Company sells substantially all of its vitamin products to mass market
retailers. Although the Company does not currently participate significantly in
other channels such as health food stores, direct mail and direct sales, the
Company's products may face competition from such alternative channels as more
customers utilize these channels of distribution to obtain vitamin products.
RELIANCE ON CERTAIN SUPPLIERS; AVAILABILITY AND COST OF PURCHASED MATERIALS
The Company purchases from third party suppliers certain important
ingredients and products that the Company cannot manufacture. Although the
Company currently has supply arrangements with several suppliers of these
ingredients and products, and the Company's purchased materials are generally
available from numerous sources, an unexpected interruption of supply could
materially adversely affect the Company's results of operations. Two suppliers
provided approximately 31% of the materials purchased during fiscal 1997 by the
Company (excluding purchases by Vita Health), and a loss of either of these
suppliers could materially adversely affect the Company. No other single
supplier accounts for more than 10% of the Company's material purchases.
The Company has not always in the past been, and may not in the future
always be, able to raise prices quickly enough to fully offset the effects of
increased purchased material costs.
POSSIBILITY OF TRADE DRESS CLAIMS
The Company's packaging of certain of its branded products identifies
nationally branded products to which the Company's products are comparable.
Although the Company designs its packaging to avoid infringing upon any
proprietary rights of national brand marketers and is not currently the subject
of any legal actions regarding infringement, there can be no assurance that the
Company will not be subject to such legal actions in the future.
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EXPOSURE TO PRODUCT LIABILITY CLAIMS
The Company, like other retailers, distributors and manufacturers of
products that are ingested, faces an inherent risk of exposure to product
liability claims in the event that, among other things, the use of its products
results in injury. With respect to product liability coverage, the Company
currently has an aggregate of $57.0 million of insurance coverage, including
primary product liability and umbrella liability coverage with deductibles of
(i) in the case of OTC pharmaceuticals, $0.25 million per claim, subject to an
annual aggregate deductible limit of $0.75 million and (ii) in the case of
vitamins and all other products, $0.25 million per claim, subject to an annual,
aggregate deductible limit of $0.75 million. There can be no assurance that
product liability insurance will continue to be available at an economically
reasonable cost or that the Company's insurance will be adequate to cover
liability the Company incurs in respect of product liability claims.
RELIANCE ON KEY MANAGEMENT
The operation of the Company requires managerial and operational expertise.
LHP does not have employment contracts with any of its executive officers. LHP
has entered severance benefit agreements with certain members of LHP's senior
management. See "Management--Severance Arrangements." If, for any reason, key
personnel do not continue to be active in LHP's management, operations could be
adversely affected.
ACQUISITION RELATED RISKS
Part of the Company's business strategy has been and will continue to be to
acquire other businesses that will complement its existing business. Management
is unable to predict whether or when any prospective acquisition candidates will
become available or the likelihood of a material transaction being completed
should any negotiations commence. The Company's ability to finance acquisitions
may be constrained by, among other things, its high degree of leverage. The New
Credit Facility and the Indenture may significantly limit the Company's ability
to make acquisitions and to incur indebtedness in connection with acquisitions.
In addition, acquisitions that the Company may make or in which the Company may
enter will involve risks, including the successful integration and management of
acquired technology, operations and personnel. The integration of acquired
businesses may also lead to the loss of key employees of the acquired companies
and diversion of management attention from ongoing business concerns. There can
be no assurance that any acquisition will be made, that the Company will be able
to obtain additional financing needed to finance such transactions and, if any
acquisitions are so made or formed, that they will be successful.
RISKS ASSOCIATED WITH INTERNATIONAL MARKETS
The Company's continued growth is dependent in part upon its ability to
expand its operations into new markets, including international markets. The
Company may experience difficulty entering new international markets due to
greater regulatory barriers, the necessity of adapting to new regulatory systems
and problems related to entering new markets with different cultural bases and
political systems. Operating in international markets exposes the Company to
certain risks, including, among other things, (i) changes in or interpretations
of foreign import, currency transfer and other restrictions and regulations that
among other things may limit the Company's ability to sell certain products or
repatriate profits to the United States, (ii) exposure to currency fluctuations,
particularly in light of the Company's substantial interest payment obligations,
which must be paid in United States and Canadian dollars, (iii) the potential
imposition of trade or foreign exchange restrictions or increased tariffs and
(iv) economic and political instability. As the Company continues to expand its
international operations, these and other risks associated with international
operations are likely to increase.
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ABSENCE OF PUBLIC MARKET
The Existing Notes are eligible for trading through the PORTAL market. The
New Notes are new securities for which there presently is no established market
and none may develop. Although the Initial Purchasers have informed the Company
that they currently intend to make a market in the New Notes, the Initial
Purchasers are not obligated to do so and any such market making may be
discontinued at any time without notice, at the sole discretion of the Initial
Purchasers. In addition, such market making activity may be limited during the
pendency of the Exchange Offer or the effectiveness of a shelf registration
statement in lieu thereof. Accordingly, there can be no assurance as to the
development or liquidity of any market for the New Notes.
To the extent that Existing Notes are tendered and accepted in the Exchange
Offer, the trading market for the remaining untendered or tendered but not
accepted Existing Notes could be adversely affected. Because the Company
anticipates that most holders of the Existing Notes will elect to exchange such
Existing Notes for New Notes due to the absence of restrictions on the resale of
New Notes under the Securities Act, the Company anticipates that the liquidity
of the market for any Existing Notes remaining after the consummation of the
Exchange Offer may be substantially limited.
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THE COMPANY
GENERAL
Leiner is the nation's largest manufacturer of vitamins, minerals, and
nutritional supplements and distributes its products primarily through mass
market retailers. The Company has a 23% share of all mass market vitamin sales
in the United States, 50% larger than its next closest competitor's share.
Additionally, Leiner's 50% share of the mass market private label segment is
more than two times the size of its next closest competitor's share. Leiner has
increased its market share over the last five years, with its U.S. vitamin sales
growing at a compound annual rate of 18.9% per year through fiscal 1997, over
one and one half times the U.S. industry growth rate. Leiner is also one of the
nation's largest private label OTC pharmaceuticals manufacturers, with 20% of
its sales in OTC pharmaceutical and other products. In January 1997, the Company
acquired Vita Health, the second largest private label vitamin and OTC
pharmaceuticals manufacturer in the Canadian market. The Company's sales and
EBITDA have grown from $230.8 million and $14.0 million, respectively, in fiscal
1993, to $416.9 million and $43.4 million, respectively, through Pro Forma 1997.
The Company's products are sold in more than 50,000 of the nation's leading
retail outlets, including the 20 largest drug store chains, 18 of the 20 largest
supermarket chains, 10 of the largest mass merchandising chains, and the two
largest warehouse club chains, as well as in convenience stores and through
United States military outlets worldwide. Leiner is the vitamin category manager
for many leading retailers.
HISTORY
The Company is the ultimate successor to the vitamin product division of P.
Leiner & Sons, America, Inc. The division, founded in 1973, was purchased in
1979 by management and Booker plc ("Booker") through LHP, then named P. Leiner
Nutritional Products Corp. (the "Predecessor Company"). On May 4, 1992, Leiner
Group acquired LHP (the "LHP Acquisition") for a total purchase price of
approximately $90.9 million. LHP subsequently changed its name to Leiner Health
Products Inc. Leiner Group was incorporated under the laws of the State of
Delaware in 1987 by AEA, and did not have any significant assets, liabilities or
activities prior to the LHP Acquisition. Leiner Group is a holding company with
no significant operations or assets other than the stock of LHP, which it holds
through its sole direct subsidiary, PLI Holdings Inc., itself a holding company
("PLI").
On May 22, 1992 Leiner Group acquired privately held XCEL, a major U.S.
private label OTC pharmaceuticals manufacturer (the "XCEL Acquisition"), for a
total purchase price of approximately $24.7 million. On March 8, 1993, XCEL was
merged into LHP. On May 4, 1994, Leiner Group's name was changed from PLI
Investors Inc. to Leiner Health Products Group Inc.
In January 1997, the Company acquired Vita Health (the "Vita Health
Acquisition"), one of the leading manufacturers of private label and branded
vitamins, minerals and OTC pharmaceuticals in Canada, for a total purchase price
of approximately $16.0 million, including $1.1 million of direct acquisition
costs. Vita Health is currently a wholly-owned indirect subsidiary of LHP. Vita
Health is headquartered in Winnipeg, Manitoba, Canada. This location serves as
Vita Health's headquarters, manufacturing, tableting, packaging and distribution
location.
The principal executive offices of LHP are located at 901 East 233rd Street,
Carson, California 90745-6204, and the telephone number is (310) 835-8400.
22
<PAGE>
USE OF PROCEEDS
There will be no cash proceeds payable to LHP from the issuance of the New
Notes pursuant to the Exchange Offer. The proceeds of the Offering were used to
fund a portion of the financing for the Recapitalization and related
transactions. Such funding requirements included payments in respect of Common
Stock and options for Common Stock, repayment of substantially all existing
indebtedness of the Company other than certain capitalized leases, redemption of
preferred stock of Leiner Group and Vita Health, payment of management
transaction bonuses, and payment of transaction-related fees and expenses. For
further discussion of the sources and uses of funds related to the
Recapitalization, see "The Recapitalization."
The existing indebtedness of the Company repaid in connection with the
Recapitalization consisted of outstanding term loan and revolving credit
borrowings under the Company's previous senior credit agreement, which had an
expiration of April 1, 2003. Such indebtedness either consisted of short-term
borrowings used for working capital, or was incurred in January 1997 in
connection with financing the acquisition of Vita Health and refinancing of
certain indebtedness of the Company. Such indebtedness amounted to approximately
$102.3 million (including then accrued interest), with interest rates thereon of
6.4% per annum for U.S. borrowings and 4.1% per annum for Canadian borrowings.
The preferred stock redeemed in connection with the Recapitalization consisted
of pay-in-kind redeemable preferred stock of Leiner Group held by AEA, for which
the aggregate redemption price was $13.9 million, and a minority preferred stock
interest in Vita Health, issued in connection with the Vita Health Acquisition,
for which the aggregate redemption price was $3.7 million.
23
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1997 on a historical basis and on a pro forma basis after giving effect to
the Recapitalization and the Exchange Offer with respect to the Company. This
table should be read in conjunction with "Use of Proceeds," "Unaudited Pro Forma
Financial Information," "Selected Historical and Pro Forma Financial
Information," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Company's consolidated financial statements and
the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
-----------------------
<S> <C> <C>
HISTORICAL PRO FORMA
---------- -----------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Long-term debt (including current portion and accrued interest):
Revolving credit facilities.......................................................... $ 36,240 $ 70,372(a)
Term loans........................................................................... 65,000 85,000(b)
Capitalized lease obligations........................................................ 5,060 5,060
New Notes............................................................................ -- 85,000
---------- -----------
Total long-term debt............................................................... 106,300 245,432
Minority interest in subsidiary (c).................................................... 4,718 1,000
Total common shareholder's equity (deficit)............................................ 80,150 (39,917)
---------- -----------
Total capitalization................................................................... $ 191,168 $ 206,515
---------- -----------
---------- -----------
</TABLE>
- ------------------------
(a) Borrowings of up to $125.0 million under the Revolving Credit Facility are
available for working capital and general corporate purposes, including
(subject to certain sublimits) letters of credit. As of July 31, 1997, the
Company's unused availability under the Revolving Credit Facility was
approximately $54.0 million. The Revolving Credit Facility will mature on
June 30, 2003. See "Description of New Credit Facility."
(b) Term loan borrowings under the New Credit Facility consist of $45.0 million
in term B loans, maturing seven and one-half years following June 30, 1997,
and $40.0 million in term C loans, maturing eight and one-half years
following June 30, 1997, in each case with required quarterly principal
payments until maturity. See "Description of New Credit Facility."
(c) Consists of preferred stock of Vita Health held by certain of its former
owners, valued at an aggregate redemption price of $4.7 million of which
$3.7 million was redeemed in connection with the Recapitalization.
24
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial information of the
Company (the "Pro Forma Financial Information") has been prepared to give effect
to the Recapitalization with respect to the Company. The pro forma adjustments
presented are based upon available information and certain assumptions that the
Company believes are reasonable under the circumstances.
The unaudited pro forma consolidated balance sheet of the Company as of
March 31, 1997 (the "Pro Forma Balance Sheet") gives effect to the
Recapitalization with respect to the Company, assuming that the realization and
application of net proceeds, as described in "Use of Proceeds," had occurred on
March 31, 1997. The unaudited pro forma consolidated statement of operations of
the Company for the year ended March 31, 1997 (the "Pro Forma Statement of
Operations") gives effect to (i) the Recapitalization with respect to the
Company as if it had occurred as of April 1, 1996, and (ii) the acquisition of
Vita Health on January 30, 1997 as if that acquisition had occurred on April 1,
1996, excluding certain non-recurring bonuses paid to former owners of Vita
Health of $2.4 million.
The Pro Forma Financial Information should be read in conjunction with the
historical consolidated financial statements of the Company and notes thereto,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and other financial information included elsewhere in this
Prospectus, as well as the information concerning the Recapitalization
(including the approximate sources and uses therefor) contained in "The
Recapitalization." The Pro Forma Financial Information does not reflect those
Recapitalization-related transactions that only affected Leiner Group. The Pro
Forma Financial Information and related notes are provided for informational
purposes only and do not purport to be indicative of the results that would have
actually been obtained had the Recapitalization been completed on the dates
indicated or that may be expected to occur in the future.
25
<PAGE>
LEINER HEALTH PRODUCTS INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
---------- --------- ----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................................. $ 2,066 $ 2,066
Accounts receivable, net............................................... 77,436 77,436
Inventories............................................................ 86,823 86,823
Deferred income taxes.................................................. 3,838 $ 6,172(3)
2,050(4) 12,060
Prepaid expenses and other current assets.............................. 2,639 2,639
---------- --------- ----------
Total current assets................................................. 172,802 8,222 181,024
Property, plant and equipment, net....................................... 42,367 42,367
Goodwill, net............................................................ 58,035 58,035
Other non-current assets................................................. 11,360 9,000(1)
(1,875)(2) 18,485
---------- --------- ----------
Total assets......................................................... $ 284,564 $ 15,347 $ 299,911
---------- --------- ----------
---------- --------- ----------
LIABILITIES AND EQUITY
Current liabilities:
Bank checks outstanding, less cash on deposit.......................... $ 10,410 $ 10,410
Current portion of long-term debt...................................... 3,148 $ (1,945)(5) 1,203
Accounts payable....................................................... 61,623 61,623
Other accrued expenses................................................. 18,218 (862)(5) 17,356
---------- --------- ----------
Total current liabilities............................................ 93,399 (2,807) 90,592
Existing long-term debt.................................................. 98,433 (98,433)(5) --
Capitalized lease obligations............................................ 3,857 3,857
Revolving credit facility................................................ 53,150(1)
17,222(1) 70,372
Term loans............................................................... 85,000(1) 85,000
Senior subordinated notes................................................ 85,000(1) 85,000
Deferred income taxes.................................................... 2,582 2,582
Other non-current liabilities............................................ 1,425 1,425
Minority interest in subsidiary.......................................... 4,718 (3,718)(5) 1,000
Common shareholder's equity (deficit).................................... 80,150 (223,150)(1)
110,661(1)
(8,800)(1)
(1,875)(2)
6,172(3)
(5,125)(4)
2,050(4) (39,917)
---------- --------- ----------
Total liabilities and equity......................................... $ 284,564 $ 15,347 $ 299,911
---------- --------- ----------
---------- --------- ----------
</TABLE>
See accompanying notes.
26
<PAGE>
LEINER HEALTH PRODUCTS INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1997
(IN THOUSANDS)
The Pro Forma Balance Sheet gives effect to the following pro forma
adjustments:
(1) Based upon the consolidated balance sheet of the Company as of March 31,
1997, the debt assumed from Leiner Group and the sources and uses of funds for
the Company resulting from the Recapitalization are as follows:
<TABLE>
<S> <C>
Debt assumed from Leiner Group (a):
Revolving Credit Facility.................................................... $ 53,150
Term Loans................................................................... 85,000
Existing Notes............................................................... 85,000
---------
$ 223,150
---------
---------
Sources of funds:
Capital contribution from Leiner Group....................................... $ 110,661(a)
Borrowings under Revolving Credit Facility................................... 17,222
---------
$ 127,883
---------
---------
Uses of funds:
Repayment of debt and preferred stock........................................ $ 104,958(b)
Management transaction bonuses............................................... $ 5,125
Estimated fees and expenses.................................................. 17,800(c)
---------
$ 127,883
---------
---------
</TABLE>
- ------------------------
(a) Represents certain borrowings made by Leiner Group to effect the
Recapitalization. All indebtedness for borrowings made by Leiner Group
was assumed by LHP. Cash remaining after application by Leiner Group to
fund the Recapitalization was transferred to LHP.
(b) Does not include $5,060 of capitalized leases and $1,000 of the Vita
Health preferred stock, both of which remained outstanding following the
Recapitalization.
(c) The estimated fees and expenses include $9,000 of financing related
transaction expenses which will be capitalized and amortized and $8,800
of non-financing related transaction expenses which will be netted
against common shareholder's equity.
(2) Represents the write-off of the net deferred financing fees associated
with the Company's existing long-term debt.
(3) Represents the deferred tax benefit associated with the compensation
charge incurred by the Company for the in-the-money value of existing stock
options of $15,431 which were either (i) converted into an equivalent value of
Equity Rights at the date of the Recapitalization, (ii) paid out in cash or
(iii) exercised for Common Stock. This one-time charge is reflected in the Pro
Forma Balance Sheet but not in the Pro Forma Statement of Operations due to its
unusual, non-recurring nature.
(4) Members of the Company's management received $5,125 in transaction
bonuses ($3,075 after a tax benefit of $2,050) which were paid by the Company
subsequent to the Recapitalization. This one-time charge is reflected in the Pro
Forma Balance Sheet but not in the Pro Forma Statement of Operations due to its
unusual, non-recurring nature.
(5) Represents the repayment or redemption of (i) amounts outstanding under
the Company's previous senior credit agreement of $100,378 plus related accrued
interest of $862 and (ii) the preferred stock in Vita Health of $3,718 (recorded
as a minority interest in the consolidated balance sheet of the Company) at the
date of the Recapitalization. A portion of such minority preferred stock
interest in Vita Health, with an aggregate redemption price of $1.0 million,
remained outstanding following the Recapitalization. (See Note 1 above.)
27
<PAGE>
LEINER HEALTH PRODUCTS INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED MARCH 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
10 MONTHS ADJUSTED
HISTORICAL VITA HEALTH ADJUSTMENTS COMPANY ADJUSTMENTS PRO FORMA
---------- ----------- ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales.................................... $ 392,786 $24,131 $416,917 $416,917
Cost of sales................................ 288,579 17,790 306,369 306,369
---------- ----------- -------- ---------
Gross profit................................. 104,207 6,341 110,548 110,548
SG&A......................................... 72,696 6,536 $(2,389)(1) 76,843 76,843
Impairment and closure of OTC facility....... 1,416 1,416 1,416
Management reorganization.................... 1,000 1,000 1,000
Amortization of goodwill..................... 1,514 166(2) 1,680 1,680
Other charges................................ 878 25 903 $ 1,150(3) 2,053
---------- ----------- ----------- -------- ----------- ---------
Operating income (loss)...................... 26,703 (220) 2,223 28,706 (1,150) 27,556
Interest expense, net........................ 8,281 60 8,341 1,171(4)
-- -- -- -- 13,635(5) 23,147
---------- ----------- ----------- -------- ----------- ---------
Income (loss) before income taxes and
extraordinary item......................... 18,422 (280) 2,223 20,365 (15,956) 4,409
(Provision) benefit for income taxes......... (8,028) 112 (956)(6) (8,872) 6,383(6) (2,489)
---------- ----------- ----------- -------- ----------- ---------
Income (loss) before extraordinary item...... $ 10,394 $ (168) $ 1,267 $ 11,493 $ (9,573) $ 1,920
---------- ----------- ----------- -------- ----------- ---------
---------- ----------- ----------- -------- ----------- ---------
Depreciation and amortization expenses(7).... $ 12,345 $ 351 $ 166 $ 12,862 -- $ 12,862
---------- ----------- ----------- -------- ----------- ---------
---------- ----------- ----------- -------- ----------- ---------
</TABLE>
See accompanying notes.
28
<PAGE>
LEINER HEALTH PRODUCTS INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED MARCH 31, 1997
(IN THOUSANDS)
The Pro Forma Statement of Operations gives effect to the following pro
forma adjustments:
(1) Represents the elimination of certain non-recurring bonuses paid to
former owners of Vita Health of $2,389.
(2) Represents the amortization of goodwill related to the acquisition
of Vita Health.
(3) Represents the elimination of the management fee of $350 charged by
AEA and the application of the management fee of $1,500 that will be charged
by North Castle after the Recapitalization.
(4) Represents the amortization of debt issuance fees of $1,171 for the
year ended March 31, 1997. The amortization periods for fees related to the
New Credit Facility and the Notes are 6.8 years and 10 years, respectively.
(5) Reflects the change in interest expense based on the
Recapitalization financing:
<TABLE>
<S> <C>
Elimination of historical interest expense on refinanced debt...................... $ (8,341)
Interest expense on New Credit Facility (at a weighted average rate of 8.1%)....... 13,795
Interest expense on the Notes...................................................... 8,181
---------
Total incremental interest expense............................................... $ 13,635
---------
---------
</TABLE>
(6) Income tax effects of pre-tax pro forma adjustments and related
financing structure.
(7) Depreciation and amortization as presented does not include the
amortization of deferred financing fees. In the cash flow statement in the
audited consolidated financial statements, the amortization of deferred
financing fees is included in depreciation and amortization.
29
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
The following table presents selected historical financial data derived from
the consolidated financial statements of the Company. The statement of
operations data for the fiscal years ended March 31, 1993, 1994, 1995, 1996, and
1997, and the balance sheet data as of March 31, 1997, except for the unaudited
pro forma financial information as of and for the fiscal year ended March 31,
1997, were derived from the consolidated financial statements of the Company
audited by Ernst & Young LLP, Independent Auditors.
The following table also presents selected unaudited pro forma financial
data as of and for the fiscal year ended March 31, 1997. The unaudited pro forma
consolidated statement of operations data for the fiscal year ended March 31,
1997, give effect to the Recapitalization with respect to the Company, and the
acquisition of Vita Health on January 30, 1997 as if those transactions had
occurred on April 1, 1996 (excluding certain non-recurring bonuses paid to Vita
Health's former owners of $2.4 million). The unaudited pro forma consolidated
balance sheet data as of March 31, 1997 give effect to the Recapitalization with
respect to the Company, assuming that the realization and application of net
proceeds, as described in "Use of Proceeds," had occurred on March 31, 1997. The
selected unaudited pro forma financial data should be read in conjunction with
the historical consolidated financial statements of the Company and notes
thereto, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Unaudited Pro Forma Financial Information" contained
elsewhere in this Prospectus, as well as the information concerning the
Recapitalization (including the approximate sources and uses therefor) contained
in "The Recapitalization." The selected unaudited pro forma financial data do
not reflect those Recapitalization-related transactions that only affected
Leiner Group, and do not necessarily reflect the results of operations or
financial position of the Company that would have actually resulted had the
events referred to above or in the notes to the unaudited pro forma financial
information been consummated as of the date and for the period indicated and are
not intended to project the Company's financial position or results of
operations for any future period.
30
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MARCH 31,
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
UNAUDITED
PRO FORMA
1993(1) 1994 1995 1996 1997 1997(2)
--------- --------- --------- --------- --------- -----------
<CAPTION>
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales......................................... $ 230.8 $ 303.6 $ 314.7 $ 338.4 $ 392.8 $ 416.9
Cost of sales..................................... 171.7 226.0 236.6 253.3 288.6 306.4
--------- --------- --------- --------- --------- -----------
Gross profit...................................... 59.2 77.6 78.1 85.1 104.2 110.5
SG&A.............................................. 48.0 59.5 59.7 62.6 72.7 76.8
Impairment and closure of OTC facility(3)......... -- -- -- 4.7 1.4 1.4
Management reorganization(4)...................... -- -- -- -- 1.0 1.0
Amortization of goodwill.......................... 1.4 1.6 1.6 1.6 1.5 1.7
Other charges(5).................................. 4.0 2.4 0.5 0.5 0.9 2.1
--------- --------- --------- --------- --------- -----------
Operating income.................................. 5.8 14.1 16.3 15.8 26.7 27.6
Interest expense, net(6).......................... 5.8 7.1 9.0 9.9 8.3 23.1
--------- --------- --------- --------- --------- -----------
Income before income taxes and extraordinary
item............................................ -- 7.0 7.3 5.9 18.4 4.4
Provision for income taxes........................ 1.0 3.6 3.5 4.7 8.0 2.5
--------- --------- --------- --------- --------- -----------
Income (loss) before extraordinary item........... (1.0) 3.4 3.8 1.2 10.4 1.9
Extraordinary item................................ -- -- -- -- 2.8 2.8
--------- --------- --------- --------- --------- -----------
Net income (loss)................................. $ (1.0) $ 3.4 $ 3.8 $ 1.2 $ 7.6 $ (0.9)
--------- --------- --------- --------- --------- -----------
--------- --------- --------- --------- --------- -----------
OTHER DATA:
Gross margin...................................... 25.6% 25.6% 24.8% 25.2% 26.5% 26.5%
Adjusted operating income(7)...................... $ 9.4 $ 16.2 $ 16.5 $ 20.6 $ 29.6 $ 30.5
Adjusted operating income margin(7)............... 4.1% 5.3% 5.2% 6.1% 7.5% 7.3%
EBITDA(7)(8)...................................... $ 14.0 $ 23.4 $ 27.0 $ 32.9 $ 42.0 $ 43.4
EBITDA margin(7)(8)............................... 6.1% 7.7% 8.6% 9.7% 10.7% 10.4%
Depreciation and amortization(9).................. $ 4.6 $ 7.2 $ 10.5 $ 12.3 $ 12.3 $ 12.9
Capital expenditures.............................. 3.3 15.0 16.7 3.5 3.5 3.8
Ratio of total debt to EBITDA(7)(8)............... 5.4x 4.2x 4.0x 3.2x 2.5x 5.7x
Ratio of EBITDA to interest expense(7)(8)......... 2.4 3.3 3.1 3.4 5.2 2.0
Ratio of earnings to fixed charges(10)............ 1.0 1.8 1.7 1.5 2.9 1.2
BALANCE SHEET DATA:
Working capital................................... $ 49.5 $ 63.8 $ 61.7 $ 72.3 $ 79.4 $ 90.4
Total assets...................................... 200.3 244.6 257.4 251.3 284.6 299.9
Total debt(11).................................... 75.0 98.5 106.7 104.2 106.3 245.4
Minority interest in subsidiary................... -- -- -- -- 4.7 1.0
Total common shareholder's equity (deficit)....... 50.1 67.7 71.5 72.7 80.2 (39.9)
</TABLE>
- ------------------------
(1) The May 1992 acquisitions by Leiner Group of LHP and XCEL were accounted for
under the purchase method of accounting and new bases of accounting were
established at the time of each such acquisition. See "The
Company--History." Accordingly, the statement of operations data for the
fiscal year ended March 31, 1993 represent the results of operations of LHP,
the results of operations for XCEL from the date of its acquisition, and
purchase accounting for the acquisitions of LHP and XCEL during that fiscal
year.
(2) On January 30, 1997, the Company purchased Vita Health. This column gives
effect to the Vita Health Acquisition, as well as the Recapitalization and
related transactions with respect to the
31
<PAGE>
Company. See "Unaudited Pro Forma Financial Information." The Vita Health
Acquisition was accounted for under the purchase method of accounting.
Consequently, the results of operations of Vita Health were included in the
consolidated financial results of the Company for two months ended March 31,
1997. The pro forma column includes the operating results of Vita Health for
the additional ten months ended January 30, 1997 and excludes certain
non-recurring bonuses paid to the former owners of Vita Health of $2.4
million.
(3) During fiscal 1996, the Company decided to significantly reduce the size of
its OTC liquid pharmaceuticals manufacturing business. Accordingly, the
Company determined that certain long-lived assets with a carrying amount of
$8.3 million were impaired and wrote them down by $4.7 million to their
estimated fair value. During fiscal 1997, the Company closed the
manufacturing facility and out- sourced the production to a third party. The
costs incurred of $1.4 million include (i) the write-off of fixed assets of
$0.8 million and (ii) closure costs including salaries in conjunction with
the facility closing of $0.6 million. The expense does not include an
additional charge to cost of sales of $0.5 million for the write-off of
certain liquid OTC inventory which was no longer being manufactured by the
Company.
(4) During fiscal 1997, the Company reorganized the management team. Expenses of
$1.0 million include severance expense for the previous Chief Financial
Officer, Vice President of Product Development and Vice President of
Corporate Development and include the hiring and relocation expenses for the
new Chief Financial Officer and other corporate officers.
(5) Other charges for the fiscal years ended March 31, 1993 through March 31,
1997 include management fees paid to AEA that were discontinued upon
consummation of the Recapitalization. Other charges also include costs
related to the original acquisition of Leiner by the AEA Group and
compensation expense arising from the sale of shares of Common Stock to
management in connection with the acquisition of Leiner by the AEA Group in
the fiscal year ended March 31, 1993, the write-off of deferred charges
associated with the refinancing of the Company's revolving credit facility
in the fiscal year ended March 31, 1994 and expenses incurred in connection
with the withdrawn initial public offering in the fiscal year ended March
31, 1997. Other charges also include, in the fiscal years ended March 31,
1994 through March 31, 1997, non-cash compensation expense arising from the
granting of stock options. Other charges in the fiscal year ended March 31,
1995 do not include $0.5 million in other charges incurred by Leiner Group
in connection with its withdrawn initial public offering in that fiscal
year, which are reflected in the consolidated financial statements of Leiner
Group.
(6) Net interest expense in the fiscal year ended March 31, 1994 does not
reflect $0.1 million in interest income received by Leiner Group in that
year, which is reflected in the consolidated financial statements of Leiner
Group.
(7) Historical adjusted operating income, adjusted operating income margin,
EBITDA and EBITDA margin exclude expenses that are not expected to be
continued, including expenses related to the impairment and closure of the
OTC liquid pharmaceuticals manufacturing facility in fiscal 1996 and 1997
(see Note 3), the reorganization of the management team in fiscal 1997 (see
Note 4) and, (except for the management fees of $0.35 million per year paid
to AEA, which are included), other charges for the fiscal years ended March
31, 1993 through March 31, 1997 (see Note 5). Unaudited pro forma financial
data includes an annual management fee of $1.5 million payable to North
Castle Partners, L.L.C., an affiliate of North Castle, following the
Recapitalization and excludes the annual management fee of AEA. See "Certain
Transactions."
(8) For purposes of calculating the ratio of EBITDA to interest expense,
interest expense excludes the amortization of deferred financing fees, which
is included in interest expense in the income statement in the audited
consolidated financial statements.
32
<PAGE>
"EBITDA," as presented, represents earnings before interest expense, income
taxes, depreciation and amortization and extraordinary item, and also
excludes certain expenses that are not expected to be continued (see Note
5). EBITDA is included because management understands that such information
is considered by certain investors to be an additional basis for evaluating
the Company's ability to pay interest, repay debt and make capital
expenditures. EBITDA should not be considered an alternative to measures of
operating performance as determined in accordance with generally accepted
accounting principles, including net income as a measure of the Company's
operating results and cash flows as a measure of the Company's liquidity.
Because EBITDA is not calculated identically by all companies, the
presentation herein may not be comparable to other similarly titled measures
of other companies.
(9) Depreciation and amortization as presented does not include the amortization
of deferred financing fees. In the cash flow statement in the audited
consolidated financial statements, the amortization of deferred financing
fees is included in depreciation and amortization.
(10) In calculating the ratio of earnings to fixed charges, earnings consist of
income before taxes plus fixed charges. Fixed charges consist of interest
expense and amortization of deferred financing fees, whether capitalized or
expensed, plus one-third of rental expense under operating leases (the
portion that has been deemed by the Company to be representative of an
interest factor).
(11) Total debt at March 31, 1997 includes accrued interest of $0.9 million.
33
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the Company's financial condition and results of
operations should be read in conjunction with the consolidated financial
statements of the Company contained elsewhere in this Prospectus (the
"Consolidated Financial Statements"). The Company's fiscal year ends on March 31
of each year. References herein to a "fiscal" year refer to the Company's fiscal
year ended March 31 in the calendar year indicated (e.g., references to fiscal
1997 are references to the Company's fiscal year ended March 31, 1997).
GENERAL
CURRENT TRENDS. The Company believes that overall trends in the vitamin
industry are the most significant trends affecting the Company's financial
performance. According to industry sources, between 1992 and 1996, sales for the
vitamin industry grew at a compound annual rate of approximately 11.2% to $4.1
billion, as the percentage of American adults regularly using vitamins grew from
34% to 40%. Between 1996 and 2005, the 50 to 64 age group is projected to be the
fastest growing segment of the United States population. Gallup polling data
shows that vitamin usage increases significantly with age, with 47% of
individuals over age 50 regularly using vitamins, compared with 36% of younger
adults.
Increasing vitamin usage among the general population is linked to three
major factors. First, research expenditures devoted to the positive effects of
vitamin products have increased dramatically. Such research has been described
in major medical journals and reported in the popular media. Second, the
national trend towards improved fitness, greater self-care and preventive
medicine has increased the general population's focus on nutritional products
consumption. Finally, the more favorable regulatory environment resulting from
the DSHEA has generated increased new product introductions and more effective
point of sale communication of the health benefits of vitamins to consumers.
However, as has been the case in the past, adverse scientific research or
publicity concerning the health benefits of vitamin consumption can materially
impact the growth of the vitamin market.
Beginning in fiscal 1996 and continuing in fiscal 1997, the retail drugstore
industry experienced several major consolidations. The Company provides private
label vitamin products to the 20 largest drugstore chains in the United States
and believes it has strong relationships with the leading drugstore chains.
Consequently, management believes the Company is well positioned to benefit from
this consolidation trend due to (i) its strong relationships with the acquiring
companies in the largest consolidations and (ii) the anticipated reduction in
the number of vendors as the consolidated companies streamline their purchasing.
A number of the Company's customers made significant acquisitions or were
acquired during this period, with CVS Corporation acquiring Revco D.S., Inc.,
Rite Aid Corporation acquiring Thrifty-Payless Inc. and JCPenney acquiring
Eckerd Corporation. The recent retail drugstore consolidations have created
certain temporary disruptions in these customers' operations and purchasing
decisions. These disruptions had some minor adverse effects on the Company's
sales in fiscal 1997. Although the Company believes that the consolidation of
major drugstore chains will have a positive effect on its long-term sales, the
increased purchasing scale of the consolidated retailers increases the relative
importance of each of these customers to the Company's financial performance.
HISTORICAL TRENDS. Throughout fiscal 1993 and fiscal 1994, the Company's
growth was fueled by favorable publicity of scientific research evidencing the
health benefits of vitamin product consumption. During fiscal 1994 and fiscal
1995, the Company took its initial step to build capacity and lower its
manufacturing costs by making significant investments in its western U.S.
tableting operation and consolidating two western U.S. packaging plants and one
distribution facility into a single facility. See "Business -- Manufacturing and
Distribution."
34
<PAGE>
In the first quarter of fiscal 1995, however, a study, referred to as the
"Finnish Smokers Study," was released that reached a negative conclusion as to
the health benefits of consumption of certain antioxidants. The release of this
study received significant media attention and negatively impacted short-term
consumer demand for certain vitamin products, and resulted in a downturn in
sales. In response, the Company halted its manufacturing restructuring plan and
focused on the development of a program to downsize, including the closure of a
tableting plant and the elimination of approximately 200 tableting and packaging
positions. The Company's manufacturing efficiency was negatively effected, as
its western U.S. tableting and packaging facilities, designed to operate most
efficiently on higher volumes, were operated at significantly sub-optimal
production levels. Vitamin product sales stabilized during the second half of
fiscal 1995, and by the first quarter of fiscal 1996 had largely recovered to
pre-Finnish Smokers Study levels. Because the market stabilized and recovered
more quickly and strongly than had been expected by the Company and its
customers, the efficiency of the Company's manufacturing operations was again
negatively impacted, this time by costs associated with expedited manufacturing
and packaging scheduling required through December 1995 in order for the Company
to timely meet its customers' increased orders.
During fiscal 1996 and 1997, the retail mass market for vitamins returned to
pre-Finnish Smokers Study levels. Overall market growth was positively affected
by the release of a number of research reports regarding the benefits of such
products as vitamin C, vitamin E and selenium, as well as by new product
introductions, particularly in the herbal and nutritional supplement segments.
During this period, the Company introduced 52 new products, the majority of
which were targeted at these two segments.
RECAPITALIZATION ACCOUNTING; FINANCIAL STATEMENT PRESENTATION. The
Recapitalization is being accounted for as a recapitalization of Leiner Group,
which will have no impact on the historical basis of assets and liabilities as
reflected in the consolidated financial statements of Leiner Group or the
Company. Other than with respect to redeemable preferred stock of Leiner Group,
which was redeemed in connection with the Recapitalization, the consolidated
financial statements of Leiner Group and LHP for the periods discussed below are
not materially different. See Notes 5 and 6 to "Selected Historical and Pro
Forma Financial Information."
35
<PAGE>
SEASONALITY
Leiner's business is seasonal, as increased vitamin usage corresponds with
the cough, cold and flu season. A significant portion of the Company's sales and
a more significant portion of the Company's operating income, therefore, occurs
in the second half of the fiscal year as reflected in the table below:
<TABLE>
<CAPTION>
ADJUSTED
NET SALES OPERATING INCOME
------------------------ --------------------------
<S> <C> <C> <C> <C>
AMOUNT % OF YEAR AMOUNT % OF YEAR
--------- ------------- ----------- -------------
<CAPTION>
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Fiscal 1997
First quarter................................................... $ 70.6 18% $ 2.8 10%
Second quarter.................................................. 85.6 22 1.6 5
Third quarter................................................... 104.3 26 9.8 33
Fourth quarter.................................................. 132.3 34 15.4 52
--------- --- ----- ---
$ 392.8 100% $ 29.6(1) 100%
--------- --- ----- ---
--------- --- ----- ---
Fiscal 1996
First quarter................................................... $ 62.7 19% $ 1.5 7%
Second quarter.................................................. 78.7 23 2.6 13
Third quarter................................................... 94.8 28 5.9 29
Fourth quarter.................................................. 102.2 30 10.6 51
--------- --- ----- ---
$ 338.4 100% $ 20.6(2) 100%
--------- --- ----- ---
--------- --- ----- ---
</TABLE>
- ------------------------
(1) Excludes expenses incurred in connection with the closure of the OTC liquid
pharmaceuticals manufacturing facility, a management reorganization,
non-cash stock compensation expense and the preparation of a registration
statement in connection with a withdrawn initial public offering. See Note 3
of Notes to Consolidated Financial Statements.
(2) Excludes charges for long-lived asset impairment of $4.7 million recorded in
the fourth quarter of fiscal 1996 and non-cash stock compensation expense.
36
<PAGE>
RESULTS OF OPERATIONS
The following table summarizes the Company's historical results of
operations as a percentage of net sales for the fiscal years ended March 31,
1995, 1996 and 1997.
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
FOR THE FISCAL YEARS ENDED
MARCH 31,
-------------------------------
<S> <C> <C> <C>
1995 1996 1997
--------- --------- ---------
Net sales......................................................................... 100.0% 100.0% 100.0%
Cost of sales..................................................................... 75.2 74.8 73.5
--------- --------- ---------
Gross profit...................................................................... 24.8 25.2 26.5
Marketing, selling and distribution expenses...................................... 13.5 13.1 13.1
General and administrative expenses............................................... 5.5 5.4 5.4
Impairment and closure of OTC Facility............................................ -- 1.4 0.3
Management reorganization......................................................... -- -- 0.3
Amortization of goodwill.......................................................... 0.5 0.5 0.4
Other charges..................................................................... 0.2 0.1 0.2
--------- --------- ---------
Operating income.................................................................. 5.1 4.7 6.8
Interest expense, net............................................................. 2.9 3.0 2.1
--------- --------- ---------
Income before income taxes and extraordinary item................................. 2.2 1.7 4.7
Provision for income taxes before extraordinary item.............................. 1.1 1.4 2.1
--------- --------- ---------
Income before extraordinary item.................................................. 1.2 0.3 2.6
Extraordinary item................................................................ -- -- 0.7
--------- --------- ---------
Net income........................................................................ 1.2% 0.3% 1.9%
--------- --------- ---------
--------- --------- ---------
</TABLE>
FISCAL 1997 COMPARED TO FISCAL 1996
Net sales increased by $54.4 million, or 16.1%, to $392.8 million for fiscal
1997 from $338.4 million for fiscal 1996. Net sales for fiscal 1997 include $4.6
million of Vita Health sales.
Vitamin product sales increased by $54.0 million, or 20.2%, to $321.7
million for fiscal 1997 from $267.7 million for fiscal 1996. The increase was
principally attributable to unit sales increases and selective price increases
in most major types of vitamin products including vitamin E, the growth of the
Company's herbal product line introduced in fiscal 1996 and fiscal 1997,
including products such as echinacea and ginkgo biloba, and the Company's
introduction of new nutritional supplements, including products such as DHEA and
shark cartilage.
OTC pharmaceutical sales increased by $2.5 million, or 4.3%, to $61.3
million for fiscal 1997 from $58.8 million for fiscal 1996. The increase was
principally due to market growth and the acquisition of Vita Health.
Gross profit increased $19.1 million, or 22.4%, to $104.2 million for fiscal
1997 from $85.1 million for fiscal 1996. The gross margin also improved to 26.5%
in fiscal 1997 from 25.2% in fiscal 1996. The increase in the gross profit
margin was principally due to a decrease in the Company's manufacturing costs
from the investment in manufacturing equipment and facility consolidations
during the last four fiscal years and increased sales of higher margin new
products and the Company's YOUR LIFE-REGISTERED TRADEMARK- brand.
SG&A increased $10.1 million, or 16.2%, to $72.7 million for fiscal 1997
from $62.6 million in fiscal 1996. Expressed as a percentage of sales, SG&A
remained essentially flat at 18.5% in fiscal 1996 and fiscal 1997. The dollar
increase in SG&A was partially driven by the Company's investment of
approximately
37
<PAGE>
$2.7 million in a national radio advertising campaign (versus $1.1 million in
1996), and an increase in other promotional expenses.
During fiscal 1997, the Company closed its OTC liquid pharmaceuticals
manufacturing facility and out-sourced the production to a third party. As a
result, the Company incurred costs of $1.4 million comprised of (i) the
write-off of fixed assets of $0.8 million and (ii) closure costs including
salaries in conjunction with the closing of $0.6 million. An additional expense
of $0.5 million for the write-off of certain liquid OTC inventory which was no
longer being manufactured by the Company was also incurred and is included in
cost of goods sold.
In fiscal 1997, the Company reorganized its management team. Expenses of
$1.0 million were incurred relating to severance for the previous Chief
Financial Officer, Vice President of Product Development and Vice President of
Corporate Development, and include hiring and relocation expenses for the new
Chief Financial Officer and other corporate officers.
Goodwill amortization of $1.5 million in fiscal 1997 and $1.6 million in
fiscal 1996 related to the goodwill arising from the acquisitions of LHP, XCEL
and Vita Health. Other charges of $0.9 million for fiscal 1997 included
management fees paid to AEA, the write-off of expenses incurred in connection
with Leiner Group's withdrawn initial public offering and compensation expense
arising from the grant of stock options to certain members of management in
fiscal 1994. Other charges of $0.5 million for fiscal 1996 included management
fees paid to AEA and stock compensation expense.
Primarily as a result of the factors discussed above, operating income
increased by $10.9 million to $26.7 million for fiscal 1997 from $15.8 million
for fiscal 1996. Excluding the long-lived asset impairment charge and stock
compensation expense in fiscal 1996 and the closure of the OTC liquid
pharmaceuticals manufacturing facility, management reorganization, stock
compensation expense and write-off of withdrawn public offering expenses in
fiscal 1997, operating income increased by $9.0 million, or 43.7%, to $29.6
million in fiscal 1997 from $20.6 million in fiscal 1996.
Net interest expense decreased by $1.6 million to $8.3 million in fiscal
1997 from $9.9 million in fiscal 1996. The decrease was principally due to a
reduction in the Company's outstanding indebtedness prior to the Vita Health
Acquisition. Additionally, the Company refinanced all of its outstanding
indebtedness in January 1997, which reduced the Company's average interest cost.
The interest rates on the majority of the Company's then existing debt were
based upon variable rates that are a spread above either LIBOR or prime rates.
The Company's effective income tax rate of approximately 44% for fiscal 1997
was higher than the combined state and federal rate of 40% primarily because of
the nondeductibility of goodwill amortization.
Primarily as a result of the factors discussed above, income before
extraordinary item for fiscal 1997 increased by $9.2 million to $10.4 million
for fiscal 1997 from $1.2 million for fiscal 1996. Excluding the long-lived
asset impairment charge in fiscal 1996, net income would have been $5.9 million
for fiscal 1996.
The extraordinary item for fiscal 1997 of $2.8 million, net of taxes, was a
result of the Company's refinancing on January 30, 1997. Net income after the
extraordinary item in fiscal 1997 was $7.6 million. See Note 7 to the
Consolidated Financial Statements.
FISCAL 1996 COMPARED TO FISCAL 1995
Net sales increased by $23.7 million, or 7.5%, to $338.4 million for fiscal
1996 from $314.7 million for fiscal 1995.
Vitamin product sales increased by $28.1 million, or 11.7%, to $267.7
million for fiscal 1996 from $239.6 million for fiscal 1995. The increase was
principally attributable to unit sales increases in most major types of vitamin
products, initial sales of the Company's herbal product line and the Company's
introduction of other new nutritional supplements, including products such as
PYCNOGENOL-REGISTERED TRADEMARK-, evening primrose oil
38
<PAGE>
and coenzyme Q10. Selling price increases implemented late in fiscal 1995 and
during fiscal 1996 contributed approximately $8.5 million of the vitamin product
sales increase.
OTC pharmaceutical sales decreased by $4.3 million, or 6.8%, to $58.8
million for fiscal 1996 from $63.1 million for fiscal 1995. The decrease was
principally due to declines in the net average selling price of certain
analgesics and in the number of units sold as a result of price competition and
the introduction by nationally branded companies of several new analgesic
products. Additionally, the Company's decision to resign as the OTC liquid
pharmaceuticals supplier to a major drug store chain (due to unprofitable
margins) in the first half of fiscal 1996 contributed approximately $4.0 million
to this sales decline. These decreases were partially offset by revenues from
new private label OTC pharmaceuticals business developed by the Company in
fiscal 1996.
Gross profit increased $7.0 million, or 9.0%, to $85.1 million in fiscal
1996 from $78.1 million in fiscal 1995. The gross profit margin also improved to
25.2% in fiscal 1996 from 24.8% in fiscal 1995. The increase in the gross profit
margin was principally due to a decrease in the Company's manufacturing costs
resulting from the investment in manufacturing equipment and facility
consolidations during the last three fiscal years, which allowed the Company,
among other things, to achieve lower per unit manufacturing and packaging costs
through larger batch sizes and longer packaging runs.
SG&A increased $2.9 million to $62.6 million in fiscal 1996 from $59.7
million in fiscal 1995. Expressed as a percentage of sales, SG&A declined 0.5%
from 19.0% in fiscal 1995 to 18.5% in fiscal 1996, as the Company continued to
leverage its SG&A as it increased sales.
In fiscal 1996, following the Company's resignation as the OTC liquid
pharmaceuticals supplier to a major drugstore chain, the Company decided to
scale back its liquid manufacturing capability. As a result of this decision,
the Company recognized a long-lived asset impairment and recorded a write-down
of a portion of the goodwill arising from the XCEL Acquisition. This write-down
has been reflected in the fiscal 1996 results of operations as a long-lived
asset impairment charge of $4.7 million.
Goodwill amortization of $1.6 million in each of the years ended March 31,
1995 and 1996 relates to the goodwill arising from the LHP and XCEL
Acquisitions. The other charges of $0.5 million in each of the years ended March
31, 1995 and 1996 are comprised of management fees paid to AEA and compensation
expense resulting from the grant of stock options to certain members of
management in fiscal 1994.
Primarily as a result of the factors discussed above, operating income of
$15.8 million for fiscal 1996 was $0.5 million less than operating income in
fiscal 1995. Excluding the long-lived asset impairment charge and other charges
(other than AEA management fees), operating income increased by $4.1 million, or
24.8%, to $20.6 million in fiscal 1996 from $16.5 million in fiscal 1995.
Net interest expense increased by $0.9 million to $9.9 million in fiscal
1996 from $9.0 million in fiscal 1995. The increase was principally due to
higher weighted average interest rates. The interest rates on the majority of
the Company's debt were at rates that were a function of either the LIBOR or
prime rates.
The Company's effective income tax rate of approximately 80% for fiscal 1996
was higher than the combined state and federal rate of 40% primarily because of
the nondeductibility of goodwill amortization, as well as the nondeductibility
of the long-lived asset impairment charge. The effective income tax rate for
fiscal 1996 was higher than the effective income tax rate of 48% for fiscal
1995, principally due to the nondeductibility of the long-lived asset impairment
charge.
Primarily as a result of the above factors, net income for fiscal 1996
declined by 68.4% to $1.2 million from $3.8 million in fiscal 1995. Excluding
the long-lived asset impairment charge, net income would have increased to $5.9
million in fiscal 1996.
39
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash has historically been used to fund capital expenditures,
working capital requirements and debt service. As a result of the
Recapitalization, the Company's liquidity requirements have significantly
increased, primarily due to significantly increased interest expense
obligations. Interest expense, excluding amortization of deferred financing
fees, is estimated to be $21.4 million per year, associated with borrowings of
$155.3 million under the New Credit Facility, $85.0 million under the Notes, and
existing capitalized lease obligations of $5.1 million. See "Unaudited Pro Forma
Financial Information." In addition, the Company will be required to repay the
$85.0 million in term loans under the New Credit Facility over the eight and
one-half year period following June 30, 1997, with scheduled principal payments
of $850,000 annually for the first six years, $27.4 million in the seventh year,
$39.3 million in the eighth year, and $13.2 million in the final six months. The
Company will also be required to apply certain asset sale proceeds, as well as
50% of its excess cash flow (as defined in the New Credit Facility) unless a
leverage ratio test is met, to prepay the borrowings under the New Credit
Facility. All outstanding revolving credit borrowings under the New Credit
Facility will become due on June 30, 2003. The Company incurred a non-cash,
one-time charge of approximately $1.9 million related to the write-off of
existing deferred financing fees during the first quarter of fiscal 1998, as a
result of the Recapitalization.
Cash provided by operating activities prior to changes in assets and
liabilities was $25.4 million in fiscal 1997. The Company's working capital
increased $7.1 million, or 9.8%, to $79.4 million at March 31, 1997 from $72.3
million at March 31, 1996. This increase in working capital was principally due
to a sales increase of 16.1%. The Company's capital expenditures totaled $3.5
million in each of fiscal 1996 and fiscal 1997. During the later part of fiscal
1993 and during fiscal years 1994 and 1995, the Company significantly increased
its manufacturing capacity and enhanced its manufacturing technology.
Accordingly, the Company invested in property, plant and equipment during fiscal
1996 and fiscal 1997 at lower levels because of sufficient capacity. The Company
anticipates investing approximately $10 million in capital equipment projects in
fiscal 1998, with approximately 75% for manufacturing capacity and productivity
improvements and 25% for routine maintenance.
The New Credit Facility provides for term loan borrowings in an aggregate
principal amount of $85.0 million, consisting of $45.0 million maturing seven
and one-half years following June 30, 1997 and $40.0 million maturing eight and
one-half years following June 30, 1997, and U.S. and Canadian revolving credit
facilities with aggregate availability of $125.0 million, of which approximately
$71.9 million were drawn down in connection with the Recapitalization. As of
July 1, 1997 the Company's unused availability under the New Credit Facility was
approximately $51.6 million. The Revolving Credit Facility will mature six years
after the Recapitalization Closing Date and will include letter of credit and
swingline facilities. Borrowings under the New Credit Facility bear interest at
floating rates that are based on LIBOR or on the applicable alternate base rate
(as defined), and accordingly the Company's financial condition and performance
is and will continue to be affected by changes in interest rates. The Company
has entered into an interest protection arrangement effective July 30, 1997 with
respect to $29.4 million of its indebtedness under the New Credit Facility that
provides a cap of 6.17% on the interest rates payable thereon. The New Credit
Facility imposes certain restrictions on the Company, including restrictions on
its ability to incur additional debt, enter into sale-leaseback transactions,
incur contingent liabilities, pay dividends or make distributions, incur or
grant liens, sell or otherwise dispose of assets, make investments or capital
expenditures, repurchase or prepay the Notes or other subordinated debt, or
engage in certain other activities. The Company must also comply with certain
financial ratios and tests, including a minimum net worth requirement, a maximum
leverage ratio, a minimum interest coverage ratio and a minimum fixed charge
coverage ratio. For a more detailed summary of the terms of the New Credit
Facility, including amortization and interest rates, see "Description of New
Credit Facility."
The Notes may be required to be purchased by the Company upon a Change of
Control (as defined) and in certain circumstances with the proceeds of asset
sales. The Notes are subordinated to the indebtedness under the New Credit
Facility. The Indenture imposes certain restrictions on the Company
40
<PAGE>
and its subsidiaries, including restrictions on its ability to incur additional
debt, make dividends, distributions or investments, sell or otherwise dispose of
assets, or engage in certain other activities. See "Description of the Notes."
A portion of the outstanding borrowings under the New Credit Facility,
amounting to approximately U.S. $15.0 million as of June 30, 1997, are
denominated in Canadian dollars. All other outstanding borrowings under the New
Credit Facility, and all of the borrowings under the Notes, are denominated in
U.S. dollars.
The Company currently plans to pursue a receivables financing to be entered
into during fiscal 1998, with initial availability of the equivalent of
approximately $40 million principal amount, which would be fully drawn at the
closing of that financing. Usage under this receivables facility is expected to
result in a dollar-for-dollar reduction in both outstanding borrowings under the
Revolving Credit Facility and the availability under the Revolving Credit
Facility. No assurance can be given that this receivables financing will be
implemented.
The Company intends to establish a new packaging and distribution facility
in York County, South Carolina. As this new facility becomes operational, other
facilities located in the midwestern United States will be closed. The Company
expects to incur expenses estimated at approximately $1.9 million annually
through fiscal year 1999 in connection with the establishment of the new
facility and the closure of the midwestern U.S. facilities. The Company expects
to lease this new facility under an operating lease that will provide the
financing for its construction, at an estimated annual lease expense, net of
lease costs for the facilities currently expected to be closed, of $1.4 million.
See "Business--Manufacturing and Distribution."
The Company currently believes that cash flow from operating activities,
together with revolving credit borrowings available under the New Credit
Facility, will be sufficient to fund the Company's currently anticipated working
capital, capital spending and debt service requirements for the foreseeable
future, but there can be no assurance in this regard. The Company expects that
its working capital needs will require it to obtain new revolving credit
facilities at the time that the Revolving Credit Facility matures, whether by
extending, renewing, replacing or otherwise refinancing the Revolving Credit
Facility. No assurance can be given that any such extension, renewal,
replacement or refinancing can be successfully accomplished.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This Prospectus contains forward-looking statements, including statements
regarding, among other items, (i) the Company's growth strategies; (ii) trends
in the Company's business; and (iii) the Company's future liquidity requirements
and capital resources. These forward-looking statements are based largely on the
Company's expectations and are subject to a number of risks and uncertainties,
certain of which are beyond the Company's control. Actual results could differ
materially from those anticipated by these forward-looking statements, including
as a result of the factors described in the section entitled "Risk Factors." In
light of these risks and uncertainties, there can be no assurance that events
anticipated by the forward-looking statements contained in this Prospectus will
in fact transpire.
41
<PAGE>
INDUSTRY
According to industry sources and management estimates, total retail sales
of vitamin products in the United States were approximately $4.1 billion in
calendar year 1996. Several different types of vitamin products are marketed
through four major distribution channels and in three major product categories.
The different types of vitamin products include multivitamins, minerals (such as
calcium), single-entity vitamins (such as vitamins C and E), nutritional
supplements (such as PYCNOGENOL-Registered Trademark-, coenzyme Q10 and evening
primrose oil) and herbal products (such as ginseng, garlic, echinacea and ginkgo
biloba).
<TABLE>
<CAPTION>
PRODUCTS 1996 MASS MARKET VITAMIN SALES
- ---------------------------------------------------------------------------------- -------------------------------
<S> <C>
Multivitamins..................................................................... 28.5%
Minerals.......................................................................... 16.0
Herbal Products................................................................... 11.3
Vitamin E......................................................................... 11.3
Vitamin C......................................................................... 11.0
Nutritional Supplements........................................................... 10.9
B Vitamins........................................................................ 7.5
Other............................................................................. 3.5
-----
Total............................................................................. 100.0%
-----
-----
</TABLE>
- ------------------------
Sources: IRI Infoscan, MMI Data, CRN Industry Data, LHP shipments and management
estimates.
The primary channels of retail distribution in the vitamin product business
are mass market retailers (drug stores, mass merchandising chains, supermarkets
and warehouse club stores, such as Walgreens, Wal-Mart, Safeway and Sam's Club,
respectively), health food stores, direct sales and mail order. Leiner is the
leading participant in the U.S. mass market channel.
<TABLE>
<CAPTION>
1996 TOTAL 1996 MASS
VITAMIN MARKET VITAMIN
RETAIL DISTRIBUTION CHANNELS INDUSTRY SALES MASS MARKET RETAILERS SALES
- ----------------------------------------- --------------- ----------------------------------------- ---------------
<S> <C> <C> <C>
Mass Market Retailers.................... 52.6% Drug Stores.............................. 46.5%
Health Food.............................. 25.7 Mass Merchandisers....................... 24.3
Direct Sales............................. 12.6 Supermarkets............................. 22.9
Mail Order............................... 5.8 Club Stores.............................. 6.3
-----
Other.................................... 3.3 Total.................................... 100.0%
----- -----
-----
Total.................................... 100.0%
-----
-----
</TABLE>
- ------------------------
Sources: IRI Infoscan, MMI Data, CRN Industry Data, LHP shipments and management
estimates.
Within the mass market channel, there are three major product categories:
national brands, broadline brands and private label products.
<TABLE>
<CAPTION>
PRODUCT CATEGORY 1996 MASS MARKET VITAMIN SALES
- ---------------------------------------------------------------------------------- -------------------------------
<S> <C>
National Brands................................................................... 40.3%
Private Label..................................................................... 36.3
Broadline Brands.................................................................. 23.4
-----
Total............................................................................. 100.0%
-----
-----
</TABLE>
- ------------------------
Sources: IRI Infoscan (excludes warehouse club sales).
42
<PAGE>
The national brand category consists primarily of multi-vitamins such as
CENTRUM-REGISTERED TRADEMARK-, ONE-A-DAY-REGISTERED TRADEMARK-,
THERAGRAN-REGISTERED TRADEMARK- and OSCAL-REGISTERED TRADEMARK- mineral
supplements. Broadline brands, such as Leiner's YOUR LIFE-REGISTERED TRADEMARK-
brand, offer a complete range of products under one brand name, including
multi-vitamins, single-entity vitamins, minerals, and nutritional supplements.
Private label products are marketed under the retailer's name and offer a wide
product assortment similar to, but somewhat narrower in scope than, broadline
brands, including national brand equivalent formulas positioned as lower-priced
products.
In the mass market, private label products represented 36.3% of dollar
vitamin sales in 1996. Private label products use the same active ingredients as
national brands. The Company believes that consumers find private label products
attractive because they sell at substantially lower prices than national brands
yet are comparable in quality and efficacy. Private label products appeal to
retailers because such products generally provide for a higher gross profit
margin and higher dollar profit per unit than national brands. Broadline brands
are supported by retailer merchandising programs and less extensive advertising
than national brands. Broadline brands provide advantages to the consumer and
retailer similar to those of private labels, and currently represent 23.4% of
dollar vitamin sales, while national brands represent 40.3%.
VITAMIN INDUSTRY GROWTH. During the last four years, vitamin industry sales
have grown at a compound annual rate of approximately 11.2%, from $2.7 billion
in 1992 to $4.1 billion in 1996. Growth in the vitamin category is being driven
primarily by (i) favorable demographic trends and (ii) increased usage.
According to Gallup polling information, people in the age group 50 and
above exhibit the highest use of vitamin products of all age groups (measured by
percentage of the age group using vitamin products). In the United States, 47%
of persons over age 50 use vitamin products regularly (compared to 40% for
persons age 35 to 49 and 32% for persons age 18 to 34). According to the United
States Bureau of the Census, from 1996 through 2005, the age group of persons
age 50 to 64 is projected to grow 39.2%, compared to 1.3% for the age group of
persons age 18 to 49.
<TABLE>
<CAPTION>
REGULAR VITAMIN USAGE BY AGE GROUP
- -----------------------------------
<S> <C> <C>
AGE CATEGORY 1992 1996
- ------------- --------- ---------
18-34 29.0% 32.0%
35-49 35.5 40.0
50-64 36.9 47.0
65+ 41.7 47.0
</TABLE>
The Company believes that three primary factors have generated significant
increases in vitamin usage: (i) recent scientific research supporting vitamin
supplementation, (ii) the growth of self-care and preventative medicine and
(iii) the increased ability of vitamin manufacturers to communicate the benefits
of individual vitamins with the enactment of the DSHEA. These factors have
created increased usage among all age groups. For example, the percentage of the
United States population between the ages of 81 and 34 who regularly take
vitamins increased from 29% in 1992 to 32% in 1996, and, between the ages of 50
and 64, the percentage increased from 37% to 47%. In addition to a larger
percentage of the population regularly using vitamins, active vitamin users are
consuming more pills. The average number of pills consumed daily by regular
vitamin users increased 12.5%, from 2.4 in 1992 to 2.7 in 1996.
- SCIENTIFIC RESEARCH. Various studies published since 1992 by researchers
at major universities have suggested an association between regular
consumption of vitamin products such as vitamins C and E and other
"antioxidants" and a reduced risk of certain diseases, such as heart
disease, cancer and Alzheimer's disease. Such research has been described
in major medical journals, such as the NEW ENGLAND JOURNAL OF MEDICINE,
magazines, newspapers and television programs. An indicator of the impact
of this research is the reported increase in regular vitamin usage among
the nation's physicians from 43% to 56% between 1994 and 1996.
43
<PAGE>
- GROWTH OF SELF-CARE AND PREVENTIVE MEDICINE. Vitamin product consumption
has been favorably affected by the growing practice of self-care and
preventive medicine by lay people in the United States. This trend is
driven by (i) increased information available to the consumer on the
health benefits of certain foods, including vitamin products, (ii) a
desire to avoid rising health care costs, (iii) convenience and (iv)
affordability.
- DSHEA. The Dietary Supplement Health and Education Act of 1994, enacted in
October 1994, removed or scaled back many restrictions previously imposed
on vitamin product manufacturers. DSHEA expanded the ability of vitamin
product manufacturers to make, on labels and in literature,
"structure/function" statements that explain how a nutrient or dietary
substance affects the structure or function of the body. The
manufacturer's ability to better communicate the health benefits of
vitamins is especially important in light of the growing trend toward
self-care and the increased sales of vitamin products in the mass market
channel, where customers are less able to rely on sales personnel for
explanations of product benefits.
MASS MARKET CHANNEL GROWTH. Over the last five years, the mass market,
where Leiner has the leading position, has consistently grown faster than the
overall vitamin industry. Between 1992 and 1996 the mass market industry sales
have grown at a compound annual rate of approximately 11.9% compared to the
vitamin industry sales which have grown at an annual compound rate of 11.2%. The
Company believes that in addition to attractive economics to retailers, growth
in the mass market channel is being driven by several consumer-driven factors:
- PRICE POINT: The average price of a vitamin in the mass market channel is
approximately 30% less than the same product in the health food channel.
In the mass market, private label products are typically priced 40% below
comparable national brands.
- NUMBER OF OUTLETS: There are more than 50,000 mass market outlets versus
approximately 9,000 in the health food channel.
- CONVENIENCE: Consumers increasingly purchase vitamins at their customary
marketplace. This favors the mass market channel over health food stores,
which are visited less frequently by the general population.
- HERB AND NUTRITIONAL SUPPLEMENT PRODUCTS: Some of the fastest growing
products in the herbal category are just now transitioning from health
food stores to mass market outlets. Typically, newer products are
introduced in the health food channel and, after gaining credibility,
migrate to the mass market. These herbal and nutritional supplement
products currently represent 18.3% of the sales in the mass market channel
versus over 50% of the health food channel's sales.
44
<PAGE>
BUSINESS
GENERAL
Leiner is the nation's largest manufacturer of vitamins, minerals, and
nutritional supplements and distributes its products primarily through mass
market retailers. The Company has a 23% share of all mass market vitamin sales
in the United States, 50% larger than its next closest competitor's share.
Additionally, Leiner's 50% share of the mass market private label segment is
more than two times the size of its next closest competitor's share. Leiner has
increased its market share over the last five years, with its U.S. vitamin sales
growing at a compound annual rate of 18.9% per year through fiscal 1997, over
one and one half times the U.S. industry growth rate. Leiner is also one of the
nation's largest private label OTC pharmaceuticals manufacturers, with 20% of
its sales in OTC pharmaceutical and other products. In January 1997, the Company
acquired Vita Health, the second largest private label vitamin and OTC
pharmaceuticals manufacturer in the Canadian market. The Company's sales and
EBITDA have grown from $230.8 million and $14.0 million, respectively, in fiscal
1993, respectively, to $416.9 million and $43.4 million, through Pro Forma 1997.
The Company sells a full line of vitamin products, including approximately
370 products in more than 4,400 SKUs. The Company's products are sold in tablet
and capsule forms, and in varying sizes with different potencies, flavors and
coatings. The Company's vitamin products include national brand equivalents
which compare to CENTRUM-Registered Trademark-, ONE-A-DAY-Registered Trademark-
and GINSANA-Registered Trademark-, natural vitamin products such as vitamins C
and E and folic acid, minerals such as calcium and herbal products such as
echinacea and ginkgo biloba. The Company's vitamin products are sold under its
customers' store names ("private label products"), as well as under its own YOUR
LIFE-REGISTERED TRADEMARK- brand. The Company estimates that private label
vitamin products account for approximately 36% of total vitamin product sales by
mass market retailers and accounted for approximately 55% of Leiner's total
fiscal 1997 sales (excluding sales by Vita Health). The Company also markets
over 100 different OTC pharmaceutical products in over 1,575 SKUs, including
products comparable to most major national brands in the analgesic, cough and
cold remedy and digestive aid categories.
The Company's vitamin products are sold in all 50 states through more than
50,000 retail outlets, including drug store, supermarket, mass merchandising,
and warehouse club chains, as well as in convenience stores and through United
States military outlets worldwide. Leiner is the vitamin category manager for
many leading retailers. The Company's vitamin product customers include the
country's 20 largest drug store chains (including Walgreens, American Stores,
Eckerd, CVS, Rite Aid and Revco), 18 of the 20 largest supermarket chains
(including Safeway, Winn-Dixie, Albertson's, A&P and Lucky Stores), 10 of the
largest mass merchandising chains (including Wal-Mart, Target, Kmart and
Venture) and the two largest warehouse club chains (Sam's Club and Costco).
Vita Health is currently the second largest industry participant in Canada
in terms of private label sales and the third largest participant in terms of
total sales. Vita Health has built strong relationships with Canada's largest
mass market retailers, a mass market customer base that matches well with
Leiner's customer base. Vita Health also has a strong position in the health
food channel in Canada, a distribution channel Leiner is in the process of
entering in the United States. Vita Health sells to more than 500 retail
accounts across Canada.
COMPETITIVE STRENGTHS
The Company attributes its strong market position and historical financial
performance to competitive strengths, which it believes include (i) low cost
manufacturing, (ii) high quality products, (iii) advanced category management
and leading customer service, (iv) the consistent introduction of high margin
new products and (v) a complementary OTC pharmaceutical business.
LOW COST MANUFACTURING. During the last five years, the Company has
invested $29.5 million primarily to increase capacity, as well as to consolidate
plants and modernize equipment. Tableting
45
<PAGE>
capacity has been increased by 45% and packaging capacity by 66%. Tableting
costs have been reduced by 8%, and packaging and distribution costs in its
western U.S. facilities have been reduced by approximately 10% and 20%,
respectively.
The Company is the largest manufacturer in the vitamin industry with two
tableting facilities and four packaging facilities. The tableting facilities
operate to USP standards and are capable of producing over 14 billion tablets
per year. The packaging facilities also operate to USP standards and contain 32
packaging lines.
HIGH QUALITY PRODUCTS. Quality is a critical factor in the customer
purchase decision, particularly of private label products, which are marketed
under the brand names of Leiner's mass market retail customers. The Company was
the first major vitamin product supplier to be certified as being in compliance
with USP's vitamin manufacturing standards. Management believes that the Company
is one of only two companies that have been independently certified as being in
substantial compliance with USP standards for manufacturing vitamin products.
While adhering to USP standards is currently voluntary, customers may require
that products meet these standards. Moreover, if a company applies a USP
designation to its vitamin labels, then the Federal Food, Drug and Cosmetics Act
requires compliance with the USP monographs and USP Manufacturing Practices for
nutritional supplements. All current Leiner vitamins that have USP monographs
qualify under USP standards.
In addition to USP vitamins, Leiner was the first major vitamin product
supplier to introduce quality innovations to the mass market such as a full line
of STANDARDIZED HERBAL EXTRACTS-Registered Trademark- (formulations specially
prepared to ensure consistent potencies of active ingredients), PHARMACEUTICAL
GRADE CALCIUM-TM-(specially processed calcium with the lowest lead levels in the
industry), Preservative-Free Vitamins, and PROVEN RELEASE-Registered Trademark-
(standards for dissolution and disintegration in substantially the form later
adopted by the USP).
The Company's management believes that its reputation for introducing many
new products after review of their safety, utility and commercial acceptance is
a key element of Leiner's strong relationships with mass market retailers and,
in turn, enhances Leiner's ability to introduce new products into the channels
it serves.
ADVANCED CATEGORY MANAGEMENT. Through its information systems, the Company
seeks to optimize the application of emerging science, new product
introductions, merchandising opportunities, shelf space profitability, and
inventory management for its customers. The Company produces over 6,000 SKUs and
ships approximately 1,500 orders per week to over 200 customers. The Company
receives 83% of its sales volume electronically through electronic data
interchange ("EDI") systems and provides vendor-managed inventory ("VMI")
services to many of its customers.
The Company, through its account marketing managers, acts as the category
manager for the vitamin product sections for several of the nation's largest
mass market retailers. Approximately 50% of the Company's sales are from
accounts where the Company is the vitamin category manager. As a category
manager, the Company seeks to utilize industry sales data obtained from consumer
market research firms, together with customer retail sales data (often received
through the Company's on-line EDI system), to identify profit enhancement
opportunities and to develop and present to customers analyses and proposals
regarding merchandising, pricing and marketing strategies. Leiner's account
marketing managers also provide private label customers with creative services
(such as artwork for promotions, advertisement layouts and label and packaging
design). The Company's category management program and creative services
constitute sales and marketing tools that management believes strengthen
Leiner's relationships with its customers.
HIGH MARGIN NEW PRODUCTS. The Company identifies emerging products in
non-mass market distribution channels and introduces proven items at the cost,
quality and delivery standards required by mass market retailers. These new
products, typically introduced under the YOUR LIFE-Registered Trademark- brand,
produce the highest margins of all the Company's products and represent an
increasing percentage of sales. To evaluate
46
<PAGE>
nutritional research and advise the Company on emerging science, Leiner created
a Scientific Advisory Board comprised of nationally recognized authorities on
nutrition and science. In the last two fiscal years, the Company introduced 52
new products which generated $32 million of fiscal 1997 sales. As a result, in
the mass market Leiner's share of the high growth herbal products segment has
grown from 9% in 1994 to 16% in 1996.
NEW PRODUCTS INTRODUCED IN FISCAL 1997
Bilberry
Compare to Garlique-Registered Trademark-
DHA
Ester-C
Grape Seed Extract
Memory Support
Non-Aspirin Gelcaps
Super Multi-Vitamin
Cardio Complex
Compare to
Propalmex-Registered Trademark-
DHEA
Eye Care Complex
Kava Kava
Milk Thistle
Selenium 200 Mcg
Cat's Claw
Compare to Rejuvex-Registered Trademark-
Dong Quai
Ginger
Liquid Energy Tonic
New Phytonutrients
Shark Cartilage
Cayenne
Coenzyme Q10
Echinacea & Goldenseal
Glucosamine Sulfate
Lubricare-TM-
Non-Aspirin Geltabs
St. John's Wort
Leiner's Scientific Advisory Board is comprised of nationally recognized
authorities in nutrition, gerontology, biochemistry, disease prevention,
botanical research, cardiology, epidemiology and regulatory affairs related to
nutrition and related health fields. The Scientific Advisory Board meets three
times annually to review the most recent research published in the area of
nutrition, specified new product development programs and various reports of
interest from board members. The Company believes that its Scientific Advisory
Board is viewed by Leiner's customers as a valuable resource.
COMPLEMENTARY NATURE OF VITAMIN PRODUCT AND OTC PHARMACEUTICAL
BUSINESSES. The Company's OTC pharmaceutical products are sold through the same
distribution channels and, for most products, manufactured by the same processes
as the Company's vitamin products. In addition, vitamin product and OTC
pharmaceuticals purchase decisions are generally made by the same buyer as the
Company's customers. This overlap of channels and processes allows the Company
to enhance its position with mass market retailers and its manufacturing and
distribution expertise by allowing the Company to (i) offer "one-stop"
vitamin/OTC pharmaceuticals shopping, (ii) allocate its fixed costs across a
broader revenue base and (iii) offer a more diversified source of revenue to
fund future growth of the Company.
BUSINESS STRATEGY
The Company has developed an operating plan to take advantage of the
continuing significant growth opportunities available to the Company
specifically and within the industry as a whole. The operating plan includes the
following principal elements: (i) introducing new products, (ii) expanding
distribution in non-mass market domestic channels, (iii) growing international
sales, (iv) building the YOUR LIFE-Registered Trademark- brand, (v) selectively
pursuing add-on acquisitions and (vi) increasing operating margins and reducing
working capital.
INTRODUCING NEW PRODUCTS. Leiner has successfully introduced into the mass
market herb and nutritional supplement products originally available only in
non-mass market channels. Mass market sales of high margin herbal products
increased 29% between 1995 and 1996 and represents a significant growth
opportunity for the Company. The Company believes that the 30 new products it
introduced in fiscal 1997 and its planned new product introductions for fiscal
1998 will further strengthen its position in the mass market channel.
Leiner believes that herb and nutritional supplement products offer an
important avenue of growth because (i) industry sales of herb and nutritional
supplement products have increased in the mass market channel at a compound
annual rate of approximately 31% from 1994 through 1996, and (ii) the Company's
share of herb and nutritional supplement products sales in the mass market
channel is substantially lower than the Company's share for vitamin and mineral
sales and thus presents a growth opportunity. Since
47
<PAGE>
1994, Leiner has introduced more than 28 herbal products and Leiner's share of
herbal product sales in the mass market channel has grown from 10.7% in 1994 (or
estimated retail sales of $13.3 million) to 16.7% in 1996 (or estimated retail
sales of $39.4 million).
The Company believes it is a leader in the vitamin product industry in the
responsible development of new products. The Company intends to continue to
develop new products and programs based on scientific research and consumer
needs. Leiner has substantially bolstered its research/product development teams
with the addition of seven people including a senior executive from the Company
and two scientists with Ph.D's in food science and nutritional science. Leiner's
research team has focused on the broad array of herbal products expected to
migrate from the health food channel to the mass market channel.
EXPANDING DISTRIBUTION IN NON-MASS MARKET DOMESTIC CHANNELS. In addition to
its growth in the mass market channel, Leiner has a proven record of growing
sales in non-mass market channels. For example, Leiner's sales through United
States military outlets worldwide have grown from $9.1 million in fiscal 1994 to
$18.9 million in fiscal 1997. The Company has contractual agreements to (i) sell
products directly through television retailing, (ii) distribute products through
direct mail to customers of a managed care provider, (iii) sell vitamins to
companies that market directly to consumers and (iv) contract manufacture
products for major pharmaceutical companies. The Company is also negotiating
arrangements to market vitamin products through the health food store channel.
GROWING INTERNATIONAL SALES. Leiner plans to (i) expand its leading
position in Canada established through its recent acquisition of Vita Health, a
major manufacturer of private label and branded vitamins and OTC pharmaceuticals
in Canada, which resulted in exclusive relationships for Canadian distribution
with Safeway, London Drug and Wal-Mart, (ii) distribute YOUR
LIFE-Registered Trademark- brand products in Japan through a strategic alliance
established with Takeda Chemical Industries, Ltd., which is the largest vitamin
producer in Japan, distributing vitamins to over 65,000 pharmacies, (iii) supply
a full line of vitamin products to Teva Pharmaceutical Industries Ltd. for
distribution in Israel under the Viva brand and (iv) follow its existing retail
customers into major international markets including Mexico, Brazil and
Indonesia.
BUILDING THE YOUR LIFE-REGISTERED TRADEMARK- BRAND. Between fiscal 1993 and
fiscal 1997, the Company expanded sales of the YOUR LIFE-Registered Trademark-
brand from $40 million to $104 million. Between fiscal 1996 and fiscal 1997,
YOUR LIFE-Registered Trademark- sales grew approximately 50%, driven primarily
by increasing sales to the mass merchandisers and to warehouse clubs. In fiscal
1997, the Company spent approximately $12 million in advertising and promotional
support to further enhance the YOUR LIFE-Registered Trademark- brand.
Nearly all of the Company's product innovations (including PROVEN
RELEASE-Registered Trademark-, DAILY PAKS-Registered Trademark-,
NATURALIZED-Registered Trademark- vitamin products, Family Size packages and
PHYTOGRAPH-TM- herbal testing) are initially introduced under the YOUR
LIFE-Registered Trademark- label. In fiscal 1998, the Company plans to implement
its innovative BODY SYSTEMS-TM- science-based merchandising system, and transfer
the successful YOUR LIFE-Registered Trademark- brand positioning recently
developed in the warehouse club chains to the Company's core drug store
customers.
SELECTIVELY PURSUING ADD-ON ACQUISITIONS. The Company has successfully
purchased and integrated five companies since 1988, including the acquisition of
Vita Health in January 1997. With this acquisition, Leiner gained (i) a leading
competitive position in the Canadian market, (ii) distribution in nearly all of
the significant mass market retailers in Canada, (iii) an extensive herb and
nutritional supplement product line and (iv) an established brand in the
Canadian health food store segment. Leiner intends to continue to pursue
selective acquisition opportunities.
INCREASING OPERATING MARGINS AND REDUCING WORKING CAPITAL REQUIREMENTS. The
Company plans to pursue initiatives to (i) consolidate its eastern U.S.
packaging and distribution facilities; (ii) continue to reduce SG&A expense as a
percentage of sales, (iii) continue to reduce its raw material costs, (iv)
achieve savings from the integration of Vita Health and (v) increase the
proportion of its overall sales represented by sales of Your
Life-Registered Trademark- branded products and other higher margin products,
including new products and products sold through new channels.
48
<PAGE>
- CONSOLIDATING EASTERN U.S. PACKAGING AND DISTRIBUTION: Leiner is committed
to continuous cost reduction and quality improvement. In fiscal 1995, the
Company completed the consolidation of three Los Angeles, California area
packaging and distribution sites into one location in Carson, California.
The centralized facility allowed the Company to more effectively schedule
its packaging lines, reducing set-ups and generating longer, uninterrupted
runs. As a result, productivity in the California packaging location
increased by 53% (measured in bottles produced per line shift). Aggregate
western U.S. packaging costs per bottle were reduced by approximately 10%.
In addition, distribution costs were reduced by approximately 20%, and,
because of the more efficient organization of the western U.S. facilities,
inventory now turns 40% faster in the western U.S. facilities than in the
unconsolidated eastern U.S. facilities.
In April 1997, Leiner announced its plan to consolidate its three eastern
U.S. packaging and distribution sites into one facility in York County,
South Carolina, an area just south of Charlotte, North Carolina. Based on
the demonstrated performance improvement in its western U.S. facilities,
the Company believes the eastern U.S. consolidation will result in future
cost savings.
- REDUCING RAW MATERIAL COSTS: The Company believes that it is the largest
purchaser of vitamin raw material in the United States and, as a result,
can use its purchasing leverage to receive volume discounts and other
benefits that give it a competitive advantage. Although the Company
believes that it has developed a low cost purchasing position in the
industry, it continues to strive to further lower purchasing costs.
- INTEGRATING THE VITA HEALTH ACQUISITION: Management has developed an
integration program with four primary components: (i) consolidate raw
materials purchasing and use low cost vendors; (ii) use Vita Health's
strong relationships with the leading retailers in Canada to expand sales
through the introduction of Leiner's low cost, high quality products in
the Canadian market; (iii) use Vita Health's facilities for combined
distribution in Canada; and (iv) focus manufacturing in low cost
locations.
- INCREASING THE PERCENTAGE OF HIGHER MARGIN PRODUCTS: Leiner intends to
shift its product mix to increase the relative share of higher margin
products by (i) introducing higher margin new products, including herb and
nutritional supplement products, (ii) increasing its sales in alternative
channels, including the health food store channel and direct television
channel, which sell a larger percentage of higher margin branded products
and (iii) continuing to expand the sales of YOUR
LIFE-Registered Trademark- branded products with significant marketing
support, extensive new product introductions and aggressive pricing in
selected channels.
PRODUCTS
The following table sets forth the sales of the Company's vitamin, OTC
pharmaceutical and other product lines from fiscal 1993 through fiscal 1997:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MARCH 31,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
<CAPTION>
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Vitamin products............................. $ 159.5 $ 217.3 $ 239.6 $ 267.7 $ 321.7
OTC pharmaceuticals.......................... 53.0 67.4 63.1 58.8 61.3
Other products............................... 18.3 18.9 12.0 11.9 9.8
--------- --------- --------- --------- ---------
Total.................................. $ 230.8 $ 303.6 $ 314.7 $ 338.4 $ 392.8
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
VITAMIN PRODUCTS. The Company sells a full line of vitamin products,
including approximately 370 products in more than 4,400 SKUs. The Company's
products are sold in tablet and capsule forms, and in varying sizes with
different potencies, flavors and coatings. The Company's vitamin products
include
49
<PAGE>
national brand equivalents which compare to CENTRUM-Registered Trademark-,
ONE-A-DAY-Registered Trademark- and GINSANA-Registered Trademark-, natural
vitamin products such as vitamins C and E and folic acid, minerals such as
calcium and herbal products such as echinacea and ginkgo biloba. In addition,
Leiner's Your Life-Registered Trademark- brand is one of the nation's largest
broadline vitamin product brands. Sales of vitamins C and E, in the aggregate,
accounted for approximately 34% of the Company's sales in fiscal 1997 (excluding
sales by Vita Health).
The following table lists representative national brand equivalent vitamin
products marketed by the Company and the names of comparable nationally
advertised brands (which names are owned by others) with which the Company's
products compete. Virtually all of the Company's products listed below are
marketed under both the Company's Your Life-Registered Trademark- brand and
private label.
<TABLE>
<CAPTION>
NATIONAL BRAND EQUIVALENT VITAMIN PRODUCTS COMPARABLE NATIONALLY ADVERTISED BRANDS
<S> <C>
Animal Chewable Multi........................ Flintstones-Registered Trademark-
Antioxidant Vitamin & Mineral Formula........ Protegra-Registered Trademark-
Calcium 600.................................. Caltrate-Registered Trademark-
Central-Vite Select-TM-...................... Centrum Silver-Registered Trademark-
Central-Vite-Registered Trademark-........... Centrum-Registered Trademark-
Daily Garlic................................. Garlique-Registered Trademark-
Fe-Tabs-TM-.................................. Feosol-Registered Trademark-
Ger-Tab-TM-.................................. Geritol-Registered Trademark-
Ginkgo Biloba Tablets........................ Ginkoba-TM-
Ginseng...................................... Ginsana-Registered Trademark-
Hi-Cal 500................................... Oscal-Registered Trademark-
Mature Women's Formula....................... Rejuvex-Registered Trademark-
My-A-Multi-Registered Trademark-............. Myadec-Registered Trademark-
One Daily.................................... One-A-Day-Registered Trademark-
Prenatal Tablets............................. Stuart Prenatal-Registered Trademark-
Saw Palmetto Complex......................... Propalmex-TM-
Stress Formula............................... Stress Tabs-Registered Trademark-
Thera Plus-Registered Trademark-............. Theragran M-Registered Trademark-
Vision Formula............................... Ocuvite-Registered Trademark-
</TABLE>
DAILY PAKS-REGISTERED TRADEMARK-
Antioxidant Pak-TM-
Maximum Pak-Registered Trademark-
Men's Daily Pak-Registered Trademark-
Daily Pak Select-Registered Trademark-
Stress Pak-TM-
Women's Daily Pak-Registered Trademark-
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The following table lists other representative vitamin products marketed by
the Company. Virtually all of the Company's products listed below are marketed
under both the Company's Your Life-Registered Trademark- brand and private
label.
NATURAL VITAMIN PRODUCTS
B-1 with Rice Bran
B-6 with Yeast
B-12 with Liver
Balanced B Complex +C
Balanced B-50, B-100, B-150 Complex
Beta Carotene
Calcium, Magnesium & Zinc
Calcium & Magnesium
Cod Liver Oil Vitamin A&D
Dieter's Multivitamin/Mineral
Hi Potency Iron
Hi Potency Multivitamin Mineral
Iron-Free Multivitamin & Mineral
Natural Source Calcium
Oyster Shell Calcium with D (250 mg, 500 mg)
Pharmaceutical Grade Calcium
Time Release Maximum Choice
Time Release Vit. C w/Rose Hips (500 mg, 1000 mg, 1500 mg)
Time Release Complete Multivitamin
Time Release Balanced B-50, B-100
Time Release B-12 (1000 mcg, 2000 mcg)
Time Release B-6
Vitamin A
Vitamin C with Rose Hips (250 mg, 500 mg, 1000 mg)
Vitamin E Blended (200 I.U., 400 I.U., 1000 I.U.)
Vitamin E
Zinc Lozenges with Vitamins C and B-6
REGULAR VITAMIN PRODUCTS
Advance E with ALA
All Purpose Multivitamin/Multimineral
B-Complex Supplement
Chewable Calcium + D
Chewable Vitamin C (orange)
Chewable Vitamin C with Acerola (100 mg, 300 mg, 500 mg)
Chromium Picolinate
Dieters Multi
Ferrous Sulfate
Folic Acid
New & Improved Antioxidant Tablet
Niacin 100 mg
Physically Active Multivitamin/Multimineral
Selenomax
Space Kids Children's Chewable Vitamin
Super Multi with Herbs
Time Release Vitamin C
Vitamin B-12
Vitamin B-6
Vitamin C (250 mg, 500 mg, Release Vitamin C)
Vitamin E (200 I.U., 400 I.U., 800 I.U., 1000 I.U., 1200 I.U.)
Vitamin E Plus Added Antioxidants
Vitamin E Water Dispersible
Women's Multivitamin/Multimineral
HERBAL PRODUCTS
Bilberry
Cats' Claw
Cayenne
Dong Quai
Echinacea
Echinacea & Goldenseal
Feverfew
Garlic Oil 1500 mg
Garlic & Parsley
Ginkgo Biloba
Ginseng
Ginger
Grape Seed Extract
Green Tea Extract
Hawthorn
Kava Kava
Milk Thistle
Saw Palmetto
St. John's Wort
Valerian
OTHER NUTRITIONAL SUPPLEMENTS
Aloe Vera
Bee Pollen
Brewer's Yeast
Cardio Complex
Citrimax-TM- Weight Loss System*
Coenzyme Q10
Concentrated Garlic
Cranberry Capsules
DHA
DHEA
Evening Primrose Oil
Eye Care Complex
Fast Release Lysine
Fish Oil Concentrate 1000 mg
Gelatin 5 gr
Glucosamine Sulfate
Imperial Ginseng Tablets
L-Formula Lysine (500 mg & 1000 mg)
Memory Support
Papayazyme-TM-
Pycnogenol-Registered Trademark-*
Shark Cartilage
Soya Lecithin
- ------------------------------
* Trademark owned by third party. The Company sells product under license.
51
<PAGE>
Vita Health produces more than 25 different types of vitamins and minerals.
However, the majority of Vita Health's sales in this segment are concentrated in
a few core product categories. The top 5 product categories, which comprise over
one-half of Vita Health's vitamin sales, are vitamin C products, vitamin E
products, multivitamins, herbal products and vitamin B products. Vita Health has
extensive experience and expertise with herbal products which is the fastest
growing segment of the United States vitamin market.
OTC PHARMACEUTICALS. The Company markets over 100 different OTC
pharmaceutical products in over 1,575 SKUs, including products comparable to
most major national brands in the analgesic, cough and cold remedy and digestive
aid categories. The Company sells its OTC pharmaceuticals under its customers'
private labels as well as its own broadline brand, PHARMACIST
FORMULA-Registered Trademark-, first introduced in 1989.
The following table sets forth representative OTC pharmaceutical products
marketed by the Company and the names of comparable nationally advertised brands
(which names are owned by others) with which the Company's products compete.
Virtually all of the Company's products listed below are marketed under the
Company's Pharmacist Formula-Registered Trademark- brand and private label.
<TABLE>
<CAPTION>
COMPARABLE NATIONALLY
COMPANY PRODUCTS ADVERTISED BRANDS
<S> <C>
ANALGESICS
Buffered Aspirin................................................ Bufferin-Registered Trademark-
Children's Non-Aspirin Elixir................................... Children's
Tylenol-Registered Trademark-
Enteric Coated Aspirin.......................................... Ecotrin-Registered Trademark-
Extra Strength Pain Reliever.................................... Excedrin-Registered Trademark-
Fruit Flavored Non-Aspirin Chewables............................ Children's
Tylenol-Registered Trademark-
Ibuprofen Tablets............................................... Advil-Registered Trademark-
Tablets
Infant No-Aspirin Suspension Drops.............................. Tylenol-Registered Trademark-
Infant Drops
Micro-coated Aspirin............................................ Bayer-Registered Trademark-
Non-Aspirin 160 mg Caplets...................................... Tylenol-Registered Trademark-
Junior Strength
Pain Reliever Without Aspirin (Acetaminophen)................... Tylenol-Registered Trademark-
Tablets
COUGH AND COLD
12-hour Nasal Spray............................................. Afrin-Registered Trademark-
Advanced Formula Cold Tablets................................... Dristan-Registered Trademark-
Complete Allergy Medication Tablet.............................. Benadryl-Registered Trademark-
Daytime Liquid Caps............................................. Day
Quil-Registered Trademark-
Liqui-Caps-Registered Trademark-
Flu & Cold Drink................................................ Thera-Flu-Registered Trademark-
Hista-Tabs...................................................... Actifed-Registered Trademark-
Minicol......................................................... Triaminicol-Registered Trademark-
Multisymptom Cold Tablets....................................... Comtrex-Registered Trademark-
Nasal Spray 1/2%................................................ Neo-Synephrine-Registered Trademark-
Nite Time Liquid................................................ Nyquil-Registered Trademark-
Nite Time Liquid Caps........................................... Nyquil-Registered Trademark-
Liqui-Caps
Pseudoephedrine Tablets......................................... Sudafed-Registered Trademark-
Tap DM Elixir................................................... Dimetapp-Registered Trademark-
Tussin Expectorant.............................................. Robitussin-Registered Trademark-
ANTACIDS
Antacid II Liquid with Simethicone.............................. Maximum Strength
Fast-Acting
Mylanta-Registered Trademark-
Antacid Liquid.................................................. Maalox-Registered Trademark-
Antacid Liquid with Simethicone................................. Mylanta-Registered Trademark-
Assorted Antacids Tablets....................................... Tums-Registered Trademark-
Pink Bismuth Liquid............................................. Pepto-Bismol-Registered Trademark-
</TABLE>
52
<PAGE>
<TABLE>
<S> <C>
LAXATIVES
Fiber Laxative Caplets.......................................... Fibercon-Registered Trademark-
Natural Fiber Laxative.......................................... Metamucil-Registered Trademark-
Women's Laxative Tablets........................................ Correctol-Registered Trademark-
ANTI-DIARRHEAL
Loperamide Hydrochloride........................................ Imodium
AD-Registered Trademark-
Caplets
</TABLE>
Vita Health's OTC pharmaceutical sales are primarily analgesic products and
cough and cold products. In Canada, there are two primary classes of analgesic
products, those with codeine and those without. Vita Health produces both types
of products.
SERVICES; OTHER PRODUCTS. The Company offers drug repackaging services to
major prescription pharmaceutical wholesalers and a major drug store chain. In
addition, the Company performs contract manufacturing services on a limited
basis for selected consumer products companies. In order to leverage further its
existing distribution system and marketing expertise, the Company markets
certain niche products. For example, the Company developed and markets the
BODYCOLOGY-Registered Trademark- line of hair, skin and bath care products.
CUSTOMER SERVICE: SALES, MARKETING SUPPORT, LABEL AND PACKAGING DESIGN
The Company, through its sales force and account marketing managers,
provides retailers with sales and marketing support, designed to maximize
retailers' sales and profits, including integrated schedules of merchandising
programs, advertising and promotions.
SALES. The Company has a sales force of over 30 professionals who regularly
call on the Company's customers to develop an in-depth understanding of each
customer's competitive environment and opportunities. Leiner's sales force is
intended to enable the Company to establish close relationships with its
customers. The Company's sales department consists of account managers organized
into regional divisions. Each regional sales manager has broad authority in
negotiating with and supporting the retail customers in their territory. The
sales executives utilize financial costing models in order to understand the
profitability of specific sales contracts. The Company has attracted and
retained sales executives who have been trained at many of the leading
pharmaceutical and consumer products companies. The Company believes its sales
force constitutes a competitive advantage over companies that have less
extensive sales forces and therefore rely more heavily on outside brokers.
MARKETING SUPPORT. The Company provides retailers with comprehensive
marketing support designed to maximize their sales and profits. Leiner's
marketing activities are organized into four operating groups: (i) account
marketing, which provides category management and marketing services to
retailers, (ii) brand marketing, which focuses on supporting the Company's
branded products, (iii) new product development, which develops new products and
new product differentiation strategies and (iv) international marketing, which
gains access to foreign markets.
The brand management group focuses on building the sales of the Company's
branded products, primarily YOUR LIFE-Registered Trademark- and DAILY
PAKS-Registered Trademark-. The Company uses marketing programs for its branded
products similar to those used for the Company's private label customers. In
addition to utilizing retailer advertising vehicles, the Company supports its
brands with consumer advertising, in print and radio, and with regular coupon
support provided through free standing inserts in newspapers across the country.
The new product development group seeks to develop new products in response
to scientific research and consumer trends and often consults with the
Scientific Advisory Board in developing and introducing new products. New
products and formulas are developed in the Company's dedicated research
facilities under rigorous testing procedures.
The international marketing group is responsible for developing formulations
and packaging for the Company's foreign markets, as well as obtaining trademark
registrations and authorizations for importation and sale of the Company's
products in countries outside the United States.
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<PAGE>
LABEL AND PACKAGING DESIGN. The Company believes that its resources and
expertise in label design and management are significant competitive advantages
in servicing the complex needs of its private label customers. The Company's
graphics design Staff consists of 35 professionals who produce design concepts,
artwork, graphics and copy for over 5,450 private label products. Leiner's
in-house graphics capability enables the Company to deliver quick turnaround
times for private label design projects and allows its customers to participate
in the development and production of labeling and packaging. Leiner's customers
benefit from the Company's significant investment in computer design equipment,
as well as in-house expertise in marketing strategies and regulatory matters
applicable to labels and packaging. The Company believes that the competitive
advantage derived from its graphics facilities has been enhanced by the
increased use of "structure/function" claims and other nutritional claims on
vitamin product labels as a result of DSHEA. The Company currently operates four
packaging facilities equipped with 32 packaging lines in order to satisfy the
complex demands and rapid response time required by its customers.
The Company has received "Vendor of the Year" awards from several of the
nation's leading retailers, including Albertson's, Revco, Rite-Aid, Safeway and
Target. Vita Health was recently named "Vendor of the Year" by Wal-Mart Canada.
MANUFACTURING AND DISTRIBUTION
MODERN FACILITIES. Leiner's active manufacturing and distribution
facilities consist of approximately 1.0 million square feet of owned or leased
plant and office facilities in six locations and five states. The Company also
recently added Vita Health's site in Canada and announced the construction of a
new plant in South Carolina. Combined, the Company is the largest manufacturer
in the North American vitamin products industry and is capable of packaging over
18 billion doses each year. In April 1995, Leiner was the first major vitamin
product manufacturer to be certified as being in compliance with USP's vitamin
manufacturing standards, which became effective in January 1995. The Company's
U.S. facilities were audited by an independent quality assurance laboratory and
received the laboratory's highest categorical rating. All of the Company's U.S.
manufacturing facilities also have been audited by the FDA and have been found
to be in compliance with the FDA's "Current Good Manufacturing Practices for
Finished Pharmaceuticals" ("cGMP").
Leiner has two U.S. manufacturing facilities, which are located in Garden
Grove, California and Kalamazoo, Michigan. The primary manufacturing facility
for the Company's vitamin products is its 138,500 square foot Garden Grove
plant. The primary manufacturing facility for the Company's OTC pharmaceuticals
is the Company's 51,250 square foot Kalamazoo plant. In the event of a
catastrophic casualty to one of the Company's primary vitamin or OTC tableting
facilities, the Company has the ability to shift production to other facilities.
The Company operates 38 tableting machines in its Garden Grove, California
facility and 23 tableting machines in its Kalamazoo, Michigan facility. The
Company operates four packaging and distribution facilities, which are located
in Carson, California; West Unity, Ohio; Madison, Wisconsin; and Sherburne, New
York, occupying 471,500, 204,200, 95,500 and 10,300 square feet, respectively.
These facilities are equipped with a total of 32 packaging lines, and, as with
tableting, products can be shifted between facilities in the event such a need
arises. See "Properties."
The Company intends to establish a new 535,000 square foot regional
manufacturing and distribution center in Fort Mill, South Carolina. The center
will serve the Company's retail customers throughout the eastern United States
and will employ approximately 700 employees when it becomes fully operational
within the next three years. Construction of the facility is scheduled to begin
this summer. The Company has begun training the staff required for initial
operations at a temporary 121,767 square foot facility adjacent to the permanent
site of the Fort Mill center. Occupancy of the permanent site is expected by the
summer of 1998. Within the first year of operation in South Carolina, the
Company plans to hire up to 450 employees to work at the new center. The
majority of these employees will be recruited from the local labor force with a
smaller percentage relocating from the Company's other facilities. As the new
facility becomes operational, other facilities located in the midwestern United
States will be closed.
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<PAGE>
Vita Health currently tablets, bottles and packages its products in a
modern, 100,000 square foot facility in Manitoba. The facility contains 80,000
square feet of manufacturing and distribution space and 20,000 square feet of
office space.
The Company purchases approximately 600 different bulk raw materials which
it mixes into over 480 proprietary formulations and fabricates into a wide
variety of tablets, caplets and liquid products. Upon receipt by the Company,
the raw materials are sampled and tested in the Company's laboratories and
compared against rigid product specifications. After the bulk raw materials are
tested and released, they are available to the manufacturing department where
they are weighed, mixed and (in the case of tableting) compressed. Finished bulk
products are then packaged or filled into a wide variety of bottle counts and
labels producing over 6,000 SKUs. The Company performs comprehensive quality
control procedures from the receipt of raw materials to the release of the
packaged product, including extended stability and dissolution tests on the
finished products. All of the Company's vitamin and OTC pharmaceutical products
are manufactured according to cGMP and all of the Company's vitamin products are
manufactured according to USP standards. In addition, the Company's
manufacturing activities include packaging bulk products purchased from certain
suppliers.
EDI AND VMI. In order to enhance its customers' ability to place orders
efficiently and accurately, Leiner has established an EDI system, which links
Leiner electronically with many of its customers. Leiner receives over 83% of
its sales volume via EDI. The Company also employs EDI, for example, to receive
status reports on customers' warehouse balances, warehouse issues, and consumer
sales, to notify customers in advance of what shipped and how it shipped, to
invoice customers, and to receive payments. The Company has recently added EDI
connections to its freight carriers, so that en route shipments and actual
deliveries can now be monitored automatically. The Company maintains a Staff
dedicated to increasing its connectivity to the customer, and new features are
added each year.
Another advanced aspect of the Company's customer service offering is its
VMI system. As part of the VMI process, the Company electronically receives
sales data generated by scanning equipment at its customers' cashier stations or
warehouses. Using this data, the Company monitors and automatically restocks
customer inventory as needed. In essence, the Company initiates its own purchase
orders for VMI customers, operating on the customers' behalf according to
mutually agreed operating practices. The EDI and VMI systems allow paperless
order placement and increase the accuracy and timeliness of order processing,
while enabling the customer and the Company to decrease inventory levels without
losing sales due to products being out of stock. In addition, by communicating
customer sales data to the Company, VMI allows the Company to better anticipate
customer needs and enhances the Company's ability to manage production
scheduling.
The Company believes that it is a leader among vitamin product manufacturers
and marketers in providing advanced order processing services and expects to
provide these services to an increasing number of customers. The Company also
believes that its new modern manufacturing and distribution facilities provide
the Company with an increased capability to respond quickly to customers' sales
orders while maintaining high levels of quality control.
VITA HEALTH DISTRIBUTION. Vita Health distributes through all leading
retail channels including mass-market stores and health food stores. However,
the bulk of the Vita Health's sales are concentrated in the mass market, which
reflects the overall market distribution in Canada. Mass merchandisers
(Wal-Mart, Kmart, etc.) still represent a relatively small percentage of sales
compared to the United States, but is the fastest growing channel in Canada. The
Company believes that Vita Health should benefit from its strong relationship
with Wal-Mart, as this company continues to gain market share in Canada.
MANUFACTURING PROGRAM/COST REDUCTION. Leiner is committed to being a low
cost producer of vitamin products and OTC pharmaceuticals. In support of this
commitment, during the last five years, Leiner invested approximately $29.5
million in the implementation of its manufacturing program with respect to
expanding and restructuring its tableting and its western U.S. packaging and
distribution facilities. This
55
<PAGE>
program reduced costs per unit in tableting, western packaging, and western
distribution by approximately 8%, 10%, and 20%, respectively. In April 1997, the
Company announced its decision to consolidate its eastern U.S. packaging and
distribution operations into a new plant in York County, South Carolina. The
Company believes that it can achieve cost savings from the eastern restructuring
commensurate with those it achieved in the west.
The acquisition of XCEL, as well as other acquisitions made by the Company
prior to 1989, resulted in a number of separate facilities with overlapping
functions, creating opportunities to realize manufacturing cost reductions by
consolidating the acquired facilities into a smaller number of larger, more
efficient units equipped with modern tableting equipment. In response to these
opportunities, in fiscal 1994, Leiner formulated a specific program, which
called for the consolidation and expansion of its western U.S. tablet
manufacturing, packaging and distribution facilities. The Company consolidated
two packaging facilities and one distribution facility into one combined
operation in Carson, California, increasing the aggregate space dedicated to
distribution and packaging from 266,000 to 403,000 square feet. As a result of
moving packaging operations out of the Company's Garden Grove, California
facility and dedicating that facility primarily to tableting, the total
tableting space at Garden Grove was expanded from 66,000 to 120,000 square feet.
Into this space in Garden Grove, the Company consolidated the Warren, Michigan
tableting plant, which was then closed, in fiscal 1996. The planned eastern U.S.
restructuring will consolidate the remaining smaller packaging and distribution
facilities into another facility much like the one in Carson.
The Company has benefited from its significant investments in modern
tableting and packaging equipment. The Company's newly purchased tableting
presses run significantly faster than its older equipment and have reduced raw
material yield loss. In addition, the new presses' advanced design and computer
controls allow quicker setups and longer runs between cleanups. The newly
purchased packaging equipment also runs significantly faster than the Company's
older equipment and allows the Company to reduce changeover time, which
increases packaging throughput and flexibility. The consolidation and consequent
simplification of the Company's manufacturing system have allowed the Company to
benefit from economies of scale (through increased average batch sizes) and to
reduce manufacturing costs (through reduced overhead and handling associated
with multiple subscale facilities). The Company has also reduced packaging
changeover downtime by increased dedication of lines by bottle size.
CUSTOMERS
The Company's vitamin products are sold in all 50 states through more than
50,000 retail outlets, including drug store, supermarket, mass merchandising,
and warehouse club chains, as well as in convenience stores and through the
United States military outlets worldwide. Leiner is the vitamin category manager
for many leading retailers. The Company's vitamin product customers include the
country's 20 largest drug store chains (including Walgreens, American Stores,
Eckerd, CVS, Rite Aid and Revco), 18 of the 20 largest supermarket chains
(including Safeway, Winn-Dixie, Albertson's, A&P and Lucky Stores), 10 of the
largest mass merchandising chains (including Wal-Mart, Target, Kmart and
Venture) and the two largest warehouse club chains (Sam's Club and Costco). The
Company has approximately 200 active U.S. customers. In fiscal 1997, Wal-Mart
Stores, Inc. and Walgreen Co. accounted for approximately 27% and 12%,
respectively, of the Company's sales. Each of the Company's other major
customers accounted for less than 10% of the Company's sales for fiscal 1997.
The Company's top ten customers in the aggregate accounted for approximately 71%
of the Company's sales for fiscal 1997.
PURCHASED MATERIALS
The Company purchases from third party suppliers certain important
ingredients and products that the Company cannot manufacture. Although the
Company currently has supply arrangements with several suppliers of these
ingredients and products, and the Company's purchased materials are generally
available from numerous sources, an unexpected interruption of supply could
materially adversely affect the Company's results of operations. Two suppliers
provided approximately 31% of the materials purchased
56
<PAGE>
during fiscal 1997 by the Company (excluding purchases by Vita Health). No other
single supplier accounts for more than 10% of the Company's material purchases.
COMPETITION
The markets for the Company's products are highly competitive. The Company
competes on the basis of customer service, product quality, pricing and
marketing support. In the mass market vitamin product business, the Company
believes that its major U.S. competitors are Pharmavite Corp., Rexall Sundown,
Inc. and NBTY, Inc. (manufacturer of Nature's Bounty vitamin products). In the
OTC pharmaceuticals business, the Company believes its major U.S. competitor is
Perrigo Company.
In the United States, the Company sells substantially all of its vitamin
products in the mass market. Although the Company does not currently participate
significantly in other U.S. distribution channels such as health food stores,
direct mail and direct sales, the Company's products may face competition from
such alternative channels as more customers utilize these channels of
distribution to obtain vitamin products. The mass market channel accounted for
approximately 53% of all U.S. vitamin product sales in calendar year 1996.
The Company competes with other major private label and broadline brand
manufacturers, certain of which are larger and have access to greater resources
than the Company. Among other factors, competition among private label
manufacturers is based upon price. If one or more manufacturers significantly
reduce their prices in an effort to gain market share, the Company's results of
operations or market position could be adversely affected. However, the Company
believes that it competes favorably with other companies because of its (i) low
manufacturing costs, (ii) sales and marketing strategies, (iii) customer service
(including complexity and speed of delivery) and (iv) reputation of being a
quality supplier of products.
The Company also competes with manufacturers of nationally advertised brand
name products such as American Home Products Corp., Bayer Group and
Bristol-Myers Squibb Co., which are larger and have resources substantially
greater than those of the Company, and are substantially less leveraged than the
Company. In the future, one or more of these companies could seek to compete
more directly with the Company by manufacturing private label products or by
significantly lowering the prices of their national brand products. The Company
believes, however, that the mass-oriented manufacturing and marketing methods
used by national brand manufacturers are less suited to the customized packaging
and marketing requirements of private label customers, which the Company
satisfies by utilizing its packaging and graphics facilities. See "--Customer
Service: Sales, Marketing Support, Label and Packaging Design."
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<PAGE>
PROPERTIES
The following table sets forth the location, type of facility, square
footage and ownership interest in each of the Company's principal facilities. In
addition to the facilities shown below, the Company has signed a letter of
intent to occupy a new 535,000 square foot facility in Fort Mill, South
Carolina. The Company intends to hold the facility under an operating lease. See
"--Manufacturing and Distribution" for a description of the Company's ongoing
consolidation program.
<TABLE>
<CAPTION>
APPROX. LEASED DATE OF
SQUARE OR LEASE
LOCATION TYPE OF FACILITY FEET OWNED EXPIRATION
- ------------------------ ------------------------------------------------ --------- --------- -------------
<S> <C> <C> <C> <C>
Carson, CA.............. Packaging, distribution and corporate offices 471,500 Leased 3/31/04(1)
Garden Grove, CA........ Manufacturing 138,500 Leased 10/31/02
Kalamazoo, MI........... Manufacturing 51,250 Owned --
Kalamazoo, MI........... Auxiliary warehouse 10,000 Leased Mo.-to-mo.
Winnipeg, Canada........ Manufacturing, packaging, distribution 100,000 Owned --
West Unity, OH.......... Packaging and distribution 204,200 Leased 5/31/99(2)
Madison, WI............. Packaging and distribution 95,500 Owned --
Madison, WI............. Auxiliary warehouse 40,000 Leased Mo.-to-mo.
Sherburne, NY........... Packaging and distribution 10,300 Owned --
Sherburne, NY........... Auxiliary warehouse 13,600 Leased Mo.-to-mo.
Chicago, IL............. Not in use; held for sale 379,000 Owned --
Fort Mill, SC........... Manufacturing, packaging and distribution (for 121,767 Leased 5/31/98
short-term use)
</TABLE>
- ------------------------
(1) The Company has the option to extend by 10 years.
(2) The Company has the option to extend by 3 years. The Company also has an
option to cancel with one year's notice.
The Company believes that its facilities and equipment generally are well
maintained and in good operating condition.
EMPLOYEES
As of March 31, 1997, the Company had approximately 1,439 full-time
employees. Approximately 331 employees were engaged in executive or
administrative capacities and approximately 1,111 employees were engaged in
manufacturing, packaging or distribution. In addition, as of March 31, 1997, the
Company employed approximately 655 temporary employees. The large number of
temporary employees gives the Company significant flexibility to adjust staffing
levels in response to seasonal fluctuations in demand. None of the Company's
employees is represented by a collective bargaining unit. The Company considers
its relations with its employees to be good.
YEAR 2000 COMPLIANCE
The Company is in the process of modifying, upgrading or replacing its
computer software applications and systems to accommodate the "year 2000" dating
changes necessary to permit correct recording of year dates for 2000 and later
years. The Company does not expect that the cost of its year 2000 compliance
program will be material to its financial condition or results of operations.
The Company believes that it will be able to achieve compliance by the end of
1998, and does not currently anticipate any material disruption in its
operations as the result of any failure by the Company to be in compliance. The
Company does not currently have any information concerning the compliance status
of its suppliers and customers.
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<PAGE>
In the event that any of the Company's significant suppliers or customers do not
successfully and timely achieve year 2000 compliance, the Company's business or
operations could be adversely affected.
GOVERNMENT REGULATION
The manufacturing, processing, formulation, packaging, labeling, advertising
and sale of the Company's products are subject to regulation by one or more
United States and Canadian federal agencies, including the FDA, the FTC, the
CPSC and Health Canada. The activities are also regulated by various agencies of
the states, provinces and localities in which the Company's products are sold.
In addition, the Company manufactures and markets certain of its products in
compliance with the guidelines promulgated by voluntary standard organizations,
such as the USP.
FDA. The United States Food and Drug Administration exercises authority
over three aspects of the Company's business: (i) the labeling and marketing of
dietary supplements, (ii) the labeling and marketing of OTC pharmaceuticals and
(iii) the operation of its manufacturing and packaging facilities.
DIETARY SUPPLEMENTS. The Dietary Supplement Health and Education Act of
1994 was enacted on October 25, 1994 and amends the Federal Food, Drug and
Cosmetic Act to (i) define dietary supplements, (ii) expand with certain
limitations the number of products that can be marketed as dietary supplements,
(iii) permit "structure/function" statements for all vitamin products, including
herbal products and other nutritional supplements, and (iv) permit the use of
published literature in the sale of vitamin products. Dietary supplements are
regulated as foods under DSHEA, and the FDA is prohibited from regulating the
dietary ingredients in supplements as food additives, or the supplements as
drugs, unless product claims trigger drug status.
DSHEA provides for specific nutritional labeling requirements for dietary
supplements. The FDA has proposed the form of these requirements, which are
proposed to become effective January 1, 1998. DSHEA permits substantiated,
truthful and non-misleading statements of nutritional support to be made in
labeling, including describing the positive effects on general well-being from
consumption of a dietary ingredient or the role of a nutrient or dietary
ingredient in affecting or maintaining structure or function of the body. In
addition, DSHEA also authorizes the FDA to promulgate current good manufacturing
practices specific to the manufacture of dietary supplements, to be modeled
after food current good manufacturing practices. The Company currently
manufactures its dietary supplement products pursuant to the more detailed OTC
pharmaceutical current good manufacturing practices.
The FDA has begun proposing regulations to implement DSHEA. The Company
cannot determine what effect such regulations, when promulgated, will have on
its business in the future. Regulations in the form currently proposed by the
FDA will likely require, among other things, expanded or different labeling. In
addition, regulations promulgated by the FDA in the future could significantly
limit certain provisions of DSHEA that are beneficial to the sales of vitamin
products.
The Nutrition Labeling and Education Act of 1990 (the "NLEA"), in part
modified by DSHEA, requires the FDA to establish regulations (i) governing
nutrition labeling of all foods, including dietary supplements, (ii) regulating
the use of nutrient content descriptors (e.g., "high" or "low") and (iii)
establishing permitted health claims. The FDA issued final regulations under the
NLEA in January 1993. A limited number of the Company's vitamin products are
foods subject to all of the January 1993 NLEA regulations; most of the Company's
vitamin products are dietary supplements subject to the health claim regulations
only.
Based on the changes to the NLEA effected by DSHEA, the FDA has proposed new
dietary supplement regulations (i) adopting standard formats for nutrition
information on dietary supplement labels and (ii) applying existing approved and
proposed new descriptors to dietary supplements. Under the current FDA proposal,
the nutrition information and descriptor regulations for dietary supplements
would apply to packages labeled on or after January 1, 1998. Previously labeled
packages could be sold through
59
<PAGE>
the distribution chain. The health claim regulations took effect for packages
labeled, or claims made, after July 1, 1994. While packages labeled before July
1, 1994 are protected from charges under the NLEA for making unapproved health
claims, the FDA is not prevented from using these health claims to allege that
the relevant product is a drug and, therefore, is subject to applicable drug
regulations. The Company has established accounting reserves in connection with
the anticipated cost of complying with the new regulations, which the Company
believes are adequate.
The Company cannot determine what effect the FDA's future regulations, when
and if promulgated, would have on its business in the future. Such regulations
could, however, among other things, require expanded documentation of the
properties of certain products, or scientific substantiation regarding
ingredients, product claims or safety. In addition, the Company cannot predict
whether new legislation regulating the Company's activities will be enacted, or
what effect any such legislation would have on the Company's business.
OTC PHARMACEUTICALS. FDA regulation of OTC pharmaceuticals takes two forms.
Most of the Company's OTC pharmaceutical products are governed by FDA monographs
covering well-known ingredients and specifying, among other things, permitted
claims, required warnings and precautions, allowable combinations of ingredients
and dosage levels. Marketing a product governed by a monograph or pending
monograph requires no prior approval of the FDA, only compliance with the
applicable monograph. Monographs may be changed from time to time, requiring
formulation, packaging or labeling changes for an affected product. While such
changes may cause the Company to incur costs to comply with such changes,
disruption of distribution or material obsolescence of inventory due to any such
changes is not likely.
In the future, the Company may desire to market as over-the-counter products
previously "prescription only" pharmaceuticals ("Rx-to-OTC switch products"),
which require FDA approval before the products can be marketed. The marketing of
such products by the Company will require that the Company obtain FDA approvals
or arrange to obtain such products from manufacturers that have obtained FDA
approval. In addition, the Drug Price Competition & Patent Term Restoration Act
of 1984 (the Hatch-Waxman Amendments to the Federal Food, Drug, and Cosmetic
Act) gives a three-year period of marketing exclusivity to a company that
obtains FDA approval of a switch requiring clinical evidence of effectiveness of
the OTC pharmaceutical dose. Unless Leiner establishes relationships with such
companies having exclusive marketing rights, the Company's ability to market
Rx-to-OTC switch products and offer its customers products comparable to
national brand products would be delayed until the expiration of the exclusivity
granted to the company initiating such a switch. There can be no assurance that,
in the event that the Company applies for FDA approvals, the Company would
obtain such approvals to market Rx-to-OTC switch products or, alternatively,
that the Company would be able to obtain such products from other manufacturers.
MANUFACTURING AND PACKAGING. All facilities where foods (including dietary
supplements) and pharmaceuticals are manufactured, packed, warehoused, or sold
must comply with the FDA manufacturing standards applicable to that type of
product. All of the Company's products are manufactured according to the Current
Good Manufacturing Practices for Finished Pharmaceuticals. The failure of a
facility to be in compliance may lead to a breach of representations made to
private label customers or to regulatory action against the products made in
that facility, including seizure, injunction or recall. The Company believes
that its facilities are in compliance in all material respects with the cGMPs
and other applicable requirements for each facility.
CPSC. The United States Consumer Product Safety Commission ("CPSC") has
authority, under the Poison Prevention Packaging Act, to designate those
products, including vitamin products and OTC pharmaceuticals, that require child
resistant closures to help reduce the incidence of poisonings. The CPSC has
adopted regulations requiring numerous OTC pharmaceuticals and iron-containing
dietary supplements to have such closures, and has adopted rules on the testing
of such closures by both children
60
<PAGE>
and adults. The Company, working with its packaging suppliers, believes that it
is in compliance with all CPSC requirements.
FTC. The United States Federal Trade Commission ("FTC") exercises primary
jurisdiction over the advertising and other promotional practices of food and
OTC pharmaceuticals marketers, and has concurrent jurisdiction with the FDA over
the advertising and promotional practices of marketers of dietary supplements.
The FTC has historically applied a different standard to health-related claims
than the FDA; the FTC has applied a "substantiation standard," which is less
restrictive than the standard under the NLEA. The FTC NLEA enforcement policy
uses FDA regulations as a baseline (and safe harbor) and permits (i) nutrient
content descriptions that are reasonable synonyms of FDA-permitted terms, and
(ii) qualified health claims not approved by FDA where adequate substantiation
exists for the qualified or limited claims.
STATE REGULATION. All states regulate foods and drugs under local laws that
parallel federal statutes. Because the NLEA gave the states the authority to
enforce many labeling prohibitions of the Federal Food, Drug, and Cosmetic Act,
after notification to the FDA, the Company and other dietary supplement
manufacturers may be subject to increasing state scrutiny for NLEA compliance,
as well as increasing FDA review.
USP. The United States Pharmacopoeia Convention, Inc. is a
non-governmental, voluntary standard-setting organization. Its drug standards
are incorporated by reference into the Federal Food, Drug, and Cosmetic Act as
the standards that must be met for the listed drugs, unless compliance with
those standards is specifically disclaimed. USP standards exist for most OTC
pharmaceuticals. The FDA requires USP compliance as part of cGMP.
The USP began adopting standards for vitamin and mineral dietary supplements
in 1994. These standards cover composition (nutrient ingredient potency and
combinations), disintegration, dissolution, manufacturing practices and testing
requirements. These standards are codified in the USP Monographs and the USP
Manufacturing Practices. In 1995, USP compliance included the standards for
disintegration and dissolution. While USP standards for vitamins are voluntary,
and not incorporated into federal law, customers of the Company may demand that
products they are supplied meet these standards. Label claims of compliance with
the USP may expose a company to FDA scrutiny for such claims. In addition, the
FDA may in the future require compliance, or such a requirement may be included
in new dietary supplement legislation. All of the Company's vitamin products
(excluding certain nutritional supplements products for which no USP standards
have been adopted) are formulated to comply with existing USP standards.
CANADIAN REGULATION. In Canada, the Company's products are subject to
federal and provincial law, particularly federal drug legislation. All
substances sold for ingestion by humans are regulated either as a food or drug
under the Canadian Act. In addition, certain of the Company's products are
subject to government regulation under the CDSA. The Canadian Act and the CDSA
are enforced by Health Canada--Health Protection Branch (the "HPB").
The Canadian Act governs the processing, formulation, packaging, labelling,
advertising and sale of the Company's products and regulates what may be
represented to the public on labels and in promotional material, in respect of
the properties of the various products. The Canadian Act also provides that any
drugs sold in Canada must have a label affixed thereto which shows certain
information such as its proper scientific or common name, the name and address
of the distributor, its lot number, adequate directions for use, a quantitative
list of its medical ingredients and its expiration date. In addition, no person
may sell a drug unless it has been assigned a DIN or GP. DINs and GPs are
obtained through an application to the HPB. Regulations under the Canadian Act
require all manufacturers to pay annual fees for their DINs and GPs. HPB
approval for the sale of the Company's products may be subject to significant
delays despite the Company's best efforts.
61
<PAGE>
The CDSA governs the manufacture and sale of controlled substances as
defined in the CDSA. The CDSA contains requirements for licenses of the factory,
approved security, a qualified person in charge of the factory and detailed
record keeping in connection with the manufacturing of controlled substances.
Regulations under the Canadian Act set out mandatory and rigorous
procedures, practices and standards for manufacturers. Health Canada performs
inspections of companies in the industry to ensure compliance with the Canadian
Act and the CDSA. For each of the Company's products, the development process,
the manufacturing procedures, the use of equipment, and laboratory practices and
premises must comply with Good Manufacturing Practices and Establishment
Licensing regulations under the Canadian Act.
The Company's herbal products which are being marketed with drug claims or
which contain drug substances require regulatory approval in the form of a DIN
or GP issued by Health Canada. In addition, the Canadian government has
established a panel to review the regulatory framework for herbal products. If
the Canadian government implements new or amended requirements for herbal
products it may result in additional costs to the Company for the requisite
regulatory approval, delay the entry of some products onto the market or
adversely affect sales of herbal products.
LEGAL PROCEEDINGS AND PRODUCT LIABILITY
The Company is currently engaged in various legal actions and governmental
proceedings, and, although ultimate liability cannot be determined at the
present time, the Company is currently of the opinion that the amount of any
such liability from these other actions and proceedings, when taking into
consideration the Company's product liability coverage, will not have a material
adverse effect on its financial position.
The Company, like other retailers, distributors and manufacturers of
products that are ingested, faces an inherent risk of exposure to product
liability claims in the event that, among other things, the use of its products
results in injury. With respect to product liability coverage, the Company
currently has an aggregate of $57.0 million of insurance coverage, including
primary products liability and umbrella liability coverage with deductibles of
(i) in the case of OTC pharmaceuticals, $0.25 million per claim subject to an
annual, aggregate deductible limit of $0.75 million and (ii) in the case of
vitamins and all other products, $0.25 million per claim, subject to an annual,
aggregate deductible limit of $0.75 million.
The Company has been named in numerous actions brought in federal or state
courts seeking compensatory and, in some cases, punitive damages for alleged
personal injuries resulting from the ingestion of certain products containing
L-Tryptophan. As of April 24, 1997, the Company and/or certain of its customers,
many of whom have tendered their defense to the Company, had been named in 660
lawsuits of which 647 have been settled. The Company's supplier of bulk
L-Tryptophan has agreed to assume the defense of all claims and pay all
settlements and judgments, other than for certain punitive damages, against the
Company arising out of the ingestion of L-Tryptophan products. To date, such
supplier has funded all settlements and paid all legal fees and expenses
incurred by the Company related to these matters. In light of such agreement and
such supplier's performance to date thereunder, and the Company's product
liability insurance (which is subject to deductibles not to exceed $1.4 million
in the aggregate with respect to these matters), the Company does not expect to
be required to make any material payments in connection with the resolution of
the remaining 13 cases.
INTELLECTUAL PROPERTY
The Company owns trademarks registered with the United States Patent and
Trademark Office and/or similar foreign authorities for 127 trademarks. In
addition, the Company has applications pending for 62 trademark registrations.
The Company regards its trademarks and other proprietary rights as valuable
assets and believes they are important in the marketing of the Company's
products. Leiner's most significant trademarks include YOUR
LIFE-Registered Trademark-, PHARMACIST FORMULA-Registered Trademark-, PROVEN
RELEASE-Registered Trademark-, DAILY PAK-Registered Trademark-,
NATURALIZED-Registered Trademark-,
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<PAGE>
CENTRAL-VITE-Registered Trademark-, PHYTOGRAPH-Registered Trademark- and
BODYCOLOGY-Registered Trademark-. The Company intends to maintain the
registrations on its important trademarks so long as they remain valuable to its
business. The Company vigorously protects its trademarks against infringement.
The Company does not have any patents on its proprietary processes. The
Company believes that it can better protect its trade secrets by maintaining the
confidentiality of the relevant information as opposed to generating the public
exposure inherent in the procedure of applying for patents.
ENVIRONMENTAL MATTERS
The Company is subject to various United States and Canadian federal, state,
provincial and local environmental laws and regulations. The costs of complying
with such laws and regulations have not been, and are not expected to have a
material adverse effect on the business of the Company.
63
<PAGE>
MANAGEMENT
DIRECTORS
Management of the business of LHP is vested in its Board of Directors (the
"Board"). The Board is currently comprised of Messrs. Kaminski, Bensussen and
Towne. The Board of Directors of Leiner Group, LHP's indirect corporate parent,
is currently comprised of Mr. Baird, who was appointed Chairman of such Board
following the Recapitalization, and Messrs. Kaminski and Bensussen who already
were members of such Board prior to the Recapitalization. Until the formation of
North Castle, Mr. Baird was a Managing Director of AEA. Pursuant to the terms of
the Stockholders Agreement, the AEA Group has the right to elect one member of
the Board of Directors of Leiner Group and North Castle has the right to elect
the remaining directors.
EXECUTIVE OFFICERS OF LEINER HEALTH PRODUCTS INC.
The following table sets forth with respect to each of the executive
officers of the Company, their respective years of employment with the Company,
ages and positions.
<TABLE>
<CAPTION>
YEARS
WITH
NAME COMPANY AGE POSITION
- ----------------------------- ------------- --- -----------------------------------------------------------------
<S> <C> <C> <C>
Robert M. Kaminski........... 19 46 Chairman of the Board, Chief Executive Officer and Director
Gale K. Bensussen............ 23 50 President and Director
Kevin J. Lanigan............. 24 50 Executive Vice President and Chief Operations Officer
William B. Towne............. 1 53 Executive Vice President, Chief Financial Officer, Director,
Treasurer and Assistant Secretary
Stanley J. Kahn.............. 17 44 Executive Vice President--Sales
Giffen H. Ott................ 4 36 Senior Vice President--Operations
Scott C. Rexinger............ 10 52 Senior Vice President--Product Marketing & Development
Robert J. LaFerriere......... 1 48 Senior Vice President--Marketing
</TABLE>
Robert M. Kaminski has been the Chairman of the Board of LHP since 1997, the
Chief Executive Officer of LHP since May 1992, and a Director of LHP since June
1992. He has been Chief Executive Officer of Leiner Group since March 1994 and
Vice Chairman of Leiner Group since July 1996. From 1988 to 1992, Mr. Kaminski
was Chief Operating Officer of the Predecessor Company and from 1982 to 1988, he
was Vice President--Sales of the Predecessor Company. Mr. Kaminski joined the
Predecessor Company in 1978.
Gale K. Bensussen has been a Director of LHP since June 1992 and President
of LHP since May 1992. He has been a Director of Leiner Group since June 1992
and President of Leiner Group since March 1994. Mr. Bensussen was Senior Vice
President--Marketing and Corporate Development of the Predecessor Company from
May 1991 to May 1992. From July 1988 to May 1991, Mr. Bensussen was Senior Vice
President--Sales and Marketing of the Predecessor Company. Mr. Bensussen joined
the Predecessor Company in 1974.
Kevin J. Lanigan became Executive Vice President and Chief Operations
Officer of LHP in May 1992 and of Leiner Group in March 1994. From 1986 to 1992,
Mr. Lanigan was Senior Vice President-- Operations Planning of the Predecessor
Company and, from 1979 to 1986, was Vice President--Operations. Before joining
the Predecessor Company in 1973, he held various engineering positions in the
aerospace industry.
William B. Towne became Executive Vice President and Chief Financial Officer
of LHP and Leiner Group in June 1996 and Treasurer and Assistant Secretary of
LHP in June 1996. Mr. Towne has been a
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<PAGE>
Director of LHP since June 1996. From 1995 to 1996, Mr. Towne served as
Executive Vice President, Finance and Chief Financial Officer at L. Galoob Toys,
Inc. From 1990 to 1995, Mr. Towne served as Executive Vice President, Chief
Financial Officer for Forstmann & Co., Inc. From 1982 to 1990, Mr. Towne worked
for Tambrands, Inc. where he rose from Manager of Forecast and Planning to Chief
Financial Officer of its International Division.
Stanley J. Kahn became Senior Vice President--Sales of LHP in May 1992 and
of Leiner Group in March 1994. Mr. Kahn became Executive Vice President--Sales
of Leiner Group in April 1997. From September 1989 to 1992, Mr. Kahn was Vice
President--Sales of the Predecessor Company and, from July 1988 to September
1989, was Vice President--Business Development. Mr. Kahn was National Key
Account Manager from 1985 to 1988. Mr. Kahn joined the Predecessor Company in
1980 as Regional Sales Manager.
Giffen H. Ott became Senior Vice President--Operations of LHP in April 1997.
Mr. Ott became Vice President--Operations in September 1995 after joining LHP in
March 1993 as Vice President of Manufacturing Development. Prior to joining LHP
Mr. Ott worked as a Manager with Bain & Company, the international management
consulting firm, where the engagements he led included an evaluation of the
Company's market position and operations on behalf of AEA.
Scott C. Rexinger became Senior Vice President--Product Marketing and
Development of LHP in June 1996. From May 1992 to June 1996, Mr. Rexinger was
Vice President, Product Marketing, and from April 1991 to May 1992, he was
Director, New Category Development. Mr. Rexinger was Group Marketing Manager,
New Products and Brands from August 1988 to April 1991, and Marketing Manager,
Brands from November 1987 to August 1988. Prior to joining the Company, Mr.
Rexinger held various marketing positions in the consumer packaged goods
industry.
Robert J. LaFerriere became Senior Vice President--Marketing of LHP in
February 1997 and was a consultant to LHP from 1996 to 1997. From 1992 to 1996,
Mr. LaFerriere was President and Chief Executive Officer of Slim Fast Foods and
was a Vice President, then Senior Vice President--Purchasing, at Thrifty Drug
and Discount Stores from 1984 until 1990.
EXECUTIVE COMPENSATION
The following table sets forth the compensation of each of the Company's
chief executive officer and the four most highly paid executive officers (other
than the chief executive officer) (collectively, the "named executive officers")
for fiscal 1997.
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<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION (1)(2)
-------------------------------------
OTHER ANNUAL
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION
- --------------------------------------------------------------------------- ---------- ---------- -------------
<S> <C> <C> <C>
Robert M. Kaminski......................................................... $ 424,365 $ 360,000 --
Chief Executive Officer
Gale K. Bensussen.......................................................... 266,731 225,000 --
President
William B. Towne........................................................... 199,038 125,000 $ 55,829
Executive Vice President
Kevin J. Lanigan........................................................... 223,654 190,000 --
Executive Vice President
Stanley J. Kahn............................................................ 266,731 250,000 --
Executive Vice President
</TABLE>
- ------------------------
(1) The compensation described in this table does not include medical and group
life insurance received by the named executive officers which are available
generally to all salaried employees of the Company and certain perquisites
and other personal benefits received by the named executive officers, the
value of which does not exceed the lesser of $50,000 or 10% of any such
officer's total salary and bonus disclosed in this table.
(2) The compensation described in this table does not include the compensation
of $395,000 and an additional payment of $588,000 received by Mr. David F.
Brubaker, former Chairman of LHP, in fiscal 1997. Mr. Brubaker retired
effective September 1996.
The following table sets forth the stock option grants to each of the named
executive officers for fiscal 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES OF
--------------------------------------------------------------- STOCK PRICE
% OF TOTAL APPRECIATION FOR
NUMBER OF OPTIONS GRANTED EXERCISE OPTION TERM*
SECURITIES UNDERLYING TO EMPLOYEES PRICE EXPIRATION --------------------
NAME OPTIONS GRANTED IN FISCAL YEAR ($/SH) DATE 5% 10%
- --------------------------------------- --------------------- --------------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Robert M. Kaminski..................... 4,074 67 $175 12/31/06 $448,384 $1,136,239
Gale K. Bensussen...................... 1,000 16 175 12/31/06 110,060 278,900
William B. Towne....................... -- -- -- -- -- --
Kevin J. Lanigan....................... -- -- -- -- -- --
Stanley J. Kahn........................ -- -- -- -- -- --
</TABLE>
- ------------------------
* Sets forth potential option gains based on assumed annualized rates of stock
price appreciation from the exercise price at the date of grant of 5% and
10% (compounded annually) over the full term of the grant with appreciation
determined as of the expiration date. The 5% and 10% assumed rates of
appreciation are mandated by the rules of the Securities and Exchange
Commission, and do not represent the Company's estimate or projection of
future Common Stock prices.
The following table sets forth the stock option exercises for the fiscal
year ended March 31, 1997 and the stock option values as of March 31, 1997, in
each case, for each of the named executive officers.
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<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND OPTION VALUES AS OF MARCH 31, 1997
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
YEAR END FISCAL YEAR END*
SHARES ACQUIRED VALUE ---------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------- ------------------- ----------- ----------- --------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Robert M. Kaminski................. -- -- 12,305 4,555 $ 1,916,400 $ 484,950
Gale K. Bensussen.................. -- -- 10,536 1,250 1,707,190 137,500
William B. Towne................... -- -- 2,000 2,000 240,640 240,640
Kevin J. Lanigan................... -- -- 7,524 -- 1,243,868 --
Stanley J. Kahn.................... -- -- 9,024 500 1,479,348 70,160
</TABLE>
- ------------------------
* Sets forth values for "in-the-money" options that represent the positive
spread between the respective exercise prices of outstanding stock options
and the value of the Company's Common Stock as of March 31, 1997 based on an
assumed value of approximately $265 per share for the Common Stock in the
Recapitalization. The Equity Rights represent the right to receive
Recapitalized Common Stock upon the occurrence of certain events, including
the termination of the holder's employment with the Company, a public
offering or a change of control. See "The Recapitalization."
SEVERANCE ARRANGEMENTS
In November 1991, the Predecessor Company entered into certain severance
agreements with certain members of LHP's senior management, pursuant to which
LHP will pay severance benefits if the individual's employment is terminated by
LHP other than for cause or if the individual resigns his or her employment with
LHP for good reason. In May 1997, LHP entered into a substantially similar
agreement with William B. Towne.
The severance benefits that the Company has agreed to provide to each of
Robert M. Kaminski, Gale K. Bensussen, William B. Towne and Stanley J. Kahn
include (a) a lump-sum severance payment equal to the sum of (i) one year's base
salary, plus (ii) any annual individual performance bonus or targeted
commission, both as in effect at the time of the termination or resignation; (b)
outplacement assistance at the Company's expense, up to a maximum cost to the
Company of $20,000; and (c) any rights under applicable Company plans or
programs, including but not limited to stock option and incentive plans, as may
be determined pursuant to the terms of such plans or programs. The severance
benefits provided to Kevin J. Lanigan include a lump-sum severance payment equal
to three times the sum of one year's base salary plus any annual individual
performance bonus or targeted commission, both as in effect at the time of
termination or resignation, as well as the benefits described in clauses (b) and
(c) above; subject to certain limitations to the extent that the Company
determines that the foregoing benefits would not be deductible by the Company
because such payments constitute an "excess parachute payment" (as defined in
section 280G of the Internal Revenue Code of 1986, as amended (the "Internal
Revenue Code")).
In March 1997, the Company entered into a non-competition and retirement
agreement with Mr. David F. Brubaker, former Chairman of LHP, pursuant to which,
among other things, the Company has agreed to pay Mr. Brubaker an amount equal
to approximately $1 million spread across several installments through February
2000. The agreement provides that under certain circumstances all of the
Company's payment obligations to Mr. Brubaker would accelerate.
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<PAGE>
STOCK OPTION PLAN
Leiner Group has authorized options for issuance to members of management
and employees ("Management Options") representing the right to acquire an
additional 10% of the Group Common Stock on a fully-diluted basis immediately
after the Recapitalization (giving effect to the exercise of such options but
without giving effect to the exercise of the Warrants referred to under "The
Recapitalization" below), exercisable at a price equal to the greater of the
purchase price paid by North Castle or the fair market value of such shares at
the time of grant. It is expected that these Management Options will be granted
in the ordinary course of business. Approximately 70% of these Management
Options were issued as of July 31, 1997.
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<PAGE>
OWNERSHIP OF CAPITAL STOCK
All of the shares of common stock of LHP are owned by PLI Holdings Inc. and
all of the shares of common stock of PLI Holdings Inc. are owned by Leiner
Group.
The following table sets forth information regarding beneficial ownership of
Group Common Stock of Leiner Group as of July 31, 1997, by (i) each person who
is known by the Company to beneficially own more than 5% of voting Group Common
Stock, (ii) each director of Leiner Group, (iii) each named executive officer of
the Company listed on the Summary Compensation Table above and (iv) by all
directors and executive officers as a group.
<TABLE>
<CAPTION>
SHARES OF SHARES OF NON-
VOTING GROUP VOTING GROUP
COMMON STOCK COMMON STOCK
BENEFICIALLY BENEFICIALLY
NAME OWNED OWNED PERCENTAGE OF CLASS
- --------------------------------------------------------- -------------- --------------- ------------------------
<S> <C> <C> <C> <C>
North Castle Partners I, L.L.C.(1)....................... 808,988 -- 85.6%
Charles F. Baird, Jr..................................... 24,870(2) -- 2.6%
Robert M. Kaminski....................................... 4,146 -- 0.4%
Gale K. Bensussen........................................ 8,490 -- 0.9%
William B. Towne......................................... -- -- --
Kevin J. Lanigan......................................... -- 16,582 25.7%
Stanley J. Kahn.......................................... -- 4,245 6.6%
Executive officers and directors as a group.............. 37,506 20,827 3.9% Voting
32.3% Non-Voting
</TABLE>
- ------------------------
(1) The address for North Castle Partners I, L.L.C. is 11 Meadowcroft Lane,
Greenwich, CT 06830.
(2) Does not include 3,255 shares of voting Group Common Stock held by a trust
in favor of Mr. Baird's children. Mr. Baird may be deemed to have beneficial
ownership of the shares of Group Common Stock owned by North Castle by
virtue of his status as a managing member of Baird Investment Group, L.L.C.
which is the managing member of North Castle. Mr. Baird expressly disclaims
such beneficial ownership.
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<PAGE>
THE RECAPITALIZATION
The following is a summary of the structure of the Recapitalization and the
Merger and certain provisions of the Recapitalization Agreement. This summary
does not purport to be complete and is qualified in its entirety by reference to
the Recapitalization Agreement. The Recapitalization Agreement is filed as an
Exhibit to the Registration Statement of which this Prospectus forms a part.
GENERAL. Leiner Group entered into the Recapitalization Agreement, among
Leiner Group, North Castle and the Merger Entity, to effect the
Recapitalization. The Recapitalization was accomplished through the Merger of
the Merger Entity with and into Leiner Group, with Leiner Group continuing as
the surviving corporation in the Merger. The Recapitalization Agreement does not
provide for the survival of any representations and warranties and none of the
parties has any post-closing indemnification obligations under the
Recapitalization Agreement. The Recapitalization has been accounted for as a
recapitalization of the Leiner Group, which has had no impact on the historical
basis of assets and liabilities as reflected in its consolidated financial
statements.
North Castle, a Delaware limited liability company, is an investment fund
formed by Mr. Baird for the purpose of participating in the Recapitalization.
Mr. Baird was formerly a Managing Director of AEA, which, together with
management, arranged the 1992 acquisition of the Company. Prior to the
Recapitalization, the AEA Group and Mr. Baird were the holders of approximately
92% of the outstanding shares of the Common Stock. Management Shareholders held
the remaining 8%. North Castle, in conjunction with the Company's management,
effected the Recapitalization of the Company in order to pursue continuing
growth opportunities for the Company in the vitamin industry.
Upon consummation of the Recapitalization, (i) current managers and
employees of the Company who had been Existing Shareholders had some of their
Existing Common Stock exchanged for cash, but together with Mr. Baird, retained
Group Common Stock and received Equity Rights equal to $17.6 million and
approximately 16% of the Group Equity, as well as Warrants, (ii) the AEA Group
and certain former managers of the Company, all of whom had been Existing
Shareholders, had most of their Existing Common Stock purchased for cash, but
also retained Group Common Stock equal to approximately $11.0 million and 10% of
the Group Equity, as well as Warrants, and (iii) North Castle purchased Group
Common Stock representing the balance of the Group Equity, for a cash investment
of $80.4 million. In connection with the Recapitalization, existing stock
options held by Management Shareholders were cashed out, exercised for Existing
Common Stock, or converted into Equity Rights.
The Warrants provide the Existing Shareholders the right to purchase 20% of
the Group Common Stock on a fully-diluted basis giving effect to the exercise of
such Warrants and of the Management Options. The initial exercise price of the
Warrants is 125% of the purchase price per share paid by North Castle for its
investment in the Recapitalization. Commencing on the first anniversary of the
Recapitalization Closing Date, the exercise price will compound at a rate of 25%
per year in years two and three and then at a rate of 10% per year for the
subsequent two years. After year five, the exercise price will remain constant.
The Warrants will become exercisable upon the earlier of (i) a change of control
(as defined), (ii) an initial public offering (as defined) and (iii) June 30,
2002, and will expire two years after becoming exercisable. Shares of Group
Common Stock issued upon exercise of the Warrants will be non-voting. The
Warrants include customary anti-dilution provisions.
In connection with the Recapitalization, the Company established a
management transaction bonus pool of $5.1 million which was paid by the Company
following consummation of the Recapitalization.
FINANCING FOR THE RECAPITALIZATION. The closing of the Recapitalization
occurred simultaneously with the closing of the offering of the Existing Notes.
Immediately following consummation of the Recapitalization and the Merger, the
obligations of Leiner Group under the New Credit Facility and the Existing Notes
were assigned to and assumed by LHP, and LHP became the obligor on the Notes.
The cash sources of financing for the Recapitalization consisted of North
Castle's investment in Group Common Stock, the
70
<PAGE>
proceeds of the Existing Notes and the term and revolving credit borrowings
under the New Credit Facility. See "Description of New Credit Facility" and
"Description of the Notes." These funds were applied to acquire Common Stock for
cash, to cash out options for Group Common Stock, to redeem preferred stock of
Leiner Group and Vita Health, to refinance substantially all existing
indebtedness of LHP other than certain capitalized leases, and to pay
transaction-related fees and expenses.
The following table sets forth the approximate sources and uses of funds for
the Recapitalization, which closed on June 30, 1997. For a presentation of the
effect of the Recapitalization on the consolidated financial statements of the
Company, on a pro forma basis as of March 31, 1997, see "Unaudited Pro Forma
Financial Information."
<TABLE>
<CAPTION>
SOURCES OF FUNDS AMOUNT USES OF FUNDS AMOUNT
- ---------------------------------------- ----------- ---------------------------------------- ------
<S> <C> <C> <C>
(DOLLARS IN
MILLIONS)
Revolving Credit Facility............... $ 71.9(a) Repurchased and $208.1(d)
Retained Equity of Leiner
Group.................................
Term Loans.............................. 85.0(b) Repayment of Debt and 119.9(e)
Preferred Stock.......................
Existing Notes.......................... 85.0 Management Transaction 5.1(f)
Bonuses...............................
-----------
Total Debt.............................. 241.9 Estimated Fees and 17.8(g)
Expenses..............................
Total Common Equity of Leiner Group..... 109.0(c)
------
-----------
TOTAL SOURCES OF FUNDS.................. $ 350.9 TOTAL USES OF FUNDS..................... $350.9
----------- ------
----------- ------
</TABLE>
- ------------------------
(a) Consists of borrowings under the Revolving Credit Facility provided under
the New Credit Facility. See "Description of New Credit Facility."
(b) Consists of borrowings under a $45.0 million term B loan facility and a
$40.0 million term C loan facility under the New Credit Facility, which were
fully drawn on the Recapitalization Closing Date. See "Description of New
Credit Facility."
(c) Consists of the Group Equity, comprised of (1) a new equity investment by
North Castle in Group Common Stock for cash of $80.4 million, (2) a retained
equity investment in Group Common Stock and Equity Rights with a value of
$17.6 million (based on the per share value of the North Castle equity
investment), held by certain current managers and employees of the Company
and Mr. Baird, and (3) a retained equity investment in Group Common Stock
with a value of $11.0 million (based on the per share value of the North
Castle equity investment), to be held by the AEA Group and certain former
managers of the Company.
(d) Includes transaction-related fees and expenses of $6.1 million, incurred by
Leiner, that were an adjustment to the price paid to the Existing
Shareholders.
(e) Consists of $102.3 million in outstanding borrowings and accrued interest
under the Company's existing senior credit agreement, an aggregate $13.9
million redemption price for outstanding pay-in-kind redeemable preferred
stock of Leiner Group held by AEA, and an aggregate $3.7 million redemption
price for a minority preferred stock interest in Vita Health.
(f) Members of the Company's management received $5.1 million in transaction
bonuses ($3.1 million on an after-tax basis), which were paid by the Company
following the Recapitalization Closing Date.
(g) Does not include any fees and expenses that were an adjustment to the price
paid to the Existing Shareholders, which are included in (d) above.
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<PAGE>
CERTAIN TRANSACTIONS
STOCKHOLDERS AGREEMENT. On the Recapitalization Closing Date, Leiner Group
and the stockholders of Leiner Group entered into the Stockholders Agreement,
which contains, among other terms and conditions, provisions relating to
corporate governance, certain restrictions with respect to transfer of
Recapitalized Common Stock by certain parties thereunder, certain rights and
obligations with respect to transfers of Recapitalized Common Stock and certain
registration rights granted by the Company with respect to shares of
Recapitalized Common Stock. See "The Recapitalization."
MANAGEMENT AGREEMENTS. Following the LHP Acquisition on May 4, 1992, AEA
entered into a management agreement with Leiner Group, pursuant to which AEA has
been providing management, consulting and financial services to the Company for
an annual fee of $0.35 million plus expenses. In connection with the Vita Health
Acquisition, the Company paid to AEA an additional transaction fee of $0.3
million for services in arranging, structuring, and negotiating the terms of the
Vita Health Acquisition and related refinancing, and reimbursed it for certain
related expenses. AEA received a transaction fee of $3.5 million for similar
services rendered in connection with the Recapitalization.
Upon consummation of the Recapitalization, Leiner Group's management
agreement with AEA was terminated, and Leiner Group and LHP entered into a
consulting agreement with North Castle Partners, L.L.C. (the "Sponsor"), an
affiliate of North Castle, to provide the Company with certain business,
financial and managerial advisory services. Mr. Baird is a managing member of
the Sponsor. In exchange for such services, Leiner Group and LHP have agreed to
pay the Sponsor an annual fee of $1.5 million, payable semi-annually in advance,
plus the Sponsor's reasonable out-of-pocket expenses. Leiner Group and LHP have
also paid the Sponsor a transaction fee of $3.5 million for services relating to
arranging, structuring and financing the Recapitalization, and reimbursed the
Sponsor's related out-of-pocket expenses.
RELATIONSHIP OF MR. BAIRD WITH AEA. Prior to the formation of North Castle
in 1997, Mr. Baird served for seven years as Managing Director of AEA and as
such oversaw the LHP Acquisition and was thereafter closely involved in the
management of the Company. The aggregate valuation of the Company, upon which
the financial terms and conditions of the Recapitalization were based, was
determined on the basis of negotiations between the Existing Shareholders,
including AEA, and Mr. Baird. North Castle and the Company believe that such
valuation was the result of bona fide arm's length negotiations. In addition,
prior to the Recapitalization, Leiner Group obtained a fairness opinion from
Lehman Brothers to the effect that the consideration to be received by the
Existing Shareholders in connection with Recapitalization was fair from a
financial point of view.
MANAGEMENT. As part of the Recapitalization, the current managers and
employees of the Company were afforded the opportunity to choose the amount of
their existing equity they wished to retain in Leiner Group in the form of Group
Equity. Managers and employees who retained their equity in Leiner Group will,
as a result of the increased leverage on the Company incurred as part of the
Recapitalization, acquired a greater percentage equity ownership. Under the
Stockholders Agreement, current managers have the right, upon their death or
permanent disability, to require Leiner Group to purchase their Group Common
Stock for its then fair market value.
In connection with the Recapitalization, the Company paid senior managers
transaction bonuses of $5.1 million in the aggregate. In addition, Leiner Group
has established a new stock option plan which provides for the Board of Leiner
Group to grant Management Options to acquire 122,222 shares of Group Common
Stock. Approximately 70% of these Management Options were issued as of July 31,
1997.
OTHER. Merrill Lynch & Co. acquired $15 million in limited liability
company interests of North Castle and The Bank of Nova Scotia also acquired $3
million of such interests.
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On June 25, 1997, Baird Investment Group, L.L.C. ("Baird Group "), the
managing member of North Castle, entered into separate agreements with three of
the principal investors in North Castle, Electra Fleming Inc. ("Electra"), Moore
Capital Management, Inc. ("Moore") and PPM America, Inc. ("PPM"). As part of
these agreements, Baird Group caused North Castle to exercise its rights under
the Stockholders Agreement to nominate one person designated by Electra, Moore
and PPM to serve on the Board of Directors of Leiner Group. In connection with
these agreements, Leiner Group paid Electra, Moore and PPM a one-time board
representation fee of $100,000, $75,000 and $75,000, respectively.
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DESCRIPTION OF NEW CREDIT FACILITY
GENERAL. In connection with the Recapitalization, Leiner Group and Vita
Health entered into the New Credit Facility with a syndicate of financial
institutions, The Bank of Nova Scotia ("Scotiabank") as administrative agent
(the "Administrative Agent"), Merrill Lynch Capital Corporation as documentation
agent, and Salomon Brothers Holding Company Inc as syndication agent. On the
Recapitalization Closing Date, immediately following the consummation of the
Recapitalization, Leiner Group assigned to LHP, and LHP assumed, all of Leiner
Group's rights and obligations in respect of the New Credit Facility and the
Existing Notes. Leiner Group was released and discharged from all further
obligations in respect of the New Credit Facility and the Existing Notes. The
following is a summary of the principal terms of the credit agreement governing
the New Credit Facility and the related loan documents (the "Credit
Documentation") and is subject to and qualified in its entirety by reference to
the Credit Documentation. Copies of the Credit Documentation are filed as
Exhibits to the Registration Statement of which this Prospectus forms a part.
The New Credit Facility provides for senior secured credit facilities in an
aggregate amount of $210.0 million, consisting of (i) U.S. and Canadian
revolving credit facilities in an aggregate amount of $125.0 million comprising
the Revolving Credit Facility, and (ii) a $45.0 million term B loan facility
(the "Term B Facility") and a $40.0 million term C loan facility (the "Term C
Facility" and together with the Term B Facility, the "Term Facilities"). The
Revolving Credit Facility initially consists of a $105.0 million revolving
credit facility made available to Leiner Group (the "U.S. Revolving Facility")
and a Canadian dollar-denominated revolving credit facility in an amount
equivalent to $20.0 million (the "Canadian Revolving Facility") made available
to Vita Health. The Company will be entitled to vary from time to time the
allocation of the aggregate Revolving Credit Facility commitment between the
U.S. Revolving Facility and the Canadian Revolving Facility, decreasing the
allocation to one while increasing it to the other (but not over the Canadian
dollar equivalent of $20.0 million, in the case of the Canadian Revolving
Facility). The Revolving Credit Facility also provides for a U.S. swingline
subfacility of $15.0 million, a U.S. letter of credit subfacility of $35.0
million, a Canadian letter of credit subfacility of up to Cdn.$13.0 million and
a Canadian swingline subfacility of up to Cdn.$1.0 million.
USE OF FACILITY. In connection with the Recapitalization, Leiner Group
fully drew down the $85.0 million in term loan borrowings under the Term
Facilities, and Leiner Group and Vita Health borrowed approximately $71.9
million under the Revolving Credit Facility, as part of the financing for the
Recapitalization. See "The Recapitalization." The remaining unused commitment
under the Revolving Credit Facility is available to the Company for working
capital and general corporate purposes.
Guarantee; Security. The obligations of LHP under the U.S. Revolving
Facility and the Term Facilities are guaranteed by its direct parent PLI
Holdings Inc. and by any direct or indirect U.S. subsidiaries of LHP. The
obligations of Vita Health under the Canadian Revolving Facility are guaranteed
by LHP and all of its direct and indirect U.S. subsidiaries, by PLI Holdings
Inc. and by all direct and indirect subsidiaries of Vita Health. The Term
Facilities and the Revolving Credit Facility are secured by substantially all
assets of LHP and any direct or indirect U.S. subsidiaries of LHP, all of the
capital stock of LHP and any such direct or indirect U.S. subsidiaries, and 65%
of the capital stock of any direct non-U.S. subsidiaries of LHP and its U.S.
subsidiaries. The Canadian Revolving Facility is also secured by substantially
all assets of Vita Health, its direct and indirect Canadian parents and any
direct or indirect non- U.S. subsidiaries of LHP, and all of the capital stock
of any such direct or indirect non-U.S. subsidiaries.
Amortization; Interest; Fees. Loans under the Term Facilities amortize in
equal quarterly installments. Annual scheduled repayments under the Term B
Facility amount to $450,000 for the first six years following the
Recapitalization Closing Date, $27.0 million in the seventh year, and $15.7
million in the final six months, with the facility maturing seven and one-half
years after the Recapitalization Closing Date. Annual scheduled repayments under
the Term C Facility amount to $400,000 for the first seven years, $24.0 million
in the eighth year, and $13.2 million in the final six months, with the facility
maturing eight and
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one-half years after the Recapitalization Closing Date. The Revolving Credit
Facility will mature six years after the Recapitalization Closing Date, with all
amounts then outstanding thereunder becoming due.
At LHP's option, the U.S. Revolving Facility and the Term Facilities may
bear interest at variable rates equal to either Scotiabank's alternate base rate
("ABR") or reserve-adjusted LIBO rate ("LIBOR"), plus the applicable margin as
described below (the "Applicable Margin"). At Vita Health's option, the Canadian
Revolving Facility may bear interest at either Scotiabank's Canadian prime rate
or bankers acceptance ("BA") rate, plus the Applicable Margin. The Applicable
Margin is based on the Company's Leverage Ratio, defined generally as the ratio
of total funded indebtedness to the consolidated EBITDA, and will vary as
follows: (a) for revolving credit borrowings, from 0.75% to 2.5% for LIBOR- or
BA-based loans and from zero to 1.5% for ABR- or Canadian prime rate-based
loans, (b) for loans under the Term B Facility, from 2.375% to 2.875% for
LIBOR-based loans and from 1.375% to 1.875% for ABR-based loans, and (c) for
loans under the Term C Facility, from 2.5% to 3.0% for LIBOR-based loans and
from 1.5% to 2.0% for ABR-based loans.
The transaction fees and expenses set forth in the sources and uses of funds
for the Recapitalization (see "The Recapitalization") include transaction fees
paid in connection with the provision of the New Credit Facility. In addition, a
commitment fee is payable quarterly on the daily average unused portion of the
U.S. Revolving Facility by LHP, and of the Canadian Revolving Facility by Vita
Health, in an amount calculated at a rate varying from 0.25% or 0.50% based on
the Company's Leverage Ratio. A letter of credit fee is payable to the New
Credit Facility lenders on the outstanding amount of letters of credit
calculated at the then Applicable Margin. Customary fees are also payable to
Scotiabank as administrative agent and letter of credit issuing bank.
PREPAYMENTS. The New Credit Facility permits the prepayment of loans
thereunder without premium or penalty. In addition, mandatory repayments are
required to be made from (i) 100% of net proceeds from non-ordinary asset sales,
(ii) 50% of annual excess cash flow (as defined in the New Credit Facility) for
each year in which the Company's Leverage Ratio was greater than or equal to 3.5
to 1, and (iii) 50% of the net proceeds from certain sales or issuances of
equity securities. Mandatory prepayments will be applied to term loans ratably
in accordance with remaining amortization payments until all term loans are paid
in full, and then to revolving credit loans, with an accompanying commitment
reduction in the case of prepayments from the proceeds of asset sales.
COVENANTS AND EVENTS OF DEFAULT. The New Credit Facility contains covenants
that impose certain restrictions on the Company, including restrictions on its
ability to incur additional debt, enter into sale-leaseback transactions, incur
contingent liabilities, make dividends or distributions, incur or grant liens,
sell or otherwise dispose of assets, make investments or capital expenditures,
repurchase or prepay the Notes or other subordinated debt, or engage in certain
other activities. The Company must also comply with certain financial ratios and
tests, including a minimum net worth requirement, a maximum Leverage Ratio
(beginning at 6.50:1 and declining to 3.25:1 in fiscal 2004 through 2006), a
minimum fixed charge coverage ratio (beginning at 1.10:1, increasing to 1.20:1
in fiscal 2001 through 2003, and declining thereafter to 1.00:1 in fiscal 2005
and 2006) and a minimum interest coverage ratio (beginning at 1.60:1 and
increasing to 3.25:1 in fiscal 2005 and 2006). The Company has entered into an
interest rate protection arrangement effective July 30, 1997 for a period of
three years with respect to 29.4 of its indebtedness under the New Credit
Facility that provides an effective cap of 6.17% on the interest payable
thereon.
The New Credit Facility contains customary events of default, including a
cross default (beyond all applicable grace periods) to other indebtedness of the
Company and default upon any change of control (as defined).
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THE EXCHANGE OFFER
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and reference is made to the
provisions of the Registration Rights Agreement, which has been filed as an
Exhibit to the Registration Statement of which this Prospectus forms a part.
TERMS OF THE EXCHANGE OFFER
GENERAL. In connection with the issuance of the Existing Notes pursuant to
a Purchase Agreement, dated as of June 19, 1997, among Leiner Group, LHP and the
Initial Purchasers, the Initial Purchasers and their respective assignees became
entitled to the benefits of the Registration Rights Agreement.
Under the Registration Rights Agreement, LHP has agreed to use its best
efforts (i) to file with the Commission within 60 days after the
Recapitalization Closing Date (June 30, 1997), the date the Existing Notes were
issued, the Registration Statement of which this Prospectus is a part with
respect to a registered offer to exchange the Existing Notes for the New Notes,
(ii) to cause the Registration Statement to be declared effective under the
Securities Act within 120 days after the Recapitalization Closing Date, (iii) to
keep the Registration Statement effective until consummation of the Exchange
Offer, and (iv) to consummate the Exchange Offer not later than 150 days after
the Recapitalization Closing Date. LHP will keep the Exchange Offer open for
acceptance for not less than 30 days after the date notice of the Exchange Offer
is mailed to holders of the Existing Notes. The Exchange Offer being made
hereby, if commenced and consummated within the time periods described in this
paragraph, will satisfy those requirements under the Registration Rights
Agreement.
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, all Existing Notes validly tendered and not
withdrawn prior to 5:00 p.m., New York City time, on the Expiration Date will be
accepted for exchange. New Notes will be issued in exchange for an equal
principal amount of outstanding Existing Notes accepted in the Exchange Offer.
Existing Notes may be tendered only in integral multiples of $1,000. This
Prospectus, together with the Letter of Transmittal, is being sent to all
registered holders as of , 1997. The Exchange Offer is not
conditioned upon any minimum principal amount of Existing Notes being tendered
for exchange. However, the obligation to accept Existing Notes for exchange
pursuant to the Exchange Offer is subject to certain conditions as set forth
herein under "--Conditions."
Existing Notes shall be deemed to have been accepted as validly tendered
when, as and if LHP has given oral or written notice thereof to the Exchange
Agent. The Exchange Agent will act as agent for the tendering holders of
Existing Notes for the purposes of receiving the New Notes and delivering New
Notes to such holders.
Based on interpretations by the Staff of the Commission as set forth in
no-action letters issued to third parties (including EXXON CAPITAL HOLDINGS
CORPORATION (available May 13, 1988), MORGAN STANLEY & CO. INCORPORATED
(available June 5, 1991), K-III COMMUNICATIONS CORPORATION (available July 2,
1993) and SHEARMAN & STERLING (available July 2, 1993)), LHP believes that the
New Notes issued pursuant to the Exchange Offer may be offered for resale,
resold and otherwise transferred by any holder thereof (other than any such
holder that is a broker-dealer or an "affiliate" of LHP 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 (i) such New
Notes are acquired in the ordinary course of 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 such New Notes and (iii) such holder
is not engaged in, and does not intend to engage in, a distribution of such New
Notes. LHP has not sought, and does not intend to seek, a no-action letter from
the Commission with respect to the effects of the Exchange Offer, and there can
be no assurance that the Staff would make a similar determination with respect
to the New Notes as it has in such no-action letters.
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By tendering Existing Notes in exchange for New Notes and executing the
Letter of Transmittal, each holder of Existing Notes will represent to LHP that:
(i) it is not an affiliate of LHP, (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 and, if such holder is not a
broker-dealer, it is not engaged in, and does not intend to engage in, a
distribution of New Notes. If a holder of Existing Notes is unable to make the
foregoing representations, such holder may not rely on the applicable
interpretations of the Staff of the Commission and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any secondary resale transaction unless such sale is made
pursuant to an exemption from such requirements.
Each broker-dealer that receives New Notes for its own account in exchange
for Existing Notes where such Existing Notes were acquired by such broker-dealer
as a result of market-making or other trading activities, must acknowledge that
it will deliver a prospectus meeting the requirements of the Securities Act and
that it has not entered into any arrangement or understanding with LHP or any
affiliate of LHP to distribute New Notes in connection with any resale of such
New Notes. See "Plan of Distribution."
After the Expiration Date and subject to certain limited exceptions, holders
of Existing Notes who do not exchange their Existing Notes for New Notes in the
Exchange Offer will no longer be entitled to registration rights and will not be
able to offer or sell their Existing Notes, unless such Existing Notes are
subsequently registered under the Securities Act (which, subject to certain
limited exceptions, LHP will have no obligation to do), except pursuant to an
exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS; TERMINATION. The term "Expiration
Date" shall mean , 1997 (30 days following the commencement of the
Exchange Offer), unless LHP, in its sole discretion, extends the Exchange Offer,
in which case the term "Expiration Date" shall mean the latest date to which the
Exchange Offer is extended. Notwithstanding any extension of the Exchange Offer,
if the Exchange Offer is not consummated by , 1997, the interest rate
borne by the Existing Notes shall be increased by one-half of one percent (0.5%)
per annum until the Exchange Offer is consummated (unless already so increased)
. See "Registration Rights."
To extend the Expiration Date, LHP will notify the Exchange Agent of any
extension by oral or written notice and will notify the holders of the Existing
Notes by means of a press release or other public announcement prior to 9:00
A.M., New York City time, on the next business day after the previously
scheduled Expiration Date. Such announcement may state that LHP is extending the
Exchange Offer for a specified period of time.
LHP reserves the right (i) to delay acceptance of any Existing Notes, to
extend the Exchange Offer or to terminate the Exchange Offer and not permit
acceptance of Existing Notes not previously accepted if any of the conditions
set forth herein under "--Conditions" shall have occurred and shall not have
been waived by LHP, by giving oral or written notice of such delay, extension or
termination to the Exchange Agent, or (ii) to amend the terms of the Exchange
Offer in any manner deemed by it to be advantageous to the holders of the
Existing Notes. Any such delay in acceptance, extension, termination or
amendment will be followed as promptly as practicable by oral or written notice
thereof to the Exchange Agent. If the Exchange Offer is amended in a manner
determined by LHP to constitute a material change, LHP will promptly disclose
such amendment in a manner reasonably calculated to inform the holders of the
Existing Notes of such amendment.
Without limiting the manner in which LHP may choose to make public
announcement of any delay, extension, amendment or termination of the Exchange
Offer, LHP shall have no obligations to publish, advertise, or otherwise
communicate any such public announcement, other than by making a timely release
to an appropriate news agency.
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INTEREST ON THE NEW NOTES
The New Notes will accrue interest at the rate of 9 5/8% per annum from the
Issue Date of the Existing Notes or the most recent date to which interest has
been paid thereon or duly provided for. Interest on the New Notes is payable on
January 1 and July 1 of each year, commencing January 1, 1998.
PROCEDURES FOR TENDERING
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal, and mail or otherwise
deliver such Letter of Transmittal or such facsimile, together with any other
required documents, to the Exchange Agent prior to 5:00 p.m., New York City
time, on the Expiration Date. In addition, either (i) a timely confirmation of a
book-entry transfer (a "Book-Entry Confirmation") of such Existing Notes into
the Exchange Agent's account at The Depository Trust Company (the "Book-Entry
Transfer Facility") pursuant to the procedure for book-entry transfer described
below, must be received by the Exchange Agent prior to the Expiration Date or
(ii) the holder must comply with the guaranteed delivery procedures described
below. THE METHOD OF DELIVERY OF LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED
DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY IS BY
MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN
RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OTHER REQUIRED DOCUMENTS
SHOULD BE SENT TO THE COMPANY. Delivery of all documents must be made to the
Exchange Agent at its address set forth below. Holders may also request their
respective brokers, dealers, commercial banks, trust companies or nominees to
effect such tender for such holders.
The tender by a holder of Existing Notes will constitute an agreement
between such holder and LHP in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal. Any beneficial
owner whose Existing Notes are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and who wishes to tender should
contact such registered holder promptly and instruct such registered holder to
tender on his behalf.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, 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") unless the
Existing Notes tendered pursuant thereto are tendered for the account of an
Eligible Institution.
If the Letter of Transmittal is signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such person should so indicate
when signing, and unless waived by LHP, evidence satisfactory to LHP of their
authority to so act must be submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt) and withdrawal of the tendered Existing Notes will be determined by LHP
in its sole discretion, which determination will be final and binding. LHP
reserves the absolute right to reject any and all Existing Notes not validly
tendered or any Existing Notes which, if accepted, would, in the opinion of
counsel for LHP, be unlawful. LHP also reserves the absolute right to waive any
irregularities or conditions of tender as to particular Existing Notes. LHP's
interpretation of the terms and conditions of the Exchange Offer (including the
instructions in the Letter of Transmittal) will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of Existing Notes must be cured within such time as LHP shall determine. Neither
LHP, the Exchange Agent nor any other person shall be under any duty to give
notification of defects or irregularities with respect to tenders of Existing
Notes, nor shall any of them
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incur any liability for failure to give such notification. Tenders of Existing
Notes will not be deemed to have been made until such irregularities have been
cured or waived. Any Existing Notes received by the Exchange Agent that are not
validly tendered and as to which the defects or irregularities have not been
cured or waived will be returned without cost to such holder by the Exchange
Agent, unless otherwise provided in the Letter of Transmittal, as soon as
practicable following the Expiration Date.
In addition, LHP reserves the right in its sole discretion, subject to the
provisions of the Indenture, (i) to purchase or make offers for any Existing
Notes that remain outstanding subsequent to the Expiration Date or, as set forth
under "--Conditions", (ii) to terminate the Exchange Offer in accordance with
the terms of the Registration Rights Agreement, (iii) to redeem Existing Notes
as a whole or in part at any time and from time to time, as set forth under
"Description of Notes--Optional Redemption" and (iv) to the extent permitted by
applicable law, to purchase Existing Notes in the open market, in privately
negotiated transactions or otherwise. The terms of any such purchases or offers
could differ from the terms of the Exchange Offer.
ACCEPTANCE OF EXISTING NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer
and as soon as practicable after the Expiration Date, LHP will accept all
Existing Notes properly tendered and not validly withdrawn, deliver or cause
delivery of such Existing Notes to the Trustee for cancellation, and issue and
cause the Trustee to promptly authenticate and deliver New Notes in exchange
therefor. See "--Conditions." For purposes of the Exchange Offer, Existing Notes
shall be deemed to have been accepted as validly tendered for exchange when, as
and if LHP has given oral or written notice thereof to the Exchange Agent.
In all cases, issuance of New Notes for Existing Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of a Book-Entry Confirmation of such Existing Notes into
the Exchange Agent's account at the Book-Entry Transfer Facility, a properly
completed and duly executed Letter of Transmittal and all other required
documents. If any tendered Existing Notes are not accepted for any reason set
forth in the terms and conditions of the Exchange Offer, such unaccepted or such
nonexchanged Existing Notes will be credited to an account maintained with such
Book-Entry Transfer Facility as promptly as practicable after the expiration or
termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Existing Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus. Any
financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Existing Notes by causing the
Book-Entry Transfer Facility to transfer such Existing Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, the Letter of
Transmittal or facsimile thereof with any required signature guarantees and any
other required documents must, in any case, be transmitted to and received by
the Exchange Agent at one of the addresses set forth below under "--Exchange
Agent" on or prior to the Expiration Date or the guaranteed delivery procedures
described below must be complied with.
EXCHANGING BOOK-ENTRY NOTES
The Exchange Agent and the Depository Trust Company (the "DTC") have
confirmed that any financial institution that is a participant in DTC may
utilize the Book-Entry Transfer Facility Automated Tender Offer Program ("ATOP")
procedures to tender Existing Notes.
Any DTC participant may make book-entry delivery of Existing Notes by
causing DTC to transfer such Existing Notes into the Exchange Agent's account in
accordance with DTC's ATOP procedures for
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transfer. However, the exchange for the Existing Notes so tendered will only be
made after a Book-Entry Confirmation of such book-entry transfer of Existing
Notes into the Exchange Agent's account, and timely receipt by the Exchange
Agent of an Agent's Message (as such term is defined in the next sentence) and
any other documents required by the Letter of Transmittal. The term "Agent's
Message" means a message, transmitted by DTC and received by the Exchange Agent
and forming part of a Book-Entry Confirmation, which states that DTC has
received an express acknowledgment from a participant tendering Existing Notes
that are the subject of such Book-Entry Confirmation that such participant has
received and agrees to be bound by the terms of the Letter of Transmittal, and
that LHP may enforce such agreement against such participant.
GUARANTEED DELIVERY PROCEDURES
If the procedures for book-entry transfer cannot be completed on a timely
basis, a tender may be effected if (i) the tender is made through an Eligible
Institution, (ii) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Letter of
Transmittal (or a facsimile thereof) and Notice of Guaranteed Delivery,
substantially in the form provided by LHP (by facsimile transmission, mail or
hand delivery), setting forth the name and address of the holder of Existing
Notes and the amount of Existing Notes tendered, stating that the tender is
being made thereby and guaranteeing that within three New York Stock Exchange
("NYSE") trading days after the date of execution of the Notice of Guaranteed
Delivery, a Book-Entry Confirmation and any other documents required by the
Letter of Transmittal will be deposited by the Eligible Institution with the
Exchange Agent, and (iii) a Book-Entry Confirmation and all other documents
required by the Letter of Transmittal are received by the Exchange Agent within
three NYSE trading days after the date of execution of the Notice of Guaranteed
Delivery.
WITHDRAWAL OF TENDERS
Tenders of Existing Notes may be withdrawn at any time prior to 5:00 p.m.,
New York City time on the Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent prior to 5:00 p.m., New York City time on the
Expiration Date at one of the addresses set forth below under "--Exchange
Agent." Any such notice of withdrawal must specify the name of the holder, the
name and number of the account at the Book-Entry Transfer Facility from which
the Existing Notes was tendered, identify the principal amount of the Existing
Notes to be withdrawn, specify the name and number of the account at the
Book-Entry Transfer Facility to be credited with the withdrawn Existing Notes
and otherwise comply with the procedures of such facility and state that such
holder is withdrawing its election to have those Existing Notes exchanged. All
questions as to the validity, form and eligibility (including time of receipt)
of such notice will be determined by the Company, whose determination shall be
final and binding on all parties. Any Existing Notes so withdrawn will be deemed
not to have been validly tendered for exchange for purposes of the Exchange
Offer. Any Existing Notes which have been tendered for exchange but which are
not exchanged for any reason will be credited to an account maintained with such
Book-Entry Transfer Facility for the Existing Notes as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Existing Notes may be retendered by following one of the procedures
described under "--Procedures for Tendering" and "--Book-Entry Transfer" above
at any time on or prior to the Expiration Date.
CONDITIONS
LHP has no obligation to consummate the Exchange Offer if the New Notes to
be received by such holder or holders of Existing Notes in the Exchange Offer,
upon receipt, will not be tradable by such holder without restriction under the
Securities Act and the Exchange Act and without material restrictions under the
"blue sky" or securities laws of the several states of the United States. The
Exchange Offer is
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also subject to the condition that it not violate applicable law or any
applicable interpretation of the Commission or its Staff. All conditions to the
Exchange Offer (with the exception of certain necessary governmental approvals)
must be satisfied or waived prior to the Expiration Date.
EXCHANGE AGENT
United States Trust Company of New York has been appointed as Exchange Agent
for the Exchange Offer. Questions and requests for assistance and requests for
additional copies of this Prospectus or of the Letter of Transmittal should be
directed to the Exchange Agent addressed as follows:
<TABLE>
<CAPTION>
BY MAIL: BY HAND:
<S> <C> <C>
114 West 47th St. Telephone: 114 West 47th St.
25th Floor (212) 852-1663 25th Floor
New York, NY 10036 New York, NY 10036
Attention: James E. Attention: James E.
Logan Facsimile: Logan
Vice President (212) 852-1625 Vice President
</TABLE>
FEES AND EXPENSES
LHP will pay all fees and expenses incident to its performance of the
Exchange Offer under the Registration Rights Agreement, including fees and
expenses of the Exchange Agent and Trustee and accounting, legal, printing and
related fees and expenses. These fees and expenses include the cost of
registering the New Notes under the Securities Act and applicable Blue Sky laws
and of soliciting tenders under the Exchange Offer. The principal solicitation
for tenders pursuant to the Exchange Offer is being made by mail; however,
additional solicitations may be made by telegraph, telephone, telecopy or in
person by officers and regular employees of LHP.
LHP will not make any payments to brokers, dealers or other persons
soliciting acceptances of the Exchange Offer. LHP, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
the Exchange Agent for its reasonable out-of-pocket expenses in connection
therewith. LHP may also pay brokerage houses and other custodians, nominees and
fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding
copies of the Prospectus and related documents to the beneficial owners of the
Existing Notes and in handling or forwarding tenders for exchange.
LHP will pay all transfer taxes, if any, applicable to the exchange of
Existing Notes pursuant to the Exchange Offer. If, however, New Notes or
Existing Notes for principal amounts not tendered or accepted for exchange are
to be registered or issued in the name of any person other than the registered
holder of the Existing Notes tendered, or if tendered Existing Notes are
registered in the name of any person other than the person signing the Letter of
Transmittal, or if a transfer tax is imposed for any reason other than the
exchange of Existing Notes pursuant to the Exchange Offer, then the amount of
any such transfer taxes (whether imposed on the registered holder or any other
persons) will be payable by the tendering holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Existing Notes who do not exchange their Existing Notes for New
Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Existing Notes as set forth in the legend
thereon as a consequence of the issuance of the Existing Notes pursuant to
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Existing Notes may not be offered or sold, unless registered under
the Securities Act, except pursuant to an exemption from, or in a transaction
not subject to, the Securities Act and applicable state securities laws. LHP
does not currently anticipate that it will register the Existing Notes under the
Securities Act. To the extent that Existing Notes are tendered and accepted in
the Exchange Offer, the trading market for untendered and tendered but
unaccepted Existing Notes could be adversely affected.
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REGISTRATION RIGHTS
Pursuant to the Registration Rights Agreement, in the event that (i)
applicable interpretations of the staff of the Commission do not permit LHP to
effect such an Exchange Offer, (ii) for any other reason the Exchange Offer is
not consummated within 150 days of the Recapitalization Closing Date, (iii) a
holder of Existing Notes is not permitted by applicable law to participate in
the Exchange Offer or does not receive freely tradeable New Notes pursuant to
the Exchange Offer or, (iv) under certain circumstances, LHP or the Initial
Purchasers or the holders of a majority in aggregate principal amount of
Existing Notes so request (any of (i) through (iv) being an "Event" and the date
thereof, the "Event Date"), LHP will, at its cost, use its best efforts to (a)
as promptly as practicable and, in any event, within 30 days after such Event
Date (which shall be no earlier than 90 days after the Recapitalization Closing
Date), file a shelf registration statement (the "Shelf Registration Statement")
covering resales of the Existing Notes, (b) cause the Shelf Registration
Statement to be declared effective under the Securities Act and (c) keep
effective the Shelf Registration Statement for a period of two years after the
Recapitalization Closing Date or such shorter period that will terminate when
all Existing Notes have been sold thereunder. LHP will, in the event a Shelf
Registration Statement is declared effective, provide to each applicable holder
of the Existing Notes copies of the prospectus which is a part of the Shelf
Registration Statement and notify each such holder when the Shelf Registration
Statement has become effective and take certain other actions as are required to
permit unrestricted resales of the Existing Notes.
A holder of Existing Notes that sells such Existing Notes pursuant to the
Shelf Registration Statement generally will be required to be named as a selling
security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement that are applicable to such a
holder (including certain indemnification obligations).
If on or prior to 60 days following the Recapitalization Closing Date, an
Exchange Offer Registration Statement has not been filed with the Commission,
additional interest will accrue on the Existing Notes from and including the
61st day following the Recapitalization Closing Date until, but excluding, the
date such registration statement is filed. In addition, if on or prior to 120
days following the Recapitalization Closing Date, such Exchange Offer
Registration Statement is not declared effective, additional interest will
accrue on the Existing Notes from and including the 121st day following the
Recapitalization Closing Date until, but excluding, the date such registration
statement is declared effective. Further, if on or prior to 150 days following
the Recapitalization Closing Date the Exchange Offer is not consummated,
additional interest will accrue on the Notes from and including the 151st day
following the Closing Date until, but excluding, the date of consummation of the
Exchange Offer. If an Event shall have occurred, and if by 180 days after the
Recapitalization Closing Date a Shelf Registration is not declared effective,
additional interest will accrue on the Existing Notes not exchanged as a result
of such Event from and including the 181st day after the Recapitalization
Closing Date, until, but excluding, the effective date of the Shelf Registration
Statement. In each case, additional interest will be payable semi-annually in
arrears, with the first semiannual payment due on the first interest payment
date in respect of the Existing Notes following the date from which additional
interest begins to accrue, and will accrue, under each circumstance set forth
above, at a rate per annum equal to an additional one-half of one percent (0.5%)
of the principal amount of the Existing Notes upon the occurrence of each such
circumstance, which rate will increase by one half of one percent (0.5%) for
each 90-day period that such additional interest continues to accrue under any
such circumstance, with an aggregate maximum increase in the interest rate per
annum equal to one percent (1.0%).
If applicable, in the event that the Shelf Registration Statement ceases to
be effective prior to the second anniversary of the Recapitalization Closing
Date for a period in excess of 45 days, whether or not consecutive, in any given
year, then, the interest rate borne by the Existing Notes shall increase by an
additional one half of one percent (0.5%) per annum on the 46th day in the
applicable year such Shelf Registration Statement ceases to be effective. Such
interest rate will increase by an additional one half of
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one percent (0.5%) per annum for each additional 90 days that such Shelf
Registration Statement is not effective, subject to the same aggregate maximum
increase in the interest rate per annum of one percent (1.0%) referred to above.
Upon the filing of the Registration Statement, the effectiveness of the
Registration Statement, or the consummation of the Exchange Offer or the
effectiveness of the Shelf Registration Statement, as the case may be, the
interest rate borne by the Existing Notes from the date of such filing,
effectiveness or consummation will be reduced by the full amount of any such
increase, provided that none of the conditions that trigger an interest rate
increase exist.
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DESCRIPTION OF THE NOTES
GENERAL
The Existing Notes were issued, and the New Notes offered hereby will be
issued, under an Indenture (the "Indenture"), dated as of June 30, 1997, by and
between Leiner Group and United States Trust Company of New York as the Trustee.
Immediately following the Recapitalization, pursuant to a supplemental indenture
(the "Supplemental Indenture") between LHP and the Trustee, LHP assumed (the
"Assumption") all of the obligations of Leiner Group under the Indenture and the
Existing Notes, and thereby became the obligor on the Existing Notes. Following
consummation of the Assumption, Leiner Group was released and discharged from
all further obligations in respect of the Indenture and the Existing Notes. Upon
the issuance of the New Notes, the Indenture will be subject to and governed by
the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). As used
in this "Description of the Notes" section, references to the Notes include the
New Notes and the "Company" means Leiner Health Products Inc., but not any of
its subsidiaries (unless the context otherwise requires).
The following is a summary of the material provisions of the Indenture and
does not purport to be complete and is subject to the detailed provisions of,
and is qualified in its entirety by reference to, the Trust Indenture Act, the
Notes and the Indenture, including the definitions of certain terms contained
therein and including those terms made part of the Indenture by reference to the
Trust Indenture Act. The Indenture and the Supplemental Indenture are filed as
Exhibits to the Registration Statement of which this Prospectus forms a part.
The definitions of certain terms used in the following summary are set forth
below under "--Certain Definitions." Reference is made to the Indenture for the
full definition of all such terms, as well as any other capitalized terms used
herein for which no definition is provided.
MATURITY AND INTEREST
The Notes will be unsecured senior subordinated obligations of the Company
limited in aggregate principal amount to $85,000,000. The Notes will mature on
July 1, 2007. Interest on the Notes will accrue at the rate of 9 5/8% per annum
and will be payable semi-annually in arrears on January 1 and July 1 in each
year, commencing on January 1, 1998, to holders of record on the immediately
preceding December 15 and June 15, respectively. Interest on the Notes will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the Issue Date. Interest will be computed on the
basis of a 360-day year comprised of twelve 30-day months.
Principal of, and premium, if any, and interest on, the Notes will be
payable at the office or agency of the Company maintained for such purpose in
The City of New York or, at the option of the Company, payment of interest may
be made by check mailed to the holders of the Notes at their respective
addresses as set forth in the register of holders of Notes. Until otherwise
designated by the Company, the Company's office or agency in The City of New
York will be the office of the Trustee maintained for such purpose. The Notes
will be issued in fully registered form, without coupons, and in denominations
of $1,000 and integral multiples thereof. No service charge will be made for any
transfer, exchange or redemption of Notes, except in certain circumstances for
any tax or other governmental charge that may be imposed in connection
therewith.
SUBORDINATION
The payment of the principal of, and premium, if any, and interest on, the
Notes will be subordinated, as set forth in the Indenture, in right of payment
to the prior payment in cash in full of all existing and future Senior Debt. The
Notes will be senior subordinated indebtedness of the Company ranking PARI PASSU
with all other existing and future senior subordinated indebtedness of the
Company. The Notes will also be effectively subordinated to any secured
indebtedness of the Company to the extent of the value of the assets securing
such indebtedness, and to all indebtedness of the Company's Subsidiaries. As of
March 31, 1997, on a PRO FORMA basis after giving effect to the Recapitalization
and the financing therefor,
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there would have been outstanding approximately $160.4 million of Senior Debt of
the Company (including Indebtedness of Vita Health in an amount equivalent to
approximately $15.0 million, which would be Guaranteed by the Company).
The Indenture provides that in the event of any insolvency or bankruptcy
case or proceeding, or any receivership, liquidation, reorganization or other
similar case or proceeding in connection therewith, relating to the Company or
its assets, or any liquidation, dissolution or other winding-up of the Company,
whether voluntary or involuntary, or any assignment for the benefit of creditors
or other marshalling of assets or liabilities of the Company, all Senior Debt
must be paid in full in cash or cash equivalents, or such payment duly provided
for to the satisfaction of holders of Senior Debt, before any payment or
distribution, whether in cash, property or securities (excluding certain
permitted equity or junior debt securities of the Company), is made, directly or
indirectly on account of the Senior Subordinated Note Obligations or for the
acquisition of any of the Notes.
During the continuance of any default in the payment when due (whether at
stated maturity, by acceleration or otherwise) of principal of, or premium, if
any, or interest on, or of unreimbursed amounts under drawn letters of credit or
fees relating to letters of credit constituting or other fees in respect of, any
Senior Debt (in each case, a "Payment Default"), no direct or indirect payment
of any kind or character by or on behalf of the Company or from any source
whatsoever shall be made on account of the Senior Subordinated Note Obligations
of the Company or for the acquisition of any of the Notes unless and until such
default has been cured or waived or has ceased to exist or such Senior Debt has
been discharged or paid in full in cash or cash equivalents.
In addition, during the continuance of any other default with respect to any
Designated Senior Debt of the Company pursuant to which the maturity thereof may
be accelerated (a "Non-payment Default"), after receipt by the Trustee and the
Company from an agent or other representative of holders of such Designated
Senior Debt of a written notice of such Non-payment Default specifying, among
other things, the applicable Designated Senior Debt the Company to which such
Non-payment Default relates, no direct or indirect payment of any kind or
character may be made by the Company on account of the Senior Subordinated Note
Obligations or for the acquisition of any of the Notes for the period specified
below (the "Payment Blockage Period").
The Payment Blockage Period shall commence upon the receipt of notice of a
Non-payment Default by the Trustee and the Company from an agent or other
representative of holders of Designated Senior Debt stating that such notice is
a payment blockage notice pursuant to the Indenture and shall end on the
earliest to occur of the following events: (i) 179 days shall have elapsed since
the receipt of such notice; (ii) the date on which such default is cured or
waived or ceases to exist (provided that no other Payment Default or Non-payment
Default has occurred or is then continuing after giving effect to such cure or
waiver); (iii) the date on which such Designated Senior Debt is discharged or
paid in full in cash or cash equivalents; or (iv) the date on which such Payment
Blockage Period shall have been terminated by express written notice to the
Company or the Trustee from the agent or other representative of holders of
Designated Senior Debt initiating such Payment Blockage Period, after which the
Company, subject to the existence of any Payment Default, shall promptly resume
making any and all required payments in respect of the Notes including any
missed payments. Only one Payment Blockage Period with respect to the Notes may
be commenced within any 360 consecutive day period. No Non-payment Default with
respect to Designated Senior Debt that existed or was continuing on the date of
the commencement of any Payment Blockage Period with respect to the Designated
Senior Debt initiating such Payment Blockage Period (other than any such
Non-payment Default which was not and could not reasonably be expected to have
been known by the holders or the agent or other representative of such
Designated Senior Debt) will be, or can be, made the basis for the commencement
of a second Payment Blockage Period, whether or not within a period of 360
consecutive days, unless such default has been cured or waived for a period of
not less than 90 consecutive days (it being acknowledged that any subsequent
action, or any breach of any financial covenants during the period after the
date of commencement of such Payment Blockage Period,
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that, in either case, would give rise to a Non-payment Default pursuant to any
provision under which a Non-payment Default previously existed or was continuing
shall constitute a new Non-payment Default for this purpose; PROVIDED that, in
the case of a breach of a particular financial covenant, the Company shall have
been in compliance for at least one full 90 consecutive day period after the
date of commencement of such Payment Blockage Period). In no event will a
Payment Blockage Period extend beyond 179 days from the date of the receipt by
the Trustee of the notice and there must be a 181 consecutive day period in any
360 day period during which no Payment Blockage Period is in effect.
If the Company fails to make any payment on the Notes when due or within any
applicable grace period, whether or not on account of the payment blockage
provisions referred to above, such failure would constitute an Event of Default
under the Indenture and would enable the holders of the Notes to accelerate the
maturity thereof. See "--Events of Default."
If the Company shall make any payment to the Trustee on account of the
principal of, or premium, if any, or interest on, the Notes, or any other Senior
Subordinated Note Obligations, or the holders of the Notes shall receive from
any source any payment on account of the principal of, or premium, if any, or
interest on, the Notes or any other Senior Subordinated Note Obligations, at a
time when such payment is prohibited by the subordination provisions of the
Indenture, the Trustee or such holders shall hold such payment in trust for the
benefit of, and shall pay over and deliver to, the holders of Senior Debt (pro
rata as to each of such holders on the basis of the respective amounts of such
Senior Debt held by them), or their representative or the trustee under the
indenture or other agreement (if any) pursuant to which such Senior Debt may
have been issued, as their respective interests may appear, for application to
the payment of all outstanding Senior Debt until all such Senior Debt has been
paid in full in cash, after giving effect to all other payments or distributions
to, or provisions made for, the holders of Senior Debt.
By reason of such subordination, in the event of liquidation, receivership,
reorganization or insolvency, creditors of the Company who are holders of Senior
Debt may recover more, ratably, than the holders of the Notes, and funds which
would be otherwise payable to the holders of the Notes will be paid to the
holders of the Senior Debt to the extent necessary to pay the Senior Debt in
full, and the Company may be unable to meet its obligations in full with respect
to the Notes.
REDEMPTION
MANDATORY REDEMPTION. The Notes are not subject to any mandatory sinking
fund redemption prior to maturity.
OPTIONAL REDEMPTION. The Notes are redeemable at the option of the Company,
in whole or in part, at any time on or after July 1, 2002 at the redemption
prices (expressed as percentages of the principal amount of the Notes) set forth
below plus in each case accrued and unpaid interest, if any, to the date of
redemption, if redeemed during the twelve-month period beginning on July 1 of
the years indicated below.
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---------------------------------------------------------------------------------- -----------
<S> <C>
2002.............................................................................. 104.813%
2003.............................................................................. 103.208%
2004.............................................................................. 101.604%
2005 and thereafter............................................................... 100.000%
</TABLE>
In addition, at any time prior to July 1, 2000, the Company may, at its
option, redeem up to 30% of the aggregate principal amount of Notes originally
issued with the net cash proceeds of one or more Public Equity Offerings (as
defined below), at 109 5/8 % of the aggregate principal amount thereof plus
accrued and unpaid interest, if any, to the date of redemption; PROVIDED,
HOWEVER, that not less than $60.0 million principal amount of the Notes is
outstanding immediately after giving effect to such redemption (other than any
Notes owned by the Company or any of its Affiliates) and such redemption is
effected within 60 days of such issuance. As used in this paragraph, a "Public
Equity Offering" means an underwritten
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primary public offering of common stock (other than Disqualified Stock) of the
Company, Leiner Group or PLI pursuant to an effective registration statement
filed under the Securities Act, all of the net proceeds of which, if issued by
Leiner Group or PLI, are contributed as common equity to the Company; PROVIDED
that the first public equity offering pursuant to which the Company redeems
Notes pursuant to this paragraph shall have resulted in gross proceeds to the
issuer in such offering of not less than $50 million. Such a primary offering
may be undertaken either independently or in conjunction with any secondary
offering of securities by the issuer thereof.
The Notes will be subject to redemption as a whole, at the option of the
Company, prior to July 1, 2002, at any time within 180 days after a Change of
Control at a redemption price equal to 100% of the principal amount thereof plus
the Applicable Premium as of, and accrued and unpaid interest, if any, to, the
date of redemption (the "Redemption Date"). Each holder of Notes will also have
certain rights to require the Company to purchase such Notes upon the occurrence
of a Change of Control. See "--Change of Control."
SELECTION AND NOTICE. If less than all of the Notes are to be redeemed at
any time, selection of the Notes to be redeemed will be made by the Company in
compliance with the requirements of the principal national securities exchange,
if any, on which the Notes are listed or, if the Notes are not listed on a
securities exchange, on a pro rata basis or by lot or any other method as the
Trustee shall deem fair and appropriate; PROVIDED, that Notes redeemed in part
shall only be redeemed in integral multiples of $1,000; PROVIDED, FURTHER, that
any such redemption pursuant to the provisions relating to a Public Equity
Offering shall be made on a pro rata basis or on as nearly a pro rata basis as
practicable (subject to the procedures of The Depository Trust Company, New
York, New York ("DTC") or any other Depository). Notices of any optional or
mandatory redemption shall be mailed by first class mail at least 30 but not
more than 60 days before the redemption date to each holder of Notes to be
redeemed at such holder's registered address. 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, and the Trustee shall
authenticate and mail to the holder of the original Note a new Note in principal
amount equal to the unredeemed portion of the original Note promptly after the
original Note has been cancelled. On and after the redemption date, interest
will cease to accrue on Notes or portions thereof called for redemption.
CHANGE OF CONTROL
In the event of a Change of Control, each holder of Notes will have the
right, subject to the terms and conditions of the Indenture, to require the
Company to offer to purchase all or any portion (equal to $1,000 or an integral
multiple thereof) of such holder's Notes at a purchase price in cash equal to
101% of the aggregate principal amount thereof plus accrued and unpaid interest,
if any, to the date of purchase, in accordance with the terms set forth below (a
"Change of Control Offer").
The New Credit Facility prohibits the Company from purchasing any Notes
pursuant to a Change of Control Offer prior to repayment in full of the
indebtedness under the New Credit Facility. Any additional credit agreements or
other agreements relating to unsubordinated indebtedness to which the Company
becomes a party may contain similar restrictions and provisions. Moreover, the
New Credit Facility contains a "change of control" provision that in relevant
part is similar to the provision in the Indenture relating to a Change of
Control, and the occurrence of such a "change of control" would constitute a
default under the New Credit Facility. The Company's obligations under the New
Credit Facility represent obligations senior in right of payment to the Notes,
and the New Credit Facility will not permit the purchase of the Notes absent
consent of the lenders thereunder in the event of a Change of Control (although
the failure by the Company to comply with its obligations in the event of a
Change of Control would constitute a Default under the Indenture).
If the Company is unable to obtain the requisite consents and/or repay all
indebtedness which prohibits the repurchase of the Notes upon the occurrence of
a Change of Control, the Company would
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remain prohibited by such indebtedness from purchasing any Notes and, as a
result, the Company could not commence a Change of Control Offer to purchase the
Notes within 30 days of the occurrence of the Change of Control, which would
constitute an Event of Default under the Indenture. The Company's failure to
commence such a Change of Control Offer would also constitute an event of
default under the New Credit Facility which would permit the lenders thereunder
to accelerate all of the Company's indebtedness under the New Credit Facility.
If a Change of Control were to occur, there can be no assurance that the Company
would have sufficient assets to first satisfy its obligations under the New
Credit Facility or other agreements relating to any such indebtedness, if
accelerated, and then to purchase all of the Notes that might be delivered by
holders seeking to accept a Change of Control Offer.
Unless the Company has exercised its right to redeem all of the Notes as
described under "--Optional Redemption," the Company shall mail on or before the
30th day following the occurrence of any Change of Control (or at the Company's
option, prior to such Change of Control but after the public announcement
thereof), to each holder of Notes at such holder's registered address a notice
stating: (i) that a Change of Control has occurred or will occur and that such
holder has (or upon such occurrence will have) the right to require the Company
to purchase all or a portion (equal to $1,000 or an integral multiple thereof)
of such holder's Notes at a purchase price in cash equal to 101% of the
aggregate principal amount thereof, plus accrued and unpaid interest, if any, to
the date of purchase (the "Change of Control Purchase Date"), which shall be a
Business Day, specified in such notice, that is not earlier than 30 days or
later than 60 days from the date such notice is mailed, (ii) the amount of
accrued and unpaid interest, if any, as of the Change of Control Purchase Date,
(iii) that any Note not tendered will continue to accrue interest, (iv) that,
unless the Company defaults in the payment of the purchase price for the Notes
payable pursuant to the Change of Control Offer, any Notes accepted for payment
pursuant to the Change of Control Offer shall cease to accrue interest after the
Change of Control Purchase Date, (v) the procedures, consistent with the
Indenture, to be followed by a holder of Notes in order to accept a Change of
Control Offer or to withdraw such acceptance, (vi) such other information as may
be required by the Indenture and applicable laws and regulations and (vii) if
such Change of Control Offer is made prior to the occurrence of such Change of
Control, payment is conditioned on the occurrence of such Change of Control.
On the Change of Control Purchase Date, provided that such Change of Control
has occurred, the Company will (i) accept for payment all Notes or portions
thereof tendered pursuant to the Change of Control Offer, (ii) deposit with the
Paying Agent the aggregate purchase price of all Notes or portions thereof
accepted for payment and any accrued interest on such Notes as of the Change of
Control Purchase Date, and (iii) deliver or cause to be delivered to the Trustee
all Notes tendered pursuant to the Change of Control Offer. The Paying Agent
shall promptly mail to each holder of Notes or portions thereof accepted for
payment an amount equal to the purchase price for such Notes plus accrued and
unpaid interest, if any, thereon, and the Trustee shall promptly authenticate
and mail to each holder of Notes accepted for payment in part a new Note equal
in principal amount to any unpurchased portion of the Notes, and any Note not
accepted for payment in whole or in part shall be promptly returned to the
holder of such Note. On and after a Change of Control Purchase Date, interest
will cease to accrue on the Notes or portions thereof accepted for payment,
unless the Company defaults in the payment of the purchase price therefor. The
Company will announce the results of the Change of Control Offer to holders of
the Notes on or as soon as practicable after the Change of Control Purchase
Date.
The Company will comply with the applicable tender offer rules, including
the requirements of Section 14(e) and Rule 14e-1 under the Exchange Act, and all
other applicable securities laws and regulations in connection with any Change
of Control Offer and will be deemed not to be in violation of any of the
covenants under the Indenture to the extent such compliance is in conflict with
such covenants.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the
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Company and purchases all Notes validly tendered and not withdrawn under such
Change of Control Offer.
CERTAIN COVENANTS
LIMITATION ON INCURRENCE OF INDEBTEDNESS. The Indenture will provide that
the Company will not, and will not permit any Restricted Subsidiary to, create,
incur, assume or directly or indirectly enter into any Guarantee of, or in any
other manner become directly or indirectly liable for ("incur"), any
Indebtedness (including Acquired Debt), except that the Company and any
Subsidiary Guarantor may incur Indebtedness if, at the time of, and immediately
after giving PRO FORMA effect to, such incurrence of Indebtedness, the
Consolidated Cash Flow Coverage Ratio of the Company for the most recently ended
four fiscal quarters for which financial statements are available would be at
least 2.0 to 1.0 until July 1, 1999, and 2.25 to 1.0 thereafter.
The foregoing limitations will not apply to the incurrence of any of the
following (collectively, "Permitted Indebtedness"), each of which shall be given
independent effect:
(i) Indebtedness incurred by the Company or any Subsidiary Guarantor
pursuant to the Credit Facility in a maximum principal amount not to exceed
at any time
(a) an aggregate principal amount of $85.0 million under the Term
Loan Facility, minus the aggregate amount of all scheduled repayments of
principal, and all mandatory prepayments of principal with Net Proceeds
from Asset Sales, whether or not such repayments or prepayments are
actually made (unless the relevant provision requiring any such repayment
or prepayment is waived or amended by the lenders thereunder in
accordance therewith), applied to permanently reduce the Indebtedness
outstanding under the Term Loan Facility, and plus (in the case of any
refinancing thereof) the aggregate amount of fees, underwriting
discounts, premiums and other costs and expenses incurred in connection
with such refinancing, and
(b) an aggregate principal amount outstanding at any time under the
Revolving Credit Facility not to exceed an amount equal to (A) an amount
(the "Total Amount") equal to the greater of (x) an amount equal to
$125.0 million, minus the amount of all mandatory prepayments of
principal with Net Proceeds from Asset Sales applied to permanently
reduce the commitments under the Revolving Credit Facility, and plus (in
the case of any refinancing thereof) the aggregate amount of fees,
underwriting discounts, premiums and other costs and expenses incurred in
connection with such refinancing, and (y) the Borrowing Base, minus (B)
without duplication, the amount then outstanding (I.E., advanced, and
received by, and available for use by, the Company) under any Receivables
Financing (as set forth in the books and records of the Company and
confirmed by the agent, trustee or other representative of the
institution or group providing such Receivables Financing) that has been
entered into by the Company, any Restricted Subsidiary or any Receivables
Subsidiary since the Issue Date and that, as of such date of
determination, has not expired or otherwise terminated, minus (C) the
aggregate principal amount of Indebtedness incurred under the Revolving
Credit Facility by Restricted Subsidiaries pursuant to clause (ii) below;
(ii) Indebtedness incurred by any Restricted Subsidiary under the
Revolving Credit Facility in an aggregate principal amount at any one time
outstanding not to exceed the greater of (A) $25.0 million and (B) 20.0% of
the Total Amount, and any Guarantees thereof;
(iii) Indebtedness of Foreign Subsidiaries and any Guarantees in respect
thereof; PROVIDED that the aggregate principal amount of such Indebtedness
outstanding at any time does not exceed, as to all such Foreign
Subsidiaries, the greater of (A) $20.0 million and (B) an amount equal to
9.0% of Consolidated Tangible Assets (calculated on a PRO FORMA basis giving
effect to any Acquisition being financed with any such Indebtedness);
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(iv) Indebtedness represented by the Notes or the Exchange Notes, any
Guarantees in respect thereof, and any Indebtedness arising by reason of any
Lien granted to secure any of the foregoing Indebtedness;
(v) Indebtedness owed by any Restricted Subsidiary to the Company or to
another Restricted Subsidiary, or owed by the Company to any Restricted
Subsidiary; PROVIDED, HOWEVER, that any such Indebtedness shall be at all
times held by a Person which is either the Company or a Restricted
Subsidiary of the Company; PROVIDED, FURTHER, HOWEVER, that upon either (a)
the transfer or other disposition of any such Indebtedness to a Person other
than the Company or another Restricted Subsidiary or (b) the sale, lease,
transfer or other disposition of shares of Capital Stock (including by
consolidation or merger) of any such Restricted Subsidiary to a Person other
than the Company or another Restricted Subsidiary, the incurrence of such
Indebtedness shall be deemed to be an incurrence that is not permitted by
this clause (v);
(vi) Indebtedness of the Company or any Restricted Subsidiary in the
form of Purchase Money Obligations, Capital Lease Obligations or
Attributable Debt, in an aggregate amount at any one time outstanding not to
exceed the greater of (A) $5.0 million and (B) an amount equal to 3.0% of
Consolidated Tangible Assets;
(vii) Indebtedness of the Company or any Restricted Subsidiary arising in
the ordinary course of business with respect to Interest Rate Agreement
Obligations or Currency Agreement Obligations incurred for the purpose of
fixing or hedging interest rate risk or currency risk with respect to any
fixed or floating rate Indebtedness that is permitted by the terms of the
Indenture to be outstanding or any foreign currency exposure;
(viii) Indebtedness of the Company or any Restricted Subsidiary arising
from the honoring of a check, draft or similar instrument of such Person
drawn against insufficient funds, provided that such Indebtedness is
extinguished within five Business Days of its incurrence;
(ix) Indebtedness of the Company or any Restricted Subsidiary consisting
of Guarantees, indemnities, or Obligations in respect of purchase price
adjustments, in connection with the acquisition or disposition of assets,
including pursuant to the Recapitalization;
(x) Indebtedness of the Company or any Restricted Subsidiary in respect
of (A) letters of credit, bankers' acceptances or other similar instruments
or obligations, issued in connection with liabilities incurred in the
ordinary course of business (including those issued to governmental entities
in connection with self-insurance under applicable workers' compensation
statutes), or (B) surety, judgment, appeal, performance and other similar
bonds, instruments or obligations provided in the ordinary course of
business or (C) Guarantees of Senior Debt or incurred in compliance with the
"Limitation on Issuances of Guarantees of Indebtedness by Subsidiaries"
covenant, or (D) Indebtedness arising by reason of any Lien securing Senior
Debt or incurred in compliance with the "Limitation on Liens" covenant;
(xi) Indebtedness (A) of the Company or any Subsidiary Guarantor
consisting of Guarantees of up to an aggregate principal amount of $2.0
million of borrowings by Management Investors in connection with the
purchase of Capital Stock of the Company, Leiner Group or PLI by such
Management Investors or (B) of the Company or any Restricted Subsidiary
consisting of Guarantees in respect of loans or advances made to officers or
employees of Leiner Group, the Company or any Restricted Subsidiary, or
Guarantees otherwise made on their behalf, (1) in respect of travel,
entertainment and moving-related expenses incurred in the ordinary course of
business, or (2) in the ordinary course of business not exceeding $500,000
in the aggregate outstanding at any time;
(xii) Indebtedness of a Receivables Subsidiary secured by a Lien on all
or part of the assets disposed of in, or otherwise incurred in connection
with, a Financing Disposition;
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(xiii) Any Indebtedness incurred in connection with or given in exchange
for the renewal, extension, substitution, refunding, defeasance,
refinancing, repayment or replacement (a "refinancing") of any Indebtedness
described in clauses (i), (ii), (iii), (iv), (xiii), (xiv) or (xv) hereof or
of any Indebtedness permitted to be incurred pursuant to the first paragraph
of this "Limitation on Incurrence of Indebtedness" covenant ("Refinancing
Indebtedness"); PROVIDED, HOWEVER, that (a) the principal amount of such
Refinancing Indebtedness shall not exceed the principal amount (or accrued
amount, if less) of the Indebtedness so renewed, extended, substituted,
refunded, defeased, refinanced, repaid or replaced ("refinanced"), plus the
fees, underwriting discounts, premium (not to exceed the stated amount of
any premium required to be paid in connection with such a refinancing
pursuant to the terms of the Indebtedness being refinanced) and other costs
and expenses incurred in connection therewith, (b) with respect to
Refinancing Indebtedness of any Indebtedness other than Senior Debt, the
Refinancing Indebtedness shall have a Weighted Average Life to Maturity
equal to or greater than the Weighted Average Life to Maturity of the
Indebtedness being refinanced; (c) with respect to Refinancing Indebtedness
other than Senior Debt, such Refinancing Indebtedness shall rank no more
senior than, and shall be at least as subordinated in right of payment to,
the Notes as the Indebtedness being refinanced; and (d) the obligor on such
Refinancing Indebtedness shall be the obligor on the Indebtedness being
refinanced, the Company or any Subsidiary Guarantor, or (in the case of
Indebtedness of a Foreign Subsidiary that is being refinanced) any Foreign
Subsidiary;
(xiv) Indebtedness of the Company or any Restricted Subsidiary which is
outstanding on the Issue Date;
(xv) Acquired Debt of any Restricted Subsidiary and any Guarantee
thereof, PROVIDED that at the time of such incurrence and after giving
effect thereto on a PRO FORMA basis, (x) no Default or Event of Default will
have occurred and be continuing or would result therefrom and (y) the
Company could incur at least $1.00 of additional Indebtedness pursuant to
the first paragraph of this "Limitation on Incurrence of Indebtedness"
covenant; and
(xvi) Indebtedness of the Company or any Subsidiary Guarantor in addition
to that described in clauses (i) through (xv) above, and any renewals,
extensions, substitutions, refinancings or replacements of such
Indebtedness, so long as the aggregate principal amount at any one time
outstanding of all such Indebtedness incurred pursuant to this clause (xvi)
does not exceed the greater of (a) $15.0 million and (b) an amount equal to
7.0% of Consolidated Tangible Assets.
For purposes of determining compliance with, and the outstanding principal
amount of any particular Indebtedness incurred pursuant to and in compliance
with, this covenant, (i) any other obligation of the obligor on such
Indebtedness (or of any other Person that could have incurred such Indebtedness
as the obligor thereon) arising under any Guarantee, Lien or letter of credit
supporting such Indebtedness shall be disregarded to the extent that such
Guarantee, Lien or letter of credit secures the principal amount of such
Indebtedness; (ii) in the event that Indebtedness meets the criteria of more
than one of the types of Indebtedness described in the preceding paragraphs, the
Company, in its sole discretion, shall classify such item of Indebtedness and
only be required to include the amount and type of such Indebtedness in one of
such clauses; and (iii) the amount of Indebtedness issued at a price that is
less than the principal amount thereof shall be equal to the amount of the
liability in respect thereof determined in accordance with GAAP.
For purposes of determining compliance with any Dollar-denominated
restriction on the incurrence of Indebtedness denominated in a foreign currency,
the Dollar-equivalent principal amount of such Indebtedness incurred pursuant
thereto shall be calculated based on the relevant currency exchange rate in
effect on the date that such Indebtedness was incurred, in the case of term
debt, or first committed, in the case of revolving credit debt, provided that
(x) the Dollar-equivalent principal amount of any such Indebtedness outstanding
on the Issue Date shall be calculated based on the relevant currency exchange
rate in effect on the Issue Date and (y) if such Indebtedness is incurred to
refinance other Indebtedness denominated in a
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foreign currency, and such refinancing would cause the applicable
Dollar-denominated restriction to be exceeded if calculated at the relevant
currency exchange rate in effect on the date of such refinancing, such
Dollar-denominated restriction shall be deemed not to have been exceeded so long
as the principal amount of such refinancing Indebtedness does not exceed the
principal amount of such Indebtedness being refinanced and (z) the
Dollar-equivalent principal amount of Indebtedness denominated in a foreign
currency and incurred pursuant to the Credit Facility shall be calculated based
on the relevant currency exchange rate in effect on, at the Company's option,
(i) the Issue Date, (ii) any date on which any of the respective commitments
under the Credit Facility shall be reallocated between or among facilities or
subfacilities thereunder, or on which such rate is otherwise calculated for
thereunder, or on which such rate is otherwise calculated for any purpose
thereunder, or (iii) the date of such incurrence. The principal amount of any
Indebtedness incurred to refinance other Indebtedness, if incurred in a
different currency from the Indebtedness being refinanced, shall be calculated
based on the currency exchange rate applicable to the currencies in which such
respective Indebtedness is denominated that is in effect on the date of such
refinancing.
Indebtedness of any Person that is not a Restricted Subsidiary, which
Indebtedness is outstanding at the time such Person becomes a Restricted
Subsidiary or is merged with or into or consolidated with the Company or a
Restricted Subsidiary, shall be deemed to have been incurred at the time such
Person becomes a Restricted Subsidiary or is merged with or into or consolidated
with the Company or a Restricted Subsidiary, and Indebtedness which is assumed
at the time of the acquisition of any asset shall be deemed to have been
incurred at the time of such acquisition.
LIMITATION ON RESTRICTED PAYMENTS. The Indenture will provide that the
Company will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, make any Restricted Payment, unless at the time of and immediately
after giving effect to the proposed Restricted Payment (with the value of any
such Restricted Payment, if other than cash, to be as determined in good faith
by the Board of Directors of the Company, which determination shall be
conclusive), (i) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof, (ii) the Company could incur
at least $1.00 of additional Indebtedness pursuant to the first paragraph under
the "Limitation on Incurrence of Indebtedness" covenant and (iii) the aggregate
amount of all Restricted Payments made after the Issue Date shall not exceed the
sum of (a) an amount equal to 50% of the Company's aggregate cumulative
Consolidated Net Income accrued on a cumulative basis from the Issue Date (or,
if such aggregate cumulative Consolidated Net Income for such period shall be a
deficit, minus 100% of such deficit), PLUS (b) the aggregate amount of all net
cash proceeds (other than proceeds from the issuance of the common stock of
Leiner Group to North Castle Partners on the Issue Date) received since the
Issue Date by the Company (w) as capital contributions in the form of common
equity to the Company after the Issue Date, (x) from the issuance and sale
(other than to a Restricted Subsidiary) of Capital Stock (other than
Disqualified Stock), (y) from the issuance to a Person who is not a Subsidiary
of the Company of any options, warrants or other rights to acquire Capital Stock
of the Company (in each case, exclusive of any Disqualified Stock or any
options, warrants or other rights that are redeemable at the option of the
holder, or are required to be redeemed, prior to the Stated Maturity of the
Notes) and (z) from the issuance and sale by the Company or any Restricted
Subsidiary after the Issue Date of Disqualified Stock or debt securities that
have been converted into or exchanged for Capital Stock of the Company (other
than Disqualified Stock), PLUS the amount of cash received by the Company or any
Restricted Subsidiary upon such conversion or exchange, in each case to the
extent that such proceeds are not used to redeem, repurchase, retire or
otherwise acquire Capital Stock or any Indebtedness of the Company or any
Restricted Subsidiary, pursuant to clause (ii) of the next paragraph, PLUS (c)
the amount of the net reduction in Investments by the Company in Unrestricted
Subsidiaries resulting from (x) the payment of cash dividends or the repayment
in cash of the principal of loans or the cash return on any Investment, in each
case to the extent received by the Company or any Restricted Subsidiary from
Unrestricted Subsidiaries, (y) the release or extinguishment of any Guarantee of
Indebtedness of any Unrestricted Subsidiary, and (z) the redesignation of
Unrestricted Subsidiaries as Restricted Subsidiaries of the Company (valued as
provided in the definition
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of "Investment"), such aggregate amount of the net reduction in Investments not
to exceed in the case of any Unrestricted Subsidiaries the amount of Restricted
Investments previously made by the Company or any Restricted Subsidiary in such
Unrestricted Subsidiary, which amount was included in the calculation of the
amount of Restricted Payments, PLUS (d) to the extent that any Restricted
Investment that was made after the Issue Date is sold for cash or otherwise
liquidated or repaid for cash, the amount of cash proceeds received with respect
to such Restricted Investment, net of taxes and the cost of disposition, not to
exceed the amount of Restricted Investments made after the Issue Date.
The foregoing provisions will not prohibit the following actions
(collectively, "Permitted Payments"):
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such declaration date such payment would have
been permitted under the Indenture and such payment shall be deemed to have
been paid on such date of declaration for purposes of clause (iii) of the
preceding paragraph;
(ii) the redemption, repurchase, retirement or other acquisition of any
Capital Stock or any Indebtedness of the Company that is subordinated in
right of payment to the Notes in exchange for, or out of the proceeds of,
the substantially concurrent sale (other than to a Restricted Subsidiary) of
Capital Stock of the Company (other than any Disqualified Stock);
(iii) Restricted Investments in an amount such that the sum of the
aggregate amount of Restricted Investments made pursuant to this clause
(iii) after the Issue Date and outstanding (net of any returns in cash
thereof or cash received in liquidation or on disposition thereof) does not
exceed at any time the greater of (A) $15.0 million and (B) 7.0% of
Consolidated Tangible Assets;
(iv) loans, advances, dividends or distributions to Leiner Group or PLI
to the extent necessary to permit Leiner Group to repurchase or otherwise
acquire, or payments by the Company to purchase or otherwise acquire,
Capital Stock of Leiner Group (including options, warrants or other rights
to acquire such Capital Stock) from departing or deceased directors,
officers or employees of Leiner Group, the Company or its Subsidiaries, or
other Management Investors (or payments in lieu of issuing and reacquiring
any such Capital Stock, made to or on behalf of any such Person), whether
pursuant to the terms of an employee benefit plan or employment agreement or
otherwise; PROVIDED that the aggregate amount of all such repurchases shall
not exceed $2.5 million during any fiscal year and $5.0 million during any
period of five consecutive fiscal years (plus the net cash proceeds received
by the Company after the Issue Date as a capital contribution from the sale
to Management Investors of Capital Stock of Leiner Group or options,
warranty or other rights in respect thereof);
(v) payments to Leiner Group or PLI to permit Leiner Group to pay, or
the payment by the Company directly of, the payments provided for by clause
(viii) of the exceptions to the "Limitation on Transactions with Affiliates"
covenant;
(vi) loans, advances, dividends or distributions by the Company or any
Restricted Subsidiary to Leiner Group or PLI not to exceed an amount
necessary to permit Leiner Group or PLI to (A) pay its costs (including all
professional fees and expenses) incurred to comply with its reporting
obligations under federal or state laws or under the Indenture, including
any reports filed with respect to the Securities Act, Exchange Act or the
respective rules and regulations promulgated thereunder, (B) make payments
in respect of its indemnification obligations owing to directors, officers,
employees or other Persons under its charter or by-laws or pursuant to
written agreements with any such Person, to the extent such payments relate
to the Company and its Subsidiaries, (C) pay all reasonable fees and
expenses payable by it in connection with the Recapitalization and related
transactions (including without limitation the financing thereof), or (D)
pay its other operational expenses (other than taxes) incurred in the
ordinary course of business and not exceeding $500,000 in the aggregate in
any fiscal year;
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(vii) payments by the Company or any Restricted Subsidiary to Leiner
Group or PLI (A) pursuant to the Tax Sharing Agreement, (B) to pay or permit
Leiner Group to pay any taxes, charges or assessments, including but not
limited to sales, use, transfer, rental, ad valorem, value-added, stamp,
property, consumption, franchise, license, capital, net worth, gross
receipts, excise, occupancy, intangibles or similar taxes, charges or
assessments ("Taxes") (other than federal, state or local taxes measured by
income and federal, state or local withholding imposed on payments made by
Leiner Group), required to be paid by Leiner Group or PLI by virtue of its
being incorporated or having capital stock outstanding (but not by virtue of
owning stock of any corporation other than PLI or the Company or any of its
Subsidiaries), or being a holding company parent of PLI or the Company or
receiving dividends from or other distributions in respect of the stock of
PLI or the Company, or having guaranteed any obligations of PLI or the
Company or any of its Subsidiaries, or having made any payment in respect of
any of the items for which the Company is permitted to make payments to
Leiner Group or PLI pursuant to this covenant, (C) to pay or permit Leiner
Group or PLI to pay any other federal, state, foreign, provincial or local
taxes measured by income for which Leiner Group or PLI is liable up to an
amount not to exceed with respect to such federal taxes the amount of any
such taxes which the Company would have been required to pay on a separate
company basis or on a consolidated basis if the Company had filed a
consolidated return on behalf of an affiliated group (as defined in Section
1504 of the Internal Revenue Code of 1986, as amended, or an analogous
provision of state, local or foreign law) of which it was the common parent,
or with respect to state and local taxes, on a combined basis if the Company
had filed a combined return on behalf of an affiliated group consisting only
of the Company and its Subsidiaries, (D) to pay or permit Leiner Group or
PLI to pay any Taxes attributable to periods prior to the issuance of the
Notes, or (E) to pay or permit Leiner Group or PLI to pay any Taxes
attributable to the Assumption or any dividend or distribution in respect of
the stock of PLI or the Company;
(viii) the payment by the Company of, or loans, advances, dividends or
distributions by the Company to Leiner Group or PLI to pay, dividends on the
common stock of the Company, Leiner Group or PLI, as applicable, following
an initial public offering of such common stock, in an amount not to exceed
in any fiscal year 6% of the net proceeds received by the Company, in or
from such public offering;
(ix) loans, advances, dividends or distributions by the Company or any
Restricted Subsidiary in an aggregate amount not to exceed $5.0 million;
PROVIDED, HOWEVER, that the Company or any Restricted Subsidiary shall not
be permitted to make Restricted Payments under this clause (ix) unless,
after giving effect thereto (including the incurrence of any Indebtedness to
fund such Restricted Payment), the Consolidated Coverage Ratio of the
Company would be at least equal to 2.25:1.00; and
PROVIDED, FURTHER, that in the case of clauses (viii) and (ix) no Default or
Event of Default shall have occurred or be continuing at the time of such
payment after giving effect thereto.
For purposes of clause (iii) of the first paragraph of this covenant,
Permitted Payments made pursuant to clauses (i), (iii), (iv), (viii) and (ix) of
the immediately preceding paragraph shall be included (with respect to clause
(i), as of the date of declaration) as Restricted Payments made since the Issue
Date.
LIMITATION ON ASSET SALES. The Indenture will provide that the Company will
not, and will not permit any Restricted Subsidiary to, make any Asset Sale
unless (i) the Company or such Restricted Subsidiary, as the case may be,
receives consideration (including by way of relief from, or by any other Person
assuming responsibility for, any liabilities, contingent or otherwise) at the
time of such Asset Sale at least equal to the Fair Market Value of the assets or
other property sold or disposed of in the Asset Sale, as such Fair Market Value
may be determined (and shall be determined, to the extent such Asset Sale or any
series of related Asset Sales involves aggregate consideration in excess of $1.0
million) in good faith by the Board of Directors, whose determination shall be
conclusive (including as to the value of all noncash consideration),
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and (ii) at least 75% of such consideration (excluding, in the case of an Asset
Sale of assets, any consideration by way of relief from, or by any other Person
assuming responsibility for, any liabilities, contingent or otherwise, which are
not Indebtedness) consists of either cash or Cash Equivalents. For purposes of
this covenant, "cash" shall include (1) the amount of any Indebtedness (other
than any Indebtedness that is by its terms expressly subordinated in right of
payment to the Notes) of the Company or such Restricted Subsidiary that is
assumed by the transferee of any such assets or other property in such Asset
Sale or another Person (and excluding any liabilities that are incurred in
connection with or in anticipation of such Asset Sale), but only to the extent
that such assumption is effected on a basis under which there is no further
recourse to the Company or any of the Restricted Subsidiaries with respect to
such liabilities, (2) Indebtedness of a Restricted Subsidiary that is no longer
a Restricted Subsidiary as a result of such Asset Sale, to the extent that the
Company and each other Restricted Subsidiary is unconditionally released from
any Guarantee of such Indebtedness in connection with such Asset Sale, (3)
securities received by the Company or any Restricted Subsidiary from the
transferee that are promptly converted into cash and (4) consideration
consisting of Indebtedness of the Company or any Restricted Subsidiary (other
than Indebtedness that is by its terms expressly subordinated in right of
payment to the Notes), to the extent such Indebtedness is canceled and there is
no further recourse to the Company or any such Restricted Subsidiary, as the
case may be, under such Indebtedness.
Within 365 days after any Asset Sale, the Company may elect to apply an
amount equal to the Net Proceeds from such Asset Sale to (a) permanently reduce
any Senior Debt of the Company or Indebtedness (other than Preferred Stock) of a
Restricted Subsidiary and/or (b) make an investment in, or acquire assets
related to, a Related Business. Pending the final application of such amount,
the Company may temporarily reduce Senior Debt or Indebtedness of a Restricted
Subsidiary or temporarily invest such Net Proceeds in any manner permitted by
the Indenture. Any portion of such amount not applied or invested as provided in
the first sentence of this paragraph within 365 days of such Asset Sale will be
deemed to constitute "Excess Proceeds."
Each date on which the aggregate amount of Excess Proceeds in respect of
which an Asset Sale Offer has not been made exceeds $10.0 million shall be
deemed an "Asset Sale Offer Trigger Date." As soon as practicable, but in no
event later than 20 Business Days after each Asset Sale Offer Trigger Date, the
Company shall commence an offer (an "Asset Sale Offer") to purchase the maximum
principal amount of Notes and other Indebtedness of the Company that ranks PARI
PASSU in right of payment with the Notes (to the extent required by the
instrument governing such other Indebtedness) that may be purchased out of the
Excess Proceeds. Any Notes and other Indebtedness to be purchased pursuant to an
Asset Sale Offer shall, and any other Indebtedness to be purchased pursuant to
an Asset Sale Offer may, be purchased pro rata based on the aggregate principal
amount of Notes and all such other Indebtedness outstanding, and all Notes shall
be purchased at an offer price in cash in an amount equal to 100% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of purchase. To the extent that any Excess Proceeds remain after completion of
an Asset Sale Offer, the Company may use the remaining amount for general
corporate purposes otherwise permitted by the Indenture. In the event that the
Company is prohibited under the terms of any agreement governing outstanding
Senior Debt of the Company from repurchasing Notes with Excess Proceeds pursuant
to an Asset Sale Offer as set forth in this paragraph, the Company shall
promptly use all Excess Proceeds to permanently reduce such outstanding Senior
Debt of the Company. Upon the consummation of such permanent reduction, or of
any Asset Sale Offer, the amount of Excess Proceeds shall be deemed to be reset
to zero.
Notice of an Asset Sale Offer shall be mailed by the Company not later than
the 20th Business Day after the related Asset Sale Offer Trigger Date to each
holder of Notes at such holder's registered address, stating: (i) that an Asset
Sale Offer Trigger Date has occurred and that the Company is offering to
purchase the maximum principal amount of Notes that may be purchased out of the
Excess Proceeds (to the extent provided in the immediately preceding paragraph),
at an offer price in cash in an amount equal to 100% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date of the
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purchase (the "Asset Sale Offer Purchase Date"), which shall be a Business Day,
specified in such notice, that is not earlier than 30 days or later than 60 days
from the date such notice is mailed, (ii) the amount of accrued and unpaid
interest, if any, as of the Asset Sale Offer Purchase Date, (iii) that any Note
not tendered will continue to accrue interest, (iv) that, unless the Company
defaults in the payment of the purchase price for the Notes payable pursuant to
the Asset Sale Offer, any Notes accepted for payment pursuant to the Asset Sale
Offer shall cease to accrue interest after the Asset Sale Offer Purchase Date,
(v) the procedures, consistent with the Indenture, to be followed by a holder of
Notes in order to accept an Asset Sale Offer or to withdraw such acceptance, and
(vi) such other information as may be required by the Indenture and applicable
laws and regulations.
On the Asset Sale Offer Purchase Date, the Company will (i) accept for
payment the maximum principal amount of Notes or portions thereof tendered
pursuant to the Asset Sale Offer that can be purchased out of Excess Proceeds
from such Asset Sale that are to be applied to an Asset Sale Offer (to the
extent provided in the second preceding paragraph), (ii) deposit with the Paying
Agent the aggregate purchase price of all Notes or portions thereof accepted for
payment and any accrued and unpaid interest, if any, on such Notes as of the
Asset Sale Offer Purchase Date, and (iii) deliver or cause to be delivered to
the Trustee all Notes tendered pursuant to the Asset Sale Offer. If less than
all Notes tendered pursuant to the Asset Sale Offer are accepted for payment by
the Company for any reason consistent with the Indenture, selection of the Notes
to be purchased by the Company shall be in compliance with the requirements of
the principal national securities exchange, if any, on which the Notes are
listed or, if the Notes are not so listed, on a pro rata basis or by lot;
PROVIDED, HOWEVER, that Notes accepted for payment in part shall only be
purchased in integral multiples of $1,000. The Paying Agent shall promptly mail
to each holder of Notes or portions thereof accepted for payment an amount equal
to the purchase price for such Notes plus accrued and unpaid interest, if any,
thereon, and the Trustee shall promptly authenticate and mail to such holder of
Notes accepted for payment in part a new Note equal in principal amount to any
unpurchased portion of the Notes, and any Note not accepted for payment in whole
or in part shall be promptly returned to the holder of such Note. On and after
an Asset Sale Offer Purchase Date, interest will cease to accrue on the Notes or
portions thereof accepted for payment, unless the Company defaults in the
payment of the purchase price therefor. The Company will announce the results of
the Asset Sale Offer to holders of the Notes on or as soon as practicable after
the Asset Sale Offer Purchase Date.
The Company will comply with the applicable tender offer rules, including
the requirements of Section 14(e) and Rule 14e-1 under the Exchange Act, and all
other applicable securities laws and regulations in connection with any Asset
Sale Offer and will be deemed not to be in violation of any of the covenants
under the Indenture to the extent such compliance is in conflict with such
covenants.
LIMITATION ON LIENS. The Indenture will provide that the Company will not,
and will not permit any Restricted Subsidiary to, directly or indirectly,
create, incur, assume or suffer to exist any Lien on any asset now owned or
hereafter acquired by such Person, or any income or profits therefrom, or assign
or convey any right to receive income therefrom (any such Lien, including any
such assignment or conveyance, the "Initial Lien"), securing Indebtedness of the
Company or any Subsidiary Guarantor that is PARI PASSU with or expressly
subordinated in right of payment to the Notes (other than Permitted Liens),
unless the Notes are equally and ratably secured thereby for so long as such
Indebtedness is so secured by the Initial Lien. Any such Lien thereby created in
favor of the Notes will be automatically and unconditionally released and
discharged upon (i) the release and discharge of the Initial Lien to which it
relates, or (ii) any sale, exchange or transfer to any Person not an Affiliate
of the Company of the property or assets secured by such Initial Lien, or of all
of the Capital Stock held by the Company or any Restricted Subsidiary in, or all
or substantially all the assets of, any Restricted Subsidiary creating such
Lien.
LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES. The Indenture will provide that the Company will not, and will
not permit any Restricted Subsidiary to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary to (i)
pay dividends or make any other distributions to
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the Company or any other Restricted Subsidiary on its Capital Stock or with
respect to any other interest or participation in, or measured by, its profits,
or pay any Indebtedness owed to the Company or any other Restricted Subsidiary,
(ii) make loans or advances to the Company or any other Restricted Subsidiary or
(iii) transfer any of its properties or assets to the Company or any other
Restricted Subsidiary, except for such encumbrances or restrictions consisting
of or existing under or by reason of (a) the Credit Facility or any other
agreement or instrument as in effect on the Issue Date, and any amendments,
restatements, renewals, replacements or refinancings thereof; PROVIDED, HOWEVER,
that such amendments, restatements, renewals, replacements or refinancings are
no more restrictive with respect to such dividend and other payment restrictions
than those contained in the Credit Facility or such other agreement or
instrument (or, if more restrictive, than those contained in the Indenture)
immediately prior to any such amendment, restatement, renewal, replacement or
refinancing, (b) any requirement of any regulatory authority having jurisdiction
over the Company or any Restricted Subsidiary or any of their businesses, (c)
any agreement or instrument of a Person, or governing Indebtedness or Capital
Stock of a Person, acquired by or merged or consolidated with or into the
Company or any Restricted Subsidiary, or assumed by the Company or any
Restricted Subsidiary in connection with an acquisition of assets from such
Person, as in effect at the time of such acquisition, merger or consolidation
(except to the extent that such Indebtedness was incurred in connection with or
in contemplation of such acquisition, merger or consolidation), PROVIDED that
for purposes of this clause (c), if another Person is the Surviving Person, any
Subsidiary or agreement thereof shall be deemed acquired or assumed, as the case
may be, by the Company when such Person becomes the Surviving Person, (d) any
provision that restricts in a customary manner the subletting, assignment or
transfer of any property or asset that is subject to a lease, license or similar
contract, or the assignment or transfer of any lease, license or other contract,
(e) 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, (f) mortgages, pledges or other security
agreements securing Indebtedness of a Restricted Subsidiary to the extent such
encumbrance or restrictions restrict the transfer of the property subject to
such mortgages, pledges or other security agreements, (g) customary provisions
restricting dispositions of real property interests set forth in any reciprocal
easement agreements of the Company or any Restricted Subsidiary, (h)
encumbrances or restrictions arising or agreed to in the ordinary course of
business and that do not, individually or in the aggregate, detract from the
value of property or assets of the Company or any Restricted Subsidiary, (i) any
agreement or instrument relating to any Indebtedness incurred by a Foreign
Subsidiary pursuant to the first paragraph, or clause (ii), (iii), (vii), (x)(A)
and (x)(B) of the second paragraph, of the "Limitation on Incurrence of
Indebtedness" covenant, (j) subordination provisions applicable to any note
representing an obligation of the Company or any Restricted Subsidiary owing to
any Restricted Subsidiary, (k) Purchase Money Obligations for property acquired
in the ordinary course of business that only impose restrictions on the property
so acquired, (l) an agreement relating to Indebtedness of or a Financing
Disposition to or by any Receivables Entity, (m) an agreement for the sale or
disposition of the Capital Stock or assets of any Restricted Subsidiary;
PROVIDED, HOWEVER, that such restriction is only applicable to such Restricted
Subsidiary or assets, as applicable, and such sale or disposition otherwise is
permitted under the "Limitation on Asset Sales" covenant, or (n) Refinancing
Indebtedness permitted under the Indenture, PROVIDED, HOWEVER, that the
restrictions contained in the agreements governing such Refinancing Indebtedness
are no more restrictive in the aggregate than those contained in the agreements
governing the Indebtedness being refinanced immediately prior to such
refinancing.
Nothing contained in this "Limitation on Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries" covenant shall prevent the
Company or any Restricted Subsidiary from (1) creating, incurring, assuming or
suffering to exist any Liens otherwise permitted by the "Limitation on Liens"
covenant or (2) restricting the sale or other disposition of property or assets
of the Company or any of its Restricted Subsidiaries that secure Indebtedness of
the Company or any of its Restricted Subsidiaries.
LIMITATION ON TRANSACTIONS WITH AFFILIATES. The Company will not, and will
not permit any Restricted Subsidiary to, directly or indirectly, enter into or
suffer to exist any transaction or series of related
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transactions (including, without limitation, the sale, purchase, exchange or
lease of assets, property or services) with any Affiliate of the Company (other
than the Company or a Restricted Subsidiary) unless (1) such transaction or
series of related transactions is on terms that taken as a whole are no less
favorable to the Company or such Restricted Subsidiary, as the case may be, than
would be available in a comparable transaction in arm's-length dealings with a
Person that was not such an Affiliate, and (2) the Company delivers to the
Trustee (a) with respect to any transaction or series of related transactions
involving aggregate payments in excess of $1.0 million, an Officers' Certificate
certifying that such transaction or series of related transactions complies with
clause (1) above and (b) with respect to any transaction or series of related
transactions involving aggregate payments in excess of $5.0 million, an
Officers' Certificate certifying that such transaction or series of related
transactions has been approved by a majority of the members of the Board of
Directors of the Company and approved by a majority of the Independent Directors
or, in the event there is only one Independent Director, by such Independent
Director, and evidenced by a resolution of the Board of Directors set forth in
an Officers' Certificate, and (c) with respect to any transaction or series of
related transactions involving aggregate payments in excess of $15.0 million, an
opinion issued by an investment banking firm or appraiser or accounting firm of
national standing as to the fairness to the Company or such Restricted
Subsidiary from a financial point of view. Notwithstanding the foregoing, this
covenant will not apply to (i) any transaction entered into by or among the
Company or one of its Restricted Subsidiaries with one or more Restricted
Subsidiaries; (ii) any Restricted Payment or Permitted Payment not prohibited by
the "Limitation on Restricted Payments" covenant; (iii) the payment of
reasonable and customary regular fees to directors of the Company and its
Restricted Subsidiaries who are not employees of the Company or its
Subsidiaries; (iv) any transaction with an employee, officer or member of the
Board of Directors of the Company or any Restricted Subsidiary in the ordinary
course of business involving compensation, indemnity or employee benefit
arrangements; (v) loans or advances made to directors, officers or employees of
Leiner Group, PLI, the Company or any Restricted Subsidiary, or Guarantees in
respect thereof or otherwise made on their behalf (including any payments under
such Guarantees), (A) in respect of travel, entertainment or moving-related
expenses incurred in the ordinary course of business, or (B) in the ordinary
course of business not exceeding $500,000 in the aggregate outstanding at any
time; (vi) payments pursuant to the Tax Sharing Agreement; (vii) any agreement
as in existence on the Issue Date, as the same may be amended from time to time
in any manner not adverse to the holders of Notes; and (viii) the payment of
fees in an aggregate amount not to exceed $1.5 million in any fiscal year and
the reimbursement of reasonable out-of-pocket expenses incurred by North Castle
Partners, L.L.C., in each case in connection with its performance of services
pursuant to the Management Agreement; (ix) the Recapitalization and all related
transactions (including but not limited to the financing thereof), including
without limitation the incurrence and payment of all fees and expenses in
connection therewith; (x) any transaction in the ordinary course of business or
approved by a majority of the Independent Directors, between the Company or any
Restricted Subsidiary and any Affiliate of the Company controlled by the Company
that is a joint venture or similar entity primarily engaged in a Related
Business; and (xii) Guarantees of borrowings by Management Investors in
connection with the purchase of Capital Stock of the Company, Leiner Group or
PLI by such Management Investors, which Guarantees are permitted under the
"Limitation on Incurrence of Indebtedness" covenant, and payments thereunder.
LIMITATION ON INCURRENCE OF OTHER SENIOR SUBORDINATED INDEBTEDNESS. The
Company will not, and will not permit any Subsidiary Guarantor to, directly or
indirectly, incur any Indebtedness that is expressly subordinate in right of
payment in any respect to any other Indebtedness, unless such Indebtedness is
expressly subordinate in right of payment to, or ranks PARI PASSU with, the
Notes, in the case of the Company, or the Subsidiary Guarantees, in the case of
a Subsidiary Guarantor; PROVIDED that the foregoing restriction shall not apply
to distinctions between categories of Senior Debt or senior Indebtedness of a
Subsidiary Guarantor ("Guarantor Senior Debt") that exist solely by reason of
Liens or Guarantees arising or created in respect of some but not all such
Senior Debt or Guarantor Senior Debt, as the case may be.
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LIMITATION ON THE SALE OR ISSUANCE OF PREFERRED STOCK OF RESTRICTED
SUBSIDIARIES. The Company will not sell, and will not permit any Restricted
Subsidiary to, directly or indirectly, issue or sell, any shares of Preferred
Stock of any Restricted Subsidiary, except (i) to the Company or a Restricted
Subsidiary, or to directors as director's qualifying shares to the extent
required by applicable law, or (in the case of a Foreign Subsidiary) to the
extent required by applicable law, or (ii) for any sale in compliance with the
terms of the "Limitation on Asset Sales" covenant or (iii) for any Preferred
Stock incurred by any Restricted Subsidiary in compliance with the "Limitations
on Incurrence of Indebtedness" covenant.
LIMITATION ON DESIGNATION OF UNRESTRICTED SUBSIDIARIES. The Indenture will
provide that the Company will not designate any Subsidiary of the Company (other
than a newly created Subsidiary in which no Investment has previously been made
in excess of $1,000) as an "Unrestricted Subsidiary" under the Indenture (a
"Designation") unless:
(a) no Default shall have occurred and be continuing at the time of or
after giving effect to such Designation;
(b) immediately after giving effect to such Designation the Company
would be able to incur $1.00 of Indebtedness (other than Permitted
Indebtedness) under the "Limitation on Incurrence of Indebtedness" covenant;
and
(c) the Company would not be prohibited under the Indenture from making
an Investment at the time of Designation in an amount (the "Designation
Amount") equal to the Fair Market Value of such Restricted Subsidiary on
such date.
In the event of any such Designation, the Company shall be deemed to have
made an Investment constituting a Restricted Payment pursuant to the "Limitation
on Restricted Payments" covenant for all purposes of the Indenture in the
Designation Amount. The Indenture will further provide that neither the Company
nor any Restricted Subsidiary shall at any time (x) provide credit support for,
or a Guarantee of, any Indebtedness of any Unrestricted Subsidiary (including
any undertaking, agreement or instrument evidencing such Indebtedness); PROVIDED
that the Company may pledge Capital Stock or Indebtedness of any Unrestricted
Subsidiary on a nonrecourse basis such that the pledgee has no claim whatsoever
against the Company other than to obtain such pledged property, (y) be directly
or indirectly liable for any Indebtedness of any Unrestricted Subsidiary or (z)
be directly or indirectly liable for any Indebtedness which provides that the
holder thereof may (upon notice, lapse of time or both) declare a default
thereon or cause the payment thereof to be accelerated or payable prior to its
final scheduled maturity upon the occurrence of a default with respect to any
Indebtedness of any Unrestricted Subsidiary (including any right to take
enforcement action against such Unrestricted Subsidiary), except to the extent
permitted under the "Limitation on Restricted Payments" covenant.
The Indenture will further provide that the Company will not revoke any
Designation of a Subsidiary as an Unrestricted Subsidiary (a "Revocation"),
unless:
(a) no Default shall have occurred and be continuing at the time of and
after giving effect to such Revocation; and
(b) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation shall be deemed to have
been incurred at such time and shall have been permitted to be incurred for
all purposes of the Indenture.
All Designations and Revocations must be evidenced by a resolution of the
Board of Directors of the Company delivered to the Trustee certifying compliance
with the foregoing provisions.
LIMITATION ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS BY SUBSIDIARIES. The
Indenture will provide that the Company will not permit any U.S. Restricted
Subsidiary, directly or indirectly, to Guarantee any other Indebtedness of the
Company or any Subsidiary Guarantor ("U.S. Specified Indebtedness") unless such
U.S. Restricted Subsidiary simultaneously executes and delivers a supplemental
indenture to the Indenture
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providing for the Guarantee (a "U.S. Subsidiary Guarantee") of the payment of
the Notes by such U.S. Restricted Subsidiary, which U.S. Subsidiary Guarantee
shall be subordinated to such U.S. Restricted Subsidiary's Guarantee of such
U.S. Specified Indebtedness to the same extent as the Notes or the Subsidiary
Guarantees, as applicable, are subordinated to such U.S. Specified Indebtedness
under the Indenture; PROVIDED, HOWEVER, that a U.S. Restricted Subsidiary will
not be required to provide a U.S. Subsidiary Guarantee under this covenant
unless and until such time as such U.S. Restricted Subsidiary, individually or
together with all other U.S. Restricted Subsidiaries that are otherwise
obligated to provide a U.S. Subsidiary Guarantee under this covenant, accounts
for one percent or more of Consolidated Tangible Assets. The Indenture will
further provide that the Company will not permit any Foreign Subsidiary,
directly or indirectly, to Guarantee any other Indebtedness of the Company or
any Subsidiary Guarantor (the "Foreign Specified Indebtedness") that (i) is PARI
PASSU with or expressly subordinated in right of payment to the Notes or the
Subsidiary Guarantees, as applicable, or (ii) represents Public Debt, in each
case, unless such Foreign Subsidiary simultaneously executes and delivers a
supplemental indenture to the Indenture providing for the Guarantee (a "Foreign
Subsidiary Guarantee") of the payment of the Notes by such Foreign Subsidiary,
which Foreign Subsidiary Guarantee shall be subordinated to such Foreign
Subsidiary's Guarantee of such Foreign Specified Indebtedness to the same extent
as the Notes or the Subsidiary Guarantees, as applicable, are subordinated to
such Foreign Specified Indebtedness under the Indenture. A Subsidiary Guarantor
shall be deemed released from all of its obligations under its U.S. Subsidiary
Guarantee or Foreign Subsidiary Guarantee, as applicable, at any such time that
such Subsidiary Guarantor is released from all of its obligations under all of
its Guarantees in respect of U.S. Specified Indebtedness or Foreign Specified
Indebtedness, as the case may be, unless such release results from payment under
such Guarantee of U.S. Specified Indebtedness or Foreign Specified Indebtedness,
as applicable. In addition, the Company will have the right to cause any
Restricted Subsidiary to execute and deliver to the Trustee a supplemental
indenture pursuant to which such Subsidiary will guarantee payment of the Notes.
The obligations of each Subsidiary Guarantor under its Guarantee will be limited
to the maximum amount, as will, after giving effect to all other contingent and
fixed liabilities of such Subsidiary Guarantor, result in the obligations of
such Subsidiary Guarantor under the Guarantee not constituting a fraudulent
conveyance or fraudulent transfer under federal or state law. Notwithstanding
the foregoing, any Guarantee by a Restricted Subsidiary of the Notes shall
provide by its terms that it shall be automatically and unconditionally released
and discharged upon the sale or other disposition, by way of merger or
otherwise, to any Person not an Affiliate of the Company, of all of the
Company's stock in, or all or substantially all the assets of, such Restricted
Subsidiary. In addition, any Subsidiary Guarantee will be automatically and
unconditionally released and discharged upon the merger or consolidation of the
applicable Subsidiary Guarantor with and into the Company or another Subsidiary
Guarantor that is the surviving Person in such merger or consolidation. The form
of such supplemental indenture will be attached as an exhibit to the Indenture.
PROVISION OF FINANCIAL STATEMENTS. The Indenture will provide that, whether
or not the Company is then subject to Section 13(a) or 15(d) of the Exchange
Act, the Company will file (unless such filing is not permitted under the
Exchange Act) with the Commission, so long as Notes are outstanding, the annual
reports, quarterly reports and other periodic reports which the Company would
have been required to file with the Commission pursuant to such Section 13(a) or
15(d) if the Company were so subject, and such documents shall be filed with the
Commission on or prior to the respective dates (the "Required Filing Dates") by
which the Company would have been required so to file such documents if the
Company were so subject. The Company will also in any event (i) within 15 days
of each Required Filing Date, (a) transmit by mail to all holders of Notes, as
their names and addresses appear in the Note register, without cost to such
holders and (b) file with the Trustee copies of the annual reports, quarterly
reports and other periodic reports which the Company would have been required to
file with the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act
if the Company were subject to such Sections and (ii) if filing such documents
by the Company with the Commission is prohibited under the Exchange Act,
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promptly upon written request and payment of the reasonable cost of duplication
and delivery, supply copies of such documents to any prospective holder at the
Company's cost.
ADDITIONAL COVENANTS. The Indenture also contains covenants with respect to
the following matters: (i) payment of principal, premium and interest; (ii)
maintenance of an office or agency in The City of New York; (iii) maintenance of
corporate existence; (iv) payment of taxes and other claims; (v) maintenance of
properties; and (vi) maintenance of insurance.
MERGER, CONSOLIDATION AND SALE OF ASSETS
The Indenture will provide that the Company shall not, in any single
transaction or series of related transactions, consolidate or merge with or into
(whether or not the Company is the Surviving Person (other than a consolidation
or merger with or into a wholly owned Restricted Subsidiary; PROVIDED that, in
connection with any such merger or consolidation, no consideration (other than
Common Stock in the Surviving Person or the Company) shall be issued or
distributed to the shareholders of the Company)), or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of its properties
or assets in one or more related transactions to, another Person, and the
Company will not permit any Restricted Subsidiary to enter into any such
transaction or series of related transactions if such transaction or series of
related transactions, in the aggregate, would result in a sale, assignment,
transfer, lease, conveyance or other disposition of all or substantially all of
the properties and assets of the Company and the Restricted Subsidiaries, taken
as a whole, to another Person, unless (i) the Surviving Person is a corporation
organized or existing under the laws of the United States, any state thereof or
the District of Columbia; (ii) the Surviving Person (if other than the Company)
assumes all the obligations of the Company under the Notes (and the Guarantees
of the Company's subsidiaries shall be confirmed as applying to such Surviving
Person's obligations), and the Indenture pursuant to a supplemental indenture in
a form reasonably satisfactory to the Trustee; (iii) at the time of and
immediately after such Disposition, no Default or Event of Default shall have
occurred and be continuing; and (iv) at the time of such Disposition and after
giving pro forma effect thereto, the Surviving Person would be permitted to
incur at least $1.00 of additional Indebtedness pursuant to the first paragraph
of the covenant described under "--Certain Covenants-- Limitation on Incurrence
of Indebtedness."
In the event of any transaction (other than a lease) described in and
complying with the conditions listed in the immediately preceding paragraph in
which the Company is not the Surviving Person, the Surviving Person is to assume
all the obligations of the Company under the Notes, the Indenture and, if then
in effect, the Registration Rights Agreement pursuant to a supplemental
indenture or other written agreement, as the case may be, and such Surviving
Person shall succeed to, and be substituted for, and may exercise every right
and power of, the Company and the Company shall be discharged from its
obligations under the Indenture, the Notes and the Registration Rights
Agreement. In addition, each Subsidiary Guarantor, unless it is the other party
to the transaction or unless its Subsidiary Guarantee will be released and
discharged in accordance with its terms as a result of the transaction, will be
required to confirm, by supplemental indenture, that its Subsidiary Guarantee
will apply to the obligations of the Company or the Surviving Person under the
Indenture.
EVENTS OF DEFAULT
The Indenture will provide that each of the following constitutes an Event
of Default:
(i) a default for 30 days in the payment when due of interest on any
Note (whether or not prohibited by the subordination provisions of the
Indenture);
(ii) a default in the payment when due of principal on any Note (whether
or not prohibited by the subordination provisions of the Indenture), whether
upon maturity, acceleration, optional or mandatory redemption, required
repurchase or otherwise;
(iii) the failure to perform or comply with any provision described in
"Merger, Consolidation and Sale of Assets" and the failure to offer to
repurchase or to repurchase the Notes in the event of a Change of Control in
accordance with the provisions described in "Change of Control";
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(iv) the failure to perform or comply with any covenant or agreement in
the Indenture, the Notes or any Subsidiary Guarantee (other than the
defaults specified in clauses (i), (ii) or (iii) above) which failure
continues for 30 days after written notice thereof has been given to the
Company by the Trustee or to the Company and the Trustee by the holders of
at least 25% in aggregate principal amount of the then outstanding Notes;
(v) the occurrence of one or more defaults under any agreements,
indentures or instruments under which the Company or any Significant
Subsidiary then has outstanding Indebtedness in excess of $7.5 million in
the aggregate and, if not already matured at its final maturity in
accordance with its terms, such Indebtedness shall have been accelerated;
(vi) one or more judgments, orders or decrees for the payment of money
in an amount (net of any insurance or indemnity payments actually received
in respect thereof prior to or within 60 days from the entry thereof, or to
be received in respect thereof in the event any appeal thereof shall be
unsuccessful) in excess of $7.5 million, either individually or in the
aggregate, shall be entered against the Company, any Subsidiary Guarantor or
any Significant Subsidiary or any of their respective properties and which
judgments, orders or decrees are not paid, discharged, bonded or stayed or
stayed pending appeal for a period of 60 days after their entry;
(vii) certain events of bankruptcy, dissolution, insolvency,
reorganization, administration or similar proceedings of the Company, any
Subsidiary Guarantor or any Significant Subsidiary; or
(viii) any Subsidiary Guarantee of a Subsidiary Guarantor ceases to be in
full force and effect or is declared null and void or any Subsidiary
Guarantor denies in writing that it has any further liability under any
Subsidiary Guarantee, or gives written notice to such effect (other than by
reason of the termination of the Indenture or the release of any such
Subsidiary Guarantee in accordance with such Subsidiary Guarantee or the
Indenture).
If any Event of Default (other than as specified in clause (vii) of the
preceding paragraph with respect to the Company) occurs and is continuing, the
Trustee or the holders of at least 25% in aggregate principal amount of the then
outstanding Notes may, and the Trustee at the request of such holders shall,
declare all the Notes to be due and payable, immediately by notice in writing to
the Company, and to the Company and the Trustee if by the holders, specifying
the respective Event of Default and that such notice is a "notice of
acceleration," and the Notes shall become immediately due and payable; PROVIDED
that so long as the Credit Agreement shall be in full force and effect, if an
Event of Default shall have occurred and be continuing (other than as specified
in clause (vii) above with respect to the Company), and such acceleration shall
not be effective until the earlier to occur of (x) five Business Days following
delivery of a written notice of such acceleration of the Notes to the agent
under the Credit Agreement and (y) the acceleration of any Indebtedness under
the Credit Agreement. Notwithstanding the foregoing, in the case of an Event of
Default arising from the events specified in clause (vii) of the preceding
paragraph with respect to the Company, the principal of, and premium, if any,
and any accrued interest on, all outstanding Notes shall ipso facto become
immediately due and payable without further action or notice. Holders of the
Notes may not enforce the Indenture or the Notes except as provided in the
Indenture.
Notwithstanding the foregoing, in the event of a declaration of acceleration
in respect of the Notes because an Event of Default specified in clause (v)
above shall have occurred and be continuing, such declaration of acceleration of
the Notes and such Event of Default shall be automatically annulled and
rescinded and be of no further effect if the Indebtedness that is the subject of
such Event of Default has been discharged or paid in full or such Event of
Default shall have been cured or waived by the holders of such Indebtedness and
if such Indebtedness has been accelerated, then the holders thereof have
rescinded their declaration of acceleration in respect of such Indebtedness and
written notice of such discharge, cure or waiver and rescission, as the case may
be, shall have been given to the Trustee within 60 days after such declaration
of acceleration in respect of the Notes by the Company or by the requisite
holders of such Indebtedness or a trustee, fiduciary or agent for such holders
or other evidence satisfactory to the Trustee
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of such events is provided to the Trustee and no other Event of Default shall
have occurred which has not been cured or waived during such 60-day period.
The holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except (i) a continuing Default or Event of Default in the payment
of the principal of, or premium, if any, or interest on, the Notes (which may
only be waived with the consent of each holder of Notes affected), or (ii) in
respect of a covenant or provision which under the Indenture cannot be modified
or amended without the consent of the holder of each Note outstanding. Subject
to certain limitations, holders of a majority in principal amount of the then
outstanding Notes may direct the Trustee in its exercise of any trust or power.
The Trustee may withhold from holders of the Notes notice of any continuing
Default or Event of Default (except a Default or Event of Default relating to
the payment of principal, premium or interest) if it determines that withholding
notice is in their interest.
No holder of any of the Notes has any right to institute any proceeding with
respect to the Indenture or any remedy thereunder, unless the holders of at
least 25% in aggregate principal amount of the outstanding Notes have made
written request, and offered reasonable indemnity, to the Trustee to institute
such proceeding as Trustee under the Notes and the Indenture, the Trustee has
failed to institute such proceeding within 30 days after receipt of such notice
and the Trustee, within such 30-day period, has not received directions
inconsistent with such written request by holders of a majority in aggregate
principal amount of the outstanding Notes. Such limitations do not apply,
however, to a suit instituted by a holder of a Note for the enforcement of the
payment of the principal of, premium, if any, or interest on, such Note on or
after the respective due dates expressed in such Note.
The Company is required to deliver to the Trustee annually a statement
regarding compliance by the Company with its obligations under the Indenture,
and the Company is required, upon becoming aware of any Default or Event of
Default, to deliver to the Trustee a statement specifying such Default or Event
of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
The Indenture provides that no recourse for the payment of the principal of,
or premium, if any, or interest on, any of the Notes or for any claim based
thereon or otherwise in respect thereof, and no recourse under or upon any
obligation, covenant or agreement of the Company in the Indenture or in any of
the Notes, or of any Subsidiary Guarantor in any Subsidiary Guarantee, or
because of the creation of any Indebtedness represented thereby, shall be had
against any incorporator, shareholder, officer, director, employee or
controlling person of the Company or of any successor Person thereof. Each
holder, by accepting the Notes, waives and releases all such liability.
DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE
The Company may, at its option and at any time, elect to have the
obligations of the Company and any Subsidiary Guarantor discharged with respect
to the outstanding Notes ("defeasance"). Such defeasance means that the Company
shall be deemed to have paid and discharged the entire indebtedness represented
by the outstanding Notes and to have satisfied all other obligations under the
Notes and the Indenture except for (i) the rights of holders of the outstanding
Notes to receive, solely from the trust fund described below, payments in
respect of the principal of, and premium, if any, and interest on, such Notes
when such payments are due, (ii) the Company's obligations with respect to the
Notes concerning issuing temporary Notes, registration of Notes, mutilated,
destroyed, lost or stolen Notes, and the maintenance of an office or agency for
payment and money for security payments held in trust, (iii) the rights, powers,
trusts, duties and immunities of the Trustee under the Indenture, and (iv) the
defeasance provisions of the Indenture. In addition, the Company may, at its
option and at any time, elect to have the obligations of the Company and any
Subsidiary Guarantor released with respect to certain covenants that are
described in the Indenture
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("covenant defeasance") and any omission to comply with such obligations shall
not constitute a Default or an Event of Default with respect to the Notes. In
the event that a covenant defeasance occurs, certain events (not including
non-payment, bankruptcy and insolvency events) described under "--Events of
Default" will no longer constitute Events of Default with respect to the Notes.
Either defeasance option may be exercised to any redemption date or to the
maturity date for the Notes. In order to exercise either defeasance or covenant
defeasance, (i) the Company shall irrevocably deposit with the Trustee, as trust
funds in trust, for the benefit of the holders of the Notes, cash in United
States dollars, U.S. Government Obligations (as defined in the Indenture), or a
combination thereof, in such amounts as will be sufficient, in the report of a
nationally recognized firm of independent public accountants or a nationally
recognized investment banking firm, to pay and discharge the principal of, and
premium, if any, and interest on the outstanding Notes to redemption or
maturity, as the case may be; (ii) the Company shall have delivered to the
Trustee an Opinion of Counsel in the United States to the effect that the
holders of the outstanding Notes will not recognize income, gain or loss for
Federal income tax purposes as a result of such defeasance or covenant
defeasance, as the case may be, 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 or covenant defeasance, as the case may be, had not
occurred (in the case of defeasance, such opinion must refer to and be based
upon a ruling of the Internal Revenue Service or a change in applicable Federal
income tax laws); (iii) no Default or Event of Default shall have occurred and
be continuing on the date of such deposit or insofar as clause (vii) under the
first paragraph under "-- Events of Default" is concerned, at any time during
the period ending on the 91st day after the date of deposit; (iv) such
defeasance or covenant defeasance shall not result in a breach or violation of,
or constitute a Default under, the Indenture or any other material agreement or
instrument to which the Company or any Subsidiary Guarantor is a party or by
which it is bound; and (v) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each to the effect that all
conditions precedent under the Indenture to either defeasance or covenant
defeasance, as the case may be, have been complied with and (in the case of such
Officer's Certificate) that no violations under material agreements governing
any other outstanding Indebtedness would result therefrom.
SATISFACTION AND DISCHARGE
The Indenture will cease to be of further effect (except as to surviving
rights of registration of transfer or exchange of the Notes, as expressly
provided for in the Indenture) as to all outstanding Notes when (i) either (a)
all the Notes theretofore authenticated and delivered (except lost, stolen or
destroyed Notes which have been replaced or paid) have been delivered to the
Trustee for cancellation or (b) all Notes not theretofore delivered to the
Trustee for cancellation (x) have become due and payable, (y) will become due
and payable at their Stated Maturity within one year or (z) are to be called for
redemption within one year under arrangements reasonably satisfactory to the
Trustee for the giving of notice of redemption by the Trustee in the name, and
at the expense, of the Company and, in each case, the Company has irrevocably
deposited or caused to be deposited with the Trustee an amount in United States
dollars, U.S. Government Obligations, or a combination thereof, sufficient to
pay and discharge the entire indebtedness on the Notes not theretofore delivered
to the Trustee for cancellation, for principal, premium, if any, and interest to
the date of deposit; (iii) the Company has paid or caused to be paid all other
sums payable under the Indenture by the Company; and (iv) the Company has
delivered to the Trustee an Officers' Certificate and an Opinion of Counsel each
to the effect that all conditions precedent under the Indenture relating to the
satisfaction and discharge of the Indenture have been complied with.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two paragraphs, the Indenture or the Notes
may be amended or supplemented with the written consent of the holders of at
least a majority in aggregate principal amount of the then outstanding Notes
(including consents obtained in connection with a tender offer or exchange
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offer for Notes), and any existing Default or Event of Default or compliance
with any provision of the Indenture or the Notes may be waived with the consent
of the holders of a majority in principal amount of the then outstanding Notes
(including consents obtained in connection with a tender offer or exchange offer
for Notes).
Without the consent of each holder affected, an amendment or waiver shall
not: (i) reduce the principal amount of the Notes whose holders must consent to
an amendment, supplement or waiver, (ii) reduce the principal of or change the
fixed maturity of any Note, or reduce the premium payable upon the redemption of
any Note or change the time at which any Note may be redeemed as described under
"Redemption--Optional Redemption" above or, following the occurrence of a Change
of Control or an Asset Sale, amend, change or modify the obligation of the
Company to offer to repurchase and to repurchase the Notes in the event of a
Change of Control or make and consummate the Asset Sale Offer with respect to
any Asset Sale, including by modifying any of the provisions or definitions with
respect thereto, (iii) reduce the rate of or change the time for payment of
interest on any Notes, (iv) waive a Default or Event of Default in the payment
of principal of, or premium, if any, or interest on, the Notes (except that
holders of at least a majority in aggregate principal amount of the then
outstanding Notes may (a) rescind an acceleration of the Notes that resulted
from a non-payment default, and (b) waive the payment default that resulted from
such acceleration), (v) make any Note payable in money other than that stated in
the Notes, (vi) make any change in the provisions of the Indenture relating to
waivers of past Defaults or the rights of holders of Notes to receive payments
of principal of, or premium, if any, or interest on, the Notes, (vii) waive a
redemption payment with respect to any Note, (viii) make any change to the
subordination provisions of the Indenture (including definitions) that adversely
affects holders, (ix) make any change in the foregoing amendment and waiver
provisions, or (x) release any Subsidiary Guarantor that is a Significant
Subsidiary from any of its obligations under its Subsidiary Guarantee or the
Indenture other than in compliance with the terms of such Subsidiary Guarantee
or the Indenture.
Notwithstanding the foregoing, without the consent of any holder of Notes,
the Company and the Trustee may amend or supplement the Indenture or the Notes
(i) to cure any ambiguity, omission, defect or inconsistency, (ii) to provide
for uncertificated Notes in addition to or in place of certificated Notes, (iii)
to provide for the assumption of the Company's obligations to holders of the
Notes in the event of any Disposition involving the Company in which the Company
is not the Surviving Person or to add Subsidiary Guarantees or to secure the
Notes, (iv) to make any change that would provide any additional rights or
benefits to the holders of the Notes or that does not adversely affect the
rights of any such holder, or (v) to comply with the requirements of the
Commission in order to effect or maintain the qualification of the Indenture
under the Trust Indenture Act.
No amendment to the subordination provisions of the Indenture or the Notes
described under "Subordination," including by modifying any of the definitions
relating thereto, may be made that adversely affects the rights of any Senior
Debt then outstanding unless the holders of such Senior Debt (or any group or
representative thereof authorized to give a consent) consent in writing to such
amendment.
TRANSFER AND EXCHANGE
The registered holder of a Note will be treated as the owner of it for all
purposes. A holder may transfer or exchange Notes in accordance with the
Indenture. The Registrar and the Trustee may require a holder among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a holder to pay any taxes and fees required by law or
permitted by the Indenture. Neither the Company nor the Registrar shall be
required to issue, register the transfer of or exchange any Note (i) during a
period beginning at the opening of business on the day that the Trustee receives
notice of any redemption from the Company and ending at the close of business on
the day the notice of redemption is sent to holders, (ii) selected for
redemption, in whole or in part, except the unredeemed portion of any Note being
redeemed in part may be transferred or exchanged, and (iii) during a Change of
Control Offer
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or an Asset Sale Offer if such Note is tendered pursuant to such Change of
Control Offer or Asset Sale Offer and not withdrawn.
THE TRUSTEE
United States Trust Company of New York is to be the Trustee under the
Indenture and has been appointed by the Company as Registrar and Paying Agent
with regard to the Notes.
The Indenture (including the provisions of the Trust Indenture Act
incorporated by reference therein) will contain limitations on the rights of the
Trustee thereunder, should it become a creditor of the Company, to obtain
payment of claims in certain cases or to realize on certain property received by
it in respect of any such claims, as security or otherwise. The Trustee is
permitted to engage in other transactions; PROVIDED, HOWEVER, if it acquires any
conflicting interest (as defined in the Trust Indenture Act) it must eliminate
such conflict or resign.
GOVERNING LAW
The Indenture, the Notes and the Guarantees will be governed by the laws of
the State of New York, without regard to the principles of conflict of laws.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for the definition of all other terms used in the
Indenture.
"ACQUIRED DEBT" means (x) Indebtedness of any Person (the "Acquired Person")
existing at the time the Acquired Person merges or consolidates with or into, or
becomes a Restricted Subsidiary of, the Company or any Restricted Subsidiary, or
(y) Indebtedness of any Person assumed by the Company or any Restricted
Subsidiary in connection with its acquisition of assets from such Person, in
each case excluding Indebtedness incurred in connection with, or in
contemplation of, the Acquired Person merging or consolidating with or into, or
becoming a Restricted Subsidiary of, the Company or any Restricted Subsidiary,
or such acquisition of assets.
"ACQUISITION" means the purchase or other acquisition of any Person or
substantially all the assets of any person by any other Person, whether by
purchase, stock purchase, merger, consolidation, or other transfer, and whether
or not for consideration.
"AEA" means AEA Investors Inc., a Delaware corporation, or any legal
successor thereto as a result of a reorganization thereof that does not involve
any change in control thereof.
"AFFILIATE" means, with respect to any specified Person, any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with") of any Person means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise.
"APPLICABLE PREMIUM" means, with respect to a Note at any Redemption Date,
the greater of (i) 1.0% of the then outstanding principal amount of such Note
and (ii) the excess of (A) the present value at such time of (1) the redemption
price of such Note at July 1, 2002 (such redemption price being described under
"--Optional Redemption"), plus (2) all required interest payments (excluding
accrued but unpaid interest) due on such Note through July 1, 2002, computed
using a discount rate equal to the Treasury Rate plus 75 basis points, over (B)
the then outstanding principal amount of such Note.
"ASSET SALE" means (i) any sale, lease, conveyance or other disposition by
the Company or any Restricted Subsidiary of any assets (including by way of a
sale-and-leaseback) other than (A) in the
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ordinary course of business, (B) the sale, lease, conveyance or other
disposition of the Discontinued Facilities, (C) any Financing Disposition, (D)
the sale, lease, conveyance or other disposition of all or substantially all of
the assets of the Company, which shall not be an "Asset Sale" but instead shall
be governed by the provisions of the Indenture described under "Merger,
Consolidation and Sale of Assets" and (E) any "fee in lieu" or other disposition
of assets to any governmental authority or agency that continue in use by the
Company or any Restricted Subsidiary, so long as the Company or any Restricted
Subsidiary may obtain title to such assets at any time upon reasonable notice by
paying a nominal fee, or (ii) the issuance or sale of Capital Stock of any
Restricted Subsidiary, in the case of each of (i) and (ii), whether in a single
transaction or a series of related transactions, to any Person (other than to
the Company or a Restricted Subsidiary) for Net Proceeds in excess of $1.0
million.
"ATTRIBUTABLE DEBT" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
assumed in making calculations in accordance with FAS 13) 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).
"BANK DEBT" means any and all amounts, whether outstanding on the Issue Date
or thereafter incurred, payable under or in respect of the Credit Facility,
including without limitation principal, premium (if any), interest (including
interest accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to the Company or any Restricted Subsidiary whether or
not a claim for post-filing interest is allowed in such proceedings), fees,
charges, expenses, reimbursement obligations, guarantees, other monetary
obligations of any nature and all other amounts payable thereunder or in respect
thereof.
"BORROWING BASE" means, as of any date, an amount equal to the sum of (i)
80% of the consolidated book value of the net accounts receivable that (x) are
owned by the Company or any of its Restricted Subsidiaries as shown on the
balance sheet of the Company and of its Restricted Subsidiaries for the most
recently ended fiscal quarter for which financial statements are available or
(y) are then outstanding as of such balance sheet date and held pursuant to the
terms of any Receivables Financing, and in each case that are not more than 90
days past due, plus (ii) 60% of the consolidated book value of the inventory
owned by the Company or any of its Restricted Subsidiaries as of such balance
sheet date, all as calculated on a consolidated basis and in accordance with
GAAP.
"BUSINESS DAY" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York, New York are
authorized or obligated by law or executive order to close.
"CAPITAL LEASE OBLIGATION" of any Person means, at the time any
determination thereof is to be made, the amount of the liability in respect of a
capital lease for property leased by such Person that would at such time be
required to be capitalized on the balance sheet of such Person in accordance
with GAAP.
"CAPITAL STOCK" of any Person means (i) in the case of a corporation,
corporate stock, (ii) in the case of an association, limited liability company
or business entity, any and all Equity Interests, (iii) in the case of a
partnership, partnership interests (whether general or limited) and (iv) any
other interest or participation that confers on a Person the right to receive a
share of the profits and losses of, or distributions of assets of, the issuing
Person, including any Preferred Stock.
"CASH EQUIVALENTS" means (i) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
instrumentality or agency thereof and backed by the full faith and credit of the
United States, in each case maturing within one year from the date of
acquisition thereof; (ii) marketable direct obligations issued by any state of
the United States of America or any political subdivision of any such state or
any public instrumentality or agency thereof maturing within one year from the
date of acquisition thereof and, at the time of acquisition, having one of the
two highest ratings obtainable from either Standard & Poor's Rating Group (a
division of McGraw Hill Inc.) or
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any successor rating agency ("S&P") or Moody's Investors Service, Inc. or any
successor rating agency ("Moody's"); (iii) commercial paper maturing no more
than one year from the date of creation thereof and, at the time of acquisition,
having a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv)
certificates of deposit, time deposits or bankers' acceptances (or, with respect
to foreign banks, similar instruments) maturing within one year from the date of
acquisition thereof issued by (x) any lender under the Credit Agreement or (y) a
commercial banking institution that is a member of the Federal Reserve System or
a commercial banking institution organized and located in a country recognized
by the United States of America, in each case under this clause (y), having
combined capital and surplus and undivided profits in excess of $500,000,000 (or
the foreign currency equivalent thereof); (v) 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 (iv) above; (vi) investments in money market funds which invest
substantially all their assets in securities of the types described in clauses
(i) through (v) above; and (vii) other short-term investments utilized by
Foreign Subsidiaries in accordance with normal investment practices for cash
management not exceeding $1.0 million in aggregate principal amount outstanding
at any time.
"CHANGE OF CONTROL" means the occurrence of any of the following events: (i)
any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of
the Exchange Act), other than Permitted Holders, is or becomes (including by
merger, consolidation or otherwise) the "beneficial owner" (as defined in Rules
13d-3 and 13d-5 under the Exchange Act, except that a Person shall be deemed to
have beneficial ownership of all shares that such Person has the right to
acquire within one year, whether such right is exercisable immediately or only
after the passage of time), directly or indirectly, of more than 50% of the
voting power of the total outstanding Voting Stock of the Company; PROVIDED that
any "person" or "group" will be deemed to "beneficially own" any Voting Stock of
the Company held, directly or indirectly, by Leiner Group or PLI so long as such
person or group "beneficially owns," directly or indirectly, in the aggregate
more than 50% of the voting power of the total outstanding Voting Stock of
Leiner Group or PLI; (ii) during any period of two consecutive years,
individuals who at the beginning of such period constituted the Board of
Directors of any of the Company, Leiner Group or PLI (together with any new
directors whose election to such Board of Directors, or whose nomination for
election by the stockholders of the Company, was approved by the Permitted
Holders or by a vote of 66 2/3% of the directors then still in office who were
either directors at the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason to constitute a
majority of such Board of Directors of the Company, Leiner Group or PLI then in
office, as applicable; or (iii) the sale or other disposition (including by
merger, consolidation or otherwise) of all or substantially all of the assets of
any of the Company, Leiner Group or PLI to any "person" or "group" (as defined
in Rule 13d-5 of the Exchange Act) as an entirety or substantially as an
entirety in one transaction or a series of related transactions unless
immediately after giving effect to such transaction, no "person" or "group,"
other than the Permitted Holders, is or becomes (as a result of the acquisition,
by merger or otherwise) the beneficial owner, directly or indirectly, of more
than 50% of the voting power of the total outstanding Voting Stock of the
surviving or transferee corporation.
"COMPANY" means Leiner Health Products Inc., a Delaware corporation, which
upon the Assumption became the primary obligor on the Notes, and any successor
that thereafter replaces it in accordance with the Indenture.
"CONSOLIDATED CASH FLOW" means, with respect to any period, the Consolidated
Net Income for such period, plus without duplication (i) Consolidated Interest
Expense for such period, plus (ii) provision for taxes based on income, profits
or capital, to the extent such provision for taxes was included in computing
such Consolidated Net Income, plus (iii) depreciation, amortization (including,
without limitation, amortization of goodwill and other intangibles) and all
other non-cash charges (excluding any non-cash charge which requires an accrual
or reserve for cash charges for any future period), to the extent such
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depreciation, amortization and other non-cash charges were deducted in computing
such Consolidated Net Income.
"CONSOLIDATED COVERAGE RATIO" means, with respect to any date of
determination, the ratio of (i) the aggregate amount of Consolidated Cash Flow
for the period of the most recent four consecutive fiscal quarters ended prior
to such date for which consolidated financial statements of the Company are
available, to (ii) Consolidated Interest Expense for such four fiscal quarters,
PROVIDED that:
(1) if since the beginning of such period the Company or any Restricted
Subsidiary has incurred any Indebtedness that remains outstanding on such date
of determination, or if the transaction giving rise to the need to calculate the
Consolidated Coverage Ratio involves an incurrence of Indebtedness (including
without limitation any Acquired Debt), Consolidated Cash Flow and Consolidated
Interest Expense for such period shall be calculated after giving effect on a
pro forma basis to such Indebtedness and the application of the proceeds thereof
(and, in the case of any Acquired Debt, the related acquisition) as if such
Indebtedness had been incurred (and any such acquisition had occurred) on the
first day of such period;
(2) if since the beginning of such period the Company or any Restricted
Subsidiary has repaid, repurchased, defeased, retired or otherwise discharged (a
"Discharge") any Indebtedness that is no longer outstanding on such date of
determination, or if the transaction giving rise to the need to calculate the
Consolidated Coverage Ratio involves a Discharge of Indebtedness, Consolidated
Cash Flow and Consolidated Interest Expense for such period shall be calculated
after giving effect to such Discharge of such Indebtedness, including with the
proceeds of any such new Indebtedness, as if such Discharge had occurred on the
first day of such period;
(3) if since the beginning of such period the Company or any Restricted
Subsidiary shall have disposed of any company, any business, any group of assets
constituting an operating unit, or any other assets out of the ordinary course
of business (a "Sale"), (x) Consolidated Cash Flow for such period shall be
reduced by an amount equal to the Consolidated Cash Flow (if positive) directly
attributable to the assets that are the subject of such Sale for such period or
increased by an amount equal to the Consolidated Cash Flow (if negative)
directly attributable thereto for such period and (y) Consolidated Interest
Expense for such period shall be reduced by an amount equal to the Consolidated
Interest Expense directly attributable to any Indebtedness of the Company or any
Restricted Subsidiary Discharged with respect to the Company and its continuing
Restricted Subsidiaries in connection with such Sale for such period (and, if
the Capital Stock of any Restricted Subsidiary is sold, transferred or otherwise
disposed of, 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, transfer or disposition);
(4) if since the beginning of such period the Company or any Restricted
Subsidiary shall have acquired (by merger or otherwise) any company, any
business, any group of assets constituting an operating unit, or any other
assets out of the ordinary course of business (a "Purchase"), Consolidated Cash
Flow and Consolidated Interest Expense for such period shall be calculated after
giving pro forma effect thereto (including the incurrence of any related
Indebtedness) as if such Purchase had occurred on the first day of such period;
and
(5) if since the beginning of such period any Person became a Restricted
Subsidiary or was merged or consolidated with or into the Company or any
Restricted Subsidiary, in each case in a Purchase, and since the beginning of
such period such Person shall have Discharged any Indebtedness or made any Sale
or Purchase that would have required an adjustment pursuant to clause (2), (3)
or (4) above if made by the Company or a Restricted Subsidiary 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 Discharge,
Sale or Purchase occurred on the first day of such period.
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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
Obligation applicable to such Indebtedness if such Interest Rate Agreement
Obligation has a remaining term as at the date of determination in excess of 12
months). If any Indebtedness bears, at the option of the Company or a Restricted
Subsidiary, a fixed or floating rate of interest and is being given pro forma
effect, the interest expense on such Indebtedness shall be computed by applying,
at the option of the Company, either a fixed or floating rate. If any
Indebtedness that is being given pro forma effect was incurred under a revolving
credit facility, the interest expense on such Indebtedness shall be computed
based upon the average daily balance of such Indebtedness during the applicable
period. In making any calculation of the Consolidated Coverage Ratio for any
period prior to the date of the closing of the Recapitalization, the
Recapitalization shall be deemed to have taken place on the first day of such
period.
"CONSOLIDATED INTEREST EXPENSE" means, with respect to any period, the sum
(without duplication) of (i) the interest expense of the Company and its
Restricted Subsidiaries for such period determined on a consolidated basis in
accordance with GAAP consistently applied, including without limitation (a)
amortization of debt discount, (b) net payments, if any, made or received under
Interest Rate Agreement Obligations (including amortization of discounts), (c)
the interest portion of any deferred payment obligation, (d) accrued interest,
(e) the interest component of Capital Lease Obligations and rent expense
associated with Attributable Debt in respect of the relevant lease giving rise
thereto determined as if such lease were a capitalized lease, accrued by the
Company during such period, and all capitalized interest of the Company and its
Restricted Subsidiaries, and (e) all commissions, discounts and other fees and
charges owed with respect to letters of credit, bankers' acceptance financing or
similar facilities, plus (ii) all cash dividends paid during such period by the
Company and its Restricted Subsidiaries with respect to any Disqualified Stock
(other than to the Company or a Restricted Subsidiary), and minus (iii) to the
extent otherwise included in Consolidated Interest Expense, amortization or
write-off of financing costs, in each case under clauses (i) through (iii) as
determined on a consolidated basis in accordance with GAAP consistently applied.
"CONSOLIDATED NET INCOME" means, with respect to any period, the net income
(or loss) of the Company and its Restricted Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP consistently applied,
adjusted by excluding, to the extent included in calculating such net income (or
loss), without duplication, (i) any extraordinary gain or loss as recorded on
the statement of operations in accordance with GAAP, (ii) the portion of net
income (or loss) of the Company and its Restricted Subsidiaries allocable to the
Company's equity in the net income (or loss) of any unconsolidated Person or
Unrestricted Subsidiary, except (in the case of such net income) to the extent
of the amount of dividends or distributions actually paid or made to the Company
or any of its Restricted Subsidiaries by such other Person during such period,
(iii) net income (or loss) of any Person combined with the Company or any of its
Restricted Subsidiaries on a "pooling of interests" basis attributable to any
period prior to the date of combination, (iv) any gain or loss realized upon any
Asset Sale and any gain or loss realized upon the sale or other disposition of
any Capital Stock of any Person, (v) the net income of any Restricted Subsidiary
if the declaration of dividends or similar distributions by that Restricted
Subsidiary of that net income to the Company is at the time restricted, directly
or indirectly, by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to that Restricted Subsidiary or its stockholders (other than
pursuant to the Notes or the Indenture), except to the extent that any dividend
or distribution was or could have been made by the Restricted Subsidiary to the
Company or another Restricted Subsidiary during such period in compliance with
such restrictions, (vi) all deferred financing costs written off and premiums
paid in connection with any early extinguishment of Indebtedness, (vii) any
unrealized gains or losses in respect of Currency Agreement Obligations, (viii)
any unrealized foreign currency transaction gains or losses in respect of
Indebtedness of any Person denominated in a currency other than the functional
currency of such Person, (ix) any nonrecurring charges related to the
Recapitalization or to any acquisition by the Company or any
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Restricted Subsidiary after the Issue Date, including without limitation (a) any
non-recurring compensation expense for the in-the-money value of stock options
that will be cashed out, converted, exchanged or otherwise retired in connection
with the Recapitalization, and (b) any charge or expenses incurred for
management transaction bonuses in connection with the Recapitalization, (x) any
non-cash, non-recurring charges, (xi) any charge relating to the closure of the
Discontinued Facilities, (xii) any non-recurring charges incurred in connection
with the Eastern Consolidation, (xiii) any charge or expense incurred during the
fiscal year ended March 31, 1997 (a) for severance, hiring and relocation
expenses in connection with a management reorganization, (b) in connection with
the preparation and filing of a registration statement with the Securities and
Exchange Commission and (c) for bonuses paid to the former owners of the
Company's Canadian subsidiary and (xiv) any non-cash compensation charge arising
from any grant of stock options.
"CONSOLIDATED TANGIBLE ASSETS" means, as of any date of determination, the
total assets, less goodwill and other intangibles (other than patents,
trademarks, copyrights, licenses and other intellectual property) shown on the
balance sheet of the Company and its Restricted Subsidiaries for the most
recently ended fiscal quarter for which financial statements are available,
determined on a consolidated basis in accordance with GAAP.
"CREDIT AGREEMENT" means the credit agreement dated as of June 30, 1997,
among the Company, Vita Health Company (1985) Ltd., a Canadian corporation, the
banks and other financial institutions party thereto from time to time, The Bank
of Nova Scotia, as administrative agent, Merrill Lynch Capital Corporation, as
documentation agent, and Salomon Brothers Holding Company Inc, as syndication
agent, as such agreement may be assumed by any successor in interest, and as
such agreement may be amended, supplemented, waived or otherwise modified from
time to time, or refunded, refinanced, restructured, replaced, renewed, repaid,
increased or extended from time to time (whether in whole or in part, whether
with the original agent and lenders or other agents and lenders or otherwise,
and whether provided under the original Credit Agreement or otherwise).
"CREDIT FACILITY" means the collective reference to the Credit Agreement,
any Loan Documents (as defined therein), any notes and letters of credit issued
pursuant thereto and any guarantee and collateral agreement, patent and
trademark security agreement, mortgages, letter of credit applications and other
guarantees, security agreements and collateral documents, and other instruments
and documents, executed and delivered pursuant to or in connection with any of
the foregoing, in each case as the same may be amended, supplemented, waived or
otherwise modified from time to time, or refunded, refinanced, restructured,
replaced, renewed, repaid, increased or extended from time to time (whether in
whole or in part, whether with the original agent and lenders or other agents
and lenders or otherwise, and whether provided under the original Credit
Agreement or otherwise). Without limiting the generality of the foregoing, the
term "Credit Facility" shall include any agreement (i) changing the maturity of
any Indebtedness incurred thereunder or contemplated thereby, (ii) adding
Subsidiaries of the Company as additional borrowers or guarantors thereunder,
(iii) increasing the amount of Indebtedness incurred thereunder or available to
be borrowed thereunder or (iv) otherwise altering the terms and conditions
thereof.
"CURRENCY AGREEMENT OBLIGATIONS" means the Obligations of any Person under a
foreign exchange contract, currency swap agreement or other similar agreement or
arrangement to protect such Person against fluctuations in currency values.
"DEFAULT" means any event that is, or after the giving of notice or passage
of time or both would be, an Event of Default.
"DESIGNATED SENIOR DEBT" means (i) all Bank Debt, and (ii) if no Senior Debt
is outstanding under the Credit Agreement, or if the lenders under the Credit
Agreement shall have consented thereto, any other Senior Debt of the Company
permitted to be incurred under the Indenture the principal amount of which
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is $10.0 million or more at the time of the designation of such Senior Debt as
"Designated Senior Debt" by the Company in a written instrument delivered to the
Trustee.
"DISCONTINUED FACILITIES" means the Company's Chicago, Illinois OTC
pharmaceutical facility and the Company's facilities to be closed in connection
with the Eastern Consolidation, including the West Unity, Ohio and Sherburne,
New York facilities.
"DISPOSITION" means, with respect to any Person, any merger, consolidation
or other business combination involving such Person (whether or not such Person
is the Surviving Person) or the sale, assignment, transfer, lease, conveyance or
other disposition of all or substantially all of such Person's assets.
"DISQUALIFIED STOCK" means (i) any Preferred Stock of any Restricted
Subsidiary and (ii) any Capital Stock that, by its terms (or by the terms of any
security into which it is convertible or for which it is exchangeable), or upon
the happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or is redeemable at the option of the
holder thereof (other than upon a change of control of the Company in
circumstances where the holders of the Notes would have similar rights), in
whole or in part on or prior to the final stated maturity of the Notes.
"DOLLARS" and "$" means lawful money of the United States of America.
"EASTERN CONSOLIDATION" means the consolidation of the Company's eastern
United States packaging and distribution operations into a new facility in South
Carolina, including the closure of Discontinued Facilities, and the incurrence
of moving and relocation expenses for equipment and personnel, severance
expenses in connection with the closure of Discontinued Facilities and training
expenses in connection with the opening of the new facility.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FAIR MARKET VALUE" means, with respect to any asset or property, the sale
value that would be obtained in an arm's-length transaction between an informed
and willing seller under no compulsion to sell and an informed and willing buyer
under no compulsion to buy.
"FINANCING DISPOSITION" means any sale, transfer, conveyance or other
disposition of property or assets by the Company or any Subsidiary thereof to
any Receivables Entity, or by any Receivables Subsidiary, in each case in
connection with the incurrence by a Receivables Entity of Indebtedness, or
obligations to make payments to the obligor on Indebtedness, which may be
secured by a Lien in respect of such property or assets.
"FOREIGN SUBSIDIARY" means (a) any Restricted Subsidiary of the Company that
is (i) not organized under the laws of the United States of America or any state
thereof or the District of Columbia and (ii) conducts its principal operations
outside the United States and (b) any Restricted Subsidiary of the Company that
has no material assets other than securities of one or more Foreign
Subsidiaries, and other assets relating to an ownership interest in any such
securities or Subsidiaries.
"GAAP" means generally accepted accounting principles in the United States
of America (i) as in effect on the Issue Date (for purposes of the definitions
of the terms "Borrowing Base," "Consolidated Cash Flow," "Consolidated Coverage
Ratio," "Consolidated Interest Expense," "Consolidated Net Income,"
"Consolidated Tangible Assets," all defined terms in the Indenture as and to the
extent used in or relating to any of the foregoing definitions, and all ratios
and computations based on any of the foregoing definitions) and (ii) as in
effect from time to time (for all other purposes 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
statement by such other entity as approved by a significant segment of the
accounting profession.
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"GUARANTEE" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"INDEBTEDNESS" means, with respect to any Person, without duplication, and
whether or not contingent, (i) all indebtedness of such Person for borrowed
money or which is evidenced by a note, bond, debenture or similar instrument,
(ii) all obligations of such Person to pay the deferred or unpaid purchase price
of property or services, 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 service, (iii) all Capital Lease Obligations
and Attributable Debt of such Person, (iv) all obligations of such Person in
respect of letters of credit or bankers' acceptances issued or created for the
account of such Person, (v) to the extent not otherwise included in this
definition, all net obligations of such Person under all Interest Rate Agreement
Obligations or Currency Agreement Obligations of such Person, (vi) all
liabilities of others of the kind described in the preceding clause (i), (ii) or
(iii) secured by any Lien on any property owned by such Person even if such
Person has not assumed or otherwise become liable for the payment thereof to the
extent of the value of the property subject to such Lien, (vii) all Disqualified
Stock issued by such Person, and (viii) to the extent not otherwise included,
any Guarantee by such Person of any other Person's indebtedness or other
obligations described in clauses (i) through (vii) above. "Indebtedness" of the
Company and the Restricted Subsidiaries shall not include (i) current trade
payables incurred in the ordinary course of business and payable in accordance
with customary practices and (ii) non-interest bearing installment obligations
and accrued liabilities incurred in the ordinary course of business which are
not more than 90 days past due.
"INDEPENDENT DIRECTOR" means a member of the Board of Directors of the
Company who does not have any material direct or indirect financial interest in
or with respect to any transaction or series of related transactions.
"INTEREST RATE AGREEMENT OBLIGATIONS" means, with respect to any Person, the
Obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements, and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates.
"INVESTMENT" in any Person means any direct or indirect advance, loan or
other extension of credit (including, without limitation, by way of Guarantee or
similar arrangement, but excluding advances, loans and other extension of credit
to customers, directors, officers and employees in the ordinary course of
business) to, capital contribution (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) to, or any purchase or acquisition of Capital Stock, bonds,
notes, debentures or other similar instruments issued by, such Person and shall
include the designation of a Restricted Subsidiary as an Unrestricted
Subsidiary. For purposes of the definition of "Unrestricted Subsidiary" and the
"Limitation on Restricted Payments" covenant described above, (i) "Investment"
shall include the portion (proportionate to the Company's equity interest in
such Subsidiary) of the Fair Market Value of the assets (net of liabilities) of
any Restricted Subsidiary at the time that such Restricted Subsidiary is
designated an Unrestricted Subsidiary and shall exclude the Fair Market Value of
the assets (net of liabilities) of any Unrestricted Subsidiary at the time that
such Unrestricted Subsidiary is designated 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
by the Board of Directors in good faith.
"ISSUE DATE" means the date on which the Notes are first issued under the
Indenture.
"LEINER GROUP" means Leiner Health Products Group Inc., a Delaware
corporation, or any successor thereto.
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"LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the nature
thereof, or any option or other agreement to sell or give a security interest in
any asset).
"MANAGEMENT AGREEMENT" means the Consulting Agreement dated as of the Issue
Date, among the Company, Leiner Group and North Castle Partners, L.L.C., as in
effect on the Issue Date, and as the same may be amended from time to time in
accordance with the terms of the Indenture.
"MANAGEMENT INVESTORS" means the officers, directors, employees and other
members of the management of Leiner Group, PLI, the Company or any of their
respective Subsidiaries, or family members or relatives thereof, or trusts for
the benefit of any of the foregoing, or any of their heirs, executors,
successors and legal representatives, who at any date beneficially own or have
the right to acquire, directly or indirectly, Capital Stock of the Company,
Leiner Group or PLI.
"NET PROCEEDS" from an Asset Sale 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, but
excluding any other consideration received in the form of assumption by the
acquiring Person of Indebtedness or other obligations relating to the properties
or assets that are the subject of such Asset Sale or received in any other
noncash form) 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, provincial, foreign and local taxes required to be paid or accrued as a
liability under GAAP, as a consequence of such Asset Sale, (ii) all payments
made, and all installment payments required to be made, on any Indebtedness that
is secured by any assets subject to such Asset Sale, in accordance with the
terms of any Lien upon such assets, (iii) all distributions and other payments
required to be made to minority interest holders in Subsidiaries or joint
ventures as a result of such Asset Sale, or to any other Person (other than the
Company or a Restricted Subsidiary) owning a beneficial interest in the assets
disposed of in such Asset Sale and (iv) appropriate amounts to be provided as a
reserve, in accordance with GAAP, against any liabilities associated with the
assets disposed of in such Asset Sale and retained by the Company or any
Restricted Subsidiary after such Asset Sale.
"NORTH CASTLE PARTNERS" means North Castle Partners I, L.L.C., a Delaware
limited liability company, or any legal successor thereto as a result of a
reorganization thereof that does not involve any change in control thereof.
"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursement obligations, damages and other liabilities
payable under the documentation governing any Indebtedness.
"PERMITTED HOLDERS" means collectively or individually (i) North Castle
Partners and AEA and each of their respective current, former and future
employees, members, stockholders, directors and officers, (ii) trusts for the
benefit of such Persons or the spouses, issue, parents or other relatives of
such Persons, (iii) Persons controlling or controlled by such Persons and (iv)
in the event of the death of any such individual Person, heirs or testamentary
legatees of such Person. For purposes of this definition, "control," as used
with respect to any Person, shall mean the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
such Person, whether through ownership of voting securities or by contract or
otherwise.
"PERMITTED INVESTMENTS" means (i) any Investment in the Company or any
Restricted Subsidiary; (ii) any Investment in Cash Equivalents; (iii) any
Investment in a Person if, as a result of such Investment, (a) such Person
becomes a Restricted Subsidiary, or (b) such Person either (1) is merged,
consolidated or amalgamated with or into the Company or one of its Restricted
Subsidiaries and the Company or such Restricted Subsidiary is the Surviving
Person, or (2) transfers or conveys substantially all of its assets to, or is
liquidated into, the Company or one of its Restricted Subsidiaries; (iv)
Investments in accounts and notes receivable acquired in the ordinary course of
business; (v) any securities or other Investments
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received in connection with any sale or other disposition of property or assets,
including any Asset Sale that complies with the "Limitation on Asset Sales"
covenant; (vi) Interest Rate Agreement Obligations or Currency Agreement
Obligations permitted pursuant to the "Limitation on Incurrence of Indebtedness"
covenant; (vii) securities or other Investments received in settlement of debts
created in the ordinary course of business and owing to the Company or any
Restricted Subsidiary, or as a result of foreclosure, perfection or enforcement
of any Lien, or in satisfaction of judgments, including in connection with any
bankruptcy proceeding or other reorganization of another Person; (viii)
Investments in existence or made pursuant to legally binding written commitments
in existence on the Issue Date; (ix) pledges or deposits (a) with respect to
leases or utilities, provided to third parties in the ordinary course of
business or (b) otherwise described in the definition of "Permitted Liens"; (x)
bonds secured by assets leased to and operated by the Company or any Restricted
Subsidiary that were issued in connection with the financing of such assets so
long as the Company or any Restricted Subsidiary may obtain title to such assets
at any time by paying a nominal fee, cancelling such bonds and terminating the
transaction; (xi) (1) Investments in connection with a Financing Disposition by
or to any Receivables Entity, including Investments of funds held in accounts
permitted or required by the arrangements governing such Financing Disposition
or any related Indebtedness, or (2) any promissory note issued by Leiner Group
or PLI, provided that if Leiner Group or PLI, as applicable, receives cash from
the relevant Receivables Entity in exchange for such note, an equal cash amount
is contributed by Leiner Group or PLI to the Company; and (xii) any promissory
note of any Management Investor acquired in connection with the issuance of
Capital Stock of Leiner Group to such Management Investor.
"PERMITTED LIENS" means (i) Liens securing Indebtedness of a Person existing
at the time that such Person is merged into or consolidated with or into, or
becomes a Restricted Subsidiary of, the Company or a Restricted Subsidiary;
PROVIDED, HOWEVER, that such Liens were not incurred in connection with, or in
contemplation of, such merger, consolidation or other transaction, and do not
extend to any property or assets other than those of such Person; (ii) Liens on
property or assets acquired by the Company or a Restricted Subsidiary; PROVIDED,
HOWEVER, that such Liens were not incurred in connection with, or in
contemplation of such acquisition, and do not extend to any other property or
assets; (iii) Liens in respect of Interest Rate Agreement Obligations, Currency
Agreement Obligations, Purchase Money Obligations, Capital Lease Obligations and
Attributable Debt permitted under the Indenture; (iv) Liens to secure
Indebtedness or other obligations of any Receivables Entity; (v) Liens in favor
of the Company or any Restricted Subsidiary; and (vi) Liens incurred, or pledges
and deposits in connection with, (a) workers' compensation, unemployment
insurance and other social security benefits, and other similar legislation or
other insurance related obligations, (b) bids, tenders, trade, government or
other contracts (other than for borrowed money), obligations for utilities,
leases, licenses, statutory obligations, and surety, judgment, performance and
appeal bonds and other obligations of like nature incurred by the Company or any
Restricted Subsidiary in the ordinary course of business, (c) carriers',
warehousemen's, mechanics', landlords', materialmen's, repairmen's or other like
Liens arising in the ordinary course of business, and (d) any extension,
renewal, refinancing, refunding or replacement of any Permitted Lien (or any
arrangement to which such Permitted Lien relates), provided that such new Lien,
pledge or deposit is limited to the property or assets that secured (or under
the arrangement under which the original Permitted Lien arose, could secure) the
obligations to which such Liens relate.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint-stock company, limited liability company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"PLI" means PLI Holdings Inc., a Delaware corporation, or any successor
thereto.
"PREFERRED STOCK" as applied to the Capital Stock of any Person, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends or distributions, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
Person, over Capital Stock of any other class of such Person.
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"PUBLIC DEBT" means any Indebtedness represented by debt securities
(including any Guarantee of such securities) issued by the Company or any
Restricted Subsidiary in connection with a public offering (whether or not
underwritten) or a private placement (provided such private placement is
underwritten for resale pursuant to Rule 144A, Regulation S or otherwise under
the Securities Act or sold on an agency basis by a broker-dealer or one of its
affiliates); it being understood that the term "Public Debt" shall not include
any evidence of Indebtedness under the Credit Facility or any other commercial
bank borrowings or similar borrowings, any Receivables Financing, recourse
transfers of financial assets, capital leases or other types of borrowings
incurred in a manner not customarily viewed as a "securities offering."
"PURCHASE MONEY OBLIGATION" means any Indebtedness secured by a Lien on
assets related to the business of the Company or the Restricted Subsidiaries,
and any additions and accessions thereto, which are purchased or constructed by
the Company or any Restricted Subsidiary at any time after the Issue Date;
PROVIDED that (i) any security agreement or conditional sales or other title
retention contract pursuant to which the Lien on such assets is created
(collectively a "Security Agreement") shall be entered into within 180 days
after the purchase or substantial completion of the construction of such assets
and shall at all times be confined solely to the assets so purchased or
acquired, any additions and accessions thereto and any proceeds therefrom, (ii)
at no time shall the aggregate principal amount of the outstanding Indebtedness
secured thereby be increased, except in connection with the purchase of
additions and accessions thereto and except in respect of fees and other
obligations in respect of such Indebtedness and (iii) (A) the aggregate
outstanding principal amount of Indebtedness secured thereby (determined on a
per asset basis in the case of any additions and accessions) shall not at the
time such Security Agreement is entered into exceed 100% of the purchase price
to the Company or any Restricted Subsidiary of the assets subject thereto or (B)
the Indebtedness secured thereby shall be with recourse solely to the assets so
purchased or acquired, any additions and accessions thereto and any proceeds
therefrom.
"RECAPITALIZATION" means the recapitalization of Leiner Group pursuant to
the Stock Purchase Agreement and Plan of Merger, dated as of May 31, 1997, among
Leiner Group, North Castle and LHP Acquisition Corp., whereby LHP Acquisition
Corp. was merged with and into Leiner Group, with Leiner Group continuing as the
surviving corporation.
"RECEIVABLE" means a right to receive payment arising from a sale or lease
of goods or services by a Person pursuant to an arrangement with another Person
pursuant to which such other Person is obligated to pay for goods or services
under terms that permit the purchase of such goods and services on credit, as
determined in accordance with GAAP.
"RECEIVABLES ENTITY" means (x) any Receivables Subsidiary or (y) any other
Person that is engaged in the business of acquiring, selling, collecting,
financing or refinancing Receivables, accounts (as defined in the Uniform
Commercial Code as in effect in any jurisdiction from time to time), other
accounts and/or other receivables, and/or related assets.
"RECEIVABLES FINANCING" means any financing of Receivables of the Company or
any Restricted Subsidiary that have been transferred to a Receivables Entity in
a Financing Disposition.
"RECEIVABLES SUBSIDIARY" means a Subsidiary of the Company that (a) is
engaged solely in the business of acquiring, selling, collecting, financing or
refinancing Receivables, accounts (as defined in the Uniform Commercial Code as
in effect in any jurisdiction from time to time) and other accounts and
receivables (including any thereof constituting or evidenced by chattel paper,
instruments or general intangibles), all proceeds thereof and all rights
(contractual and other), collateral and other assets relating thereto, and any
business or activities incidental or related to such business, and (b) is
designated as a "Receivables Subsidiary" by the Board of Directors of the
Company.
"RELATED BUSINESS" means the business conducted (or proposed to be
conducted) by the Company and its Subsidiaries as of the Issue Date and any and
all businesses that in the good faith judgment of the Board of Directors of the
Company are related, ancillary or complementary to such business.
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"RESTRICTED INVESTMENT" means an Investment other than a Permitted
Investment.
"RESTRICTED PAYMENT" means (i) any dividend or other distribution declared
or paid on any Capital Stock of the Company or any of its Restricted
Subsidiaries (other than dividends or distributions payable solely in Capital
Stock (other than Disqualified Stock) of the Company or such Restricted
Subsidiary or dividends or distributions payable to the Company or any
Restricted Subsidiary (and, if the Restricted Subsidiary making such dividend or
distributions has any stockholder other than the Company or another Restricted
Subsidiary, to such stockholder on no more than a PRO RATA basis, measured by
value)); (ii) any payment to purchase, redeem or otherwise acquire or retire for
value any Capital Stock of the Company or any Restricted Subsidiary (other than
any Capital Stock owned by the Company or any Restricted Subsidiary, except from
all holders of such Capital Stock of a Restricted Subsidiary on a pro rata
basis); (iii) any payment to purchase, redeem, defease or otherwise acquire or
retire for value any Indebtedness that is expressly subordinated in right of
payment to the Notes (other than a purchase, redemption, defeasance or other
acquisition or retirement for value (A) that is paid for with the proceeds of
Refinancing Indebtedness that is permitted under the covenant described under
"--Certain Covenants-- Limitation on Incurrence of Indebtedness," or (B) in
anticipation of satisfying a sinking fund obligation, principal installment or
final maturity, in each case due within one year of the date of such acquisition
or retirement, or (C) from Net Proceeds to the extent permitted by the covenant
described under "--Certain Covenants--Limitation on Asset Sales" or (D) upon a
Change of Control to the extent required by the agreement governing such
Indebtedness but only if the Company shall have complied with the covenant
described under "--Change of Control" and purchased all Notes tendered pursuant
to the offer to repurchase all of the Notes required thereby, prior to
purchasing or repaying such Indebtedness); or (iv) any Restricted Investment.
"RESTRICTED SUBSIDIARY" means each direct or indirect Subsidiary of the
Company other than an Unrestricted Subsidiary.
"REVOLVING CREDIT FACILITY" means the revolving credit facilities provided
under the Credit Facility (which may include any line or letter of credit
facility or subfacility thereunder).
"SALE/LEASEBACK TRANSACTION" means an arrangement relating to property now
owned or hereafter acquired by the Company or a Restricted Subsidiary whereby
the Company or such Restricted Subsidiary transfers such property to a Person
more than nine months after acquiring such property, and the Company or such
Restricted Subsidiary leases it from such Person, other than leases (x) between
the Company and a Restricted Subsidiary or between Restricted Subsidiaries, (y)
required to be classified and accounted for as capitalized leases for financial
reporting purposes in accordance with GAAP or (z) of any assets referred to in
clause (i)(E) of the definition of Asset Sale.
"SENIOR DEBT" means the principal of, premium, if any, and interest
(including any interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided for in the documentation with respect thereto,
whether or not such interest is an allowed claim under applicable state, federal
or foreign law) on and other amounts due on or in connection with (including any
fees, premiums, expenses, including costs of collection, and indemnities) any
Indebtedness of the Company, whether outstanding on the Issue Date or thereafter
created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the Notes. Without limiting the generality
of the foregoing, "Senior Debt" shall also include the principal of, premium, if
any, and interest (including any interest accruing subsequent to the filing of a
petition of bankruptcy at the rate provided for in the documentation with
respect thereto, whether or not such interest is an allowed claim under
applicable state, federal or foreign law) on, and all other amounts owing in
respect of, (i) Bank Debt of the Company and any Receivables Financing and (ii)
all Currency Agreement Obligations and Interest Rate Agreement Obligations
relating to Bank Debt of the Company, in each case whether outstanding on the
Issue Date or thereafter created, incurred or assumed and including in respect
of claims under
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Guarantees, claims for indemnity, claims in relation to such Currency Agreement
Obligations and Interest Rate Agreement Obligations, expense reimbursement and
fees. Notwithstanding the foregoing, "Senior Debt" shall not include (a)
Indebtedness evidenced by the Notes, (b) Indebtedness that is PARI PASSU with or
expressly subordinated in right of payment to any Senior Debt of the Company,
(c) Indebtedness which, when incurred and without respect to any election under
Section 1111(b) of Title 11, United States Code, is by its terms without
recourse to the Company, (d) any repurchase, redemption or other obligation in
respect of Disqualified Stock of the Company, (e) to the extent it might
constitute Indebtedness, amounts owing for goods, materials or service purchased
in the ordinary course of business or consisting of trade payables or other
current liabilities (other than any current liabilities owing under Bank Debt or
the current portion of any long-term Indebtedness which would constitute Senior
Debt but for the operation of this clause (e)), (f) to the extent it might
constitute Indebtedness, amounts owed by the Company for services rendered to
the Company, (g) to the extent it might constitute Indebtedness, any liability
for federal, state, local, foreign or other taxes owed or owing by the Company,
(h) Indebtedness of the Company to a Subsidiary of the Company and (i) that
portion of any Indebtedness of the Company which at the time of incurrence is
incurred in violation of the Indenture; PROVIDED, however, that such
Indebtedness shall be deemed not to have been incurred in violation of the
Indenture for purposes of this clause (i) if (x) the holder(s) of such
Indebtedness or their representative or the Company shall have furnished to the
Trustee an opinion of recognized independent legal counsel, unqualified in all
material respects, addressed to the Trustee (which legal counsel may, as to
matters of fact, rely upon an Officers' Certificate of the Company) to the
effect that the incurrence of such Indebtedness does not violate the provisions
of the Indenture or (y) such Indebtedness consists of Bank Debt, and the
holder(s) of such Indebtedness of their agent or representative (1) had no
actual knowledge at the time of incurrence that the incurrence of such
Indebtedness violated the Indenture and (2) shall have received a certificate
from an Officer of the Company to the effect that the incurrence of such
Indebtedness does not violate the provisions of the Indenture.
"SENIOR SUBORDINATED NOTE OBLIGATIONS" means any principal of, premium, if
any, and interest on, and any other amounts owing in respect of, the Notes
payable pursuant to the terms of the Notes or the Indenture or upon acceleration
of the Notes, including, without limitation, amounts received upon the exercise
of rights of rescission or other rights of action (including claims for damages)
or otherwise, to the extent relating to the purchase price of the Notes or
amounts corresponding to such principal of, premium, if any, or interest on, or
other amounts owing with respect to, the Notes.
"SIGNIFICANT SUBSIDIARY" means any Restricted Subsidiary of the Company that
would be a "significant subsidiary" of the Company as defined in Rule 1-02 of
Regulation S-X under the Securities Act and the Exchange Act, as such Rule is in
effect on the Issue Date.
"STATED MATURITY" means, when used 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 (but excluding any provision providing for the purchase of
such security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
"SUBSIDIARY" of a Person means (i) any corporation more than 50% of the
outstanding voting power of the Voting Stock of which is owned or controlled,
directly or indirectly, by such Person or by one or more other Subsidiaries of
such Person, or by such Person and one or more other Subsidiaries thereof, or
(ii) any limited partnership of which such Person or any Subsidiary of such
Person is a general partner, or (iii) any other Person (other than a corporation
or limited partnership) in which such Person, or one or more other Subsidiaries
of such Person, or such Person and one or more other Subsidiaries thereof,
directly or indirectly, has more than 60% of the outstanding partnership or
similar interests or has the power, by contract or otherwise, to direct or cause
the direction of the policies, management and affairs thereof.
118
<PAGE>
"SUBSIDIARY GUARANTEE" means any Guarantee of the Notes that may from time
to time be provided by a Restricted Subsidiary pursuant to the terms of the
Indenture.
"SUBSIDIARY GUARANTOR" means each of the Company's Restricted Subsidiaries
that issues a Subsidiary Guarantee.
"SURVIVING PERSON" means, with respect to any Person involved in or that
makes any Disposition, the Person formed by or surviving such Disposition or the
Person to which such Disposition is made.
"TAX SHARING AGREEMENT" means the Tax Sharing Agreement dated as of the
Issue Date between Leiner Group, PLI and the Company, and as the same may be
amended from time to time in accordance with the terms of the indenture.
"TERM LOAN FACILITY" means the term loan facilities provided under the
Credit Facility.
"TREASURY RATE" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15(519) which
has become publicly available at least two Business Days prior to the Redemption
Date (or, if such Statistical Release is no longer published, any publicly
available source or similar market data)) most nearly equal to the period from
the Redemption Date to the Stated Maturity; PROVIDED, HOWEVER, that if the
period from the Redemption Date to the Stated Maturity is not equal to the
constant maturity of a United States Treasury security for which a weekly
average yield is given, the Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the weekly
average yields of United States Treasury securities for which such yields are
given, except that if the period from the Redemption Date to the Stated Maturity
is less than one year, the weekly average yield on actually traded United States
Treasury securities adjusted to a constant maturity of one year shall be used.
"UNRESTRICTED SUBSIDIARY" means any Subsidiary of the Company (other than a
Guarantor) designated as such pursuant to and in compliance with the covenant
described under "Limitation on Designation of Unrestricted Subsidiaries." Any
such designation may be revoked by a resolution of the Board of Directors of the
Company delivered to the Trustee, subject to the provisions of such covenant.
"U.S. RESTRICTED SUBSIDIARY" means any Restricted Subsidiary that is not a
Foreign Subsidiary.
"VOTING STOCK" of a Person means Capital Stock of such Person of the class
or classes pursuant to which the holders thereof have the general voting power
under ordinary circumstances to elect at least a majority of the board of
directors, managers or trustees of such Person (irrespective of whether or not
at the time stock of any other class or classes shall have or might have voting
power by reason of the happening of any contingency).
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required scheduled payment
of principal, including payment at final maturity, in respect thereof, with (b)
the number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
aggregate principal amount of such Indebtedness.
BOOK-ENTRY; DELIVERY AND FORM
The certificates representing the New Notes will be issued in fully
registered form, without coupons. Except as described below, the New Notes will
be deposited with, or on behalf of, DTC, and registered in the name of Cede &
Co. ("Cede") as DTC's nominee in the form of a global Note certificate (the
"Global Certificate") or will remain in the custody of the Trustee pursuant to
the FAST Balance Certificate Agreement between DTC and the Trustee.
119
<PAGE>
Existing Notes originally purchased by or transferred to (i) institutional
"accredited investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act) who are not "qualified institutional buyers" (as defined in Rule
144A under the Securities Act) ("QIBs"), (ii) except as described below, persons
outside the United States pursuant to sales in accordance with Regulation S
under the Securities Act or (iii) any other persons who are not QIBs
(collectively, "Non-Global Purchasers") were issued in registered form without
coupons (the "Certificated Notes"). Upon the transfer to a QIB of Certificated
Existing Notes initially issued to a Non-Global Purchaser, such Certificated
Existing Notes will be exchanged for an interest in the Global Certificate
representing the Existing Notes in the custody of the Trustee representing the
principal amount of Notes being transferred. See "--Certificated Notes."
DTC has advised the Company that it is (i) a limited purpose trust company
organized under the laws of the State of New York, (ii) a "banking organization"
within the meaning of the New York banking law, (iii) a member of the Federal
Reserve System, (iv) a "clearing corporation" within the meaning of the Uniform
Commercial Code, as amended, and (v) a "Clearing Agency" registered pursuant to
Section 17A of the Exchange Act. DTC was created to hold securities for its
participants (collectively, the "Participants") and facilitates the clearance
and settlement of securities transactions between Participants through
electronic book-entry changes to the accounts of its Participants, thereby
eliminating the need for physical transfer and delivery of certificates.
Participants include securities brokers and dealers (including the Initial
Purchasers), banks and trust companies, clearing corporations and certain other
organizations. Indirect access to DTC's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
"Indirect Participants") that clear through or maintain a custodial relationship
with a Participant, either directly or indirectly.
The Company expects that pursuant to procedures established by DTC (i) upon
deposit of the Global Certificate representing New Notes, DTC will credit the
account of Participants tendering Existing Notes in exchange for New Notes with
an interest in the Global Certificate and (ii) ownership of beneficial interests
therein will be effected only through records maintained by DTC (with respect to
interests of Participants), Participants and Indirect Participants. The laws of
some states require that certain persons take physical delivery in definitive
form of securities that they own and that security interests in negotiable
instruments can only be perfected by delivery of certificates representing the
instruments. Consequently, the ability to transfer the Notes or to pledge the
Notes as collateral to persons in such states will be limited to such extent.
So long as DTC or its nominee is the registered owner of a Global
Certificate, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Notes represented by the Global Certificate for all
purposes under the Indenture and the Notes. Except as provided below, owners of
beneficial interests in a Global Certificate will not be entitled to have Notes
represented by such Global Certificate registered in their names, will not
receive or be entitled to receive physical delivery of Certificated Notes, and
will not be considered the owners or holders thereof under the Indenture for any
purpose, including with respect to the giving of any direction, instruction or
approval to the Trustee thereunder. As a result, the ability of a person having
a beneficial interest in Notes represented by a Global Certificate to pledge or
transfer such interest to persons or entities that do not participate in DTC's
system or otherwise to take action with respect to such interest, may be
affected by the lack of a physical certificate evidencing such interest.
Accordingly, each holder of New Notes owning a beneficial interest in a
Global Certificate must rely on the procedures of DTC and, if such holder of New
Notes is not a Participant or an Indirect Participant, on the procedures of the
Participant through which such holder of New Notes owns its interest, to
exercise any rights of a holder of Notes under the Indenture. The Company
understands that under existing industry practice, in the event the Company
requests any action of a holder of New Notes or a holder of New Notes that is an
owner of a beneficial interest in a Global Certificate desires to take any
action that DTC, as the holder of such Global Certificate, is entitled to take,
DTC would authorize the Participant to take such action or would otherwise act
upon the instruction of such holder of New Notes. Neither the
120
<PAGE>
Company nor the Trustee will have any responsibility or liability for any aspect
of the records relating to or payments made on account of the New Notes by DTC,
or for maintaining, supervising or reviewing any records of DTC relating to such
New Notes or for any other matter relating to the actions or procedures of DTC.
Payments with respect to the principal of, premium, if any, and interest on,
any Notes represented by a Global Certificate registered in the name of DTC or
its nominee on the applicable record date will be payable by the Trustee to or
at the direction of DTC or its nominee in its capacity as the registered holder
of the Global Certificate representing such Notes under the Indenture. Under the
terms of the Indenture, the Company and the Trustee may treat the persons in
whose names the Notes, including the Global Certificate, are registered as the
owners thereof for the purpose of receiving such payment and for any and all
other purposes whatsoever. Consequently, neither the Company nor the Trustee has
or will have any responsibility or liability for the payment of such amounts to
beneficial owners of interests in the Global Certificate (including principal,
premium, if any, and interest), or to immediately credit the accounts of the
relevant Participants with such payment, in an amount proportionate to their
respective holdings in principal amount of the Global Certificate as shown on
the records of DTC. The Company expects that payments by the Participant and the
Indirect Participant to the beneficial owners of interests in the Global
Certificate will be governed by standing instructions and customary practice and
will be the responsibility of the Participant or the Indirect Participant and
DTC.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from the sources the Company believes to be reliable, but the
Company takes no responsibility for the accuracy thereof.
CERTIFICATED NOTES
If (i) the Company notifies the Trustee in writing that DTC is no longer
willing or able to act as a depository or DTC ceases to be registered as a
clearing agency under the Exchange Act and the Company is unable to locate a
qualified successor within 90 days, (ii) the Company, at its option, notifies
the Trustee in writing that it elects to cause the issuance of Notes in
definitive form under the Indenture or (iii) upon the occurrence of certain
other events, then, upon surrender by DTC of its Global Certificate, then
Certificated Notes will be issued to each person that DTC identifies as the
beneficial owner of the Notes represented by the Global Certificate. In
addition, subject to certain conditions, any person having a beneficial interest
in a Global Certificate may, upon request to the Trustee, exchange such
beneficial interest for Certificated Notes. Upon any such issuance, the Trustee
is required to register such Certificated Notes in the name of such person or
persons (or the nominee of any thereof), and cause the same to be delivered
thereto.
121
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes the principal U.S. federal income tax
consequences to holders of the exchange of the Existing Notes for New Notes
pursuant to the Exchange Offer. The exchange of Existing Notes for New Notes
pursuant to the Exchange Offer should not constitute a taxable exchange for
United States federal income tax purposes, in which case a holder who exchanges
such Notes in the Exchange Offer would not recognize gain or loss on the
exchange, such holder's tax basis in the New Notes received pursuant to the
Exchange Offer would be the same as such holder's tax basis in the Existing
Notes surrendered therefor and such holder's holding period for the New Notes
received pursuant to the Exchange Offer would include its holding period for the
Existing Notes surrendered therefor.
ALL HOLDERS OF EXISTING NOTES ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS
REGARDING THE UNITED STATES FEDERAL, STATE AND LOCAL AND NON-UNITED STATES TAX
CONSEQUENCES OF THE EXCHANGE OF EXISTING NOTES FOR NEW NOTES AND OF THE
OWNERSHIP AND DISPOSITION OF NEW NOTES RECEIVED IN THE EXCHANGE OFFER IN LIGHT
OF THEIR OWN PARTICULAR CIRCUMSTANCES.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used for a period of 180 days
after the Expiration Date by a broker-dealer in connection with resales of New
Notes received in exchange for Existing Notes where such Existing Notes were
acquired as a result of market-making activities or other trading activities.
LHP 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 such
broker-dealer for use in connection with any such resale. In addition, until
, 1997, all dealers effecting transactions in the New Notes may be
required to deliver a prospectus. LHP may require any such sellers of New Notes
to supply information reasonably requested in connection with these activities.
LHP may also require such sellers to discontinue disposition of the New Notes if
certain events identified in the Registration Rights Agreement that require
updating of the Prospectus occur.
LHP will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such New Notes. Any broker-dealer that
resells New Notes that were received by it for its own account pursuant to the
Exchange Offer and any broker or dealer that participates in a distribution of
such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit or any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that, by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
LHP has agreed to pay all expenses incident to its performance in connection
with the Exchange Offer under the Registration Rights Agreement, which, among
other things, do not include commissions or concessions of any brokers-dealers,
and will indemnify the Holders of the Existing Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
Certain of the Initial Purchasers have in the past, and may in the future,
provide investment banking and other related services to LHP and its affiliates
in the ordinary course of business. Merrill Lynch
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<PAGE>
Capital Corporation, an affiliate of Merrill Lynch, is the documentation agent
and a lender under the New Credit Facility for which it received usual and
customary fees. Salomon Brothers Holding Company Inc, an affiliate of Salomon
Brothers Inc, is the syndication agent and a lender under the New Credit
Facility, for which it received usual and customary fees. Scotiabank, an
affiliate of Scotia Capital, is the Administrative Agent and a lender under the
New Credit Facility, for which it received usual and customary fees. In
addition, in connection with the Recapitalization, Merrill Lynch & Co. acquired
$15 million in limited liability company interests of North Castle, and The Bank
of Nova Scotia acquired $3 million of such interests.
LEGAL MATTERS
The validity of the Notes offered hereby will be passed upon for the Company
by Debevoise & Plimpton, New York, New York.
EXPERTS
The Consolidated Financial Statements as of March 31, 1996 and March 31,
1997, and for each of the years in the three-year period ended March 31, 1997,
appearing in this Prospectus and the Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their reports thereon
appearing elsewhere in this Prospectus and in the Registration Statement, and
are included in reliance upon the reports of Ernst & Young LLP, independent
auditors, given upon the authority of such firm as experts in accounting and
auditing.
123
<PAGE>
LEINER HEALTH PRODUCTS INC.
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1995, 1996 AND 1997
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors........................................................ F-2
Consolidated Financial Statements
Consolidated Balance Sheets........................................................... F-3
Consolidated Statements of Income..................................................... F-4
Consolidated Statements of Common Shareholder's Equity................................ F-5
Consolidated Statements of Cash Flows................................................. F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholder
Leiner Health Products Inc.
We have audited the accompanying consolidated balance sheets of Leiner
Health Products Inc. as of March 31, 1996 and 1997, and the related consolidated
statements of income, shareholder's equity and cash flows for each of the three
years in the period ended March 31, 1997. 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 Leiner Health
Products Inc. at March 31, 1996 and 1997, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
March 31, 1997, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Orange County, California
April 25, 1997
F-2
<PAGE>
LEINER HEALTH PRODUCTS INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31,
----------------------
<S> <C> <C>
1996 1997
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents............................................................... $ 1,411 $ 2,066
Accounts receivable, net of allowances of $2,539 and $3,840 at March 31, 1996 and 1997,
respectively.......................................................................... 67,459 77,436
Inventories............................................................................. 71,744 86,823
Deferred income taxes................................................................... 3,826 3,838
Prepaid expenses and other current assets............................................... 862 2,639
---------- ----------
Total current assets................................................................ 145,302 172,802
Property, plant and equipment, less accumulated depreciation and amortization............. 41,864 42,367
Goodwill, less accumulated amortization of $5,608 and $7,131 at March 31, 1996 and 1997,
respectively............................................................................ 52,386 58,035
Other noncurrent assets................................................................... 11,762 11,360
---------- ----------
Total assets........................................................................ $ 251,314 $ 284,564
---------- ----------
---------- ----------
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
----------------------
<S> <C> <C>
1996 1997
---------- ----------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Bank checks outstanding, less cash on deposit........................................... $ 2,291 $ 10,410
Current portion of long-term debt....................................................... 2,023 3,148
Accounts payable........................................................................ 53,710 61,623
Customer allowances payable............................................................. 5,471 6,632
Accrued compensation and benefits....................................................... 4,749 6,233
Income taxes payable.................................................................... 461 1,818
Other accrued expenses.................................................................. 4,326 3,535
---------- ----------
Total current liabilities........................................................... 73,031 93,399
Long-term debt............................................................................ 102,151 102,290
Deferred income taxes..................................................................... 2,202 2,582
Other noncurrent liabilities.............................................................. 1,245 1,425
Commitments and contingent liabilities
Minority interest in subsidiary........................................................... -- 4,718
Shareholder's equity:
Common stock, $1 par value: 1,000 shares authorized, issued and outstanding at March 31,
1996 and 1997......................................................................... 1 1
Capital in excess of par value.......................................................... 62,966 62,966
Cumulative translation adjustment....................................................... -- (173)
Retained earnings....................................................................... 9,718 17,356
---------- ----------
Total shareholder's equity.......................................................... 72,685 80,150
---------- ----------
Total liabilities and shareholder's equity.......................................... $ 251,314 $ 284,564
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
LEINER HEALTH PRODUCTS INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
----------------------------------
<S> <C> <C> <C>
1995 1996 1997
---------- ---------- ----------
Net sales.................................................................... $ 314,730 $ 338,417 $ 392,786
Cost of sales................................................................ 236,613 253,272 288,579
---------- ---------- ----------
Gross profit................................................................. 78,117 85,145 104,207
Marketing, selling and distribution expenses................................. 42,400 44,228 51,477
General and administrative expenses.......................................... 17,302 18,344 21,219
Impairment and closure of facility........................................... -- 4,730 1,416
Management reorganization.................................................... -- -- 1,000
Amortization of goodwill..................................................... 1,586 1,585 1,514
Other charges................................................................ 482 482 878
---------- ---------- ----------
Operating income............................................................. 16,347 15,776 26,703
Interest expense, net........................................................ 9,010 9,924 8,281
---------- ---------- ----------
Income before income taxes and extraordinary item............................ 7,337 5,852 18,422
Provision for income taxes before extraordinary item......................... 3,524 4,686 8,028
---------- ---------- ----------
Income before extraordinary item............................................. 3,813 1,166 10,394
Extraordinary loss on the early extinguishment of debt, net of income taxes
of $1,833.................................................................. -- -- 2,756
---------- ---------- ----------
Net income................................................................... $ 3,813 $ 1,166 $ 7,638
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
LEINER HEALTH PRODUCTS INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CAPITAL
COMMON STOCK IN EXCESS CUMULATIVE TOTAL
------------ OF PAR TRANSLATION RETAINED SHAREHOLDER'S
SHARES AMOUNT VALUE ADJUSTMENT EARNINGS EQUITY
------ --- --------- ------ -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1994.................... 1,000 $1 $62,966 $-- $ 4,739 $67,706
Net income................................... -- -- -- -- 3,813 3,813
------ --- --------- ------ -------- -----------
Balance at March 31, 1995.................... 1,000 1 62,966 -- 8,552 71,519
Net income................................... -- -- -- -- 1,166 1,166
------ --- --------- ------ -------- -----------
Balance at March 31, 1996.................... 1,000 1 62,966 -- 9,718 72,685
Net income................................... -- -- -- -- 7,638 7,638
Translation adjustment....................... -- -- -- (173) -- (173)
------ --- --------- ------ -------- -----------
Balance at March 31, 1997.................... 1,000 $1 $62,966 $(173) $ 17,356 $80,150
------ --- --------- ------ -------- -----------
------ --- --------- ------ -------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
LEINER HEALTH PRODUCTS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-------------------------------
<S> <C> <C> <C>
1995 1996 1997
--------- --------- ---------
OPERATING ACTIVITIES
Net income....................................................................... $ 3,813 $ 1,166 $ 7,638
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization.................................................. 10,698 12,496 12,600
Stock option compensation expense.............................................. 132 132 99
Deferred income taxes.......................................................... 2,779 3,364 270
Charge for long-lived asset impairment......................................... -- 4,730 --
Extraordinary loss on the early extinguishment of debt......................... -- -- 4,589
Translation adjustment......................................................... -- -- 173
Changes in operating assets and liabilities, net of effects of acquisition:
Accounts receivable.......................................................... (4,600) 4,742 (7,371)
Inventories.................................................................. (99) (7,818) (8,694)
Bank checks outstanding, less cash on deposit................................ 12,191 (9,900) 7,979
Accounts payable............................................................. 1,120 4,756 5,418
Customer allowances payable.................................................. (7,330) 260 1,161
Accrued compensation and benefits............................................ (1,339) (925) 1,484
Other accrued expenses....................................................... (4,323) (1,252) (1,956)
Income taxes payable......................................................... 101 691 1,246
Other........................................................................ (56) 261 (1,469)
--------- --------- ---------
Net cash provided by operating activities........................................ 13,087 12,703 23,167
--------- --------- ---------
INVESTING ACTIVITIES
Additions to property, plant and equipment, net.................................. (16,722) (3,468) (3,540)
Acquisition of business, net of cash acquired.................................... -- -- (2,420)
Increase in other noncurrent assets.............................................. (5,128) (5,335) (4,263)
--------- --------- ---------
Net cash used in investing activities............................................ (21,850) (8,803) (10,223)
--------- --------- ---------
FINANCING ACTIVITIES
Net borrowings under bank line of credit......................................... 5,225 78 47,247
Repayment of senior notes, including prepayment penalty.......................... -- -- (49,097)
Increase in other long-term debt................................................. 5,662 1,305 2,270
Payments on other long-term debt................................................. (3,566) (3,872) (12,493)
--------- --------- ---------
Net cash provided by (used in) financing activities.............................. 7,321 (2,489) (12,073)
--------- --------- ---------
Effect of exchange rate changes.................................................. -- -- (216)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents............................. (1,442) 1,411 655
Cash and cash equivalents at beginning of period................................. 1,442 -- 1,411
--------- --------- ---------
Cash and cash equivalents at end of period....................................... $ -- $ 1,411 $ 2,066
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
LEINER HEALTH PRODUCTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
1. FORMATION AND OPERATIONS
Leiner Health Products Inc. (the Company) is primarily involved in a single
business segment, the manufacture and distribution of vitamins, over-the-counter
drugs and other health and beauty aid products to mass market retailers and
through other channels, primarily in the United States and Canada. On May 4,
1992, with the support of the Company's Senior Management, the Company became a
wholly owned subsidiary of Leiner Health Products Group Inc. (the Parent), a
corporation formed by AEA Investors Inc., a private investment firm.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Leiner Health Products Inc. and its direct and indirect subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
FAIR VALUES OF FINANCIAL INSTRUMENTS
Fair values of cash and cash equivalents, short-term borrowings and the
current portion of long-term debt approximate cost due to the short period of
time to maturity. Fair values of long-term debt, which have been determined
based on borrowing rates currently available to the Company for loans with
similar terms or maturity, approximate the carrying amounts in the consolidated
financial statements.
INVENTORIES
Inventories are stated at the lower of cost or market, with cost being
determined by the first-in, first-out method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost, net of accumulated
depreciation and amortization. Depreciation and amortization are provided using
the straight-line method, at rates designed to distribute the cost of assets
over their estimated service lives or, for leasehold improvements, the shorter
of their estimated service lives or their remaining lease terms.
F-7
<PAGE>
LEINER HEALTH PRODUCTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
OTHER ASSETS
Goodwill, representing the excess of the purchase price over the fair values
of the net assets of acquired entities, is being amortized over the period of
expected benefit ranging from 35 to 40 years. Deferred financing charges are
being amortized based on the principal balance outstanding using the effective
interest method. Other intangible assets are being amortized over the period of
expected benefit of 15 years. Costs incurred to secure long-term sales
agreements (cash advances to customers, credit memos, free products, etc.) are
amortized over the terms of the agreements or as related sales are recognized.
FOREIGN CURRENCY TRANSLATION
The Company translates the foreign currency financial statements of its
Canadian subsidiary by translating balance sheet accounts at the year-end
exchange rate and income statement accounts at the weighted monthly average
exchange rate for the year. Translation gains and losses are recorded in common
shareholder's equity, and realized gains and losses are reflected in income.
Transaction gains and losses were immaterial.
REVENUE RECOGNITION
The Company recognizes revenue from product sales at the time of shipment.
Provisions are made currently for estimated returns.
STOCK-BASED COMPENSATION
The Company has elected to account for its stock-based compensation plans in
accordance with Accounting Principles Board Opinion No. 25 (APB 25), "Accounting
for Stock Issued to Employees" and related interpretations. Under the provisions
of APB 25, compensation expense is measured at the grant date for the difference
between the fair value of the stock, less the exercise price.
ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising expense for the
years ended March 31, 1995, 1996 and 1997 was $8,293,000, $8,731,000 and
$11,257,000, respectively.
3. ACQUISITION
On January 30, 1997, the Company acquired all of the outstanding capital
stock of G. S. Investments Ltd. which owned, among other companies, Vita Health
Company (1985) Ltd. (Vita Health). Vita Health is headquartered in Winnipeg,
Manitoba, Canada and primarily manufactures and distributes vitamins and
over-the-counter drugs. The results of operations of Vita Health are included in
the accompanying consolidated statements of income since date of acquisition.
The total cost of the acquisition, including direct acquisition costs of $1.1
million, was approximately $16.0 million, represented by $2.4 million of cash,
$4.7 million of preferred stock of a subsidiary and $8.9 million of liabilities
assumed. The acquisition has been accounted for as a purchase and, accordingly,
the excess of cost over the fair value of net assets acquired of $7.1 million
has been included in goodwill, and is being amortized over its expected benefit
period of 35 years.
F-8
<PAGE>
LEINER HEALTH PRODUCTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
3. ACQUISITION (CONTINUED)
As part of the acquisition purchase price, the Company issued approximately
46,037 shares of class A preferred stock and approximately 17,511 shares of
class B preferred stock in VH Holdings Inc., a subsidiary of the Company. The
class A preferred stock has an aggregate redemption value of approximately $3.4
million and the class B preferred stock has an aggregate redemption value of
approximately $1.3 million. The preferred stock does not accrue dividends and
has no voting rights. It is redeemable at the option of the Company until
January 2003, or at the option of the holders beginning in January 1998 through
January 2003 at the redemption value. Redemption is mandatory in January 2004.
This stock has been classified as minority interest in subsidiary in the
accompanying consolidated balance sheet as of March 31, 1997.
4. MANAGEMENT REORGANIZATION, LONG-LIVED ASSET IMPAIRMENT AND FACILITY CLOSURE
During the year ended March 31, 1997, the Company reorganized the management
team. Expenses of $1.0 million include severance expense for the previous Chief
Financial Officer, Vice President of Product Development and Vice President of
Corporate Development and include the hiring and relocation expenses for the new
Chief Financial Officer and other corporate officers.
During the year ended March 31, 1996, the Company decided to significantly
reduce the size of its over-the-counter (OTC) liquids pharmaceutical
manufacturing business. Accordingly, the Company evaluated, based on the
expected future cash flows, the ongoing value of the plant, equipment and
related goodwill that arose as part of the XCEL acquisition in May 1992.
Goodwill was allocated based on the relative estimated fair value of the
long-lived assets at the date of acquisition. Based on its evaluation, the
Company determined that assets with a carrying amount of $8,256,000 were
impaired and wrote them down by $4,730,000 to their fair value. Fair value was
based on independent appraisals of the plant and equipment. This asset
impairment charge is reflected in the consolidated balance sheet as a reduction
in the carrying amount of goodwill.
During the year ended March 31, 1997, the Company closed its OTC liquids
pharmaceutical manufacturing facility and out sourced this production to a third
party. The costs incurred of $1.4 million included the write-off of fixed assets
($0.8 million) and closure costs ($0.6 million). In additon, an inventory
write-down of $0.5 was made and is included in cost of sales.
F-9
<PAGE>
LEINER HEALTH PRODUCTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. COMPOSITION OF CERTAIN BALANCE SHEET ITEMS
<TABLE>
<CAPTION>
MARCH 31,
--------------------
<S> <C> <C>
1996 1997
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Inventories:
Raw materials, bulk vitamins and packaging materials...................................... $ 40,950 $ 51,488
Work-in-process........................................................................... 3,573 5,849
Finished products......................................................................... 27,221 29,486
--------- ---------
$ 71,744 $ 86,823
--------- ---------
--------- ---------
</TABLE>
Property, plant and equipment:
<TABLE>
<CAPTION>
DEPRECIABLE LIVES
-----------------
<S> <C> <C> <C>
(YEARS)
Land.................................................................. -- $ 537 $ 734
Buildings and improvements............................................ 31-40 3,012 5,206
Leasehold improvements................................................ 7-40 9,761 10,549
Machinery and equipment............................................... 3-20 37,781 42,194
Furniture and fixtures................................................ 3-10 2,790 3,425
---------- ----------
53,881 62,108
Less accumulated depreciation and amortization........................ (12,017) (19,741)
---------- ----------
$ 41,864 $ 42,367
---------- ----------
---------- ----------
</TABLE>
6. SUPPLEMENTARY CASH FLOW INFORMATION
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-------------------------------
<S> <C> <C> <C>
1995 1996 1997
--------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
Cash paid during the period for:
Interest.......................................................................... $ 8,759 $ 9,532 $ 11,248
Income taxes, net of refunds received............................................. 555 616 5,603
</TABLE>
F-10
<PAGE>
LEINER HEALTH PRODUCTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
MARCH 31,
----------------------
<S> <C> <C>
1996 1997
---------- ----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Credit agreement, banks................................................................. $ 42,803 $ 100,378
Capital lease obligations............................................................... 6,077 5,060
Senior note agreements (Series A and B)................................................. 45,000 --
Revolving loan agreement, vendor........................................................ 8,271 --
Term loan, bank......................................................................... 1,898 --
Industrial revenue bonds................................................................ 125 --
---------- ----------
104,174 105,438
Less current portion.................................................................... (2,023) (3,148)
---------- ----------
Total long-term debt.................................................................. $ 102,151 $ 102,290
---------- ----------
---------- ----------
</TABLE>
CREDIT AGREEMENT, BANKS
On January 30, 1997, the Company entered into a Credit Agreement that
expires on April 1, 2003 and permits the Company to borrow up to $165,000,000,
subject to borrowing limitations, as defined. Borrowings under this agreement
bear interest at either the bank's base rate (8.5% at March 31, 1997) or
Canadian prime rate (4.75% at March 31, 1997) plus up to .5% or LIBOR (5.72% at
March 31, 1997) plus up to 1.5% or banker's acceptance rate (3.2% at March 31,
1997) plus up to 1%, at the option of the Company. As of March 31, 1997, the
Company's interest rates were 6.4% for U. S. borrowings and 4.1% for Canadian
borrowings. In addition to certain agent and up-front fees, as defined, this
agreement requires a commitment fee of up to .5% of the average daily unused
portion of the revolving loan commitment amount, as defined. Borrowings under
this agreement are secured by a pledge of all the common stock of the Company.
CAPITAL LEASE OBLIGATIONS
The capital lease obligations are payable in variable monthly installments
through January 2002, bear interest at effective rates ranging from 6.8% to 9.3%
and are secured by equipment with a net book value of approximately $5,088,000
at March 31, 1997.
COVENANTS AND MINIMUM PAYMENTS
Provisions of certain of the Company's debt agreements include terms, among
others, that require the Company to maintain certain financial ratios.
Furthermore, the agreements restrict indebtedness and expenditures for dividend
distributions, certain capital expenditures and investments. A change of
control, as defined, will constitute a default under the Credit Agreement. As of
March 31, 1997, the Company was in compliance with the covenants and conditions
of the new Credit Agreement. Due to restrictions in the Credit Agreement, none
of the retained earnings are available for dividends.
F-11
<PAGE>
LEINER HEALTH PRODUCTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. LONG-TERM DEBT (CONTINUED)
Principal payments on long-term debt through fiscal 2002 and thereafter are:
<TABLE>
<CAPTION>
(IN
FISCAL YEAR THOUSANDS)
- ------------------------------------------------------------------------------- -------------
<S> <C>
1998......................................................................... $ 3,148
1999......................................................................... 3,417
2000......................................................................... 9,493
2001......................................................................... 13,625
2002......................................................................... 15,405
Thereafter................................................................... 60,350
-------------
Total $ 105,438
-------------
-------------
</TABLE>
RETIREMENT OF DEBT
As of March 31, 1996, Series A notes aggregated $35,000,000 and bore
interest at 9.44% and Series B notes aggregated $10,000,000 and bore interest at
9.60%. In connection with the new Credit Agreement, these senior notes were
prepaid in full on January 30, 1997, along with accrued interest and a
prepayment charge of $4,097,000 which is included in the consolidated statement
of income as an extraordinary loss on the early extinguishment of debt in the
year ended March 31, 1997.
On December 10, 1993, the Company entered into a Credit Agreement that was
to expire on June 30, 1998 and had permitted the Company to borrow up to
$55,000,000, subject to borrowing base limitations, as defined. In connection
with the new credit agreement described above, borrowings under this agreement
were refinanced and the unamortized debt issuance costs of $492,000 were written
off and included in the consolidated statement of income as an extraordinary
loss on the early extinguishment of debt in the year ended March 31, 1997.
8. INCOME TAXES
The Company is included in the consolidated Federal income tax return of the
Parent. Under a tax sharing agreement, the Federal income tax provision is
computed on a consolidated return basis and provides that the Company by
participating in the consolidated filing shall be liable and make payment to the
Parent for its proportionate share of the total tax liability. The agreement
also provides that the Company shall receive benefit to the extent that its
losses and other credits result in a reduction of the consolidated tax
liability. In the event that a combined or consolidated state, local or foreign
tax return is filed, the tax sharing arrangement for the Federal provision shall
apply in a similar manner in computing the state, local and foreign tax
liability or benefit.
Deferred income taxes are computed using the liability method and reflect
the effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes. Valuation allowances are established, when necessary, to reduce
deferred tax assets to estimated realizable amounts. The provision for income
taxes reflects the taxes to be paid for the period and the change during the
period in the deferred tax assets and liabilities.
F-12
<PAGE>
LEINER HEALTH PRODUCTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES (CONTINUED)
Significant components of the Company's deferred tax assets and liabilities are:
<TABLE>
<CAPTION>
MARCH 31,
--------------------
<S> <C> <C>
1996 1997
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Acquisition related accruals............................................................... $ 485 $ 81
Inventory capitalization................................................................... 759 634
Compensation accruals...................................................................... 442 405
Inventory obsolescence reserves............................................................ 1,033 863
Allowances for doubtful accounts and sales returns......................................... 1,031 1,392
Other...................................................................................... 76 463
--------- ---------
Total deferred tax assets.................................................................... 3,826 3,838
--------- ---------
Deferred tax liabilities:
Fixed assets book versus tax basis difference.............................................. (2,202) (2,582)
--------- ---------
Deferred tax assets, net of deferred tax liabilities......................................... $ 1,624 $ 1,256
--------- ---------
--------- ---------
</TABLE>
The following is a reconciliation of the statutory federal income tax rate
to the Company's effective income tax rate before extraordinary item:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-------------------------------------
<S> <C> <C> <C>
1995 1996 1997
----- ----- -----
Tax at U.S. statutory rates............................................................. 35% 35% 35%
Charge for long-lived asset impairment.................................................. -- 28 --
Goodwill amortization................................................................... 7 9 3
State income taxes, net of federal tax benefit.......................................... 6 8 6
-- -- --
48% 80% 44%
-- -- --
-- -- --
</TABLE>
Significant components of the provision for income taxes are:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-------------------------------
<S> <C> <C> <C>
1995 1996 1997
--------- --------- ---------
<CAPTION> (IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal.......................................................................... $ 539 $ 1,176 $ 6,622
State............................................................................ 206 146 954
Foreign.......................................................................... -- -- 182
--------- --------- ---------
Total current...................................................................... 745 1,322 7,758
--------- --------- ---------
Deferred:
Federal.......................................................................... 2,251 2,846 (131)
State............................................................................ 528 518 401
--------- --------- ---------
Total deferred................................................................... 2,779 3,364 270
--------- --------- ---------
Provision for income taxes before extraordinary item............................. 3,524 4,686 8,028
Tax benefit from extraordinary loss.............................................. -- -- (1,833)
--------- --------- ---------
Provision for income taxes, net.................................................. $ 3,524 $ 4,686 $ 6,195
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-13
<PAGE>
LEINER HEALTH PRODUCTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. EMPLOYEE BENEFITS
STOCK OPTION PLAN
The Parent's Stock Option Plan, as amended in 1996, provides for the
issuance of nonqualified stock options to certain key employees and directors to
purchase up to 175,000 shares of the Parent's Class A common stock. Options
granted are at exercise prices as determined by the Parent's Board of Directors,
but not less than $100 per share. Options generally vest on a pro rata basis at
a rate of 25% per year, with 25% immediate vesting on the date of grant, and
expire no later than ten years from the date of grant.
Pro forma information regarding net income is required by FASB Statement No.
123, "Accounting for Stock-Based Compensation," which also requires that the
information be determined as if the Parent has accounted for its employee stock
options granted subsequent to March 31, 1995 under the fair value method for
that Statement. The fair value for these options was estimated at the date of
grant using the Black-Scholes option pricing model. The Black-Scholes model was
developed for use in estimating the fair value of traded options which have no
vesting restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the expected
stock price volatility. Because the Parent's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.
In calculating pro forma information regarding net income, the fair value
was estimated at the date of grant using the Black-Scholes option pricing model
with the following weighted-average assumptions for the options on the Parent's
common stock: a risk-free interest rate of 6%; a dividend yield of 0%; a
volatility of the expected market price of the Parent's Class A common stock of
0; and a weighted-average expected life of the options of 6 years. The pro forma
net income for the years ended March 31, 1996 and 1997 was $1.1 million and $7.4
million, respectively.
There was no activity under the Stock Option Plan during the year ended
March 31, 1995. Activity under the Stock Option Plan for the years ended March
31, 1996 and 1997 is set forth below:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-----------------------------------------------------
<S> <C> <C> <C> <C>
SHARES
AVAILABLE PRICE WEIGHTED
FOR NUMBER OF PER AVERAGE
GRANT SHARES SHARE EXERCISE PRICE
----------- ----------- ---------- ---------------
Balance at March 31, 1995.................................... -- 81,552 $ 100 $ 100
Additional shares reserved................................... 18,448 -- -- --
Options granted.............................................. (18,448) 18,448 125-145 137
Options canceled............................................. -- -- -- --
----------- ----------- ---------- -----
Balance at March 31, 1996.................................... -- 100,000 100-145 107
Additional shares reserved................................... 75,000 -- -- --
Options granted.............................................. (6,074) 6,074 175 175
Options canceled............................................. 6,074 (6,074) 100-145 107
----------- ----------- ---------- -----
Balance at March 31, 1997.................................... 75,000 100,000 $ 100-175 $ 111
----------- ----------- ---------- -----
----------- ----------- ---------- -----
</TABLE>
F-14
<PAGE>
LEINER HEALTH PRODUCTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. EMPLOYEE BENEFITS (CONTINUED)
No options were exercised during the three year period ended March 31, 1997.
Options exercisable at March 31, 1995, 1996 and 1997 were 58,157, 83,147 and
86,721, respectively. The weighted-average fair value of options granted during
the years ended March 31, 1996 and 1997 were $40 and $52, respectively.
The weighted average remaining contractual life and weighted average
exercise price of options outstanding and of options exercisable as of March 31,
1997 were as follows:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
------------------------------------------------- ----------------------------
<S> <C> <C> <C> <C> <C>
WEIGHTED
AVERAGE
RANGE OF REMAINING WEIGHTED WEIGHTED
EXERCISE NUMBER OF CONTRACTUAL LIFE AVERAGE NUMBER OF AVERAGE
PRICES SHARES (YEARS) EXERCISE PRICE SHARES EXERCISE PRICE
- ------------- ----------- ------------------- --------------- ----------- ---------------
$100-$175 100,000 6.9 $111 86,721 $105
</TABLE>
The Parent has reserved a total of 188,238 shares of its Class A common
stock for issuance under stock option plans as of March 31, 1997.
CONTRIBUTORY RETIREMENT PLANS
The Company has contributory retirement plans that cover substantially all
of the Company's employees who meet minimum service requirements. The Company's
contributions to the plans are discretionary and are determined and funded
annually by the Parent's Board of Directors. The Company's contributions totaled
$969,000, $1,011,000 and $1,109,000 for the plan years ended March 31, 1995,
1996 and 1997, respectively.
10. RELATED PARTY TRANSACTIONS
The Company leased certain facilities under an operating lease with a
partnership which included two officers of the Company's operating subsidiary.
The lease was terminated as of March 31, 1995. Rents paid to the partnership
totaled $477,000 during the year ended March 31, 1995.
The Company paid to one of its shareholders, AEA Investors Inc., management
fees of $350,000 during each of the three years ended March 31, 1997, which are
included in other charges in the accompanying consolidated statements of income.
11. COMMITMENTS
The Company leases certain real estate for its manufacturing facilities,
warehouses, corporate and sales offices, as well as certain equipment under
operating leases (noncancelable) that expire at various dates through March 2004
and contain renewal options. Total rents charged to operations were $5,558,000,
$4,679,000 and $4,755,000 for the years ended March 31, 1995, 1996 and 1997,
respectively.
F-15
<PAGE>
LEINER HEALTH PRODUCTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. COMMITMENTS (CONTINUED)
Minimum future obligations on noncancelable operating leases in effect at
March 31, 1997 are:
<TABLE>
<CAPTION>
(IN
FISCAL YEAR THOUSANDS)
- ------------------------------------------------------------------------------- -------------
<S> <C>
1998........................................................................... $ 4,379
1999........................................................................... 3,512
2000........................................................................... 2,446
2001........................................................................... 2,093
2002........................................................................... 1,473
Thereafter..................................................................... 1,922
-------------
Total minimum lease payments................................................... $ 15,825
-------------
-------------
</TABLE>
12. CONTINGENT LIABILITIES
L-TRYPTOPHAN
The Company has been named in numerous actions brought in federal or state
courts seeking compensatory and, in some cases, punitive damages for alleged
personal injuries resulting from the ingestion of certain products containing
L-Tryptophan. As of April 24, 1997, the Company and/or certain of its customers,
many of whom have tendered their defense to the Company, had been named in 660
lawsuits of which 647 have been settled.
The Company has entered into an agreement (the Agreement) with the Company's
supplier of bulk L-Tryptophan, under which the supplier has agreed to assume the
defense of all claims and to pay all settlements and judgments, other than for
certain punitive damages, against the Company arising out of the ingestion of
L-Tryptophan products. To date, the Supplier has funded all settlements and paid
all legal fees and expenses incurred by the Company related to these matters.
Of the remaining 13 cases, management does not expect that the Company will
be required to make any material payments in connection with their resolution by
virtue of the Agreement, or, in the event that the supplier ceases to honor the
Agreement, by virtue of the Company's product liability insurance, subject to
deductibles not to exceed $1.4 million in the aggregate. Accordingly, no
provision has been made in the Company's consolidated financial statements for
any loss that may result from these remaining actions.
OTHER
The Company is subject to other legal proceedings and claims which arise in
the normal course of business. While the outcome of these proceedings and claims
cannot be predicted with certainty, management does not believe the outcome of
any of these matters will have a material adverse effect on the Company's
consolidated financial position, results of operations or cash flows.
13. CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables. The
Company sells its products to a geographically diverse customer base in the
drugstore, supermarket and discount chain industries. The Company performs
ongoing credit evaluations of its customers and maintains reserves for potential
losses. For the years ended March 31, 1995, 1996 and 1997, two customers
represented approximately 19% and 14%, 21% and 13%, and 27% and 12%,
respectively, of net sales.
F-16
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND THE
ACCOMPANYING LETTER OF TRANSMITTAL IN CONNECTION WITH THE OFFER MADE BY THIS
PROSPECTUS AND THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. NEITHER THIS PROSPECTUS NOR THE ACCOMPANYING LETTER OF TRANSMITTAL,
OR BOTH TOGETHER, CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITY OTHER THAN THE NEW NOTES TO WHICH IT RELATES OR AN OFFER TO
SELL, OR THE SOLICITATION OF AN OFFER TO BUY THE NEW NOTES, IN ANY CIRCUMSTANCES
IN WHICH SUCH OFFER IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR THE
ACCOMPANYING LETTER OF TRANSMITTAL, OR BOTH TOGETHER, NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
NOT BEEN A CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF
LEINER GROUP OR THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Available Information................. iii
Prospectus Summary.................... 1
Risk Factors.......................... 14
The Company........................... 22
Use of Proceeds....................... 23
Capitalization........................ 24
Unaudited Pro Forma Financial
Information.......................... 25
Selected Historical and Pro Forma
Financial Information................ 30
Management's Discussion and Analysis
of Financial Condition and Results of
Operations........................... 34
Industry.............................. 42
Business.............................. 45
Management............................ 64
Ownership of Capital Stock............ 69
The Recapitalization.................. 70
Certain Transactions.................. 72
Description of New Credit Facility.... 74
The Exchange Offer.................... 76
Registration Rights................... 82
Description of the Notes.............. 84
Certain Federal Income Tax
Considerations....................... 122
Plan of Distribution.................. 122
Legal Matters......................... 123
Experts............................... 123
Index to Financial Statements......... F-1
</TABLE>
UNTIL , 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE NEW NOTES,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
LEINER HEALTH PRODUCTS INC.
OFFER TO EXCHANGE
9 5/8% SENIOR SUBORDINATED NOTES,
DUE 2007, WHICH HAVE BEEN
REGISTERED UNDER THE
SECURITIES ACT OF 1933
AS AMENDED, FOR ANY AND ALL
OUTSTANDING 9 5/8% SENIOR
SUBORDINATED NOTES DUE 2007
---------------------
PROSPECTUS
---------------------
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Amended and Restated Certificate of Incorporation and Article V, Section
5 of the By-Laws of the Company authorize indemnification of officers and
directors to the full extent permitted under Delaware law, including a provision
eliminating (except under certain enumerated circumstances) the liability of
directors for duty of care violations.
The indemnification provided for in the Delaware General Corporation Law is
not exclusive of any other rights of indemnification, and a corporation may
maintain insurance against liabilities for which indemnification is not
expressly provided by the Delaware General Corporation Law.
Section 145 of the Delaware Corporation Law, as amended, provides in regards
to indemnification of directors and officers as follows:
"145 INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS;
INSURANCE.-- (a) A corporation shall have power to indemnify any person who
was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
the corporation) by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests
of the corporation, and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful. The termination
of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not,
of itself, create a presumption that the person did not act in good faith
and in a manner which he reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that his conduct was
unlawful.
(b) A corporation shall have power to indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably
incurred by the person in connection with the defense or settlement of such
action or suit if the person acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of
any claim, issue or matter as to which such person shall have been adjudged
to be liable to the corporation unless and only to the extent that the Court
of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, he shall be
indemnified
II-1
<PAGE>
against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of
the director, officer, employee or agent is proper in the circumstances
because the person has met the applicable standard of conduct set forth in
subsections (a) and (b) of this section. Such determination shall be made
(1) by a majority vote of the directors who are not parties to such action,
suit or proceeding, even though less than a quorum, or (2) if there are no
such directors, or if such directors so direct, by independent legal counsel
in a written opinion, or (3) by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount
if it shall ultimately be determined that he is not entitled to be
indemnified by the corporation as authorized in this section. Such expenses
(including attorneys' fees) incurred by other employees and agents may be so
paid upon such terms and conditions, if any, as the board of directors deems
appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be
deemed exclusive of any other rights to which those seeking indemnification
or advancement of expenses may be entitled under any by-law, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding
such office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted
against him and incurred by him in any such capacity, or arising out of his
status as such, whether or not the corporation would have the power to
indemnify him against such liability under this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers, and
employees or agents, so that any person who is or was a director, officer,
employee or agent of such constituent corporation, or is or was serving at
the request of such constituent corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under this section with respect
to the resulting or surviving corporation as he would have with respect to
such constituent corporation if its separate existence had continued.
(i) For purposes of this section, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include
any excise taxes assessed on a person with respect to any employee benefit
plan; and references to "serving at the request of the corporation" shall
include any service as a director, officer, employee or agent of the
corporation which imposes duties on, or involves services by, such director,
officer, employee, or agent with respect to an employee benefit plan, its
participants or beneficiaries; and a person who acted in good faith and in a
manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the corporation" as referred to
in this section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has
II-2
<PAGE>
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive jurisdiction
to hear and determine all actions for advancement of expenses or
indemnification brought under this section or under any bylaw, agreement,
vote of stockholders or disinterested directors, or otherwise. The Court of
Chancery may summarily determine a corporation's obligation to advance
expenses (including attorneys' fees)."
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) LIST OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------- ------------------------------------------------------------------------------------------------------
<C> <S>
** 3.1 -- Amended and Restated Certificate of Incorporation of Leiner Health Products Inc. ("LHP").
* 3.2 -- Amended and Restated By-Laws of LHP.
* 4.1 -- Indenture, dated as of June 30, 1997, between Leiner Group and United States Trust Company of New
York (the "Trustee").
* 4.2 -- First Supplemental Indenture, dated as of June 30, 1997, among Leiner Group, LHP and the Trustee.
* 4.3 -- Purchase Agreement, dated as of June 19, 1997, among Leiner Group, LHP , Merrill Lynch & Co.,
Salomon Brothers Inc and Scotia Capital Markets (USA) Inc. (the "Initial Purchasers").
* 4.4 -- Registration Rights Agreement, dated as of June 30,1997, among Leiner Group, LHP and the Initial
Purchasers.
** 4.5 -- Credit Agreement, dated as of June 30, 1997 (the "Credit Agreement"), among Leiner Group, Vita
Health Company (1985) Ltd., a Canadian corporation ("Vita Health"), the banks and other financial
institutions party thereto, The Bank of Nova Scotia, as U.S. Agent and Canadian Agent (the
"Agents"), Merrill Lynch Capital Corporation, as documentation agent, and Salomon Brothers Holding
Company Inc, as syndication agent.
** 4.6 -- Assumption Agreement, dated as of June 30, 1997, between Leiner Group and LHP and accepted and
acknowledged by the Agents on behalf of the lenders that are party to the Credit Agreement.
** 4.7 -- U.S. Borrower Security Agreement, dated as of June 30, 1997, between LHP and The Bank of Nova
Scotia, as collateral agent.
** 4.8 -- U.S. Borrower Pledge Agreement, dated as of June 30, 1997, made by LHP in favor of the agents for
the secured parties.
** 4.9 -- Parent Pledge Agreement, dated as of June 30, 1997, made by PLI Holdings Inc. in favor of the
agents for the secured parties.
** 4.10 -- Canadian Holdings Pledge Agreement, dated as of June 30, 1997, made by VH Holdings Inc.
** 4.11 -- Canadian Borrower Pledge Agreement, dated as of June 30, 1997, made by Vita Health.
** 4.12 -- U.S. Borrower Guaranty, dated as of June 30, 1997, made by LHP.
** 4.13 -- Parent Guaranty, dated as of June 30, 1997, made by PLI Holdings.
** 4.14 -- Canadian Holdings Guaranty, dated as of June 30, 1997, made by VH Holdings Inc.
** 4.15 -- Canadian Subsidiary Guaranties, dated as of June 30, 1997, made by each of 64804 Manitoba Ltd. and
Westcan Pharmaceuticals Ltd.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------- ------------------------------------------------------------------------------------------------------
<C> <S>
** 4.16 -- Canadian Borrower Debenture, dated as of June 30, 1997, made by Vita Health in favor of The Bank of
Nova Scotia (the "Canadian Agent") in the amount of $75,000,000.
** 4.17 -- Canadian Holdings Debenture, dated as of June 30, 1997, made by VH Holdings Inc. in favor of the
Canadian Agent in the amount of $75,000,000.
** 4.18 -- Canadian Subsidiary Debenture, dated as of June 30, 1997, made by 64804 Manitoba Ltd. in favor of
the Canadian Agent in the amount of $75,000,000.
** 4.19 -- Canadian Subsidiary Debenture, dated as of June 30, 1997, made by Westcan Pharmaceuticals Ltd. in
favor of the Canadian Agent in the amount of $75,000,000.
** 4.20 -- Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated June 30,
1997 from LHP, as Mortgagor, to The Bank of Nova Scotia, as agent, relating to the property located
at 3532 West 47th Place, Chicago, Illinois, as amended by the First Amendment to the Mortgage, dated
July 31, 1997.
** 4.21 -- Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing, expected to be
entered into on or before December 31, 1997 from LHP, as Mortgagor, to The Bank of Nova Scotia, as
agent, relating to the property located at 3308 Covington, Kalamazoo, Michigan.
** 4.22 -- Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated June 30,
1997 from LHP, as Mortgagor, to The Bank of Nova Scotia, as agent, relating to the property located
at 2300 Badger Lane, Madison, Wisconsin.
** 4.23 -- Leasehold Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing,
dated June 30, 1997 from LHP, as Mortgagor, to The Bank of Nova Scotia, as agent, relating to the
property located at 7366 Orangewood Avenue, Garden Grove, California.
** 5 -- Opinion of Debevoise & Plimpton regarding the legality of the New Notes being registered.
** 10.1 -- Consulting Agreement, dated as of June 30, 1997, among Leiner Group, LHP and North Castle.
** 10.2 -- Restated Standard Indemnity Agreement, dated September 1, 1992 between Showa Denko America Inc. and
LHP Holdings Corp.
** 10.3 -- Guaranty Agreement, dated September 1, 1992, between Showa Denko K.K. and LHP Holdings Corp.
** 10.4 -- Form of Leiner Health Products Group Inc. Stock Option Plan, 1996 Amendment and Restatement.
** 10.5 -- First Amendment to the Leiner Group Stock Option Plan, effective as of June 30, 1997.
** 10.6 -- Leiner Group Stock Incentive Plan, adopted and effective as of June 30, 1997.
** 10.7 -- Lease, dated as of March 12, 1984, by and between R&R Properties ("R&R") and Trupak, Inc.
("Trupak"), as amended by the First Amendment, dated as of August 1, 1986 between R&R and Trupak,
the Second Amendment, dated as of September 1, 1989 between R&R and P. Leiner Nutritional Products,
Inc. (successor by merger to Trupak Inc.) ("P. Leiner"), the Third Amendment, dated as of August 3,
1992 between R&R and P. Leiner, the Fourth Amendment, dated as of August 2, 1994 between R&R and LHP
(successor to P. Leiner), and the Fifth Amendment, dated May 20, 1996 between R&R and LHP, related
to a premise located in West Unity, Ohio.
** 10.8 -- Lease, dated as of October 4, 1993, by and between Watson Land Company ("Watson") and LHP, related
to a premise located at 810 East 233rd Street, Carson, California.
** 10.9 -- Lease, dated as of October 4, 1993, by and between Watson and LHP, related to a premise located at
901 East 233rd Street, Carson, California.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------- ------------------------------------------------------------------------------------------------------
<C> <S>
** 10.10 -- Sublease, dated as of October 8, 1993 by and between Teledyne, Inc. and LHP, related to a premise
located at 901 East 233rd Street, Carson, California.
** 10.11 -- Standard Industrial Lease, dated February 19, 1988 between Richard F. Burns, J. Grant Monahan and
Lawrence W. Doyle, as Trustees of AEW #113 Trust established under Declaration of Trust dated
January 19, 1988 and Vita-Fresh Vitamin Co. Inc. and Vital Industries, Inc., as amended by the First
Lease Amendment, dated as of June 12, 1997, between Sierra Pacific California--LP and LHP, related
to a premise located in Garden Grove, California.
** 10.12 -- Lease, dated May 1, 1997 between Crescent Resources, Inc. and LHP, related to a premise located in
York County, South Carolina.
* 12.1 -- Computation of Ratio of Earnings to Fixed Charges.
* 12.2 -- Computation of EBITDA to Interest Expense.
** 21 -- List of Subsidiaries of the Registrant.
* 23.1 -- Consent of Ernst & Young LLP, Independent Auditors.
** 23.2 -- Consent of Debevoise & Plimpton (included in Exhibit filed as Exhibit 5).
* 24 -- Powers of Attorney (included on signature pages to this Registration Statement on Form S-4).
** 25 -- Statement of Eligibility and Qualification Under the Trust Indenture Act of 1939 (Form T-1) of
United States Trust Company of New York.
* 99.1 -- Form of Letter of Transmittal.
** 99.2 -- Form of Notice of Guaranteed Delivery.
** 99.3 -- Form of Exchange Agreement between LHP and the Exchange Agent.
</TABLE>
- ------------------------
* Filed herewith.
** To be filed by amendment.
(B) FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<S> <C>
Report of Independent Auditors on Financial Statement Schedule................. S-1
Schedule II--Valuation and Qualifying Accounts................................. S-2
</TABLE>
All supporting schedules other than the above have been omitted because they
are not required or the information required to be set forth therein is included
in the consolidated financial statements or in the notes thereto.
ITEM 22. UNDERTAKINGS.
The Registrant hereby undertakes
(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
II-5
<PAGE>
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; (iii) to
include any material information with respect to the plan of distribution
not previously disclosed in the registration statement or any material
change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such 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) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Registration
Statement by any person or party who is deemed to be an underwriter within
the meaning of Rule 145 (c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items
of the applicable form.
(5) That every prospectus (i) that is filed pursuant to paragraph (4)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10 (a) (3) of the Securities Act and is used in connection with an
offering of securities subject to Rule 415 will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offering
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(6) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers, and controlling
persons of the Registrants pursuant to the foregoing provisions or
otherwise, the Registrants have been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrants of expenses incurred or paid by a
director, officer or controlling person of the Registrants 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 Registrants will, unless in the opinion of their counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Leiner Health
Products Inc. has caused this Registration Statement on Form S-4 to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Carson,
State of California, on the th day of August, 1997.
LEINER HEALTH PRODUCTS INC.
By: /s/ ROBERT M. KAMINSKI
-----------------------------------------
Name: Robert M. Kaminski
Title: Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert M. Kaminski, William B. Towne, Gale K.
Bensussen and Kevin J. Lanigan and each of them, his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead in any and all
capacities, to sign any or all amendments to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully and to all intents and purposes as he might or could do in
persons hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of this Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
PRINCIPAL EXECUTIVE OFFICER:
/s/ ROBERT M. KAMINSKI Chairman of the Board,
- ------------------------------ Chief Executive Officer August 7, 1997
Robert M. Kaminski and Director
DIRECTOR:
/s/ GALE K. BENSUSSEN President and Director
- ------------------------------ August 7, 1997
Gale K. Bensussen
PRINCIPAL ACCOUNTING OFFICER:
Executive Vice President,
/s/ WILLIAM B. TOWNE Chief Financial Officer,
- ------------------------------ Director, Treasurer and August 7, 1997
William B. Towne Assistant Secretary
PRINCIPAL FINANCIAL OFFICER:
Executive Vice President,
/s/ WILLIAM B. TOWNE Chief Financial Officer,
- ------------------------------ Director, Treasurer and August 7, 1997
William B. Towne Assistant Secretary
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT PAGE NO.
- --------- -------------------------------------------------------------------------------------------- ---------
<C> <S> <C>
** 3.1 -- Amended and Restated Certificate of Incorporation of Leiner Health Products Inc. ("LHP").
* 3.2 -- Amended and Restated By-Laws of LHP.
* 4.1 -- Indenture, dated as of June 30, 1997, between Leiner Group and United States Trust
Company of New York (the "Trustee").
* 4.2 -- First Supplemental Indenture, dated as of June 30, 1997, among Leiner Group, LHP and the
Trustee.
* 4.3 -- Purchase Agreement, dated as of June 19, 1997, among Leiner Group, LHP , Merrill Lynch &
Co., Salomon Brothers Inc and Scotia Capital Markets (USA) Inc. (the "Initial
Purchasers").
* 4.4 -- Registration Rights Agreement, dated as of June 30, 1997, among Leiner Group, LHP and the
Initial Purchasers.
** 4.5 -- Credit Agreement, dated as of June 30, 1997 (the "Credit Agreement"), among Leiner Group,
Vita Health Company (1985) Ltd., a Canadian corporation ("Vita Health"), the banks and
other financial institutions party thereto, The Bank of Nova Scotia, as U.S. Agent and
Canadian Agent (the "Agents"), Merrill Lynch Capital Corporation, as documentation agent,
and Salomon Brothers Holding Company Inc, as syndication agent.
** 4.6 -- Assumption Agreement, dated as of June 30, 1997, between Leiner Group and LHP and
accepted and acknowledged by the Agents on behalf of the lenders that are party to the
Credit Agreement.
** 4.7 -- U.S. Borrower Security Agreement, dated as of June 30, 1997, between LHP and The Bank of
Nova Scotia, as collateral agent.
** 4.8 -- U.S. Borrower Pledge Agreement, dated as of June 30, 1997, made by LHP in favor of the
agents for the secured parties.
** 4.9 -- Parent Pledge Agreement, dated as of June 30, 1997, made by PLI Holdings Inc. in favor of
the agents for the secured parties.
** 4.10 -- Canadian Holdings Pledge Agreement, dated as of June 30, 1997, made by VH Holdings Inc.
** 4.11 -- Canadian Borrower Pledge Agreement, dated as of June 30, 1997, made by Vita Health.
** 4.12 -- U.S. Borrower Guaranty, dated as of June 30, 1997, made by LHP.
** 4.13 -- Parent Guaranty, dated as of June 30, 1997, made by PLI Holdings.
** 4.14 -- Canadian Holdings Guaranty, dated as of June 30, 1997, made by VH Holdings Inc.
** 4.15 -- Canadian Subsidiary Guaranties, dated as of June 30, 1997, made by each of 64804 Manitoba
Ltd. and Westcan Pharmaceuticals Ltd.
** 4.16 -- Canadian Borrower Debenture, dated as of June 30, 1997, made by Vita Health in favor of
The Bank of Nova Scotia (the "Canadian Agent") in the amount of $75,000,000.
** 4.17 -- Canadian Holdings Debenture, dated as of June 30, 1997, made by VH Holdings Inc. in favor
of the Canadian Agent in the amount of $75,000,000.
** 4.18 -- Canadian Subsidiary Debenture, dated as of June 30, 1997, made by 64804 Manitoba Ltd. in
favor of the Canadian Agent in the amount of $75,000,000.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT PAGE NO.
- --------- -------------------------------------------------------------------------------------------- ---------
<C> <S> <C>
** 4.19 -- Canadian Subsidiary Debenture, dated as of June 30, 1997, made by Westcan Pharmaceuticals
Ltd. in favor of the Canadian Agent in the amount of $75,000,000.
** 4.20 -- Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated
June 30, 1997 from LHP, as Mortgagor, to The Bank of Nova Scotia, as agent, relating to
the property located at 3532 West 47th Place, Chicago, Illinois, as amended by the First
Amendment to the Mortgage, dated July 31, 1997.
** 4.21 -- Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing, expected
to be entered into on or before December 31, 1997 from LHP, as Mortgagor, to The Bank of
Nova Scotia, as agent, relating to the property located at 3308 Covington, Kalamazoo,
Michigan.
** 4.22 -- Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated
June 30, 1997 from LHP, as Mortgagor, to The Bank of Nova Scotia, as agent, relating to
the property located at 2300 Badger Lane, Madison, Wisconsin.
** 4.23 -- Leasehold Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture
Filing, dated June 30, 1997 from LHP, as Mortgagor, to The Bank of Nova Scotia, as agent,
relating to the property located at 7366 Orangewood Avenue, Garden Grove, California.
** 5 -- Opinion of Debevoise & Plimpton regarding the legality of the New Notes being registered.
** 10.1 -- Consulting Agreement, dated as of June 30, 1997, among Leiner Group, LHP and North
Castle.
** 10.2 -- Restated Standard Indemnity Agreement, dated September 1, 1992 between Showa Denko
America Inc. and LHP Holdings Corp.
** 10.3 -- Guaranty Agreement, dated September 1, 1992, between Showa Denko K.K. and LHP Holdings
Corp.
** 10.4 -- Form of Leiner Health Products Group Inc. Stock Option Plan, 1996 Amendment and
Restatement.
** 10.5 -- First Amendment to the Leiner Group Stock Option Plan, effective as of June 30, 1997.
** 10.6 -- Leiner Group Stock Incentive Plan, adopted and effective as of June 30, 1997.
** 10.7 -- Lease, dated as of March 12, 1984, by and between R&R Properties ("R&R") and Trupak, Inc.
("Trupak"), as amended by the First Amendment, dated as of August 1, 1986 between R&R and
Trupak, the Second Amendment, dated as of September 1, 1989 between R&R and P. Leiner
Nutritional Products, Inc. (successor by merger to Trupak Inc.) ("P. Leiner"), the Third
Amendment, dated as of August 3, 1992 between R&R and P. Leiner, the Fourth Amendment,
dated as of August 2, 1994 between R&R and LHP (successor to P. Leiner), and the Fifth
Amendment, dated May 20, 1996 between R&R and LHP, related to a premise located in West
Unity, Ohio.
** 10.8 -- Lease, dated as of October 4, 1993, by and between Watson Land Company ("Watson") and
LHP, related to a premise located at 810 East 233rd Street, Carson, California.
** 10.9 -- Lease, dated as of October 4, 1993, by and between Watson and LHP, related to a premise
located at 901 East 233rd Street, Carson, California.
** 10.10 -- Sublease, dated as of October 8, 1993 by and between Teledyne, Inc. and LHP, related to a
premise located at 901 East 233rd Street, Carson, California.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT PAGE NO.
- --------- -------------------------------------------------------------------------------------------- ---------
<C> <S> <C>
** 10.11 -- Standard Industrial Lease, dated February 19, 1988 between Richard F. Burns, J. Grant
Monahan and Lawrence W. Doyle, as Trustees of AEW #113 Trust established under Declaration
of Trust dated January 19, 1988 and Vita-Fresh Vitamin Co. Inc. and Vital Industries,
Inc., as amended by the First Lease Amendment, dated as of June 12, 1997, between Sierra
Pacific California--LP and LHP, related to a premise located in Garden Grove, California.
** 10.12 -- Lease, dated May 1, 1997 between Crescent Resources, Inc. and LHP, related to a premise
located in York County, South Carolina.
* 12.1 -- Computation of Ratio of Earnings to Fixed Charges.
* 12.2 -- Computation of EBITDA to Interest Expense.
** 21 -- List of Subsidiaries of the Registrant.
* 23.1 -- Consent of Ernst & Young LLP, Independent Auditors.
** 23.2 -- Consent of Debevoise & Plimpton (included in Exhibit filed as Exhibit 5).
* 24 -- Powers of Attorney (included on signature pages to this Registration Statement on Form
S-4).
** 25 -- Statement of Eligibility and Qualification Under the Trust Indenture Act of 1939 (Form
T-1) of United States Trust Company of New York.
* 99.1 -- Form of Letter of Transmittal.
** 99.2 -- Form of Notice of Guaranteed Delivery.
** 99.3 -- Form of Exchange Agreement between LHP and the Exchange Agent.
</TABLE>
- ------------------------
* Filed herewith.
** To be filed by amendment.
<PAGE>
REPORT OF INDEPENDENT AUDITORS ON FINANCIAL STATEMENT SCHEDULE
Board of Directors and Shareholder
Leiner Health Products Inc.
We have audited the consolidated financial statements of Leiner Health
Products Inc. as of March 31, 1996 and 1997, and for each of the three years in
the period ended March 31, 1997, and have issued our report thereon dated April
25, 1997 (included elsewhere in this Registration Statement). Our audits also
included the financial statement schedule listed in Item 21(b) of this
Registration Statement. This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Orange County, California
April 25, 1997
S-1
<PAGE>
SCHEDULE II
LEINER HEALTH PRODUCTS INC.
VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO COST BALANCE AT END
BEGINNING OF YEAR AND EXPENSES DEDUCTIONS OF YEAR
----------------- --------------- ----------- ---------------
<S> <C> <C> <C> <C>
Year ended March 31, 1995:
Accounts receivable allowance.................. $ 2,147 $ 4,903 $ 3,734 $ 3,316
Inventory valuation reserve.................... 5,306 2,640 3,537 4,409
Year ended March 31, 1986:
Accounts receivable allowance.................. $ 3,316 $ 4,443 $ 5,220 $ 2,539
Inventory valuation reserve.................... 4,409 2,320 2,828 3,901
Year ended March 31, 1997:
Accounts receivable allowance.................. $ 2,539 $ 6,761 $ 5,460 $ 3,840
Inventory valuation reserve.................... 3,901 4,687 4,207 4,381
</TABLE>
S-2
<PAGE>
Exhibit 3.2
AMENDED AND RESTATED BY-LAWS
OF
LHP HOLDINGS CORP.
(formerly P. Leiner Nutritional Products Corp.)
ARTICLE I
STOCKHOLDERS
SECTION 1. ANNUAL MEETING. The annual meeting of the stockholders of
the Corporation shall be held on such date, at such time and at such place
within or without the State of Delaware as may be designated by the Board of
Directors, for the purpose of electing Directors and for the transaction of such
other business as may be properly brought before the meeting.
SECTION 2. SPECIAL MEETINGS. Except as otherwise provided in the
Certificate of Incorporation, a special meeting of the stockholders of the
Corporation may be called at any time by the Board of Directors, the Chairman of
the Board, the Chief Executive Officer or the President and shall be called by
the Chairman of the Board, the Chief Executive Officer, the President or the
Secretary at the request in writing of stockholders holding together at least
twenty-five percent of the number of shares of stock outstanding and entitled to
vote at such meeting. Any special meeting of the stockholders shall be held on
such date, at such time and at such place within or without the State of
Delaware as the Board of Directors or the officer calling the meeting may
designate. At a special meeting of the stockholders, no business shall be
transacted and no corporate action shall be taken other than that stated in the
notice of the meeting unless all of the stockholders are present in person or by
proxy, in which case any and all business may be transacted at the meeting even
though the meeting is held without notice.
SECTION 3. NOTICE OF MEETINGS. Except as otherwise provided in these
BY-LAWS or by law, a written notice of each meeting of the stockholders shall be
given not less than ten (10) nor more than sixty (60) days before the date of
the meeting to each stockholder of the Corporation entitled to vote at such
meeting at his address as it appears on the records of the Corporation. The
notice shall state the place, date and hour of the meeting and, in the case of a
special meeting, the purpose or purposes for which the meeting is called.
<PAGE>
SECTION 4. QUORUM. At any meeting of the stockholders, the holders
of a majority in number of the total outstanding shares of stock of the
Corporation entitled to vote at such meeting, present in person or represented
by proxy, shall constitute a quorum of the stockholders for all purposes, unless
the representation of a larger number of shares shall be required by law, by the
Certificate of Incorporation or by these By-Laws, in which case the
representation of the number of shares so required shall constitute a quorum;
provided that at any meeting of the stockholders at which the holders of any
class of stock of the Corporation shall be entitled to vote separately as a
class, the holders of a majority in number of the total outstanding shares of
such class, present in person or represented by proxy, shall constitute a quorum
for purposes of such class vote unless the representation of a larger number of
shares of such class shall be required by law, by the Certificate of
Incorporation or by these By-Laws.
SECTION 5. ADJOURNED MEETINGS. Whether or not a quorum shall be
present in person or represented at any meeting of the stockholders, the holders
of a majority in number of the shares of stock of the Corporation present in
person or represented by proxy and entitled to vote at such meeting may adjourn
from time to time; provided, however, that if the holders of any class of stock
of the Corporation are entitled to vote separately as a class upon any matter at
such meeting, any adjournment of the meeting in respect of action by such class
upon such matter shall be determined by the holders of a majority of the shares
of such class present in person or represented by proxy and entitled to vote at
such meeting. When a meeting is adjourned to another time or place, notice need
not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. At the adjourned
meeting the stockholders, or the holders of any class of stock entitled to vote
separately as a class, as the case may be, may transact any business which might
have been transacted by them at the original meeting. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the adjourned meeting.
SECTION 6. ORGANIZATION. The Chairman of the Board or, in his
absence, the Chief Executive Officer or, in his absence, the President shall
call all meetings of the stockholders to order, and shall act as Chairman of
such meetings. In the absence of the Chairman of the Board, the Chief Executive
Officer and the President, the holders of a majority in number of the shares of
stock of the Corporation present in person or represented by proxy and entitled
to vote at such meeting shall elect a Chairman.
The Secretary of the Corporation shall act as Secretary of all
meetings of the stockholders; but in the absence of the Secretary, the Chairman
may appoint any person to act as Secretary of the meeting. It shall be the duty
of the Secretary to prepare and make, at least
2
<PAGE>
ten days before every meeting of stockholders, a complete list of stockholders
entitled to vote at such meeting, arranged in alphabetical order and showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting or, if not so specified, at the place where the meeting is to be
held, for the ten days next preceding the meeting, to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, and shall be produced and kept at the time and place of the meeting
during the whole time thereof and subject to the inspection of any stockholder
who may be present.
SECTION 7. VOTING. Except as otherwise provided in the Certificate
of Incorporation or by law, each stockholder shall be entitled to one vote for
each share of the capital stock of the Corporation registered in the name of
such stockholder upon the books of the Corporation. Each stockholder entitled
to vote at a meeting of stockholders or to express consent or dissent to
corporate action in writing without a meeting may authorize another person or
persons to act for him by proxy, but no such proxy shall be voted or acted upon
after three years from its date, unless the proxy provides for a longer period.
When directed by the presiding officer or upon the demand of any stockholder,
the vote upon any matter before a meeting of stockholders shall be by ballot.
Except as otherwise provided by law or by the Certificate of Incorporation,
Directors shall be elected by a plurality of the votes cast at a meeting of
stockholders by the stockholders entitled to vote in the election and, whenever
any corporate action, other than the election of Directors is to be taken, it
shall be authorized by a majority of the votes cast at a meeting of stockholders
by the stockholders entitled to vote thereon.
Shares of the capital stock of the Corporation belonging to the
Corporation or to another corporation, if a majority of the shares entitled to
vote in the election of directors of such other corporation is held, directly or
indirectly, by the Corporation, shall neither be entitled to vote nor be counted
for quorum purposes.
SECTION 8. INSPECTORS. When required by law or directed by the
presiding officer or upon the demand of any stockholder entitled to vote, but
not otherwise, the polls shall be opened and closed, the proxies and ballots
shall be received and taken in charge, and all questions touching the
qualification of voters, the validity of proxies and the acceptance or rejection
of votes shall be decided at any meeting of the stockholders by two or more
Inspectors who may be appointed by the Board of Directors before the meeting, or
if not so appointed, shall be appointed by the presiding officer at the meeting.
If any person so appointed fails to appear or act, the vacancy may be filled by
appointment in like manner.
3
<PAGE>
SECTION 9. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Unless
otherwise provided in the Certificate of Incorporation, any action required to
be taken or which may be taken at any annual or special meeting of the
stockholders of the Corporation, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. Prompt notice of the taking of any such corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. NUMBER AND TERM OF OFFICE. The business and affairs of
the Corporation shall be managed by or under the direction of seven (7)
Directors, who need not be stockholders of the Corporation. The Directors shall,
except as hereinafter otherwise provided for filling vacancies, be elected at
the annual meeting of stockholders, and shall hold office until their respective
successors are elected and qualified or until their earlier resignation or
removal. The number of Directors may be altered from time to time by amendment
of these By-Laws.
SECTION 2. REMOVAL, VACANCIES AND ADDITIONAL DIRECTORS. The
stockholders may, at any special meeting the notice of which shall state that it
is called for that purpose, remove, with or without cause, any Director and fill
the vacancy; provided that whenever any Director shall have been elected by the
holders of any class of stock of the Corporation voting separately as a class
under the provisions of the Certificate of Incorporation, such Director may be
removed and the vacancy filled only by the holders of that class of stock voting
separately as a class. Vacancies caused by any such removal and not filled by
the stockholders at the meeting at which such removal shall have been made, or
any vacancy caused by the death or resignation of any Director or for any other
reason, and any newly created directorship resulting from any increase in the
authorized number of Directors, may be filled by the affirmative vote of a
majority of the Directors then in office, although less than a quorum, and any
Director so elected to fill any such vacancy or newly created directorship shall
hold office until his successor is elected and qualified or until his earlier
resignation or removal.
4
<PAGE>
When one or more Directors shall resign effective at a future date, a
majority of the Directors then in office, including those who have so resigned,
shall have power to fill such vacancy or vacancies, the vote thereon to take
effect when such resignation or resignations shall become effective, and each
Director so chosen shall hold office as herein provided in connection with the
filling of other vacancies.
SECTION 3. PLACE OF MEETING. The Board of Directors may hold its
meetings in such place or places in the State of Delaware or outside the State
of Delaware as the Board from time to time shall determine.
SECTION 4. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held at such times and places as the Board from time to time
by resolution shall determine. No notice shall be required for any regular
meeting of the Board of Directors; but a copy of every resolution fixing or
changing the time or place of regular meetings shall be mailed to every Director
at least five days before the first meeting held in pursuance thereof
SECTION 5. SPECIAL MEETINGS. Special meetings of the Board of
Directors shall be held whenever called by direction of the Chairman of the
Board, the Chief Executive Officer, the President or by any two of the Directors
then in office.
Notice of the day, hour and place of holding of each special meeting
shall be given by mailing the same at least two days before the meeting or by
causing the same to be delivered personally or transmitted by telegraph,
facsimile, telex or sent by certified, registered or overnight mail at least one
day before the meeting to each Director. Unless otherwise indicated in the
notice thereof, any and all business other than an amendment of these By-Laws
may be transacted at any special meeting, and an amendment of these By-Laws may
be acted upon if the notice of the meeting shall have stated that the amendment
of these By-Laws is one of the purposes of the meeting. At any meeting at which
every Director shall be present, even though without any notice, any business
may be transacted, including the amendment of these By-Laws.
SECTION 6. QUORUM. Subject to the provisions of Section 2 of this
Article II, a majority of the members of the Board of Directors in office (but
in no case less than one-third of the total number of Directors nor less than
two Directors) shall constitute a quorum for the transaction of business and the
vote of the majority of the Directors present at any meeting of the Board of
Directors at which a quorum is present shall be the act of the Board of
Directors. If at any meeting of the Board there is less than a quorum present,
a majority of those present may adjourn the meeting from time to time.
5
<PAGE>
SECTION 7. ORGANIZATION. The Chairman of the Board or, in his
absence, the Chief Executive Officer or, in his absence, the President shall
preside at all meetings of the Board of Directors. In the absence of the
Chairman of the Board, the Chief Executive Officer and the President, a Chairman
shall be elected from the Directors present. The Secretary of the Corporation
shall act as Secretary of all meetings of the Directors; but in the absence of
the Secretary, the Chairman may appoint any person to act as Secretary of the
meeting.
SECTION 8. COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the Directors of the Corporation. The
Board may designate one or more Directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. Any such committee, to the extent
provided by resolution passed by a majority of the whole Board, shall have and
may exercise all the powers and authority of the Board of Directors in the
management of the business and the affairs of the Corporation, and may authorize
the seal of the Corporation to be affixed to all papers which may require it;
but no such committee shall have the power or authority in reference to amending
the Certificate of Incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange of
all or substantially all of the Corporation's property and assets, recommending
to the stockholders a dissolution of the Corporation or a revocation of a
dissolution, or amending these By-Laws; and unless such resolution, these
By-Laws, or the Certificate of Incorporation expressly so provide, no such
committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock.
SECTION 9. CONFERENCE TELEPHONE MEETINGS. Unless otherwise
restricted by the Certificate of Incorporation or by these By-Laws, the members
of the Board of Directors or any committee designated by the Board, may
participate in a meeting of the Board or such committee, as the case may be, by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and such
participation shall constitute presence in person at such meeting.
SECTION 10. CONSENT OF DIRECTORS OR COMMITTEE IN LIEU OF MEETING.
Unless otherwise restricted by the Certificate of Incorporation or by these
By-Laws, any action required or permitted to be taken at any meeting of the
Board of Directors, or of any committee thereof, may be taken without a meeting
if all members of the Board or committee,
6
<PAGE>
as the case may be, consent thereto in writing and the writing or writings are
filed with the minutes of proceedings of the Board or committee, as the case may
be.
ARTICLE III
OFFICERS
SECTION 1. OFFICERS. The officers of the Corporation shall be a
Chairman of the Board, a Chief Executive Officer, a President, one or more Vice
Presidents, a Secretary and a Treasurer, and such additional officers, if any,
as shall be elected by the Board of Directors pursuant to the provisions of
Section 7 of this Article III. The Chairman of the Board, the Chief Executive
Officer, the President, one or more Vice Presidents, the Secretary and the
Treasurer shall be elected by the Board of Directors at its first meeting after
each annual meeting of the stockholders. The failure to hold such election
shall not of itself terminate the term of office of any officer. All officers
shall hold office at the pleasure of the Board of Directors. Any officer may
resign at any time upon written notice to the Corporation. Officers may, but
need not, be Directors. Any number of offices may be held by the same person.
All officers, agents and employees shall be subject to removal, with
or without cause, at any time by the Board of Directors or by action of the
holders of a majority in number of the shares of stock of the Corporation. The
removal of an officer without cause shall be without prejudice to his contract
rights, if any. The election or appointment of an officer shall not of itself
create contract rights. All agents and employees other than officers elected by
the Board of Directors shall also be subject to removal, with or without cause,
at any time by the officers appointing them.
Any vacancy caused by the death of any officer, his resignation, his
removal, or otherwise, may be filled by the Board of Directors, and any officer
so elected shall hold office at the pleasure of the Board of Directors.
In addition to the powers and duties of the officers of the
Corporation as set forth in these By-Laws, the officers shall have such
authority and shall perform such duties as from time to time may be determined
by the Board of Directors.
SECTION 2. POWERS AND DUTIES OF THE CHAIRMAN OF THE BOARD. The
Chairman of the Board shall preside at all meetings of the stockholders and at
all meetings of the Board of Directors and shall have such other powers and
perform such other duties as may from time to time be assigned to him by these
By-Laws or by the Board of Directors.
7
<PAGE>
SECTION 3A. POWERS AND DUTIES OF THE CHIEF EXECUTIVE OFFICER. The
Chief Executive Officer shall be the chief operating officer of the Corporation
and, subject to the control of the Board of Directors and the Chairman of the
Board, shall have general charge and control of all its operations and shall
perform all duties incident to the office of Chief Executive Officer. In the
absence of the Chairman of the Board, he shall preside at all meetings of the
stockholders and at an meetings of the Board of Directors and shall have such
other powers and perform such other duties as may from time to time be assigned
to him by these By-Laws or by the Board of Directors or the Chairman of the
Board.
SECTION 3B. POWERS AND DUTIES OF THE PRESIDENT. The President shall,
subject to the control of the Board of Directors, the Chairman of the Board and
the Chief Executive Officer, have general charge and control of the marketing,
sales and corporate development responsibilities of the Corporation. He shall
have such other powers and perform such other duties as may from time to time be
assigned to him by these By-Laws or by the Board of Directors, the Chairman of
the Board or the Chief Executive Officer.
SECTION 4. POWERS AND DUTIES OF THE VICE PRESIDENTS. Each Vice
President shall perform all duties incident to the office of Vice President and
shall have such other powers and perform such other duties as may from time to
time be assigned to him by these By-Laws or by the Board of Directors, the
Chairman of the Board, the Chief Executive Officer or the President.
SECTION 5. POWERS AND DUTIES OF THE SECRETARY. The Secretary shall
keep the minutes of all meetings of the Board of Directors and the minutes of
all meetings of the stockholders in books provided for that purpose; he shall
attend to the giving or serving of all notices of the Corporation; he shall have
custody of the corporate seal of the Corporation and shall affix the same to
such documents and other papers as the Board of Directors, the Chairman of the
Board, the Chief Executive Officer or the President shall authorize and direct;
he shall have charge of the stock certificate books, transfer books and stock
ledgers and such other books and papers as the Board of Directors, the Chairman
of the Board, the Chief Executive Officer or the President shall direct, all of
which shall at all reasonable times be open to the examination of any Director,
upon application, at the office of the Corporation during business hours; and he
shall perform all duties incident to the office of Secretary and shall also have
such other powers and shall perform such other duties as may from time to time
be assigned to him by these By-Laws or the Board of Directors, the Chairman of
the Board, the Chief Executive Officer or the President.
SECTION 6. POWERS AND DUTIES OF THE TREASURER. The Treasurer shall
have custody of, and when proper shall pay out, disburse or otherwise dispose
of, all funds and securities of the Corporation which may have come into his
hands; he may endorse on behalf
8
<PAGE>
of the Corporation for collection checks, notes and other obligations and shall
deposit the same to the credit of the Corporation in such bank or banks or
depositary or depositaries as the Board of Directors may designate; he shall
sign all receipts and vouchers for payments made to the Corporation; he shall
enter or cause to be entered regularly in the books of the Corporation kept for
the purpose full and accurate accounts of all moneys received or paid or
otherwise disposed of by him and whenever required by the Board of Directors or
the Chief Executive Officer shall render statements of such accounts; he shall,
at all reasonable times, exhibit his books and accounts to any Director of the
Corporation upon application at the office of the Corporation during business
hours; and he shall perform all duties incident to the office of Treasurer and
shall also have such other powers and shall perform such other duties as may
from time to time be assigned to him by these By-Laws or by the Board of
Directors, the Chairman of the Board, the Chief Executive Officer or the
President.
SECTION 7. ADDITIONAL OFFICERS. The Board of Directors may from time
to time elect such other officers (who may but need not be Directors), including
a Controller, Assistant Treasurers, Assistant Secretaries and Assistant
Controllers, as the Board may deem advisable and such officers shall have such
authority and shall perform such duties as may from time to time be assigned to
them by the Board of Directors, the Chairman of the Board, the Chief Executive
Officer or the President.
The Board of Directors may from time to time by resolution delegate to
any Assistant Treasurer or Assistant Treasurers any of the powers or duties
herein assigned to the Treasurer; and may similarly delegate to any Assistant
Secretary or Assistant Secretaries any of the powers or duties herein assigned
to the Secretary.
SECTION 8. GIVING OF BOND BY OFFICERS. All officers of the
Corporation, if required to do so by the Board of Directors, shall furnish bonds
to the Corporation for the faithful performance of their duties, in such
penalties and with such conditions and security as the Board shall require.
SECTION 9. VOTING UPON STOCKS. Unless otherwise ordered by the Board
of Directors, the Chairman of the Board, the Chief Executive Officer, the
President or any Vice President shall have full power and authority on behalf of
the Corporation to attend and to act and to vote, or in the name of the
Corporation to execute proxies to vote, at any meetings of stockholders of any
corporation in which the Corporation may hold stock, and at any such meetings
shall possess and may exercise, in person or by proxy, any and all rights,
powers and privileges incident to the ownership of such stock. The Board of
Directors may from time to time, by resolution, confer like powers upon any
other person or persons.
9
<PAGE>
SECTION 10. COMPENSATION OF OFFICERS. The officers of the
Corporation shall be entitled to receive such compensation for their services as
shall from time to time be determined by the Board of Directors.
ARTICLE IV
STOCK-SEAL-FISCAL YEAR
SECTION 1. CERTIFICATES FOR SHARES OF STOCK. The certificates for
shares of stock of the Corporation shall be in such form, not inconsistent with
the Certificate of Incorporation, as shall be approved by the Board of
Directors. All certificates shall be signed by the Chairman of the Board, the
Chief Executive Officer, the President or a Vice President and by the Secretary
or an Assistant Secretary or the Treasurer or an Assistant Treasurer, and shall
not be valid unless so signed.
In case any officer or officers who shall have signed any such
certificate or certificates shall cease to be such officer or officers of the
Corporation, whether because of death, resignation or otherwise, before such
certificate or certificates shall have been delivered by the Corporation, such
certificate or certificates may nevertheless be issued and delivered as though
the person or persons who signed such certificate or certificates had not ceased
to be such officer or officers of the Corporation.
All certificates for shares of stock shall be consecutively numbered
as the same are issued. The name of the person owning the shares represented
thereby with the number of such shares and the date of issue thereof shall be
entered on the books of the Corporation.
Except as hereinafter provided, all certificates surrendered to the
Corporation for transfer shall be cancelled, and no new certificates shall be
issued until former certificates for the same number of shares have been
surrendered and cancelled.
SECTION 2. LOST, STOLEN OR DESTROYED CERTIFICATES. Whenever a person
owning a certificate for shares of stock of the Corporation alleges that it has
been lost, stolen or destroyed, he shall file in the office of the Corporation
an affidavit setting forth, to the best of his knowledge and belief, the time,
place and circumstances of the loss, theft or destruction, and, if required by
the Board of Directors, a bond of indemnity or other indemnification sufficient
in the opinion of the Board of Directors to indemnify the Corporation and its
agents against any claim that may be made against it or them on account of the
alleged loss, theft or destruction of any such certificate or the issuance of a
new certificate in replacement therefor. Thereupon the Corporation may cause to
be issued to such person a new certificate in
10
<PAGE>
replacement for the certificate alleged to have been lost, stolen or destroyed.
Upon the stub of every new certificate so issued shall be noted the fact of such
issue and the number, date and the name of the registered owner of the lost,
stolen or destroyed certificate in lieu of which the new certificate is issued.
SECTION 3. TRANSFER OF SHARES. Shares of stock of the Corporation
shall be transferred on the books of the Corporation by the holder thereof, in
person or by his attorney duly authorized in writing, upon surrender and
cancellation of certificates for the number of shares of stock to be
transferred, except as provided in the preceding section.
SECTION 4. REGULATIONS. The Board of Directors shall have power and
authority to make such rules and regulations as it may deem expedient concerning
the issue, transfer and registration of certificates for shares of stock of the
Corporation.
SECTION 5. RECORD DATE. In order that the Corporation may determine
the stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, or to express consent to corporate action in writing
without a meeting or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, as the case may be, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty (60) nor less than
ten (10) days before the date of such meeting, nor more than sixty (60) days
prior to any other action.
If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held; the record date for determining
stockholders entitled to express consent to corporate action in writing without
a meeting, when no prior action by the Board of Directors is necessary, shall be
the day on which the first written consent is expressed; and the record date for
determining stockholders for any other purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
SECTION 6. DIVIDENDS. Subject to the provisions of the Certificate
of Incorporation, the Board of Directors shall have power to declare and pay
dividends upon shares of stock of the Corporation, but only out of funds
available for the payment of dividends as provided by law.
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Subject to the provisions of the Certificate of Incorporation, any
dividends declared upon the stock of the Corporation shall be payable on such
date or dates as the Board of Directors shall determine. If the date fixed for
the payment of any dividend shall in any year fall upon a legal holiday, then
the dividend payable on such date shall be paid on the next day not a legal
holiday.
SECTION 7. CORPORATE SEAL. The Board of Directors shall provide a
suitable seal, containing the name of the Corporation, which seal shall be kept
in the custody of the Secretary. A duplicate of the seal may be kept and be
used by any officer of the Corporation designated by the Board of Directors, the
Chairman of the Board, the Chief Executive Officer or the President.
SECTION 8. FISCAL YEAR. The fiscal year of the Corporation shall be
such fiscal year as the Board of Directors from time to time by resolution shall
determine.
ARTICLE V
MISCELLANEOUS PROVISIONS
SECTION 1. CHECKS, NOTES, ETC. All checks, drafts, bills of
exchange, acceptances, notes or other obligations or orders for the payment of
money shall be signed and, if so required by the Board of Directors,
countersigned by such officers of the Corporation and/or other persons as the
Board of Directors from time to time shall designate.
Checks, drafts, bills of exchange, acceptances, notes, obligations and
orders for the payment of money made payable to the Corporation may be endorsed
for deposit to the credit of the Corporation with a duly authorized depositary
by the Treasurer, or otherwise as the Board of Directors may from time to time,
by resolution, determine.
SECTION 2. LOANS. No loans and no renewals of any loans shall be
contracted on behalf of the Corporation except as authorized by the Board of
Directors. When authorized so to do, any officer or agent of the Corporation
may effect loans and advances for the Corporation from any bank, trust company
or other institution or from any firm, corporation or individual, and for such
loans and advances may make, execute and deliver promissory notes, bonds or
other evidences of indebtedness of the Corporation. When authorized so to do,
any officer or agent of the Corporation may pledge, hypothecate or transfer, as
security for the payment of any and all loans, advances, indebtedness and
liabilities of the Corporation, any and all stocks, securities and other
personal property at any time held
12
<PAGE>
by the Corporation, and to that end may endorse, assign and deliver the same.
Such authority may be general or confined to specific instances.
SECTION 3. WAIVERS OF NOTICE. Whenever any notice whatever is
required to be given by law, by the Certificate of Incorporation or by these
By-Laws to any person or persons, a waiver thereof in writing, signed by the
person or persons entitled to the notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
SECTION 4. OFFICES OUTSIDE OF DELAWARE. Except as otherwise required
by the laws of the State of Delaware, the Corporation may have an office or
offices and keep its books, documents and papers outside of the State of
Delaware at such place or places as from time to time may be determined by the
Board of Directors, the Chairman of the Board, the Chief Executive Officer or
the President.
SECTION 5. INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES. The
Corporation shall indemnify to the full extent authorized by law any person made
or threatened to be made a party to an action, suit or proceeding, whether
criminal, civil, administrative or investigative, by reason of the fact that he,
his testator or intestate 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.
ARTICLE VI
AMENDMENTS
These By-Laws and any amendment thereof may be altered, amended or
repealed, or new By-Laws may be adopted, by the Board of Directors at any
regular or special meeting by the affirmative vote of a majority of all of the
members of the Board, provided in the case of any special meeting at which all
of the members of the Board are not present, that the notice of such meeting
shall have stated that the amendment of these By-Laws was one of the purposes of
the meeting; but these By-Laws and any amendment thereof, including the By-Laws
adopted by the Board of Directors, may be altered, amended or repealed and other
By-Laws may be adopted by the holders of a majority of the total outstanding
stock of the Corporation entitled to vote at any annual meeting or at any
special meeting, provided, in the case of any special meeting, that notice of
such proposed alteration, amendment, repeal or adoption is included in the
notice of the meeting.
13
<PAGE>
Exhibit 4.1
================================================================================
LEINER HEALTH PRODUCTS GROUP INC., as Issuer,
and
UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee
_______________________
INDENTURE
Dated as of June 30, 1997
_______________________
$85,000,000
9 5/8% SENIOR SUBORDINATED NOTES DUE 2007
================================================================================
<PAGE>
TABLE OF CONTENTS
PAGE
PARTIES........................................................................1
RECITALS.......................................................................1
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.01. Definitions.....................................................1
Section 1.02. Other Definitions..............................................42
Section 1.03. Rules of Construction..........................................43
Section 1.04. Form of Documents Delivered to Trustee.........................44
Section 1.05. Acts of Holders................................................46
Section 1.06. Notices, etc., to the Trustee and the Company..................47
Section 1.07. Notice to Holders; Waiver......................................48
Section 1.08. Conflict with Trust Indenture Act..............................49
Section 1.09. Effect of Headings and Table of Contents.......................49
Section 1.10. Successors and Assigns.........................................49
Section 1.11. Separability Clause............................................49
Section 1.12. Benefits of Indenture..........................................50
Section 1.13. GOVERNING LAW..................................................50
Section 1.14. No Recourse Against Others.....................................50
Section 1.15. Exhibits and Schedules.........................................50
Section 1.16. Counterparts...................................................51
Section 1.17. Duplicate Originals............................................51
Section 1.18. Incorporation by Reference of TIA..............................51
i
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ARTICLE TWO
SECURITY FORMS
Section 2.01. Form and Dating................................................51
Section 2.02. Execution and Authentication; Aggregate Principal Amount.......53
Section 2.03. Restrictive Legends............................................54
Section 2.04. Book-Entry Provisions for Global Note..........................56
Section 2.05. Special Transfer Provisions....................................59
ARTICLE THREE
THE NOTES
Section 3.01. Title and Terms................................................62
Section 3.02. Denominations..................................................63
Section 3.03. Temporary Notes................................................63
Section 3.04. Registration, Registration of Transfer and Exchange............63
Section 3.05. Mutilated, Destroyed, Lost and Stolen Notes....................66
Section 3.06. Payment of Interest; Interest Rights Preserved.................67
Section 3.07. Persons Deemed Owners..........................................69
Section 3.08. Cancellation...................................................69
Section 3.09. Computation of Interest........................................69
Section 3.10. Legal Holidays.................................................70
Section 3.11. CUSIP Number...................................................70
Section 3.12. Payment of Additional Interest Under Registration Rights
Agreement......................................................70
ARTICLE FOUR
DEFEASANCE OR COVENANT DEFEASANCE
Section 4.01. The Company's Option To Effect Defeasance or Covenant
Defeasance.....................................................71
ii
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Section 4.02. Defeasance and Discharge.......................................71
Section 4.03. Covenant Defeasance............................................72
Section 4.04. Conditions to Defeasance or Covenant Defeasance................73
Section 4.05. Deposited Money and U.S. Government Obligations To Be Held
in Trust; Other Miscellaneous Provisions.......................75
Section 4.06. Reinstatement..................................................76
Section 4.07. Repayment to Company...........................................77
ARTICLE FIVE
REMEDIES
Section 5.01. Events of Default..............................................77
Section 5.02. Acceleration of Maturity; Rescission and Annulment.............80
Section 5.03. Collection of Indebtedness and Suits for Enforcement by
Trustee; Other Remedies........................................83
Section 5.04. Trustee May File Proofs of Claims..............................84
Section 5.05. Trustee May Enforce Claims Without Possession of Notes.........85
Section 5.06. Application of Money Collected.................................86
Section 5.07. Limitation on Suits............................................86
Section 5.08. Unconditional Right of Holders To Receive Principal, Premium
and Interest...................................................87
Section 5.09. Restoration of Rights and Remedies.............................88
Section 5.10. Rights and Remedies Cumulative.................................88
Section 5.11. Delay or Omission Not Waiver...................................88
Section 5.12. Control by Majority............................................89
Section 5.13. Waiver of Past Defaults........................................89
Section 5.14. Undertaking for Costs..........................................90
Section 5.15. Waiver of Stay, Extension or Usury Laws........................91
iii
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ARTICLE SIX
THE TRUSTEE
Section 6.01. Certain Duties and Responsibilities............................91
Section 6.02. Notice of Defaults.............................................93
Section 6.03. Certain Rights of Trustee......................................93
Section 6.04. Trustee Not Responsible for Recitals, Dispositions of Notes
or Application of Proceeds Thereof.............................95
Section 6.05. Trustee and Agents May Hold Notes; Collections; etc............95
Section 6.06. Money Held in Trust............................................96
Section 6.07. Compensation and Indemnification of Trustee and Its Prior
Claim..........................................................96
Section 6.08. Conflicting Interests..........................................98
Section 6.09. Corporate Trustee Required; Eligibility........................98
Section 6.10. Resignation and Removal; Appointment of Successor Trustee......98
Section 6.11. Acceptance of Appointment by Successor........................101
Section 6.12. Successor Trustee by Merger, etc..............................102
Section 6.13. Preferential Collection of Claims Against Issuers.............102
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE
Section 7.01. Preservation of Information; Company To Furnish Trustee
Names and Addresses of Holders................................103
Section 7.02. Communications of Holders.....................................103
Section 7.03. Reports by Trustee............................................104
iv
<PAGE>
ARTICLE EIGHT
SUCCESSOR CORPORATION
Section 8.01. When Company May Merge, etc...................................104
Section 8.02. Successor Substituted.........................................105
Section 8.03. First Supplemental Indenture..................................106
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
Section 9.01. Without Consent of Holders....................................107
Section 9.02. With Consent of Holders.......................................108
Section 9.03. Compliance with Trust Indenture Act...........................110
Section 9.04. Revocation and Effect of Consents.............................110
Section 9.05. Notation on or Exchange of Notes..............................111
Section 9.06. Trustee May Sign Amendments, etc..............................112
ARTICLE TEN
COVENANTS
Section 10.01. Payment of Principal, Premium and Interest....................112
Section 10.02. Maintenance of Office or Agency...............................112
Section 10.03. Money for Note Payments To Be Held in Trust...................113
Section 10.04. Existence.....................................................115
Section 10.05. Payment of Taxes and Other Claims.............................116
Section 10.06. Maintenance of Properties.....................................116
Section 10.07. Insurance.....................................................117
Section 10.08. Compliance Certificate........................................117
Section 10.09. Provision of Financial Statements and Reports.................118
Section 10.10. Limitation on Issuances of Guarantees of Indebtedness by
Subsidiaries..................................................118
v
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Section 10.11. Limitation on Incurrence of
Indebtedness..................................................120
Section 10.12. Limitation on Restricted Payments.............................127
Section 10.13. Limitation on Transactions with Affiliates....................133
Section 10.14. Limitation on Asset Sales.....................................135
Section 10.15. Change of Control.............................................141
Section 10.16. Limitation on Liens...........................................145
Section 10.17. Limitation on Dividends and Other Payment Restrictions
Affecting Subsidiaries........................................145
Section 10.18. Limitation on Incurrence of Other Senior Subordinated
Indebtedness..................................................148
Section 10.19. Designation of Unrestricted Subsidiaries......................148
Section 10.20. Limitation on the Sale or Issuance of Preferred Stock of
Restricted Subsidiaries.......................................150
ARTICLE ELEVEN
REDEMPTION OF NOTES
Section 11.01. Optional Redemption...........................................150
Section 11.02. Applicability of Article......................................151
Section 11.03. Election To Redeem; Notice to Trustee.........................151
Section 11.04. Selection of Notes To Be Redeemed.............................152
Section 11.05. Notice of Redemption..........................................152
Section 11.06. Deposit of Redemption Price...................................154
Section 11.07. Notes Payable on Redemption Date..............................154
Section 11.08. Notes Redeemed or Purchased in Part...........................155
ARTICLE TWELVE
SATISFACTION AND DISCHARGE
Section 12.01. Satisfaction and Discharge of Indenture.......................155
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Section 12.02. Application of Trust Money....................................157
ARTICLE THIRTEEN
GUARANTEE OF NOTES
Section 13.01. Subsidiary Guarantee..........................................157
Section 13.02. Execution and Delivery of Subsidiary Guarantee................160
Section 13.03. [Intentionally omitted.]......................................161
Section 13.04. Subsidiary Guarantee Obligations Subordinated to Guarantor
Senior Debt...................................................161
Section 13.05. Payment Over of Proceeds upon Dissolution, etc................162
Section 13.06. Suspension of Subsidiary Guarantee Obligations When
Guarantor Senior Debt in Default..............................164
Section 13.07. Release of Subsidiary Guarantee...............................165
Section 13.08. Waiver of Subrogation.........................................167
Section 13.09. Provisions Solely to Define Relative Rights...................168
Section 13.10. Trustee to Effectuate Subordination...........................169
Section 13.11. No Waiver of Subordination Provisions.........................169
Section 13.12. Notice to Trustee.............................................170
Section 13.13. Reliance on Judicial Order or Certificate of Liquidating
Agent Regarding Dissolution, etc..............................172
Section 13.14. Rights of Trustee as a Holder of Guarantor Senior Debt;
Preservation of Trustee's Rights..............................172
Section 13.15. Article Thirteen Applicable to Paying Agents..................173
Section 13.16. No Suspension of Remedies.....................................173
Section 13.17. Trustee's Relation to Guarantor Senior Debt...................173
Section 13.18. Subrogation...................................................174
vii
<PAGE>
ARTICLE FOURTEEN
SUBORDINATION OF NOTES
Section 14.01. Notes Subordinate to Senior Debt..............................175
Section 14.02. Payment Over of Proceeds upon Dissolution, etc................175
Section 14.03. Suspension of Payment When Senior Debt in Default.............177
Section 14.04. Trustee's Relation to Senior Debt.............................180
Section 14.05. Subrogation to Rights of Holders of Senior Debt...............180
Section 14.06. Provisions Solely to Define Relative Rights...................181
Section 14.07. Trustee to Effectuate Subordination...........................182
Section 14.08. No Waiver of Subordination Provisions.........................182
Section 14.09. Notice to Trustee.............................................183
Section 14.10. Reliance on Judicial Order or Certificate of Liquidating
Agent.........................................................185
Section 14.11. Rights of Trustee as a Holder of Senior Debt; Preservation
of Trustee's Rights...........................................185
Section 14.12. Article Applicable to Paying Agents...........................186
Section 14.13. No Suspension of Remedies.....................................186
Exhibit A - Form of Initial Note..........................................A-1
Exhibit B - Form of Exchange Note.........................................B-1
Exhibit C - Form of Certificate To Be Delivered
in Connection with Transfers to Non-
QIB Accredited Investors......................................C-1
Exhibit D - Form of Certificate To Be Delivered
in Connection with Transfers Pursuant
to Regulation S...............................................D-1
Exhibit E - Form of Supplemental Indenture in
Respect of Subsidiary Guarantee...............................E-1
Exhibit F - Form of First Supplemental Indenture..........................F-1
viii
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CROSS-REFERENCE TABLE
TIA INDENTURE
SECTION SECTION
310(a)(1)...................................................................6.09
310(a)(2)...................................................................6.09
310(a)(3)....................................................................N/A
310(a)(4)....................................................................N/A
310(a)(5)...................................................................6.09
310(b)......................................................................6.08
311(a)......................................................................6.13
311(b)......................................................................6.13
311(b)(2)...................................................................6.13
312(a)......................................................................7.01
312(b)......................................................................7.02
312(c)......................................................................7.02
313(a)......................................................................7.03
313(b)......................................................................7.03
313(c)......................................................................7.03
313(d)......................................................................7.03
314(a)...............................................................7.04, 10.09
314(b).......................................................................N/A
314(c)(1)...................................................................1.04
314(c)(2)...................................................................1.04
314(c)(3)...................................................................1.04
314(d).......................................................................N/A
314(e)......................................................................1.04
315(a)...................................................................6.01(a)
315(b)......................................................................6.02
315(c)...................................................................6.01(b)
315(d)...................................................................6.01(c)
315(d)(1).............................................................6.01(c)(i)
315(d)(2)............................................................6.01(c)(ii)
315(d)(3)...........................................................6.01(c)(iii)
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315(e)......................................................................5.14
316(a)......................................................................5.12
316(a)(1)(A)................................................................5.12
316(a)(1)(B)................................................................5.13
316(a)(2)....................................................................N/A
316(b)......................................................................5.08
TIA INDENTURE
SECTION SECTION
317(a)(1)...................................................................5.03
317(a)(2)...................................................................5.04
317(b).....................................................................10.03
318(a)......................................................................1.08
N/A means Not Applicable.
Note: This Cross Reference Table shall not, for any purpose, be deemed to be a
part of the Indenture.
x
<PAGE>
INDENTURE, dated as of June 30, 1997, between LEINER
HEALTH PRODUCTS GROUP INC., a corporation incorporated under the
laws of the State of Delaware ("LEINER GROUP"), as issuer, and
United States Trust Company of New York, a New York corporation,
as trustee (the "TRUSTEE").
Each party hereto agrees as follows for the benefit of
each other party and for the equal and ratable benefit of the
Holders of the Company's 9 % Senior Subordinated Notes due 2007
(the "Initial Notes") and the Holders of the 9 % Senior
Subordinated Notes due 2007 to be issued in exchange for the
Initial Notes pursuant to the Registration Rights Agreement (the
"Exchange Notes").
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section DEFINITIONS.
"ACQUIRED DEBT" means (x) Indebtedness of any Person
(the "Acquired Person") existing at the time the Acquired Person
merges or consolidates with or into, or becomes a Restricted
Subsidiary of, the Company or any Restricted Subsidiary, or (y)
Indebtedness of any Person assumed by the Company or any
Restricted Subsidiary in connection with its acquisition of
assets from such Person, in each case excluding Indebtedness
incurred in connection with, or in contemplation of, the Acquired
Person merging or consolidating with or into, or becoming a
Restricted Subsidiary of, the Company or any Restricted
Subsidiary, or such acquisition of assets.
"ACQUIRED PERSON" has the meaning set forth in the
definition of "Acquired Debt."
"ACQUISITION" means the purchase or other acquisition
of any Person or substantially all the assets of
<PAGE>
any person by any other Person, whether by purchase, stock
purchase, merger, consolidation, or other transfer, and whether
or not for consideration.
"AEA" means AEA Investors Inc., a Delaware corporation,
or any legal successor thereto as a result of a reorganization
thereof that does not involve any change in control thereof.
"AFFILIATE" means, with respect to any specified
Person, any other Person directly or indirectly controlling or
controlled by or under direct or indirect common control with
such specified Person. For purposes of this definition,
"CONTROL" (including, with correlative meanings, the terms
"CONTROLLING," "CONTROLLED BY" and "UNDER COMMON CONTROL WITH")
of any Person means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and
policies of such Person, whether through the ownership of voting
securities, by agreement or otherwise.
"APPLICABLE PREMIUM" means, with respect to a Note at
any Redemption Date, the greater of (i) 1.0% of the then
outstanding principal amount of such Note and (ii) the excess of
(A) the present value at such time of (1) the redemption price of
such Note at July 1, 2002 (such redemption price being described
in the first paragraph under Section 11.01), plus (2) all
required interest payments (excluding accrued but unpaid
interest) due on such Note through July 1, 2002, computed using a
discount rate equal to the Treasury Rate plus 75 basis points,
over (B) the then outstanding principal amount of such Note.
"ASSET SALE" means (i) any sale, lease, conveyance or
other disposition by the Company or any Restricted Subsidiary of
any assets (including by way of a sale-and-leaseback) other than
(A) in the ordinary course of business, (B) the sale, lease,
conveyance or other disposition of the Discontinued Facilities,
(C) any Financing Disposition, (D) the sale, lease, conveyance or
2
<PAGE>
other disposition of all or substantially all of the assets of
the Company, which shall not be an "Asset Sale" but instead shall
be governed by Article Eight of this Indenture) and (E) any "fee
in lieu" or other disposition of assets to any governmental
authority or agency that continue in use by the Company or any
Restricted Subsidiary, so long as the Company or any Restricted
Subsidiary may obtain title to such assets at any time upon
reasonable notice by paying a nominal fee, or (ii) the issuance
or sale of Capital Stock of any Restricted Subsidiary, in the
case of each of (i) and (ii), whether in a single transaction or
a series of related transactions, to any Person (other than to
the Company or a Restricted Subsidiary) for Net Proceeds in
excess of $1.0 million.
"ASSUMPTION" means the assignment by Leiner Group to
LHP of, and the assumption by LHP of, all of Leiner Group's
rights and obligations in respect of the Indenture and the Notes,
to be effected pursuant to the First Supplemental Indenture
between Leiner Group, LHP and the Trustee substantially in the
form of EXHIBIT F, to be entered into immediately after the
consummation of the issuance and sale of the Initial Notes.
"ATTRIBUTABLE DEBT" in respect of a Sale/Leaseback
Transaction means, as at the time of determination, the present
value (discounted at the interest rate assumed in making
calculations in accordance with FAS 13) 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).
"BANK AGENT" means The Bank of Nova Scotia or any
successor or replacement agent under the Credit Agreement.
"BANK DEBT" means any and all amounts, whether
outstanding on the Issue Date or thereafter incurred, payable
under or in respect of the Credit Facility, including without
limitation principal, premium (if any), interest
3
<PAGE>
(including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the
Company or any Restricted Subsidiary whether or not a claim for
post-filing interest is allowed in such proceedings), fees,
charges, expenses, reimbursement obligations, guarantees, other
monetary obligations of any nature and all other amounts payable
thereunder or in respect thereof.
"BANKRUPTCY LAW" means Title 11, United States
Bankruptcy Code of 1978, as amended, or any similar United States
Federal or state law relating to bankruptcy, insolvency,
receivership, winding-up, liquidation, reorganization or relief
of debtors, or any amendment to, succession to or change in any
such law.
"BOARD OF DIRECTORS" means, with respect to any Person,
the board of directors, management committee or similar governing
body or any authorized committee thereof responsible for the
management of the business and affairs 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.
"BORROWING BASE" means, as of any date, an amount equal
to the sum of (i) 80% of the consolidated book value of the net
accounts receivable that (x) are owned by the Company or any of
its Restricted Subsidiaries as shown on the balance sheet of the
Company and its Restricted Subsidiaries for the most recently
ended fiscal quarter for which financial statements are available
or (y) are then outstanding as of such balance sheet date and
held pursuant to the terms of any Receivables Financing, and in
each case that are not more than 90 days past due, plus (ii) 60%
of the consolidated book value of the inventory owned by the
Company or any of its Restricted Subsidiaries as of such
4
<PAGE>
balance sheet date, all as calculated on a consolidated basis and
in accordance with GAAP.
"BUSINESS DAY" means each Monday, Tuesday, Wednesday,
Thursday and Friday which is not a day on which banking
institutions in New York, New York are authorized or obligated by
law or executive order to close.
"CAPITAL LEASE OBLIGATION" of any Person means, at the
time any determination thereof is to be made, the amount of the
liability in respect of a capital lease for property leased by
such Person that would at such time be required to be capitalized
on the balance sheet of such Person in accordance with GAAP.
"CAPITAL STOCK" of any Person means (i) in the case of
a corporation, corporate stock, (ii) in the case of an
association, limited liability company or business entity, any
and all Equity Interests, (iii) in the case of a partnership,
partnership interests (whether general or limited) and (iv) any
other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or
distributions of assets of, the issuing Person, including any
Preferred Stock.
"CASH EQUIVALENTS" means (i) marketable direct
obligations issued by, or unconditionally guaranteed by, the
United States Government or issued by any instrumentality or
agency thereof and backed by the full faith and credit of the
United States, in each case maturing within one year from the
date of acquisition thereof; (ii) marketable direct obligations
issued by any state of the United States of America or any
political subdivision of any such state or any public
instrumentality or agency thereof maturing within one year from
the date of acquisition thereof and, at the time of acquisition,
having one of the two highest ratings obtainable from either
Standard & Poor's Rating Group (a division of McGraw Hill Inc.)
or any successor rating agency ("S&P") or Moody's Investors
Service, Inc. or any successor rating agency ("Moody's"); (iii)
commercial paper maturing
5
<PAGE>
no more than one year from the date of creation thereof and, at
the time of acquisition, having a rating of at least A-1 from S&P
or at least P-1 from Moody's; (iv) certificates of deposit, time
deposits or bankers' acceptances (or, with respect to foreign
banks, similar instruments) maturing within one year from the
date of acquisition thereof issued by (x) any lender under the
Credit Agreement or (y) a commercial banking institution that is
a member of the Federal Reserve System or a commercial banking
institution organized and located in a country recognized by the
United States of America, in each case under this clause (y),
having combined capital and surplus and undivided profits in
excess of $500,000,000 (or the foreign currency equivalent
thereof); (v) 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 (iv) above; (vi) investments
in money market funds which invest substantially all their assets
in securities of the types described in clauses (i) through (v)
above; and (vii) other short-term investments utilized by Foreign
Subsidiaries in accordance with normal investment practices for
cash management not exceeding $1.0 million in aggregate principal
amount outstanding at any time.
"CHANGE OF CONTROL" means the occurrence of any of the
following events: (i) any "person" or "group" (as such terms are
used in Sections 13(d) and 14(d) of the Exchange Act), other than
Permitted Holders, is or becomes (including by merger,
consolidation or otherwise) the "beneficial owner" (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act, except that a
Person shall be deemed to have beneficial ownership of all shares
that such Person has the right to acquire within one year,
whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of more than 50% of the
voting power of the total outstanding Voting Stock of the
Company; PROVIDED that any "person" or "group" will be deemed to
"beneficially own" any Voting Stock of LHP held, directly or
indirectly, by Leiner Group or PLI so long as such person or
6
<PAGE>
group "beneficially owns," directly or indirectly, in the
aggregate more than 50% of the voting power of the total
outstanding Voting Stock of Leiner Group or PLI; (ii) during any
period of two consecutive years, individuals who at the beginning
of such period constituted the Board of Directors of any of LHP,
Leiner Group or PLI (together with any new directors whose
election to such Board of Directors, or whose nomination for
election by the stockholders of the Company, was approved by the
Permitted Holders or by a vote of 66 2/3% of the directors then
still in office who were either directors at the beginning of
such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a
majority of such Board of Directors of LHP, Leiner Group or PLI
then in office, as applicable; or (iii) the sale or other
disposition (including by merger, consolidation or otherwise) of
all or substantially all of the assets of any of LHP, Leiner
Group or PLI to any "person" or "group" (as defined in Rule 13d-5
of the Exchange Act) as an entirety or substantially as an
entirety in one transaction or a series of related transactions
unless immediately after giving effect to such transaction, no
"person" or "group," other than the Permitted Holders, is or
becomes (as a result of the acquisition, by merger or otherwise)
the beneficial owner, directly or indirectly, of more than 50% of
the voting power of the total outstanding Voting Stock of the
surviving or transferee corporation.
"COMMISSION" or "SEC" means the Securities and Exchange
Commission, as from time to time constituted, or if at any time
after the execution of this Indenture such Commission is not
existing and performing the applicable duties now assigned to it,
then the body or bodies performing such duties at such time.
"COMPANY" means Leiner Group until consummation of the
Assumption, and, upon consummation of the Assumption, means LHP
until a successor Person shall have become such pursuant to
Article Eight, and thereafter "Company" shall mean such successor
Person.
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"COMPANY REQUEST" or "COMPANY ORDER" means a written
request or order of the Company signed in the name of the Company
by an officer of the Company.
"CONSOLIDATED CASH FLOW" means, with respect to any
period, the Consolidated Net Income for such period, plus without
duplication (i) Consolidated Interest Expense for such period,
plus (ii) provision for taxes based on income, profits or
capital, to the extent such provision for taxes was included in
computing such Consolidated Net Income, plus (iii) depreciation,
amortization (including, without limitation, amortization of
goodwill and other intangibles) and all other non-cash charges
(excluding any non-cash charge which requires an accrual or
reserve for cash charges for any future period), to the extent
such depreciation, amortization and other non-cash charges were
deducted in computing such Consolidated Net Income.
"CONSOLIDATED COVERAGE RATIO" means, with respect to
any date of determination, the ratio of (i) the aggregate amount
of Consolidated Cash Flow for the period of the most recent four
consecutive fiscal quarters ended prior to such date for which
consolidated financial statements of the Company are available,
to (ii) Consolidated Interest Expense for such four fiscal
quarters, PROVIDED that:
(1) if since the beginning of such period the Company
or any Restricted Subsidiary has incurred any Indebtedness
that remains outstanding on such date of determination, or
if the transaction giving rise to the need to calculate the
Consolidated Coverage Ratio involves an incurrence of
Indebtedness (including without limitation any Acquired
Debt), Consolidated Cash Flow and Consolidated Interest
Expense for such period shall be calculated after giving
effect on a pro forma basis to such Indebtedness and the
application of the proceeds thereof (and, in the case of any
Acquired Debt, the related acquisition) as if such
Indebtedness had been incurred (and any such acquisition had
occurred) on the first day of such period;
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(2) if since the beginning of such period the Company
or any Restricted Subsidiary has repaid, repurchased,
defeased, retired or otherwise discharged (a "Discharge")
any Indebtedness that is no longer outstanding on such date
of determination, or if the transaction giving rise to the
need to calculate the Consolidated Coverage Ratio involves a
Discharge of Indebtedness, Consolidated Cash Flow and
Consolidated Interest Expense for such period shall be
calculated after giving effect to such Discharge of such
Indebtedness, including with the proceeds of any such new
Indebtedness, as if such Discharge had occurred on the first
day of such period;
(3) if since the beginning of such period the Company
or any Restricted Subsidiary shall have disposed of any
company, any business, any group of assets constituting an
operating unit, or any other assets out of the ordinary
course of business (a "Sale"), (x) Consolidated Cash Flow
for such period shall be reduced by an amount equal to the
Consolidated Cash Flow (if positive) directly attributable
to the assets that are the subject of such Sale for such
period or increased by an amount equal to the Consolidated
Cash Flow (if negative) directly attributable thereto for
such period and (y) Consolidated Interest Expense for such
period shall be reduced by an amount equal to the
Consolidated Interest Expense directly attributable to any
Indebtedness of the Company or any Restricted Subsidiary
Discharged with respect to the Company and its continuing
Restricted Subsidiaries in connection with such Sale for
such period (and, if the Capital Stock of any Restricted
Subsidiary is sold, transferred or otherwise disposed of,
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, transfer or disposition);
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<PAGE>
(4) if since the beginning of such period the Company
or any Restricted Subsidiary shall have acquired (by merger
or otherwise) any company, any business, any group of assets
constituting an operating unit, or any other assets out of
the ordinary course of business (a "Purchase"), Consolidated
Cash Flow and Consolidated Interest Expense for such period
shall be calculated after giving pro forma effect thereto
(including the incurrence of any related Indebtedness) as if
such Purchase had occurred on the first day of such period;
and
(5) if since the beginning of such period any Person
became a Restricted Subsidiary or was merged or consolidated
with or into the Company or any Restricted Subsidiary, in
each case in a Purchase, and since the beginning of such
period such Person shall have Discharged any Indebtedness or
made any Sale or Purchase that would have required an
adjustment pursuant to clause (2), (3) or (4) above if made
by the Company or a Restricted Subsidiary 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 Discharge, Sale or Purchase
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
Obligation applicable to such Indebtedness if such Interest Rate
Agreement Obligation has a remaining term as at the date of
determination in excess of 12 months). If any Indebtedness
bears, at the option of the Company or a Restricted Subsidiary, a
fixed or floating rate of interest and is being given pro forma
effect, the interest expense on such Indebtedness shall be
computed by applying, at the option of the Company, either a
fixed or
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<PAGE>
floating rate. If any Indebtedness that is being given pro forma
effect was incurred under a revolving credit facility, the
interest expense on such Indebtedness shall be computed based
upon the average daily balance of such Indebtedness during the
applicable period. In making any calculation of the Consolidated
Coverage Ratio for any period prior to the date of the closing of
the Recapitalization, the Recapitalization shall be deemed to
have taken place on the first day of such period.
"CONSOLIDATED INTEREST EXPENSE" means, with respect to
any period, the sum (without duplication) of (i) the interest
expense of the Company and its Restricted Subsidiaries for such
period determined on a consolidated basis in accordance with GAAP
consistently applied, including without limitation (a)
amortization of debt discount, (b) net payments, if any, made or
received under Interest Rate Agreement Obligations (including
amortization of discounts), (c) the interest portion of any
deferred payment obligation, (d) accrued interest, (e) the
interest component of Capital Lease Obligations and rent expense
associated with Attributable Debt in respect of the relevant
lease giving rise thereto determined as if such lease were a
capitalized lease, accrued by the Company during such period, and
all capitalized interest of the Company and its Restricted
Subsidiaries, and (e) all commissions, discounts and other fees
and charges owed with respect to letters of credit, bankers'
acceptance financing or similar facilities, plus (ii) all cash
dividends paid during such period by the Company and its
Restricted Subsidiaries with respect to any Disqualified Stock
(other than to the Company or a Restricted Subsidiary), and minus
(iii) to the extent otherwise included in Consolidated Interest
Expense, amortization or write-off of financing costs, in each
case under clauses (i) through (iii) as determined on a
consolidated basis in accordance with GAAP consistently applied.
"CONSOLIDATED NET INCOME" means, with respect to any
period, the net income (or loss) of the Company and its
11
<PAGE>
Restricted Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP consistently applied,
adjusted by excluding, to the extent included in calculating such
net income (or loss), without duplication, (i) any extraordinary
gain or loss as recorded on the statement of operations in
accordance with GAAP, (ii) the portion of net income (or loss) of
the Company and its Restricted Subsidiaries allocable to the
Company's equity in the net income (or loss) of any
unconsolidated Person or Unrestricted Subsidiary, except (in the
case of such net income) to the extent of the amount of dividends
or distributions actually paid or made to the Company or any of
its Restricted Subsidiaries by such other Person during such
period, (iii) net income (or loss) of any Person combined with
the Company or any of its Restricted Subsidiaries on a "pooling
of interests" basis attributable to any period prior to the date
of combination, (iv) any gain or loss realized upon any Asset
Sale and any gain or loss realized upon the sale or other
disposition of any Capital Stock of any Person, (v) the net
income of any Restricted Subsidiary if the declaration of
dividends or similar distributions by that Restricted Subsidiary
of that net income to the Company is at the time restricted,
directly or indirectly, by operation of the terms of its charter
or any agreement, instrument, judgment, decree, order, statute,
rule or governmental regulation applicable to that Restricted
Subsidiary or its stockholders (other than pursuant to the Notes
or the Indenture), except to the extent that any dividend or
distribution was or could have been made by the Restricted
Subsidiary to the Company or another Restricted Subsidiary during
such period in compliance with such restrictions, (vi) all
deferred financing costs written off and premiums paid in
connection with any early extinguishment of Indebtedness, (vii)
any unrealized gains or losses in respect of Currency Agreement
Obligations, (viii) any unrealized foreign currency transaction
gains or losses in respect of Indebtedness of any Person
denominated in a currency other than the functional currency of
such Person, (ix) any non-recurring charges related to the
Recapitalization or to any acquisition by the Company or any
12
<PAGE>
Restricted Subsidiary after the Issue Date, including without
limitation (a) any non-recurring compensation expense for the
in-the-money value of stock options that will be cashed out,
converted, exchanged or otherwise retired in connection with the
Recapitalization, and (b) any charge or expenses incurred for
management transaction bonuses in connection with the
Recapitalization, (x) any non-cash, non-recurring charges, (xi)
any charge relating to the closure of the Discontinued
Facilities, (xii) any non-recurring charges incurred in
connection with the Eastern Consolidation, (xiii) any charge or
expense incurred during the fiscal year ended March 31, 1997 (a)
for severance, hiring and relocation expenses in connection with
a management reorganization, (b) in connection with the
preparation and filing of a registration statement with the
Commission and (c) for bonuses paid to the former owners of the
Company's Canadian subsidiary and (xiv) any non-cash compensation
charge arising from any grant of stock options.
"CONSOLIDATED TANGIBLE ASSETS" means, as of any date of
determination, the total assets, less goodwill and other
intangibles (other than patents, trademarks, copyrights, licenses
and other intellectual property) shown on the balance sheet of
the Company and its Restricted Subsidiaries for the most recently
ended fiscal quarter for which financial statements are
available, determined on a consolidated basis in accordance with
GAAP.
"CORPORATE TRUST OFFICE" means the office of the
Trustee at which at any particular time its corporate trust
business shall be principally administered, which office at the
date of execution of this Indenture is located at 114 West 47th
Street, New York, New York 10036-1532; attention: Corporate
Trust Administration.
"CREDIT AGREEMENT" means the credit agreement dated as
of June 30, 1997, among Leiner Group, Vita Health Company (1985)
Ltd., a Canadian corporation, the banks and other financial
institutions party thereto from time to time, The Bank of Nova
Scotia, as administrative agent,
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<PAGE>
Merrill Lynch Capital Corporation, as documentation agent, and
Salomon Brothers Holding Company Inc, as syndication agent, as
such agreement may be assumed by LHP or any other successor in
interest, and as such agreement may be amended, supplemented,
waived or otherwise modified from time to time, or refunded,
refinanced, restructured, replaced, renewed, repaid, increased or
extended from time to time (whether in whole or in part, whether
with the original agent and lenders or other agents and lenders
or otherwise, and whether provided under the original Credit
Agreement or otherwise).
"CREDIT FACILITY" means the collective reference to the
Credit Agreement, any Loan Documents (as defined therein), any
notes and letters of credit issued pursuant thereto and any
guarantee and collateral agreement, patent and trademark security
agreement, mortgages, letter of credit applications and other
guarantees, security agreements and collateral documents, and
other instruments and documents, executed and delivered pursuant
to or in connection with any of the foregoing, in each case as
the same may be amended, supplemented, waived or otherwise
modified from time to time, or refunded, refinanced,
restructured, replaced, renewed, repaid, increased or extended
from time to time (whether in whole or in part, whether with the
original agent and lenders or other agents and lenders or
otherwise, and whether provided under the original Credit
Agreement or otherwise). Without limiting the generality of the
foregoing, the term "Credit Facility" shall include any agreement
(i) changing the maturity of any Indebtedness incurred thereunder
or contemplated thereby, (ii) adding Subsidiaries of the Company
as additional borrowers or guarantors thereunder, (iii)
increasing the amount of Indebtedness incurred thereunder or
available to be borrowed thereunder or (iv) otherwise altering
the terms and conditions thereof.
"CURRENCY AGREEMENT OBLIGATIONS" means the Obligations
of any Person under a foreign exchange contract, currency swap
agreement or other similar agreement or
14
<PAGE>
arrangement to protect such Person against fluctuations in
currency values.
"DEBT ASSUMPTION" means (i) the Assumption and (ii) the
assignment by Leiner Group to LHP of, and the assumption by LHP
of, the rights and obligations of Leiner Group in respect of the
Credit Facility (and any guarantee thereof by LHP).
"DEFAULT" means any event that is, or after the giving
of notice or passage of time or both would be, an Event of
Default.
"DESIGNATED SENIOR DEBT" means (i) all Bank Debt, and
(ii) if no Senior Debt or Guarantor Senior Debt is outstanding
under the Credit Agreement, or if the lenders under the Credit
Agreement shall have consented thereto, any other Senior Debt (or
for certain purposes more fully described in Article Thirteen of
this Indenture, Guarantor Senior Debt) permitted to be incurred
under the Indenture the principal amount of which is $10.0
million or more at the time of the designation of such Senior
Debt (or Guarantor Senior Debt) as "Designated Senior Debt" by
the Company (or in the case of Guarantor Senior Debt, by the
relevant Subsidiary Guarantor) in a written instrument delivered
to the Trustee.
"DEPOSITORY" shall mean The Depository Trust Company,
New York, New York, or any successor thereto registered under the
Exchange Act or other applicable statute or regulation.
"DISCONTINUED FACILITIES" means the Company's Chicago,
Illinois OTC pharmaceutical facility and the Company's facilities
to be closed in connection with the Eastern Consolidation,
including the West Unity, Ohio and Sherburne, New York
facilities.
"DISPOSITION" means, with respect to any Person, any
merger, consolidation or other business combination
15
<PAGE>
involving such Person (whether or not such Person is the
Surviving Person) or the sale, assignment, transfer, lease,
conveyance or other disposition of all or substantially all of
such Person's assets.
"DISQUALIFIED STOCK" means (i)any Preferred Stock of
any Restricted Subsidiary and (ii)any Capital Stock that, by its
terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the
happening of any event, matures or is mandatorily redeemable,
pursuant to a sinking fund obligation or otherwise, or is
redeemable at the option of the holder thereof (other than upon
the occurrence of a change of control of the Company in
circumstances where the holders of the Notes would have similar
rights), in whole or in part on or prior to the final Stated
Maturity of the Notes.
"DOLLARS" or "$" means lawful money of the United
States of America.
"EASTERN CONSOLIDATION" means the consolidation of
LHP's eastern United States packaging and distribution operations
into a new facility in South Carolina, including the closure of
Discontinued Facilities, and the incurrence of moving and
relocation expenses for equipment and personnel, severance
expenses in connection with the closure of Discontinued
Facilities and training expenses in connection with the opening
of the new facility.
"EVENT OF DEFAULT" shall have the meaning specified in
Section 5.01 hereof.
"EXCHANGE ACT" means the Securities Exchange Act of
1934, as amended.
"FAIR MARKET VALUE" means, with respect to any asset or
property, the sale value that would be obtained in an
arm's-length transaction between an informed and willing seller
under no compulsion to sell and an informed and willing buyer
under no compulsion to buy.
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<PAGE>
"FINANCING DISPOSITION" means any sale, transfer,
conveyance or other disposition of property or assets by the
Company or any Subsidiary thereof to any Receivables Entity, or
by any Receivables Subsidiary, in each case in connection with
the incurrence by a Receivables Entity of Indebtedness, or
obligations to make payments to the obligor on Indebtedness,
which may be secured by a Lien in respect of such property or
assets.
"FOREIGN SUBSIDIARY" means (a) any Restricted
Subsidiary of the Company that is (i) not organized under the
laws of the United States of America or any state thereof or the
District of Columbia and (ii) conducts its principal operations
outside the United States and (b) any Restricted Subsidiary of
the Company that has no material assets other than securities of
one or more Foreign Subsidiaries, and other assets relating to an
ownership interest in any such securities or Subsidiaries.
"GAAP" means generally accepted accounting principles
in the United States of America (i) as in effect on the Issue
Date (for purposes of the definitions of the terms "Borrowing
Base," "Consolidated Cash Flow," "Consolidated Coverage Ratio,"
"Consolidated Interest Expense," "Consolidated Net Income," and
"Consolidated Tangible Assets," all defined terms in this
Indenture as and to the extent used in or relating to any of the
foregoing definitions, and all ratios and computations based on
any of the foregoing definitions) and (ii) as in effect from time
to time (for all other purposes of this 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
statement by such other entity as approved by a significant
segment of the accounting profession.
"GUARANTEE" means a guarantee (other than by
endorsement of negotiable instruments for collection in the
ordinary course of business), direct or indirect, in any
17
<PAGE>
manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part
of any Indebtedness.
"GUARANTOR SENIOR DEBT" means, with respect to any
Subsidiary Guarantor, the principal of, premium, if any, and
interest (including any interest accruing subsequent to the
filing of a petition of bankruptcy at the rate provided for in
the documentation with respect thereto, whether or not such
interest is an allowed claim under applicable state, federal or
foreign law) on and other amounts due on or in connection with
(including any fees, premiums, expenses, including costs of
collection, and indemnities) any Indebtedness of such Subsidiary
Guarantor, whether outstanding on the Issue Date or thereafter
created, incurred or assumed, unless in the case of any
particular Indebtedness, the instrument creating or evidencing
the same or pursuant to which the same is outstanding expressly
provides that such Indebtedness shall not be senior in right of
payment to the Subsidiary Guarantee of such Subsidiary Guarantor.
Without limiting the generality of the foregoing, "Guarantor
Senior Debt" shall also include the principal of, premium, if
any, and interest (including any interest accruing subsequent to
the filing of a petition of bankruptcy at the rate provided for
in the documentation with respect thereto, whether or not such
interest is an allowed claim under applicable state, federal or
foreign law) on, and all other amounts owing in respect of, (i)
Bank Debt of such Subsidiary Guarantor and any Receivables
Financing and (ii) all Currency Agreement Obligations and
Interest Rate Agreement Obligations relating to Bank Debt of such
Subsidiary Guarantor, in each case whether outstanding on the
Issue Date or thereafter created, incurred or assumed and
including in respect of claims under Guarantees, claims for
indemnity, claims in relation to Currency Agreement Obligations
and Interest Rate Agreement Obligations, expense reimbursement
and fees. Notwithstanding the foregoing, "Guarantor Senior Debt"
shall not include (a) Indebtedness evidenced by the Subsidiary
Guarantee of such Subsidiary Guarantor, (b) Indebtedness that is
PARI PASSU with or
18
<PAGE>
expressly subordinated in right of payment to any Guarantor
Senior Debt of such Subsidiary Guarantor, (c) Indebtedness which,
when incurred and without respect to any election under Section
1111(b) of Title 11, United States Code, is by its terms without
recourse to such Subsidiary Guarantor, (d) any repurchase,
redemption or other obligation in respect of Disqualified Stock
of such Subsidiary Guarantor, (e) to the extent it might
constitute Indebtedness, amounts owing for goods, materials or
services purchased in the ordinary course of business or
consisting of trade payables or other current liabilities (other
than any current liabilities owing under Bank Debt or the current
portion of any long-term Indebtedness which would constitute
Guarantor Senior Debt but for the operation of this clause (e)),
(f) to the extent it might constitute Indebtedness, amounts owed
by such Subsidiary Guarantor for services rendered to such
Subsidiary Guarantor, (g) to the extent it might constitute
Indebtedness, any liability for federal, state, local, foreign or
other taxes owed or owing by such Subsidiary Guarantor, (h)
Indebtedness of such Subsidiary Guarantor to a Subsidiary of the
Company and (i) that portion of any Indebtedness of such
Subsidiary Guarantor which at the time of incurrence is incurred
in violation of this Indenture; PROVIDED, HOWEVER, that such
Indebtedness shall be deemed not to have been incurred in
violation of this Indenture for purposes of this clause (i) if
(x) the holder(s) of such Indebtedness or their representative or
such Subsidiary Guarantor shall have furnished to the Trustee an
opinion of recognized independent legal counsel, unqualified in
all material respects, addressed to the Trustee (which legal
counsel may, as to matters of fact, rely upon an Officers'
Certificate of such Subsidiary Guarantor) to the effect that the
incurrence of such Indebtedness does not violate the provisions
of this Indenture or (y) such Indebtedness consists of Bank Debt,
and the holder(s) of such Indebtedness or their agent or
representative (1) had no actual knowledge at the time of
incurrence that the incurrence of such Indebtedness violated this
Indenture and (2) shall have received a certificate from an
officer of such Subsidiary Guarantor to the effect that the
incurrence
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<PAGE>
of such Indebtedness does not violate the provisions of this
Indenture.
"HOLDER" or "NOTEHOLDER" means a Person in whose name a
Note is registered in the Note Register.
"INDEBTEDNESS" means, with respect to any Person,
without duplication, and whether or not contingent, (i)all
indebtedness of such Person for borrowed money or which is
evidenced by a note, bond, debenture or similar instrument, (ii)
all obligations of such Person to pay the deferred or unpaid
purchase price of property or services, 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 service, (iii) all Capital Lease Obligations and
Attributable Debt of such Person, (iv) all obligations of such
Person in respect of letters of credit or bankers' acceptances
issued or created for the account of such Person, (v) to the
extent not otherwise included in this definition, all net
obligations of such Person under all Interest Rate Agreement
Obligations or Currency Agreement Obligations of such Person,
(vi) all liabilities of others of the kind described in the
preceding clause (i), (ii) or (iii) secured by any Lien on any
property owned by such Person even if such Person has not assumed
or otherwise become liable for the payment thereof to the extent
of the value of the property subject to such Lien, (vii) all
Disqualified Stock issued by such Person, and (viii) to the
extent not otherwise included, any Guarantee by such Person of
any other Person's indebtedness or other obligations described in
clauses (i) through (vii) above. "Indebtedness" of the Company
and the Restricted Subsidiaries shall not include (i) current
trade payables incurred in the ordinary course of business and
payable in accordance with customary practices and (ii)
non-interest bearing installment obligations and accrued
liabilities incurred in the ordinary course of business which are
not more than 90 days past due.
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"INDENTURE" means this instrument as originally
executed (including all exhibits and schedules hereto) and as it
may from time to time be supplemented or amended by one or more
indentures supplemental hereto entered into pursuant to the
applicable provisions hereof.
"INDEPENDENT DIRECTOR" means a member of the Board of
Directors of the Company who does not have any material direct or
indirect financial interest in or with respect to any transaction
or series of related transactions.
"INITIAL PURCHASERS" means Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Salomon Brothers Inc
and Scotia Capital Markets (USA), Inc.
"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, when used with respect
to any Note and any installment of interest thereon, the date
specified in such Note as the fixed date on which such
installment of interest is due and payable, as set forth in such
Note.
"INTEREST RATE AGREEMENT OBLIGATIONS" means, with
respect to any Person, the Obligations of such Person under
(i)interest rate swap agreements, interest rate cap agreements
and interest rate collar agreements, and (ii)other agreements or
arrangements designed to protect such Person against fluctuations
in interest rates.
"INVESTMENT" in any Person means any direct or indirect
advance, loan or other extension of credit (including, without
limitation, by way of Guarantee or similar arrangement, but
excluding advances, loans and other extension of credit to
customers, directors, officers and employees in the ordinary
course of business) to, capital contribution (by means of any
transfer of cash or other
21
<PAGE>
property to others or any payment for property or services for
the account or use of others) to, or any purchase or acquisition
of Capital Stock, bonds, notes, debentures or other similar
instruments issued by, such Person and shall include the
designation of a Restricted Subsidiary as an Unrestricted
Subsidiary. For purposes of the definition of "Unrestricted
Subsidiary" and Section 10.12 hereof, (i) "Investment" shall
include the portion (proportionate to the Company's equity
interest in such Subsidiary) of the Fair Market Value of the
assets (net of liabilities) of any Restricted Subsidiary at the
time that such Restricted Subsidiary is designated an
Unrestricted Subsidiary and shall exclude the Fair Market Value
of the assets (net of liabilities) of any Unrestricted Subsidiary
at the time that such Unrestricted Subsidiary is designated 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 by the Board of Directors in good faith.
"ISSUE DATE" means the date of first issuance of the
Notes under this Indenture, June 30, 1997.
"LEINER GROUP" means Leiner Health Products Group Inc.,
a Delaware corporation, or any successor thereto.
"LHP" means Leiner Health Products Inc., a Delaware
corporation, or any successor thereto.
"LIEN" means, with respect to any asset, any mortgage,
lien, pledge, charge, security interest or encumbrance of any
kind in respect of such asset, whether or not filed, recorded or
otherwise perfected under applicable law (including any
conditional sale or other title retention agreement, any lease in
the nature thereof, or any option or other agreement to sell or
give a security interest in any asset).
"MANAGEMENT AGREEMENT" means the Consulting Agreement
dated as of the Issue Date among LHP, Leiner Group
22
<PAGE>
and North Castle Partners, L.L.C., as in effect on the Issue
Date, and as the same may be amended from time to time in
accordance with the terms of the Indenture.
"MANAGEMENT INVESTORS" means the officers, directors,
employees and other members of the management of Leiner Group,
PLI, LHP or any of their respective Subsidiaries, or family
members or relatives thereof, or trusts for the benefit of any of
the foregoing, or any of their heirs, executors, successors and
legal representatives, who at any date beneficially own or have
the right to acquire, directly or indirectly, Capital Stock of
LHP, Leiner Group or PLI.
"MERGER" means the merger on the Issue Date of LHP
Acquisition Corp., a Delaware corporation, with and into Leiner
Group, with Leiner Group being the surviving corporation.
"NET PROCEEDS" from an Asset Sale 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, but excluding any
other consideration received in the form of assumption by the
acquiring Person of Indebtedness or other obligations relating to
the properties or assets that are the subject of such Asset Sale
or received in any other noncash form) 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, provincial, foreign and local taxes required to
be paid or accrued as a liability under GAAP, as a consequence of
such Asset Sale, (ii) all payments made, and all installment
payments required to be made, on any Indebtedness that is secured
by any assets subject to such Asset Sale, in accordance with the
terms of any Lien upon such assets, (iii) all distributions and
other payments required to be made to minority interest holders
in Subsidiaries or joint ventures as a result of such Asset Sale,
or to any other Person (other than the Company or a
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Restricted Subsidiary) owning a beneficial interest in the assets
disposed of in such Asset Sale and (iv) appropriate amounts to be
provided as a reserve, in accordance with GAAP, against any
liabilities associated with the assets disposed of in such Asset
Sale and retained by the Company or any Restricted Subsidiary
after such Asset Sale.
"NON-PAYMENT DEFAULT" means, for purposes of Article
Fourteen hereof, any default (other than a Payment Default) with
respect to any Designated Senior Debt of the Company or any
Subsidiary Guarantor pursuant to which the maturity thereof may
be accelerated.
"NON-U.S. PERSON" means a person who is not a U.S.
person, as defined in Regulation S.
"NORTH CASTLE PARTNERS" means North Castle Partners I,
L.L.C., a Delaware limited liability company, or any legal
successor thereto as a result of a reorganization thereof that
does not involve any change in control thereof.
"NOTES" mean the Initial Notes and the Exchange Notes.
"OBLIGATIONS" means any principal, interest, penalties,
fees, indemnifications, reimbursement obligations, damages and
other liabilities payable under the documentation governing any
Indebtedness.
"OFFICER" means, with respect to any Person, the
Chairman, President, Chief Executive Officer, Chief Financial
Officer, Chief Operating Officer, any Vice President, Treasurer
or Secretary, or any other officer designated by the Board of
Directors of such Person as an Officer for purposes of this
Indenture.
"OFFICERS' CERTIFICATE" means, with respect to any
Person, a certificate signed by two Officers or by an Officer and
an Assistant Treasurer or Assistant Secretary of such Person.
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"OPINION OF COUNSEL" means a written opinion of
counsel, who may be an employee of or counsel to the Company, and
who shall be reasonably acceptable to the Trustee.
"OUTSTANDING" means, as of the date of determination,
all Notes theretofore authenticated and delivered under this
Indenture, except:
(i) Notes theretofore cancelled by the Trustee or duly
delivered to the Trustee for cancellation;
(ii) Notes, or portions thereof, for whose payment or
redemption money in the necessary amount has been
theretofore deposited with the Trustee or any Paying Agent
(other than the Company or any Affiliate thereof) in trust
for the Holders of such Notes; PROVIDED, HOWEVER, that if
such Notes are to be redeemed, notice of such redemption has
been duly and irrevocably given pursuant to this Indenture
or provision therefor reasonably satisfactory to the Trustee
has been made;
(iii) Notes with respect to which the Company has
effected defeasance or covenant defeasance as provided in
Article Four, to the extent provided in Section4.02 or 4.03;
and
(iv) Notes in exchange for or in lieu of which other
Notes have been authenticated and delivered pursuant to this
Indenture, other than any such Notes in respect of which
there shall have been presented to the Trustee proof
satisfactory to it that such Notes are held by a BONA FIDE
purchaser in whose hands the Notes are valid obligations of
the Company;
PROVIDED, HOWEVER, that in determining whether the Holders of the
requisite principal amount of Outstanding Notes have given any
request, demand, authorization, direction, notice, consent or
waiver hereunder, Notes owned by the Company or any other obligor
under the Notes or any Affiliate of the
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Company or such other obligor shall be disregarded and deemed not
to be Outstanding, except that, in determining whether the
Trustee shall be protected in relying upon any such request,
demand, authorization, direction, notice, consent or waiver, only
Notes which the Trustee knows to be so owned shall be so
disregarded. Notes so owned which have been pledged in good
faith may be regarded as Outstanding if the pledgee establishes
to the satisfaction of the Trustee the pledgee's right so to act
with respect to such Notes and that the pledgee is not the
Company or any other obligor under the Notes or any Affiliate of
the Company or such other obligor.
"PAYING AGENT" means any Person authorized by the
Company to pay the principal, or premium, if any, or interest on,
any Notes on behalf of the Company.
"PAYMENT BLOCKAGE PERIOD" shall have the meaning set
forth in Section 14.03.
"PAYMENT DEFAULT" means any default in the payment when
due (whether at Stated Maturity, by acceleration or otherwise) of
principal or interest on, or of unreimbursed amounts under drawn
letters of credit or fees relating to letters of credit
constituting, any Senior Debt or Guarantor Senior Debt, as
applicable, of the Company or any Subsidiary Guarantor.
"PERMITTED HOLDERS" means collectively or individually
(i) North Castle Partners and AEA and each of their respective
current, former and future employees, members, stockholders,
directors and officers, (ii) trusts for the benefit of such
Persons or the spouses, issue, parents or other relatives of such
Persons, (iii) Persons controlling or controlled by such Persons
and (iv) in the event of the death of any such individual Person,
heirs or testamentary legatees of such Person. For purposes of
this definition, "control," as used with respect to any Person,
shall mean the possession, directly or indirectly, of the power
to direct or cause the direction of the management and
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policies of such Person, whether through ownership of voting
securities or by contract or otherwise.
"PERMITTED INVESTMENTS" means (i) any Investment in the
Company or any Restricted Subsidiary; (ii) any Investment in Cash
Equivalents; (iii) any Investment in a Person if, as a result of
such Investment, (a) such Person becomes a Restricted Subsidiary,
or (b) such Person either (1) is merged, consolidated or
amalgamated with or into the Company or one of its Restricted
Subsidiaries and the Company or such Restricted Subsidiary is the
Surviving Person, or (2) transfers or conveys substantially all
of its assets to, or is liquidated into, the Company or one of
its Restricted Subsidiaries; (iv) Investments in accounts and
notes receivable acquired in the ordinary course of business; (v)
any securities or other Investments received in connection with
any sale or other disposition of property or assets, including
any Asset Sale that complies with Section 10.14; (vi) Interest
Rate Agreement Obligations or Currency Agreement Obligations
permitted pursuant to Section 10.11; (vii) securities or other
Investments received in settlement of debts created in the
ordinary course of business and owing to the Company or any
Restricted Subsidiary, or as a result of foreclosure, perfection
or enforcement of any Lien, or in satisfaction of judgments,
including in connection with any bankruptcy proceeding or other
reorganization of another Person; (viii) Investments in existence
or made pursuant to legally binding written commitments in
existence on the Issue Date; (ix) pledges or deposits (a) with
respect to leases or utilities, provided to third parties in the
ordinary course of business or (b) otherwise described in the
definition of "Permitted Liens"; (x) bonds secured by assets
leased to and operated by the Company or any Restricted
Subsidiary that were issued in connection with the financing of
such assets so long as the Company or any Restricted Subsidiary
may obtain title to such assets at any time by paying a nominal
fee, cancelling such bonds and terminating the transaction; (xi)
(1) Investments in connection with a Financing Disposition by or
to any Receivables Entity, including Investments of funds held
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in accounts permitted or required by the arrangements governing
such Financing Disposition or any related Indebtedness, or (2)
any promissory note issued by Leiner Group or PLI, provided that
if Leiner Group or PLI, as applicable, receives cash from the
relevant Receivables Entity in exchange for such note, an equal
cash amount is contributed by Leiner Group or PLI to LHP; and
(xii) any promissory note of any Management Investor acquired in
connection with the issuance of Capital Stock of Leiner Group to
such Management Investor.
"PERMITTED JUNIOR SECURITIES" means, (i) for purposes
of Article Fourteen (so long as the effect of any exclusion
employing this definition is not to cause the Notes to be treated
in any case or proceeding or similar event described in clauses
(a), (b) or (c) of Section 14.02 as part of the same class of
claims as the Senior Debt or any class of claims PARI PASSU with,
or senior to, the Senior Debt for purposes of any payment or
distribution) debt or equity securities of the Company or any
successor corporation provided for by a plan of reorganization or
readjustment that are subordinated at least to the same extent
that the Notes are subordinated to the payment of all Senior
Debt; PROVIDED that (a) if a new corporation results from such
reorganization or readjustment, such corporation assumes any
Senior Debt not paid in full in cash or Cash Equivalents in
connection with such reorganization or readjustment and (b) the
rights of the holders of such Senior Debt are not, without the
consent of such holders, altered or impaired by such
reorganization or readjustment, and (ii) for purposes of Article
Thirteen, any Guarantee by a Subsidiary Guarantor of a Permitted
Junior Security of the Company described in clause (i) above;
PROVIDED that such Guarantee is subordinated to the payment of
all Guarantor Senior Debt at least to the same extent that the
Subsidiary Guarantees are subordinated to the payment of all
Guarantor Senior Debt, and such Guarantee is subject to
provisions substantially similar to those set forth in Article
Thirteen.
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"PERMITTED LIENS" means (i) Liens securing Indebtedness
of a Person existing at the time that such Person is merged into
or consolidated with or into, or becomes a Restricted Subsidiary
of, the Company or a Restricted Subsidiary; PROVIDED, HOWEVER,
that such Liens were not incurred in connection with, or in
contemplation of, such merger, consolidation or other
transaction, and do not extend to any property or assets other
than those of such Person; (ii) Liens on property or assets
acquired by the Company or a Restricted Subsidiary; PROVIDED,
HOWEVER, that such Liens were not incurred in connection with, or
in contemplation of such acquisition, and do not extend to any
other property or assets; (iii) Liens in respect of Interest Rate
Agreement Obligations, Currency Agreement Obligations, Purchase
Money Obligations, Capital Lease Obligations and Attributable
Debt permitted under this Indenture; (iv) Liens to secure
Indebtedness or other obligations of any Receivables Entity;
(v)Liens in favor of the Company or any Restricted Subsidiary;
and (vi) Liens incurred, or pledges and deposits in connection
with, (a) workers' compensation, unemployment insurance and other
social security benefits, and other similar legislation or other
insurance related obligations, (b) bids, tenders, trade,
government or other contracts (other than for borrowed money),
obligations for utilities, leases, licenses, statutory
obligations, and surety, judgment, performance and appeal bonds
and other obligations of like nature incurred by the Company or
any Restricted Subsidiary in the ordinary course of business, (c)
carriers', warehousemen's, mechanics', landlords', materialmen's,
repairmen's or other like Liens arising in the ordinary course of
business, and (d) any extension, renewal, refinancing, refunding
or replacement of any Permitted Lien (or any arrangement to which
such Permitted Lien relates), PROVIDED that such new Lien, pledge
or deposit is limited to the property or assets that secured (or
under the arrangement under which the original Permitted Lien
arose, could secure) the obligations to which such Liens relate.
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"PERSON" means any individual, corporation,
partnership, joint venture, association, joint-stock company,
limited liability company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"PLI" means PLI Holdings Inc., a Delaware corporation,
or any successor thereto.
"PREDECESSOR NOTE" means, with respect to any
particular Note, every previous Note evidencing all or a portion
of the same debt as that evidenced by such particular Note; and,
for the purposes of this definition, any Note authenticated and
delivered under Section 3.05 hereof in exchange for a mutilated
Note or in lieu of a lost, destroyed or stolen Note shall be
deemed to evidence the same debt as the mutilated, lost,
destroyed or stolen Note.
"PREFERRED STOCK," as applied to the Capital Stock of
any Person, means Capital Stock of any class or classes (however
designated) which is preferred as to the payment of dividends or
distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such
Person, over Capital Stock of any other class of such Person.
"PRIVATE PLACEMENT LEGEND" means the legend initially
set forth on the Notes in the form set forth in Section 2.03.
"PUBLIC DEBT" means any Indebtedness represented by
debt securities (including any Guarantee of such securities)
issued by the Company or any Restricted Subsidiary in connection
with a public offering (whether or not underwritten) or a private
placement (provided such private placement is underwritten for
resale pursuant to Rule 144A, Regulation S or otherwise under the
Securities Act or sold on an agency basis by a broker-dealer or
one of its affiliates); it being understood that the term "Public
Debt" shall not include any evidence of Indebtedness under
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the Credit Facility or any other commercial bank borrowings or
similar borrowings, any Receivables Financing, recourse transfers
of financial assets, capital leases, or other types of borrowings
incurred in a manner not customarily viewed as a "securities
offering."
"PUBLIC EQUITY OFFERING" means an underwritten primary
public offering of Common Stock (other than Disqualified Stock)
of LHP, Leiner Group or PLI pursuant to an effective registration
statement filed under the Securities Act, all of the net proceeds
of which, if issued by Leiner Group or PLI, are contributed as
common equity to LHP and which public equity offering, if such
public equity offering is the first pursuant to which LHP redeems
Notes pursuant to the second paragraph of Section 11.01, results
in gross proceeds to the issuer of not less than $50.0 million.
Any "Public Equity Offering" may be undertaken either
independently or in conjunction with any secondary offering of
securities by the issuer thereof.
"PURCHASE MONEY OBLIGATION" means any Indebtedness
secured by a Lien on assets related to the business of the
Company or the Restricted Subsidiaries, and any additions and
accessions thereto, which are purchased or constructed by the
Company or any Restricted Subsidiary at any time after the Issue
Date; PROVIDED that (i)any security agreement or conditional
sales or other title retention contract pursuant to which the
Lien on such assets is created (collectively a "SECURITY
AGREEMENT") shall be entered into within 180 days after the
purchase or substantial completion of the construction of such
assets and shall at all times be confined solely to the assets so
purchased or acquired, any additions and accessions thereto and
any proceeds therefrom, (ii)at no time shall the aggregate
principal amount of the outstanding Indebtedness secured thereby
be increased, except in connection with the purchase of additions
and accessions thereto and except in respect of fees and other
obligations in respect of such Indebtedness and (iii)(A)the
aggregate outstanding principal amount of Indebtedness secured
thereby (determined
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on a per asset basis in the case of any additions and accessions)
shall not at the time such Security Agreement is entered into
exceed 100% of the purchase price to the Company or any
Restricted Subsidiary of the assets subject thereto or (B)the
Indebtedness secured thereby shall be with recourse solely to the
assets so purchased or acquired, any additions and accessions
thereto and any proceeds therefrom.
"QUALIFIED INSTITUTIONAL BUYER" or "QIB" means a
"qualified institutional buyer," as that term is defined in Rule
144A under the Securities Act.
"RECAPITALIZATION" means the recapitalization of Leiner
Group pursuant to the Stock Purchase Agreement and Plan of
Merger, dated as of May 31, 1997, among Leiner Group, North
Castle and LHP Acquisition Corp., whereby LHP Acquisition Corp.
will be merged with and into Leiner Group, with Leiner Group
continuing as the surviving corporation.
"RECEIVABLE" means a right to receive payment arising
from a sale or lease of goods or services by a Person pursuant to
an arrangement with another Person pursuant to which such other
Person is obligated to pay for goods or services under terms that
permit the purchase of such goods and services on credit, as
determined in accordance with GAAP.
"RECEIVABLES FINANCING" means any financing of
Receivables of the Company or any Restricted Subsidiary that have
been transferred to a Receivables Entity in a Financing
Disposition.
"RECEIVABLES ENTITY" means (x) any Receivables
Subsidiary or (y) any other Person that is engaged in the
business of acquiring, selling, collecting, financing or
refinancing Receivables, accounts (as defined in the Uniform
Commercial Code as in effect in any jurisdiction from time to
time), other accounts and/or other receivables, and/or related
assets.
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"RECEIVABLES SUBSIDIARY" means a Subsidiary of the
Company that (a) is engaged solely in the business of acquiring,
selling, collecting, financing or refinancing Receivables,
accounts (as defined in the Uniform Commercial Code as in effect
in any jurisdiction from time to time) and other accounts and
receivables (including any thereof constituting or evidenced by
chattel paper, instruments or general intangibles), all proceeds
thereof and all rights (contractual and other), collateral and
other assets relating thereto, and any business or activities
incidental or related to such business, and (b) is designated as
a "Receivables Subsidiary" by the Board of Directors of the
Company.
"REDEMPTION DATE" means, with respect to any Note to be
redeemed, any date fixed for such redemption by or pursuant to
this Indenture and the terms of the Notes.
"REDEMPTION PRICE" means, with respect to any Note to
be redeemed, the price at which it is to be redeemed pursuant to
this Indenture and the terms of the Notes.
"REGISTRATION RIGHTS AGREEMENT" means the Registration
Rights Agreement dated on or about the Issue Date among Leiner
Group, LHP and the Initial Purchasers for the benefit of
themselves and the Holders, as the same may be amended from time
to time in accordance with the terms thereof.
"REGULAR RECORD DATE" means the Regular Record Date
specified in the Notes.
"REGULATION S" means Regulation S under the Securities
Act.
"RELATED BUSINESS" means the business conducted (or
proposed to be conducted) by the Company and its Subsidiaries as
of the Issue Date and any and all businesses that in the good
faith judgment of the Board of Directors of the
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Company are related, ancillary or complementary to such business.
"RESPONSIBLE OFFICER" means, with respect to the
Trustee, the chairman or vice chairman of the board of directors,
the chairman or vice chairman of the executive committee of the
board of directors, the president, any vice president, the
secretary, any assistant secretary, the treasurer, any assistant
treasurer, the cashier, any assistant cashier, any trust officer
or assistant trust officer, the controller and any assistant
controller or any other officer of the Trustee customarily
performing functions similar to those performed by any of the
above designated officers and also means, with respect to a
particular corporate trust matter, any other officer of the
Trustee to whom any corporate trust matter is referred because of
his or her knowledge of and familiarity with the particular
subject.
"RESTRICTED INVESTMENT" means any Investment other than
a Permitted Investment.
"RESTRICTED PAYMENT" means (i) any dividend or other
distribution declared or paid on any Capital Stock of the Company
or any of its Restricted Subsidiaries (other than dividends or
distributions payable solely in Capital Stock (other than
Disqualified Stock) of the Company or such Restricted Subsidiary
or dividends or distributions payable to the Company or any
Restricted Subsidiary (and, if the Restricted Subsidiary making
such dividend or distributions has any stockholder other than the
Company or another Restricted Subsidiary, to such stockholder on
no more than a PRO RATA basis, measured by value)); (ii) any
payment to purchase, redeem or otherwise acquire or retire for
value any Capital Stock of the Company or any Restricted
Subsidiary (other than any Capital Stock owned by the Company or
any Restricted Subsidiary), except from all holders of such
Capital Stock of a Restricted Subsidiary on a pro rata basis;
(iii) any payment to purchase, redeem, defease or otherwise
acquire or retire for value any Indebtedness that
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is expressly subordinated in right of payment to the Notes (other
than a purchase, redemption, defeasance or other acquisition or
retirement for value (A) that is paid for with the proceeds of
Refinancing Indebtedness that is permitted under Section 10.11,
or (B) in anticipation of satisfying a sinking fund obligation,
principal installment or final maturity, in each case due within
one year of the date of such acquisition or retirement, or (C)
from Net Proceeds to the extent permitted by Section 10.14 or (D)
upon a Change of Control to the extent required by the agreement
governing such Indebtedness but only if the Company shall have
complied with Section 10.15 and purchased all Notes tendered
pursuant to the offer to repurchase all of the Notes required
thereby, prior to purchasing or repaying such Indebtedness); or
(iv) any Restricted Investment.
"RESTRICTED SECURITY" has the meaning assigned to such
term in Rule 144(a)(3) under the Securities Act; PROVIDED,
HOWEVER, that the Trustee shall be entitled to receive, at its
request, and conclusively rely on an Opinion of Counsel with
respect to whether any Note constitutes a Restricted Security.
"RESTRICTED SUBSIDIARY" means each direct or indirect
Subsidiary of the Company other than an Unrestricted Subsidiary.
"REVOLVING CREDIT FACILITY" means the revolving credit
facilities provided under the Credit Facility (which may include
any line or letter of credit facility or subfacility thereunder).
"RULE 144A" means Rule 144A under the Securities Act.
"SALE/LEASEBACK TRANSACTION" means an arrangement
relating to property now owned or hereafter acquired by the
Company or a Restricted Subsidiary whereby the Company or such
Restricted Subsidiary transfers such property to a
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Person more than nine months after acquiring such property, and
the Company or such Restricted Subsidiary leases it from such
Person, other than leases (x) between the Company and a
Restricted Subsidiary or between Restricted Subsidiaries, (y)
required to be classified and accounted for as capitalized leases
for financial reporting purposes in accordance with GAAP or (z)
of any assets referred to in clause (i)(E) of the definition of
Asset Sale.
"SECURITIES ACT" means the Securities Act of 1933, as
amended.
"SENIOR DEBT" means the principal of, premium, if any,
and interest (including any interest accruing subsequent to the
filing of a petition of bankruptcy at the rate provided for in
the documentation with respect thereto, whether or not such
interest is an allowed claim under applicable state, federal or
foreign law) on and other amounts due on or in connection with
(including any fees, premiums, expenses, including costs of
collection, and indemnities) any Indebtedness of the Company,
whether outstanding on the Issue Date or thereafter created,
incurred or assumed, unless in the case of any particular
Indebtedness, the instrument creating or evidencing the same or
pursuant to which the same is outstanding expressly provides that
such Indebtedness shall not be senior in right of payment to the
Notes. Without limiting the generality of the foregoing, "Senior
Debt" shall also include the principal of, premium, if any, and
interest (including any interest accruing subsequent to the
filing of a petition of bankruptcy at the rate provided for in
the documentation with respect thereto, whether or not such
interest is an allowed claim under applicable state, federal or
foreign law) on, and all other amounts owing in respect of, (i)
Bank Debt of the Company and any Receivables Financing and (ii)
all Currency Agreement Obligations and Interest Rate Agreement
Obligations relating to Bank Debt of the Company, in each case
whether outstanding on the Issue Date or thereafter created,
incurred or assumed and including in respect of claims under
Guarantees, claims for indemnity,
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claims in relation to such Currency Agreement Obligations and
Interest Rate Agreement Obligations, expense reimbursement and
fees. Notwithstanding the foregoing, "Senior Debt" shall not
include (a) Indebtedness evidenced by the Notes, (b) Indebtedness
that is PARI PASSU with or expressly subordinated in right of
payment to any Senior Debt of the Company, (c) Indebtedness
which, when incurred and without respect to any election under
Section 1111(b) of Title 11, United States Code, is by its terms
without recourse to the Company, (d) any repurchase, redemption
or other obligation in respect of Disqualified Stock of the
Company, (e) to the extent it might constitute Indebtedness,
amounts owing for goods, materials or services purchased in the
ordinary course of business or consisting of trade payables or
other current liabilities (other than any current liabilities
owing under Bank Debt or the current portion of any long-term
Indebtedness which would constitute Senior Debt but for the
operation of this clause (e)), (f) to the extent it might
constitute Indebtedness, amounts owed by the Company for services
rendered to the Company, (g) to the extent it might constitute
Indebtedness, any liability for federal, state, local, foreign or
other taxes owed or owing by the Company, (h) Indebtedness of the
Company to a Subsidiary of the Company and (i) that portion of
any Indebtedness of the Company which at the time of incurrence
is incurred in violation of this Indenture; PROVIDED, HOWEVER,
that such Indebtedness shall be deemed not to have been incurred
in violation of the Indenture for purposes of this clause (i) if
(x) the holder(s) of such Indebtedness or their representative or
the Company shall have furnished to the Trustee an opinion of
recognized independent legal counsel, unqualified in all material
respects, addressed to the Trustee (which legal counsel may, as
to matters of fact, rely upon an Officers' Certificate of the
Company) to the effect that the incurrence of such Indebtedness
does not violate the provisions of the Indenture or (y) such
Indebtedness consists of Bank Debt, and the holder(s) of such
Indebtedness or their agent or representative (1) had no actual
knowledge at the time of incurrence that the incurrence of such
Indebtedness violated this Indenture and
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(2) shall have received a certificate from an Officer of the
Company to the effect that the incurrence of such Indebtedness
does not violate the provisions of this Indenture.
"SENIOR REPRESENTATIVE" means the Bank Agent or any
other representatives designated in writing to the Trustee by the
holders of any class or issue of Designated Senior Debt; PROVIDED
that, in the absence of a representative of the type described
above, any holder or holders of a majority of the principal
amount outstanding of any class or issue of Designated Senior
Debt may collectively act as Senior Representative for such class
or issue.
"SENIOR SUBORDINATED NOTE OBLIGATIONS" means any
principal of, premium, if any, and interest on, and any other
amounts owing in respect of, the Notes payable pursuant to the
terms of the Notes or the Indenture or upon acceleration of the
Notes, including, without limitation, amounts received upon the
exercise of rights of rescission or other rights of action
(including claims for damages) or otherwise, to the extent
relating to the purchase price of the Notes or amounts
corresponding to such principal of, premium, if any, or interest
on, or other amounts owing with respect to, the Notes.
"SIGNIFICANT SUBSIDIARY" means any Subsidiary that
would be a "significant subsidiary" as defined in Rule 1-02 of
Regulation S-X under the Securities Act, as such Rule is in
effect on the Issue Date.
"SPECIAL RECORD DATE" means, with respect to the
payment of any Defaulted Interest, a date fixed by the Trustee
pursuant to Section 3.06 hereof.
"STATED MATURITY" means, when used 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
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mandatory redemption provision (but excluding any provision
providing for the purchase of such security at the option of the
holder thereof upon the happening of any contingency beyond the
control of the issuer unless such contingency has occurred).
"SUBSIDIARY" of a Person means (i) any corporation more
than 50% of the outstanding voting power of the Voting Stock of
which is owned or controlled, directly or indirectly, by such
Person or by one or more other Subsidiaries of such Person, or by
such Person and one or more other Subsidiaries thereof, or (ii)
any limited partnership of which such Person or any Subsidiary of
such Person is a general partner, or (iii)any other Person (other
than a corporation or limited partnership) in which such Person,
or one or more other Subsidiaries of such Person, or such Person
and one or more other Subsidiaries thereof, directly or
indirectly, has more than 60% of the outstanding partnership or
similar interests or has the power, by contract or otherwise, to
direct or cause the direction of the policies, management and
affairs thereof.
"SUBSIDIARY GUARANTEE" means any Guarantee of the Notes
that may from time to time be provided by a Restricted Subsidiary
pursuant to the terms of this Indenture.
"SUBSIDIARY GUARANTOR" means each of the Company's
Restricted Subsidiaries that issues a Subsidiary Guarantee.
"SURVIVING PERSON" means, with respect to any Person
involved in or that makes any Disposition, the Person formed by
or surviving such Disposition or the Person to which such
Disposition is made.
"TAX SHARING AGREEMENT" means the Tax Sharing Agreement
dated as of the Issue Date among Leiner Group, PLI and LHP, and
as the same may be amended from time to time in accordance with
the terms of this Indenture.
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"TERM LOAN FACILITY" means the term loan facilities
provided under the Credit Facility.
"TREASURY RATE" means the yield to maturity at the time
of computation of United States Treasury securities with a
constant maturity (as compiled and published in the most recent
Federal Reserve Statistical Release H.15(519) which has become
publicly available at least two Business Days prior to the
relevant Redemption Date (or, if such Statistical Release is no
longer published, any publicly available source of similar market
data)) most nearly equal to the period from the relevant
Redemption Date to the Stated Maturity; PROVIDED, HOWEVER, that
if the period from the relevant Redemption Date to the Stated
Maturity is not equal to the constant maturity of a United States
Treasury security for which a weekly average yield is given, the
Treasury Rate shall be obtained by linear interpolation
(calculated to the nearest one-twelfth of a year) from the weekly
average yields of United States Treasury securities for which
such yields are given, except that if the period from the
relevant Redemption Date to the Stated Maturity is less than one
year, the weekly average yield on actually traded United States
Treasury securities adjusted to a constant maturity of one year
shall be used.
"TRUST INDENTURE ACT" or "TIA" means the Trust
Indenture Act of 1939, as amended, and as in effect from time to
time.
"TRUSTEE" means the Person named as the "Trustee" in
the first paragraph of this Indenture, until a successor Trustee
shall have become such pursuant to the applicable provisions of
this Indenture, and thereafter "Trustee" shall mean such
successor Trustee.
"UNRESTRICTED SUBSIDIARY" means any Subsidiary of the
Company (other than a Subsidiary Guarantor) designated as such
pursuant to and in compliance with Section 10.19 of this
Indenture. Any such designation may be revoked by a
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Board Resolution of the Company delivered to the Trustee, subject
to the provisions of such Section 10.19.
"U.S. GOVERNMENT OBLIGATIONS" means securities that are
(i) direct obligations of the United States of America for the
timely payment of which its full faith and credit is pledged or
(ii) obligations of a Person controlled or supervised by and
acting as an agency or instrumentality of the United States of
America the timely payment of which is unconditionally guaranteed
as a full faith and credit obligation by the United States of
America, which, in either case, are not callable or redeemable at
the option of the issuer thereof, and shall also include a
depository receipt issued by a bank (as defined in Section
3(a)(2) of the Securities Act) as custodian with respect to any
such U.S. Government Obligation or a specific payment of
principal of or interest on any such U.S. Government Obligation
held by such custodian for the account of the holder of such
depository receipt; PROVIDED, HOWEVER, that (except as required
by law) such custodian is not authorized to make any deduction
from the amount payable to the holder of such depository receipt
from any amount received by the custodian in respect of the U.S.
Government Obligation or the specific payment of principal of or
interest on the U.S. Government Obligation evidenced by such
depository receipt.
"U.S. RESTRICTED SUBSIDIARY" means any Restricted
Subsidiary that is not a Foreign Subsidiary.
"VOTING STOCK" of a Person means Capital Stock of such
Person of the class or classes pursuant to which the holders
thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of
directors, managers or trustees of such Person (irrespective of
whether or not at the time the stock of any other class or
classes shall have or might have voting power by reason of the
happening of any contingency).
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied
to any Indebtedness at any date, the number of years
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obtained by dividing (i) the sum of the products obtained by
multiplying (a) the amount of each then remaining installment,
sinking fund, serial maturity or other required scheduled payment
of principal, including payment at final maturity, in respect
thereof, with (b) the number of years (calculated to the nearest
one-twelfth) that will elapse between such date and the making of
such payment, by (ii) the then outstanding aggregate principal
amount of such Indebtedness.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" means any
Restricted Subsidiary with respect to which all of the
outstanding voting securities (other than directors' qualifying
shares) of which are owned, directly or indirectly, by the
Company or a Surviving Person of any Disposition involving the
Company, as the case may be.
Section 1.02. OTHER DEFINITIONS.
Defined in
Term Section
---- ----------
"Act" 1.05
"Agent Members" 2.04
"Asset Sale Offer" 10.14
"Asset Sale Offer Price" 10.14
"Asset Sale Offer Trigger Date" 10.14
"Authenticating Agent" 2.02
"Change of Control Date" 10.15
"Change of Control Offer" 10.15
"Change of Control Purchase Date" 10.15
"Change of Control Purchase Price" 10.15
"covenant defeasance" 4.03
"Defaulted Interest" 3.06
"defeasance" 4.02
"Defeased Guarantees" 4.01
"Defeased Notes" 4.01
"Designation" 10.19
"Designation Amount" 10.19
"Excess Proceeds" 10.14
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"Exchange Notes" Recitals
"Foreign Specified Indebtedness" 10.10
"Foreign Subsidiary Guarantee" 10.10
"Global Note" 2.01
"incur" 10.11(a)
"Initial Notes" Recitals
"Note Register" 3.04
"Note Registrar" 3.04
"Notice of Default" 5.01
"Offshore Physical Note" 2.01
"Optional Redemption Price" 11.01
"Other Obligations" 1.20
"Payment Blockage Notice" 14.03
"Permitted Indebtedness" 10.11
"Permitted Payments" 10.12
"Physical Notes" 2.01
"refinanced" 10.12
"refinancing" 10.12
"Refinancing Indebtedness" 10.11
"Required Filing Dates" 10.09
"Revocation" 10.19
"Taxes" 10.12
"U.S. Physical Notes" 2.01
"U.S. Specified Indebtedness" 10.10
"U.S. Subsidiary Guarantee" 10.10
Section 1.03. RULES OF CONSTRUCTION. For all purposes
of this Indenture, except as otherwise expressly provided or
unless the context otherwise requires:
(a) the terms defined in this Article have the
meanings assigned to them in this Article, and include the
plural as well as the singular;
(b) all other terms used herein which are defined in
the Trust Indenture Act, either directly or by reference
therein, have the meanings assigned to them therein;
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(c) all accounting terms not otherwise defined herein
have the meanings assigned to them in accordance with GAAP;
(d) the words "HEREIN," "HEREOF" and "HEREUNDER" and
other words of similar import refer to this Indenture as a
whole and not to any particular Article, Section or other
subdivision;
(e) all references to "$" or "DOLLARS" shall refer to
the lawful currency of the United States of America;
(f) the words "INCLUDE," "INCLUDED" and "INCLUDING" as
used herein shall be deemed in each case to be followed by
the phrase "WITHOUT LIMITATION", if not expressly followed
by such phrase or the phrase "but not limited to";
(g) words in the singular include the plural, and
words in the plural include the singular; and
(h) any reference to a Section or Article refers to
such Section or Article of this Indenture unless otherwise
indicated.
Section 1.04. FORM OF DOCUMENTS DELIVERED TO TRUSTEE.
Upon any request or application by the Company to the Trustee to
take any action under this Indenture, the Company shall furnish
to the Trustee (a)an Officers' Certificate in form and substance
reasonably satisfactory to the Trustee to the effect that, in the
opinion of the signers, all conditions precedent (including any
covenants compliance with which constitutes a condition
precedent), if any, provided for in this Indenture relating to
the proposed action have been complied with, (b)an Opinion of
Counsel in form and substance reasonably satisfactory to the
Trustee to the effect that, in the opinion of counsel, all such
conditions (including any covenants compliance with which
constitutes a condition precedent), have been complied with
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and (c)where applicable, a certificate or opinion by an
accountant that complies with Section 314(c) of the Trust
Indenture Act. Notwithstanding the foregoing, in the case of any
such request or application as to which the furnishing of any
Officers' Certificate or Opinion of Counsel is specifically
required by any provision of this Indenture relating to such
particular request or application, no additional certificate or
opinion need be furnished.
Each certificate and Opinion of Counsel with respect to
compliance with a condition or covenant provided for in this
Indenture shall include:
(a) a statement to the effect that the Person making
such certificate or Opinion of Counsel has read such
covenant or condition;
(b) a brief statement as to the nature and scope of
the examination or investigation upon which the statements
contained in such certificate or Opinion of Counsel are
based;
(c) a statement to the effect 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
(d) a statement as to whether or not, in the opinion
of such Person, such condition or covenant has been complied
with.
In any case where several matters are required to be
certified by, or covered by an opinion of, any specified Person,
it is not necessary that all such matters be certified by, or
covered by the opinion of, only one such Person, or that they be
so certified or covered by only one document, but one such Person
may certify or give an opinion with respect to some matters and
one or more other such
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Persons as to other matters, and any such Person may certify or
give an opinion as to such matters in one or several documents.
Any certificate or opinion of an Officer of the Company
may be based, insofar as it relates to legal matters, upon a
certificate or opinion of, or representations by, counsel, unless
such officer knows that the certificate or opinion or
representations with respect to the matters upon which his
certificate or opinion is based are erroneous. Any such
certificate or opinion of counsel may be based, insofar as it
relates to factual matters, upon (x) a certificate or opinion of,
or representations by, an officer or officers of the Company
stating that the information with respect to such factual matters
is in the possession of the Company, unless such counsel knows
that the certificate or opinion or representations with respect
to such matters are erroneous or (y) one or more certificates of
public officials. Any Opinion of Counsel delivered in connection
with any transaction in accordance with Section 8.01 may rely on
any certificate or opinion of, or representations by, an officer
or officers of the Company with respect to compliance with
clauses (iii) and (iv) of Section 8.01.
Where any Person is required to make, give or execute
two or more applications, requests, consents, certificates,
statements, opinions or other instruments under this Indenture,
they may, but need not, be consolidated, with proper
identification of each matter covered therein, and form one
instrument.
Section 1.05. ACTS OF HOLDERS. Any request, demand,
authorization, direction, notice, consent, waiver or other action
provided by this Indenture to be given or taken by Holders may be
embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in Person or
by an agent duly appointed in writing; and, except as herein
otherwise expressly provided, such action shall become effective
when such instrument or
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instruments are delivered to the Trustee and, where it is hereby
expressly required, to the Company. Such instrument or
instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "ACT" of the
Holders signing such instrument or instruments. Proof of
execution (as provided below in subsection (b) of this Section
1.05) of any such instrument or of a writing appointing any such
agent shall be sufficient for any purpose of this Indenture and
(subject to Section 6.01 hereof) conclusive in favor of the
Trustee and the Company, if made in the manner provided in this
Section.
(b) The fact and date of the execution by any Person
of any such instrument or writing may be proved in any reasonable
manner which the Trustee deems sufficient including, without
limitation, by verification by a notary public or signature
guarantee.
(c) The ownership of Notes shall be proved by the Note
Register.
(d) Any request, demand, authorization, direction,
notice, consent, waiver or other action by the Holder of any Note
shall bind every future Holder of the same Note or the Holder of
every Note issued upon the transfer thereof or in exchange
therefor or in lieu thereof to the same extent as the original
Holder, in respect of anything done, suffered or omitted to be
done by the Trustee, any Paying Agent or the Company in reliance
thereon, whether or not notation of such action is made upon such
Note.
Section 1.06. NOTICES, ETC., TO THE TRUSTEE AND THE
COMPANY. Any request, demand, authorization, direction, notice,
consent, waiver or Act of Holders or other document provided or
permitted by this Indenture to be made upon, given or furnished
to, or filed with:
(a) the Trustee by any Holder or by the Company shall
be sufficient for every purpose hereunder if
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made, given, furnished or filed, in writing, to or with the
Trustee at its Corporate Trust Office or at any other
address previously furnished in writing to the Holders and
the Company by the Trustee or at the office of any drop
agent specified by or on behalf of the Trustee to the
Holders and the Company from time to time; and
(b) the Company by the Trustee or by any Holder shall
be sufficient for every purpose (except as otherwise
expressly provided herein) hereunder if in writing and
mailed, first-class postage prepaid, to the Company,
addressed to it at 901 East 233rd Street, Carson, CA
90745-6204, Attention: Chief Financial Officer, with a copy
to Debevoise & Plimpton, 875 Third Avenue, New York, New
York 10022, Attention: David Brittenham, Esq., or at any
other address previously furnished in writing to the Trustee
by the Company.
Section 1.07. NOTICE TO HOLDERS; WAIVER. Where this
Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise expressly
provided herein) if in writing and mailed, first-class postage
prepaid, to each Holder affected by such event, at the address of
such Holder as it appears in the Note Register, not later than
the latest date, and not earlier than the earliest date,
prescribed for the giving of such notice. In any case where
notice to Holders is given by mail, neither the failure to mail
such notice, nor any defect in any notice so mailed, to any
particular Holder shall affect the sufficiency of such notice
with respect to other Holders. Any notice when mailed to a
Holder in the aforesaid manner shall be conclusively deemed to
have been received by such Holder whether or not actually
received by such Holder. Where this Indenture provides for
notice in any manner, such notice may be waived in writing by the
Person entitled to receive such notice, either before or after
the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Holders shall be filed with the
Trustee, but such filing shall not be a condition
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precedent to the validity of any action taken in reliance upon
such waiver.
In case by reason of the suspension of regular mail
service or by reason of any other cause, it shall be
impracticable to mail notice of any event as required by any
provision of this Indenture, then any method of giving such
notice as shall be reasonably satisfactory to the Trustee shall
be deemed to be a sufficient giving of such notice.
Section 1.08. CONFLICT WITH TRUST INDENTURE ACT. If
any provision hereof limits, qualifies or conflicts with any
provision of the Trust Indenture Act or another provision which
is required or deemed to be included in this Indenture by any of
the provisions of the Trust Indenture Act, such provision or
requirement of the Trust Indenture Act shall control.
If any provision of this Indenture modifies or excludes
any provision of the Trust Indenture Act that may be so modified
or excluded, such provision of the Trust Indenture Act shall be
deemed to apply to this Indenture as so modified or excluded, as
the case may be, if this Indenture shall then be qualified under
the TIA.
Section 1.09. EFFECT OF HEADINGS AND TABLE OF
CONTENTS. The Article and Section headings herein and the Table
of Contents are for convenience only and shall not affect the
construction hereof.
Section 1.10. SUCCESSORS AND ASSIGNS. All covenants
and agreements in this Indenture by the Company and Trustee shall
bind their respective successors and assigns, whether so
expressed or not.
Section 1.11. SEPARABILITY CLAUSE. In case any
provision in this Indenture or in the Notes shall be invalid,
illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way
be affected or impaired thereby.
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Section 1.12. BENEFITS OF INDENTURE. Nothing in this
Indenture or in the Notes issued pursuant hereto, express or
implied, shall give to any Person (other than the parties hereto
and their successors hereunder, any Paying Agent and the Holders)
any benefit or any legal or equitable right, remedy or claim
under this Indenture, except as provided in Article Thirteen and
Article Fourteen.
SECTION 1.13. GOVERNING LAW. THIS INDENTURE AND THE
NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE
CONFLICT OF LAWS PRINCIPLES THEREOF, OTHER THAN ANY MANDATING THE
APPLICATION OF SUCH LAWS). THE TRUSTEE, THE COMPANY, EACH
SUBSIDIARY GUARANTOR, ANY OTHER OBLIGOR IN RESPECT OF THE NOTES
AND (BY THEIR ACCEPTANCE OF THE NOTES) THE HOLDERS, AGREE TO
SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES
FEDERAL OR STATE COURT LOCATED IN THE BOROUGH OF MANHATTAN, IN
THE CITY OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF
OR RELATING TO THIS INDENTURE OR THE NOTES.
Section 1.14. NO RECOURSE AGAINST OTHERS. No recourse
for the payment of the principal of, or premium, if any, or
interest on, any of the Notes or for any claim based thereon or
otherwise in respect thereof, and no recourse under or upon any
obligation, covenant or agreement of the Company in this
Indenture or in any of the Notes, or of any Subsidiary Guarantor
in any Subsidiary Guarantee, or because of the creation of any
Indebtedness represented thereby, shall be had against any
incorporator, shareholder, officer, director, employee or
controlling person of the Company or of any successor Person
thereof. Each Holder of Notes by accepting a Note waives and
releases all such liability, and such waiver and release is part
of the consideration for the issuance of the Notes.
Section 1.15. EXHIBITS AND SCHEDULES. All exhibits
and schedules attached hereto are by this reference made a part
hereof with the same effect as if herein set forth in full.
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Section 1.16. COUNTERPARTS. This Indenture may be
executed in any number of counterparts, each of which shall be an
original; but such counterparts shall together constitute but one
and the same instrument.
Section 1.17. DUPLICATE ORIGINALS. The parties may
sign any number of copies of this Indenture. Each signed copy
shall be an original, but all of them together represent the same
agreement.
Section 1.18. INCORPORATION BY REFERENCE OF TIA.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in, and made a part of,
this Indenture. Any terms incorporated by reference 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 therein.
ARTICLE TWO
SECURITY FORMS
Section 2.01. FORM AND DATING. The Initial Notes and
the Trustee's certificate of authentication relating thereto
shall be substantially in the form of EXHIBIT A. The Exchange
Notes and the Trustee's certificate of authentication relating
thereto shall be substantially in the form of EXHIBITB. The
Notes may have notations, legends or endorsements required by
law, governmental rule or regulation, stock or other securities
exchange rule or depository rule or usage, or other customary
usage. The Company shall approve the form of the Notes and any
notation, legend or endorsement on them. Each Note shall be
dated the date of its authentication and shall show the date of
its authentication.
The additional terms and provisions contained in the
forms of Notes and Subsidiary Guarantees, annexed hereto
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as EXHIBITS A AND E, respectively, shall constitute, and are
hereby expressly made, a part of this Indenture and, to the
extent applicable, the Company and the Trustee, by their
execution and delivery of this Indenture, expressly agree to such
terms and provisions and to be bound thereby.
Notes offered and sold in reliance on Rule144A shall be
issued initially in the form of one or more global Notes in
registered form, substantially in the form set forth in EXHIBITA
(each, a "GLOBAL NOTE"), deposited with the Trustee, as custodian
for the Depository, duly executed by the Company and
authenticated by the Trustee as hereinafter provided, and shall
be Restricted Securities and shall bear the legend set forth in
Section 2.03 hereof. The aggregate principal amount of any such
Global Note may from time to time be increased or decreased by
adjustments made on the records of the Note Registrar, solely as
and to the extent provided in Section 2.05 hereof; PROVIDED that
in no event shall the aggregate principal amount of Notes
outstanding at any time exceed $85,000,000, except as provided in
Section 3.05 hereof.
Notes offered and sold in offshore transactions in
reliance on Regulation S shall be represented upon issuance by a
temporary Global Note, which will be exchangeable for
certificated Notes in registered form in substantially the form
set forth in EXHIBIT A (the "OFFSHORE PHYSICAL NOTES") only upon
the expiration of the "40-day restricted period" within the
meaning of Rule 903(c)(3) of Regulation S. Notes 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 Notes offered and sold in reliance
on Rule 144A may be issued, in the form of certificated Notes in
registered form, in substantially the form set forth in EXHIBITA
(the "U.S. PHYSICAL NOTES"). The Offshore Physical Notes and the
U.S. Physical Notes, together with any other certificated Notes
in registered form, in substantially the form set forth in
EXHIBIT A, issued pursuant to the last sentence of paragraph (2)
of Section 2.04, are sometimes collectively
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herein referred to as the "PHYSICAL NOTES." Physical Notes may
initially be registered in the name of the Depository or a
nominee of such Depository and be delivered to the Trustee as
custodian for such Depository. Beneficial owners of Physical
Notes, however, may request registration of such Physical Notes
in their names or the names of their nominees.
Section 2.02. EXECUTION AND AUTHENTICATION; AGGREGATE
PRINCIPAL AMOUNT. The Notes shall be executed on behalf of the
Company by two Officers of the Company, or by an Officer of the
Company and an Assistant Treasurer or Assistant Secretary of the
Company. The signature of any Officer, Assistant Treasurer or
Assistant Secretary of the Company on the Notes may be manual or
facsimile.
If an Officer, Assistant Treasurer or Assistant
Secretary whose manual or facsimile signature is on a Note was an
Officer, Assistant Treasurer or Assistant Secretary at the time
of such execution but no longer holds that office or position at
the time the Trustee authenticates the Note, the Note shall
nevertheless be valid.
No Note shall be entitled to any benefit under this
Indenture or be valid or obligatory for any purpose, unless there
appears on such Note a certificate of authentication
substantially in the form provided for herein executed by the
Trustee by manual signature, and such certificate upon any Note
shall be conclusive evidence, and the only evidence, that such
Note has been duly authenticated and delivered hereunder.
The Trustee shall authenticate (i)Initial Notes for
original issue in the aggregate principal amount not to exceed
$85,000,000 and (ii)Exchange Notes from time to time for issue
only in exchange for a like principal amount of Initial Notes, in
each case upon a written order of the Company in the form of an
Officers' Certificate. The Officers' Certificate shall specify
the amount of Notes to be authenticated and the date on which the
Notes are to be
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authenticated, whether the Notes are to be Initial Notes or
Exchange Notes and whether the Notes are to be issued as Physical
Notes or a Global Note or such other information as the Trustee
may reasonably request. The aggregate principal amount of Notes
outstanding at any time may not exceed $85,000,000, except as
provided in Section 3.05 hereof.
The Trustee may appoint an authenticating agent (the
"AUTHENTICATING AGENT") reasonably acceptable to the Company to
authenticate Notes. Unless otherwise provided in the
appointment, an Authenticating Agent may authenticate Notes
whenever the Trustee may do so. Each reference in this Indenture
to authentication by the Trustee includes authentication by such
Authenticating Agent. An Authenticating Agent has the same
rights as an agent to deal with the Company or with any Affiliate
of the Company.
Section 2.03. RESTRICTIVE LEGENDS. Each Global Note
and Physical Note that constitutes a Restricted Security shall
bear the following legend (the "PRIVATE PLACEMENT LEGEND") on the
face thereof until removed in accordance with the last sentence
of such legend, unless otherwise agreed by the Company and the
Holder thereof:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY
BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF
SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT
FROM, OR NOT SUBJECT TO, REGISTRATION AND SUBJECT TO
COMPLIANCE WITH OTHER APPLICABLE LAWS. THE HOLDER OF
THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER,
SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE
DATE WHICH IS TWO YEARS (OR SUCH SHORTER PERIOD THAT
MAY HEREAFTER BE PROVIDED UNDER RULE 144(K) (OR ANY
SUCCESSOR PROVISION THEREOF) AS PERMITTING THE RESALE
BY NON-
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AFFILIATES OF RESTRICTED SECURITIES WITHOUT RESTRICTION)
AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE
LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE
COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR
OF THIS SECURITY) (THE "RESALE RESTRICTION TERMINATION
DATE"), ONLY (A)TO THE COMPANY; (B)PURSUANT TO A
REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE
UNDER THE SECURITIES ACT, (C)FOR SO LONG AS THE NOTES ARE
ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE
SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY
BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN
RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS
GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE
144A, (D)PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS
THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF
REGULATION S UNDER THE SECURITIES ACT, (E)TO AN
INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF
SUBPARAGRAPH (A)(1), (2), (3) OR (7) OF RULE 501 UNDER THE
SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN
ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL
"ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES AND NOT WITH
A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY
DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR
(F)PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND
OTHERWISE IN COMPLIANCE WITH OTHER APPLICABLE LAWS, SUBJECT
TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH
OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (D), (E) OR (F)
TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATIONS AND/OR OTHER INFORMATION SATISFACTORY TO EACH
OF THEM. THE LEGEND WILL BE REMOVED UPON THE REQUEST OF A
HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE.
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Each Global Note shall also bear a legend on the face
thereof in substantially the following form:
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART
FOR SECURITIES IN DEFINITIVE FORM, THIS SECURITY MAY
NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY
TO A NOMINEE OF THE DEPOSITORY, OR BY ANY SUCH NOMINEE
OF THE DEPOSITORY, OR BY THE DEPOSITORY OR NOMINEE OF
SUCH SUCCESSOR DEPOSITORY OR ANY SUCH NOMINEE TO A
SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY
OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN
THE NAME OF CEDE& CO. OR 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 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 SECURITY
SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH
THE RESTRICTIONS SET FORTH IN SECTION2.05 OF THE
INDENTURE.
Section 2.04. BOOK-ENTRY PROVISIONS FOR GLOBAL NOTE.
This Section 2.04 shall apply only to the Global Note deposited
with the Depository or its custodian.
(1) So long as the Notes are eligible for book-entry
settlement with the Depository, or unless
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otherwise required by law, 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 2.03.
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. 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.
(2) Transfers of the Global Note shall be limited to
transfers in whole, but, subject to the immediately
succeeding sentence, not in part, to the Depository, its
successors or their respective nominees. Interests of
beneficial owners in the Global Note may be transferred or
exchanged for Physical Notes in accordance with the rules
and procedures of the Depository and the provisions of
Section 2.05 hereof. In addition, Physical Notes shall be
transferred to the Persons identified by the Depositary as
the beneficial owners of the Notes represented by the Global
Note in exchange for their beneficial interests in the
Global Note upon the surrender by the Depositary of the
Global Note for cancellation, if (i)the Depository notifies
the Company, and the Company notifies the Trustee, that it
is unwilling or unable to continue as Depository for the
Global Note and a successor depositary is not
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appointed by the Company within 90 days of such notice, (ii)
the Company, at its option, notifies the Trustee in writing
that it elects to cause the issuance of Physical Notes under
the Indenture or (iii)an Event of Default has occurred and
is continuing and the Note Registrar has received a written
request from the Depository to issue Physical Notes.
(3) Any transfer or exchange of a portion of the
beneficial interest in the Global Note to beneficial owners
pursuant to paragraph (2) shall be made only in accordance
with the provisions of Section 2.05 hereof.
(4) In connection with the transfer of the beneficial
interests in the entire Global Note to beneficial owners
pursuant to paragraph (2), 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
Notes of authorized denominations.
(5) Any Physical Note constituting a Restricted
Security delivered in exchange for a beneficial interest in
the Global Note pursuant to paragraph (2) or (3) shall,
except as otherwise provided by paragraphs (1)(a)(x) and (3)
of Section 2.05 hereof, bear the Private Placement Legend.
(6) The Company or the Trustee, in the discretion of
either of them, may treat as the Act of a Holder any
instrument or writing of any Person that is identified by
the Depositary as the owner of a beneficial interest in the
Global Note, provided that the fact and date of the
execution of such instrument or writing is proved in
accordance with Section 1.05(b).
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Section 2.05. SPECIAL TRANSFER PROVISIONS. 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 Note constituting
a Restricted Security to any Institutional Accredited Investor
which is not a QIB or to any Non-U.S. Person:
(a) the Note Registrar shall register the transfer of
any Note constituting a Restricted Security, whether or not
such Note bears the Private Placement Legend, if (x) the
requested transfer is after the later of the second
anniversary of the Issue Date and the relevant Resale
Restriction Termination Date or (y)(A)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 Note Registrar a certificate
substantially in the form of EXHIBITC or (B)in the case of a
transfer to a Non-U.S. Person, the proposed transferor has
delivered to the Note Registrar a certificate substantially
in the form of EXHIBITD; and
(b) if the proposed transferor is an Agent Member
holding a beneficial interest in the Global Note, upon
receipt by the Note Registrar of (x) the certificate, if
any, required by paragraph (a) above and (y) written
instructions given in accordance with the Depository's and
the Note Registrar's procedures; and
(c) unless otherwise agreed by the Company and the
Trustee, in the case of any transfer pursuant to paragraph
(a)(y) above, an opinion of counsel, certifications and
other information satisfactory to the Company and the
Trustee,
whereupon (i) the Note Registrar shall reflect on its books and
records the date and (if the transfer does not involve a transfer
of outstanding Physical Notes) a decrease in the principal amount
of the Global Note in an amount equal to
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the principal amount of the beneficial interest in the Global
Note to be transferred, and (ii) the Company shall execute and
the Trustee shall authenticate and deliver one or more Physical
Notes of like tenor and amount.
(2) TRANSFERS TO QIBS. The following provisions shall
apply with respect to the registration of any proposed transfer
of a Note constituting a Restricted Security to a QIB (excluding
transfers to Non-U.S. Persons):
(a) the Note 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 Note stating, or
has otherwise advised the Company and the Note Registrar in
writing, that the sale has been made in compliance with the
provisions of Rule 144A to a transferee who has signed the
certification provided for on the form of Note stating, or
has otherwise advised the Company and the Note Registrar in
writing, that it is purchasing the Note for its own account
or an account with respect to which it exercises sole
investment discretion and that it and any such account is a
QIB within the meaning of Rule 144A, and is aware that the
sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding
the Company as it has requested pursuant to Rule 144A or has
determined not to request such information and that it is
aware that the transferor is relying upon its foregoing
representations in order to claim the exemption from
registration provided by Rule 144A; and
(b) if the proposed transferee is an Agent Member, and
the Notes to be transferred consist of Physical Notes which
after transfer are to be evidenced by an interest in the
Global Note, upon receipt by the Note Registrar of written
instructions given in accordance with the Depository's and
the Note Registrar's procedures, the Note Registrar shall
reflect on its books and records the date and an
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increase in the principal amount of the Global Note in an
amount equal to the principal amount of the Physical Notes
to be transferred, and the Trustee shall cancel the Physical
Notes so transferred.
(3) PRIVATE PLACEMENT LEGEND. Upon the transfer,
exchange or replacement of Notes not bearing the Private
Placement Legend, the Note Registrar shall deliver Notes that do
not bear the Private Placement Legend. Upon the transfer,
exchange or replacement of Notes bearing the Private Placement
Legend, the Note Registrar shall deliver only Notes that bear the
Private Placement Legend unless (i)the requested transfer is
after the later of the second anniversary of the Issue Date and
the relevant Resale Restriction Termination Date, or (ii) there
is delivered to the Note Registrar an opinion of counsel
reasonably satisfactory to the Company and the Trustee to the
effect that neither such legend nor the related restrictions on
transfer are required in order to maintain compliance with the
provisions of the Securities Act.
(4) GENERAL. By its acceptance of any Note bearing
the Private Placement Legend, each Holder of such a Note
acknowledges the restrictions on transfer of such Note set forth
in this Indenture and in the Private Placement Legend and agrees
that it will transfer such Note only as provided in this
Indenture.
The Note Registrar shall retain copies of all letters,
notices and other written communications received pursuant to
Section 2.04 hereof or this Section 2.05. The Company shall have
the right to require the Note Registrar to deliver to the
Company, at the Company's expense, copies of all such letters,
notices or other written communications at any reasonable time
upon the giving of reasonable written notice to the Note
Registrar.
In connection with any transfer of the Notes, the
Trustee, the Note Registrar and the Company shall be entitled to
receive, shall be under no duty to inquire into,
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may conclusively presume the correctness of, and shall be fully protected in
relying upon the certificates, opinions and other information referred to herein
(or in the forms provided herein, attached hereto or to the Notes, or otherwise)
received from any Holder and any transferee of any Note regarding the validity,
legality and due authorization of any such transfer, the eligibility of the
transferee to receive such Note and any other facts and circumstances related to
such transfer.
ARTICLE THREE
THE NOTES
Section 3.01 TITLE AND TERMS. The aggregate principal amount of
Notes which may be authenticated and delivered under this Indenture is limited
to $85,000,000, except for Notes authenticated and delivered upon registration
of transfer of, or in exchange for, or in lieu of, other Notes pursuant to
Section 3.03, 3.04, 3.05, 9.05, 10.14, 10.15 or 11.08.
The Notes shall be known and designated as the "9 % Senior
Subordinated Notes due 2007" of the Company. The final Stated Maturity of the
Notes shall be July 1, 2007. Interest on the Notes will accrue at the rate of
9 % per annum and will be payable semi-annually in arrears on January 1 and July
1 in each year, commencing on January 1, 1998, to holders of record on the
immediately preceding December 15 and June 15, respectively. Interest on the
Notes will accrue from the most recent date to which interest has been paid or
duly provided for or, if no interest has been paid, from the Issue Date.
The additional terms and provisions contained in the forms of Notes
and the Subsidiary Guarantees, annexed hereto as EXHIBITS A AND E, respectively,
shall constitute, and are hereby expressly made, a part of this Indenture and,
to the extent applicable, the Company and the Trustee, by
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their execution and delivery of this Indenture, expressly agree to such terms
and provisions and to be bound thereby.
Section 3.02. DENOMINATIONS. The Notes shall be issuable only in
fully registered form without coupons and in denominations of $1,000 and any
integral multiple thereof.
Section 3.03. TEMPORARY NOTES. Pending the preparation and delivery
of definitive Notes, the Company may execute, and upon Company Order the Trustee
shall authenticate and deliver, temporary Notes. Temporary Notes may be
printed, lithographed, typewritten, mimeographed or otherwise produced, in any
authorized denomination, substantially of the tenor of the definitive Notes in
lieu of which they are issued and with such appropriate insertions, omissions,
substitutions and other variations as the Officer or Officers executing such
Notes may consider appropriate, as conclusively evidenced by their execution of
such Notes.
If temporary Notes are issued, the Company will cause definitive Notes
to be prepared without unreasonable delay. After the preparation of definitive
Notes, the temporary Notes shall be exchangeable for definitive Notes upon
surrender of the temporary Notes at the office or agency of the Company
designated for such purpose pursuant to Section 10.02, without charge to the
Holder. Upon surrender for cancellation of any one or more temporary Notes the
Company shall execute and the Trustee shall authenticate and deliver in exchange
therefor a like principal amount of definitive Notes of authorized
denominations. Until so exchanged the temporary Notes shall in all respects be
entitled to the same benefits under this Indenture as definitive Notes.
Section 3.04. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE.
The Company shall cause to be kept at the Corporate Trust Office a register (the
register maintained in such office and in any other office or agency
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designated pursuant to Section 10.02 being herein sometimes referred to as the
"NOTE REGISTER") in which, subject to such reasonable regulations as the Person
appointed as being responsible for the keeping of the Note Register (the "NOTE
REGISTRAR") may prescribe, the Company shall provide for the registration of
Notes and of transfers of Notes. The Note Register shall be in written form or
in any form capable of being converted into written form within a reasonable
period of time. The Trustee is hereby initially appointed Note Registrar for
the purpose of registering Notes and transfers of Notes as herein provided. The
Company may appoint one or more co-registrars.
Upon surrender for registration of transfer of any Note at the office
or agency of the Company designated pursuant to Section 10.02, the Company shall
execute, and the Trustee shall authenticate and deliver, in the name of the
designated transferee or transferees, one or more new Notes of any authorized
denomination or denominations, of a like aggregate principal amount and bearing
such restrictive legends as may be required by Section 2.03; PROVIDED that any
Note that is a Restricted Security may only be transferred pursuant to and in
accordance with Sections 2.04 and 2.05 hereof.
At the option of the Holder, Notes in certificated form may be
exchanged for other Notes of any authorized denomination or denominations, of a
like aggregate principal amount, upon surrender of the Notes to be exchanged at
such office or agency. Whenever any Notes are so surrendered for exchange, the
Company shall execute, and the Trustee shall authenticate and deliver, the Notes
which the Holder making the exchange is entitled to receive.
All Notes issued upon any registration of transfer or exchange of
Notes shall be the valid obligations of the Company, evidencing the same
indebtedness, and entitled to the same benefits under this Indenture, as the
Notes surrendered upon such registration of transfer or exchange and no such
transfer or exchange shall constitute a
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repayment of any obligation nor create any new obligations of the Company.
Every Note presented or surrendered for registration of transfer, or
for exchange or redemption, shall (if so required by the Company, the Trustee,
the Note Registrar or any co-registrar) be duly endorsed or be accompanied by a
written instrument of transfer in form satisfactory to the Company, the Trustee,
and the Note Registrar or any co-registrar, duly executed by the Holder thereof
or his attorney duly authorized in writing.
No service charge shall be made to a Holder for any registration of
transfer or exchange or redemption of Notes, but the Company may require payment
of a sum sufficient to cover any tax or other governmental charge that may be
imposed in connection with any registration of transfer or exchange of Notes,
other than exchanges pursuant to Section3.03, 9.05, 10.14, 10.15 or 11.08 not
involving any transfer.
None of the Company, the Trustee, the Note Registrar or any
co-registrar shall be required (a) to issue, register the transfer of or
exchange any Note during a period beginning at the opening of business on the
day that the Trustee receives notice of any redemption from the Company and
ending at the close of business on the day notice of redemption is sent to
Holders, (b)to register the transfer of or exchange any Note so selected for
redemption in whole or in part, except the unredeemed portion of Notes being
redeemed in part or (c)to issue, register, transfer or exchange any Note during
a Change of Control Offer or an Asset Sale Offer, if such note is tendered
pursuant to such Change of Control Offer or Asset Sale Offer and not withdrawn.
When Notes are presented to the Note Registrar with a request to
register the transfer or to exchange them for an equal principal amount of Notes
of other authorized denominations, the Note Registrar shall register the
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transfer or make the exchange as requested if its requirements for such
transactions are met, and such transfer or exchange otherwise complies with the
provisions of this Indenture. To permit registrations of transfers and
exchanges, the Company shall execute and the Trustee shall authenticate Notes at
the Note Registrar's request.
Section 3.05. MUTILATED, DESTROYED, LOST AND STOLEN NOTES. If (a)any
mutilated Note is surrendered to the Trustee, or (b)the Company and the Trustee
receive evidence to their satisfaction of the destruction, loss or theft of any
Note, and there is delivered to the Company and the Trustee, such security or
indemnity, in each case, as may be required by them to save each of them
harmless from any loss which either of them may suffer if a Note is replaced,
then, in the absence of notice to the Company or the Trustee that such Note has
been acquired by a BONA FIDE purchaser, the Company shall execute and the
Trustee shall authenticate and deliver, in exchange for any such mutilated Note
or in lieu of any such destroyed, lost or stolen Note, a replacement Note of
like tenor and principal amount, bearing a number not contemporaneously
outstanding.
Upon the issuance of any replacement Notes under this Section, the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every replacement Note issued pursuant to this Section in lieu of any
destroyed, lost or stolen Note shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Note shall be at any time enforceable by anyone, and shall be entitled to
all benefits of this Indenture equally and proportionately with any and all
other Notes duly issued hereunder.
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The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Notes.
Section 3.06 PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED.
Interest on any Note which is payable, and is punctually paid or duly provided
for, on any Interest Payment Date shall be paid at the Corporate Trust Office or
agency of the Trustee maintained for that purpose in The City of New York, in
such coin or currency of the United States of America as at the time of payment
is legal tender for payment of public and private debts: PROVIDED, HOWEVER, that
payment of interest may be made at the option of the Company by check (which may
be a check of the Company) mailed to the address of the Person entitled thereto
as such address shall appear on the Note Register or by wire transfer to such
Person.
Any interest on any Note which is payable, but is not punctually paid
or duly provided for, on any Interest Payment Date and interest on such
defaulted interest at the then applicable interest rate borne by the Notes, to
the extent lawful (such defaulted interest and interest thereon herein
collectively called "DEFAULTED INTEREST"), shall forthwith cease to be payable
to the Holder on the Regular Record Date and such Defaulted Interest may be paid
by the Company, at its election in each case, as provided in subsection (a) or
(b) below:
(a) The Company may elect to make payment of any Defaulted Interest
to the Persons in whose names the Notes (or their respective Predecessor
Notes) are registered at the close of business on a Special Record Date for
the payment of such Defaulted Interest, which shall be fixed in the
following manner. The Company shall notify the Trustee in writing of the
amount of Defaulted Interest proposed to be paid on each Note and the date
of the proposed payment, and at the same time the Company shall deposit
with the Trustee an amount of
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money equal to the aggregate amount proposed to be paid in respect of such
Defaulted Interest or shall make arrangements reasonably satisfactory to
the Trustee for such deposit prior to the date of the proposed payment,
such money when deposited to be held in trust for the benefit of the
Persons entitled to such Defaulted Interest as in this subsection (a)
provided. Thereupon the Trustee shall fix a Special Record Date for the
payment of such Defaulted Interest which shall be not more than 15 days and
not less than 10 days prior to the date of the proposed payment and not
less than 10 days after the receipt by the Trustee of the notice of the
proposed payment. The Trustee shall promptly notify the Company in writing
of such Special Record Date. In the name and at the expense of the
Company, the Trustee shall cause notice of the proposed payment of such
Defaulted Interest and the Special Record Date therefor to be mailed,
first-class postage prepaid, to each Holder at its address as it appears in
the Note Register, not less than 10 days prior to such Special Record Date.
Notice of the proposed payment of such Defaulted Interest and the Special
Record Date therefor having been so mailed, such Defaulted Interest shall
be paid to the Persons in whose names the Notes (or their respective
Predecessor Notes) are registered on such Special Record Date and shall no
longer be payable pursuant to the following subsection (b).
(b) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any
securities exchange on which the Notes may be listed, and upon such notice
as may be required by such exchange, if, after written notice given by the
Company to the Trustee of the proposed payment pursuant to this subsection
(b), such payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Note
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of
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any other Note shall carry the rights to interest accrued and unpaid, and to
accrue, which were carried by such other Note.
Section 3.07. PERSONS DEEMED OWNERS. Prior to and at the time of due
presentment for registration of transfer, the Company, the Trustee and any agent
of the Company or the Trustee may treat the Person in whose name any Note is
registered in the Note Register as the owner of such Note for the purpose of
receiving payment of principal of, and premium, if any, and (subject to Section
3.06) interest on, such Note and for all other purposes whatsoever, whether or
not such Note shall be overdue, and neither the Company, the Trustee nor any
agent of the Company or the Trustee shall be affected by notice to the contrary.
Section 3.08. CANCELLATION. All Notes surrendered for payment,
redemption, registration of transfer or exchange shall be delivered to the
Trustee and, if not already cancelled, shall be promptly cancelled by it. The
Company may at any time deliver to the Trustee for cancellation any Notes
previously authenticated and delivered hereunder which the Company may have
acquired in any manner whatsoever, as evidenced by a Company Order instructing
the Trustee that all Notes so delivered shall be promptly cancelled by the
Trustee. No Notes shall be authenticated in lieu of or in exchange for any
Notes cancelled as provided in this Section 3.08, except as expressly permitted
by this Indenture. Cancelled Notes held by the Trustee shall be disposed of as
directed by a Company Order; PROVIDED, HOWEVER, that the Trustee shall not be
required to destroy such cancelled Notes. The Trustee shall provide the Company
with a list of all Notes that have been cancelled from time to time as requested
by the Company.
Section 3.09. COMPUTATION OF INTEREST. Interest on the Notes shall
be computed on the basis of a 360-day year of twelve 30-day months.
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Section 3.10. LEGAL HOLIDAYS. In any case where any Interest Payment
Date, Redemption Date, date established for the payment of Defaulted Interest or
Stated Maturity of any Note shall not be a Business Day, then (notwithstanding
any other provision of this Indenture or of the Notes) payment of principal,
premium, if any, or interest need not be made on such date, but may be made on
the next succeeding Business Day with the same force and effect as if made on
the Interest Payment Date, Redemption Date, date established for the payment of
Defaulted Interest or at the Stated Maturity, as the case may be, and no
interest shall accrue with respect to such payment for the period from and after
such Interest Payment Date, Redemption Date, date established for the payment of
Defaulted Interest or Stated Maturity, as the case may be, to the next
succeeding Business Day.
Section 3.11. CUSIP NUMBER. The Company in issuing the Notes may use
"CUSIP" numbers (if then generally in use), and if so, the Trustee may use the
CUSIP numbers in notices of redemption or exchange as a convenience to Holders;
PROVIDED, HOWEVER, that any such notice may state that no representation is made
as to the correctness or accuracy of the CUSIP number printed in the notice or
on the Notes, and that reliance may be placed only on the other identification
numbers printed on the Notes. The Company shall promptly notify the Trustee in
writing of any change in the CUSIP number of the Notes.
Section 3.12. PAYMENT OF ADDITIONAL INTEREST UNDER REGISTRATION
RIGHTS AGREEMENT. Under certain circumstances the Company will be obligated to
pay certain additional amounts of interest to the Holders, as more particularly
set forth in Section2(e) of the Registration Rights Agreement. The terms of
Section2(e) of the Registration Rights Agreement are hereby incorporated herein
by reference and the Company shall be obligated to provide a copy of such
Registration Rights Agreement to the Trustee.
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ARTICLE FOUR
DEFEASANCE OR COVENANT DEFEASANCE
Section 4.01. THE COMPANY'S OPTION TO EFFECT DEFEASANCE OR COVENANT
DEFEASANCE. The Company may, at its option, at any time, elect to have
terminated the obligations of the Company with respect to Outstanding Notes and
to have terminated the obligations of any Subsidiary Guarantors, with respect to
the Subsidiary Guarantees, in each case, as set forth in this Article, and elect
to have either Section 4.02 or Section 4.03 be applied to all of the Outstanding
Notes (the "DEFEASED NOTES") and the Subsidiary Guarantees (the "DEFEASED
GUARANTEES"), upon compliance with the conditions set forth below in
Section4.04. Either Section 4.02 or Section 4.03 may be applied to the Defeased
Notes and Defeased Guarantees to any Redemption Date or the Stated Maturity of
the Notes.
Section 4.02. DEFEASANCE AND DISCHARGE. Upon the Company's exercise
under Section 4.01 of the option applicable to this Section 4.02, the Company
shall be deemed to have been released and discharged from its obligations with
respect to the Defeased Notes and each of the Subsidiary Guarantors shall be
deemed to have been released from its obligations with respect to the Defeased
Guarantees on the date the relevant conditions set forth in Section 4.04 below
are satisfied (hereinafter, "DEFEASANCE"). For this purpose, such defeasance
means that the Company shall be deemed to have paid and discharged the entire
indebtedness represented by the Defeased Notes, which shall thereafter be deemed
to be "Outstanding" only for the purposes of Section 4.05 and the other Sections
of this Indenture referred to in (a) and (b) below, and the Company and each of
the Subsidiary Guarantors shall be deemed to have satisfied all other
obligations under such Notes and this Indenture insofar as such Notes are
concerned (and the Trustee, at the expense of the Company, shall execute proper
instruments acknowledging the same), except for the following, which shall
survive until otherwise terminated or
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discharged hereunder: (a)the rights of Holders of Defeased Notes to receive,
solely from the trust fund described in Section 4.04 and as more fully set forth
in such Section, payments in respect of the principal of, premium, if any, and
interest on such Notes when such payments are due, (b)the Company's obligations
with respect to such Defeased Notes under Sections 3.03, 3.04, 3.05 and 10.02,
(c)the rights, powers, trusts, duties and immunities of the Trustee hereunder,
including, without limitation, the Trustee's rights under Section 6.07, and
(d)this Article Four. Subject to compliance with this Article Four, the Company
may, at its option and at any time, exercise its option under this Section 4.02
notwithstanding the prior exercise of its option under Section 4.03 with respect
to the Notes.
Section 4.03. COVENANT DEFEASANCE. Upon the Company's exercise under
Section 4.01 of the option applicable to this Section 4.03, the Company and the
Subsidiary Guarantors shall be released from their respective obligations under
any covenant or provision contained in Section 10.04 (other than with respect to
the Company) and Sections 10.05 through 10.20 and the provisions of Article
Eight shall not apply, with respect to the Defeased Notes on and after the date
the conditions set forth below are satisfied (hereinafter, "COVENANT
DEFEASANCE"), and the Notes shall thereafter be deemed not to be "Outstanding"
for the purposes of any direction, waiver, consent or declaration or Act of
Holders (and the consequences of any thereof) in connection with such covenants
or provisions, but shall continue to be deemed "Outstanding" for all other
purposes hereunder. For this purpose, such covenant defeasance means that, with
respect to the Outstanding Notes, the Company and the Subsidiary Guarantors may
omit to comply with and shall have no liability in respect of any term,
condition or limitation set forth in any such covenant or provision, whether
directly or indirectly, by reason of any reference elsewhere herein to any such
covenant or provision or by reason of any reference in any such covenant or
provision to any other provision herein or in any other document and such
omission
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to comply shall not constitute a Default or an Event of Default under Section
5.01, but, except as specified above, the remainder of this Indenture and such
Outstanding Notes shall be unaffected thereby.
Section 4.04. CONDITIONS TO DEFEASANCE OR COVENANT DEFEASANCE. The
following shall be the conditions to application of either Section 4.02 or
Section 4.03 to the Outstanding Notes:
(1) The Company shall have irrevocably deposited or caused to be
deposited with the Trustee (or another trustee satisfying the requirements
of Section 6.09 who shall agree to comply with the provisions of this
Article Four applicable to it) as trust funds in trust for the purpose of
making the following payments, specifically pledged as security for, and
dedicated solely to, the benefit of the Holders of such Notes, (a) cash, in
United States dollars, in an amount, or (b)U.S. Government Obligations
maturing as to principal, premium, if any, and interest in such amounts of
money and at such times as are sufficient without consideration of any
reinvestment of such interest, to pay principal of and interest on Defeased
Notes not later than one day before the due date of any payment, or (c)a
combination thereof, in amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants or a
nationally recognized investment banking firm expressed in a written
certification thereof delivered to the Trustee, to pay and discharge and
which shall be applied by the Trustee (or other qualifying trustee) to pay
and discharge, the principal of, premium, if any, and interest on the
Defeased Notes on the Stated Maturity or relevant Redemption Date in
accordance with the terms of this Indenture and the Notes; PROVIDED,
HOWEVER, that the Trustee (or other qualifying trustee) shall have received
an irrevocable written order from the Company instructing the Trustee (or
other qualifying trustee) to apply such money or the proceeds
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of such U.S. Government Obligations to said payments with respect to the
Notes;
(2) No Default or Event of Default shall have occurred and be
continuing on the date of such deposit or, insofar as Section 5.01(g) or
(h) is concerned, at any time during the period ending on the ninety-first
day after the date of such deposit;
(3) Such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a Default or Event of Default under,
this Indenture or any other material agreement or instrument to which the
Company or any Subsidiary Guarantor is a party or by which it is bound;
(4) In the case of an election under Section 4.02, the Company shall
have delivered to the Trustee an Opinion of Counsel from Debevoise &
Plimpton or other counsel in the United States 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 hereof, there has been a change in
the applicable Federal income tax law, in either case to the effect that,
and based thereon such opinion shall confirm to the effect that, the
Holders of the Outstanding Notes 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;
(5) In the case of an election under Section 4.03, the Company shall
have delivered to the Trustee an Opinion of Counsel from Debevoise &
Plimpton or other counsel in the United States to the effect that the
Holders of the Outstanding Notes will not recognize income, gain or loss
for Federal income tax purposes as a result of such covenant defeasance and
will be
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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
(6) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, (i) each to the effect that all
conditions precedent provided for in this Section 4.04 relating to either
the defeasance under Section 4.02 or the covenant defeasance under Section
4.03, as the case may be, have been complied with and (ii) in the case of
such Officers' Certificate, to the effect that if any other Indebtedness of
the Company shall then be outstanding or committed, such defeasance or
covenant defeasance will not violate the provisions of the material
agreements or instruments evidencing such Indebtedness. In rendering such
Opinion of Counsel, counsel may rely on such Officers' Certificate as to
any matters of fact (including as to compliance with the foregoing clauses
(1), (2) and (3)).
Opinions and certificates required to be delivered under this Section
shall be in compliance with the requirements set forth in the second paragraph
of Section1.04 and this Section4.04.
From and after the time of any deposit pursuant to clause (1) of the
first paragraph of this Section 4.04, the money or U.S. Government Obligations
so deposited shall not be subject to the rights of the holders of Senior Debt of
the Company pursuant to the subordination provisions of Article Fourteen.
Section 4.05. DEPOSITED MONEY AND U.S. GOVERNMENT OBLIGATIONS TO BE
HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS. Subject to the provisions of the
last paragraph of Section 10.03, all money and U.S. Government Obligations
(including the proceeds thereof) deposited with the Trustee (or such other
Person that would qualify to act as successor
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trustee under Article Six, collectively for purposes of this Section 4.05, the
"Trustee") pursuant to Section 4.04 in respect of the Defeased Notes and
Defeased Guarantees shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Notes and this Indenture, to the payment,
either directly or through any Paying Agent (other than the Company or any
Affiliate of the Company) as the Trustee may determine, to the Holders of such
Notes of all sums due and to become due thereon in respect of principal,
premium, if any, and interest, but such money need not be segregated from other
funds except to the extent required by law.
The Company shall pay and indemnify the Trustee and its agents and
hold them harmless against any tax, fee or other charge imposed on or assessed
against the U.S. Government Obligations deposited pursuant to Section 4.04 or
the principal, premium, if any, and interest received in respect thereof other
than any such tax, fee or other charge which by law is for the account of the
Holders of the Defeased Notes.
Anything in this Article Four to the contrary notwithstanding, the
Trustee shall deliver to the Company from time to time upon Company Request any
money or U.S. Government Obligations held by it as provided in Section 4.04
hereof which, in the opinion of a nationally-recognized firm of independent
public accountants or a nationally recognized investment banking firm expressed
in a written certification thereof to the Trustee, are in excess of the amount
thereof which would then be required to be deposited to effect an equivalent
defeasance or covenant defeasance. Subject to Article Six, the Trustee shall
not incur any liability to any Person by relying on such opinion.
Section 4.06. REINSTATEMENT. If the Trustee or Paying Agent is
unable to apply any money or U.S. Government Obligations in accordance with
Section 4.02 or 4.03, as the case may be, by reason of any order or judgment of
any court or governmental authority enjoining, restraining
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or otherwise prohibiting such application, then the obligations of the
Company and each of the Subsidiary Guarantors under this Indenture, the Notes
and the Subsidiary Guarantees shall be revived and reinstated as though no
deposit had occurred pursuant to Section 4.02 or 4.03, as the case may be,
until such time as the Trustee or Paying Agent is permitted to apply all such
money and U.S. Government Obligations in accordance with Section 4.02 or
4.03, as the case may be; PROVIDED, HOWEVER, that if the Company or the
Subsidiary Guarantors make any payment of principal, premium, if any, or
interest on any Note following the reinstatement of its obligations, the
Company or the Subsidiary Guarantors, as the case may be, shall be subrogated
to the rights of the Holders of such Notes to receive such payment from the
money and U.S. Government Obligations held by the Trustee or Paying Agent.
Section 4.07 REPAYMENT TO COMPANY. The Trustee shall pay to the
Company (or, if appropriate, the Subsidiary Guarantors) upon Company Request any
money held by it for the payment of principal or interest that remains unclaimed
for two years. After payment to the Company or the Subsidiary Guarantors,
Noteholders entitled to money must look to the Company and the Subsidiary
Guarantors for payment as general creditors unless an applicable abandoned
property law designates another person and all liability of the Trustee or
Paying Agent with respect to such money shall thereupon cease.
ARTICLE FIVE
REMEDIES
Section 5.01. EVENTS OF DEFAULT. "EVENT OF DEFAULT," wherever used
herein, means any one of the following events (whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary or be effected
by operation of law or pursuant to any judgment,
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decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(a) the Company shall fail to pay interest on the Notes (including
any Additional Interest as defined in the Registration Rights Agreement)
when and as the same becomes due and payable (whether or not prohibited by
the subordination provisions of Article Fourteen) and such failure shall
continue for 30 days or more; or
(b) the Company shall fail to pay principal of the Notes (whether or
not prohibited by the subordination provisions of Article Fourteen) when
and as the same shall become due and payable, whether at maturity, upon
acceleration, optional or mandatory redemption, required repurchase, or
otherwise; or
(c) the failure to perform or comply with any provision of Article
Eight and the failure to offer to repurchase or to repurchase the Notes in
the event of a Change of Control in accordance with Section 10.15; or
(d) the Company or any Subsidiary Guarantor shall fail to perform or
comply with any of its other covenants or agreements in this Indenture or
(in the case of the Company) the Notes, or (in the case of such Subsidiary
Guarantor) its Subsidiary Guarantee (other than the defaults specified in
clauses (a), (b) or (c) above), which failure continues for a period of 30
days after written notice thereof has been given to the Company by the
Trustee or to the Company and the Trustee by the Holders of at least 25.0%
in aggregate principal amount of the Notes then Outstanding; or
(e) the occurrence of one or more defaults under any agreements,
indentures or instruments under which the Company or any Significant
Subsidiary then has outstanding Indebtedness in excess of $7.5 million in
the aggregate and, if not already matured at its final
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maturity in accordance with its terms, such Indebtedness shall have been
accelerated; or
(f) one or more judgments, orders or decrees for the payment of money
in an amount (net of any insurance or indemnity payments actually received
in respect thereof prior to or within 60 days from the entry thereof, or to
be received in respect thereof in the event any appeal thereof shall be
unsuccessful) in excess of $7.5 million, either individually or in the
aggregate, shall be entered against the Company, any Subsidiary Guarantor
or any Significant Subsidiary or any of their respective properties and
which judgments, orders or decrees are not paid, discharged, bonded or
stayed or stayed pending appeal for a period of 60 days after their entry;
or
(g) there shall have been entered by a court of competent
jurisdiction (a)a decree or order for relief in respect of the Company, any
Subsidiary Guarantor or any Significant Subsidiary in an involuntary case
or proceeding under any applicable Bankruptcy Law or (b)a decree or order
adjudging the Company, any Subsidiary Guarantor or any Significant
Subsidiary bankrupt or insolvent, or seeking reorganization, arrangement,
adjustment or composition of or in respect of the Company, any Subsidiary
Guarantor or any Significant Subsidiary under any applicable Federal or
state law, or appointing a custodian, receiver, liquidator, assignee,
trustee, sequestrator or other similar official of the Company, any
Subsidiary Guarantor or any Significant Subsidiary or of any substantial
part of their respective properties, or ordering the winding up or
liquidation of their affairs, and any such decree or order for relief shall
continue to be in effect, or any such other decree or order shall be
unstayed and in effect, for a period of 60 days; or
(h) (i)the Company, any Subsidiary Guarantor or any Significant
Subsidiary commences a voluntary case
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or proceeding under any applicable Bankruptcy Law or any other case or
proceeding to be adjudicated bankrupt or insolvent, (ii)the Company, any
Subsidiary Guarantor or any Significant Subsidiary consents to the entry of
a decree or order for relief in respect of the Company, such Subsidiary
Guarantor or such Significant Subsidiary, respectively, in an involuntary
case or proceeding under any applicable Bankruptcy Law or to the
commencement of any bankruptcy or insolvency case or proceeding against it,
(iii)the Company, any Subsidiary Guarantor or any Significant Subsidiary
files a petition or answer or consent seeking reorganization or relief
under any applicable Federal or state Bankruptcy Law, or (iv) the Company,
any Subsidiary Guarantor or any Significant Subsidiary (x)consents to the
filing of such petition or the appointment of or taking possession by a
custodian, receiver, liquidator, assignee, trustee, sequestrator or other
similar official, of the Company, such Subsidiary Guarantor or such
Significant Subsidiary, respectively, or of any substantial part of its
respective property, (y)makes a general assignment for the benefit of
creditors or (z)admits in writing its inability to pay its debts generally
as they become due; or
(i) other than as expressly provided for in this Indenture or such
Subsidiary Guarantee, any Subsidiary Guarantee of a Subsidiary Guarantor
ceases to be in full force and effect or is declared null and void, or any
Subsidiary Guarantor denies that it has any further liability under any
Subsidiary Guarantee, or gives notice to such effect (in each case, other
than by reason of the termination of this Indenture or the release of any
such Subsidiary Guarantee in accordance with such Subsidiary Guarantee or
this Indenture).
Section 5.02. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT. If
an Event of Default (other than an Event of Default specified in Section 5.01(g)
or (h)
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with respect to the Company) occurs and is continuing, the Trustee or the
Holders of not less than 25.0% in aggregate principal amount of the Notes then
Outstanding may, and the Trustee upon the request of the Holders of not less
than 25.0% in aggregate principal amount of the Notes then Outstanding shall,
declare all the Notes due and payable, in an amount equal to the principal
amount of the Notes together with accrued and unpaid interest to the date the
Notes become due and payable, immediately by notice in writing to the Company,
and to the Company and the Trustee, if by such Holders, specifying the
respective Event of Default and that such notice is a "notice of acceleration,"
and such principal amount of the Notes and accrued and unpaid interest thereon
shall thereupon become immediately due and payable; PROVIDED that so long as the
Credit Agreement shall be in full force and effect, if an Event of Default shall
have occurred and be continuing (other than an Event of Default specified in
5.01(g) or (h) with respect to the Company), any such acceleration shall not be
effective until the earlier to occur of (x)five Business Days following delivery
of a written notice of such acceleration of the Notes to the Bank Agent under
the Credit Agreement and (y)the acceleration of any Indebtedness under the
Credit Agreement. If an Event of Default specified in Section 5.01(g) or (h)
with respect to the Company above occurs and is continuing, then the principal
of, and premium, if any, and any accrued interest on, all the Outstanding Notes
shall IPSO FACTO become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any Holder of the Notes.
Notwithstanding the foregoing, in the event of a declaration of
acceleration in respect of the Notes because an Event of Default specified in
Section5.01(e) shall have occurred and be continuing, such declaration of
acceleration of the Notes and such Event of Default shall be automatically
annulled and rescinded and be of no further effect if the Indebtedness that is
the subject of such Event of Default has been discharged or paid in full or such
Event of Default shall have been cured or waived by the holders of
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such Indebtedness and if such Indebtedness has been accelerated, then the
holders thereof have rescinded their declaration of acceleration in respect of
such Indebtedness, and written notice of such discharge, cure or waiver and
rescission, as the case may be, shall have been given to the Trustee within 60
days after such declaration of acceleration in respect of the Notes by the
Company or by the requisite holders of such Indebtedness or a trustee, fiduciary
or agent for such holders or other evidence satisfactory to the Trustee of such
events is provided to the Trustee and no other Event of Default shall have
occurred which has not been cured or waived during such 60-day period.
At any time after any declaration of acceleration has been made as
provided in the first paragraph of this Section 5.02 and before a judgment or
decree for payment of the money due has been obtained by the Trustee as
hereinafter provided in this Article Five, the Holders of not less than a
majority in aggregate principal amount of the Notes Outstanding, by written
notice to the Company and the Trustee, may rescind such declaration of
acceleration and its consequences if:
(a) the Company has paid or deposited with the Trustee a sum
sufficient to pay:
(i) all amounts paid or advanced by the Trustee under Section
6.07, including the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel;
(ii) all overdue interest on all Outstanding Notes;
(iii) the principal of and premium, if any, on any Outstanding
Notes that have become due otherwise than by such declaration of
acceleration
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and interest thereon at the rate then borne by the Notes; and
(iv) to the extent that payment of such interest is lawful,
interest upon overdue interest at the rate then borne by the Notes;
and
(b) all Events of Default, other than the non-payment of principal of
the Notes, or any other amount, that has become due solely by such
declaration of acceleration, have been cured or waived.
Section 5.03. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY
TRUSTEE; OTHER REMEDIES. The Company covenants that if an Event of Default in
payment of principal, premium or interest specified in Section 5.01(a) or
5.01(b) hereof occurs and is continuing, the Company will, upon demand of the
Trustee, pay to the Trustee, for the benefit of the Holders of such Notes, the
whole amount then due and payable on such Notes for principal, premium, if any,
and interest, with interest upon the overdue principal, premium, if any, and, to
the extent that payment of such interest shall be legally enforceable, upon
overdue installments of interest, at the rate then borne by the Notes; and, in
addition thereto, such further amount as shall be sufficient to cover the costs
and expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name and as trustee of an express trust, may, but is not
obligated under this paragraph to, institute a judicial proceeding for the
collection of the sums so due and unpaid and may, but is not obligated under
this paragraph to, prosecute such proceeding to judgment or final decree, and
may, but is not obligated under this paragraph to, enforce the same against the
Company, any Subsidiary Guarantors or any other obligor upon the Notes and
collect any moneys adjudged or decreed to be
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payable in the manner provided by law out of the property of the Company or any
other obligor upon the Notes, wherever situated.
If an Event of Default occurs and is continuing, the Trustee may in
its discretion, but is not obligated under this paragraph to, (i) proceed to
protect and enforce its rights and the rights of the Holders under this
Indenture and the Notes by such appropriate private or judicial proceedings as
the Trustee shall deem most effectual to protect and enforce such rights,
whether for the specific enforcement of any covenant or agreement contained in
this Indenture or the Notes or in aid of the exercise of any power granted
herein or therein, or (ii)proceed to protect and enforce any other proper
remedy. No recovery of any such judgment upon any property of the Company shall
impair any rights, powers or remedies of the Trustee or the Holders.
Section 5.04. TRUSTEE MAY FILE PROOFS OF CLAIMS. In case of the
pendency of any receivership, insolvency, liquidation, bankruptcy,
reorganization, arrangement, adjustment, composition or other similar judicial
proceeding relative to the Company, any Subsidiary Guarantor or any other
obligor upon the Notes, or the property of the Company, such Subsidiary
Guarantor or of such other obligor or their creditors, the Trustee (irrespective
of whether the principal of the Notes shall then be due and payable as therein
expressed or by declaration or otherwise and irrespective of whether the Trustee
shall have made any demand on the Company for the payment of overdue principal
or interest) shall be entitled and empowered, by intervention in such proceeding
or otherwise, but is not obligated under this paragraph
(a) to file and prove a claim for the whole amount of principal,
premium, if any, and interest owing and unpaid in respect of the Notes and
to file such other papers or documents as may be necessary or advisable in
order to have the claims of the Trustee
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(including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and of
the Holders allowed in such judicial proceeding, and
(b) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any custodian in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay the
Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 6.07 hereof.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder thereof, or to authorize the Trustee to vote in respect
of the claim of any Holder in any such proceeding.
Section 5.05. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF NOTES.
All rights of action and claims under this Indenture or the Notes may be
prosecuted and enforced by the Trustee without the possession of any of the
Notes or the production thereof in any proceeding relating thereto, and any such
proceeding instituted by the Trustee shall be brought in its own name and as
trustee of an express trust, and any recovery of judgment shall, after provision
for the payment of the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, be for the ratable benefit of
the Holders of the Notes in respect of which such judgment has been recovered.
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Section 5.06 APPLICATION OF MONEY COLLECTED. Any money collected by
the Trustee pursuant to this Article shall be applied in the following order, at
the date or dates fixed by the Trustee and, in case of the distribution of such
money on account of principal, premium, if any, or interest, upon presentation
of the Notes and the notation thereon of the payment if only partially paid and
upon surrender thereof if fully paid:
First: to the Trustee for amounts due under Section 6.07;
Second: to Holders for interest accrued on the Notes, ratably,
without preference or priority of any kind, according to the amounts due
and payable on the Notes for interest;
Third: to Holders for principal amounts owing under the Notes,
ratably, without preference or priority of any kind, according to the
amounts due and payable on the Notes for principal and premium; and
Fourth: to the Company or, to the extent the Trustee collects any
amount from any Subsidiary Guarantor, to such Subsidiary Guarantor.
The Trustee, upon prior written notice to the Company, may fix a
record date and payment date for any payment to Noteholders pursuant to this
Section 5.06.
Section 5.07. LIMITATION ON SUITS. No Holder of any Notes shall have
any right to institute any proceeding, judicial or otherwise, with respect to
this Indenture, or for the appointment of a receiver or trustee, or for any
other remedy hereunder, unless
(a) such Holder has previously given written notice to the Trustee of
a continuing Event of Default;
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(b) the Holder or Holders of not less than 25.0% in principal amount
of the Outstanding Notes shall have made written request(s) to the Trustee
to institute proceedings in respect of such Event of Default in its own
name as Trustee hereunder;
(c) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(d) the Trustee for 30 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(e) no direction inconsistent with such written request has been
given to the Trustee during such 30-day period by the Holders of a majority
in aggregate principal amount of the Outstanding Notes;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture or any Note to affect, disturb or prejudice the rights of any
other Holders, or to obtain or to seek to obtain priority or preference over any
other Holders or to enforce any right under this Indenture or any Note except in
the manner provided in this Indenture and for the equal and ratable benefit of
all the Holders.
Section 5.08. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL,
PREMIUM AND INTEREST. Notwithstanding any other provision in this Indenture,
the Holder of any Note shall have the right, which is absolute and
unconditional, to receive cash payment, in United States dollars, of the
principal of, premium, if any, and (subject to Section 3.06 hereof) interest on
such Note on the respective Stated Maturity or Interest Payment Dates expressed
in such Note and to institute suit for the enforcement of any such payment on or
after such respective
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Stated Maturity or Interest Payment Dates and such rights shall not be impaired
without the express consent of such Holder.
Section 5.09. RESTORATION OF RIGHTS AND REMEDIES. If the Trustee or
any Holder has instituted any proceeding to enforce any right or remedy under
this Indenture or any Note and such proceeding has been discontinued or
abandoned for any reason, or has been determined adversely to the Trustee or to
such Holder, then and in every such case the Company, the Trustee and the
Holders shall, subject to any determination in such proceeding, be restored
severally and respectively to their former positions hereunder, and thereafter
all rights and remedies of the Trustee and the Holders shall continue as though
no such proceeding had been instituted.
Section 5.10. RIGHTS AND REMEDIES CUMULATIVE. No right or remedy
herein conferred upon or reserved to the Trustee or to the Holders is intended
to be exclusive of any other right or remedy, and every right and remedy shall,
to the extent permitted by law, be cumulative and in addition to every other
right and remedy given hereunder or now or hereafter existing at law or in
equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
Section 5.11. DELAY OR OMISSION NOT WAIVER. No delay or omission of
the Trustee or of any Holder of any Note to exercise any right or remedy
accruing upon any Event of Default shall impair any such right or remedy or
constitute a waiver of any such Event of Default or an acquiescence therein.
Every right and remedy given by this Article Five or by law to the Trustee or to
the Holders may be exercised from time to time, and as often as may be deemed
expedient, by the Trustee or by the Holders, as the case may be.
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Section 5.12. CONTROL BY MAJORITY. The Holders of not less than a
majority in aggregate principal amount of the Outstanding Notes shall have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power conferred on
the Trustee; PROVIDED, HOWEVER, that:
(a) such direction shall not be in conflict with any rule of law or
with this Indenture or any Note or expose the Trustee to liability; and
(b) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
In the event the Trustee takes any action or follows any direction
pursuant to this Indenture, the Trustee shall be entitled to indemnification
satisfactory to it in its sole discretion against any loss or expense caused by
taking such action or following such direction. This Section 5.12 shall be in
lieu of 316(a)(1)(A) of the TIA, and such 316(a)(1)(A) of the TIA is hereby
expressly excluded from this Indenture and the Notes, as permitted by the TIA.
Section 5.13. WAIVER OF PAST DEFAULTS. The Holders of not less than
a majority in aggregate principal amount of the Outstanding Notes may on behalf
of the Holders of all the Notes waive any past Default hereunder and its
consequences, except a Default:
(a) in the payment of the principal of, premium, if any, or interest
on any Note (which may only be waived with the consent of each holder of
Notes affected); or
(b) in respect of a covenant or provision under this Indenture which,
pursuant to the second paragraph of Section 9.02, cannot be modified or
amended without
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the consent of the Holder of each Outstanding Note 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 Event of Default or impair any right consequent thereon. In
case of any such waiver, the Company, the Trustee and the Holders shall be
restored to their former positions and rights hereunder and under the Notes,
respectively. This paragraph of this Section 5.13 shall be in lieu of
316(a)(1)(B) of the TIA and such 316(a)(1)(B) of the TIA is hereby expressly
excluded from this Indenture and the Notes, as permitted by the TIA.
Section 5.14. UNDERTAKING FOR COSTS. All parties to this Indenture
agree, and each Holder of any Note by such Holder's acceptance thereof shall be
deemed to have agreed, that any court may in its discretion require, in any suit
for the enforcement of any right or remedy under this Indenture or the Notes, or
in any suit against the Trustee for any action taken, suffered or omitted by it
as Trustee, the filing by any party litigant in such suit of an undertaking to
pay the costs of such suit, and that such court may in its discretion assess
reasonable costs, including reasonable attorneys' fees, against any party
litigant in such suit, having due regard to the merits and good faith of the
claims or defenses made by such party litigant; but the provisions of this
Section shall not apply to any suit instituted by the Trustee, to any suit
instituted by any Holder, or group of Holders, holding in the aggregate more
than 10% in principal amount of the Outstanding Notes or to any suit instituted
by any Holder for the enforcement of the payment of the principal of, premium,
if any, or interest on any Note on or after the respective Stated Maturity or
Interest Payment Dates expressed in such Note.
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Section 5.15 WAIVER OF STAY, EXTENSION OR USURY LAWS. The Company
covenants (to the extent that it may lawfully do so) that it will not at any
time insist upon, or plead, or in any manner whatsoever claim or take the
benefit or advantage of, any stay or extension law or any usury or other similar
law wherever enacted, now or at any time hereafter in force, which would
prohibit or forgive the Company from paying all or any portion of the principal
of, premium, if any, or interest on the Notes contemplated herein or in the
Notes or which may affect the covenants or the performance of this Indenture;
and the Company (to the extent that it may lawfully do so) hereby expressly
waives all benefit or advantage of any such law, and covenants that it will not
hinder, delay or impede the execution of any power herein granted to the
Trustee, but will suffer and permit the execution of every such power as though
no such law had been enacted.
ARTICLE SIX
THE TRUSTEE
Section 6.01 CERTAIN DUTIES AND RESPONSIBILITIES. Except during the
continuance of an Event of Default,
(1) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture, and no implied
covenants or obligations shall be read into this Indenture against the
Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture; but in
the case of any such certificates or opinions which by any provision
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hereof are specifically required to be furnished to the Trustee, the
Trustee shall be under a duty to examine the same to determine whether or
not they conform to the requirements of this Indenture.
(b) In case 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 man would exercise or use under the circumstances in the conduct of his
own affairs.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own willful misconduct, except that (i) this paragraph does not
limit the effect of paragraph (a) of this Section6.01; (ii)the Trustee shall not
be liable for any error of judgment made in good faith by an officer of the
Trustee, 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 5.12.
(d) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or to take or omit to take any action
under this Indenture or take any action at the request or direction of Holders
if it shall have reasonable grounds for believing that repayment of such funds
is not assured to it or it does not receive an indemnity satisfactory to it in
its sole discretion against such risk, liability, loss, fee or expense which
might be incurred by it in compliance with such request or direction.
(e) Whether or not therein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability of or
affording protection to the
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Trustee shall be subject to the provisions of this Section 6.01.
Section 6.02. NOTICE OF DEFAULTS. Within 90 days after the
occurrence of any Default, the Trustee shall transmit by mail to all Holders, as
their names and addresses appear in the Note Register, notice of such Default
hereunder known to the Trustee; PROVIDED, HOWEVER, that, except in the case of a
Default in the payment of the principal of, premium, if any, or interest on any
Note, the Trustee shall be protected in withholding such notice if and so long
as the board of directors, the executive committee or a trust committee of
Responsible Officers of the Trustee in good faith determines that the
withholding of such notice is in the interest of the Holders.
Section 6.03. CERTAIN RIGHTS OF TRUSTEE. Subject to Section 6.01
hereof and the provisions of 315 of the TIA:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
approval, appraisal, bond, debenture, note, coupon, security, other
evidence of indebtedness or other paper or document believed by it to be
genuine and to have been signed or presented by the proper party or
parties;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors of the Company may be sufficiently
evidenced by a Board Resolution of the Company thereof;
(c) whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior to
taking,
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suffering or omitting any action hereunder, the Trustee (unless other
evidence be herein specifically prescribed) may, in the absence of bad
faith on its part, rely upon an Officers' Certificate of the Company;
(d) the Trustee and its agents may consult, at the expense of the
Company, with counsel and any written advice of such counsel or any Opinion
of Counsel shall be full and complete authorization and protection in
respect of any action taken, suffered or omitted by it hereunder in good
faith and in reliance thereon in accordance with such advice or Opinion of
Counsel;
(e) the Trustee and its agents shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, approval, appraisal, bond, debenture, note,
coupon, security, other evidence of indebtedness or other paper or document
but the Trustee in its discretion may make such further inquiry or
investigation into such facts or matters as it may deem fit;
(f) the Trustee and its agents may execute any of the trusts or
powers hereunder or perform any duties hereunder either directly or by or
through agents or attorneys and the Trustee shall not be responsible for
any misconduct or negligence on the part of any agent (other than an agent
who is an employee of the Trustee) or attorney appointed with due care by
it hereunder; or
(g) the Trustee shall not be charged with knowledge of any Default or
Event of Default, as the case may be, with respect to the Notes unless
either (1)a Responsible Officer of the Trustee shall have actual knowledge
of the Default or Event of Default, as the case may be, or (2)written
notice of such Default
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or Event of Default, as the case may be, shall have been given to the
Trustee by the Company, any other obligor on the Notes or by any Holder of
the Notes.
Section 6.04. TRUSTEE NOT RESPONSIBLE FOR RECITALS, DISPOSITIONS OF
NOTES OR APPLICATION OF PROCEEDS THEREOF. The recitals contained herein and in
the Notes, except the Trustee's certificates of authentication, shall be taken
as the statements of the Company and any Subsidiary Guarantors, and the Trustee
assumes no responsibility for their correctness. The Trustee makes no
representations as to the validity or sufficiency of this Indenture or the
Notes, except that the Trustee represents that it is duly authorized to execute
and deliver this Indenture, authenticate the Notes and perform its obligations
hereunder and that the statements made by it in a Statement of Eligibility and
Qualification on Form T-1 supplied to the Company and any Subsidiary Guarantors
in connection with the registration of any Notes and any Subsidiary Guarantees
issued hereunder are and will be true and accurate subject to the qualifications
set forth therein. The Trustee shall not be accountable for the use or
application by the Company of Notes or the proceeds thereof.
Section 6.05. TRUSTEE AND AGENTS MAY HOLD NOTES; COLLECTIONS; ETC.
The Trustee, any Paying Agent, any Note Registrar or any other agent of the
Company or any Subsidiary Guarantors, in its individual or any other capacity,
may become the owner or pledgee of Notes, with the same rights it would have if
it were not the Trustee, Paying Agent, Note Registrar or such other agent and,
subject to Sections 6.08 and 6.13 hereof and 310 and 311 of the Trust
Indenture Act, may otherwise deal with the Company or such Subsidiary Guarantors
and receive, collect, hold and retain collections from the Company or such
Subsidiary Guarantors with the same rights it would have if it were not the
Trustee, Paying Agent, Note Registrar or such other agent.
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Section 6.06. MONEY HELD IN TRUST. All moneys received by the
Trustee shall, until used or applied as herein provided, be held in trust for
the purposes for which they were received, but need not be segregated from other
funds except to the extent required herein or by law. The Trustee shall not be
under any liability for interest on any moneys received by it hereunder, except
as it may otherwise agree in writing, in its discretion, with the Company.
Section 6.07. COMPENSATION AND INDEMNIFICATION OF TRUSTEE AND ITS
PRIOR CLAIM. The Company and any Subsidiary Guarantors covenant and agree:
(a)to pay to the Trustee from time to time, and the Trustee shall be entitled
to, reasonable compensation for all services rendered by it hereunder (which
shall not be limited by any provision of law in regard to the compensation of a
trustee of an express trust); (b)to reimburse the Trustee and each predecessor
Trustee upon its request for all reasonable expenses, disbursements and advances
incurred or made by or on behalf of it in accordance with any of the provisions
of this Indenture (including the reasonable compensation, expenses and
disbursements of its counsel and of all agents and other Persons not regularly
in its employ), except any such reasonable expense, disbursement or advance as
may arise from its negligence or bad faith; and (c)to indemnify the Trustee and
each predecessor Trustee for, and to hold it harmless against, any loss,
liability or expense (including the reasonable expense of enforcing this
Indenture against the Company and any Subsidiary Guarantors and of defending
itself against any claim, whether asserted by any Holder, the Company or any
Subsidiary Guarantor), incurred without negligence or bad faith on its part,
arising out of or in connection with the acceptance or administration of this
Indenture or the trusts hereunder and the exercise or performance of any of its
powers or duties hereunder, including enforcement of this Section 6.07. The
Trustee shall notify the Company promptly of any claim asserted against the
Trustee for which it may seek indemnity. The obligations of the Company and any
Subsidiary Guarantors under this Section 6.07 to compensate and indemnify the
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Trustee and each predecessor Trustee and to pay or reimburse the Trustee and
each predecessor Trustee for expenses, disbursements and advances shall
constitute an additional obligation hereunder and shall survive the satisfaction
and discharge of this Indenture. To secure the obligations of the Company and
any Subsidiary Guarantors to the Trustee under this Section 6.07, the Trustee
shall have a Lien prior to the Notes upon all property and funds held or
collected by the Trustee as such, except funds and property paid by the Company
or such Subsidiary Guarantors and held in trust for the benefit of the Holders
of particular Notes under this Indenture. The Trustee's right to receive
payments of any amounts due under this Section 6.07 shall not be subordinate in
right of payment to any other liability or indebtedness of the Company or any
Subsidiary Guarantor (even though the Notes may be so subordinated). All such
payments and reimbursements shall be made with interest at a rate reasonably
acceptable to the Trustee, the Company and such Subsidiary Guarantors. The
Trustee shall be entitled to file a proof of claim in any bankruptcy proceeding
as a secured creditor for its reasonable compensation, fees and expenses under
this Section6.07.
When the Trustee incurs expenses under Article Five hereof, the
expenses (including reasonable fees and expenses of its counsel) and the
compensation for the service in connection therewith are intended to constitute
expense of administration under any applicable bankruptcy law.
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 this Section 6.07 out of the estate in any such
proceeding, shall be denied for any reason, other than solely because of the
misconduct of the Trustee or its agents, payment of the same shall be secured by
a Lien on, and shall be paid out of, any and all distributions, dividends,
money, securities and other properties that the Holders may be entitled to
receive in such proceeding
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whether in liquidation or under any plan of reorganization or arrangement or
otherwise.
Section 6.08. CONFLICTING INTERESTS. The Trustee shall be subject to
and comply with the provisions of 310(b) of the TIA.
Section 6.09. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY. There shall
at all times be a Trustee hereunder which shall be eligible to act as Trustee
under TIA 310(a)(1) and 310(a)(5) and which shall have a combined capital,
surplus and undivided profits of at least $50,000,000, and have an office or
agency at which Notes may be presented for transfer and redemption and at which
demands may be made in The City of New York. If such corporation publishes
reports of condition at least annually, pursuant to law or to the requirements
of United States Federal, state, territorial or District of Columbia supervising
or examining authority, then for the purposes of this Section, the combined
capital and surplus of such corporation shall be deemed to be its combined
capital and surplus as set forth in its most recent report of condition so
published. If at any time the Trustee shall cease to be eligible in accordance
with the provisions of this Section, the Trustee shall resign immediately in the
manner and with the effect hereinafter specified in this Article.
Section 6.10. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR
TRUSTEE. No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article Six shall become effective until the
acceptance of appointment by the successor Trustee under Section6.11.
The Trustee, or any trustee or trustees hereinafter appointed, may at
any time resign by giving written notice thereof to the Company and any
Subsidiary Guarantors at least 20 Business Days prior to the date of such
proposed resignation. Upon receiving such notice of resignation, the Company
and such Subsidiary Guarantors
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shall promptly appoint a successor trustee by written instrument, a copy of
which shall be delivered to the resigning Trustee and a copy to the successor
trustee. If an instrument of acceptance by a successor Trustee shall not have
been delivered to the Trustee within 20 Business Days after the giving of such
notice of resignation, the resigning Trustee may, or any Holder who has been a
BONA FIDE Holder of a Note for at least six months may, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the appointment of a successor Trustee. Such court may thereupon, after such
notice, if any, as it may deem proper, appoint a successor trustee.
The Trustee may be removed at any time by an Act of the Holders of a
majority in principal amount of the Outstanding Notes, delivered to the Trustee,
the Company and any Subsidiary Guarantors.
If at any time:
(1) the Trustee shall fail to comply with the provisions of 310(b)
of the TIA in accordance with Section 6.08 hereof after written request
therefor by the Company, by any Subsidiary Guarantor or by any Holder who
has been a BONA FIDE Holder of a Note for at least six months, or
(2) the Trustee shall cease to be eligible under Section6.09 hereof
and shall fail to resign after written request therefor by the Company, by
any Subsidiary Guarantor or by any such Holder, or
(3) the Trustee shall become incapable of acting or shall be adjudged
a bankrupt or insolvent, or a receiver of the Trustee or of its property
shall be appointed or any public officer shall take charge or control of
the Trustee or of its property or affairs for the purpose or
rehabilitation, conservation or liquidation,
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then, in any such case, (i)the Company or any Subsidiary Guarantor may remove
the Trustee, or (ii)subject to Section5.14, the Holder of any Note who has been
a BONA FIDE Holder of a Note for at least six months may, on behalf of himself
and all others similarly situated, petition any court of competent jurisdiction
for the removal of the Trustee and the appointment of a successor Trustee. Such
court may thereupon, after such notice, if any, as it may deem proper and
prescribe, remove the Trustee and appoint a successor trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company and any Subsidiary Guarantors shall promptly appoint a successor
Trustee. If, within one year after such resignation, removal or incapability,
or the occurrence of such vacancy, the Company and any Subsidiary Guarantors
have not appointed a successor Trustee, a successor Trustee may be appointed by
Act of the Holders of a majority in principal amount of the Outstanding Notes,
delivered to the Company, any Subsidiary Guarantors and the retiring Trustee,
and the successor Trustee so appointed shall, forthwith upon its acceptance of
such appointment, become the successor Trustee. If no successor Trustee shall
have been so appointed by the Company or the Holders of the Notes and accepted
appointment in the manner hereinafter provided, the Holder of any Note who has
been a BONA FIDE Holder for at least six months may, subject to Section5.14, on
behalf of himself and all others similarly situated, petition any court of
competent jurisdiction for the appointment of a successor Trustee.
(f) The Company and any Subsidiary Guarantors shall give notice of
each resignation and each removal of the Trustee and each appointment of a
successor Trustee by mailing written notice of such event by first-class mail,
postage prepaid, to the Holders of Notes as their names and addresses appear in
the Note Register. Each notice shall include the name of the successor Trustee
and the address of its Corporate Trust Office.
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Section 6.11. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR. Every
successor Trustee appointed hereunder shall execute, acknowledge and deliver to
the Company, any Subsidiary Guarantors and to the retiring Trustee an instrument
accepting such appointment, and thereupon the resignation or removal of the
retiring Trustee shall become effective and such successor Trustee, without any
further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the retiring Trustee as if originally named as
Trustee hereunder; but, nevertheless, on the written request of the Company, any
Subsidiary Guarantor or the successor Trustee, upon payment of amounts due it
pursuant to Section 6.07, such retiring Trustee shall duly assign, transfer and
deliver to the successor Trustee all moneys and property at the time held by it
hereunder and shall execute and deliver an instrument transferring to such
successor Trustee all the rights, powers, duties and obligations of the retiring
Trustee. Upon reasonable request of any such successor Trustee, the Company and
any Subsidiary Guarantors shall execute any and all instruments for more fully
and certainly vesting in and confirming to such successor Trustee all such
rights and powers. Any Trustee ceasing to act shall, nevertheless, retain a
prior claim upon all property or funds held or collected by such Trustee to
secure any amounts then due it pursuant to the provisions of Section6.07.
No successor Trustee with respect to the Notes shall accept
appointment as provided in this Section6.11 unless at the time of such
acceptance such successor Trustee shall be eligible to act as Trustee under this
Article Six.
Upon acceptance of appointment by any successor Trustee as provided in
this Section6.11, the Company and any Subsidiary Guarantors shall give notice
thereof to the Holders of the Notes, by mailing such notice to such Holders at
their addresses as they shall appear on the Note Register. If the acceptance of
appointment is substantially contemporaneous with the resignation or removal of
the predecessor Trustee, then the notice called for by the
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preceding sentence may be combined with the notice called for by Section6.10(f).
If the Company and any Subsidiary Guarantors fail to give such notice within 10
days after acceptance of appointment by the successor Trustee, the successor
Trustee shall cause such notice to be given at the expense of the Company.
Section 6.12 SUCCESSOR TRUSTEE BY MERGER, ETC. Any corporation into
which the Trustee may be merged or converted or with which it may be
consolidated, or any corporation resulting from any merger, conversion, or
consolidation to which the Trustee shall be a party, or any corporation
succeeding to all or substantially all of the corporate trust business of the
Trustee, shall be the successor of the Trustee hereunder without the execution
or filing of any paper or any further act on the part of any of the parties
hereto, provided such corporation shall be eligible under this Article Six to
serve as Trustee hereunder.
In case that, at the time such successor to the Trustee under this
Section 6.12 shall succeed to the trusts created by this Indenture, any of the
Notes shall have been authenticated but not delivered, any such successor to the
Trustee may adopt the certificate of authentication of any predecessor Trustee
and deliver such Notes so authenticated; and, in case at that time any of the
Notes shall not have been authenticated, any successor to the Trustee under this
Section 6.12 may authenticate such Notes either in the name of any predecessor
hereunder or in the name of the successor Trustee; and in all such cases such
certificate shall have the full force that it is anywhere in the Notes or in
this Indenture provided that the certificate of the Trustee shall have.
Section 6.13 PREFERENTIAL COLLECTION OF CLAIMS AGAINST ISSUERS. The
Trustee shall comply with Section311(a) of the TIA, excluding any creditor
relationship listed in 311(b) of the TIA. If the present or any future Trustee
shall resign or be removed, it shall
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be subject to 311(a) of the TIA to the extent provided therein.
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE
Section 7.01. PRESERVATION OF INFORMATION; COMPANY TO FURNISH TRUSTEE
NAMES AND ADDRESSES OF HOLDERS. The Trustee shall preserve in as current a form
as is reasonably practicable the most recent list available to it of the names
and addresses of all Holders; PROVIDED, HOWEVER, that if and for so long as the
Trustee shall be the Note Registrar, the Note Register shall satisfy the
requirements relating to such list. None of the Company, any Subsidiary
Guarantor or the Trustee shall be under any responsibility with regard to the
accuracy of such list.
(b) The Company will furnish or cause to be furnished to the Trustee
(i) semiannually, not more than 10 days after each Regular Record
Date, a list, in such form as the Trustee may reasonably require, of the
names and addresses of the Holders as of such Regular Record Date; and
(ii) at such other times as the Trustee may reasonably request in
writing, within 30 days after receipt by the Company of any such request, a
list of similar form and content as of a date not more than 15 days prior
to the time such list is furnished;
PROVIDED, HOWEVER, that if and so long as the Trustee shall be the Note
Registrar, no such list need be furnished pursuant to this Section7.01(b).
Section 7.02. COMMUNICATIONS OF HOLDERS. Holders may communicate
with other Holders with respect to their
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rights under this Indenture or under the Notes pursuant to 312(b) of the TIA.
The Trustee shall comply with 312(b) of the TIA. The Company, any Subsidiary
Guarantors and the Trustee and any and all other Persons benefited by this
Indenture shall have the protection afforded by 312(c) of the TIA.
Section 7.03. REPORTS BY TRUSTEE. Within 60 days after May 15 of
each year commencing with the first May 15 following the date of this Indenture,
the Trustee shall mail to all Holders, as their names and addresses appear in
the Note Register, a brief report dated as of such May 15 that complies with
313(a) of the TIA; PROVIDED, HOWEVER, that if no such event as described in
313(a) of the TIA has occurred within such period then no such report need be
transmitted. The Trustee shall also comply with 313(b), 313(c) and 313(d) of
the TIA. At the time of its mailing to Holders, a copy of each report shall be
filed with the Company, any Subsidiary Guarantors, the Commission and with each
national securities exchange on which the Notes are listed. The Company shall
notify the Trustee if and when the Notes are listed on any stock exchange and of
any delisting thereof.
ARTICLE EIGHT
SUCCESSOR CORPORATION
Section 8.01. WHEN COMPANY MAY MERGE, ETC. The Company shall not, in
any single transaction or series of related transactions, consolidate or merge
with or into (whether or not the Company is the Surviving Person (other than a
consolidation or merger with or into a Wholly-Owned Restricted Subsidiary;
PROVIDED that, in connection with any such merger or consolidation, no
consideration (other than Common Stock in the Surviving Person or the Company)
shall be issued or distributed to the shareholders of the Company)), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its
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properties or assets in one or more related transactions to, another Person, and
the Company will not permit any Restricted Subsidiary to enter into any such
transaction or series of related transactions if such transaction or series of
related transactions, in the aggregate, would result in a sale, assignment,
transfer, lease, conveyance or other disposition of all or substantially all of
the properties and assets of the Company and the Restricted Subsidiaries, taken
as a whole, to another Person, unless (i)the Surviving Person is a corporation
organized or existing under the laws of the United States, any state thereof or
the District of Columbia; (ii)the Surviving Person (if other than the Company)
assumes all the obligations of the Company under the Notes (and the Subsidiary
Guarantees of the Subsidiary Guarantors shall be confirmed as applying to such
Surviving Person's obligations under the Notes) and this Indenture and, if the
Company has not satisfied its obligations pursuant to Section 2 of the
Registration Rights Agreement, then the Registration Rights Agreement pursuant
to a supplemental indenture or other written agreement, as the case may be, in a
form reasonably satisfactory to the Trustee; (iii)at the time of and immediately
after such transaction, no Default or Event of Default shall have occurred and
be continuing; and (iv)the Surviving Person will have at the time of such
transaction and after giving pro forma effect thereto, would be permitted to
incur at least $1.00 of additional Indebtedness pursuant to paragraph (a) of
Section10.11.
This Section 8.01 shall not apply to the Merger or the Debt
Assumption.
Section 8.02. SUCCESSOR SUBSTITUTED. Upon any transaction (other
than a lease) involving the Company in accordance with Section 8.01 hereof, in
which the Company is not the Surviving Person, (a) the Surviving Person or
Persons shall succeed to, and be substituted for, and may exercise every right
and power of, and shall assume all of the liabilities and obligations of, the
Company under this Indenture, the Notes and if the Company has not satisfied
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its obligations pursuant to Section 2 of the Registration Rights Agreement, the
Registration Rights Agreement, with the same effect as if such successor had
been named as the Company in this Indenture, the Notes and (if applicable) the
Registration Rights Agreement, and (b) the Company shall be released and
discharged from its obligations under this Indenture, the Notes and the
Registration Rights Agreement. In addition, each Subsidiary Guarantor, unless
it is the other party to the transaction or unless its Subsidiary Guarantee will
be released and discharged in accordance with its terms as a result of the
transaction, will be required to confirm, by supplemental indenture or other
written agreement with the same effect, that its Subsidiary Guarantee will apply
to the obligations of the Company or the Surviving Person under the Indenture.
Section 8.03. FIRST SUPPLEMENTAL INDENTURE. Leiner Group and LHP
hereby agree to cause the Assumption to be consummated and the First
Supplemental Indenture in the form of EXHIBIT F to be executed immediately
following the consummation of the Offering. Concurrently with the execution and
delivery of the First Supplemental Indenture, the Company shall deliver to the
Trustee an Opinion of Counsel in form and substance reasonably satisfactory to
the Trustee to the effect that such supplemental indenture has been duly
authorized, executed and delivered by LHP, and that, subject to applicable
bankruptcy, insolvency, fraudulent transfer, fraudulent conveyance,
reorganization, moratorium and other laws now or hereafter in effect affecting
creditors' rights generally and the general principles of equity (including,
without limitation, standards of materiality, good faith, fair dealing and
reasonableness), such supplemental indenture is a valid and binding agreement of
LHP, enforceable against LHP in accordance with its terms.
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ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
Section 9.01. WITHOUT CONSENT OF HOLDERS. The Company, each
Subsidiary Guarantor (if any) and the Trustee may amend, waive or supplement
this Indenture or the Notes without notice to or consent of any Holder:
(a) to cure any ambiguity, omission, defect or inconsistency;
(b) to comply with Article Eight;
(c) to provide for uncertificated Notes in addition to certificated
Notes;
(d) to comply with any requirements of the Commission in order to
effect or maintain the qualification of this Indenture under the TIA;
(e) to provide for additional Subsidiary Guarantors or Subsidiary
Guarantees of the Notes or to secure the Notes;
(f) to evidence the release, discharge or termination of any
Subsidiary Guarantor or Subsidiary Guarantee in accordance with Article
Thirteen hereof or the terms of the applicable Subsidiary Guarantee;
(g) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Notes; or
(h) to make any change that would provide any additional benefit or
rights to the Holders or that does not adversely affect the rights of any
Holder.
Notwithstanding the foregoing and Section 9.02, on or after the date
hereof (but after execution and delivery
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of this Indenture and the issuance of the Notes), Leiner Group, LHP and the
Trustee may execute and deliver the First Supplemental Indenture, in each case
without notice to or consent of any Holder.
Section 9.02. WITH CONSENT OF HOLDERS. Subject to Section5.08, the
Company, when authorized by its Board of Directors, each Subsidiary Guarantor
(if any), and the Trustee may amend or supplement this Indenture or the Notes
with the written consent of the Holders of not less than a majority in aggregate
principal amount of the Outstanding Notes (including consents obtained in
connection with a tender offer or exchange offer for Notes), and the Holders of
not less than a majority in aggregate principal amount of the Outstanding Notes
by written notice to the Trustee (including consents obtained in connection with
a tender offer or exchange offer for Notes) may waive any existing Default or
Event of Default or compliance by the Company or any Subsidiary Guarantor with
any provision of this Indenture, the Notes or any Subsidiary Guarantee.
Notwithstanding the provisions of this Section9.02, without the
consent of each Holder affected, an amendment or waiver, including a waiver
pursuant to Section5.13, may not:
(i) reduce the principal amount of the Notes whose Holders must
consent to an amendment, supplement or waiver or make any other change to
the amendment, supplement or waiver provisions of the first two paragraphs
of this Section 9.02;
(ii) reduce the principal or change the fixed maturity of any Note,
or reduce the premium payable upon the redemption of any Note or change the
time at which any Note may be redeemed as described in Section 11.01 or,
following the occurrence of a Change of Control or an Asset Sale, amend,
change or modify the resulting obligation of the Company to offer to
repurchase and to repurchase the Notes in the event of
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a Change of Control or make and consummate the Asset Sale Offer with
respect to any Asset Sale, including by modifying any of the provisions or
definitions with respect thereto;
(iii) reduce the rate of or change the time for payment of interest
on any Notes;
(iv) waive a Default or Event of Default in the payment of principal
of, or premium, if any, or interest on, the Notes (except as provided in
Section 5.02, and except that Holders of at least a majority in aggregate
principal amount of the then outstanding Notes may (a)rescind an
acceleration of the Notes that resulted from a non-payment default, and
(b)waive the payment default that resulted from such acceleration);
(v) make any Note payable in money other than that stated in the
Notes;
(vi) modify any of the provisions of Section5.08 or 5.13;
(vii) modify or change any of the provisions relating to
subordination of the Notes in Article Fourteen in a manner adverse to the
Holders of the Notes;
(viii) waive a redemption payment described in Section 11.01 with
respect to any Note; or
(ix)release any Subsidiary Guarantor that is a Significant Subsidiary
from any of its obligations under its Subsidiary Guarantee or this
Indenture other than in compliance with the terms of such Subsidiary
Guarantee or this Indenture.
Notwithstanding the foregoing, no amendment to Article Thirteen (other
than to Section 13.01, 13.02, 13.03 or 13.07) or Article Fourteen of this
Indenture or the
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definitions relating thereto that affects adversely the rights of any Senior
Debt or Guarantor Senior Debt at the time outstanding may be made unless the
holders of such Senior Debt or Guarantor Senior Debt (or any group or
representative thereof authorized to give a consent) consent in writing to such
amendment.
It shall not be necessary for the consent of the Holders 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.
After an amendment, supplement or waiver under this Section 9.02
becomes effective, the Company shall mail to the Holders of each Note affected
thereby, with a copy to the Trustee, 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 supplemental indenture or effectiveness of any such amendment, supplement or
waiver.
Section 9.03. COMPLIANCE WITH TRUST INDENTURE ACT. Every amendment
of or supplement to this Indenture or the Notes shall comply with the TIA as
then in effect if this Indenture shall then be qualified under the TIA.
Section 9.04. REVOCATION AND EFFECT OF CONSENTS. Until an amendment,
supplement or waiver becomes effective, a consent to it by a Holder is a
continuing consent by the Holder and every subsequent Holder of that Note or
portion of that Note that evidences the same debt as the consenting Holder's
Note, even if notation of the consent is not made on any Note. Subject to the
following paragraph, any such Holder or subsequent Holder may revoke the consent
as to such Holder's Note or portion of such Note by notice to the Trustee or the
Company received by the Trustee or the Company, as the case may be, before the
date on which the Trustee receives an Officers' Certificate certifying that
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the Holders of the requisite principal amount of Notes have consented (and not
theretofore revoked such consent) to the amendment, supplement or waiver.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver. If a record date is fixed, then, notwithstanding the last
sentence of the immediately preceding paragraph, those Persons who were Holders
at such record date (or their duly designated proxies), and only those Persons,
shall be entitled to consent to such amendment, supplement or waiver or to
revoke any consent previously given, whether or not such Persons continue to be
Holders after such record date. No such consent shall be valid or effective for
more than 180 days after such record date.
After an amendment, supplement or waiver becomes effective, it shall
bind every Holder of Notes, unless it makes a change described in any of clauses
(i) through (ix) of the second paragraph of Section9.02. In that case the
amendment, supplement or waiver shall bind each Holder of a Note who has
consented to it and every subsequent Holder of a Note or portion of a Note that
evidences the same debt as the consenting Holder's Note.
Section 9.05. NOTATION ON OR EXCHANGE OF NOTES. If an amendment,
supplement or waiver changes the terms of a Note, the Trustee shall (in
accordance with the specific direction of the Company) request the Holder of the
Note to deliver it to the Trustee. The Trustee shall (in accordance with the
specific direction of the Company) place an appropriate notation on the Note
about the changed terms and return it to the Holder. Alternatively, if the
Company or the Trustee so determines, the Company in exchange for the Note shall
issue and the Trustee shall authenticate a new Note that reflects the changed
terms. Failure to make the appropriate notation or issue a new Note shall not
affect the validity and effect of such amendment, supplement or waiver.
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Section 9.06. TRUSTEE MAY SIGN AMENDMENTS, ETC. The Trustee shall
sign any amendment, supplement or waiver authorized pursuant to this Article
Nine if the amendment, supplement or waiver 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, supplement or waiver, the Trustee shall be entitled to receive, and
shall be fully protected in relying upon, an Officers' Certificate and an
Opinion of Counsel to the effect that the execution of any amendment, supplement
or waiver 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.
Notwithstanding the foregoing, the Trustee shall execute and deliver
the First Supplemental Indenture when executed and delivered by Leiner Group and
LHP in accordance with Section 8.03.
ARTICLE TEN
COVENANTS
Section 10.01. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST. The
Company will duly and punctually pay the principal of, and premium, if any, and
interest on, the Notes in accordance with the terms of the Notes and this
Indenture.
Section 10.02. MAINTENANCE OF OFFICE OR AGENCY. The Company will
maintain in The City of New York, an office or agency where Notes may be
presented or surrendered for payment, where Notes may be surrendered for
registration of transfer or exchange and where notices and demands to or upon
the Company or any Subsidiary Guarantor in respect of the Notes, the Subsidiary
Guarantees, if any, and this Indenture may be served. The office of the Trustee
shall be such office or agency of the Company, unless the Company
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shall designate and maintain some other office or agency for one or more of such
purposes. The Company will give prompt written notice to the Trustee of any
change in the location of any such office or agency. If at any time the Company
shall fail to maintain any such required office or agency or shall fail to
furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the Corporate Trust Office, and the
Company hereby appoints the Trustee as its agent to receive all such
presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other
offices or agencies (in or outside of The City of NewYork) where the Notes may
be presented or surrendered for any or all such purposes, and may from time to
time rescind such designation; PROVIDED, HOWEVER, that no such designation or
rescission shall in any manner relieve the Company of its obligation to maintain
an office or agency in the Borough of Manhattan in The City of New York for such
purposes. The Company will give prompt written notice to the Trustee of any
such designation or rescission and any change in the location of any such other
office or agency.
Section 10.03. MONEY FOR NOTE PAYMENTS TO BE HELD IN TRUST. If the
Company shall at any time act as its own Paying Agent, the Company will, on or
before each due date of the principal of, or premium, if any, or interest on,
any of the Notes, segregate and hold in trust for the benefit of the Holders
entitled thereto a sum sufficient to pay the principal, premium, if any, or
interest so becoming due until such sums shall be paid to such Persons or
otherwise disposed of as herein provided, and will promptly notify the Trustee
of its action or failure so to act.
If the Company is not acting as Paying Agent, the Company will, on or
before each due date of the principal of, or premium, if any, or interest on,
any Notes, deposit with a Paying Agent a sum in same day funds sufficient to pay
the principal, premium, if any, or interest so becoming
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due, such sum to be held in trust for the benefit of the Holders entitled to
such principal, premium or interest, and (unless such Paying Agent is the
Trustee) the Company will promptly notify the Trustee of such action or any
failure so to act.
If the Company is not acting as Paying Agent, the Company will cause
each Paying Agent other than the Trustee to execute and deliver to the Trustee
an instrument in which such Paying Agent shall agree with the Trustee, subject
to the provisions of this Section10.03, that such Paying Agent will:
(a) hold all sums held by it for the payment of the principal of, or
premium, if any, or interest on, Notes in trust for the benefit of the
Holders entitled thereto until such sums shall be paid to such Holders or
otherwise disposed of as herein provided;
(b) give the Trustee notice of any Default by the Company (or any
other obligor upon the Notes) in the making of any payment of principal of,
or premium, if any, or interest on, the Notes;
(c) at any time during the continuance of any such Default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent; and
(d) acknowledge, accept and agree to comply in all respects with the
provisions of this Indenture relating to the duties, rights and liabilities
of such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
direct any Paying Agent to pay, to the Trustee all sums held in trust by the
Company or such Paying Agent, such sums to be held by the Trustee upon the same
trusts as those upon which such sums were held by
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the Company or such Paying Agent; and, upon such payment by any Paying Agent to
the Trustee, such Paying Agent shall be released from all further liability with
respect to such money.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of, or premium, if
any, or interest on, any Note and remaining unclaimed for two years after such
principal, premium, if any, or interest has become due and payable shall be paid
to the Company upon receipt of a Company Request therefor, or (if then held by
the Company) shall be discharged from such trust; and the Holder of such Note
shall thereafter, as an unsecured general creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease.
Section 10.04. EXISTENCE. Subject to Article Eight, the Company will
do or cause to be done all things necessary to, and will cause each of its
Restricted Subsidiaries to, preserve and keep in full force and effect its
corporate existence and the corporate existence of each of the Restricted
Subsidiaries, and the rights (charter and statutory), licenses and franchises of
the Company and each of the Restricted Subsidiaries, as applicable; PROVIDED,
HOWEVER, that the Company shall not be required to, or cause any such Restricted
Subsidiary to, preserve or keep in force or effect any such right, license or
franchise, or any such Restricted Subsidiary's corporate existence, if its Board
of Directors shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company and their respective
Restricted Subsidiaries as a whole and that the loss thereof would not
materially adversely affect the Company's ability to perform its obligations
under the Indenture and the Notes; PROVIDED, FURTHER, HOWEVER, that the
foregoing shall not prohibit a liquidation, dissolution, merger, consolidation,
sale, transfer, conveyance or other disposition of a Restricted
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Subsidiary of the Company or any of its assets or Capital Stock in compliance
with the other terms of this Indenture.
Section 10.05. PAYMENT OF TAXES AND OTHER CLAIMS. The Company shall
pay or discharge or cause to be paid or discharged, before the same shall become
delinquent and a penalty accrues from such delinquency, (a)all material taxes,
assessments and governmental charges levied or imposed (i)upon the Company or
any of its Subsidiaries or (ii)upon the income, profits or property of the
Company or any of its Subsidiaries and (b)all material lawful claims for labor,
materials and supplies, which, if unpaid, would by law become a Lien upon the
property of the Company or any of its Subsidiaries (other than any Permitted
Lien or other Lien permitted by this Indenture); PROVIDED, HOWEVER, that the
Company shall not be required to pay or discharge or cause to be paid or
discharged any such tax, assessment, charge or claim whose amount, applicability
or validity is being contested in good faith by appropriate proceedings properly
instituted and diligently conducted, or where the failure to effect such payment
or discharge would not materially adversely affect the Company's ability to
perform its obligations under the Indenture and the Notes.
Section 10.06. MAINTENANCE OF PROPERTIES. The Company shall, and
shall cause each of its Restricted Subsidiaries to, cause all material
properties owned by the Company or the Restricted Subsidiaries or used in the
conduct of its business or the businesses of the Restricted Subsidiaries to be
maintained and kept in good condition, repair and working order (reasonable wear
and tear excepted) and supplied with all necessary equipment, and cause to be
made all repairs, renewals, replacements, betterments and improvements thereof,
all as shall be reasonably necessary so that the business carried on in
connection therewith may be conducted at all times in the ordinary course;
PROVIDED, HOWEVER, that nothing in this Section10.06 shall prevent the Company
or any of its Subsidiaries from discontinuing the operation and maintenance of
any of such properties if (x) such discontinuance is, in the judgment of the
Company
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or the Restricted Subsidiary, desirable in the conduct of its businesses or (y)
if such discontinuance or disposal is not materially adverse to the Company and
its Restricted Subsidiaries taken as a whole or the ability of the Company to
otherwise satisfy its obligations hereunder.
Section 10.07. INSURANCE. The Company will at all times keep all of
its and its Restricted Subsidiaries' properties which are of an insurable nature
insured with insurers, believed by the Company in good faith to be financially
sound and responsible, against loss or damage to the extent that property of
similar character is usually so insured by corporations similarly situated and
owning like properties (which may include self-insurance, if reasonable and in
comparable form to that maintained by companies similarly situated).
Section 10.08. COMPLIANCE CERTIFICATE. The Company will deliver to
the Trustee within 120 days after the end of each of the Company's fiscal years
an Officers' Certificate stating whether or not the signers know of any Default
or Event of Default by the Company, any Subsidiary Guarantors, or any Restricted
Subsidiary that occurred during such fiscal period. If they do know of such a
Default or Event of Default, the certificate shall describe any such Default or
Event of Default and its status, including as to any steps being undertaken to
address or cure such Default or Event of Default. The Company shall also
deliver a certificate to the Trustee at least annually from the chief financial
officer (or if the Company does not have a chief financial officer, the
Company's principal executive, financial or accounting officer) of the Company
as to his or her knowledge of the compliance of the Company, any Subsidiary
Guarantors and the Restricted Subsidiaries with all conditions and covenants
under this Indenture and whether any Default or Event of Default has occurred,
such compliance to be determined without regard to any period of grace or
requirement of notice provided herein.
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(b) The Company will deliver to the Trustee as soon as possible, and
in any event within 10 days, after the Company becomes aware of the occurrence
of any Default or Event of Default, an Officers' Certificate specifying such
Default or Event of Default and what action the Company or the applicable
Subsidiary Guarantor, as the case may be, is taking or proposes to take with
respect thereto.
Section 10.09. PROVISION OF FINANCIAL STATEMENTS AND REPORTS.
Whether or not the Company is then subject to Section13(a) or 15(d) of the
Exchange Act, the Company will file with the Commission (unless such filing is
not permitted under the Exchange Act), so long as the Notes are outstanding, the
annual reports, quarterly reports and other periodic reports which the Company
would have been required to file with the Commission pursuant to such
Section13(a) or 15(d) if the Company were so subject, and such documents shall
be filed with the Commission on or prior to the respective dates (the "REQUIRED
FILING DATES") by which the Company would have been required so to file such
documents if the Company were so subject. The Company will also in any event
(i)within 15 days of each Required Filing Date, (a)transmit or cause to be
transmitted by mail to all Holders of Notes, as their names and addresses appear
in the Note Register, without cost to such Holders, and (b)file with the Trustee
copies of the annual reports, quarterly reports and other periodic reports which
the Company would have been required to file with the Commission pursuant to
Section13(a) or 15(d) of the Exchange Act if the Company were subject to such
Sections and (ii)if filing such documents by the Company with the Commission is
prohibited under the Exchange Act, promptly upon written request and payment of
the reasonable cost of duplication and delivery, supply copies of such documents
to any prospective Holder at the Company's cost. The Company also shall comply
with the provisions of TIA 314(a).
Section 10.10. LIMITATION ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS
BY SUBSIDIARIES. The Company will not permit any U.S. Restricted Subsidiary,
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directly or indirectly, to Guarantee any other Indebtedness of the Company or
any Subsidiary Guarantor ("U.S. SPECIFIED INDEBTEDNESS") unless such U.S.
Restricted Subsidiary simultaneously executes and delivers a supplemental
indenture to this Indenture providing for the Guarantee (a "U.S. SUBSIDIARY
GUARANTEE") of the payment of the Notes by such U.S. Restricted Subsidiary
thereby becoming a Subsidiary Guarantor, which U.S. Subsidiary Guarantee shall
be subordinated to such U.S. Restricted Subsidiary's Guarantee of such U.S.
Specified Indebtedness to the same extent as the Notes or the Subsidiary
Guarantees, as applicable, are subordinated to such U.S. Specified Indebtedness
under the Indenture; PROVIDED, HOWEVER, that a U.S. Restricted Subsidiary will
not be required to provide a U.S. Subsidiary Guarantee under this Section 10.10
unless and until such time as such U.S. Restricted Subsidiary, individually or
together with all other U.S. Restricted Subsidiaries that are otherwise
obligated to provide a U.S. Subsidiary Guarantee under this Section 10.10,
accounts for one percent or more of Consolidated Tangible Assets.
(b) The Company will not permit any Foreign Subsidiary, directly or
indirectly, to Guarantee any other Indebtedness of the Company or any Subsidiary
Guarantor (the "FOREIGN SPECIFIED INDEBTEDNESS" that (i) is PARI PASSU with or
expressly subordinated in right of payment to the Notes or the Subsidiary
Guarantees, as applicable, or (ii) represents Public Debt, in each case, unless
such Foreign Subsidiary simultaneously executes and delivers a supplemental
indenture to this Indenture providing for the Guarantee (a "FOREIGN SUBSIDIARY
GUARANTEE") of the payment of the Notes by such Foreign Subsidiary thereby
becoming a Subsidiary Guarantor, which Foreign Subsidiary Guarantee shall be
subordinated to such Foreign Subsidiary's Guarantee of such Foreign Specified
Indebtedness to the same extent as the Notes or the Subsidiary Guarantees, as
applicable, are subordinated to such Foreign Specified Indebtedness under the
Indenture.
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(c) The Company will have the right to cause any Restricted
Subsidiary to execute and deliver to the Trustee a supplemental indenture to
this Indenture pursuant to which such Subsidiary will Guarantee payment of the
Notes thereby becoming a Subsidiary Guarantor.
(d) Any Restricted Subsidiary that becomes a Subsidiary Guarantor
pursuant to this Section 10.10 shall enter into a Subsidiary Guarantee as
provided in Section 13.07 hereof.
Section 10.11. LIMITATION ON INCURRENCE OF INDEBTEDNESS. The Company
will not, and will not permit any Restricted Subsidiary to, create, incur,
assume or directly or indirectly enter into any Guarantee of or in any other
manner become directly or indirectly liable for (collectively, to "INCUR") any
Indebtedness (including any Acquired Debt), except that the Company and any
Subsidiary Guarantor may incur Indebtedness if, at the time of, and immediately
after giving PRO FORMA effect to, such incurrence of Indebtedness, the
Consolidated Coverage Ratio of the Company for the most recently ended four
fiscal quarters for which financial statements are available would be at least
(i) 2.0 to 1.0 until July 1, 1999 and (ii) 2.25 to 1.0 thereafter.
(b) The foregoing limitations will not apply to the incurrence of any
of the following (collectively, "PERMITTED INDEBTEDNESS"), each of which shall
be given independent effect:
(i) Indebtedness incurred by the Company or any Subsidiary Guarantor
pursuant to the Credit Facility in a maximum principal amount not to exceed
at any time,
(a) an aggregate principal amount of $85.0 million under the
Term Loan Facility, minus the aggregate amount of all scheduled
repayments of principal, and all mandatory prepayments of principal
with Net Proceeds from Asset Sales, whether
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or not such repayments or prepayments are actually made (unless the
relevant provision requiring any such repayment or prepayment is
waived or amended by the lenders thereunder in accordance therewith),
applied to permanently reduce the Indebtedness outstanding under the
Term Loan Facility, and plus (in the case of any refinancing thereof)
the aggregate amount of fees, underwriting discounts, premiums and
other costs and expenses incurred in connection with such refinancing,
and
(b) an aggregate principal amount outstanding at any time under
the Revolving Credit Facility not to exceed an amount equal to (A) an
amount (the "Total Amount") equal to the greater of (x) an amount
equal to $125.0 million, minus the amount of all mandatory prepayments
of principal with Net Proceeds from Asset Sales applied to permanently
reduce the commitments under the Revolving Credit Facility, and plus
(in the case of any refinancing thereof) the aggregate amount of fees,
underwriting discounts, premiums and other costs and expenses incurred
in connection with such refinancing, and (y) the Borrowing Base, minus
(B) without duplication, the amount then outstanding (I.E., advanced,
and received by, and available for use by, the Company) under any
Receivables Financing (as set forth in the books and records of the
Company and confirmed by the agent, trustee or other representative of
the institution or group providing such Receivables Financing) that
has been entered into by the Company, any Restricted Subsidiary or any
Receivables Subsidiary since the Issue Date and that, as of such date
of determination, has not expired or otherwise terminated, minus (C)
the aggregate principal amount of Indebtedness incurred under the
Revolving Credit Facility by Restricted Subsidiaries pursuant to
clause (ii) below;
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(ii) Indebtedness incurred by any Restricted Subsidiary under the
Revolving Credit Facility in an aggregate principal amount at any one time
outstanding not to exceed the greater of (A) $25.0 million and (B) 20.0% of
the Total Amount, and any Guarantees thereof;
(iii) Indebtedness of Foreign Subsidiaries and any Guarantees in
respect thereof; PROVIDED that the aggregate principal amount of such
Indebtedness outstanding at any time does not exceed, as to all such
Foreign Subsidiaries, the greater of (A) $20.0 million and (B) an amount
equal to 9.0% of Consolidated Tangible Assets (calculated on a PRO FORMA
basis giving effect to any Acquisition being financed with any such
Indebtedness);
(iv) Indebtedness represented by the Notes or the Exchange Notes, any
Guarantees in respect thereof, and any Indebtedness arising by reason of
any Lien granted to secure any of the foregoing Indebtedness;
(v) Indebtedness owed by any Restricted Subsidiary to the Company or
to another Restricted Subsidiary or owed by the Company to any Restricted
Subsidiary; PROVIDED, HOWEVER, that any such Indebtedness shall be at all
times held by a Person which is either the Company or a Restricted
Subsidiary of the Company; PROVIDED, FURTHER, HOWEVER, that upon either
(a)the transfer or other disposition of any such Indebtedness to a Person
other than the Company or another Restricted Subsidiary or (b)the sale,
lease, transfer or other disposition of shares of Capital Stock (including
by consolidation or merger) of any such Restricted Subsidiary to a Person
other than the Company or another Restricted Subsidiary, the incurrence of
such Indebtedness shall be deemed to be an incurrence that is not permitted
by this clause (v);
(vi) Indebtedness of the Company or any Restricted Subsidiary in the
form of Purchase Money Obligations,
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Capital Lease Obligations or Attributable Debt, in an aggregate amount at
any one time outstanding not to exceed the greater of (A) $5.0 million and
(B) an amount equal to 3.0% of Consolidated Tangible Assets;
(vii) Indebtedness of the Company or any Restricted Subsidiary
arising in the ordinary course of business with respect to Interest Rate
Agreement Obligations or Currency Agreement Obligations incurred for the
purpose of fixing or hedging interest rate risk or currency risk with
respect to any fixed or floating rate Indebtedness that is permitted by the
terms of this Indenture to be outstanding or any foreign currency exposure;
(viii) Indebtedness of the Company or any Restricted Subsidiary
arising from the honoring of a check, draft or similar instrument of such
Person drawn against insufficient funds, provided that such Indebtedness is
extinguished within five Business Days of its incurrence;
(ix) Indebtedness of the Company or any Restricted Subsidiary
consisting of Guarantees, indemnities, or Obligations in respect of
purchase price adjustments, in connection with the acquisition or
disposition of assets, including pursuant to the Recapitalization;
(x) Indebtedness of the Company or any Restricted Subsidiary in
respect of (A) letters of credit, bankers' acceptances or other similar
instruments or obligations, issued in connection with liabilities incurred
in the ordinary course of business (including those issued to governmental
entities in connection with self-insurance under applicable workers'
compensation statutes), or (B) surety, judgment, appeal, performance and
other similar bonds, instruments or obligations provided in the ordinary
course of business or (C) Guarantees of Senior Debt or incurred in
compliance with Section 10.10, or (D)
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Indebtedness arising by reason of any Lien securing Senior Debt or incurred
in compliance with Section 10.16;
(xi) Indebtedness (A) of the Company or any Subsidiary Guarantor
consisting of Guarantees of up to an aggregate principal amount of $2.0
million of borrowings by Management Investors in connection with the
purchase of Capital Stock of LHP, Leiner Group or PLI by such Management
Investors or (B) of the Company or any Restricted Subsidiary consisting of
Guarantees in respect of loans or advances made to officers or employees of
Leiner Group, LHP or any Restricted Subsidiary, or Guarantees otherwise
made on their behalf, (1) in respect of travel, entertainment and
moving-related expenses incurred in the ordinary course of business, or (2)
in the ordinary course of business not exceeding $500,000 in the aggregate
outstanding at any time;
(xii) Indebtedness of a Receivables Subsidiary secured by a Lien on
all or part of the assets disposed of in, or otherwise incurred in
connection with, a Financing Disposition;
(xiii) any Indebtedness incurred in connection with or given in
exchange for the renewal, extension, substitution, refunding, defeasance,
refinancing, repayment or replacement (a "REFINANCING") of any Indebtedness
described in clauses (i), (ii), (iii), (iv), (xiii), (xiv) or (xv) of this
clause (b) or of any Indebtedness permitted to be incurred pursuant to
clause (a) of this Section 10.11 ("REFINANCING INDEBTEDNESS"); PROVIDED,
HOWEVER, that (a) the principal amount of such Refinancing Indebtedness
shall not exceed the principal amount (or accrued amount, if less) of the
Indebtedness so renewed, extended, substituted, refunded, defeased,
refinanced, repaid or replaced ("REFINANCED"), plus the fees, underwriting
discounts, premium (not to exceed the stated amount of
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any premium required to be paid in connection with such a refinancing
pursuant to the terms of the Indebtedness being refinanced) and other costs
and expenses incurred in connection therewith; (b)with respect to
Refinancing Indebtedness of any Indebtedness other than Senior Debt, the
Refinancing Indebtedness shall have a Weighted Average Life to Maturity
equal to or greater than the Weighted Average Life to Maturity of the
Indebtedness being refinanced; (c) with respect to Refinancing Indebtedness
other than Senior Debt, such Refinancing Indebtedness shall rank no more
senior than, and shall be at least as subordinated in right of payment to,
the Notes as the Indebtedness being refinanced; and (d)the obligor on such
Refinancing Indebtedness shall be the obligor on the Indebtedness being
refinanced, the Company or any Subsidiary Guarantor, or (in the case of
Indebtedness of a Foreign Subsidiary that is being refinanced) any Foreign
Subsidiary;
(xiv) Indebtedness of the Company or any Restricted Subsidiary which
is outstanding on the Issue Date;
(xv) Acquired Debt of any Restricted Subsidiary and any Guarantee
thereof, PROVIDED that at the time of such incurrence and after giving
effect thereto on a PRO FORMA basis, (x) no Default or Event of Default
will have occurred and be continuing or would result therefrom and (y) the
Company could incur at least $1.00 of additional Indebtedness pursuant to
clause (a) of this Section 10.11; and
(xvi) Indebtedness of the Company or any Subsidiary Guarantor in
addition to that described in clauses (i) through (xv) above, and any
renewals, extensions, substitutions, refinancings or replacements of such
Indebtedness, so long as the aggregate principal amount at any one time
outstanding of all such Indebtedness incurred pursuant to this clause (xvi)
does not exceed
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the greater of (a) $15.0 million and (b) an amount equal to 7.0% of
Consolidated Tangible Assets.
(c) For purposes of determining compliance with, and the outstanding
principal amount of any particular Indebtedness incurred pursuant to and in
compliance with, this covenant, (i) any other obligation of the obligor on such
Indebtedness (or of any other Person that could have incurred such Indebtedness
as the obligor thereon) arising under any Guarantee, Lien or letter of credit
supporting such Indebtedness shall be disregarded to the extent that such
Guarantee, Lien or letter of credit secures the principal amount of such
Indebtedness; (ii) in the event that Indebtedness meets the criteria of more
than one of the types of Indebtedness described in the preceding paragraphs, the
Company, in its sole discretion, shall classify such item of Indebtedness and
only be required to include the amount and type of such Indebtedness in one of
such clauses; and (iii) the amount of Indebtedness issued at a price that is
less than the principal amount thereof shall be equal to the amount of the
liability in respect thereof determined in accordance with GAAP.
(d) For purposes of determining compliance with any
Dollar-denominated restriction on the incurrence of Indebtedness denominated in
a foreign currency, the Dollar-equivalent principal amount of such Indebtedness
incurred pursuant thereto shall be calculated based on the relevant currency
exchange rate in effect on the date that such Indebtedness was incurred, in the
case of term debt, or first committed, in the case of revolving credit debt,
PROVIDED that (x) the Dollar-equivalent principal amount of any such
Indebtedness outstanding on the Issue Date shall be calculated based on the
relevant currency exchange rate in effect on the Issue Date, (y) if such
Indebtedness is incurred to refinance other Indebtedness denominated in a
foreign currency, and such refinancing would cause the applicable
Dollar-denominated restriction to be exceeded if calculated at the relevant
currency exchange rate in effect on the date of such refinancing, such
Dollar-denominated
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restriction shall be deemed not to have been exceeded so long as the principal
amount of such refinancing Indebtedness does not exceed the principal amount of
such Indebtedness being refinanced and (z) the Dollar-equivalent principal
amount of Indebtedness denominated in a foreign currency and incurred pursuant
to the Credit Facility shall be calculated based on the relevant currency
exchange rate in effect on, at the Company's option, (i) the Issue Date, (ii)
any date on which any of the respective commitments under the Credit Facility
shall be reallocated between or among facilities or subfacilities thereunder, or
on which such rate is otherwise calculated for any purpose thereunder, or (iii)
the date of such incurrence. The principal amount of any Indebtedness incurred
to refinance other Indebtedness, if incurred in a different currency from the
Indebtedness being refinanced, shall be calculated based on the currency
exchange rate applicable to the currencies in which such respective Indebtedness
is denominated that is in effect on the date of such refinancing.
(e) Indebtedness of any Person that is not a Restricted Subsidiary,
which Indebtedness is outstanding at the time such Person becomes a Restricted
Subsidiary or is merged with or into or consolidated with the Company or a
Restricted Subsidiary, shall be deemed to have been incurred at the time such
Person becomes a Restricted Subsidiary or is merged with or into or consolidated
with the Company or a Restricted Subsidiary, and Indebtedness which is assumed
at the time of the acquisition of any asset shall be deemed to have been
incurred at the time of such acquisition.
(f) This Section 10.11 shall not apply to the Debt Assumption.
Section 10.12. LIMITATION ON RESTRICTED PAYMENTS. The Company will
not, and will not permit any Restricted Subsidiary to, directly or indirectly,
make any Restricted Payment, unless at the time of and immediately after giving
effect to the proposed Restricted Payment (with the value of any such Restricted
Payment, if other than
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cash, to be as determined in good faith by the Board of Directors of the
Company, which determination shall be conclusive),
(i) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(ii) the Company could incur at least $1.00 of additional Indebtedness
pursuant to Section 10.11(a); and
(iii) the aggregate amount of all Restricted Payments made after the
Issue Date shall not exceed the sum of (a)an amount equal to 50% of the
Company's aggregate cumulative Consolidated Net Income accrued on a
cumulative basis from the Issue Date (or if such aggregate cumulative
Consolidated Net Income for such period shall be a deficit, minus 100% of
such deficit), PLUS (b)the aggregate amount of all net cash proceeds (other
than proceeds from the issuance of the common stock of Leiner Group to
North Castle Partners on the Issue Date) received since the Issue Date by
the Company (w) as capital contributions in the form of common equity to
the Company after the Issue Date, (x)from the issuance and sale (other than
to a Restricted Subsidiary) of Capital Stock (other than Disqualified
Stock), (y)from the issuance to a Person who is not a Subsidiary of the
Company of any options, warrants or other rights to acquire Capital Stock
of the Company (in each case, exclusive of any Disqualified Stock or any
options, warrants or other rights that are redeemable at the option of the
holder, or are required to be redeemed, prior to the Stated Maturity of the
Notes) and (z)from the issuance and sale by the Company or any Restricted
Subsidiary after the Issue Date of Disqualified Stock or debt securities
that have been converted into or exchanged for Capital Stock of the Company
(other than Disqualified Stock), plus the amount of cash received by the
Company or any
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Restricted Subsidiary upon such conversion or exchange, in each case to the
extent that such proceeds are not used to redeem, repurchase, retire or
otherwise acquire Capital Stock or any Indebtedness of the Company or any
Restricted Subsidiary, pursuant to clause (ii) of Section 10.12(b) below,
PLUS (c)the amount of the net reduction in Investments by the Company in
Unrestricted Subsidiaries resulting from (x) the payment of cash dividends
or the repayment in cash of the principal of loans or the cash return on
any Investment, in each case to the extent received by the Company or any
Restricted Subsidiary from Unrestricted Subsidiaries, (y) the release or
extinguishment of any Guarantee of Indebtedness of any Unrestricted
Subsidiary, and (z) the redesignation of Unrestricted Subsidiaries as
Restricted Subsidiaries of the Company (valued as provided in the
definition of "Investment"), such aggregate amount of the net reduction in
Investments not to exceed in the case of any Unrestricted Subsidiaries the
amount of Restricted Investments previously made by the Company or any
Restricted Subsidiary in such Unrestricted Subsidiary, which amount was
included in the calculation of the amount of Restricted Payments, PLUS
(d)to the extent that any Restricted Investment that was made after the
Issue Date is sold for cash or otherwise liquidated or repaid for cash, the
amount of cash proceeds received with respect to such Restricted
Investment, net of taxes and the cost of disposition, not to exceed the
amount of Restricted Investments made after the Issue Date.
(b) The provisions of Section 10.12(a) will not prohibit the
following actions (collectively, "PERMITTED PAYMENTS"):
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such declaration date such payment would have
been permitted under this Indenture and such payment shall be deemed
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to have been paid on such date of declaration for purposes of clause (iii)
of the preceding paragraph;
(ii) the redemption, repurchase, retirement or other acquisition of
any Capital Stock or any Indebtedness of the Company that is subordinated
in right of payment to the Notes in exchange for, or out of the proceeds
of, the substantially concurrent sale (other than to a Restricted
Subsidiary) of Capital Stock of the Company (other than any Disqualified
Stock);
(iii) Restricted Investments in an amount such that the sum of the
aggregate amount of Restricted Investments made pursuant to this clause
(iii) after the Issue Date and outstanding (net of any returns in cash
thereof or cash received in liquidation or on disposition thereof) does not
exceed at any time the greater of (A) $15.0 million and (B) 7.0% of
Consolidated Tangible Assets;
(iv) loans, advances, dividends or distributions to Leiner Group or
PLI to the extent necessary to permit Leiner Group to repurchase or
otherwise acquire, or payments by LHP to purchase or otherwise acquire,
Capital Stock of Leiner Group (including options, warrants or other rights
to acquire such Capital Stock) from departing or deceased directors,
officers or employees of Leiner Group, LHP or its Subsidiaries, or other
Management Investors (or payments in lieu of issuing and reacquiring any
such Capital Stock, made to or on behalf of any such Person), whether
pursuant to the terms of an employee benefit plan or employment agreement
or otherwise; PROVIDED that the aggregate amount of all such repurchases
shall not exceed $2.5 million during any fiscal year and $5.0 million
during any period of five consecutive fiscal years (plus the net cash
proceeds received by the Company after the Issue Date as a capital
contribution from the sale to Management Investors of Capital Stock of
Leiner Group
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or options, warrants or other rights in respect thereof);
(v) payments to Leiner Group or PLI to permit Leiner Group to pay, or
the payment by LHP directly of, the payments provided for by clause (viii)
of the second paragraph of Section 10.13;
(vi) loans, advances, dividends, or distributions by LHP or any
Restricted Subsidiary to Leiner Group or PLI not to exceed an amount
necessary to permit Leiner Group or PLI to (A) pay its costs (including all
professional fees and expenses) incurred to comply with its reporting
obligations under federal or state laws or under the Indenture, including
any reports filed with respect to the Securities Act, Exchange Act or the
respective rules and regulations promulgated thereunder, (B) make payments
in respect of its indemnification obligations owing to directors, officers,
employees or other Persons under its charter or by-laws or pursuant to
written agreements with any such Person, to the extent such payments relate
to the Company and its Subsidiaries, (C) pay all reasonable fees and
expenses payable by it in connection with the Recapitalization and related
transactions (including without limitation the financing thereof), or (D)
pay its other operational expenses (other than taxes) incurred in the
ordinary course of business and not exceeding $500,000 in the aggregate in
any fiscal year;
(vii) payments by LHP or any Restricted Subsidiary to Leiner Group or
PLI (A) pursuant to the Tax Sharing Agreement, (B) to pay or permit Leiner
Group to pay any taxes, charges or assessments, including but not limited
to sales, use, transfer, rental, ad valorem, value-added, stamp, property,
consumption, franchise, license, capital, net worth, gross receipts,
excise, occupancy, intangibles or similar taxes, charges or assessments
("TAXES") (other than federal, state or local taxes measured by income and
federal, state or
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local withholding imposed on payments made by Leiner Group), required to be
paid by Leiner Group or PLI by virtue of its being incorporated or having
capital stock outstanding (but not by virtue of owning stock of any
corporation other than PLI or LHP or any of its Subsidiaries), or being a
holding company parent of PLI or LHP or receiving dividends from or other
distributions in respect of the stock of PLI or LHP, or having guaranteed
any obligations of PLI or LHP or any of its Subsidiaries, or having made
any payment in respect of any of the items for which LHP is permitted to
make payments to Leiner Group or PLI pursuant to this covenant, (C) to pay
or permit Leiner Group or PLI to pay any other federal, state, foreign,
provincial or local taxes measured by income for which Leiner Group or PLI
is liable up to an amount not to exceed with respect to such federal taxes
the amount of any such taxes which LHP would have been required to pay on a
separate company basis or on a consolidated basis if LHP had filed a
consolidated return on behalf of an affiliated group (as defined in Section
1504 of the Internal Revenue Code of 1986, as amended, or an analogous
provision of state, local or foreign law) of which it was the common
parent, or with respect to state and local taxes, on a combined basis if
the Company had filed a combined return on behalf of an affiliated group
consisting only of the Company and its Subsidiaries, (D) to pay or permit
Leiner Group or PLI to pay any Taxes attributable to periods prior to the
issuance f the Notes, or (E) to pay or permit Leiner Group or PLI to pay
any Taxes attributable to the Assumption or any dividend or distribution in
respect of the stock of PLI or LHP;
(viii) the payment by LHP of, or loans, advances, dividends or
distributions by LHP to Leiner Group or PLI to pay, dividends on the common
stock of LHP, Leiner Group or PLI, as applicable, following an initial
public offering of such common stock, in an amount not to exceed in any
fiscal year 6% of the net
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proceeds received by LHP, in or from such public offering;
(ix) loans, advances, dividends or distributions by the Company or
any Restricted Subsidiary in an aggregate amount not to exceed $5.0
million; PROVIDED, HOWEVER, that the Company or any Restricted Subsidiary
shall not be permitted to make Restricted Payments under this clause (ix)
unless, after giving effect thereto (including the incurrence of any
Indebtedness to fund such Restricted Payment), the Consolidation Coverage
Ratio of the Company would be at least equal to 2.25:1.00; and
PROVIDED, FURTHER, that in the case of clauses (viii) and (ix) no Default
or Event of Default shall have occurred or be continuing at the time of
such payment after giving effect thereto.
For purposes of clause (iii) of Section 10.12(a) above, Permitted
Payments made pursuant to clauses (i), (iii), (iv), (viii) and (ix) of the
immediately preceding paragraph shall be included (with respect to clause (i),
as of the date of declaration) as Restricted Payments made since the Issue Date.
(c) The provisions of Section 10.12(a) shall not apply to any
purchase, redemption or other acquisition or retirement of Preferred Stock of
Vita Health Company (1985) Ltd., a Canadian corporation, made on or before the
date that is 20 days after the Issue Date.
Section 10.13. LIMITATION ON TRANSACTIONS WITH AFFILIATES. The
Company will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, enter into or suffer to exist any transaction or series of related
transactions (including, without limitation, the sale, purchase, exchange or
lease of assets, property or services) with any Affiliate of the Company (other
than the Company or a Restricted Subsidiary) unless (1)such transaction or
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series of related transactions is on terms that taken as a whole are no less
favorable to the Company or such Restricted Subsidiary, as the case may be, than
would be available in a comparable transaction in arm's-length dealings with a
Person that was not such an Affiliate, and (2) the Company delivers to the
Trustee (a) with respect to any transaction or series of related transactions
involving aggregate payments in excess of $1.0 million, an Officers' Certificate
certifying that such transaction or series of related transactions complies with
clause(1) above and (b)with respect to any transaction or series of related
transactions involving aggregate payments in excess of $5.0 million, an
Officers' Certificate certifying that such transaction or series of related
transactions has been approved by a majority of the members of the Board of
Directors of the Company and approved by a majority of the Independent Directors
or, in the event there is only one Independent Director, by such Independent
Director, and evidenced by a resolution of the Board of Directors set forth in
an Officers' Certificate, and (c) with respect to any transaction or series of
related transactions involving aggregate payments in excess of $15.0 million, an
opinion issued by an investment banking firm or appraiser or accounting firm of
national standing as to the fairness to the Company or such Restricted
Subsidiary from a financial point of view.
Notwithstanding the foregoing, this covenant will not apply to (i) any
transaction entered into by or among the Company or one of its Restricted
Subsidiaries with one or more Restricted Subsidiaries; (ii)any Restricted
Payment or Permitted Payment not prohibited by Section 10.12 hereof; (iii) the
payment of reasonable and customary regular fees to directors of the Company and
its Restricted Subsidiaries who are not employees of the Company or its
Subsidiaries; (iv) any transaction with an employee, officer or member of the
Board of Directors of the Company or any Restricted Subsidiary in the ordinary
course of business involving compensation, indemnity or employee benefit
arrangements; (v) loans or advances made to directors, officers or
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employees of Leiner Group, PLI, LHP or any Restricted Subsidiary, or Guarantees
in respect thereof or otherwise made on their behalf (including any payments
under such Guarantees), (A) in respect of travel, entertainment or
moving-related expenses incurred in the ordinary course of business, or (B) in
the ordinary course of business not exceeding $500,000 in the aggregate
outstanding at any time; (vi) payments pursuant to the Tax Sharing Agreement;
(vii) any agreement as in existence on the Issue Date, as the same may be
amended from time to time in any manner not adverse to the holders of Notes;
(viii) the payment of fees in an aggregate amount not to exceed $1.5 million in
any fiscal year and the reimbursement of reasonable out-of-pocket expenses
incurred by North Castle Partners, L.L.C., in each case in connection with its
performance of services pursuant to the Management Agreement; (ix) the
Recapitalization and all related transactions (including but not limited to the
financing thereof and the Debt Assumption), including without limitation the
incurrence and payment of all fees and expenses in connection therewith; (x) any
transaction in the ordinary course of business or approved by a majority of the
Independent Directors, between the Company or any Restricted Subsidiary and any
Affiliate of the Company controlled by the Company that is a joint venture or
similar entity primarily engaged in a Related Business; and (xii) Guarantees of
borrowings by Management Investors in connection with the purchase of Capital
Stock of LHP, Leiner Group or PLI by such Management Investors, which Guarantees
are permitted under Section 10.11, and payments thereunder.
Section 10.14. LIMITATION ON ASSET SALES. The Company will not, and
will not permit any Restricted Subsidiary to, make any Asset Sale unless (a)the
Company or such Restricted Subsidiary, as the case may be, receives
consideration (including by way of relief from, or by any other Person assuming
responsibility for, any liabilities, contingent or otherwise) at the time of
such Asset Sale at least equal to the Fair Market Value of the assets or other
property sold or disposed of in the Asset Sale, as such Fair Market Value may be
determined (and shall be determined, to
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the extent such Asset Sale or any series of related Asset Sales involves
aggregate consideration in excess of $1.0 million) in good faith by the Board of
Directors, whose determination shall be conclusive (including as to the value of
all noncash consideration), and (ii) at least 75% of such consideration
(excluding, in the case of an Asset Sale of assets, any consideration by way of
relief from, or by any other Person assuming responsibility for, any
liabilities, contingent or otherwise, which are not Indebtedness) consists of
either cash or Cash Equivalents. For purposes of this Section10.14, "cash"
shall include (1) the amount of any Indebtedness (other than any Indebtedness
that is by its terms expressly subordinated in right of payment to the Notes) of
the Company or such Restricted Subsidiary that is assumed by the transferee of
any such assets or other property in such Asset Sale or another Person (and
excluding any liabilities that are incurred in connection with or in
anticipation of such Asset Sale), but only to the extent that such assumption is
effected on a basis under which there is no further recourse to the Company or
any of the Restricted Subsidiaries with respect to such liabilities, (2)
Indebtedness of a Restricted Subsidiary that is no longer a Restricted
Subsidiary as a result of such Asset Sale, to the extent that the Company and
each other Restricted Subsidiary is unconditionally released from any Guarantee
of such Indebtedness in connection with such Asset Sale, (3) securities received
by the Company or any Restricted Subsidiary from the transferee that are
promptly converted into cash and (4) consideration consisting of Indebtedness of
the Company or any Restricted Subsidiary (other than Indebtedness that is by its
terms expressly subordinated in right of payment to the Notes), to the extent
such Indebtedness is cancelled and there is no further recourse to the Company
or any such Restricted Subsidiary, as the case may be, under such Indebtedness.
Within 365 days after any Asset Sale, the Company may elect to apply
an amount equal to the Net Proceeds from such Asset Sale to (a)permanently
reduce any Senior Debt of the Company or Indebtedness (other than Preferred
Stock) of
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a Restricted Subsidiary and/or (b)make an investment in, or acquire assets
related to, a Related Business. Pending the final application of any such
amount, the Company may temporarily reduce Senior Debt or Indebtedness of a
Restricted Subsidiary or temporarily invest such Net Proceeds in any manner
permitted by this Indenture. Any portion of such amount not applied or invested
as provided in the first sentence of this paragraph within 365 days of such
Asset Sale will be deemed to constitute "EXCESS PROCEEDS."
Each date on which the aggregate amount of Excess Proceeds in respect
of which an Asset Sale Offer has not been made exceeds $10.0 million shall be
deemed an "ASSET SALE OFFER TRIGGER DATE." As soon as practicable, but in no
event later than 20 Business Days after each Asset Sale Offer Trigger Date, the
Company shall commence an offer (an "ASSET SALE OFFER") to purchase the maximum
principal amount of Notes and other Indebtedness of the Company that ranks PARI
PASSU in right of payment with the Notes (to the extent required by the
instrument governing such other Indebtedness) that may be purchased out of the
Excess Proceeds. Any Notes to be purchased pursuant to an Asset Sale Offer
shall, and any other Indebtedness to be purchased pursuant to an Asset Sale
Offer may, be purchased PRO RATA based on the aggregate principal amount of
Notes and all such other Indebtedness outstanding, and all such Notes shall be
purchased at an offer price in cash in an amount equal to 100% of the principal
amount thereof, plus accrued and unpaid interest, if any, to the date of
purchase. To the extent that any Excess Proceeds remain after completion of an
Asset Sale Offer, the Company may use the remaining amount for general corporate
purposes otherwise permitted by this Indenture. In the event that the Company
is prohibited under the terms of any agreement governing outstanding Senior Debt
of the Company from repurchasing Notes with Excess Proceeds pursuant to an Asset
Sale Offer as set forth in this paragraph, the Company shall promptly use all
Excess Proceeds to permanently reduce such outstanding Senior Debt of the
Company. Upon the consummation of such permanent
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reduction, or of any Asset Sale Offer, the amount of Excess Proceeds shall be
deemed to be reset to zero.
Notice of an Asset Sale Offer shall be prepared and mailed by the
Company with a copy to the Trustee not later than the 20th business day after
the related Asset Sale Offer Trigger Date to each Holder of Notes at such
Holder's registered address, stating:
(i) that an Asset Sale Offer Trigger Date has occurred and that the
Company is offering to purchase the maximum principal amount of Notes that
may be purchased out of the Excess Proceeds to the extent to be applied to
an offer to purchase Notes (as provided in the immediately preceding
paragraph), at an offer price in cash in an amount equal to 100% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the
date of the purchase (the "ASSET SALE OFFER PURCHASE DATE"), which shall be
a Business Day, specified in such notice, that is not earlier than 30 days
or later than 60 days from the date such notice is mailed;
(ii) the amount of accrued and unpaid interest, if any, as of the
Asset Sale Offer Purchase Date;
(iii) that any Note not tendered will continue to accrue interest in
accordance with the terms thereof;
(iv) that, unless the Company defaults in the payment of the purchase
price for the Notes payable pursuant to the Asset Sale Offer, any Notes
accepted for payment pursuant to the Asset Sale Offer shall cease to accrue
interest after the Asset Sale Offer Purchase Date;
(v) that Holders electing to have Notes purchased pursuant to an
Asset Sale Offer will be required to surrender their Notes to the Paying
Agent at the address specified in the notice prior to 5:00 p.m., New
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York City time, on the third Business Day prior to the Asset Sale Purchase
Date with the "Option of Holder to Elect Purchase" on the reverse thereof
completed and must complete any form letter of transmittal proposed by the
Company (which letter must be completed correctly by such Holder) and which
is reasonably acceptable to the Trustee and the Paying Agent;
(vi) that Holders of Notes will be entitled to withdraw their
election if the Paying Agent receives, not later than 5:00 p.m., New York
City time, on the third Business Day prior to the Asset Sale Offer Purchase
Date, a telegram, telex, facsimile transmission or letter setting forth the
name of the Holder, the principal amount of Notes the Holder delivered for
purchase, the Note certificate number (if any) and a statement that such
Holder is withdrawing its election to have such Notes purchased;
(vii) that Holders whose Notes are purchased only in part will be
issued Notes equal in principal amount to the unpurchased portion of the
Notes surrendered;
(viii) the instructions that Holders must follow in order to tender
their Notes; and
(x)information concerning the business of the Company, the most recent
annual and quarterly reports of the Company filed with the SEC pursuant to
the Exchange Act (or, if the Company is not then required to file any such
reports with the SEC, the comparable reports prepared pursuant to Section
10.09), and such other information concerning the circumstances and
relevant facts regarding such Asset Sale and Asset Sale Offer as would be
material to a Holder of Notes in connection with the decision of such
Holder as to whether or not it should tender Notes pursuant to the Asset
Sale Offer.
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On the Asset Sale Offer Purchase Date, the Company will (i)accept for
payment the maximum principal amount of Notes or portions thereof tendered
pursuant to the Asset Sale Offer that can be purchased out of Excess Proceeds
from such Asset Sale that are to be applied to an Asset Sale Offer (to the
extent provided in the second preceding paragraph), (ii)deposit with the Paying
Agent an amount in cash equal to the aggregate purchase price of all Notes or
portions thereof accepted for payment and any accrued and unpaid interest on
such Notes as of the Asset Sale Offer Purchase Date, and (iii)deliver or cause
to be delivered to the Trustee all Notes tendered pursuant to the Asset Sale
Offer. If less than all Notes tendered pursuant to the Asset Sale Offer are
accepted for payment by the Company for any reason consistent with this
Indenture, selection of the Notes to be purchased by the Company shall be in
compliance with the requirements of the principal national securities exchange,
if any, on which the Notes are listed or, if the Notes are not so listed, on a
PRO RATA basis or by lot; PROVIDED, HOWEVER, that Notes accepted for payment in
part shall only be purchased in integral multiples of $1,000. The Paying Agent
shall as promptly as practicable after the Asset Sale Offer Purchase Date mail
to each Holder of Notes or portions thereof accepted for payment an amount in
cash equal to the purchase price for such Notes plus any accrued and unpaid
interest thereon, and the Trustee shall promptly authenticate and mail to such
Holder of Notes accepted for payment in part a new Note equal in principal
amount to any unpurchased portion of the Notes, and any Note not accepted for
payment in whole or in part shall be promptly returned to the Holder of such
Note.
On and after an Asset Sale Offer Purchase Date, interest will cease to
accrue on the Notes or portions thereof accepted for payment, unless the Company
defaults in the payment of the purchase price therefor. The Company will
announce the results of the Asset Sale Offer on or as soon as practicable after
the Asset Sale Offer Purchase Date.
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The Company will comply with the applicable tender offer rules,
including the requirements of Section 14(e) and Rule 14e-1 under the Exchange
Act, and all other applicable securities laws and regulations in connection with
any Asset Sale Offer and will be deemed not to be in violation of any of its
covenants under this Indenture to the extent such compliance is in conflict with
such covenants.
Section 10.15. CHANGE OF CONTROL. Upon the occurrence of a Change of
Control (the date of such occurrence, the "CHANGE OF CONTROL DATE"), the Company
shall make an offer to purchase (a "CHANGE OF CONTROL OFFER"), and shall,
subject to the provisions described below, purchase, all or any portion (equal
to $1,000 or an integral multiple thereof) of the then outstanding Notes validly
tendered at a purchase price in cash (the "CHANGE OF CONTROL PURCHASE PRICE")
equal to 101% of the principal amount thereof, plus accrued and unpaid interest,
if any, to the Change of Control Purchase Date; PROVIDED, HOWEVER, that
notwithstanding the occurrence of a Change of Control, the Company shall not be
obligated to purchase the Notes pursuant to this Section 10.15 in the event that
it has exercised its right to redeem all the Notes under Section 11.01. The
Company shall be required to purchase all Notes properly tendered in the Change
of Control Offer and not withdrawn.
Unless the Company has exercised its right to redeem all of the Notes
under Section 11.01, notice of a Change of Control Offer shall be prepared and
mailed by the Company not later than the 30th day after the Change of Control
Date (or at the Company's option, prior to such Change of Control but after the
public announcement thereof) to the Holders of Notes at their last registered
addresses appearing on the Note Register with a copy to the Trustee and the
Paying Agent. The Offer shall remain open from the time of mailing for at least
20 Business Days or such longer period as may be required by law. The notice,
which shall govern the terms of the Change of Control Offer, shall
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include such disclosures as are required by law and shall state:
(a) that the Change of Control has occurred or will occur and that
such Holder has (or upon such occurrence will have) the right to require
the Company to purchase all or a portion (equal to $1,000 or an integral
multiple thereof) of such Holder's Notes at a purchase price in cash equal
to 101% of the aggregate principal amount thereof, plus accrued and unpaid
interest, if any, to the date of purchase, which shall be a Business Day,
specified in such notice, that is not earlier than 30days or later than
60days from the date such notice is mailed (the "CHANGE OF CONTROL PURCHASE
DATE");
(b) the amount of accrued and unpaid interest, if any, as of the
Change Control Purchase Date;
(c) that any Note not tendered for payment will continue to accrue
interest in accordance with the terms thereof;
(d) that, unless the Company defaults in the payment of the purchase
price for the Notes payable pursuant to the Change of Control Offer, any
Notes accepted for payment pursuant to the Change of Control Offer shall
cease to accrue interest after the Change of Control Purchase Date;
(e) that Holders electing to have Notes purchased pursuant to a
Change of Control Offer will be required to surrender their Notes to the
Paying Agent at the address specified in the notice prior to 5:00 p.m., New
York City time, on the third Business Day prior to the Change of Control
Purchase Date with the "Option of Holder to Elect Purchase" on the reverse
thereof completed and must complete any form letter of transmittal proposed
by the Company (which letter must be completed correctly by such Holder)
and which is
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reasonably acceptable to the Trustee and the Paying Agent;
(f) that Holders of Notes will be entitled to withdraw their election
if the Paying Agent receives, not later than 5:00 p.m., New York City time,
on the third Business Day prior to the Change of Control Purchase Date, a
telegram, telex, facsimile transmission or letter setting forth the name of
the Holder, the principal amount of Notes the Holder delivered for
purchase, the Note certificate number (if any) and a statement that such
Holder is withdrawing its election to have such Notes purchased;
(g) that Holders whose Notes are purchased only in part will be
issued Notes equal in principal amount to the unpurchased portion of the
Notes surrendered;
(h) the instructions that Holders must follow in order to tender
their Notes;
(i) that if such Change of Control Offer is made prior to the
occurrence of such Change of Control, payment is conditioned on the
occurrence of such Change of Control; and
(j) such other information as may be required by applicable laws and
regulations concerning the circumstances and relevant facts regarding such
Change of Control and Change of Control Offer as would be material to a
Holder of Notes in connection with the decision of such Holder as to
whether or not it should tender Notes pursuant to the Change of Control
Offer.
On the Change of Control Purchase Date, provided that such Change of
Control has occurred, the Company will (i)accept for payment all Notes or
portions thereof tendered pursuant to the Change of Control Offer, (ii)deposit
with the Paying Agent an amount in cash equal to the aggregate purchase price of
all Notes or portions
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thereof accepted for payment, plus any accrued and unpaid interest on such Notes
as of the Change of Control Purchase Date, and (iii)deliver or cause to be
delivered to the Trustee all Notes tendered pursuant to the Change of Control
Offer. The Paying Agent shall as promptly as practicable after the Change of
Control Purchase Date mail to each Holder of Notes or portions thereof accepted
for payment an amount in cash equal to the purchase price for such Notes, plus
any accrued and unpaid interest thereon, and the Trustee shall promptly
authenticate and mail to such Holders of Notes accepted for payment in part a
new Note equal in principal amount to any unpurchased portion of the Note
surrendered. Any Notes not so accepted in whole or in part shall be promptly
returned to the Holder thereof.
On and after a Change of Control Purchase Date, interest will cease to
accrue on the Notes or portions thereof accepted for payment unless the Company
defaults in the payment of the purchase price therefor. The Company will
publicly announce the results of the Change of Control Offer as soon as
practicable after the Change of Control Purchase Date.
The Company will comply with the applicable tender offer rules,
including the requirements of Section 14(e) and Rule 14e-1 under the Exchange
Act, and any other securities laws and regulations to the extent such laws and
regulations are applicable, in the event that a Change of Control occurs and the
Company is required to purchase Notes as described above and will be deemed not
to be in violation of any of its covenants under this Indenture to the extent
such compliance is in conflict with such covenants.
The Company will not be required to make a Change of Control Offer
upon a Change of Control if a third party makes the Change of Control Offer in
the manner, at the times and otherwise in compliance with the requirements set
forth in this Indenture applicable to a Change of Control Offer made by the
Company and purchases all Notes validly
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tendered and not withdrawn under such Change of Control Offer.
Section 10.16. LIMITATION ON LIENS. The Company will not, and will
not permit any Restricted Subsidiary to, directly or indirectly, create, incur,
assume or suffer to exist any Lien on any asset now owned or hereafter acquired
by such Person, or any income or profits therefrom, or assign or convey any
right to receive income therefrom (any such Lien, including any such assignment
or conveyance, the "Initial Lien") securing Indebtedness of the Company or any
Subsidiary Guarantor that is PARI PASSU with or expressly subordinated in right
of payment to the Notes (other than Permitted Liens), unless the Notes are
equally and ratably secured thereby for so long as such Indebtedness is so
secured by the Initial Lien. Any such Lien thereby created in favor of the
Notes will be automatically and unconditionally released and discharged upon (i)
the release and discharge of the Initial Lien to which it relates, or (ii) any
sale, exchange or transfer to any Person not an Affiliate of the Company of the
property or assets secured by such Initial Lien, or of all the Capital Stock
held by the Company or any Restricted Subsidiary in, or all or substantially all
the assets of, any Restricted Subsidiary creating such Lien.
Section 10.17. LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS
AFFECTING SUBSIDIARIES. The Company will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any consensual encumbrance or restriction of
any kind on the ability of any Restricted Subsidiary to (a)pay dividends or make
any other distributions to the Company or any other Restricted Subsidiary on its
Capital Stock or with respect to any other interest or participation in, or
measured by, its profits, or pay any Indebtedness owed to the Company or any
other Restricted Subsidiary, (b)make loans or advances to the Company or any
other Restricted Subsidiary, or (c)transfer any of its properties or assets to
the Company or any other
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Restricted Subsidiary, except for such encumbrances or restrictions consisting
of or existing under or by reason of (i) the Credit Facility or any other
agreement or instrument as in effect on the Issue Date, and any amendments,
restatements, renewals, replacements or refinancings thereof; PROVIDED, HOWEVER,
that such amendments, restatements, renewals, replacements or refinancings are
no more restrictive with respect to such dividend and other payment restrictions
than those contained in the Credit Facility or such other agreement or
instrument (or, if more restrictive, than those contained in this Indenture)
immediately prior to any such amendment, restatement, renewal, replacement or
refinancing, (ii) any requirement of any regulatory authority having
jurisdiction over the Company or any Restricted Subsidiary or any of their
businesses, (iii)any agreement or instrument of a Person, or governing
Indebtedness or Capital Stock of a Person, acquired by or merged or consolidated
with or into the Company or any Restricted Subsidiary, or assumed by the Company
or any Restricted Subsidiary in connection with an acquisition of assets from
such Person, as in effect at the time of such acquisition, merger or
consolidation (except to the extent such Indebtedness was incurred in connection
with or in contemplation of such acquisition, merger or consolidation); PROVIDED
that for purposes of this clause (iii), if another Person is the Surviving
Person, any Subsidiary or agreement thereof shall be deemed acquired or assumed,
as the case may be, by the Company when such Person becomes the Surviving
Person, (iv) any provision that restricts in a customary manner the subletting,
assignment or transfer of any property or asset that is subject to a lease,
license or similar contract, or the assignment or transfer of any lease, license
or other contract, (v) 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 this Indenture, (vi)
mortgages, pledges or other security agreements securing Indebtedness of a
Restricted Subsidiary to the extent such encumbrance or restrictions restrict
the transfer of the property subject to such
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mortgages, pledges or other security agreements, (vii) customary provisions
restricting dispositions of real property interests set forth in any reciprocal
easement agreements of the Company or any Restricted Subsidiary, (viii)
encumbrances or restrictions arising or agreed to in the ordinary course of
business and that do not, individually or in the aggregate, detract from the
value of property or assets of the Company or any Restricted Subsidiary, (ix)
any agreement or instrument relating to any Indebtedness incurred by a Foreign
Subsidiary pursuant to Section 10.11(a), or clauses (ii), (iii), (vii), (x)(A)
and (x)(B) of Section 10.11(b), (x) subordination provisions applicable to any
note representing an obligation of the Company or any Restricted Subsidiary
owing to any Restricted Subsidiary, (xi) Purchase Money Obligations for property
acquired in the ordinary course of business that only impose restrictions on the
property so acquired, (xii) an agreement relating to Indebtedness of or a
Financing Disposition to or by any Receivables Entity, (xiii)an agreement for
the sale or disposition of the Capital Stock or assets of any Restricted
Subsidiary; PROVIDED, HOWEVER, that such restriction is only applicable to such
Restricted Subsidiary or assets, as applicable, and such sale or disposition
otherwise is permitted under Section 10.14, or (xiv)Refinancing Indebtedness
permitted under this Indenture; PROVIDED, HOWEVER, that the restrictions
contained in the agreements governing such Refinancing Indebtedness are no more
restrictive in the aggregate than those contained in the agreements governing
the Indebtedness being refinanced immediately prior to such refinancing.
Nothing contained in this Section 10.17 shall prevent the Company or
any Restricted Subsidiary from (1)creating, incurring, assuming or suffering to
exist any Liens otherwise permitted in Section 10.16 or (2)restricting the sale
or other disposition of property or assets of the Company or any of its
Restricted Subsidiaries that secure Indebtedness of the Company or any of its
Restricted Subsidiaries.
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Section 10.18. LIMITATION ON INCURRENCE OF OTHER SENIOR SUBORDINATED
INDEBTEDNESS. The Company will not, and will not permit any Subsidiary
Guarantor to, directly or indirectly, incur, any Indebtedness that is expressly
subordinate in right of payment in any respect to any other Indebtedness, unless
such Indebtedness is expressly subordinate in right of payment to, or ranks PARI
PASSU with, the Notes, in the case of the Company, or the Subsidiary Guarantees,
in the case of a Subsidiary Guarantor; PROVIDED that the foregoing restriction
shall not apply to distinctions between categories of Senior Debt or Guarantor
Senior Debt that exist solely by reason of Liens or Guarantees arising or
created in respect of some but not all such Senior Debt or Guarantor Senior
Debt, as the case may be.
Section 10.19. DESIGNATION OF UNRESTRICTED SUBSIDIARIES. The Company
will not designate any Subsidiary of the Company (other than a newly created
Subsidiary in which no Investment has previously been made in excess of $1,000)
as an Unrestricted Subsidiary (a "Designation") unless:
(a) no Default shall have occurred and be continuing at the time of
or after giving effect to such Designation;
(b) immediately after giving effect to such Designation the Company
would be able to incur $1.00 of Indebtedness pursuant to Section 10.11(a);
and
(c) the Company would not be prohibited under Section 10.12 from
making an Investment at the time of Designation in an amount (the
"Designation Amount") equal to the Fair Market Value of such Restricted
Subsidiary on such date.
In the event of any such Designation, the Company shall be deemed to
have made an Investment constituting a Restricted Payment pursuant to Section
10.12 for all
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purposes of this Indenture in the Designation Amount. Neither the Company nor
any Restricted Subsidiary shall at any time (x) provide credit support for, or a
Guarantee of, any Indebtedness of any Unrestricted Subsidiary (including any
undertaking, agreement or instrument evidencing such Indebtedness); PROVIDED
that the Company may pledge Capital Stock or Indebtedness of any Unrestricted
Subsidiary on a nonrecourse basis such that the pledgee has no claim whatsoever
against the Company other than to obtain such pledged property, (y) be directly
or indirectly liable for any Indebtedness of any Unrestricted Subsidiary or (z)
be directly or indirectly liable for any Indebtedness which provides that the
holder thereof may (upon notice, lapse of time or both) declare a default
thereon or cause the payment thereof to be accelerated or payable prior to its
final scheduled maturity upon the occurrence of a default with respect to any
Indebtedness of any Unrestricted Subsidiary (including any right to take
enforcement action against such Unrestricted Subsidiary), except to the extent
permitted under Section 10.12.
The Company will not revoke any Designation of a Subsidiary as an
Unrestricted Subsidiary (a "Revocation"), unless:
(a) no Default shall have occurred and be continuing at the time of
and after giving effect to such Revocation; and
(b) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation shall be deemed to have
been incurred at such time and shall have been permitted to be incurred
pursuant to this Indenture.
All Designations and Revocations must be evidenced by Board
Resolutions delivered to the Trustee certifying compliance with the foregoing
provisions.
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Section 10.20. LIMITATION ON THE SALE OR ISSUANCE OF PREFERRED STOCK
OF RESTRICTED SUBSIDIARIES. The Company will not sell, and will not permit any
Restricted Subsidiary to, directly or indirectly, issue or sell, any shares of
Preferred Stock of any Restricted Subsidiary, except (i) to the Company or a
Restricted Subsidiary, or to directors as director's qualifying shares to the
extent required by applicable law, or (in the case of a Foreign Subsidiary) to
the extent required by applicable law, or (ii) for any sale in compliance with
the terms of Section 10.14 or (iii) for any Preferred Stock incurred by any
Restricted Subsidiary in compliance with Section 10.11.
ARTICLE ELEVEN
REDEMPTION OF NOTES
Section 11.01. OPTIONAL REDEMPTION. Except as provided below, the
Notes are not redeemable at the option of the Company prior to July 1, 2002.
Subject to earlier redemption in the manner described in the next two succeeding
paragraphs, the Notes will be redeemable at the option of the Company, in whole
at any time or in part, at any time on or after July 1, 2002 at the Redemption
Prices (expressed as percentages of principal amount of the Notes) set forth
below, plus in each case accrued and unpaid interest, if any, to the Redemption
Date, if redeemed during the 12-month period beginning July 1 of the years
indicated below:
Redemption
Year Price
---- ----------
2002 104.813%
2003 103.208%
2004 101.604%
2005 and thereafter 100.000%
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In addition, at any time prior to July 1, 2000, the Company may, at
its option, redeem Notes, in an aggregate principal amount of up to 30% of the
aggregate principal amount of Notes originally issued, with the net cash
proceeds of one or more Public Equity Offerings, at 109 % of the aggregate
principal amount thereof plus accrued and unpaid interest, if any, to the
Redemption Date; PROVIDED, HOWEVER, that not less than $60.0 million principal
amount of the Notes is outstanding immediately after giving effect to such
redemption (other than any Notes owned by the Company or any of its Affiliates)
and such redemption is effected within 60 days of the issuance in such Public
Equity Offering.
In addition, at any time prior to July 1, 2002, within 180 days after
the occurrence of a Change of Control, the Company may, at its option, redeem
all but not less than all of the Notes, at a Redemption Price equal to 100% of
the principal amount thereof plus the Applicable Premium as of, and accrued and
unpaid interest, if any, to, the Redemption Date. Such Applicable Premium shall
be set forth in an Officers' Certificate of the Company furnished to the
Trustee, upon which the Trustee shall be entitled to conclusively rely and the
Trustee shall not be required to verify any calculations in respect thereof.
Section 11.02. APPLICABILITY OF ARTICLE. Redemption of Notes at the
election of the Company as permitted by any provision of Section 11.01, shall be
made in accordance with such provision and this Article Eleven.
Section 11.03. ELECTION TO REDEEM; NOTICE TO TRUSTEE. The election
of the Company to redeem any Notes pursuant to Section11.01 shall be evidenced
by a Board Resolution of the Company and an Officers' Certificate. In case of
any redemption at the election of the Company, the Company shall, at least 60
days prior to the Redemption Date fixed by the Company (unless a shorter notice
period shall be satisfactory to the Trustee), notify the Trustee in
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writing of such Redemption Date and of the principal amount of Notes to be
redeemed.
Section 11.04. SELECTION OF NOTES TO BE REDEEMED. In the event that
less than all of the Notes are to be redeemed at any time, selection of such
Notes for redemption will be made by the Company in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed or, if the Notes are not then listed on a national securities
exchange, on a PRO RATA basis or by lot or any other method as the Trustee shall
deem fair and appropriate; PROVIDED, HOWEVER, that Notes redeemed in part shall
only be redeemed in integral multiples of $1,000; PROVIDED, FURTHER, HOWEVER,
that any such redemption pursuant to the provisions relating to a Public Equity
Offering by the Company shall be made on a PRO RATA basis or on as nearly a PRO
RATA basis as practicable (subject to any procedures of The Depository Trust
Company or any other Depository). 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 and the Trustee shall authenticate
and mail to the holder of the original Note a new Note in principal amount equal
to the unredeemed portion of the original Note promptly after the original Note
has been canceled. On and after the Redemption Date, interest will cease to
accrue on Notes or portions thereof called for redemption.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to redemption of Notes shall relate, in the
case of any Note redeemed or to be redeemed only in part, to the portion of the
principal amount of such Note which has been or is to be redeemed.
Section 11.05. NOTICE OF REDEMPTION. Notice of any optional or
mandatory redemption shall be mailed by first-class mail, postage prepaid,
mailed at least 30 but not more than 60 days before the Redemption Date, to each
Holder of Notes to be redeemed at its registered address.
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All notices of redemption shall state:
(a) the Redemption Date;
(b) the Redemption Price;
(c) if fewer than all outstanding Notes are to be redeemed, the
identification of the particular Notes to be redeemed;
(d) in the case of a Note to be redeemed in part, the principal
amount of such Note to be redeemed and that after the Redemption Date upon
surrender of such Note, a new Note or Notes in the aggregate principal
amount equal to the unredeemed portion thereof will be issued;
(e) that Notes called for redemption must be surrendered to the
Paying Agent to collect the Redemption Price;
(f) that on the Redemption Date the Redemption Price will become due
and payable upon each such Note or portion thereof, and that (unless the
Company shall default in payment of the Redemption Price) interest thereon
shall cease to accrue on and after said date;
(g) the place or places where such Notes are to be surrendered for
payment of the Redemption Price;
(h) the CUSIP number, if any, relating to such Notes; and
(i) the paragraph of the Notes or provision of the Indenture pursuant
to which the Notes are being redeemed.
Notice of redemption of Notes to be redeemed shall be given by the
Company or, at the Company's written
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request, by the Trustee in the name and at the expense of the Company.
The notice if mailed in the manner herein provided shall be
conclusively presumed to have been given, whether or not the Holder receives
such notice. In any case, failure to give such notice by mail or any defect in
the notice to the Holder of any Note designated for redemption as a whole or in
part shall not affect the validity of the proceedings for the redemption of any
other Note.
Section 11.06. DEPOSIT OF REDEMPTION PRICE. On or prior to
10:00a.m., New York City time, on each Redemption Date, the Company shall
deposit with the Trustee or with a Paying Agent (or, if the Company is acting as
its own Paying Agent, segregate and hold in trust as provided in Section10.03)
an amount of money in same day funds sufficient to pay the Redemption Price of,
and any accrued and unpaid interest on, all the Notes or portions thereof which
are to be redeemed on that date.
Section 11.07. NOTES PAYABLE ON REDEMPTION DATE. Notice of
redemption having been given as aforesaid, the Notes so to be redeemed shall, on
the Redemption Date, become due and payable at the Redemption Price therein
specified and from and after such date (unless the Company shall default in the
payment of the Redemption Price) such Notes shall cease to bear interest. Upon
surrender of any such Note for redemption in accordance with said notice, such
Note shall be paid by the Company at the Redemption Price; PROVIDED, HOWEVER,
that installments of interest whose Stated Maturity is on or prior to the
Redemption Date shall be payable to the Holders of such Notes, or one or more
Predecessor Notes, registered as such on the relevant Regular Record Dates
according to the terms and the provisions of Section3.06.
On and after any Redemption Date, if money sufficient to pay the
Redemption Price of and any accrued and unpaid interest on Notes called for
redemption shall
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have been made available in accordance with Section 11.06, the Notes called for
redemption will cease to accrue interest and the only right of the Holders of
such Notes will be to receive payment of the Redemption Price of and subject to
the provision in the preceding paragraph, any accrued and unpaid interest on
such Notes to the Redemption Date. If any Note called for redemption shall not
be so paid upon surrender thereof for redemption, the principal and premium, if
any, shall, until paid, bear interest from the Redemption Date at the rate then
borne by such Note.
Section 11.08. NOTES REDEEMED OR PURCHASED IN PART. Any Note which
is to be redeemed or purchased only in part shall be surrendered to the Paying
Agent at the office or agency maintained for such purpose pursuant to
Section10.02 (with, if the Company, the Note Registrar or the Trustee so
requires, due endorsement by, or a written instrument of transfer in form
satisfactory to, the Company, the Note Registrar or the Trustee duly executed by
the Holder thereof or such Holder's attorney duly authorized in writing), and
the Company shall execute, and the Trustee shall authenticate and deliver to the
Holder of such Note without service charge, a new Note or Notes, of any
authorized denomination as requested by such Holder in aggregate principal
amount equal to, and in exchange for, the portion of the principal of the Note
so surrendered that is not redeemed or purchased.
ARTICLE TWELVE
SATISFACTION AND DISCHARGE
Section 12.01. SATISFACTION AND DISCHARGE OF INDENTURE. This
Indenture shall cease to be of further effect (except as to surviving rights of
registration of transfer or exchange of Notes expressly provided for in Section
2.05, the Company's obligations under Section 6.07 hereof, and the Trustee's and
Paying Agent's obligations under Section 4.06 hereof) and the Trustee, on
written
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demand of and at the expense of the Company, shall execute proper instruments
acknowledging satisfaction and discharge of this Indenture, when
(a) either
(i) all Notes theretofore authenticated and delivered (other
than Notes which have been destroyed, lost or stolen and which have
been replaced or paid as provided in Section3.05 hereof) have been
delivered to the Trustee for cancellation; or
(ii) all such Notes not theretofore delivered to the Trustee for
cancellation (x) have become due and payable (y)will become due and
payable at their Stated Maturity within one year or (z) are to be
called for redemption within one year under arrangements reasonably
satisfactory to the Trustee for the giving of notice of redemption by
the Trustee in the name, and at the expense, of the Company, and, in
each case, the Company has irrevocably deposited or caused to be
deposited with the Trustee in trust for the purpose an amount in
United States dollars, U.S. Government Obligations, or a combination
thereof, sufficient to pay and discharge the entire Indebtedness on
such Notes not theretofore delivered to the Trustee for cancellation,
for the principal of, premium, if any, and interest to the date of
such deposit;
(b) the Company has paid or caused to be paid all other sums then
payable hereunder by the Company; and
(c) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel each to the effect that all conditions precedent
provided for in this Section 12.01 relating to the satisfaction and
discharge of this Indenture have been complied with.
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Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section6.07 and, if money shall
have been deposited with the Trustee pursuant to subclause (a)(ii) of this
Section 12.01, the obligations of the Trustee under Section12.02, shall survive.
Section 12.02. APPLICATION OF TRUST MONEY. Subject to the provisions
of the last paragraph of Section10.03, all money deposited with the Trustee
pursuant to Section12.01 shall be held in trust and applied by it, in accordance
with the provisions of the Notes and this Indenture, to the payment, either
directly or through any Paying Agent (including the Company acting as its own
Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of
the principal of, premium, if any, and interest on the Notes for whose payment
such money has been deposited with the Trustee.
ARTICLE THIRTEEN
GUARANTEE OF NOTES
Section 13.01. SUBSIDIARY GUARANTEE. Subject to the provisions of
this Article Thirteen, each Restricted Subsidiary that hereafter becomes a
Subsidiary Guarantor pursuant to Section 10.10, by its execution and delivery of
its Subsidiary Guarantee in accordance with Sections 10.10 and 13.02, shall
thereby agree as follows:
(i) Each such Subsidiary Guarantor hereby jointly and severally and
fully and unconditionally guarantees to each Holder of a Note authenticated
and delivered by the Trustee and to the Trustee and its successors and
assigns, irrespective (to the fullest extent permitted by law) of (x) the
validity and enforceability of this Indenture, the Notes or the Obligations
of the Company or any other Subsidiary Guarantors to the Holders or the
Trustee hereunder or thereunder or (y) the absence
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of any action to enforce the same or any other circumstances which might
otherwise constitute a legal or equitable discharge or default of a
Subsidiary Guarantor, that: (1)the principal of, and premium, if any, and
interest on, the Notes will be duly and punctually paid in full when due,
whether at maturity, by acceleration or otherwise, and interest on the
overdue principal and (to the extent permitted by law) interest, if any, on
the Notes and all other Obligations of the Company or the Subsidiary
Guarantors to the Holders or the Trustee hereunder or thereunder (including
fees, expenses or other) will be promptly paid in full when due, all in
accordance with the terms hereof and thereof; and (2)in case of any
extension of time of payment or renewal of any Notes or any of such other
Obligations with respect to the Notes, the same will be promptly paid in
full when due in accordance with the terms of the extension or renewal,
whether at Stated Maturity, by acceleration or otherwise. Failing payment
when due of any amount so guaranteed, for whatever reason, each Subsidiary
Guarantor will be obligated to pay, or to cause the payment of, the same
immediately. An Event of Default under this Indenture or the Notes shall
constitute an event of default under each Subsidiary Guarantee, and shall
entitle the Holders of Notes to accelerate the obligations of the
Subsidiary Guarantors under their respective Subsidiary Guarantees in the
same manner and to the same extent as the obligations of the Company.
(ii) Each of such Subsidiary Guarantors hereby agrees (to the fullest
extent permitted by law) that its obligations hereunder shall be
unconditional, irrespective of the validity, regularity or enforceability
of the Notes or this Indenture, the absence of any action to enforce the
same, any waiver or consent by any holder of the Notes with respect to any
provisions hereof or thereof, any release of any other Subsidiary
Guarantor, the recovery of any judgment against the Company, any action to
enforce the
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same, whether or not a Subsidiary Guarantee is affixed to any particular
Note, or any other circumstance which might otherwise constitute a legal or
equitable discharge or defense of a guarantor. Each of such Subsidiary
Guarantors hereby waives (to the fullest extent permitted by law) the
benefit of 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
demands whatsoever and covenants that (except as otherwise provided in
Section 13.07 or its Subsidiary Guarantee) its Subsidiary Guarantee will
not be discharged except by complete performance of the obligations
contained in the Notes, this Indenture and this Subsidiary Guarantee. Each
such Subsidiary Guarantor further agrees that, as between it, on the one
hand, and the Holders of Notes and the Trustee, on the other hand,
(1)subject to this Article Thirteen, the maturity of the obligations
guaranteed hereby may be accelerated as and to the extent provided in
Article Five hereof for the purposes of this Subsidiary Guarantee, and
(2)in the event of any acceleration of such obligations as provided in
Article Five hereof, such obligations (whether or not due and payable)
shall forthwith become due and payable by such Subsidiary Guarantor for the
purpose of its Subsidiary Guarantee.
(iii) Until terminated in accordance with Section 13.07 or its terms,
the Subsidiary Guarantee of such Subsidiary Guarantor shall remain in full
force and effect and continue to be effective should any petition be filed
by or against the Company for liquidation or reorganization, should the
Company become insolvent or make an assignment for the benefit of creditors
or should a receiver or trustee be appointed for all or any significant
part of the Company's assets, and shall, to the fullest extent permitted by
law, continue to be effective or be reinstated, as the case may be, if at
any time payment and performance of the Notes
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are, pursuant to applicable law, rescinded or reduced in amount, or must
otherwise be restored or returned by any obligee on the Notes, whether as a
"voidable preference," "fraudulent transfer" or otherwise, all as though
such payment or performance had not been made. In the event that any
payment, or any part thereof, is rescinded, reduced, restored or returned,
the Notes shall, to the fullest extent permitted by law, be reinstated and
deemed reduced only by such amount paid and not so rescinded, reduced,
restored or returned.
(b) No stockholder, officer, director, employer, incorporator or
controlling person, past, present or future, of any Subsidiary Guarantor, as
such, shall have any personal liability under any Subsidiary Guarantee by reason
of his, her or its status as such stockholder, officer, director, employer,
incorporator or controlling person.
(c) Each Subsidiary Guarantor shall have the right to seek
contribution from any non-paying Subsidiary Guarantor so long as the exercise of
such right does not impair the rights of the Holders under its Subsidiary
Guarantee.
(d) Notwithstanding any of the foregoing, each Subsidiary Guarantor's
liability under its Subsidiary Guarantee shall be limited to the maximum amount
that would not result in such Subsidiary Guarantee constituting a fraudulent
conveyance or fraudulent transfer under applicable law.
Section 13.02. EXECUTION AND DELIVERY OF SUBSIDIARY GUARANTEE. Each
Restricted Subsidiary that is required to become a Subsidiary Guarantor pursuant
to Section 10.10, and each Restricted Subsidiary that the Company causes to
become a Subsidiary Guarantor pursuant to Section 10.10, shall promptly execute
and deliver to the Trustee a supplemental indenture substantially in the form
set forth in EXHIBIT E to this Indenture, or otherwise in form and substance
reasonably satisfactory to the Trustee,
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evidencing its Subsidiary Guarantee on substantially the terms set forth in this
Article Thirteen. Concurrently therewith, the Company shall deliver to the
Trustee an Opinion of Counsel in form and substance reasonably satisfactory to
the Trustee to the effect that such supplemental indenture has been duly
authorized, executed and delivered by such Restricted Subsidiary and that,
subject to the applicable bankruptcy, insolvency, fraudulent transfer,
fraudulent conveyance, reorganization, moratorium and other laws now or
hereafter in effect affecting creditors' rights or remedies generally and the
general principles of equity (including, without limitation, standards of
materiality, good faith, fair dealing and reasonableness), such supplemental
indenture is a valid and binding agreement of such Restricted Subsidiary,
enforceable against such Restricted Subsidiary in accordance with its terms.
Section 13.03. [Intentionally omitted.]
Section 13.04. SUBSIDIARY GUARANTEE OBLIGATIONS SUBORDINATED TO
GUARANTOR SENIOR DEBT. Each Subsidiary Guarantor covenants and agrees, and each
Holder of a Note, by such Holder's acceptance thereof, likewise covenants and
agrees, that all payments pursuant to its Subsidiary Guarantee made by or on
behalf of such Subsidiary Guarantor are hereby expressly made subordinate and
subject in right of payment as provided in this Article Thirteen to the prior
payment in full in cash or cash equivalents of all amounts payable under all
existing and future Guarantor Senior Debt of such Subsidiary Guarantor.
This Section 13.04 and the following Sections 13.05, 13.06 and 13.08
through 13.17 of this Article Thirteen shall constitute a continuing offer to
all Persons who, in reliance upon such provisions, become holders of, or
continue to hold Guarantor Senior Debt of any Subsidiary Guarantor and, to the
extent set forth in Section 13.06(b), holders of Designated Senior Debt; and
such provisions are made for the benefit of the holders of Guarantor Senior Debt
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of each Subsidiary Guarantor and, to the extent set forth in Section 13.06(b),
holders of Designated Senior Debt; and such holders (to such extent) are made
obligees hereunder and they or each of them may enforce such provisions.
Section 13.05. PAYMENT OVER OF PROCEEDS UPON DISSOLUTION, ETC. In
the event of (a) any insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, reorganization or other similar case or proceeding in
connection therewith, relating to any Subsidiary Guarantor or its assets, or (b)
any liquidation, dissolution or other winding-up of any Subsidiary Guarantor,
whether voluntary or involuntary, or (c) any assignment for the benefit of
creditors or other marshalling of assets or liabilities of any Subsidiary
Guarantor, then and in any such event:
(i) the holders of all Guarantor Senior Debt of such Subsidiary
Guarantor shall be entitled to receive payment in full in cash or cash
equivalents, or provision acceptable to the requisite holders of Guarantor
Senior Debt of such Subsidiary Guarantor made for such payment, of all
amounts due on or in respect of all such Guarantor Senior Debt before the
Holders are entitled to receive any payment or distribution, whether in
cash, property or securities (excluding Permitted Junior Securities) on
account of the Senior Subordinated Note Obligations or for the acquisition
of any of the Notes; and
(ii) any payment or distribution of assets of such Subsidiary
Guarantor of any kind or character, whether in cash, property or securities
(excluding Permitted Junior Securities), by set-off or otherwise, to which
the Holders or the Trustee would be entitled but for the subordination
provisions of this Article Thirteen shall be paid by the liquidating
trustee or agent or other Person making such payment or distribution,
whether a trustee in bankruptcy, a receiver or liquidating trustee or
otherwise, directly to the
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holders of Guarantor Senior Debt of such Subsidiary Guarantor or their
representative or representatives or to the trustee or trustees under any
indenture under which any instruments evidencing any of such Guarantor
Senior Debt may have been issued, ratably according to the aggregate
amounts remaining unpaid on account of such Guarantor Senior Debt held or
represented by each, to the extent necessary to make payment in full in
cash or cash equivalents of all such Guarantor Senior Debt remaining
unpaid, after giving effect to any concurrent payment or distribution to
the holders of such Guarantor Senior Debt; and
(iii) in the event that, notwithstanding the foregoing provisions of
this Section 13.05, the Trustee or the Holder of any Note shall have
received any payment or distribution of assets of such Subsidiary Guarantor
of any kind or character, whether in cash, property or securities, in
respect of any Senior Subordinated Note Obligations under this Subsidiary
Guarantee before all Guarantor Senior Debt of such Subsidiary Guarantor is
paid in full in cash or cash equivalents or payment thereof provided for,
then and in such event such payment or distribution (excluding Permitted
Junior Securities) shall be paid over or delivered forthwith to the trustee
in bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or
other Person making payment or distribution of assets of such Subsidiary
Guarantor for application to the payment of all such Guarantor Senior Debt
remaining unpaid, to the extent necessary to pay all of such Guarantor
Senior Debt in full in cash or cash equivalents, after giving effect to any
concurrent payment or distribution to or for the holders of such Guarantor
Senior Debt.
The consolidation of any Subsidiary Guarantor with, or the merger of
any Subsidiary Guarantor with or into, another Person or the liquidation or
dissolution of any Subsidiary Guarantor following the conveyance, transfer or
lease of its properties and assets substantially as an
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entirety to another Person shall not be deemed a dissolution, winding-up,
liquidation, reorganization, assignment for the benefit of creditors or
marshalling of assets and liabilities of such Subsidiary Guarantor for the
purposes of this Article Thirteen if (x) made in accordance with Section 13.07
or (y) the Person formed by such consolidation or the surviving entity of such
merger or the Person which acquires by conveyance, transfer or lease such
properties and assets substantially as an entirety, as the case may be, shall,
as a part of such consolidation, merger, conveyance, transfer or lease, assume
the Subsidiary Guarantee of such Subsidiary Guarantor.
Section 13.06. SUSPENSION OF SUBSIDIARY GUARANTEE OBLIGATIONS WHEN
GUARANTOR SENIOR DEBT IN DEFAULT. Unless Section 13.05 shall be applicable,
after the occurrence of a Payment Default no payment or distribution of any
assets of any Subsidiary Guarantor of any kind or character shall be made by or
on behalf of such Subsidiary Guarantor on account of the Senior Subordinated
Note Obligations or on account of the purchase, redemption, defeasance or other
acquisition of the Senior Subordinated Note Obligations or any of the
obligations of such Subsidiary Guarantor under its Subsidiary Guarantee unless
and until such Payment Default shall have been cured or waived or shall have
ceased to exist or the Senior Debt as to which such Payment Default relates
shall have been discharged or paid in full in cash or cash equivalents, after
which, subject to Section 13.05 (if applicable), such Subsidiary Guarantor shall
resume making any and all required payments in respect of its obligations under
its Subsidiary Guarantee.
(b) Unless Section 13.05 shall be applicable, during any Payment
Blockage Period in respect of the Notes, no payment or distribution of any
assets of any Subsidiary Guarantor of any kind or character shall be made by or
on behalf of such Subsidiary Guarantor on account of the Senior Subordinated
Note Obligations or on account of the purchase, redemption, defeasance or other
acquisition of the Senior
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Subordinated Note Obligations or on account of any of the other obligations of
such Subsidiary Guarantor under its Subsidiary Guarantee, PROVIDED that the
foregoing prohibition shall not apply unless such Payment Blockage Period has
been instituted under Section 14.03(b) by a Senior Representative acting for
holders of Designated Senior Debt which also constitutes Guarantor Senior Debt.
Upon the termination of any Payment Blockage Period, subject to Section 13.05
(if applicable), such Subsidiary Guarantor shall resume making any and all
required payments in respect of its obligations under its Subsidiary Guarantee.
(c) In the event that, notwithstanding the foregoing, the Trustee or
any Subsidiary Guarantor of any Note shall have received any payment from any
Subsidiary Guarantor prohibited by the foregoing provisions of this Section
13.06, then and in such event such payment shall be paid over and delivered
forthwith to the Senior Representative initiating the Payment Blockage Period,
in trust for distribution to the holders of Guarantor Senior Debt of such
Subsidiary Guarantor or, if no amounts are then due in respect of Guarantor
Senior Debt of such Subsidiary Guarantor, prompt return to such Subsidiary
Guarantor, or as a court of competent jurisdiction shall direct.
Section 13.07 RELEASE OF SUBSIDIARY GUARANTEE. Any Restricted
Subsidiary that becomes a Subsidiary Guarantor pursuant to Section 10.10 shall
be automatically and unconditionally released and discharged from its
obligations under its Subsidiary Guarantee, and such Subsidiary Guarantee shall
terminate, concurrently with the payment in full of the aggregate principal
amount of all Notes then outstanding and all other Senior Subordinated Note
Obligations then due and owing. If any of such Senior Subordinated Note
Obligations so paid are revived and reinstated after such termination of such
Subsidiary Guarantee, then all of the obligations of such Subsidiary Guarantor
under such Subsidiary Guarantee shall be revived and reinstated as if such
Subsidiary Guarantee had not been terminated until such time as the aggregate
principal amount
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of all Notes then outstanding and all other Senior Subordinated Note Obligations
then due and owing are paid in full, and such Subsidiary Guarantor shall enter
into a supplemental indenture in form reasonably satisfactory to the Trustee,
evidencing such revival and reinstatement. Upon any such payment, the Trustee
shall execute any documents reasonably required in order to evidence such
release, discharge and termination in respect of such Subsidiary Guarantee.
(b) Any Subsidiary Guarantor shall be automatically and
unconditionally released and discharged from all of its obligations under its
U.S. Subsidiary Guarantee or Foreign Subsidiary Guarantee, as applicable, and
such Subsidiary Guarantee shall terminate, at any such time that such Subsidiary
Guarantor is released from all of its obligations under all of its Guarantees in
respect of U.S. Specified Indebtedness or Foreign Specified Indebtedness, as the
case may be, unless such release results from payment under such Guarantee of
U.S. Specified Indebtedness or Foreign Specified Indebtedness, as applicable.
Upon the delivery by the Company to the Trustee of an Officers' Certificate and,
if requested by the Trustee, an Opinion of Counsel to the effect that the
transaction giving rise to such release of such Subsidiary Guarantee was made by
the Company in accordance with the provisions of this Indenture and the Notes,
the Trustee shall execute any documents reasonably required in order to evidence
such release and discharge of such Subsidiary Guarantor from its obligations
under and termination of its Subsidiary Guarantee.
(c) Upon (i) the sale or disposition (whether by merger, stock
purchase, asset sale or otherwise) of a Subsidiary Guarantor (or all or
substantially all of the assets of any such Subsidiary Guarantor or all of the
Capital Stock of any such Subsidiary Guarantor) to a Person which is not an
Affiliate of the Company, or (ii) the merger or consolidation of any Subsidiary
Guarantor with and into the Company or another Subsidiary Guarantor that is the
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Surviving Person in such merger or consolidation, such Subsidiary Guarantor
shall be automatically and unconditionally released and discharged from all its
obligations under its Subsidiary Guarantee, and such Subsidiary Guarantee shall
terminate. Upon such occurrence, the Trustee shall execute any documents
reasonably required in order to evidence such release, discharge and termination
in respect of such Subsidiary Guarantee.
(d) Upon the release of any Subsidiary Guarantor from its Subsidiary
Guarantee pursuant to the provisions of the Indenture, each other Subsidiary
Guarantor not so released shall remain liable for the full amount of principal
of, and interest on, the Notes as and to the extent provided in this Article
Thirteen and its Subsidiary Guarantee.
(e) Each Subsidiary Guarantee shall terminate and cease to be of
further effect upon (i) defeasance of the Company's obligations in accordance
with Section 4.02 hereof and (ii) satisfaction and discharge of this Indenture
in accordance with Section 12.01.
Section 13.08. WAIVER OF SUBROGATION. Each Subsidiary Guarantor
hereby irrevocably waives any claim or other rights which it may now or
hereafter acquire against the Company that arise from the existence, payment,
performance or enforcement of such Subsidiary Guarantor's obligations under its
Subsidiary Guarantee and this Indenture, including, without limitation, any
right of subrogation, reimbursement, exoneration, indemnification, and any right
to participate in any claim or remedy of any Holder of Notes against the
Company, whether or not such claim, remedy or right arises in equity, or under
contract, statute or common law, until the Senior Subordinated Note Obligations
shall have been paid in full. If any amount shall be paid to any Subsidiary
Guarantor in violation of the preceding sentence and the Notes shall not have
been paid in full, such amount shall have been deemed to have been paid to such
Subsidiary Guarantor for the benefit of,
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and held in trust for the benefit of, the Holders of the Notes, and shall,
subject to the subordination provisions of this Article and to Article Fourteen,
forthwith be paid to the Trustee for the benefit of such Holders to be credited
and applied upon the Notes, whether matured or unmatured, in accordance with the
terms of this Indenture.
Section 13.09 PROVISIONS SOLELY TO DEFINE RELATIVE RIGHTS. The
subordination provisions of this Article Thirteen are and are intended solely
for the purpose of defining the relative rights of the Holders of the Notes on
the one hand and the holders of Guarantor Senior Debt of any Subsidiary
Guarantor and, to the extent set forth in Section 13.06, holders of Designated
Senior Debt on the other hand. Nothing contained in this Article Thirteen or
elsewhere in this Indenture or in the Notes is intended to or shall (a) impair,
as among each Subsidiary Guarantor, its creditors other than holders of its
Guarantor Senior Debt and the Holders of the Notes, the obligation of such
Subsidiary Guarantor, which is absolute and unconditional, to make payments to
the Holders in respect of its obligations under its Subsidiary Guarantee as and
when the same shall become due and payable in accordance with their terms; or
(b) affect the relative rights against such Subsidiary Guarantor of the Holders
of the Notes and creditors of such Subsidiary Guarantor other than the holders
of the Guarantor Senior Debt of such Subsidiary Guarantor; or (c) prevent the
Trustee or the Holder of any Note from exercising all remedies otherwise
permitted by applicable law upon Default or an Event of Default under this
Indenture, subject to the rights, if any, under the subordination provisions of
this Article Thirteen of the holders of Guarantor Senior Debt of such Subsidiary
Guarantor hereunder and, to the extent set forth in Section 13.06, holders of
Designated Senior Debt (1) in any case, proceeding, dissolution, liquidation or
other winding-up, assignment for the benefit of creditors or other marshaling of
assets and liabilities of the Subsidiary Guarantor referred to in Section 13.05,
to receive, pursuant to and in accordance with such Section, cash, property and
securities
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otherwise payable or deliverable to the Trustee or such Holder, or (2) under the
conditions specified in Section 13.06, to prevent any payment prohibited by such
Section or enforce their rights pursuant to Section 13.06(c).
The failure by any Subsidiary Guarantor to make a payment in respect
of its obligations under its Subsidiary Guarantee by reason of any provision of
this Article Thirteen shall not be construed as preventing the occurrence of a
Default or an Event of Default hereunder.
Section 13.10. TRUSTEE TO EFFECTUATE SUBORDINATION. Each Holder of a
Note by such Holder's acceptance thereof authorizes and directs the Trustee on
such Holder's behalf to take such action as may be necessary or appropriate to
effectuate the subordination provided in this Article Thirteen and appoints the
Trustee such Holder's attorney-in-fact for any and all such purposes, including,
in the event of any dissolution, winding-up, liquidation or reorganization of
any Subsidiary Guarantor whether in bankruptcy, insolvency, receivership
proceedings, or otherwise, the timely filing of a claim for the unpaid balance
of the indebtedness of such Subsidiary Guarantor owing to such Holder in the
form required in such proceedings and the causing of such claim to be approved.
If the Trustee does not file such a claim prior to 30 days before the expiration
of the time to file such a claim, the holders of Guarantor Senior Debt, or any
Senior Representative, may file such a claim on behalf of Holders of the Notes.
Section 13.11. NO WAIVER OF SUBORDINATION PROVISIONS. No right of
any present or future holder of any Guarantor Senior Debt or Designated Senior
Debt to enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or any Subsidiary Guarantor or by any act or failure to act, in good faith, by
any such holder, or by any non-compliance by the Company or such Subsidiary
Guarantor with the terms, provisions and covenants of this Indenture, regardless
of any knowledge
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thereof any such holder may have or be otherwise charged with.
(b) Without limiting the generality of subsection (a) of this Section
13.11, the holders of Guarantor Senior Debt may, at any time and from time to
time, without the consent of or notice to the Trustee or the Holders of the
Notes, without incurring responsibility to the Holders of the Notes and without
impairing or releasing the subordination provided in this Article Thirteen or
the obligations hereunder of the Holders of the Notes to the holders of such
Guarantor Senior Debt, do any one or more of the following: (1) change the
manner, place or terms of payment or extend the time of payment of, or renew or
alter, such Guarantor Senior Debt or any Senior Debt as to which such Guarantor
Senior Debt relates or any instrument evidencing the same or any agreement under
which such Guarantor Senior Debt or such Senior Debt is outstanding; (2) sell,
exchange, release or otherwise deal with any property pledged, mortgaged or
otherwise securing such Guarantor Senior Debt or any Senior Debt as to which
such Guarantor Senior Debt relates; (3) release any Person liable in any manner
for the collection or payment of such Guarantor Senior Debt or any Senior Debt
as to which such Guarantor Senior Debt relates; and (4)exercise or refrain from
exercising any rights against such Subsidiary Guarantor and any other Person;
PROVIDED that in no event shall any such actions limit the right of the Holders
of the Notes to take any action to accelerate the maturity of the Notes pursuant
to Article Five hereof or to pursue any rights or remedies hereunder or under
applicable laws if the taking of such action does not otherwise violate the
terms of this Indenture.
Section 13.12. NOTICE TO TRUSTEE. The Company and each Subsidiary
Guarantor shall give prompt written notice to the Trustee of any fact known to
such Subsidiary Guarantor which would prohibit the making of any payment to or
by the Trustee in respect of the Notes. Notwithstanding the subordination
provisions of this Article or any other provision of this Indenture, the Trustee
shall not
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be charged with knowledge of the existence of any facts which would prohibit the
making of any payment to or by the Trustee in respect of the Notes, unless and
until the Trustee shall have received written notice thereof at its Corporate
Trust Office from the Company, such Subsidiary Guarantor or a holder of its
Guarantor Senior Debt or from any representative, trustee, fiduciary or agent
therefor; and, prior to the receipt of any such written notice, the Trustee,
subject to the provisions of this Section 13.12, shall be entitled in all
respects to assume that no such facts exist; PROVIDED that if the Trustee shall
not have received the notice provided for in this Section 13.12 at least two
Business Days prior to the date upon which by the terms hereof any money may
become payable for any purpose under this Indenture (including, without
limitation, the payment of the principal of or interest on any Note), then,
anything herein contained to the contrary notwithstanding but without limiting
the rights and remedies of the holders of such Guarantor Senior Debt or any
representative, trustee, fiduciary or agent thereof, the Trustee shall have full
power and authority to receive such money and to apply the same to the purpose
for which such money was received and shall not be affected by any notice to the
contrary which may be received by it within two Business Days prior to such
date; nor shall the Trustee be charged with knowledge of the curing of any such
default or the elimination of the act or condition preventing any such payment
unless and until the Trustee shall have received an Officers' Certificate to
such effect.
(b) Subject to the provisions of Section 6.01, the Trustee shall be
entitled to rely on the delivery to it of a written notice to the Trustee, by a
Person representing himself to be a holder of Guarantor Senior Debt (or a
representative, trustee, fiduciary or agent therefor). In the event that the
Trustee determines in good faith that further evidence is required with respect
to the right of any Person as a holder of Guarantor Senior Debt to participate
in any payment or distribution pursuant to this Article Thirteen, the Trustee
may request such Person to
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furnish evidence to the reasonable satisfaction of the Trustee as to the amount
of Guarantor Senior Debt held by such Person, the extent to which such Person is
entitled to participate in such payment or distribution and any other facts
pertinent to the rights of such Person under this Article Thirteen, and if such
evidence is not furnished, the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment.
Section 13.13. RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF
LIQUIDATING AGENT REGARDING DISSOLUTION, ETC. Upon any payment or distribution
of assets of any Subsidiary Guarantor referred to in this Article Thirteen, the
Trustee, subject to the provisions of Section 6.01, and the Holders shall be
entitled to rely upon any order or decree entered by any court of competent
jurisdiction in which such insolvency, bankruptcy, receivership, liquidation,
reorganization, dissolution, winding-up or similar case or proceeding is
pending, or a certificate of the trustee in bankruptcy, receiver, liquidating
trustee, custodian, assignee for the benefit of creditors, agent or other Person
making such payment or distribution, delivered to the Trustee or to the Holders,
for the purpose of ascertaining the Persons entitled to participate in such
payment or distribution, the holders of Guarantor Senior Debt and other
Indebtedness of such Subsidiary Guarantor, the amount thereof or payable
thereon, the amount or amounts paid or distributed thereon and all other facts
pertinent thereto or to this Article Thirteen; PROVIDED that the foregoing shall
apply only if such court has been fully apprised of the provisions of this
Article Thirteen. The Trustee is not responsible for determining whether or not
the court has been fully apprised of the provisions of this Article Thirteen.
Section 13.14. RIGHTS OF TRUSTEE AS A HOLDER OF GUARANTOR SENIOR
DEBT; PRESERVATION OF TRUSTEE'S RIGHTS. The Trustee in its individual capacity
shall be entitled to all the rights set forth in this Article Thirteen with
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respect to any Guarantor Senior Debt which may at any time be held by the
Trustee, to the same extent as any other holder of such Guarantor Senior Debt,
and nothing in this Indenture shall deprive the Trustee of any of its rights as
such holder. Nothing in this Article Thirteen shall apply to claims of, or
payments to, the Trustee under or pursuant to Section 6.07, none of which is or
shall be subordinate in right of payment to Guarantor Senior Debt or Senior
Debt.
Section 13.15. ARTICLE THIRTEEN APPLICABLE TO PAYING AGENTS. In case
at any time any Paying Agent other than the Trustee shall have been appointed by
the Company and be then acting hereunder, the term "Trustee" as used in this
Article Thirteen shall in such case (unless the context otherwise requires) be
construed as extending to and including such Paying Agent within its meaning as
fully for all intents and purposes as if such Paying Agent were named in this
Article Thirteen in addition to or in place of the Trustee; PROVIDED that
Section 13.14 shall not apply to the Company or any Affiliate of the Company if
it or such Affiliate acts as Paying Agent.
Section 13.16. NO SUSPENSION OF REMEDIES. Nothing contained in this
Article Thirteen shall limit the right of the Trustee or the Holders of Notes to
take any action to accelerate the maturity of the Notes pursuant to Article Five
or to pursue any rights or remedies hereunder or under applicable law, subject
to the rights, if any, under this Article Thirteen of the holders, from time to
time, of Guarantor Senior Debt.
Section 13.17. TRUSTEE'S RELATION TO GUARANTOR SENIOR DEBT. With
respect to the holders of Guarantor Senior Debt, the Trustee undertakes to
perform or to observe only such of its covenants and obligations as are
specifically set forth in this Article Thirteen (and in Article Fourteen with
respect to Senior Debt), and no implied covenants or obligations with respect to
the holders of Guarantor Senior Debt shall be read into this Indenture against
the Trustee. The Trustee shall not be deemed to owe
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any fiduciary duty to the holders of Guarantor Senior Debt and the Trustee shall
not be liable to any holder of Guarantor Senior Debt if it shall mistakenly in
the absence of gross negligence or willful misconduct pay over or deliver to
Holders, any Subsidiary Guarantor or any other Person moneys or assets to which
any holder of Guarantor Senior Debt shall be entitled by virtue of this Article
Thirteen or otherwise.
Section 13.18. SUBROGATION. Upon the payment in full in cash or cash
equivalents of all amounts payable under or in respect of Guarantor Senior Debt,
the Holders shall be subrogated to the rights of the holders of such Guarantor
Senior Debt to receive payments or distributions of assets of any Subsidiary
Guarantor made on such Guarantor Senior Debt until all amounts due under the
Subsidiary Guarantee shall be paid in full; and for the purposes of such
subrogation, no payments or distributions to holders of such Guarantor Senior
Debt of any cash, property or securities to which Holders of the Notes would be
entitled except for the provisions of this Article Thirteen, and no payment
pursuant to the provisions of this Article Thirteen to holders of such Guarantor
Senior Debt by the Holders, shall, as among each Subsidiary Guarantor, its
creditors other than holders of such Guarantor Senior Debt and the Holders, be
deemed to be a payment by such Subsidiary Guarantor to or on account of such
Guarantor Senior Debt) it being understood that the provisions of this Article
Thirteen are solely for the purpose of defining the relative rights of the
holders of such Guarantor Senior Debt, on the one hand, and the Holders, on the
other hand.
If any payment or distribution to which the Holders would otherwise
have been entitled but for the provisions of this Article Thirteen shall have
been applied, pursuant to the provisions of this Article Thirteen, to the
payment of all amounts payable under Guarantor Senior Debt, then and in such
case, the Holders shall be entitled to receive from the holders of such
Guarantor Senior Debt at the time outstanding any payments or distributions
received
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by such holders of Guarantor Senior Debt in excess of the amount sufficient to
pay all amounts payable under or in respect of such Guarantor Senior Debt in
full.
ARTICLE FOURTEEN
SUBORDINATION OF NOTES
Section 14.01. NOTES SUBORDINATE TO SENIOR DEBT. The Company
covenants and agrees, and each Holder of a Note, by such Holder's acceptance
thereof, likewise covenants and agrees, that, to the extent and in the manner
hereinafter set forth in this Article Fourteen, the Indebtedness represented by
the Notes and the payment of the Senior Subordinated Note Obligations are hereby
expressly made subordinate and subject in right of payment as provided in this
Article to the prior payment in full in cash or cash equivalents of all amounts
payable under all existing and future Senior Debt.
This Article Fourteen shall constitute a continuing offer to all
Persons who, in reliance upon such provisions, become holders of, or continue to
hold Senior Debt; and such provisions are made for the benefit of the holders of
Senior Debt; and such holders are made obligees hereunder and they or each of
them may enforce such provisions.
Section 14.02. PAYMENT OVER OF PROCEEDS UPON DISSOLUTION, ETC. In
the event of (a) any insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, reorganization or other similar case or proceeding in
connection therewith, relating to the Company or to its assets, or (b) any
liquidation, dissolution or other winding-up of the Company, whether voluntary
or involuntary, or (c) any assignment for the benefit of creditors or other
marshalling of assets or liabilities of the Company, then and in any such event:
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(i) the holders of Senior Debt shall be entitled to receive payment
in full in cash or cash equivalents or provision acceptable to the
requisite holders of Senior Debt made for such payments, of all amounts due
on or in respect of Senior Debt before the Holders are entitled to receive
any payment or distribution, whether in cash, property or securities
(excluding Permitted Junior Securities) on account of Senior Subordinated
Note Obligations or for the acquisition of any of the Notes; and
(ii) any payment or distribution of assets of the Company of any kind
or character, whether in cash, property or securities (excluding Permitted
Junior Securities), by set-off or otherwise, to which the Holders or the
Trustee would be entitled but for the provisions of this Article shall be
paid by the liquidating trustee or agent or other Person making such
payment or distribution, whether a trustee in bankruptcy, a receiver or
liquidating trustee or otherwise, directly to the holders of Senior Debt or
their representative or representatives or to the trustee or trustees under
any indenture under which any instruments evidencing any of such Senior
Debt may have been issued, ratably according to the aggregate amounts
remaining unpaid on account of the Senior Debt held or represented by each,
to the extent necessary to make payment in full in cash or cash equivalents
of all Senior Debt remaining unpaid, after giving effect to any concurrent
payment or distribution to the holders of such Senior Indebtedness; and
(iii) in the event that, notwithstanding the foregoing provisions of
this Section 14.02, the Trustee or the Holder of any Note shall have
received any payment or distribution of properties or assets of the Company
of any kind or character, whether in cash, property or securities, by set
off or otherwise in respect of any Senior Subordinated Note Obligations
before all Senior Debt is paid or provided for in full in cash or cash
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equivalents, then and in such event such payment or distribution (excluding
Permitted Junior Securities) shall be paid over or delivered forthwith to
the trustee in bankruptcy, receiver, liquidating trustee, custodian,
assignee, agent or other Person making payment or distribution of assets of
the Company for application to the payment of all Senior Debt remaining
unpaid, to the extent necessary to pay all Senior Debt in full in cash or
cash equivalents, after giving effect to any concurrent payment or
distribution to or for the holders of Senior Debt.
The consolidation of the Company with, or the merger of the Company
with or into, another Person or the liquidation or dissolution of the Company
following the conveyance, transfer or lease of its properties and assets
substantially as an entirety to another Person upon the terms and conditions set
forth in Article Eight hereof shall not be deemed a dissolution, winding-up,
liquidation, reorganization, assignment for the benefit of creditors or
marshalling of assets and liabilities of the Company for the purposes of this
Article if the Person formed by such consolidation or the surviving entity of
such merger or the Person which acquires by conveyance, transfer or lease such
properties and assets substantially as an entirety, as the case may be, shall,
as a part of such consolidation, merger, conveyance, transfer or lease, comply
with the conditions set forth in such Article Eight.
Section 14.03. SUSPENSION OF PAYMENT WHEN SENIOR DEBT IN DEFAULT.
Unless Section 14.02 shall be applicable, upon the occurrence of a Payment
Default, no direct or indirect payment or distribution of any assets of the
Company of any kind or character shall be made by or on behalf of the Company on
account of the Senior Subordinated Note Obligations or on account of the
purchase or redemption or other acquisition of any Senior Subordinated Note
Obligations unless and until such Payment Default shall have been cured or
waived or shall have ceased to exist or such Senior Debt shall have been
discharged or paid in full in
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cash in cash equivalents, after which, subject to Section 14.02 (if applicable),
the Company shall resume making any and all required payments in respect of the
Notes and the other Senior Subordinated Note Obligations, including any missed
payments.
(b) Unless Section 14.02 shall be applicable, upon (1) the occurrence
of a Non-payment Default and (2) receipt by the Trustee and the Company from a
Senior Representative of written notice of such occurrence stating that such
notice is a Payment Blockage Notice pursuant to Section 14.03(b) of this
Indenture, no payment or distribution of any assets of the Company of any kind
or character shall be made by or on behalf of the Company on account of any
Senior Subordinated Note Obligations or on account of the purchase or redemption
or other acquisition of Senior Subordinated Note Obligations for a period
("PAYMENT BLOCKAGE PERIOD") commencing on the date of receipt by the Trustee of
such notice unless and until the earlier to occur of the following events
(subject to any blockage of payments that may then be in effect under Section
14.02 or subsection (a) of this Section 14.03): (i)179 days shall have elapsed
since receipt of such notice, (ii)the date on which such Non-payment Default is
cured or waived or ceases to exist (provided that no other Payment Default or
Non-payment Default has occurred or is then continuing after giving effect to
such cure or waiver), (iii) the date on which such Designated Senior Debt is
discharged or paid in full in cash or cash equivalents or (iv) the date on which
such Payment Blockage Period shall have been terminated by express written
notice to the Company or the Trustee from the Senior Representative initiating
such Payment Blockage Period, after which, subject to Section 14.02 (if
applicable) and subject to the existence of any Payment Default, the Company
shall promptly resume making any and all required payments in respect of the
Senior Subordinated Note Obligations, including any missed payments.
Notwithstanding any other provision of this Indenture, only one Payment Blockage
Period, whether with respect to the Notes, any Subsidiary Guarantee or the
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Notes and the Subsidiary Guarantees collectively, may be commenced within any
360 consecutive day period. No Non-payment Default with respect to Designated
Senior Debt that existed or was continuing on the date of the commencement of
any Payment Blockage Period with respect to the Designated Senior Debt
initiating such Payment Blockage Period (other than any such Non-payment Default
which was not and could not reasonably be expected to have been known by the
holders or the Senior Representative) will be, or can be, made the basis for the
commencement of a second Payment Blockage Period, whether or not within a period
of 360 consecutive days, unless such default has been cured or waived for a
period of not less than 90 consecutive days (it being acknowledged that any
subsequent action, or any breach of any financial covenant for a period
commencing after the date of commencement of such Payment Blockage Period, that,
in either case, would give rise to a Non-payment Default pursuant to any
provision under which a Non-payment Default previously existed or was continuing
shall constitute a new Non-payment Default for this purpose; PROVIDED that, in
the case of a breach of a particular financial covenant, the Company shall have
been in compliance for at least one full period commencing after the date of
commencement of such Payment Blockage Period). In no event shall a Payment
Blockage Period extend beyond 179 days from the date of the receipt by the
Trustee of the notice referred to in clause (2) hereof and there must be a 181
consecutive day period in any 360 day period during which no Payment Blockage
Period is in effect pursuant to this Section 14.03(b).
(c) In the event that, notwithstanding the foregoing, the Trustee
shall have received from the Company, or the Holder of any Note shall have
received from any source, any payment on account of the principal of, or
premium, if any, or interest on, the Notes, or any other Senior Subordinated
Note Obligations at a time when such payment is prohibited by the foregoing
provisions of this Section 14.03, the Trustee or such Holders shall hold such
payment in trust for the benefit of, and shall pay over and deliver to, the
holders of Senior Debt (PRO RATA as to each of such
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holders on the basis of the respective amounts of such Senior Debt held by
them), or their representative or the trustee under the indenture or other
agreement (if any) pursuant to which such Senior Debt may have been issued, as
their respective interests may appear, for application to the payment of all
outstanding Senior Debt until all such Senior Debt has been paid in full in
cash, after giving effect to all other payments or distributions to, or
provisions made for, the holders of Senior Debt.
Section 14.04 TRUSTEE'S RELATION TO SENIOR DEBT. With respect to the
holders of Senior Debt, the Trustee undertakes to perform or to observe only
such of its covenants and obligations as are specifically set forth in this
Article Fourteen (and in Article Thirteen with respect to any Guarantor Senior
Debt), and no implied covenants or obligations with respect to the holders of
Senior Debt shall be read into this Indenture against the Trustee. The Trustee
shall not be deemed to owe any fiduciary duty to the holders of Senior Debt and
the Trustee shall not be liable to any holder of Senior Debt if it shall
mistakenly pay over or deliver to Holders, the Company, any Subsidiary Guarantor
or any other Person moneys or assets to which any holder of Senior Debt shall be
entitled by virtue of this Article Fourteen or otherwise.
Section 14.05. SUBROGATION TO RIGHTS OF HOLDERS OF SENIOR DEBT. Upon
the payment in full in cash or cash equivalents of all Senior Debt, the Holders
of the Notes shall be subrogated to the rights of the holders of such Senior
Debt to receive payments and distributions of cash, property and securities
applicable to the Senior Debt until the principal of, premium, if any, and
interest on the Notes shall be paid in full in cash or cash equivalents. For
purposes of such subrogation, no payments or distributions to the holders of
Senior Debt of any cash, property or securities to which the Holders of the
Notes or the Trustee would be entitled except for the provisions of this
Article, and no payments over pursuant to the provisions of this Article to the
holders of Senior Debt by Holders of the
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Notes or the Trustee shall, as among the Company, its creditors other than
holders of Senior Debt, and the Holders of the Notes, be deemed to be a payment
or distribution by the Company to or on account of the Senior Debt.
If any payment or distribution to which the Holders would otherwise
have been entitled but for the provisions of this Article Fourteen shall have
been applied, pursuant to the provisions of this Article Fourteen, to the
payment of all amounts payable under the Senior Debt of the Company, then and in
such case the Holders shall be entitled to receive from the holders of such
Senior Debt at the time outstanding any payments or distributions received by
such holders of such Senior Debt in excess of the amount sufficient to pay all
amounts payable under or in respect of such Senior Debt in full in cash or cash
equivalents.
Section 14.06. PROVISIONS SOLELY TO DEFINE RELATIVE RIGHTS. The
provisions of this Article Fourteen are and are intended solely for the purpose
of defining the relative rights of the Holders of the Notes on the one hand and
the holders of Senior Debt on the other hand. Nothing contained in this Article
Fourteen or elsewhere in this Indenture or in the Notes is intended to or shall
(a) impair, as among the Company, its creditors other than holders of Senior
Debt and the Holders of the Notes, the obligation of the Company, which is
absolute and unconditional, to pay to the Holders of the Notes the principal of,
premium, if any, and interest on the Notes as and when the same shall become due
and payable in accordance with their terms; or (b) affect the relative rights
against the Company of the Holders of the Notes and creditors of the Company
other than the holders of Senior Debt; or (c) prevent the Trustee or the Holder
of any Note from exercising all remedies otherwise permitted by applicable law
upon a Default or an Event of Default under this Indenture, subject to the
rights, if any, under this Article Fourteen of the holders of Senior Debt (1) in
any case, proceeding, dissolution, liquidation or other winding up, assignment
for the benefit of creditors or other marshalling
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of assets and liabilities of the Company referred to in Section 14.02, to
receive, pursuant to and in accordance with such Section, cash, property and
securities otherwise payable or deliverable to the Trustee or such Holder, or
(2) under the conditions specified in Section 14.03, to prevent any payment
prohibited by such Section or enforce their rights pursuant to Section 14.03(c).
The failure to make a payment on account of any Senior Subordinated
Note Obligations by reason of any provision of this Article Fourteen shall not
be construed as preventing the occurrence of a Default or an Event of Default
hereunder.
Section 14.07. TRUSTEE TO EFFECTUATE SUBORDINATION. Each Holder of a
Note by his acceptance thereof authorizes and directs the Trustee on his behalf
to take such action as may be necessary or appropriate to effectuate the
subordination provided in this Article Fourteen and appoints the Trustee his
attorney-in-fact for any and all such purposes, including, in the event of any
dissolution, winding-up, liquidation or reorganization of the Company whether in
bankruptcy, insolvency, receivership proceedings, or otherwise, the timely
filing of a claim for the unpaid balance of the Indebtedness of the Company
owing to such Holder in the form required in such proceedings and the causing of
such claim to be approved. If the Trustee does not file such a claim prior to
30 days before the expiration of the time to file such a claim, the holders of
Senior Debt, or any Senior Representative, may file such a claim on behalf of
Holders of the Notes.
Section 14.08 NO WAIVER OF SUBORDINATION PROVISIONS. No right of any
present or future holder of any Senior Debt to enforce subordination as herein
provided shall at any time in any way be prejudiced or impaired by any act or
failure to act on the part of the Company or by any act or failure to act, in
good faith, by any such holder, or by any non-compliance by the Company with the
terms, provisions and covenants of this Indenture,
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regardless of any knowledge thereof any such holder may have or be otherwise
charged with.
(b) Without limiting the generality of subsection (a) of this Section
14.08, the holders of Senior Debt may, at any time and from time to time,
without the consent of or notice to the Trustee or the Holders of the Notes,
without incurring responsibility to the Holders of the Notes and without
impairing or releasing the subordination provided in this Article Fourteen or
the obligations hereunder of the Holders of the Notes to the holders of Senior
Debt, do any one or more of the following: (1) change the manner, place or
terms of payment or extend the time of payment of, or renew or alter, Senior
Debt or any instrument evidencing the same or any agreement under which Senior
Debt is outstanding; (2)sell, exchange, release or otherwise deal with any
property pledged, mortgaged or otherwise securing Senior Debt; (3) release any
Person liable in any manner for the collection or payment of Senior Debt; and
(4) exercise or refrain from exercising any rights against the Company and any
other Person; PROVIDED that in no event shall any such actions limit the right
of the Holders of the Notes to take any action to accelerate the maturity of the
Notes pursuant to Article Five hereof or to pursue any rights or remedies
hereunder or under applicable laws if the taking of such action does not
otherwise violate the terms of this Indenture.
Section 14.09. NOTICE TO TRUSTEE. The Company shall give prompt
written notice to the Trustee of any fact known to the Company which would
prohibit the making of any payment to or by the Trustee in respect of the Notes.
Notwithstanding the provisions of this Article Fourteen or any other provision
of this Indenture, the Trustee shall not be charged with knowledge of the
existence of any facts which would prohibit the making of any payment to or by
the Trustee in respect of the Notes, unless and until the Trustee shall have
received written notice thereof from the Company or a holder of Senior Debt or
from any trustee, fiduciary or agent therefor; and, prior to the
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receipt of any such written notice, the Trustee, subject to the provisions of
this Section 14.09, shall be entitled in all respects to assume that no such
facts exist; PROVIDED that if the Trustee shall not have received the notice
provided for in this Section 14.09 at least two Business Days prior to the date
upon which by the terms hereof any money may become payable for any purpose
under this Indenture (including, without limitation, the payment of the
principal of, premium, if any, or interest on any Note), then, anything herein
contained to the contrary notwithstanding but without limiting the rights and
remedies of the holders of Senior Debt or any trustee, fiduciary or agent
thereof, the Trustee shall have full power and authority to receive such money
and to apply the same to the purpose for which such money was received and shall
not be affected by any notice to the contrary which may be received by it within
two Business Days prior to such date; nor shall the Trustee be charged with
knowledge of the curing of any such default or the elimination of the act or
condition preventing any such payment unless and until the Trustee shall have
received an Officers' Certificate to such effect.
(b) Subject to the provisions of Section 6.01, the Trustee shall be
entitled to rely on the delivery to it of a written notice to the Trustee by a
Person representing himself to be a holder of Senior Debt (or a representative,
trustee, fiduciary or agent therefor) to establish that such notice has been
given by a holder of Senior Debt (or a representative, trustee, fiduciary or
agent therefor). In the event that the Trustee determines in good faith that
further evidence is required with respect to the right of any Person as a holder
of Senior Debt to participate in any payment or distribution pursuant to this
Article Fourteen, the Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Senior Debt held by
such Person, the extent to which such Person is entitled to participate in such
payment or distribution and any other facts pertinent to the rights of such
Person under this Article Fourteen, and if such evidence is not furnished, the
Trustee may defer any payment to such
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Person pending judicial determination as to the right of such Person to receive
such payment.
Section 14.10. RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF
LIQUIDATING AGENT. Upon any payment or distribution of assets of the Company
referred to in this Article Fourteen, the Trustee, subject to the provisions of
Section 6.01, and the Holders, shall be entitled to rely upon any order or
decree entered by any court of competent jurisdiction in which such insolvency,
bankruptcy, receivership, liquidation, reorganization, dissolution, winding-up
or similar case or proceeding is pending, or a certificate of the trustee in
bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit
of creditors, agent or other Person making such payment or distribution,
delivered to the Trustee or to the Holders, for the purpose of ascertaining the
Persons entitled to participate in such payment or distribution, the holders of
Senior Debt and other Indebtedness of the Company, the amount thereof or payable
thereon, the amount or amounts paid or distributed thereon and all other facts
pertinent thereto or to this Article; PROVIDED that the foregoing shall apply
only if such court has been fully apprised of the provisions of this Article
Fourteen. The Trustee is not responsible for determining whether or not the
court has been fully apprised of the provisions of this Article Fourteen.
Section 14.11. RIGHTS OF TRUSTEE AS A HOLDER OF SENIOR DEBT;
PRESERVATION OF TRUSTEE'S RIGHTS. The Trustee in its individual capacity shall
be entitled to all the rights set forth in this Article Fourteen with respect to
any Senior Debt which may at any time be held by it, to the same extent as any
other holder of Senior Debt, and nothing in this Indenture shall deprive the
Trustee of any of its rights as such holder. Nothing in this Article Fourteen
shall apply to claims of, or payments to, the Trustee under or pursuant to
Section 6.07, none of which is or shall be subordinate in right of payment to
Senior Debt.
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Section 14.12. ARTICLE APPLICABLE TO PAYING AGENTS. In case at any
time any Paying Agent other than the Trustee shall have been appointed by the
Company and be then acting hereunder, the term "Trustee" as used in this Article
shall in such case (unless the context otherwise requires) be construed as
extending to and including such Paying Agent within its meaning as fully for all
intents and purposes as if such Paying Agent were named in this Article Fourteen
in addition to or in place of the Trustee; PROVIDED that Section 14.11 shall not
apply to the Company or any Affiliate of the Company if it or such Affiliate
acts as Paying Agent.
Section NO SUSPENSION OF REMEDIES. Nothing contained in this
Article Fourteen shall limit the right of the Trustee or the Holders of Notes to
take any action to accelerate the maturity of the Notes pursuant to Article Five
or to pursue any rights or remedies hereunder or under applicable law, subject
to the rights, if any, under this Article Fourteen of the holders, from time to
time, of Senior Debt.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, all as of the day and year first above written.
LEINER HEALTH PRODUCTS GROUP INC.
By:/s/ William B. Towne
-------------------------------------
Name: William B. Towne
Title: Executive Vice President,
Chief Financial Officer
UNITED STATES TRUST COMPANY OF
NEW YORK, as Trustee
By:/s/ Gerard F. Ganey
-------------------------------------
Name: Gerard F. Ganey
Title: Senior Vice President
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EXHIBIT A
LEINER HEALTH PRODUCTS GROUP INC.
to be assumed by
LEINER HEALTH PRODUCTS INC.
9 % SENIOR SUBORDINATED NOTE DUE 2007
CUSIP No. ______________
NO. _______________ $________________
LEINER HEALTH PRODUCTS GROUP INC., A DELAWARE CORPORATION (THE
"COMPANY," WHICH TERM INCLUDES ANY SUCCESSOR UNDER THE INDENTURE HEREINAFTER
REFERRED TO), FOR VALUE RECEIVED, PROMISES TO PAY TO ______________ OR
REGISTERED ASSIGNS, THE PRINCIPAL SUM OF _______________ UNITED STATES DOLLARS
[(OR SUCH LESSER OR GREATER PRINCIPAL AMOUNT, NOT EXCEEDING EIGHTY-FIVE MILLION
DOLLARS AND NO CENTS IN UNITED STATES DOLLARS ($85,000,000), AS SHALL BE
OUTSTANDING HEREUNDER FROM TIME TO TIME IN ACCORDANCE WITH SECTION 2.05 OF THE
INDENTURE REFERRED TO ON THE REVERSE HEREOF)] ON JULY 1, 2007, AT THE OFFICE OR
AGENCY OF THE COMPANY REFERRED TO BELOW, AND TO PAY INTEREST THEREON ON JANUARY
1, AND JULY 1 IN EACH YEAR, COMMENCING ON JANUARY 1, 1998 (EACH AN "INTEREST
PAYMENT DATE"), ACCRUING FROM THE ISSUE DATE OR FROM THE MOST RECENT INTEREST
PAYMENT DATE TO WHICH INTEREST HAS BEEN PAID OR DULY PROVIDED FOR, AT THE RATE
OF 9 5/8% PER ANNUM, UNTIL THE PRINCIPAL HEREOF IS PAID OR DULY PROVIDED FOR.
INTEREST SHALL BE COMPUTED ON THE BASIS OF A 360-DAY YEAR OF TWELVE 30-DAY
MONTHS. THE COMPANY WILL ALSO PAY ADDITIONAL INTEREST (AS DEFINED IN THE
REGISTRATION RIGHTS AGREEMENT REFERRED TO ON THE REVERSE HEREOF), IF ANY, ON
THIS NOTE AS AND TO THE EXTENT PROVIDED THEREIN AND IN SUCH INDENTURE, UNTIL NO
LONGER SO REQUIRED OR UNTIL THE PRINCIPAL HEREOF IS PAID OR DULY PROVIDED FOR.
- -------------------------------
* To be included in any Global Note that is a Restricted Security.
A-1
<PAGE>
The interest so payable, and punctually paid or duly provided for, on
any Interest Payment Date will, as provided in the Indenture referred to on the
reverse hereof, be paid to the person in whose name this note (or one or more
predecessor notes) is registered at the close of business on the december 15 or
june 15 (each a "Regular Record Date"), whether or not a business day, as the
case may be, next preceding such interest payment date. Any such interest not
so punctually paid, or duly provided for, and interest on such defaulted
interest at the then applicable interest rate borne by the notes, to the extent
lawful, shall forthwith cease to be payable to the holder on such regular record
date, and may be paid to the person in whose name this note (or one or more
predecessor notes) is registered at the close of business on a special record
date for the payment of such defaulted interest to be fixed by the trustee,
notice of which shall be given to holders of notes not less than 10 days prior
to such special record date, or may be paid at any time in any other lawful
manner not inconsistent with the requirements of any securities exchange on
which the notes may be listed, and upon such notice as may be required by such
exchange, all as more fully provided in such indenture.
Payment of the principal of, and premium, if any, and interest on,
this note will be made at the corporate trust office or agency of the trustee
maintained for that purpose in the city of new york, in such coin or currency of
the United States of America as at the time of payment is legal tender for
payment of public and private debts; PROVIDED, HOWEVER, that payment of interest
may be made at the option of the Company by check (which may be a check of the
Company) mailed to the address of the Person entitled thereto as such address
shall appear on the Note Register.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof.
A-2
<PAGE>
Unless the certificate of authentication hereon has been duly executed
by the Trustee referred to on the reverse hereof by manual signature, this Note
shall not be entitled to any benefit under the Indenture, or be valid or
obligatory for any purpose.
A-3
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
This is one of the Notes referred to in the within-mentioned
Indenture.
Dated:
UNITED STATES TRUST COMPANY OF
NEW YORK,
as Trustee
By:
-------------------------------
Authorized Signatory
A-4
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
LEINER HEALTH PRODUCTS GROUP INC.
By:
-------------------------------------
Name:
Title:
By:
-------------------------------------
Name:
Title:
A-5
<PAGE>
(REVERSE OF NOTE)
9 5/8% Senior Subordinated Note due 2007
1. INDENTURE. This Note is one of a duly authorized issue of Notes
of the Company designated as its 9 % Senior Subordinated Notes due 2007 (the
"Notes"), limited (except as otherwise provided in the Indenture referred to
below) in aggregate principal amount to $85,000,000, which may be issued under
an indenture (the "Indenture") dated as of June 30, 1997, by and among the
Company, as Issuer, and United States Trust Company of New York, as trustee (the
"Trustee," which term includes any successor Trustee under the Indenture).
Reference is hereby made to such Indenture and all indentures supplemental
thereto for a statement of the respective rights, limitations of rights, duties,
obligations and immunities thereunder of the Company, any Subsidiary Guarantors,
the Trustee and the Holders of the Notes, and of the terms upon which the Notes
are, and are to be, authenticated and delivered. The terms of the Notes include
those stated in the Indenture and those made a part of the Indenture by
reference to the Trust Indenture Act of 1939, as amended, and in effect from
time to time (the "TIA"). The Notes are subject to all such terms, and Holders
are referred to the Indenture and the TIA for a statement of such terms.
All capitalized terms used in this Note which are defined in the
Indenture and not otherwise defined herein shall have the meanings assigned to
them in the Indenture.
2. SUBSIDIARY GUARANTEES. This Note is entitled to certain future
senior subordinated Subsidiary Guarantees, if any, made for the benefit of the
Holders. Reference is hereby made to Article Thirteen of the Indenture for
terms relating to such Subsidiary Guarantees.
3. SUBORDINATION. The Indebtedness evidenced by the Notes is, to the
extent and in the manner provided in
A-6
<PAGE>
the Indenture, subordinate and subject in right of payment to the prior payment
in full in cash of all existing and future Senior Debt (including the
Indebtedness under the Credit Agreement). Each Holder of this Note, by
accepting the same, (a) agrees to and shall be bound by such provisions, (b)
authorizes and directs the Trustee, on behalf of such Holder, to take such
action as may be necessary or appropriate to effectuate the subordination as
provided in the Indenture and (c) appoints the Trustee attorney-in-fact of such
Holder for such purpose; PROVIDED that upon any defeasance of this Note referred
to in Paragraph 7 below, the money or U.S. Government Obligations deposited
pursuant to the defeasance provisions of the Indenture for the payment of this
Note shall not be subject to the rights of the holders of Senior Debt of the
Company pursuant to the subordination provisions of the Indenture.
4. REDEMPTION.
(a) OPTIONAL REDEMPTION. Except as set forth below, the Notes are
not redeemable at the option of the Company prior to July 1, 2002. Subject to
earlier redemption in the manner described in the next two succeeding
paragraphs, the Notes will be redeemable at the option of the Company, in whole
or in part, at the redemption prices (expressed as percentages of principal
amount) set forth below, plus accrued and unpaid interest, if any, to the
redemption date, if redeemed during the 12-month period beginning July 1 of the
years indicated below:
Year Redemption Price
---- ----------------
2002 104.813%
2003 103.208%
2004 101.604%
2005 and thereafter 100.000%
In addition, at any time on or prior to July 1, 2000, the Company may,
at its option, redeem Notes, in an aggregate principal amount of up to 30% of
the aggregate
A-7
<PAGE>
principal amount of Notes originally issued, with the net cash proceeds of one
or more Public Equity Offerings, at 109 % of the aggregate principal amount
thereof plus accrued and unpaid interest, if any, to the Redemption Date;
provided, however, that not less than $60.0 million principal amount of the
Notes is outstanding immediately after giving effect to such redemption (other
than any Notes owned by the Company or any of its Affiliates) and such
redemption is effected within 60 days of the issuance in such Public Equity
Offering.
In addition, at any time prior to July 1, 2002, within 180 days after
the occurrence of a Change of Control, the Company may, at its option, redeem
all but not less than all of the Notes, at a Redemption Price equal to 100% of
the principal amount thereof plus the Applicable Premium as of, and accrued and
unpaid interest, if any, to, the Redemption Date.
Notice of redemption of the Notes pursuant to this Paragraph 4(a)
shall be mailed to holders of the Notes at least 30 but not more than 60 days
before the Redemption Date.
(b) NO SINKING FUND. The Company will not be required to make any
mandatory sinking fund payments in respect of the Notes.
(c) INTEREST PAYMENTS. In the case of any redemption of the Notes,
interest installments whose Stated Maturity is on or prior to the Redemption
Date will be payable to the Holders of such Notes, or one or more Predecessor
Notes, of record at the close of business on the relevant Record Date referred
to on the face hereof. Notes (or portions thereof) for whose redemption and
payment provision is made in accordance with the Indenture shall cease to bear
interest from and after the Redemption Date.
(d) PARTIAL REDEMPTION. In the event of redemption of this Note in
part only, a new Note or Notes
A-8
<PAGE>
for the unredeemed portion hereof shall be issued in the name of the Holder
hereof upon the cancellation hereof.
5. OFFERS TO PURCHASE. Sections 10.14 and 10.15 of the Indenture
provide that following certain Asset Sales (with respect to Section 10.14) and
upon the occurrence of a Change of Control (with respect to Section 10.15) and
subject to further limitations contained therein, the Company shall make an
offer to purchase certain amounts of the Notes in accordance with the procedures
set forth in the Indenture.
6. DEFAULTS AND REMEDIES. If an Event of Default shall occur and be
continuing, the principal of all of the outstanding Notes, plus all accrued and
unpaid interest, if any, to the date the Notes become due and payable, may be
declared due and payable in the manner and with the effect provided in the
Indenture.
7. DEFEASANCE. The Indenture contains provisions (which provisions
apply to this Note) for defeasance at any time of (a) the entire indebtedness of
the Company on this Note and (b) certain restrictive covenants and related
Defaults and Events of Default, in each case upon compliance by the Company with
certain conditions set forth therein.
8. AMENDMENTS AND WAIVERS. The Company, each Subsidiary Guarantor
(if any) and the Trustee (if a party thereto) may, without the consent of the
Holders of any Outstanding Notes, amend, waive or supplement the Indenture or
the Notes for certain specified purposes, including, among other things, curing
ambiguities, defects or inconsistencies, maintaining the qualification of the
Indenture under the Trust Indenture Act of 1939, as amended, and making any
change that does not adversely affect the rights of any Holder. Other
amendments and modifications of the Indenture or the Notes may be made by the
Company, each Subsidiary Guarantor (if any) and the Trustee with the consent of
the Holders of not less than a majority of the aggregate principal amount of the
Outstanding Notes, subject
A-9
<PAGE>
to certain exceptions requiring the consent of each Holder of the particular
Notes to be affected. Any such consent or waiver by or on behalf of the Holder
of this Note shall be conclusive and binding upon such Holder and upon all
future Holders of this Note and of any Note issued upon the registration of
transfer hereof or in exchange herefor or in lieu hereof whether or not notation
of such consent or waiver is made upon this Note.
9. DENOMINATIONS, TRANSFER AND EXCHANGE. The Notes are issuable only
in registered form without coupons in denominations of $1,000 and any integral
multiple thereof. As provided in the Indenture and subject to certain
limitations therein set forth, the Notes are exchangeable for a like aggregate
principal amount of Notes of the authorized denomination, as requested by the
Holder surrendering the same.
The transfer of this Note is registrable on the Note Register of the
Company, upon surrender of this Note for registration of transfer at the office
or agency of the Company maintained for such purpose in the Borough of Manhattan
in The City of New York or at such other office or agency of the Company as may
be maintained for such purpose, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Company and the Note
Registrar duly executed by, the Holder hereof or his attorney duly authorized in
writing, and thereupon one or more new Notes, of authorized denominations and
for the same aggregate principal amount, will be issued to the designated
transferee or transferees.
10. PERSONS DEEMED OWNERS. Prior to and at the time of due
presentment of this Note for registration of transfer, the Company, the Trustee
and any agent of the Company or the Trustee may treat the Person in whose name
this Note is registered as the owner hereof for all purposes, whether or not
this Note shall be overdue, and neither the Company, the Trustee nor any agent
shall be affected by notice to the contrary.
A-10
<PAGE>
11. REGISTRATION RIGHTS; ADDITIONAL INTEREST. Pursuant to, and
subject to the terms and conditions of, the Registration Rights Agreement among
Leiner Group, LHP and the Initial Purchasers for themselves and on behalf of the
Holders of the Initial Notes, the Company will be obligated to use its best
efforts to consummate an exchange offer pursuant to which the Holder of this
Note shall have the right to exchange this Note for the Company's 9 % Senior
Subordinated Notes due 2007 (the Exchange Notes referred to in the Indenture),
which will have been registered under the Securities Act, in like principal
amount and having terms identical in all material respects as the Initial Notes.
The Holders of the Initial Notes shall be entitled to receive certain additional
interest payments in the event such exchange offer is not consummated and upon
certain other conditions, all pursuant to and in accordance with the terms of
the Registration Rights Agreement and the Indenture.
12. NO RECOURSE AGAINST OTHERS. No recourse for the payment of the
principal of, or premium, if any, or interest on, any of the Notes or for any
claim based thereon or otherwise in respect thereof, and no recourse under or
upon any obligation, covenant or agreement of the Company in the Indenture or in
any of the Notes or of any Subsidiary Guarantor in any Subsidiary Guarantee, or
because of the creation of any indebtedness represented thereby, shall be had
against any incorporator, shareholder, officer, director, employee or
controlling person of the Company or of any successor Person thereof. Each
Holder of Notes by accepting a Note waives and releases all such liability, and
such waiver and release is part of the consideration for the issuance of the
Notes.
13. GOVERNING LAW. THE INDENTURE AND THIS NOTE SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK
(WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF, OTHER THAN
ANY MANDATING THE APPLICATION OF SUCH LAWS). THE TRUSTEE, THE COMPANY, EACH
SUBSIDIARY GUARANTOR, ANY OTHER
A-11
<PAGE>
OBLIGOR IN RESPECT OF THE NOTES AND (BY THEIR ACCEPTANCE OF THE NOTES) THE
HOLDERS, AGREE TO SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES
FEDERAL OR STATE COURT LOCATED IN THE BOROUGH OF MANHATTAN, IN THE CITY OF NEW
YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THE INDENTURE OR
THIS NOTE.
A-12
<PAGE>
ASSIGNMENT FORM
If you the holder want to assign this Note, fill in the form below and have your
signature guaranteed:
I or we assign and transfer this Note to
- --------------------------------------------------------------------------------
(Insert assignee's social security or tax ID number) ---------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code) and irrevocably appoint
- --------------------------------------------------------------------------------
agent to transfer this Note on the books of the Company. The agent may
substitute another to act for such agent.
Date:_________________________ YOUR SIGNATURE:____________________
(Sign exactly as
your name appears on
the other side of
this Note)
By:_________________
NOTICE: To be
executed by an
executive
officer
NOTICE: Signature(s) must be guaranteed by an institution which is a
participant in the Securities Transfer Agent Medallion Program ("STAMP") or
similar program.
A-13
<PAGE>
In connection with any transfer of this Note occurring prior to the
date which is the earlier of (i)the date of the declaration by the SEC of the
effectiveness of a registration statement under the Securities Act of 1933, as
amended (the "Securities Act"), covering resales of this Note (which
effectiveness shall not have been suspended or terminated at the date of the
transfer) and (ii)the later to occur of the second anniversary of the Issue Date
and the Resale Restriction Termination Date, the undersigned confirms that it
has not utilized any general solicitation or general advertising in connection
with and that such transfer is:
[CHECK ONE]
(1) __ to the Company or a subsidiary thereof; or
(2) __ pursuant to and in compliance with Rule 144A under the Securities Act
of 1933, as amended; or
(3) __ to an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act of 1933, as
amended) that has furnished to the Company and 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 Regulations under the Securities Act of 1933, as amended;
or
(5) __ pursuant to the exemption from registration provided by Rule 144 under
the Securities Act of 1933, as amended; or
(6) __ pursuant to an effective registration statement under the Securities
Act of 1933, as amended; or
A-14
<PAGE>
(7) __ pursuant to another available exemption from the registration
requirements of the Securities Act of 1933, as amended.
Unless one of the boxes is checked, the Trustee will refuse to register any of
the Notes evidenced by this certificate in the name of any person other than the
registered Holder 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 Notes, in its sole discretion, such written legal opinions,
certifications (including an investment letter in the case of box (3) or (4)),
and other information as the Trustee, Note Registrar 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 of 1933, as amended.
If none of the foregoing boxes are checked, the Trustee or Note
Registrar shall not be obligated to register this Note in the name of any person
other than the Holder hereof unless and until the conditions to any such
transfer of registration set forth herein and in Section2.05 of the Indenture
shall have been satisfied.
Dated:____________________ Signed:_________________________
(Sign exactly as name
appears on the other
side of this Security)
Signature Guarantee:____________________________________________________________
A-15
<PAGE>
TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing this
Note for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, as amended, and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding the
Company as the undersigned has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the transferor is
relying upon the undersigned's foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
Date:______________________________ ______________________________
NOTICE: To be executed by an
an executive officer
A-16
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company pursuant to
Section 10.14 or 10.15 of the Indenture, check the Box: []
If you wish to have a portion of this Note purchased by the Company
pursuant to Section 10.14 or 10.15 of the Indenture, state the amount:
$________________
DATE: __________________________ YOUR SIGNATURE: __________________________
(Sign exactly as your
name appears on the
other side of this Note)
By:_______________________
NOTICE: To be signed
by an executive
officer
NOTICE: Signature(s) must be guaranteed by an institution which is a
participant in the Securities Transfer Agent Medallion Program ("STAMP") or
similar program.
A-17
<PAGE>
EXHIBIT B
LEINER HEALTH PRODUCTS GROUP INC.
to be assumed by
LEINER HEALTH PRODUCTS INC.
9 5/8% SENIOR SUBORDINATED NOTE DUE 2007
CUSIP No. ________________
NO. _______________ $________________
LEINER HEALTH PRODUCTS GROUP INC., a Delaware corporation (the
"Company," which term includes any successor under the Indenture hereinafter
referred to), for value received, promises to pay to ___________________, or
registered assigns, the principal sum of ____________________ United States
Dollars on July 1, 2007, at the office or agency of the Company referred to
below, and to pay interest thereon on January 1 and July 1 in each year,
commencing on January 1, 1998 (each an "Interest Payment Date"), accruing from
the Issue Date or from the most recent Interest Payment Date to which interest
has been paid or duly provided for, at the rate of 9 % per annum, until the
principal hereof is paid or duly provided for. Interest shall be computed on
the basis of a 360-day year of twelve 30-day months. In addition, for any
period in which any Initial Note (as defined in such Indenture) exchanged for
this Note was outstanding, the Company will pay Additional Interest (as defined
in the Registration Rights Agreement referred to on the reverse hereof), if any,
on this Note as and to the extent provided therein and in such Indenture.
Notwithstanding the first sentence hereof, to the extent interest (including
Additional Interest, if any) has been paid or duly provided for with respect to
any Initial Note (as defined in such Indenture) exchanged for this Note,
interest on this Note shall accrue from the most recent Interest Payment Date to
which such interest (including Additional Interest, if any) on such Initial Note
had been paid or duly provided for.
B-1
<PAGE>
The interest so payable, and punctually paid or duly provided for, on
any Interest Payment Date will, as provided in the Indenture referred to on the
reverse hereof, be paid to the Person in whose name this Note (or one or more
Predecessor Notes) is registered at the close of business on the December 15 or
June 15 (each a "Regular Record Date"), whether or not a Business Day, as the
case may be, next preceding such Interest Payment Date. Any such interest not
so punctually paid, or duly provided for, and interest on such defaulted
interest at the then applicable interest rate borne by the Notes, to the extent
lawful, shall forthwith cease to be payable to the Holder on such Regular Record
Date, and may be paid to the Person in whose name this Note (or one or more
Predecessor Notes) is registered at the close of business on a Special Record
Date for the payment of such defaulted interest to be fixed by the Trustee,
notice of which shall be given to Holders of Notes not less than 10 days prior
to such Special Record Date, or may be paid at any time in any other lawful
manner not inconsistent with the requirements of any securities exchange on
which the Notes may be listed, and upon such notice as may be required by such
exchange, all as more fully provided in such Indenture.
Payment of the principal of, and premium, if any, and interest on,
this Note will be made at the Corporate Trust office or agency of the Trustee
maintained for that purpose in The City of New York, in such coin or currency of
the United States of America as at the time of payment is legal tender for
payment of public and private debts: PROVIDED, HOWEVER, that payment of interest
may be made at the option of the Company by check (which may be a check of the
Company) mailed to the address of the Person entitled thereto as such address
shall appear on the Note Register.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof.
Unless the certificate of authentication hereon has been duly executed
by the Trustee referred to on the
B-2
<PAGE>
reverse hereof by manual signature, this Note shall not be entitled to any
benefit under the Indenture, or be valid or obligatory for any purpose.
TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
This is one of the Notes referred to in the within-mentioned
Indenture.
Dated:
UNITED STATES TRUST COMPANY OF NEW
YORK
as Trustee
By:_________________________________
Authorized Signatory
B-2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
LEINER HEALTH PRODUCTS GROUP INC.
By:_______________________________
Name:
Title:
By:_______________________________
Name:
Title:
B-4
<PAGE>
(REVERSE OF NOTE)
9 5/8% Senior Subordinated Note due 2007
1. INDENTURE. This Note is one of a duly authorized issue of Notes
of the Company designated as its 9 % Senior Subordinated Notes due 2007 (the
"Notes"), limited (except as otherwise provided in the Indenture referred to
below) in aggregate principal amount to $85,000,000, which may be issued under
an indenture (the "Indenture") dated as of June 30, 1997, by and among the
Company, as Issuer, and United States Trust Company of New York, as trustee (the
"Trustee," which term includes any successor Trustee under the Indenture).
Reference is hereby made to such Indenture and all indentures supplemental
thereto for a statement of the respective rights, limitations of rights, duties,
obligations and immunities thereunder of the Company, any Subsidiary Guarantors,
the Trustee and the Holders of the Notes, and of the terms upon which the Notes
are, and are to be, authenticated and delivered. The terms of the Notes include
those stated in the Indenture and those made part of the Indenture by reference
to the Trust Indenture Act of 1939, as amended, and in effect from time to time
(the "TIA"). The Notes are subject to all such terms, and Holders are referred
to the Indenture and the TIA for a statement of such terms.
All capitalized terms used in this Note which are defined in the
Indenture and not otherwise defined herein shall have the meanings assigned to
them in the Indenture.
2. SUBSIDIARY GUARANTEES. This Note is entitled to certain future
senior subordinated Subsidiary Guarantees, if any, made for the benefit of the
Holders. Reference is hereby made to Article Thirteen of the Indenture for
terms relating to such Subsidiary Guarantees.
3. SUBORDINATION. The Indebtedness evidenced by the Notes is, to the
extent and in the manner provided in
B-5
<PAGE>
the Indenture, subordinate and subject in right of payment to the prior payment
in full in cash of all existing and future Senior Debt (including the
Indebtedness under the Credit Agreement). Each Holder of this Note, by
accepting the same, (a) agrees to and shall be bound by such provisions, (b)
authorizes and directs the Trustee, on behalf of such Holder, to take such
action as may be necessary or appropriate to effectuate the subordination as
provided in the Indenture and (c) appoints the Trustee attorney-in-fact of such
Holder for such purpose; PROVIDED that upon any defeasance of this Note
referred to in Paragraph 7 below, the money or U.S. Government Obligations
deposited pursuant to the defeasance provisions of the Indenture for the payment
of this Note shall not be subject to the rights of the holders of Senior Debt of
the Company pursuant to the subordination provisions of the Indenture.
4. REDEMPTION.
(a) OPTIONAL REDEMPTION. Except as set forth below, the Notes are
not redeemable at the option of the Company prior to July 1, 2002. Subject to
earlier redemption in the manner described in the next two succeeding
paragraphs, the Notes will be redeemable at the option of the Company, in whole
or in part, at the redemption prices (expressed as percentages of principal
amount) set forth below, plus accrued and unpaid interest, if any, to the
redemption date, if redeemed during the 12-month period beginning July 1 of the
years indicated below:
YEAR REDEMPTION PRICE
2002 104.813%
2003 103.208%
2004 101.604%
2005 and thereafter 100.000%
In addition, at any time on or prior to July 1, 2000, the Company may,
at its option, redeem Notes, in an aggregate principal amount of up to 30% of
the aggregate
B-6
<PAGE>
principal amount of Notes originally issued, with the net cash proceeds of one
or more Public Equity Offerings, at 109 % of the aggregate principal amount
thereof plus accrued and unpaid interest, if any, to the Redemption Date;
provided, however, that not less than $60.0 million principal amount of the
Notes is outstanding immediately after giving effect to such redemption (other
than any Notes owned by the Company or any of its Affiliates) and such
redemption is effected within 60 days of the issuance in such Public Equity
Offering.
In addition, at any time prior to July 1, 2002, within 180 days after
the occurrence of a Change of Control, the Company may, at its option, redeem
all but not less than all of the Notes, at a Redemption Price equal to 100% of
the principal amount thereof plus the Applicable Premium as of, and accrued and
unpaid interest, if any, to, the Redemption Date.
Notice of redemption of the Notes pursuant to this Paragraph 4(a)
shall be mailed to holders of the Notes at least 30 but not more than 60 days
before the Redemption Date.
(b) NO SINKING FUND. The Company will not be required to make any
mandatory sinking fund payments in respect of the Notes.
(c) INTEREST PAYMENTS. In the case of any redemption of the Notes,
interest installments whose Stated Maturity is on or prior to the Redemption
Date will be payable to the Holders of such Notes, or one or more Predecessor
Notes, of record at the close of business on the relevant Record Date referred
to on the face hereof. Notes (or portions thereof) for whose redemption and
payment provision is made in accordance with the Indenture shall cease to bear
interest from and after the Redemption Date.
(d) PARTIAL REDEMPTION. In the event of redemption of this Note in
part only, a new Note or Notes
B-7
<PAGE>
for the unredeemed portion hereof shall be issued in the name of the Holder
hereof upon the cancellation hereof.
5. OFFERS TO PURCHASE. Sections 10.14 and 10.15 of the Indenture
provide that following certain Asset Sales (with respect to Section 10.14) and
upon the occurrence of a Change of Control (with respect to Section 10.15) and
subject to further limitations contained therein, the Company shall make an
offer to purchase certain amounts of the Notes in accordance with the procedures
set forth in the Indenture.
6. DEFAULTS AND REMEDIES. If an Event of Default shall occur and be
continuing, the principal of all of the outstanding Notes, plus all accrued and
unpaid interest, if any, to the date the Notes become due and payable, may be
declared due and payable in the manner and with the effect provided in the
Indenture.
7. DEFEASANCE. The Indenture contains provisions (which provisions
apply to this Note) for defeasance at any time of (a) the entire indebtedness of
the Company on this Note and (b) certain restrictive covenants and related
Defaults and Events of Default, in each case upon compliance by the Company with
certain conditions set forth therein.
8. AMENDMENTS AND WAIVERS. The Company, each Subsidiary Guarantor
(if any) and the Trustee (if a party thereto) may, without the consent of the
Holders of any Outstanding Notes, amend, waive or supplement the Indenture or
the Notes for certain specified purposes, including, among other things, curing
ambiguities, defects or inconsistencies, maintaining the qualification of the
Indenture under the Trust Indenture Act of 1939, as amended, and making any
change that does not adversely affect the rights of any Holder. Other
amendments and modifications of the Indenture or the Notes may be made by the
Company, each Subsidiary Guarantor (if any) and the Trustee with the consent of
the Holders of not less than a majority of the aggregate principal amount of the
Outstanding Notes, subject
B-8
<PAGE>
to certain exceptions requiring the consent of each Holder of the particular
Notes to be affected. Any such consent or waiver by or on behalf of the Holder
of this Note shall be conclusive and binding upon such Holder and upon all
future Holders of this Note and of any Note issued upon the registration of
transfer hereof or in exchange herefor or in lieu hereof whether or not notation
of such consent or waiver is made upon this Note.
9. DENOMINATIONS, TRANSFER AND EXCHANGE. The Notes are issuable only
in registered form without coupons in denominations of $1,000 and any integral
multiple thereof. As provided in the Indenture and subject to certain
limitations therein set forth, the Notes are exchangeable for a like aggregate
principal amount of Notes of the authorized denomination, as requested by the
Holder surrendering the same.
The transfer of this Note is registrable on the Note Register of the
Company, upon surrender of this Note for registration of transfer at the office
or agency of the Company maintained for such purpose in the Borough of Manhattan
in The City of New York or at such other office or agency of the Company as may
be maintained for such purpose, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Company and the Note
Registrar duly executed by, the Holder hereof or his attorney duly authorized in
writing, and thereupon one or more new Notes, of authorized denominations and
for the same aggregate principal amount, will be issued to the designated
transferee or transferees.
10. PERSONS DEEMED OWNERS. Prior to and at the time of due
presentment of this Note for registration of transfer, the Company, the Trustee
and any agent of the Company or the Trustee may treat the Person in whose name
this Note is registered as the owner hereof for all purposes, whether or not
this Note shall be overdue, and neither the Company, the Trustee nor any agent
shall be affected by notice to the contrary.
B-9
<PAGE>
11. NO RECOURSE AGAINST OTHERS. No recourse for the payment of the
principal of, or premium, if any, or interest on, any of the Notes or for any
claim based thereon or otherwise in respect thereof, and no recourse under or
upon any obligation, covenant or agreement of the Company in the Indenture or in
any of the Notes or of any Subsidiary Guarantor in any Subsidiary Guarantee, or
because of the creation of any indebtedness represented thereby, shall be had
against any incorporator, shareholder, officer, director, employee or
controlling person of the Company or of any successor Person thereof. Each
Holder of Notes by accepting a Note waives and releases all such liability, and
such waiver and release is part of the consideration for the issuance of the
Notes.
12. GOVERNING LAW. THE INDENTURE AND THIS NOTE SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK
(WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF, OTHER THAN
ANY MANDATING THE APPLICATION OF SUCH LAWS). THE TRUSTEE, THE COMPANY, EACH
SUBSIDIARY GUARANTOR, ANY OTHER OBLIGOR IN RESPECT OF THE NOTES AND (BY THEIR
ACCEPTANCE OF THE NOTES) THE HOLDERS AGREE TO SUBMIT TO THE NON-EXCLUSIVE
JURISDICTION OF ANY UNITED STATES FEDERAL OR STATE COURT LOCATED IN THE BOROUGH
OF MANHATTAN, IN THE CITY OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF
OR RELATING TO THE INDENTURE OR THIS NOTE.
B-10
<PAGE>
ASSIGNMENT FORM
If you the holder want to assign this Note, fill in the form below and have your
signature guaranteed:
I or we assign and transfer this Note to
- --------------------------------------------------------------------------------
(Insert assignee's social security or tax ID number) ---------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code) and irrevocably appoint
- --------------------------------------------------------------------------------
agent to transfer this Note on the books of the Company. The agent may
substitute another to act for such agent.
Date:____________________ Your Signature:____________________
(Sign exactly as
your name appears on
the other side of
this Note)
By:_________________
NOTICE: To be
executed by an
executive
officer
NOTICE: Signature(s) must be guaranteed by an institution which is a
participant in the Securities Transfer Agent Medallion Program ("STAMP") or
similar program.
B-11
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company pursuant to
Section 10.14 or 10.15 of the Indenture, check the Box: []
If you wish to have a portion of this Note purchased by the Company
pursuant to Section 10.14 or 10.15 of the Indenture, state the amount:
$__________________
Date: _____________________________ Your Signature:_________________________
(Sign exactly as your
name appears on the
other side of this Note)
By: __________________________
NOTICE: To be signed
by an executive officer
NOTICE: Signature(s) must be guaranteed by an institution which is a
participant in the Securities Transfer Agent Medallion Program ("STAMP") or
similar program.
B-12
<PAGE>
EXHIBIT C
Form of Certificate To Be
Delivered in Connection with
Transfers to NON-QIB Accredited Investors
______________, _____
[trustee]
New York, New York ______
Attention: Corporate Trust Department
Re: Leiner Health Products Inc.
(the "Company") 9 5/8% Senior Subordinated
Notes due 2007 (the "Notes")
Ladies and Gentlemen:
In connection with our proposed purchase of $________ aggregate
principal amount of the notes, we confirm that:
1. We have received a copy of the Offering Memorandum (the "Offering
Memorandum"), dated June 30, 1997, relating to the Notes and such other
information as we deem necessary in order to make our investment decision.
We acknowledge that we have read and agreed to the matters stated in the
section entitled "Notice to Investors" of the Offering Memorandum.
2. We understand that any subsequent transfer of the Notes is subject
to certain restrictions and conditions set forth in the Indenture dated as
of June 30, 1997 relating to the Notes (the "Indenture") and
C-1
<PAGE>
the undersigned agrees to be bound by, and not to resell, pledge or
otherwise transfer the Notes except in compliance with, such restrictions
and conditions and the Securities Act of 1933, as amended (the "Securities
Act").
3. We understand that the Notes have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), and may not be
sold except as permitted in the following sentence. We agree on our own
behalf and on behalf of any investor account for which we are purchasing
Notes to offer, sell or otherwise transfer such Notes prior to the date
which is two years (or such shorter period that hereafter may be provided
under Rule 144(k) under the Securities Act (or any successor provision
thereof) as permitting the resale by non-affiliates of restricted
securities without restriction) after the later of the date of original
issuance of the Notes and the last date on which the Company or any
affiliate of the Company was the owner of such Notes (or any predecessor
thereto) (the "resale restriction termination date") only (a) to the
company, (b) pursuant to a registration statement which has been declared
effective under the Securities Act, (c) for so long as the Notes are
eligible for resale pursuant to Rule 144a under the Securities Act, to a
person we reasonably believe is a qualified institutional buyer under Rule
144A (a "QIB") that purchases for its own account or for the account of a
QIB to whom notice is given that the transfer is being made in reliance on
Rule 144A, (d) pursuant to offers and sales to non-U.S. persons that occur
outside the United States within the meaning of regulations s under the
Securities Act, (e) to an institutional "accredited investor" within the
meaning of subparagraph (a)(1), (2), (3) or (7) of Rule 501 under the
Securities Act that is acquiring notes for its own account or for the
account of such an institutional "accredited investor" for investment
purposes and not with a view to, or for offer or sale in connection with,
any distribution
C-2
<PAGE>
thereof in violation of the Securities Act, or (f) pursuant to any other
available exemption from the registration requirements of the Securities
Act and otherwise in compliance with other applicable laws, subject in each
of the foregoing cases to any requirement of law that the disposition of
our property or the property of such investor account or accounts be at all
times within our or their control and to compliance with any applicable
state securities laws. The foregoing restrictions on resale will not apply
subsequent to the Resale Restriction Termination Date. If any resale or
other transfer of the Notes is proposed to be made pursuant to clause (e)
above prior to the Resale Restriction Termination Date, the transferor
shall deliver a letter from the transferee substantially in the form of
this letter to the Trustee, which shall provide, among other things, that
the transferee is an institutional "accredited investor" within the meaning
of subparagraph (a)(1), (2), (3) or (7) of Rule 501 under the Securities
Act and that it is acquiring such Notes for investment purposes and not for
distribution in violation of the Securities Act. We acknowledge on our own
behalf and on behalf of any investor account for which we are purchasing
Notes that the issuer and the Trustee reserve the right prior to any offer,
sale or other transfer prior to the Resale Restriction Termination Date of
the Notes pursuant to clause (d), (e) or (f) above to require the delivery
of an opinion of counsel, certifications and/or other information
satisfactory to each of them.
4. We are an institutional "accredited investor" (within the meaning
of Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities
Act) purchasing for our own account or for the account of such an
institutional "accredited investor," and we are acquiring the Notes for
investment purposes and not with a view to, or for offer or sale in
connection with, any distribution in violation of the Securities
C-3
<PAGE>
Act and we have such knowledge and experience in financial and business
matters as to be capable of evaluating the merits and risks of our
investment in the Notes, and we and any accounts for which we are acting
are each able to bear the economic risk of our or its investment for an
indefinite period.
5. We are acquiring the Notes purchased by us for our own account or
for one or more accounts as to each of which we exercise sole investment
discretion.
6. You, the Company and counsel to the Company are entitled to rely
upon this letter and are irrevocably authorized to produce this letter or a
copy hereof to any interested party in any administrative or legal
proceeding or official inquiry with respect to the matters covered hereby.
Very truly yours,
-----------------------------------
(Name of Purchaser)
By:___________________________
Date:_________________________
Upon transfer the Notes would be registered in the name of the new
beneficial owner as follows:
Name:_______________________________
Address:____________________________
Taxpayer ID Number:_________________
C-4
<PAGE>
EXHIBIT D
Form of Certificate To Be Delivered
in Connection with Transfers
Pursuant to Regulation S
_______________, _____
[Trustee]
New York, New York _____
Attention: Corporate Trust Department
Re: Leiner Health Products Inc.
(the "Company") 9 5/8% Senior Subordinated
Notes Due 2007 (the "Notes")
Ladies and Gentlemen:
In connection with our proposed sale of $ ____________ aggregate
principal amount of the Notes, we confirm that such sale has been effected
pursuant to and in accordance with regulation s under the u.s. securities act of
1933, as amended (the "securities act"), and, accordingly, we represent that:
(1) the offer of the Notes was not made to a person in the United
States;
(2) either (a) at the time the buy offer was originated, the
transferee was outside the United States or we and any person acting on our
behalf reasonably believed that the transferee was outside the United
States, or (b)the transaction was executed in, on or through the facilities
of a designated off-shore
D-1
<PAGE>
securities market and neither we nor any person acting on our behalf knows
that the transaction has been pre-arranged with a buyer in the United
States;
(3) no directed selling efforts have been made in the United States
in contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S, as applicable;
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act; and
(5) we have advised the transferee of the transfer restrictions
applicable to the notes.
You, the Company and counsel for the Company are entitled to rely upon
this letter and are irrevocably authorized to produce this letter or a copy
hereof to any interested party in any administrative or legal proceedings or
official inquiry with respect to the matters covered hereby. Terms used in this
certificate have the meanings set forth in Regulation S.
Very truly yours,
[name of transferor]
BY: __________________________________
Authorized Signature
D-2
<PAGE>
EXHIBIT E
FORM OF SUPPLEMENTAL INDENTURE IN RESPECT OF
SUBSIDIARY GUARANTEE
This Supplemental Indenture, dated as of [_________] (this
"Supplemental Indenture"), among [name of Subsidiary Guarantor] (the
"Guarantor"), [Company] (together with its successors and assigns, the
"Company"), [each other then existing Subsidiary Guarantor under the Indenture
referred to below,] and [Trustee], as Trustee under the Indenture referred to
below.
W I T N E S S E T H:
WHEREAS, the Company and the Trustee have heretofore become parties to
an Indenture, dated as of June 30, 1997, as amended (as amended, supplemented,
waived or otherwise modified, the "Indenture"), providing for the issuance of an
aggregate principal amount of $85,000,000 of 9 % Senior Subordinated Notes due
2007 of the Company (the "Notes");
WHEREAS, Sections 10.10 and 13.02 of the Indenture provide that under
certain circumstances the Company is required or permitted to cause the
Guarantor to execute and deliver to the Trustee a supplemental indenture
pursuant to which the Guarantor shall guarantee the Company's obligations under
the Notes pursuant to a Subsidiary Guarantee on the terms and conditions set
forth herein and in Article Thirteen of the Indenture; and
WHEREAS, pursuant to Section 9.01 of the Indenture, the parties hereto
are authorized to execute and deliver this Supplemental Indenture to amend the
Indenture, without the consent of any Holder;
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the
Guarantor, the
E-1
<PAGE>
Company[, the other Subsidiary Guarantors] and the Trustee mutually covenant and
agree for the benefit of the Holders of the Notes as follows:
1. DEFINED TERMS. As used in this Supplemental Indenture, terms
defined in the Indenture or in the preamble or recital hereto are used herein as
therein defined. The words "herein," "hereof" and "hereby" and other words of
similar import used in this Supplemental Indenture refer to this Supplemental
Indenture as a whole and not to any particular section hereof.
2. AGREEMENT TO GUARANTEE. The Guarantor hereby agrees, jointly and
severally with all other Subsidiary Guarantors, to guarantee the Company's
Obligations under the Indenture and the Notes on the terms and subject to the
conditions set forth in Article Thirteen of the Indenture and to be bound by all
other applicable provisions of the Indenture as a Subsidiary Guarantor.
3. TERMINATION, RELEASE AND DISCHARGE. The Guarantor's Subsidiary
Guarantee shall terminate and be of no further force or effect, and the
Guarantor shall be released and discharged from all obligations in respect of
such Subsidiary Guarantee, as and when provided in Section 13.07 of the
Indenture.
4. NOTICES. All notices and other communications pertaining to the
Guarantor's Subsidiary Guarantee or any Note shall be in writing and shall be
deemed to have been duly given upon the receipt thereof. Such notices shall be
delivered by hand, or mailed, certified or registered mail with postage prepaid
(a) if to the Guarantor, at its address set forth below, with a copy to the
Company as provided in the Indenture for notices to the Company, and (b) if to
the Holders or the Trustee, as provided in the Indenture. The Guarantor by
notice to the Trustee may designate additional or different addresses for
subsequent notices to or communications with the Guarantor.
E-2
<PAGE>
5. PARTIES. Nothing in this Supplemental Indenture is intended or
shall be construed to give any Person, other than the Holders and the Trustee
and the holders of any Guarantor Senior Debt, any legal or equitable right,
remedy or claim under or in respect of the Guarantor's Subsidiary Guarantee or
any provision contained herein or in Article Thirteen of the Indenture.
6. GOVERNING LAW. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT
GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF, OTHER THAN ANY
MANDATING THE APPLICATION OF SUCH LAWS).
7. RATIFICATION OF INDENTURE; SUPPLEMENTAL INDENTURES PART OF
INDENTURE. Except as expressly amended hereby, the Indenture is in all respects
ratified and confirmed and all the terms, conditions and provisions thereof
shall remain in full force and effect. This Supplemental Indenture shall form a
part of the Indenture for all purposes, and every Holder of Notes heretofore or
hereafter authenticated and delivered shall be bound hereby. The Trustee makes
no representation or warranty as to the validity or sufficiency of this
Supplemental Indenture.
8. COUNTERPARTS. The parties hereto may sign one or more copies of
this Supplemental Indenture in counterparts, all of which together shall
constitute one and the same agreement.
9. HEADINGS. The section headings herein are for convenience of
reference only and shall not be deemed to alter or affect the meaning or
interpretation of any provisions hereof.
E-3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed as of the date first above written.
[NAME OF GUARANTOR],
By: _________________________________
Name:
Title:
Address:
[COMPANY]
By: _________________________________
Name:
Title:
Address:
[Add signature block for any other
existing Subsidiary Guarantor]
[TRUSTEE]
By: _________________________________
Name:
Title:
Address:
E-4
<PAGE>
EXHIBIT F
FIRST SUPPLEMENTAL INDENTURE (this "Supplemental
Indenture"), dated as of June30, 1997 among LEINER HEALTH
PRODUCTS INC., aDelaware corporation ("LHP"), LEINER HEALTH
PRODUCTS GROUP INC., a Delaware corporation ("Leiner
Group"), and United States Trust Company of New York, a New
York corporation, as trustee under the indenture referred to
below (the "Trustee").
W I T N E S S E T H
WHEREAS Leiner Group, as issuer, heretofore executed and delivered to
the Trustee an indenture (the "Indenture"), dated as of June 30, 1997, providing
for the issuance of an aggregate principal amount of $85,000,000 of 9 % Senior
Subordinated Notes due 2007 of Leiner Group (the "Notes");
WHEREAS, in connection with the Recapitalization and the financing
thereof, Leiner Group has issued the Notes pursuant to and in accordance with
the Indenture;
WHEREAS, in connection with the Recapitalization, Leiner Group wishes
to assign, transfer and convey to LHP, and LHP wishes to assume, all of Leiner
Group's rights and obligations in respect of the Indenture and the Notes, in
consideration of, among other things, the making available to LHP of the Credit
Facility for LHP's benefit and use, and the contribution to LHP by Leiner Group
(through its subsidiary PLI) of substantial funds for LHP's benefit and use,
among other things, to repay substantially all of LHP's previously existing
Indebtedness; and
WHEREAS, pursuant to Sections 8.03 and 9.01 of the Indenture, the
parties hereto are authorized to execute and
F-1
<PAGE>
deliver this Supplemental Indenture without the consent of any Holder;
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, Leiner
Group, LHP, and the Trustee mutually covenant and agree for the equal and
ratable benefit of the Holders of the Notes as follows:
1. DEFINITIONS. (a)Capitalized terms used herein without definition
shall have the meanings assigned to them in the Indenture.
(b) For all purposes of this Supplemental Indenture, except as
otherwise herein expressly provided or unless the context otherwise requires:
(i) the terms and expressions used herein shall have the same meanings as
corresponding terms and expressions used in the Indenture; and (ii) the words
"herein", "hereof" and "hereby" and other words of similar import used in this
Supplemental Indenture refer to this Supplemental Indenture as a whole and not
to any particular section hereof.
2. ASSIGNMENT. Effective immediately following the consummation of
the issuance and sale of the Notes to the Initial Purchasers on the date hereof,
Leiner Group hereby expressly and irrevocably assigns, transfers and conveys to
LHP all of Leiner Group's rights, obligations, covenants, agreements, duties and
liabilities under, with respect to, arising in connection with or resulting from
the Indenture and the Notes and any and all certificates and other documents
executed by Leiner Group in connection therewith.
3. ASSUMPTION. Effective immediately following the consummation of
the issuance and sale of the Notes to the Initial Purchasers on the date hereof,
LHP hereby expressly and irrevocably assumes, confirms and agrees to perform and
observe all of the Indebtedness, obligations, covenants, agreements, terms,
conditions, duties and
F-2
<PAGE>
liabilities of Leiner Group under, with respect to, arising in connection with
or resulting from the Indenture and the Notes and any and all certificates and
other documents executed by Leiner Group in connection therewith, as fully as if
LHP were originally the obligor in respect thereof and the signatory thereto,
including, but not limited to, (i) the payment of principal, premium (if any)
and interest on the Notes when due, whether at maturity, by acceleration, by
optional redemption, by mandatory prepayment or otherwise, and all other
monetary obligations of Leiner Group under the Indenture and the Notes, and (ii)
the full and punctual performance of all other obligations of Leiner Group under
the Indenture and the Notes, including the compliance with the covenants
contained in Article Ten of the Indenture. Following the execution and delivery
of this Supplemental Indenture, the parties hereto agree that all references to
"the Company" in the Indenture and the Notes shall be deemed to be references to
LHP.
4. RELEASE. Effective as of 12:01 A.M. (New York City time) on the
day immediately following the date of the issuance and sale of the Notes to the
Initial Purchasers, Leiner Group is hereby fully and unconditionally released
and forever discharged from any and all obligations and liabilities Leiner Group
may have under, with respect to, arising in connection with or resulting from
the Indenture and the Notes and any and all certificates and other documents
executed by Leiner Group in connection therewith. From and after such time,
Leiner Group shall not be, and shall not be deemed to be, a party to or bound by
the Indenture or any of the Notes for any purpose.
5. RATIFICATION OF INDENTURE; SUPPLEMENTAL INDENTURE PART OF
INDENTURE. Except as expressly amended hereby, the Indenture is in all respects
ratified and confirmed by the parties hereto and all the terms, conditions and
provisions thereof shall remain in full force and effect. This Supplemental
Indenture shall form a part of the Indenture for all purposes, and every holder
of Notes
F-3
<PAGE>
heretofore or hereafter authenticated and delivered shall be bound hereby.
6. GOVERNING LAW. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT
GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF, OTHER THAN ANY
MANDATING APPLICATION OF SUCH LAWS).
7. TRUSTEE MAKES NO REPRESENTATION. The Trustee makes no
representation as to the validity or sufficiency of this Supplemental Indenture.
8. COUNTERPARTS. The parties may sign any number of copies of this
Supplemental Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
9. EFFECT OF HEADINGS. The Section headings herein are for
convenience only and shall not effect the construction thereof.
F-4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed as of the date first above written.
LEINER HEALTH PRODUCTS GROUP INC.
by
----------------------------------
Name:
Title:
LEINER HEALTH PRODUCTS INC.
by
----------------------------------
Name:
Title:
UNITED STATES TRUST COMPANY OF
NEWYORK
by
----------------------------------
Name:
Title:
F-5
<PAGE>
Exhibit 4.2
FIRST SUPPLEMENTAL INDENTURE (this "Supplemental
Indenture"), dated as of June30, 1997 among LEINER
HEALTH PRODUCTS INC., aDelaware corporation ("LHP"),
LEINER HEALTH PRODUCTS GROUP INC., a Delaware
corporation ("Leiner Group"), and United States Trust
Company of New York, a New York corporation, as
trustee under the indenture referred to below (the
"Trustee").
W I T N E S S E T H
WHEREAS Leiner Group, as issuer, heretofore executed and delivered
to the Trustee an indenture (the "Indenture"), dated as of June 30, 1997,
providing for the issuance of an aggregate principal amount of $85,000,000 of
95/8% Senior Subordinated Notes due 2007 of Leiner Group (the "Notes");
WHEREAS, in connection with the Recapitalization and the financing
thereof, Leiner Group has issued the Notes pursuant to and in accordance with
the Indenture;
WHEREAS, in connection with the Recapitalization, Leiner Group
wishes to assign, transfer and convey to LHP, and LHP wishes to assume, all
of Leiner Group's rights and obligations in respect of the Indenture and the
Notes, in consideration of, among other things, the making available to LHP
of the Credit Facility for LHP's benefit and use, and the contribution to LHP
by Leiner Group (through its subsidiary PLI) of substantial funds for LHP's
benefit and use, among other things, to repay substantially all of LHP's
previously existing Indebtedness; and
WHEREAS, pursuant to Sections 8.03 and 9.01 of the Indenture, the
parties hereto are authorized to execute and deliver this Supplemental
Indenture without the consent of any Holder;
<PAGE>
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged,
Leiner Group, LHP, and the Trustee mutually covenant and agree for the equal
and ratable benefit of the Holders of the Notes as follows:
1. DEFINITIONS. (a)Capitalized terms used herein without definition
shall have the meanings assigned to them in the Indenture.
(b) For all purposes of this Supplemental Indenture, except as
otherwise herein expressly provided or unless the context otherwise requires:
(i) the terms and expressions used herein shall have the same meanings as
corresponding terms and expressions used in the Indenture; and (ii) the words
"herein", "hereof" and "hereby" and other words of similar import used in this
Supplemental Indenture refer to this Supplemental Indenture as a whole and not
to any particular section hereof.
2. ASSIGNMENT. Effective immediately following the consummation of
the issuance and sale of the Notes to the Initial Purchasers on the date hereof,
Leiner Group hereby expressly and irrevocably assigns, transfers and conveys to
LHP all of Leiner Group's rights, obligations, covenants, agreements, duties and
liabilities under, with respect to, arising in connection with or resulting from
the Indenture and the Notes and any and all certificates and other documents
executed by Leiner Group in connection therewith.
3. ASSUMPTION. Effective immediately following the consummation of
the issuance and sale of the Notes to the Initial Purchasers on the date hereof,
LHP hereby expressly and irrevocably assumes, confirms and agrees to perform and
observe all of the Indebtedness, obligations, covenants, agreements, terms,
conditions, duties and liabilities of Leiner Group under, with respect to,
arising in connection with or resulting from the Indenture and the
2
<PAGE>
Notes and any and all certificates and other documents executed by Leiner Group
in connection therewith, as fully as if LHP were originally the obligor in
respect thereof and the signatory thereto, including, but not limited to, (i)
the payment of principal, premium (if any) and interest on the Notes when due,
whether at maturity, by acceleration, by optional redemption, by mandatory
prepayment or otherwise, and all other monetary obligations of Leiner Group
under the Indenture and the Notes, and (ii) the full and punctual performance of
all other obligations of Leiner Group under the Indenture and the Notes,
including the compliance with the covenants contained in Article Ten of the
Indenture. Following the execution and delivery of this Supplemental Indenture,
the parties hereto agree that all references to "the Company" in the Indenture
and the Notes shall be deemed to be references to LHP.
4. RELEASE. Effective as of 12:01 A.M. (New York City time) on the
day immediately following the date of the issuance and sale of the Notes to the
Initial Purchasers, Leiner Group is hereby fully and unconditionally released
and forever discharged from any and all obligations and liabilities Leiner Group
may have under, with respect to, arising in connection with or resulting from
the Indenture and the Notes and any and all certificates and other documents
executed by Leiner Group in connection therewith. From and after such time,
Leiner Group shall not be, and shall not be deemed to be, a party to or bound by
the Indenture or any of the Notes for any purpose.
5. RATIFICATION OF INDENTURE; SUPPLEMENTAL INDENTURE PART OF
INDENTURE. Except as expressly amended hereby, the Indenture is in all respects
ratified and confirmed by the parties hereto and all the terms, conditions and
provisions thereof shall remain in full force and effect. This Supplemental
Indenture shall form a part of the Indenture for all purposes, and every holder
of Notes heretofore or hereafter authenticated and delivered shall be bound
hereby.
3
<PAGE>
6. GOVERNING LAW. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT
GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF, OTHER THAN ANY
MANDATING APPLICATION OF SUCH LAWS).
7. TRUSTEE MAKES NO REPRESENTATION. The Trustee makes no
representation as to the validity or sufficiency of this Supplemental Indenture.
8. COUNTERPARTS. The parties may sign any number of copies of this
Supplemental Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
9. EFFECT OF HEADINGS. The Section headings herein are for
convenience only and shall not effect the construction thereof.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed as of the date first above written.
LEINER HEALTH PRODUCTS GROUP INC.
by /s/ William B. Towne
-----------------------------------------
Name: William B. Towne
Title: Executive Vice President,
Chief Financial Officer
LEINER HEALTH PRODUCTS INC.
by /s/ William B. Towne
-----------------------------------------
Name: William B. Towne
Title: Executive Vice President,
Chief Financial Officer
UNITED STATES TRUST COMPANY OF
NEW YORK
by /s/ Gerard F. Ganey
-----------------------------------------
Name: Gerard F. Ganey
Title: Senior Vice President
5
<PAGE>
EXHIBIT 4.3
$85,000,000
LEINER HEALTH PRODUCTS GROUP INC.
9 5/8% Senior Subordinated Notes due 2007
which will be assigned to and assumed by
LEINER HEALTH PRODUCTS INC.
9 5/8% Senior Subordinated Notes due 2007
PURCHASE AGREEMENT
June 19, 1997
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
SALOMON BROTHERS INC
SCOTIA CAPITAL MARKETS (USA) INC.
as Representatives of the several Initial Purchasers
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
Leiner Health Products Group Inc., a Delaware corporation ("Leiner
Group"), and Leiner Health Products Inc., a Delaware corporation and a wholly
owned subsidiary of Leiner Group ("LHP", and, together with Leiner Group, the
"Issuers"), confirm their agreement with Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner& Smith Incorporated ("Merrill Lynch") and each of the other
Initial Purchasers named in Schedule A hereto (collectively, the "Initial
Purchasers", which term shall also include any initial purchaser substituted
as hereinafter provided in Section12 hereof), for whom Merrill Lynch, Salomon
Brothers Inc and Scotia Capital Markets (USA) Inc. are acting as
representatives (in such capacity, the "Representatives"), with respect to
the issue and sale by Leiner Group and the purchase by the Initial
Purchasers, acting severally and not jointly, of the respective principal
amounts set forth in said ScheduleA of $85,000,000 aggregate principal amount
of Leiner Group's Senior Subordinated Notes due 2007 (the "Securities"). The
Securities are to be issued pursuant to an indenture to be dated as of June
30, 1997 (the "Indenture") between
<PAGE>
Leiner Group and United States Trust Company of New York, as trustee (the
"Trustee"). Immediately upon consummation of the offering of the Securities,
the rights and obligations of Leiner Group in respect thereof will be assumed
(the "Assumption") by LHP pursuant to a supplemental indenture (the "First
Supplemental Indenture") between LHP and the Trustee, and LHP will become the
obligor on the Securities. Thereafter, on or before the day after the
Assumption occurs, Leiner Group will be released and discharged from all
obligations in respect of the Securities.
Securities issued in book-entry form will be issued to Cede & Co. as
nominee of The Depository Trust Company ("DTC") pursuant to a letter agreement,
to be dated as of the Closing Time (as defined in Section2(b)) (the "DTC
Agreement"), among the Issuers, the Trustee and DTC.
The Issuers understand that the Initial Purchasers propose to make an
offering of the Securities on the terms and in the manner set forth herein and
agree that the Initial Purchasers may resell, subject to the conditions set
forth herein, all or a portion of the Securities to purchasers ("Subsequent
Purchasers") at any time after the date of this Agreement. The Securities are
to be offered and sold through the Initial Purchasers without being registered
under the Securities Act of 1933, as amended (the "1933 Act"), in reliance upon
exemptions therefrom. Pursuant to the terms of the Securities and the
Indenture, investors that acquire Securities may only resell or otherwise
transfer such Securities if such Securities are hereafter registered under the
1933 Act or if an exemption from the registration requirements of the 1933 Act
is available (including the exemption afforded by Rule 144A ("Rule 144A") or
Regulation S ("Regulation S") of the rules and regulations promulgated under the
1933 Act by the Securities and Exchange Commission (the "Commission")).
Holders (including subsequent transferees) of the Securities will
have the registration rights set forth in the Registration Rights Agreement
(the "Registration Rights Agreement"), to be entered into at the Closing
Time, among the Issuers and the Initial Purchasers, for so long as such
Securities constitute "Registrable Securities" (as defined in the
Registration Rights Agreement). Pursuant to the Registration Rights
Agreement, the Issuers will agree to file with the Commission under the
circumstances set forth therein, (i) a registration statement under the 1933
Act (the "Exchange Offer Registration Statement") registering an issue of
senior subordinated notes identical in all material respects to the
Securities (the "Exchange Securities") to be offered in exchange for the
Securities (the "Exchange Offer") and (ii), under certain circumstances, a
registration statement pursuant to Rule 415 under the 1933 Act (the "Shelf
Registration Statement").
2
<PAGE>
Leiner Group has entered into a Stock Purchase Agreement and
Agreement and Plan of Merger, dated as of May 31, 1997 (the "Recapitalization
Agreement"), among Leiner Group, North Castle Partners I, L.L.C. ("North
Castle") and LHP Acquisition Corp. (the "Merger Entity"), to effect a
leveraged recapitalization of Leiner Group and related transactions.
Pursuant to the Recapitalization Agreement, the Merger Entity will be merged
(the "Merger") with and into Leiner Group, with Leiner Group continuing as
the surviving corporation. In connection with such recapitalization, Leiner
Group and a Canadian subsidiary are entering into a credit agreement (the
"New Credit Facility") with a syndicate of financial institutions and the
Bank of Nova Scotia as administrative agent, Merrill Lynch Capital
Corporation as documentation agent and Salomon Brothers Holding Company Inc
as syndication agent, which will consist of an aggregate of $125.0 million in
U.S. and Canadian revolving credit facilities and an aggregate of $85.0
million in term loan facilities. The cash sources of financing for such
recapitalization will consist of (i) a cash investment by North Castle in
equity of the recapitalized Leiner Group, (ii) the proceeds of the Securities
and (iii) certain initial borrowings under the New Credit Facility.
This Agreement, the Indenture, the First Supplemental Indenture, the
Securities, the Registration Rights Agreement and the Recapitalization
Agreement are sometimes referred to in this Agreement as the
"Recapitalization Documents." The New Credit Facility and the agreements
creating security interests in the assets of LHP, its direct parent PLI
Holdings Inc. and its subsidiaries for the benefit of the holders of
indebtedness arising under the New Credit Facility are sometimes referred to
in this Agreement as the "Bank Agreements." The Merger, the cash investment
by North Castle in equity of the recapitalized Leiner Group, and the other
transactions contemplated by the Recapitalization Agreement are sometimes
referred to herein as the "Recapitalization." The Recapitalization, the
execution and delivery of the Bank Agreements, the execution and delivery of
the Indenture and the First Supplemental Indenture, the issuance and sale of
the Securities and the other transactions contemplated thereby and by the
Recapitalization Documents are sometimes referred to herein as the
"Recapitalization Transactions."
The Issuers have prepared and delivered to each Initial Purchaser copies
of a preliminary offering memorandum dated June 9, 1997 (the "Preliminary
Offering Memorandum") and are preparing and will deliver to each Initial
Purchaser, on the day following the date hereof or the next succeeding day,
copies of a final offering memorandum to be dated June 20, 1997 (the "Final
Offering Memorandum"), each for use by such Initial Purchaser in connection
with its solicitation of purchases of, or offering of, the Securities.
"Offering Memorandum" means, with respect to any date or time referred to in
this Agreement, the most recent offering memorandum (whether
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the Preliminary Offering Memorandum or the Final Offering Memorandum, or any
amendment or supplement to either such document), including exhibits thereto and
any documents incorporated therein by reference, which has been prepared and
delivered by the Issuers to the Initial Purchasers in connection with their
solicitation of purchases of, or offering of, the Securities.
All references in this Agreement to financial statements and schedules
and other information which is "contained," "included" or "stated" in the
Offering Memorandum (or other references of like import) shall be deemed to mean
and include all such financial statements and schedules and other information
which are incorporated by reference in the Offering Memorandum
SECTION I. REPRESENTATIONS AND WARRANTIES.
A. REPRESENTATIONS AND WARRANTIES BY THE ISSUERS. Each of the
Issuers, jointly and severally, represents and warrants to each Initial
Purchaser as of the date hereof and as of the Closing Time referred to in
Section 2(b) hereof, and agrees with each Initial Purchaser as follows:
(A) SIMILAR OFFERINGS. The Issuers have not, directly or
indirectly, solicited any offer to buy or offered to sell, and will not,
directly or indirectly, solicit any offer to buy or offer to sell, in the
United States or to any United States citizen or resident, any security
which is or would be integrated with the sale of the Securities in a manner
that would require the Securities to be registered under the 1933 Act.
(B) OFFERING MEMORANDUM. The Offering Memorandum does not,
and at the Closing Time will not, include an untrue statement of a material
fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided that this representation, warranty and
agreement shall not apply to statements in or omissions from the Offering
Memorandum made in reliance upon and in conformity with information
furnished to the Issuers in writing by any Initial Purchaser through the
Representatives expressly for use in the Offering Memorandum.
(C) INDEPENDENT ACCOUNTANTS. The accountants who certified
the financial statements and supporting schedules included in the Offering
Memorandum are independent certified public accountants with respect to the
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Issuers and their respective subsidiaries within the meaning of Regulation
S-X under the 1933 Act.
(d) FINANCIAL STATEMENTS. The consolidated financial
statements, together with the related schedules and notes, included in the
Offering Memorandum present fairly in all material respects the financial
position of Leiner Group and its consolidated subsidiaries at the dates
indicated and the results of operations, stockholders' equity and cash
flows of Leiner Group and its consolidated subsidiaries for the periods
specified; said financial statements have been prepared in conformity with
generally accepted accounting principles ("GAAP") applied on a consistent
basis throughout the periods involved. The supporting schedules, if any,
included in the Offering Memorandum present fairly in all material respects
and in accordance with GAAP the information required to be stated therein.
The selected financial data and the summary financial information included
in the Offering Memorandum present fairly in all material respects the
information shown therein and have been compiled on a basis consistent with
that of the audited financial statements included in the Offering
Memorandum (except as may be otherwise stated in the Offering Memorandum).
The pro forma financial statements of Leiner Group and its subsidiaries and
the related notes thereto included in the Offering Memorandum present
fairly in all material respects the information shown therein, have been
prepared in accordance with the Commission's rules and guidelines with
respect to pro forma financial statements and have been properly compiled
on the bases described therein, and the assumptions used in the preparation
thereof are reasonable and the adjustments used therein are appropriate to
give effect to the transactions and circumstances referred to therein.
(e) NO MATERIAL ADVERSE CHANGE IN BUSINESS. Since the
respective dates as of which information is given in the Offering
Memorandum, except as otherwise stated therein, (A)there has been no
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Issuers and their
subsidiaries considered as one enterprise (a "Material Adverse Effect"),
whether or not arising in the ordinary course of business (it being
understood that the Recapitalization Transactions and the consummation
thereof shall not be deemed to involve such a change), (B)there have been
no transactions entered into by the Issuers or any of their subsidiaries,
other than those in the ordinary course of business, which are material
with respect to the Issuers and their subsidiaries considered as one
enterprise other than the Recapitalization Transactions, and (C)there has
been no dividend or distribution of
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any kind declared, paid or made by the Issuers on any class of their
respective capital stock (other than in shares of their respective capital
stock).
(f) GOOD STANDING OF THE ISSUERS. Each of the Issuers has
been duly organized and is validly existing as a corporation in good
standing under the laws of the State of Delaware and has corporate power
and authority to own, lease and operate its properties and to conduct its
business as described in the Offering Memorandum and to enter into and
perform its obligations under the Recapitalization Documents (to the extent
a party thereto); and each of the Issuers is duly qualified as a foreign
corporation to transact business and is in good standing in each other
jurisdiction in which such qualification is required, whether by reason of
the ownership or leasing of property or the conduct of business, except
where the failure so to qualify or to be in good standing would not
reasonably be expected to result in a Material Adverse Effect.
(g) GOOD STANDING OF DESIGNATED ENTITIES. Each
"significant subsidiary" (as such term is defined in Rule 1-02 of
Regulation S-X) of Leiner Group (other than LHP) and of LHP, respectively
(each a "Designated Entity" and, collectively, the "Designated Entities"),
has been duly organized and is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation, has
corporate power and authority to own, lease and operate its properties and
to conduct its business as described in the Offering Memorandum and is duly
qualified as a foreign corporation to transact business and is in good
standing in each jurisdiction in which such qualification is required,
whether by reason of the ownership or leasing of property or the conduct of
business, except where the failure so to qualify or to be in good standing
would not reasonably be expected to result in a Material Adverse Effect;
except as otherwise disclosed in the Offering Memorandum, all of the issued
and outstanding capital stock of each Designated Entity and of LHP has been
duly authorized and validly issued, is fully paid and non-assessable and is
owned by Leiner Group, directly or through subsidiaries (except for
23,018.73 shares of Class A Preferred Stock and 8,755.45 shares of Class B
Preferred Stock of Vita Health Company (1985) Ltd. ("Vita Health") held by
3074943 Canada Ltd. and 23,018.73 shares of Class A Preferred Stock and
8,755.45 shares of Class B Preferred Stock of Vita Health held by 3074951
Canada Ltd.), free and clear of any security interest, mortgage, pledge,
lien, encumbrance, claim or equity (each a "Lien"), other than Liens
securing indebtedness under the Bank Agreements or indebtedness to be
repaid in full in connection with the Recapitalization Transactions and
other than Liens imposed by operation of law; none of the outstanding
shares of capital stock of any Designated Entity or of LHP was issued in
violation of any preemptive or similar rights of any
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securityholder of such Designated Entity or LHP (as applicable) arising by
operation of law, or under the charter or by-laws of any Designated Entity
or LHP, as applicable, or under any agreement to which either of the
Issuers or any Designated Entity is a party. The subsidiaries of Leiner
Group (other than LHP) and of LHP respectively, other than Designated
Entities considered in the aggregate as a single subsidiary, do not
constitute a "significant subsidiary" as defined in Rule 1-02 of Regulation
S-X.
(h) CAPITALIZATION. The authorized, issued and outstanding
capital stock of Leiner Group prior to giving effect to the
Recapitalization Transactions is as set forth in the financial statements,
including the schedules and notes, included in the Offering Memorandum
(except for subsequent issuances, if any, pursuant to this Agreement or
otherwise disclosed in the Offering Memorandum, pursuant to employee
benefit plans referred to in the Offering Memorandum or pursuant to the
exercise of convertible securities or options referred to in the Offering
Memorandum).
(i) AUTHORIZATION OF THE RECAPITALIZATION DOCUMENTS. Each
of the Recapitalization Documents has been or, as of the Closing Time (or,
in the case of the First Supplemental Indenture, as soon as practicable
thereafter) will have been, duly authorized and validly executed and
delivered by each of the Issuers (to the extent each is a party thereto)
and will constitute a valid and binding agreement of each of the Issuers
(to the extent each is a party thereto), enforceable against each of the
Issuers (to the extent each is a party thereto) in accordance with its
terms, except as the enforcement thereof may be limited by bankruptcy,
insolvency (including, without limitation, all laws relating to fraudulent
conveyances or fraudulent transfers), reorganization, moratorium or other
similar laws relating to or affecting enforcement of creditors' rights or
remedies generally, or by general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at law), or
(as to any indemnification or contribution provision thereof) by any
applicable securities laws, rules or regulations or by public policy.
(j) AUTHORIZATION OF THE SECURITIES. The Securities have
been duly authorized and, at the Closing Time, will have been duly executed
by Leiner Group and, when authenticated in the manner provided for in the
Indenture and delivered against payment of the purchase price therefor as
provided in this Agreement will constitute valid and binding obligations of
Leiner Group, enforceable against Leiner Group in accordance with their
terms, except as the enforcement thereof may be limited by bankruptcy,
insolvency (including, without
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limitation, all laws relating to fraudulent conveyances or fraudulent
transfers) reorganization, moratorium or other similar laws relating to or
affecting enforcement of creditors' rights or remedies generally, or by
general principles of equity (regardless of whether enforcement is
considered in a proceeding in equity or at law), and will be substantially
in the form contemplated by, and entitled to the benefits of, the
Indenture. Upon execution of the First Supplemental Indenture and
assumption of the rights and obligations of Leiner Group with respect to
the Securities by LHP in accordance with the terms of the Indenture and the
First Supplemental Indenture, the Securities will constitute valid and
binding obligations of LHP, enforceable against LHP in accordance with
their terms, except as the enforcement thereof may be limited by
bankruptcy, insolvency (including, without limitation, all laws relating to
fraudulent conveyances or fraudulent transfers) reorganization, moratorium
or other similar laws relating to or affecting enforcement of creditors'
rights or remedies generally, or by general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity
or at law), and will be substantially in the form contemplated by, and
entitled to the benefits of, the First Supplemental Indenture and the
Indenture.
(k) DESCRIPTION OF THE RECAPITALIZATION DOCUMENTS. The
Recapitalization Documents will conform in all material respects to the
respective statements relating thereto contained in the Offering
Memorandum.
(l) ABSENCE OF DEFAULTS AND CONFLICTS. Neither of the
Issuers nor any of their respective subsidiaries are in violation of its
respective charter or by-laws or in default in the performance or
observance of any obligation, agreement, covenant or condition contained in
any contract, indenture, mortgage, deed of trust, loan or credit agreement,
note, lease or other agreement or instrument to which the Issuers or any of
their respective subsidiaries, as applicable, are a party or by which any
of them may be bound, or to which any of the property or assets of the
Issuers or any of their respective subsidiaries, as applicable, is subject
(collectively, "Agreements and Instruments") except for such violations and
defaults that would not reasonably be expected to result in a Material
Adverse Effect; and the execution, delivery and performance by the Issuers
of this Agreement and each of the other Recapitalization Documents to which
it is a party and any other agreement or instrument entered into or issued
or to be entered into or issued by the Issuers in connection with the
transactions contemplated hereby or thereby or in the Offering Memorandum
and the consummation of the transactions contemplated herein, therein and
in the Offering Memorandum (including the issuance and sale of the
Securities and the use of the proceeds from the sale of the Securities as
described in the Offering Memorandum under the caption "Use of
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Proceeds" and the consummation of the Recapitalization Transactions) and
compliance by each of the Issuers with their respective obligations
hereunder and thereunder have been duly authorized by all necessary
corporate action and do not and will not, whether with or without the
giving of notice or passage of time or both, conflict with or constitute a
breach of, or default or a Repayment Event (as defined below) under, or
result in the creation or imposition of any lien, charge or encumbrance
upon any property or assets of the Issuers or any of their respective
subsidiaries pursuant to, the Agreements and Instruments (except for such
conflicts, breaches or defaults or liens, charges or encumbrances that,
singly or in the aggregate, would not reasonably be expected to result in a
Material Adverse Effect and except for the Bank Agreements and for
Agreements and Instruments relating to indebtedness to be repaid in full in
connection with the Recapitalization Transactions), nor will such action
result in any violation of the provisions of the respective charter or
by-laws of each of the Issuers or any of their subsidiaries or any material
violation of any applicable law, statute, rule, regulation, judgment,
order, writ or decree of any government, government instrumentality or
court, domestic or foreign, having jurisdiction over the Issuers or any of
their subsidiaries or any of their assets or properties. As used herein, a
"Repayment Event" means any event or condition which gives the holder of
any note, debenture or other evidence of indebtedness (or any person acting
on such holder's behalf) the right to require the repurchase, redemption or
repayment of all or a portion of such indebtedness by either of the Issuers
or any of their subsidiaries.
(m) ABSENCE OF LABOR DISPUTE. No labor dispute with the
employees of the Issuers or any of their subsidiaries exists or, to the
knowledge of either of the Issuers, is imminent, and neither of the Issuers
is aware of any existing or imminent labor disturbance by the employees of
any of their or any of their subsidiaries' respective principal suppliers,
manufacturers, customers or contractors, which, in either case, may
reasonably be expected to result in a Material Adverse Effect.
(n) ABSENCE OF PROCEEDINGS. Except as disclosed in the
Offering Memorandum, there is no action, suit, proceeding, inquiry or
investigation before or by any court or governmental agency or body,
domestic or foreign, now pending, or, to the knowledge of either of the
Issuers, threatened, against or affecting either of the Issuers or any of
their subsidiaries which might reasonably be expected to result in a
Material Adverse Effect, or which might reasonably be expected to
materially and adversely affect the properties or assets of the Issuers or
any of their subsidiaries or the consummation of the transactions
contemplated in this Agreement or the Recapitalization Documents or the
Recapitalization
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Transactions or the performance by the Issuers of their respective
obligations hereunder or thereunder. The aggregate of all pending legal or
governmental proceedings to which either of the Issuers or any of their
subsidiaries is a party or of which any of their respective property or
assets is the subject which are not described in the Offering Memorandum,
including ordinary routine litigation incidental to the business, could not
reasonably be expected to result in a Material Adverse Effect.
(o) POSSESSION OF INTELLECTUAL PROPERTY. Each of the
Issuers and their respective subsidiaries own or possess, or can acquire on
reasonable terms, adequate patents, patent rights, licenses, inventions,
copyrights, know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or
procedures), trademarks, service marks, trade names or other intellectual
property (collectively, "Intellectual Property") necessary to carry on the
business now operated by them except where the failure to so own, possess
or acquire, singly or in the aggregate, would not reasonably be expected to
result in a Material Adverse Effect, and neither of the Issuers nor any of
their subsidiaries have received any notice or are otherwise aware of any
infringement of or conflict with asserted rights of others with respect to
any Intellectual Property or of any facts or circumstances which would
render any Intellectual Property invalid or inadequate to protect the
interest of the Issuers or any of their subsidiaries therein, and which
infringement or conflict or invalidity or inadequacy, singly or in the
aggregate, would reasonably be expected to result in a Material Adverse
Effect.
(p) ABSENCE OF FURTHER REQUIREMENTS. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or agency
is necessary or required for the performance by each of the Issuers of
their respective obligations hereunder, in connection with the offering,
issuance or sale of the Securities hereunder or the consummation of the
transactions contemplated by the Recapitalization Documents or the
Recapitalization Transactions and performance by each of the Issuers of
their respective obligations thereunder, except for such as have been made
or obtained, or as may be required under federal, state or foreign
securities laws, or as disclosed in the Offering Memorandum.
(q) POSSESSION OF LICENSES AND PERMITS. Each of the
Issuers and their respective subsidiaries possess such permits, licenses,
approvals, consents and other authorizations (collectively, "Governmental
Licenses") issued by the appropriate federal, foreign, state, provincial or
local regulatory agencies or bodies
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necessary to conduct the business now operated by them, except for such
Governmental Licenses the failure of which to possess would not reasonably
be expected to have a Material Adverse Effect; each of the Issuers and
their respective subsidiaries are in compliance with the terms and
conditions of all such Governmental Licenses, except where the failure so
to comply would not, singly or in the aggregate, reasonably be expected to
have a Material Adverse Effect; all of the Governmental Licenses are valid
and in full force and effect, except when the invalidity of such
Governmental Licenses or the failure of such Governmental Licenses to be in
full force and effect would not reasonably be expected to have a Material
Adverse Effect; and neither of the Issuers nor any of their subsidiaries
have received any notice of judicial or administrative proceedings relating
to the revocation or modification of any such Governmental Licenses which,
singly or in the aggregate would reasonably be expected to result in a
Material Adverse Effect.
(r) TITLE TO PROPERTY. Each of the Issuers and their
subsidiaries have good and marketable title to all real property owned by
them (other than the owned real property located in Kalamazoo, Michigan)
and good title to all other properties owned by them that are material to
their business, in each case, free and clear of all mortgages, pledges,
liens, security interests, claims, restrictions or encumbrances of any kind
except (a) such as arise under any Bank Agreement, or under any Agreement
or Instrument relating to indebtedness to be repaid in full in connection
with the Recapitalization Transactions, (b) such as are described in the
Offering Memorandum or (c) such as do not, singly or in the aggregate,
materially affect the value of such property and do not interfere with the
use made and proposed to be made of such property by the Issuers or any of
their subsidiaries; and all of the leases and subleases material to the
business of the Issuers and their subsidiaries, considered as one
enterprise, and under which either of the Issuers or any of their
subsidiaries hold properties described in the Offering Memorandum, are in
full force and effect, and neither of the Issuers nor any of their
subsidiaries have received any notice of any material claim of any sort
that has been asserted by anyone adverse to the rights of the Issuers or
any of their subsidiaries under any of the leases or subleases mentioned
above, or affecting or questioning the rights of the Issuers or any of
their subsidiaries to the continued possession of the leased or subleased
premises under any such lease or sublease.
(s) TAX RETURNS. Each of the Issuers and their
subsidiaries have filed all federal, foreign, state, provincial or local
tax returns that are required to be filed by them pursuant to applicable
law except insofar as the failure to file such returns would not reasonably
be expected to result in a Material Adverse Effect, or have duly requested
extensions thereof, and have paid all taxes required to be paid
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by any of them and any related assessments, fines or penalties due pursuant
to such returns or any assessments that have been received by them, except
for any such tax, assessment, fine or penalty that is being contested in
good faith and by appropriate proceedings and except where the failure so
to pay, singly or in the aggregate, would not reasonably be expected to
have a Material Adverse Effect; and adequate charges, accruals and reserves
have been provided for in the financial statements referred to in Section
1(a)(iv) above in respect of all federal, foreign, state, provincial or
local taxes for all periods as to which the tax liability of the Issuers or
any of their subsidiaries has not been finally determined or remains open
to examination by applicable taxing authorities, except to the extent of
any inadequacy that would not result in a Material Adverse Effect.
(t) ENVIRONMENTAL LAWS. Except as described in the
Offering Memorandum and except as would not, singly or in the aggregate,
reasonably be expected to result in a Material Adverse Effect, (A) neither
of the Issuers nor any of their subsidiaries is in violation of any
federal, foreign, state, provincial or local statute, law, rule,
regulation, ordinance, code, policy or rule of common law or any legally
enforceable judicial or administrative interpretation thereof, including
any applicable judicial or administrative order, consent, decree or
judgment, relating to pollution or protection of human health, the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or wildlife, including,
without limitation, laws and regulations relating to the release or
threatened release of chemicals, pollutants, contaminants, wastes, toxic
substances, hazardous substances, petroleum or petroleum products
(collectively, "Hazardous Materials") or to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials (collectively, "Environmental Laws"), (B) each of the
Issuers and their subsidiaries have all permits, authorizations and
approvals required under any applicable Environmental Laws and are each in
compliance with their requirements, (C) there are no pending or, to the
knowledge of the Issuers, threatened administrative, regulatory or judicial
actions, suits, demands, demand letters, claims, liens, notices of
noncompliance or violation, investigation or proceedings relating to any
Environmental Law against either of the Issuers or any of their
subsidiaries and (D) to the knowledge of the Issuers after reasonable
inquiry, there are no events or circumstances that might reasonably be
expected to form the basis of an order for clean-up or remediation, or an
action, suit or proceeding by any private party or governmental body or
agency, against or affecting either of the Issuers or any of their
subsidiaries relating to Hazardous Materials or Environmental Laws.
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(u) INTERNAL ACCOUNTING CONTROLS. The Issuers and their
subsidiaries maintain a system of internal accounting controls sufficient
to provide reasonable assurances that (A) transactions are executed in
accordance with management's general or specific authorization, (B)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain accountability for
assets, (C) access to assets is permitted only in accordance with
management's general or specific authorization and (D) the recorded
accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(v) INVESTMENT COMPANY ACT. Each of the Issuers is not,
and upon the issuance and sale of the Securities as herein contemplated and
the application of the net proceeds therefrom as described in the Offering
Memorandum and the consummation of the Recapitalization Transactions will
not be, an "investment company" or an entity "controlled" by an entity
required to be registered as an "investment company" under the Investment
Company Act of 1940, as amended (the "1940 Act"), as such terms are defined
in the 1940 Act.
(w) RULE 144A ELIGIBILITY. The Securities are eligible for
resale pursuant to Rule 144A and will not be, at the Closing Time, of the
same class as securities listed on a national securities exchange
registered under Section 6 of the 1934 Act, or quoted in a U.S. automated
interdealer quotation system.
(x) NO GENERAL SOLICITATION. None of the Issuers, their
affiliates, as such term is defined in Rule 501(b) under the 1933 Act
("Affiliates"), or any person acting on behalf of the Issuers or any of
their Affiliates (other than any of the Initial Purchasers and their
affiliates, agents and representatives, as to whom the Issuers make no
representation) has engaged or will engage, in connection with the offering
of the Securities, in any form of general solicitation or general
advertising within the meaning of Rule 502(c) under the 1933 Act.
(y) NO REGISTRATION REQUIRED. Subject to compliance by the
Initial Purchasers with the representations and warranties set forth in
Section 2 and the procedures set forth in Section 7 hereof, it is not
necessary in connection with the offer, sale and delivery of the Securities
to the Initial Purchasers and to each Subsequent Purchaser in the manner
contemplated by this Agreement and the Offering Memorandum to register the
Securities under the 1933 Act or to qualify the Indenture under the Trust
Indenture Act of 1939, as amended (the "1939 Act").
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(z) NO DIRECTED SELLING EFFORTS. With respect to those
Securities sold in reliance on Regulation S, (A) none of the Issuers, their
Affiliates or any person acting on behalf of the Issuers or any of their
Affiliates (other than any of the Initial Purchasers and their affiliates,
agents and representatives, as to whom the Issuers make no representation)
has engaged or will engage in any directed selling efforts within the
meaning of Regulation S and (B) each of the Issuers, their Affiliates and
any person acting on behalf of the Issuers or any of their Affiliates
(other than any of the Initial Purchasers and their affiliates, agents and
representatives, as to whom the Issuers make no representation) has
complied and will comply with the offering restrictions requirement of
Regulation S.
(aa) INSURANCE. Each of the Issuers and its subsidiaries
maintains insurance covering its properties, operations, personnel and
businesses, including without limitation product liability insurance. Such
insurance insures against such losses and risks as is generally maintained
by companies engaged in the same business. Neither of the Issuers nor any
of their subsidiaries has received notice from any insurer or agent of such
insurer that substantial capital improvements or other material
expenditures will have to be made in order to continue such insurance. All
such insurance is outstanding and duly in force on the date hereof and will
be outstanding and duly in force at the Closing Time.
(bb) SOLVENCY. After giving effect to the Recapitalization
Transactions, with respect to each of the Issuers on a consolidated basis,
(i) the present fair saleable value of its assets shall be more than the
amount that will be required to pay its debts (including contingent and
unliquidated debts) as they become absolute and mature, (ii) its assets, at
a fair valuation, shall be greater than the sum of its debts (including
contingent and unliquidated debts), (iii) it shall not be engaged in a
business or transaction for which its remaining assets are unreasonably
small in relation to such business or transaction, and (iv) it shall not
intend to incur or believe that it will incur debts beyond its ability to
pay as such debts become absolute and mature.
(cc) RECAPITALIZATION AGREEMENT. The Issuers have delivered
to the Initial Purchasers complete and correct copies of the
Recapitalization Agreement and there have been no amendments, alterations,
modification or waivers thereto or in the exhibits or schedules thereto
that have not been provided or otherwise disclosed to the Initial
Purchasers.
B. OFFICER'S CERTIFICATES. Any certificate signed by any officer of
either of the Issuers or any of their subsidiaries delivered to the
Representatives or to counsel for
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the Initial Purchasers shall be deemed a representation and warranty, jointly
and severally, by each of the Issuers to each Initial Purchaser as to the
matters covered thereby.
SECTION II. SALE AND DELIVERY TO INITIAL PURCHASERS; CLOSING.
A. SECURITIES. On the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth,
Leiner Group agrees to sell to each Initial Purchaser, severally and not
jointly, and each Initial Purchaser, severally and not jointly, agrees to
purchase from Leiner Group, at the price set forth in Schedule B, the aggregate
principal amount of Securities set forth in Schedule A opposite the name of such
Initial Purchaser, plus any additional principal amount of Securities which such
Initial Purchaser may become obligated to purchase pursuant to the provisions of
Section 12 hereof.
B. PAYMENT. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the office of
Debevoise & Plimpton, 875 Third Avenue, New York, New York, or at such other
place as shall be agreed upon by the Representatives and the Issuers, at
9:00A.M. on June 30, 1997 (unless postponed in accordance with the provisions of
Section12), or such other time not later than ten business days after such date
as shall be agreed upon by the Representatives and the Issuers (such time and
date of payment and delivery being herein called the "Closing Time").
Payment shall be made to Leiner Group by wire transfer of immediately
available funds to a bank account designated by Leiner Group, against delivery
to the Representatives for the respective accounts of the Initial Purchasers of
certificates for the Securities to be purchased by them. It is understood that
each Initial Purchaser has authorized the Representatives, for its account, to
accept delivery of, receipt for, and make payment of the purchase price for, the
Securities which it has agreed to purchase. Merrill Lynch, individually and not
as representative of the Initial Purchasers, may (but shall not be obligated to)
make payment of the purchase price for the Securities to be purchased by any
Initial Purchaser whose funds have not been received by the Closing Time, but
such payment shall not relieve such Initial Purchaser from its obligations
hereunder. The certificates representing the Securities shall be registered in
such names and for such amounts as requested by Merrill Lynch at least two
business days prior to the Closing Time and shall be made available for
examination and packaging by the Initial Purchasers in The City of New York not
later than 10:00 A.M. on the last business day prior to the Closing Time.
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C. QUALIFIED INSTITUTIONAL BUYER. Each Initial Purchaser severally
and not jointly represents and warrants to, and agrees with, the Issuers that it
is a "qualified institutional buyer" within the meaning of Rule 144A under the
1933 Act (a "Qualified Institutional Buyer") and an "accredited investor" within
the meaning of Rule 501(a) under the 1933 Act (an "Accredited Investor").
D. DENOMINATIONS; REGISTRATION. Certificates for the Securities
shall be in such denominations ($1,000 or integral multiples thereof) and
registered in such names as the Representatives may request in writing at least
one full business day before the Closing Time.
SECTION III. COVENANTS OF THE ISSUERS. Each of the Issuers, jointly
and severally, covenants with each Initial Purchaser as follows:
A. OFFERING MEMORANDUM. The Issuers have furnished to each Initial
Purchaser, without charge, such number of copies of the Preliminary Offering
Memorandum as such Initial Purchaser reasonably requested, and as promptly as
possible will furnish to each Initial Purchaser, without charge, such number of
copies of the Final Offering Memorandum and any amendments and supplements
thereto and documents incorporated by reference therein as such Initial
Purchaser may reasonably request.
B. NOTICE AND EFFECT OF MATERIAL EVENTS. The Issuers will
immediately notify each Initial Purchaser, and, if requested by the Initial
Purchasers, confirm such notice in writing, of (x)any filing made by the Issuers
of information relating to the offering of the Securities with any securities
exchange or any other regulatory body in the United States or any other
jurisdiction, and (y)prior to the completion of the placement of the Securities
by the Initial Purchasers as evidenced by a notice in writing from the Initial
Purchasers to the Issuers, any material changes in or affecting the earnings,
business affairs or business prospects of either of the Issuers and any of their
subsidiaries which (i)make any statement in the Offering Memorandum false or
misleading or (ii)are not disclosed in the Offering Memorandum. In such event
or if during such time any event shall occur as a result of which it is
necessary, in the reasonable opinion of the Issuers, their counsel, the Initial
Purchasers or counsel for the Initial Purchasers, to amend or supplement the
Final Offering Memorandum in order that the Final Offering Memorandum not
include any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein not misleading in the light of
the circumstances then existing, the Issuers will forthwith amend or supplement
the Final Offering Memorandum by preparing and furnishing to each Initial
Purchaser an amendment or amendments of, or a supplement or supple-
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ments to, the Final Offering Memorandum (in form and substance satisfactory in
the reasonable opinion of counsel for the Initial Purchasers) so that, as so
amended or supplemented, the Final Offering Memorandum will not include an
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in the light of the circumstances
existing at the time it is delivered to a Subsequent Purchaser, not misleading.
C. AMENDMENT TO OFFERING MEMORANDUM AND SUPPLEMENTS. The Issuers
will advise each Initial Purchaser promptly of any proposal to amend or
supplement the Offering Memorandum and will not effect such amendment or
supplement without the consent of the Initial Purchasers (which consent shall
not be unreasonably withheld). Neither the consent of the Initial Purchasers,
nor the Initial Purchasers' delivery of any such amendment or supplement, shall
constitute a waiver of any of the conditions set forth in Section 5 hereof.
D. QUALIFICATION OF SECURITIES FOR OFFER AND SALE. The Issuers will
use their best efforts, in cooperation with the Initial Purchasers, to qualify
the Securities for offering and sale under the applicable state securities laws
of such jurisdictions as the Representatives may reasonably designate and will
maintain such qualifications in effect as long as reasonably required for the
sale of the Securities by the Initial Purchasers; provided, however, that the
Issuers shall not be obligated to file any general consent to service of
process, to qualify as a foreign corporation or as a dealer in securities in any
jurisdiction in which they are not so qualified, or to subject themselves to
taxation in respect of doing business in any jurisdiction in which they are not
otherwise so subject.
E. RATING OF SECURITIES. The Issuers shall take all reasonable
action necessary to enable Standard & Poor's Ratings Group, a division of McGraw
Hill, Inc. ("S&P"), and Moody's Investors Service, Inc. ("Moody's") to provide
their respective credit ratings of the Securities.
F. DTC. The Issuers will cooperate with the Representatives and use
their best efforts to permit the Securities to be eligible for clearance and
settlement through the facilities of DTC.
G. USE OF PROCEEDS. The Issuers will use the net proceeds received
from the sale of the Securities in the manner specified in the Offering
Memorandum under "Use of Proceeds".
H. RESTRICTION ON SALE OF SECURITIES. During a period of 180 days
from the date of the Offering Memorandum, each of the Issuers will not, without
the prior
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written consent of Merrill Lynch, directly or indirectly, issue, sell, offer or
agree to sell, grant any option for the sale of, or otherwise dispose of, any
other debt securities of either of the Issuers or PLI Holdings Inc. or
securities of either of the Issuers or PLI Holdings Inc. that are convertible
into, or exchangeable for, the Securities or such other debt securities, other
than the Securities, the Exchange Securities and any indebtedness under the Bank
Agreements or any working capital facilities or receivables financing permitted
by the Bank Agreements.
SECTION IV. PAYMENT OF EXPENSES.
A. EXPENSES. The Issuers will pay all expenses incident to the
performance of their obligations under this Agreement, including (i)the
preparation, printing and any filing of the Offering Memorandum (including
financial statements and any schedules or exhibits and any document incorporated
therein by reference) and of each amendment or supplement thereto, (ii)the
preparation, printing and delivery to the Initial Purchasers of this Agreement,
any Agreement among Initial Purchasers, the Indenture, the First Supplemental
Indenture and such other documents as may be required in connection with the
offering, purchase, sale and delivery of the Securities, (iii)the preparation,
issuance and delivery of the certificates for the Securities to the Initial
Purchasers, including any charges of DTC in connection therewith; (iv)the fees
and disbursements of the Issuers' counsel, accountants and other advisors,
(v)the qualification of the Securities under securities laws in accordance with
the provisions of Section3(d) hereof, including filing fees and the reasonable
fees and disbursements of counsel for the Initial Purchasers in connection
therewith and in connection with the preparation of the Blue Sky Survey, any
supplement thereto, (vi)the fees and expenses of the Trustee, including the
reasonable fees and disbursements of counsel for the Trustee in connection with
the Indenture, the First Supplemental Indenture and the Securities, (vii) any
fees payable in connection with the rating of the Securities, and (viii)any
fees payable to the review by the National Association of Securities Dealers,
Inc. (the "NASD") in connection with the initial and continued designation of
the Securities as PORTAL securities under the PORTAL Market Rules pursuant to
NASD Rule 5322.
B. TERMINATION OF AGREEMENT. If this Agreement is terminated by the
Representatives in accordance with the provisions of Section5 or Section11(a)(i)
hereof or by the Issuers in accordance with Section 6 hereof, the Issuers shall
reimburse the Initial Purchasers for all of their out-of-pocket expenses,
including the reasonable fees and disbursements of counsel for the Initial
Purchasers.
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SECTION V. CONDITIONS OF INITIAL PURCHASERS' OBLIGATIONS. The
obligations of the several Initial Purchasers hereunder are subject to the
accuracy of the representations and warranties of the Issuers contained in
Section 1 hereof or in certificates of any officer of either of the Issuers or
any of their subsidiaries delivered pursuant to the provisions hereof, to the
performance by each of the Issuers of their covenants and other obligations
hereunder, and to the following further conditions:
A. OPINION OF SPECIAL COUNSEL FOR ISSUERS. At the Closing Time, the
Representatives shall have received the favorable opinion, dated as of the
Closing Time, of Debevoise & Plimpton, counsel for the Issuers, in form and
substance reasonably satisfactory to counsel for the Initial Purchasers,
together with signed or reproduced copies of such letter for each of the other
Initial Purchasers substantially to the effect set forth in Exhibit A hereto and
to such further effect as counsel to the Initial Purchasers may reasonably
request.
B. OPINION OF SPECIAL MANITOBA COUNSEL FOR ISSUERS. At the Closing
Time, the Representatives shall have received the favorable opinion, dated as of
the Closing Time, of Pitblado & Hoskin, special Manitoba counsel for the
Issuers, or such other counsel reasonably satisfactory to the Initial
Purchasers, in form and substance reasonably satisfactory to counsel for the
Initial Purchasers, together with signed or reproduced copies of such letter for
each of the other Initial Purchasers, addressing the matters set forth in
Exhibit B hereto and to such further effect as counsel to the Initial Purchasers
may reasonably request.
C. OPINION OF U.S. REGULATORY COUNSEL FOR ISSUERS. At the Closing
Time, the Representatives shall have received the favorable opinion, dated as of
the Closing Time, of Covington & Burling, U.S. regulatory counsel for the
Issuers, in form and substance reasonably satisfactory to counsel for the
Initial Purchasers, together with signed or reproduced copies of such letter for
each of the other Initial Purchasers substantially to the effect set forth in
Exhibit C hereto and to such further effect as counsel to the Initial Purchasers
may reasonably request.
D. OPINION OF CANADIAN SPECIAL COUNSEL FOR ISSUERS. At the Closing
Time, the Representatives shall have received the favorable opinion, dated as of
the Closing Time, of Blake, Cassels & Graydon, Canadian special counsel for the
Issuers, in form and substance reasonably satisfactory to counsel for the
Initial Purchasers, together with signed or reproduced copies of such letter for
each of the other Initial Purchasers substantially to the effect set forth in
Exhibit D hereto and to such further effect as counsel to the Initial Purchasers
may reasonably request.
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E. OPINION OF COUNSEL FOR INITIAL PURCHASERS. At the Closing Time,
the Representatives shall have received the favorable opinion, dated as of the
Closing Time, of Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the
Initial Purchasers, together with signed or reproduced copies of such letter for
each of the other Initial Purchasers with respect to certain matters requested
by the Initial Purchasers. In giving such opinion such counsel may rely, as to
all matters governed by the laws of jurisdictions other than the law of the
State of New York and the federal law of the United States and the General
Corporation Law of the State of Delaware, upon the opinions of counsel
satisfactory to the Representatives. Such counsel may also state that, insofar
as such opinion involves factual matters, they have relied, to the extent they
deem proper, upon certificates of officers of the Issuers and their
subsidiaries and certificates of public officials.
F. OFFICERS' CERTIFICATE. At the Closing Time, there shall not have
been, since the date hereof or since the respective dates as of which
information is given in the Offering Memorandum, any material adverse change in
the condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Issuers and their subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business (it being
understood that the Recapitalization Transactions and the consummation thereof
shall not be deemed to involve such a change), and the Representatives shall
have received a certificate of the President or a Vice President of each of the
Issuers and of the chief financial or chief accounting officer of each of the
Issuers dated as of the Closing Time, to the effect that (i)there has been no
such material adverse change, (ii)the representations and warranties in Section1
hereof are true and correct with the same force and effect as though expressly
made at and as of the Closing Time, and (iii)the relevant Issuer has complied
with all agreements and satisfied all conditions on its part to be performed or
satisfied at or prior to the Closing Time.
G. ACCOUNTANT'S COMFORT LETTER. At the time of the execution of
this Agreement, the Representatives shall have received from Ernst & Young LLP a
letter dated such date, in form and substance reasonably satisfactory to the
Representatives, together with signed or reproduced copies of such letter for
each of the other Initial Purchasers containing statements and information of
the type ordinarily included in accountants' "comfort letters" to Initial
Purchasers with respect to the financial statements and certain financial
information contained in the Offering Memorandum.
H. BRING-DOWN COMFORT LETTER. At the Closing Time, the
Representatives shall have received from Ernst & Young LLP a letter, dated as of
the Closing Time, to the effect that they reaffirm the statements made in the
letter furnished pursuant to
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subsection(g) of this Section, except that the specified date referred to shall
be a date not more than three business days prior to the Closing Time.
I. SOLVENCY OPINION. The Representatives shall have received a
solvency opinion from Houlihan Lokey Howard & Zukin in form and substance
reasonably satisfactory to the Initial Purchasers.
J. MAINTENANCE OF RATING. At the Closing Time, the Securities shall
be rated at least B- by Moody's Investor's Service Inc. and B3 by Standard &
Poor's Corporation, and the Issuers shall have delivered to the Representatives
a letter dated the Closing Time, from each such rating agency, or other evidence
reasonably satisfactory to the Representatives, confirming that the Securities
have such ratings; and since the date of this Agreement, there shall not have
occurred a downgrading in the rating assigned to the Securities by any
nationally recognized securities rating agency, and no such securities rating
agency shall have publicly announced that it has under surveillance or review,
with possible negative implications, its rating of the Securities.
K. PORTAL. At the Closing Time, the Securities shall have been
designated for trading on PORTAL.
L. ADDITIONAL DOCUMENTS. At the Closing Time, counsel for the
Initial Purchasers shall have been furnished with such documents and opinions as
they may reasonably require for the purpose of enabling them to pass upon the
issuance and sale of the Securities as herein contemplated, or in order to
evidence the accuracy of any of the representations or warranties, or the
fulfillment of any of the conditions, herein contained; and all proceedings
taken by either of the Issuers in connection with the issuance and sale of the
Securities as herein contemplated shall be reasonably satisfactory in form and
substance to the Representatives and counsel for the Initial Purchasers.
M. CONSUMMATION OF RECAPITALIZATION. On or prior to the Closing Time,
(i)(A) the Recapitalization shall have been consummated and (B) Leiner Group
shall have entered into the Bank Agreements and all conditions precedent to the
effectiveness thereof shall have been satisfied or waived, (ii) such
transactions described in the foregoing clause (i) shall continue to be in full
force and effect in accordance with the terms thereof, and (iii) the Issuers
shall have provided to each of the Initial Purchasers and counsel to the Initial
Purchasers copies of all material closing documents delivered to the parties
relating to the Merger and the Bank Agreements (including but not limited to
legal opinions relating thereto).
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N. RECEIPT OF COPIES OF OPINIONS. The Initial Purchasers shall have
been furnished with a copy of the opinions delivered on behalf of North Castle
and the Issuers, as applicable, in connection with the Recapitalization and the
New Credit Facility, which opinions shall expressly state, or be accompanied by
letters expressly stating, that the Initial Purchasers are entitled to rely upon
the opinions therein.
O. REGISTRATION RIGHTS AGREEMENT. The Issuers and the Initial
Purchasers shall have entered into a Registration Rights Agreement, dated as of
the Closing Time, substantially in form and substance as described in the
Offering Memorandum under the heading "Exchange Offer; Registration Rights."
P. TERMINATION OF AGREEMENT. If any condition specified in this
Section shall not have been fulfilled when and as required to be fulfilled, this
Agreement may be terminated by the Representatives by notice to the Issuers at
any time at or prior to the Closing Time, and such termination shall be without
liability of any party to any other party except as provided in Section 4 and
except that Sections 1, 8 and 9 shall survive any such termination and remain in
full force and effect.
SECTION VI. CONDITIONS OF ISSUERS' OBLIGATIONS. The obligations of
the Issuers are subject to the following condition:
A. CONSUMMATION OF RECAPITALIZATION. On or prior to the Closing Time, the
Recapitalization shall have been consummated. If this condition shall not have
been fulfilled when and as required to be fulfilled, this Agreement may be
terminated by the Issuers by notice to the Representatives at any time at or
prior to the Closing Time. In addition, the Issuers shall be entitled to
terminate this Agreement at any time at or prior to the Closing Time in the
event the Recapitalization Agreement has been terminated in accordance with its
terms. Any such termination pursuant to this Section 6(a) shall be without
liability of any party to any other party except as provided in Section 4 and
except that Sections 1, 8 and 9 shall survive any such termination and remain in
full force and effect.
SECTION VII. SUBSEQUENT OFFERS AND RESALES OF THE SECURITIES.
A. OFFER AND SALE PROCEDURES. Each of the Initial Purchasers and
the Issuers hereby establish and agree to observe the following procedures in
connection with the offer and sale of the Securities:
(a) OFFERS AND SALES ONLY TO INSTITUTIONAL ACCREDITED
INVESTORS OR QUALIFIED INSTITUTIONAL BUYERS. Offers and sales of the
Securities will be made only
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by the Initial Purchasers or Affiliates thereof qualified to do so in the
jurisdictions in which such offers or sales are made. Each such offer or
sale shall only be made (A) to persons whom the offeror or seller
reasonably believes to be qualified institutional buyers (as defined in
Rule 144A under the Securities Act), (B) to a limited number of other
institutional accredited investors (as such term is defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D) that the offeror or seller
reasonably believes to be and, with respect to sales and deliveries, that
are Accredited Investors ("Institutional Accredited Investors") or (C) to
non-U.S. persons outside the United States to whom the offeror or seller
reasonably believes offers and sales of the Securities may be made in
reliance upon Regulation S under the 1933 Act.
(b) NO GENERAL SOLICITATION. The Securities will be
offered by approaching prospective Subsequent Purchasers on an individual
basis. No general solicitation or general advertising (within the meaning
of Rule 502(c) under the 1933 Act) will be used in the United States in
connection with the offering of the Securities.
(c) PURCHASES BY NON-BANK FIDUCIARIES. In the case of a
non-bank Subsequent Purchaser of a Security acting as a fiduciary for one
or more third parties, in connection with an offer and sale to such
purchaser pursuant to clause (a) above, each third party shall, in the
judgment of the applicable Initial Purchaser, be an Institutional
Accredited Investor or a Qualified Institutional Buyer or a non-U.S. person
outside the United States.
(d) SUBSEQUENT PURCHASER NOTIFICATION. Each Initial
Purchaser will take reasonable steps to inform, and cause each of its
affiliates to take reasonable steps to inform, persons acquiring Securities
from such Initial Purchaser or affiliate, as the case may be, in the United
States that the Securities (A) have not been and will not be registered
under the 1933 Act, (B) are being sold to them without registration under
the 1933 Act in reliance on Rule 144A or in accordance with another
exemption from registration under the 1933 Act, as the case may be, and (C)
may not be offered, sold or otherwise transferred except (1) to the
Issuers, (2) outside the United States in accordance with Rule 904 of
Regulation S, or (3) inside the United States in accordance with (x) Rule
144A to a person whom the seller reasonably believes is a Qualified
Institutional Buyer that is purchasing such Securities for its own account
or for the account of a Qualified Institutional Buyer to whom notice is
given that the offer, sale or transfer is being made in reliance on Rule
144A or (y) the exemption from registration under the 1933 Act provided by
Rule 144, if available.
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(e) MINIMUM PRINCIPAL AMOUNT. No sale of the Securities to
any one Subsequent Purchaser will be for less than U.S. $150,000 principal
amount and no Security will be issued in a smaller principal amount. If
the Subsequent Purchaser is a non-bank fiduciary acting on behalf of
others, each person for whom it is acting must purchase at least U.S.
$150,000 principal amount of the Securities.
(f) RESTRICTIONS ON TRANSFER. The transfer restrictions
and the other provisions set forth in Article Two of the Indenture,
including the legend required thereby, shall apply to the Securities except
as otherwise agreed by the Issuers and the Initial Purchasers. Following
the sale of the Securities by the Initial Purchasers to Subsequent
Purchasers pursuant to the terms hereof, the Initial Purchasers shall not
be liable or responsible to the Issuers for any losses, damages or
liabilities suffered or incurred by the Issuers, including any losses,
damages or liabilities under the 1933 Act, arising from or relating to any
subsequent resale or transfer of any Security by persons other than the
Initial Purchasers.
(g) DELIVERY OF OFFERING MEMORANDUM. Prior to or
simultaneously with any confirmation of sale to any Subsequent Purchaser,
each Initial Purchaser will deliver to each purchaser of the Securities
from such Initial Purchaser, in connection with its original distribution
of the Securities, a copy of the Offering Memorandum, as amended and
supplemented at the date of such delivery.
B. COVENANTS OF THE ISSUERS. Each of the Issuers, jointly and
severally, covenants with each Initial Purchaser as follows:
(i) DUE DILIGENCE. In connection with the original
distribution of the Securities, the Issuers agree that, prior to any offer
or resale of the Securities by the Initial Purchasers, the Initial
Purchasers and counsel for the Initial Purchasers shall have the right to
make reasonable inquiries into the business of the Issuers and their
subsidiaries. The Issuers also agree to provide answers to each
prospective Subsequent Purchaser of Securities who reasonably requests
historical information concerning the Issuers and their subsidiaries (to
the extent that such information is available or can be acquired and made
available to prospective Subsequent Purchasers without unreasonable effort
or expense and to the extent the provision thereof is not prohibited by
applicable law) and the terms and conditions of the offering of the
Securities, as and to the extent provided in the Offering Memorandum.
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(ii) INTEGRATION. Each of the Issuers agrees that it will
not and will cause its Affiliates not to make any offer or sale of
securities of the Issuers of any class if, as a result of the doctrine of
"integration" referred to in Rule 502 under the 1933 Act, such offer or
sale would render invalid (for the purpose of (i)the sale of the Securities
by Leiner Group to the Initial Purchasers, (ii)the resale of the Securities
by the Initial Purchasers to Subsequent Purchasers or (iii)the resale of
the Securities by such Subsequent Purchasers to others) the exemption from
the registration requirements of the 1933 Act provided by Section 4(2)
thereof or by Rule 144A or by Regulation S thereunder or otherwise.
(iii) RULE 144A INFORMATION. The Issuers agree that, in
order to render the Securities eligible for resale pursuant to Rule 144A
under the 1933 Act, while any of the Securities remain outstanding, they
will make available, upon reasonable request, to any holder of Securities
or prospective purchasers of Securities the information specified in Rule
144A(d)(4), unless the Issuers furnish information to the Commission
pursuant to Section 13 or 15(d) of the 1934 Act (such information, whether
made available to holders or prospective purchasers or furnished to the
Commission, is herein referred to as "Additional Information").
(iv) RESTRICTION ON REPURCHASES. Until the expiration of
two years after the original issuance of the Securities, each of the
Issuers will not, and will cause their Affiliates not to, purchase or agree
to purchase or otherwise acquire any Securities which are "restricted
securities" (as such term is defined under Rule 144(a)(3) under the 1933
Act), whether as beneficial owner or otherwise (except as agent acting as a
securities broker on behalf of and for the account of customers in the
ordinary course of business in unsolicited broker's transactions) unless,
immediately upon any such purchase, the Issuers or any Affiliate shall
submit such Securities to the Trustee for cancellation.
C. RESALE PURSUANT TO RULE 903 OF REGULATION S OR RULE 144A. Each
Initial Purchaser understands that the Securities have not been and will not be
registered under the 1933 Act and may not be offered or sold within the United
States or to, or for the account or benefit of, U.S. persons except in
accordance with Regulation S under the 1933 Act or pursuant to an exemption from
the registration requirements of the 1933 Act. Each Initial Purchaser
represents and agrees, that, except as permitted by Section 7(a) above, it has
offered and sold Securities and will offer and sell Securities (i) as part of
their distribution at any time and (ii) otherwise until forty days after the
later of the date upon which the offering of the Securities commences and the
Closing Time, only in accordance with Rule 903 of Regulation S or Rule 144A
under the 1933 Act. Accordingly, neither the Initial Purchasers, their
affiliates nor any persons acting on their behalf have engaged or will engage in
any directed selling efforts with respect to Securities, and the Initial
Purchasers, their affiliates and any person acting on
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their behalf have complied and will comply with the offering restriction
requirements of Regulation S. Each Initial Purchaser agrees that, at or prior
to confirmation of a sale of Securities (other than a sale of Securities
pursuant to Rule 144A), it will have sent to each distributor, dealer or person
receiving a selling concession, fee or other remuneration that purchases
Securities from it or through it during the restricted period a confirmation or
notice to substantially the following effect:
"The Securities covered hereby have not been registered
under the United States Securities Act of 1933 (the
"Securities Act") and may not be offered or sold within the
United States or to or for the account or benefit of U.S.
persons (i) as part of their distribution at any time and
(ii) otherwise until forty days after the later of the date
upon which the offering of the Securities commenced and the
date of closing, except in either case in accordance with
Regulation S or Rule 144A under the Securities Act. Terms
used above have the meaning given to them by Regulation S."
Terms used in the above paragraph have the meanings given to them by Regulation
S.
Each Initial Purchaser severally represents and agrees that it has not entered
and will not enter into any contractual arrangements with respect to the
distribution of the Securities, except with its affiliates or with the prior
written consent of the Issuers.
SECTION VIII. INDEMNIFICATION.
A. INDEMNIFICATION OF INITIAL PURCHASERS. Each of the Issuers,
jointly and severally, agrees to indemnify and hold harmless each Initial
Purchaser and each person, if any, who controls any Initial Purchaser within the
meaning of Section15 of the 1933 Act or Section 20 of the 1934 Act as follows:
(a) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in any Preliminary
Offering Memorandum or the Final Offering Memorandum (or any amendment or
supplement thereto), or the omission or alleged omission therefrom of a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
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(b) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount paid
in settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission; provided that (subject to Section
8(d) below) any such settlement is effected with the written consent of the
Issuers; and
(c) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by Merrill Lynch),
reasonably incurred in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency
or body, commenced or threatened, or any claim whatsoever based upon any
such untrue statement or omission, or any such alleged untrue statement or
omission, to the extent that any such expense is not paid under (i) or (ii)
above;
PROVIDED, HOWEVER, that (i) this indemnity agreement shall not apply to any
loss, liability, claim, damage or expense to the extent arising out of any
untrue statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with written information furnished to the
Issuers by any Initial Purchaser through Merrill Lynch expressly for use in the
Offering Memorandum (or any amendment thereto) and (ii) the Issuers shall not be
liable to any such Initial Purchaser with respect to any untrue statement or
alleged untrue statement or omission or alleged omission in the Preliminary
Offering Memorandum to the extent that any such loss, liability, claim, damage
or expense of such Initial Purchaser results from the fact that such Initial
Purchaser sold Securities to a person to whom there was not sent or given, at or
prior to the written confirmation of such sale, a copy of the Final Offering
Memorandum as then amended or supplemented if the Issuers had previously
furnished copies thereof to such Initial Purchaser and the loss, liability,
claim, damage or expense of such Initial Purchaser results from an untrue
statement or omission of a material fact contained in the Preliminary Offering
Memorandum which was corrected in the Final Offering Memorandum.
B. INDEMNIFICATION OF ISSUERS AND DIRECTORS. Each Initial Purchaser
severally agrees to indemnify and hold harmless each of the Issuers and their
respective directors and each person, if any, who controls the Issuers within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act against
any and all loss, liability, claim, damage and expense described in the
indemnity contained in subsection(a) of this Section, as incurred, but only with
respect to untrue statements or omissions, or alleged untrue statements or
omissions, made in the Offering Memorandum in reliance upon
27
<PAGE>
and in conformity with written information furnished to the Issuers by such
Initial Purchaser through Merrill Lynch expressly for use in the Offering
Memorandum.
C. ACTIONS AGAINST PARTIES; NOTIFICATION. Each indemnified party
shall give notice as promptly as reasonably practicable to each indemnifying
party of any action commenced against it in respect of which indemnity may be
sought hereunder, but failure to so notify an indemnifying party shall not
relieve such indemnifying party from any liability hereunder to the extent it is
not materially prejudiced as a result thereof and in any event shall not relieve
it from any liability which it may have otherwise than on account of this
indemnity agreement. In the case of parties indemnified pursuant to Section
8(a) above, counsel to the indemnified parties shall be selected by Merrill
Lynch, and, in the case of parties indemnified pursuant to Section 8(b) above,
counsel to the indemnified parties shall be selected by Leiner Group, and,
following consummation of the Assumption, by LHP. An indemnifying party may
participate at its own expense in the defense of any such action; provided,
however, that counsel to the indemnifying party shall not (except with the
consent of the indemnified party) also be counsel to the indemnified party. In
no event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 8 or Section
9 hereof (whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party.
D. SETTLEMENT WITHOUT CONSENT IF FAILURE TO REIMBURSE. If at any
time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel to the extent
required by Section 8(a), such indemnifying party agrees that it shall be liable
for any settlement of the nature contemplated by Section 8(a)(ii) effected
without its written consent if (i) such settlement is entered into more than 45
days after receipt by such indemnifying party of the aforesaid request, (ii)
such indemnifying party shall have received notice of the terms of such
settlement at least 30 days prior to such settlement being entered into and
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<PAGE>
(iii) such indemnifying party shall not have reimbursed such indemnified party
in accordance with such request prior to the date of such settlement.
SECTION IX. CONTRIBUTION. If the indemnification provided for in
Section8 hereof is for any reason unavailable to or insufficient to hold
harmless an indemnified party in respect of any losses, liabilities, claims,
damages or expenses referred to therein, then each indemnifying party shall
contribute to the aggregate amount of such losses, liabilities, claims, damages
and expenses incurred by such indemnified party, as incurred, (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Issuers on the one hand and the Initial Purchasers on the other hand from the
offering of the Securities pursuant to this Agreement or (ii) if the allocation
provided by clause (i) is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in clause
(i) above but also the relative fault of the Issuers on the one hand and of the
Initial Purchasers on the other hand in connection with the statements or
omissions which resulted in such losses, liabilities, claims, damages or
expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Issuers on the one hand and the
Initial Purchasers on the other hand in connection with the offering of the
Securities pursuant to this Agreement shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the
Securities pursuant to this Agreement (before deducting expenses) received by
the Issuers and the total underwriting discount received by the Initial
Purchasers, bear to the aggregate initial offering price of the Securities.
The relative fault of the Issuers on the one hand and the Initial
Purchasers on the other hand shall be determined by reference to, among other
things, whether any such untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by the Issuers or by the Initial Purchasers and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The Issuers and the Initial Purchasers agree that it would not be just
and equitable if contribution pursuant to this Section 9 were determined by pro
rata allocation (even if the Initial Purchasers were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above in this Section 9. The
aggregate amount of losses, liabilities, claims, damages and expenses incurred
by an indemnified party and referred to above in this Section 9 shall be deemed
to include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending
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<PAGE>
against any litigation, or any investigation or proceeding by any governmental
agency or body, commenced or threatened, or any claim whatsoever based upon any
such untrue or alleged untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 9, no Initial Purchaser
shall be required to contribute any amount in excess of the amount by which the
total price at which the Securities underwritten by it and distributed to the
public were offered to the public exceeds the amount of any damages which such
Initial Purchaser has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the 1933 Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 9, each person, if any, who controls an
Initial Purchaser within the meaning of Section 15 of the 1933 Act or Section 20
of the 1934 Act shall have the same rights to contribution as such Initial
Purchaser, and each director and officer of an Issuer, and each person, if any,
who controls an Issuer within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act shall have the same rights to contribution as such
Issuer. The Initial Purchasers' respective obligations to contribute pursuant
to this Section 9 are several in proportion to the principal amount of
Securities set forth opposite their respective names in Schedule A hereto and
not joint.
SECTION X. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE
DELIVERY. All representations, warranties and agreements contained in this
Agreement or in certificates of officers of either of the Issuers submitted
pursuant hereto, shall remain operative and in full force and effect, regardless
of any investigation made by or on behalf of any Initial Purchaser or
controlling person, or by or on behalf of the Issuers, and shall survive
delivery of the Securities to the Initial Purchasers.
SECTION XI. TERMINATION OF AGREEMENT.
A. TERMINATION; GENERAL. The Representatives may terminate this
Agreement, by notice to the Issuers, at any time at or prior to the Closing Time
(i)if there has been, since the time of execution of this Agreement or since the
respective dates as of which information is given in the Offering Memorandum,
any material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Issuers and their
subsidiaries considered as one
30
<PAGE>
enterprise, whether or not arising in the ordinary course of business (it being
understood that the Recapitalization Transactions and the consummation thereof
shall not be deemed to involve such a change), or (ii)if there has occurred any
material adverse change in the financial markets in the United States or the
international financial markets, any outbreak of hostilities or escalation
thereof or other calamity or crisis or any change or development involving a
prospective change in national or international political, financial or economic
conditions, in each case the effect of which is such as to make it, in the
judgment of the Representatives, impracticable to market the Securities or to
enforce contracts for the sale of the Securities, or (iii)if trading on the
American Stock Exchange or the New York Stock Exchange or in the NASDAQ National
Market System has been suspended or limited, or minimum or maximum prices for
trading have been fixed, or maximum ranges for prices have been required, by any
of said exchanges or by such system or by order of the Commission, the National
Association of Securities Dealers, Inc. or any other governmental authority, or
(iv) if a banking moratorium has been declared by either Federal or New York
authorities, or (v) if there has occurred the enactment, publication, decree or
other promulgation of any federal, foreign, state or provincial statute,
regulation, rule or order of any court or other governmental authority which
would, in the reasonable judgment of the Representatives after consultation with
the Issuers, have a Material Adverse Effect.
B. LIABILITIES. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that Sections
1, 8 and 9 shall survive such termination and remain in full force and effect.
SECTION XII. DEFAULT BY ONE OR MORE OF THE INITIAL PURCHASERS. If
one or more of the Initial Purchasers shall fail at the Closing Time to purchase
the Securities which it or they are obligated to purchase under this Agreement
(the "Defaulted Securities"), the Representatives shall have the right, within
24hours thereafter, to make arrangements for one or more of the non-defaulting
Initial Purchasers, or any other Initial Purchasers, to purchase all, but not
less than all, of the Defaulted Securities in such amounts as may be agreed upon
and upon the terms herein set forth; if, however, the Representative(s) shall
not have completed such arrangements within such 24-hour period, then:
A. if the number of Defaulted Securities does not exceed 10% of the
aggregate principal amount of the Securities to be purchased hereunder,
each of the non-defaulting Initial Purchasers shall be obligated, severally
and not jointly, to purchase the full amount thereof in the proportions
that their respective
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underwriting obligations hereunder bear to the underwriting obligations of
all non-defaulting Initial Purchasers, or
B. if the number of Defaulted Securities exceeds 10% of the
aggregate principal amount of the Securities to be purchased hereunder,
this Agreement shall terminate without liability on the part of any
non-defaulting Initial Purchaser.
No action taken pursuant to this Section shall relieve any defaulting
Initial Purchaser from liability in respect of its default.
In the event of any such default which does not result in a
termination of this Agreement, either the Representatives or Leiner Group shall
have the right to postpone the Closing Time for a period not exceeding seven
days in order to effect any required changes in the Offering Memorandum or in
any other documents or arrangements. As used herein, the term "Initial
Purchaser" includes any person substituted for an Initial Purchaser under this
Section 12.
SECTION XIII. NOTICES. All notices and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
mailed or transmitted by any standard form of telecommunication. Notices to the
Initial Purchasers shall be directed to the Representative(s) at North Tower,
World Financial Center, New York, New York 10281-1201, attention of Chantal
Simon, with a copy to Skadden, Arps, Slate, Meagher & Flom LLP, 919 Third
Avenue, New York, New York, 10022, attention of Mark C. Smith, Esq.; notices to
Leiner Group shall be directed to it at 901 East 233rd Street, Carson,
California 90745-6204, attention of William B. Towne; notices to LHP shall be
directed to it at 901 East 233rd Street, Carson, California 90745-6245,
attention of William B. Towne, with a copy (in the case of any notice to Leiner
Group or LHP) to Debevoise & Plimpton, 875 Third Avenue, New York, New York
10022, attention of David Brittenham, Esq.
SECTION XIV. PARTIES. This Agreement shall each inure to the
benefit of and be binding upon the Initial Purchasers and the Issuers and their
respective successors. Nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any person, firm or corporation, other
than the Initial Purchasers and the Issuers and their respective successors and
the controlling persons and officers and directors referred to in Sections8 and
9 and their heirs and legal representatives, any legal or equitable right,
remedy or claim under or in respect of this Agreement or any provision herein
contained. This Agreement and all conditions and provisions hereof are intended
to be for the sole and exclusive benefit of the Initial Purchasers and the
Issuers and their respective successors, and said controlling persons and
officers and
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directors and their heirs and legal representatives, and for the benefit of no
other person, firm or corporation. No purchaser of Securities from any Initial
Purchaser shall be deemed to be a successor by reason merely of such purchase.
SECTION XV. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION XVI. EFFECT OF HEADINGS. The Article and Section headings
herein and the Table of Contents are for convenience only and shall not affect
the construction hereof.
SECTION XVII. ENTIRE AGREEMENT. This Agreement and the Schedules and
Exhibits attached hereto constitute the entire agreement among the parties, and
cancel and supersede all of the previous or contemporaneous agreements,
representations, warranties and understandings (whether oral or written), with
respect to the subject matter hereof. Except as otherwise provided, all of the
Schedules attached hereto shall be deemed to be dated the date hereof.
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<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Issuers a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
between the Initial Purchasers and the Issuers in accordance with its terms.
Very truly yours,
LEINER HEALTH PRODUCTS GROUP INC.
By /s/ William B. Towne
----------------------------------------
Title: Executive Vice President,
Chief Financial Officer
LEINER HEALTH PRODUCTS INC.
By /s/ William B. Towne
----------------------------------------
Title: Executive Vice President,
Chief Financial Officer
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
SALOMON BROTHERS INC
SCOTIA CAPITAL MARKETS (USA) INC.
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By /s/ Jack Mann
------------------------------
Authorized Signatory
For themselves and as Representatives of the other Initial Purchasers named
in Schedule A hereto.
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<PAGE>
SCHEDULE A
Principal
Amount of
Name of Initial Purchaser Securities
- ------------------------- -----------
Merrill Lynch, Pierce, Fenner & Smith Incorporated............... $51,000,000
Salomon Brothers Inc............................................. 25,500,000
Scotia Capital Markets (USA) Inc................................. 8,500,000
-----------
Total............................................................ $85,000,000
-----------
-----------
<PAGE>
SCHEDULE B
LEINER HEALTH PRODUCTS GROUP INC.
$85,000,000 Senior Subordinated Notes due 2007
1. The initial public offering price of the Securities shall be 100%
of the principal amount thereof, plus accrued interest, if any, from the date of
issuance.
2. The purchase price to be paid by the Initial Purchasers for the
Securities shall be 97% of the principal amount thereof.
3. The interest rate on the Securities shall be 95/8% per annum.
4. The Securities will mature on July 1, 2007.
5. The Securities will not be subject to any mandatory sinking fund
redemption prior to maturity.
6. The Securities will be redeemable at the option of LHP at
104.813% of their principal amount any time on or after July 1, 2002 and prior
to July 1, 2003, at 103.208% of their principal amount any time on or after July
1, 2003 and prior to July 1, 2004, at 101.604% of their principal amount any
time on or after July 1, 2004 and prior to July 1, 2005, and at 100% of their
principal amount at any time on or after July 1, 2005, in each case plus accrued
and unpaid interest, if any, to the redemption date.
7. The optional redemption price of the Securities upon a Public
Equity Offering (as defined in the Indenture) shall be 1095/8% of the aggregate
principal amount thereof plus accrued and unpaid interest, if any, to the date
of redemption.
8. The optional redemption price of the Securities upon a Change of
Control (as defined in the Indenture) shall be 100% of the principal amount
thereof plus the Applicable Premium (as defined in the Indenture) as of, and
accrued and unpaid interest, if any, to, the date of redemption.
9. Interest on the Securities will accrue from the date of issuance
and is payable semi-annually on each January 1 and July 1 of each year,
commencing on January 1, 1998.
<PAGE>
Exhibit A
---------
FORM OF OPINION OF DEBEVOISE & PLIMPTON
TO BE DELIVERED PURSUANT TO
SECTION 5(a)
____ __, 1997
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Salomon Brothers Inc
Scotia Capital Markets (USA) Inc.
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
We have acted as special counsel to North Castle Partners I, L.L.C., a
Delaware limited liability company ("North Castle"), Leiner Health Products
Group Inc., a Delaware corporation ("Leiner Group"), and Leiner Health Products
Inc., a Delaware corporation ("LHP," and together with Leiner Group, the
"Issuers"), in connection with (a) the issuance and sale today of $85,000,000
aggregate principal amount of Leiner Group's _____% Senior Subordinated Notes
due 2007 (the "Securities"), to Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Salomon Brothers Inc and Scotia Capital Markets
(USA), Inc. (collectively, the "Initial Purchasers"), pursuant to a Purchase
Agreement, dated June __, 1997 (the "Purchase Agreement"), among the Issuers and
the Initial Purchasers, and (b) the preparation of the Purchase Agreement, the
Registration Rights Agreement, dated ____ __, 1997 (the "Registration Rights
Agreement"), among the Issuers and the Initial Purchasers, the Indenture, dated
____ __, 1997 (the "Indenture"), between Leiner Group and United States Trust
Company of New York, as Trustee (the "Trustee"), relating to the Securities, the
First Supplemental Indenture, dated ____ __, 1997 (the "First Supplemental
Indenture"), among Leiner Group, LHP and the Trustee, supplementing the
Indenture, and the Offering Memorandum, dated June __, 1997, relating to the
Securities [, as amended or supplemented by ____________] (the "Offering
Memorandum"). This opinion is being delivered pursuant to Section 5(a) of the
Purchase Agreement.
<PAGE>
Except as provided herein, all capitalized terms used herein that are
defined in the Purchase Agreement have the respective meanings specified
therein. The term "Assumption" means the assignment today by Leiner Group to
LHP, and the assumption today by LHP, of all of the rights and obligations of
Leiner Group in respect of the Securities and the Indenture, pursuant to the
First Supplemental Indenture, whereby LHP will become the obligor on the
Securities. The term "Contract" means any contract, indenture, mortgage, deed
of trust, loan or credit agreement, note, lease or other agreement or instrument
listed in Annex 1 hereto to which either of the Issuers is a party or by which
either of the Issuers is bound, or to which any of the property or assets of
either of the Issuers is subject. The term "DGCL" means the General Corporation
Law of the State of Delaware. The term "Material Adverse Effect" means a
material adverse effect on the earnings, financial condition or business of the
Issuers and their subsidiaries taken as a whole. The term "Merger" means the
merger today of LHP Acquisition Corp., a Delaware corporation (the "Merger
Entity"), with and into Leiner Group, with Leiner Group continuing as the
surviving corporation. The term "Recapitalization" means the Merger, the cash
investment by North Castle in equity of the Leiner Group, and the other
transactions contemplated by the Recapitalization Agreement. The term
"Recapitalization Agreement" means the Stock Purchase Agreement and Agreement
and Plan of Merger, dated as of May 31, 1997, among Leiner Group, North Castle
and the Merger Entity. The term "PLI" means PLI Holdings, Inc., a Delaware
corporation. The term "Repayment Event" means any event or condition that gives
the holder of any note, debenture or other evidence of indebtedness that is, or
is issued under, any Contract (or any person acting on such holder's behalf) the
right to require the repurchase, redemption or repayment of all or a portion of
such indebtedness by either of the Issuers.
In connection with this opinion, we have examined originals or
certified, conformed or reproduction copies of such agreements, instruments,
documents and records of the Issuers and their respective subsidiaries, such
certificates of public officials, and such other documents, and have made such
investigations of law, as we have deemed necessary or appropriate for the
purposes of this opinion. In all such examinations, we have assumed the legal
capacity of all natural persons executing documents, the genuineness of all
signatures on original or certified copies, the authenticity of all original or
certified copies and the conformity to original or certified documents of all
copies submitted to us as conformed or reproduction copies. We have relied as
to factual matters upon, and assume the accuracy of, the statements made in the
certificates of officers of the Issuers delivered to us, the representations and
warranties contained in the Purchase Agreement and certificates and other
statements or information of or from public officials and officers and
representatives of the Issuers, their respective subsidiaries and others
(including without limitation North Castle and the Initial Purchasers), and
assume compliance on the part of all parties to the Purchase Agreement with
their covenants and agreements contained therein. With respect to the opinion
expressed in paragraph 3 below, we have relied solely upon a certificate or
certificates of
3
<PAGE>
public officials of the jurisdictions referred to therein. With respect to the
opinion expressed in paragraph 4(b) below, we have assumed that the shares of
capital stock of Leiner Group issued and outstanding prior to the consummation
of the Merger are duly authorized, validly issued, fully paid and nonassessable.
We have assumed, for purposes of the opinions expressed herein, that (i) the
Trustee has the power and authority to enter into and perform the Indenture and
the First Supplemental Indenture, (ii) the Indenture and the First Supplemental
Indenture have been duly authorized, executed and delivered by the Trustee and
are valid, binding and enforceable upon the Trustee, and (iii) the Securities
have been duly authenticated by the Trustee in the manner provided in the
Indenture.
Based upon the foregoing, and subject to the limitations,
qualifications and assumptions set forth herein, we are of the opinion that:
1. Each of Leiner Group, LHP and PLI is validly existing as a corporation
in good standing under the laws of the State of Delaware. Each of Leiner Group,
LHP and PLI has the corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Offering Memorandum.
2. Each of the Issuers has corporate power and authority to enter into
and perform its obligations under the Purchase Agreement, the Registration
Rights Agreement, the Indenture (in the case of Leiner Group) and the First
Supplemental Indenture. Each of the Issuers has corporate power and authority
to issue (in the case of Leiner Group) and perform its obligations under the
Securities.
3. Each of Leiner Group, LHP [and PLI] is duly qualified and in good
standing as a foreign corporation in each jurisdiction listed next to its
respective name in Annex 2 hereto.
4. After giving effect to the consummation of the Merger, (a) the
authorized, issued and outstanding capital stock of Leiner Group consists of
[________ authorized shares of common stock, par value ____ per share, of which
________ shares are issued and outstanding, and ________ authorized shares of
class A common stock, par value ____ per share, of which ________ shares are
issued and outstanding], (b) such issued and outstanding shares of common stock
of Leiner Group have been duly authorized and validly issued and are fully paid
and non-assessable, and (c) none of such issued and outstanding shares of common
stock of Leiner Group was issued in violation of any preemptive or (to our
knowledge) other similar rights of any stockholder of Leiner Group arising by
operation of law or under its charter or by-laws.
5. To our knowledge, all of the issued and outstanding capital stock of
LHP is owned by PLI, and all of the issued and outstanding capital stock of PLI
is owned by Leiner Group, free
4
<PAGE>
and clear of any security interest, mortgage, pledge, lien, encumbrance or
adverse claim (other than any under or in respect of any of the Bank Agreements,
or any agreement or instrument relating to indebtedness to be repaid in
connection with the Recapitalization).
6. The Purchase Agreement and the Registration Rights Agreement have been
duly authorized, executed and delivered by each of the Issuers.
7. The Indenture has been duly authorized, executed and delivered by
Leiner Group and constitutes a valid and binding agreement of Leiner Group,
enforceable against Leiner Group in accordance with its terms. The First
Supplemental Indenture has been duly authorized by LHP and when executed and
delivered by LHP will constitute a valid and binding agreement of LHP,
enforceable against LHP in accordance with its terms.
8. The Securities have been duly authorized by Leiner Group. When
executed by Leiner Group and authenticated by the Trustee in the manner provided
in the Indenture and delivered against payment of the purchase price therefor in
accordance with the Purchase Agreement, the Securities until the occurrence of
the Assumption will constitute valid and binding obligations of Leiner Group,
enforceable against Leiner Group in accordance with their terms, and will be in
substantially the form contemplated by, and entitled to the benefits of, the
Indenture. Upon execution and delivery of the First Supplemental Indenture and
the Assumption, such Securities will constitute valid and binding obligations of
LHP, enforceable against LHP in accordance with their terms, and will be in
substantially the form contemplated by, and entitled to the benefits of, the
Indenture as supplemented by the First Supplemental Indenture.
9. The Securities, the Indenture, the First Supplemental Indenture, the
Registration Rights Agreement and the Recapitalization Agreement conform in all
material respects to the descriptions thereof contained in the Offering
Memorandum.
10. To our knowledge, there is not pending or threatened any action, suit,
proceeding, inquiry or investigation, to which either of the Issuers is a party
or to which the property of either of the Issuers is subject, before any New
York, Delaware (insofar as the DGCL is concerned) or United States federal court
or brought by any New York, Delaware (insofar as the DGCL is concerned) or
United States federal governmental agency or body, that would reasonably be
expected to materially and adversely affect the consummation of the transactions
contemplated in the Purchase Agreement or the performance by each of the Issuers
of their respective obligations thereunder, or the consummation of the
Recapitalization.
11. The information in the Offering Memorandum under the headings
"Description of the Notes,""Exchange Offer; Registration Rights," "Description
of the New Credit Facility" and "The Recapitalization," to the extent that it
constitutes a summary of the terms of the
5
<PAGE>
Securities, the Indenture, the First Supplemental Indenture, the Registration
Rights Agreement, the New Credit Facility or the Recapitalization Agreement, has
been reviewed by us and is correct in all material respects. The information in
the Offering Memorandum under the heading "Certain Federal Income Tax
Considerations," to the extent that it constitutes matters of law, summaries of
legal matters, or legal conclusions, has been reviewed by us and is correct in
all material respects.
12. No authorization, approval, consent or order of any New York, Delaware
(insofar as the DGCL is concerned) or United States federal court or
governmental authority or agency (other than such as may be required under any
applicable securities laws, including of the various jurisdictions in which the
Securities will be offered or sold, as to which we express no opinion) is
required in connection with the due authorization, execution and delivery of the
Purchase Agreement or the Registration Rights Agreement by the Issuers or the
due authorization, execution, delivery or performance of the Indenture by Leiner
Group or the First Supplemental Indenture by LHP, or for the offering, issuance,
sale or delivery of the Securities to the Initial Purchasers by Leiner Group or
the resale of the Securities by the Initial Purchasers to the Subsequent
Purchasers in accordance with the Purchase Agreement.
13. It is not necessary, in connection with the offer, sale and delivery
of the Securities to the Initial Purchasers and the resale of the Securities by
the Initial Purchasers to each Subsequent Purchaser in accordance with the
Purchase Agreement and in the manner contemplated by the Purchase Agreement and
the Offering Memorandum, to register the Securities under the Securities Act of
1933 or to qualify the Indenture or the First Supplemental Indenture under the
Trust Indenture Act of 1939.
14. The execution, delivery and performance of the Purchase Agreement, the
Registration Rights Agreement, the Indenture, the First Supplemental Indenture
and the Securities by each Issuer that is a party thereto or (in the case of the
Securities) obligor thereunder and the consummation of the transactions
contemplated in the Purchase Agreement (including the use of the proceeds from
the sale of the Securities as described in the Offering Memorandum under the
caption "Use of Proceeds," and the consummation of the Recapitalization) and
compliance by each Issuer with its respective obligations under the Purchase
Agreement, the Registration Rights Agreement, the Indenture, the First
Supplemental Indenture and the Securities will not, whether with or without the
giving of notice or lapse of time or both, conflict with or constitute a breach
of or default or Repayment Event under, or result in the creation or imposition
of any lien, charge or encumbrance upon any property or assets of either of the
Issuers pursuant to, any Contract (except for liens, charges or encumbrances
arising in connection with the Bank Agreements or otherwise permitted under the
Indenture, and except for conflicts, breaches or defaults or liens, charges or
encumbrances that to our knowledge would not have a Material Adverse Effect),
nor will such action result in any violation of the
6
<PAGE>
provisions of the respective charter or by-laws of either of the Issuers, or any
applicable law, statute, rule, regulation, judgment, order, writ or decree,
known to us to be applicable to either of the Issuers, of any New York, Delaware
(insofar as the DGCL is concerned) or United States federal government,
government instrumentality or court having jurisdiction over either of the
Issuers (except for violations that to our knowledge would not have a Material
Adverse Effect).
15. Neither of the Issuers is an "investment company," or an entity
"controlled" by an entity required to be registered as an "investment company"
under the Investment Company Act of 1940, in each case as such terms are defined
in such Act.
* * * * *
We have not ourselves checked the accuracy and completeness of, or
otherwise verified, and are not passing upon and assume no responsibility for
the accuracy or completeness of, the statements contained in the Offering
Memorandum, except to the limited extent stated in paragraphs 9 and 11 above.
In the course of our review and discussion of the contents of the Offering
Memorandum with certain officers and employees of Leiner Group or LHP and with
Leiner Group's independent accountants, but without independent check or
verification, no facts have come to our attention that cause us to believe that
the Offering Memorandum (except for financial statements, notes and schedules
and other financial data contained or incorporated by reference therein, as to
which we express no belief), at the date thereof, contained an untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, or that the
Offering Memorandum (except for financial statements, notes and schedules and
other financial data contained or incorporated by reference therein, as to which
we express no belief), at the Closing Time today contains any untrue statement
of a material fact or omits to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading.
* * * * *
The opinions set forth in paragraphs 1 through 15 above are subject to
the following additional qualifications and assumptions:
(a) Our opinions are subject to the effects of (i) bankruptcy,
insolvency, fraudulent conveyance, fraudulent transfer, reorganization,
moratorium or other similar laws relating to or affecting enforcement of
creditors' rights or remedies generally, (ii) general principles of equity,
whether such principles are considered in a proceeding at law or equity, and
(iii) an implied covenant of good faith, reasonableness and fair dealing, and
standards of materiality.
7
<PAGE>
We express no opinion concerning whether, and for purposes of the opinion
expressed herein we have assumed, the Merger and the Recapitalization Agreement
comply with applicable provisions of the DGCL.
(b) Our opinion is subject to the effects of, and we express no
opinion with respect to the application of or compliance with, state securities
or "blue sky" laws, any antifraud provisions of applicable securities laws, or
provisions of Delaware or New York law restricting dividends, loans or other
distributions by a corporation to or for the benefit of its stockholders. We
express no opinion with respect to the United States federal Food, Drug and
Cosmetic Act, Dietary Supplement Health and Education Act, Nutritional Labeling
and Education Act, Drug Price Competition & Patent Term Restoration Act or
Poison Prevention Packaging Act, any rules or regulations of the United States
Food and Drug Administration, Federal Trade Commission or Consumer Product
Safety Commission, or any similar state laws, statutes, rules or regulations, or
any other laws, statutes, rules or regulations relating to the regulation of
vitamin, food or drug products.
(c) For purposes of paragraphs 12 and 14 above, we have reviewed only
those laws, statutes, rules and regulations (other than any referred to in the
preceding paragraph (b)) that in our experience are applicable to transactions
of the type contemplated by the Indenture, the First Supplemental Indenture and
the Purchase Agreement.
(d) For purposes of the opinion set forth in paragraph 10 above, we
have endeavored, to the extent we have believed necessary, to determine from
lawyers currently in our firm who have performed substantive legal services for
North Castle or the Issuers whether such services involved substantive attention
in the form of legal representation concerning pending legal proceedings of the
nature referred to in such paragraph 10, and we have made oral inquiries of
[names of senior officers of North Castle and the Issuers]. We have not made
any review, search or investigation of public files or records or files or
records of North Castle or either of the Issuers or of any of their
transactions, or any other investigation or inquiry with respect to such
opinion.
The opinions expressed herein are limited to the federal laws of the
United States of America, the General Corporation Law of the State of Delaware
and the laws of the State of New York, as currently in effect. We assume no
obligation to supplement this letter if any applicable laws change after the
date hereof or if we become aware of any facts that might change the opinions
expressed herein after the date hereof. The opinions expressed herein are
solely for your benefit and may not be relied upon in any manner or for any
purpose by any
8
<PAGE>
other person and may not be quoted or disclosed in whole or in part without our
prior written consent.
Very truly yours,
9
Exhibit B
FORM OF OPINION OF SPECIAL MANITOBA COUNSEL FOR THE ISSUERS
TO BE DELIVERED PURSUANT TO
SECTION 5(b)
Each of Vita Health Company (1985) Ltd. and VH Holdings Inc. (each, a
"Canadian Subsidiary") has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Offering Memorandum
and is duly qualified as a foreign corporation to transact business and is in
good standing in each jurisdiction listed in an annex to such opinion; the
issued and outstanding capital stock of each Canadian Subsidiary has been duly
authorized and validly issued, is fully paid and non-assessable and, to our
knowledge, is owned by LHP, directly or through subsidiaries, free and clear of
any security interest, mortgage, pledge, lien, encumbrance or adverse claim or
equity (other than any under or in respect of any of the Bank Agreements, or any
agreement or instrument relating to indebtedness to be repaid in connection with
the Recapitalization).
<PAGE>
Exhibit C
FORM OF OPINION OF U.S. REGULATORY COUNSEL FOR THE ISSUERS
TO BE DELIVERED PURSUANT TO
SECTION 5(c)
i. No authorization, approval, consent or order of any United States
federal court or governmental authority or agency is required under any Federal
Regulatory Law in connection with the due authorization, execution and delivery
of the Purchase Agreement or the Registration Rights Agreement by the Issuers or
the due authorization, execution, delivery or performance of the Indenture by
Leiner Group or the First Supplemental Indenture by LHP, or for the offering,
issuance, sale or delivery of the Securities to the Initial Purchasers by Leiner
Group or the resale of the Securities by the Initial Purchasers to the
Subsequent Purchasers in accordance with the Purchase agreement.
ii. The execution, delivery and performance of the Purchase
Agreement, the Registration Rights Agreement, the Indenture, the First
Supplemental Indenture and the Securities by each Issuer that is a party thereto
or (in the case of the Securities) obligor thereunder and the consummation of
the transactions contemplated in the Purchase Agreement (including the use of
the proceeds from the sale of the Securities as described in the Offering
Memorandum under the caption "Use of Proceeds," and the consummation of the
Recapitalization) and compliance by each Issuer with its respective obligations
under the Purchase Agreement, the Registration Rights Agreement, the Indenture,
the First Supplemental Indenture and the Securities will not, whether with or
without the giving of notice or lapse of time or both, result in any violation
of the provisions of any Federal Regulatory Law or judgment, order, writ or
decree arising under any Federal Regulatory Law, known to us to be applicable to
either of the Issuers, of any United States federal government, government
instrumentality or court having jurisdiction over either of the Issuers (except
for violations that to our knowledge would not have a material adverse effect on
the earnings, financial condition or business of the Issuers and their
subsidiaries as a whole).
iii. The description in the Offering Memorandum under the heading
"Risk Factors--Potential for Increased Government Regulation" and
"Business--Government Regulation" (the "Regulatory Disclosure") of Federal
Regulatory Laws relating to the production, marketing, labeling and advertising
of the Company's products are accurate in all material respects and there are no
material Federal Regulatory Laws relating to the production, marketing, labeling
and advertising of the Company's products which are not described in the
Offering Memorandum.
<PAGE>
iv. We have no reason to believe that the Regulatory Disclosure, in
its discussion of the regulation of the production, marketing, labeling and
advertising of the Company's products under Federal Regulatory Laws contained
any untrue statement of material fact, or omitted a statement of any material
fact necessary to make the statements in such sections, in light of the
circumstances under which they were made, not misleading.
* * * * *
The term "Federal Regulatory Law", means the United States federal
Food, Drug and Cosmetic Act, Dietary Supplemental Health and Education Act,
Nutrition Labeling and Education Act, Drug Price Competition & Patent Term
Restoration Act or Poison Prevention Packaging Act, any rules or regulations of
the United States Food and Drug Administration, Federal Trade Commission or
Consumer Product Safety Commission, or any other United States federal laws
statutes rules or regulations relating to the regulation of vitamin, food or
drug products.
2
<PAGE>
Exhibit D
---------
June , 1997
Attention:
Ladies and Gentlemen:
We have acted as special Ontario counsel for Leiner Health Products
Group Inc. and Leiner Health Products Inc. (collectively, the "Issuers"), both
Delaware corporations, in connection with the preparation of the statements
under the captions "Risk Factors - Potential for Increased Government
Regulation" and "Business - Government Regulation" in the Offering Memorandum
dated June , 1997 (the "Offering Memorandum") in connection with an offering
by the Issuers in the United States of % Senior Subordinated Notes due 2007
(the "Notes"). We also acted as special Canadian federal drug regulatory
counsel to Leiner Health Products Inc. in connection with its acquisition of all
of the outstanding shares of Vita Health Company (1985) Ltd. ("Vita Health") in
January, 1997 (the "Acquisition").
We are qualified to practice law only in the Province of Ontario and
our opinion is limited to the laws of the Province of Ontario and the federal
laws of Canada applicable therein and is based on legislation and regulations in
effect on the date hereof. No opinion is expressed herein with respect to
compliance with any applicable securities, tax, environmental or other
legislation. We have assumed that the Notes will not be offered or sold in
Canada and that the Offering Memorandum will not be distributed in Canada.
In expressing the opinions set forth in paragraphs 1, 2 and 4 below,
we have relied exclusively as to certain matters of fact on the certificate of
an officer of the Issuers and Vita Health attached hereto as Schedule A.
Based upon and subject to the foregoing and the qualifications
hereinafter expressed, we are of the opinion that:
1. To our knowledge, there is not pending or threatened any material
legal or governmental proceedings by the Health Protection Branch of Health
Canada against Vita Health.
2. To our knowledge and subject to the statements in the Offering
Memorandum under the caption "Risk Factors - Potential for Increased Government
Regulation" and "Business - Government Regulation", Vita Health has in full
force and effect all material
<PAGE>
licenses and permits from the Health Protection Branch of Health Canada
necessary to conduct its business as conducted at the time of the Acquisition.
3. The statements under the captions "Risk Factors - Potential for
Increased Government Regulations" and "Business - Government Regulation" in the
Offering Memorandum are accurate in all material respects insofar as such
statements relate to matters of law under Canadian federal food and drug
legislation.
4. To our knowledge, there is no Canadian federal legislation
specifically relating to the formulation and manufacture of food and drugs that
is material to the business of Vita Health as conducted at the time of the
Acquisition, that is not described in the Offering Memorandum.
To the extent that the opinions set forth above are expressed as being
based upon our knowledge, such opinions are based solely upon the actual
knowledge (and without independent inquiry) of Elizabeth McNaughton, David
Toswell and Jennifer Horton, the only lawyers of our firm actively involved in
the Acquisition. Such knowledge is limited to the level of investigations in
fact conducted by such members of our firm in connection with the Acquisition.
In conducting investigations in connection with the Acquisition, we
examined documents, records and instruments, all of which are listed in
Appendix I to Schedule A hereto. In our examinations we have assumed the
genuineness of all signatures, the legal capacity of all individuals, the
authenticity of all documents submitted to us as originals and the conformity to
the originals of all documents submitted to us as certified, conformed, faxed or
photostatic copies.
This opinion is given as of the date hereof, and it should be noted
that changes regarding matters of applicable law may hereafter occur. Any
change could affect the opinions expressed herein.
This opinion is provided for the sole and exclusive benefit of the
addressees and is being delivered in connection with the offering of Notes.
Subject to the foregoing, the opinion may not be referred to, quoted from or
relied upon, by any other person whatsoever.
Yours very truly,
2
<PAGE>
TABLE OF CONTENTS
Page
PURCHASE AGREEMENT............................................................1
SECTION I. Representations and Warranties.............................4
A. Representations and Warranties by the Issuers.........................4
(a) Similar Offerings...................................................4
(b) Offering Memorandum.................................................4
(c) Independent Accountants.............................................4
(d) Financial Statements................................................5
(e) No Material Adverse Change in Business..............................5
(f) Good Standing of the Issuers........................................6
(g) Good Standing of Designated Entities................................6
(h) Capitalization......................................................7
(i) Authorization of the Recapitalization Documents.....................7
(j) Authorization of the Securities.....................................7
(k) Description of the Recapitalization Documents.......................8
(l) Absence of Defaults and Conflicts...................................8
(m) Absence of Labor Dispute............................................9
(n) Absence of Proceedings..............................................9
(o) Possession of Intellectual Property................................10
(p) Absence of Further Requirements....................................10
(q) Possession of Licenses and Permits.................................10
(r) Title to Property..................................................11
(s) Tax Returns........................................................11
(t) Environmental Laws.................................................12
(u) Internal Accounting Controls.......................................13
(v) Investment Company Act.............................................13
(w) Rule 144A Eligibility..............................................13
(x) No General Solicitation............................................13
(y) No Registration Required...........................................13
(z) No Directed Selling Efforts........................................14
(aa) Insurance.........................................................14
(bb) Solvency..........................................................14
(cc) Recapitalization Agreement........................................14
B. Officer's Certificates...............................................14
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<PAGE>
SECTION II. Sale and Delivery to Initial Purchasers; Closing...........15
A. Securities........................................................15
B. Payment...........................................................15
C. Qualified Institutional Buyer.....................................16
D. Denominations; Registration.......................................16
SECTION III. Covenants of the Issuers...................................16
A. Offering Memorandum...............................................16
B. Notice and Effect of Material Events..............................16
C. Amendment to Offering Memorandum and Supplements..................17
D. Qualification of Securities for Offer and Sale....................17
E. Rating of Securities..............................................17
F. DTC...............................................................17
G. Use of Proceeds...................................................17
H. Restriction on Sale of Securities.................................17
SECTION IV. Payment of Expenses........................................18
A. Expenses..........................................................18
B. Termination of Agreement..........................................18
SECTION V. Conditions of Initial Purchasers' Obligations..............19
A. Opinion of Special Counsel for Issuers............................19
B. Opinion of Special Manitoba Counsel for Issuers...................19
C. Opinion of U.S. Regulatory Counsel for Issuers....................19
D. Opinion of Canadian Special Counsel for Issuers...................19
E. Opinion of Counsel for Initial Purchasers.........................20
F. Officers' Certificate.............................................20
G. Accountant's Comfort Letter.......................................20
H. Bring-down Comfort Letter.........................................20
I. Solvency Opinion..................................................21
J. Maintenance of Rating.............................................21
K. PORTAL............................................................21
L. Additional Documents..............................................21
M. Consummation of Recapitalization..................................21
N. Receipt of Copies of Opinions.....................................22
O Registration Rights Agreement.....................................22
P. Termination of Agreement..........................................22
SECTION VI. Conditions of Issuers' Obligations.........................22
A. Consummation of Recapitalization..................................22
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<PAGE>
SECTION VII. Subsequent Offers and Resales of the Securities............22
A. Offer and Sale Procedures.........................................22
(a) Offers and Sales only to Institutional Accredited Investors or
Qualified Institutional Buyers..................................22
(b) No General Solicitation.........................................23
(c) Purchases by Non-Bank Fiduciaries...............................23
(d) Subsequent Purchaser Notification...............................23
(e) Minimum Principal Amount........................................24
(f) Restrictions on Transfer........................................24
(g) Delivery of Offering Memorandum.................................24
B. Covenants of the Issuers..........................................24
(i) Due Diligence...................................................24
(ii) Integration................................................25
(iii) Rule 144A Information.........................................25
(iv) Restriction on Repurchases.................................25
C. Resale Pursuant to Rule 903 of Regulation S or Rule 144A..........25
SECTION VIII. Indemnification............................................26
A. Indemnification of Initial Purchasers.............................26
B. Indemnification of Issuers and Directors..........................27
C. Actions against Parties; Notification.............................28
D. Settlement without Consent if Failure to Reimburse................28
SECTION IX. Contribution................................................29
SECTION X. Representations, Warranties and Agreements to Survive
Delivery....................................................30
SECTION XI. Termination of Agreement....................................30
A. Termination; General..............................................30
B. Liabilities.......................................................31
SECTION XII. Default by One or More of the Initial Purchasers...........31
SECTION XIII. Notices....................................................32
SECTION XIV. Parties....................................................32
SECTION XV. GOVERNING LAW AND TIME.....................................33
SECTION XVI. Effect of Headings.........................................33
SECTION XVII. Entire Agreement...........................................33
SCHEDULE A
SCHEDULE B
EXHIBIT A
EXHIBIT B
EXHIBIT C
EXHIBIT D
iii
<PAGE>
EXHIBIT 4.4
---------------------------------------------------------------
---------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT
Dated June 30, 1997
among
LEINER HEALTH PRODUCTS INC.,
LEINER HEALTH PRODUCTS GROUP INC.
and
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
SALOMON BROTHERS INC
and
SCOTIA CAPITAL MARKETS (USA) INC.,
as Purchasers
---------------------------------------------------------------
---------------------------------------------------------------
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "AGREEMENT") is made and
entered into June 30, 1997 among Leiner Health Products Group Inc., a Delaware
corporation (the "LEINER GROUP"), Leiner Health Products Inc., a Delaware
corporation and a wholly owned indirect subsidiary of Leiner Group ("LHP"), and
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Salomon
Brothers Inc and Scotia Capital Markets (USA) Inc. (collectively the
"PURCHASERS").
This Agreement is made pursuant to the Purchase Agreement dated June
19, 1997 (the "PURCHASE AGREEMENT"), among Leiner Group, LHP and the Purchasers,
which provides for, among other things, the sale by Leiner Group to the
Purchasers of an aggregate of $85,000,000 principal amount of Leiner Group's
95/8% Senior Subordinated Notes due 2007 (the "SECURITIES"). Immediately
following the consummation of such sale, pursuant to a supplemental indenture
(the "FIRST SUPPLEMENTAL INDENTURE") to be entered into between LHP and the
Trustee, the obligations of Leiner Group under the Securities will be assumed by
LHP and LHP will become the obligor under the Securities (the "ASSUMPTION").
Upon consummation of the Assumption, Leiner Group will be unconditionally
released from its obligations under this Agreement. As used herein, the term
"Company" shall initially refer to Leiner Group, and from and after the
consummation of the Assumption shall refer to LHP. In order to induce the
Purchasers to enter into the Purchase Agreement, Leiner Group and LHP have
agreed to provide to the Purchasers and their direct and indirect transferees
the registration rights set forth in this Agreement. The execution and delivery
of this Agreement is a condition to the closing under the Purchase Agreement.
By accepting any Security (including any Registrable Security) each Holder
agrees (and shall be deemed to agree) to be bound by the terms and conditions of
this Agreement.
In consideration of the foregoing, the parties hereto agree as
follows:
1. DEFINITIONS. As used in this Agreement, the following
capitalized defined terms shall have the following meanings:
"ADDITIONAL INTEREST" shall have the meaning set forth in Section 2(e)
hereof.
2
<PAGE>
"ADVICE" shall have the meaning set forth in the last paragraph of
Section 3 hereof.
"APPLICABLE PERIOD" shall have the meaning set forth in Section 3(t)
hereof.
"ASSUMPTION" shall have the meaning set forth in the preamble to this
Agreement.
"BUSINESS DAY" shall mean each Monday, Tuesday, Wednesday, Thursday
and Friday which is not a day on which banking institutions in New York, New
York are authorized or obligated by law or executive order to close.
"CLOSING TIME" shall mean the Closing Time as defined in the Purchase
Agreement.
"COMPANY" shall have the meaning set forth in the preamble to this
Agreement and also includes the Company's successors and permitted assigns.
"DEPOSITARY" shall mean The Depository Trust Company, or any other
depositary appointed by the Company; PROVIDED, HOWEVER, that such depositary
must have an address in the Borough of Manhattan, in The City of New York.
"EFFECTIVENESS PERIOD" shall have the meaning set forth in Section
2(b) hereof.
"EVENT DATE" shall have the meaning set forth in Section 2(e) hereof.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
"EXCHANGE OFFER" shall mean the offer by the Company to the Holders to
exchange all of the Registrable Securities (other than Private Exchange
Securities) for a like principal amount of Exchange Securities pursuant to
Section 2(a) hereof.
"EXCHANGE OFFER REGISTRATION" shall mean a registration under the
Securities Act effected pursuant to Section 2(a) hereof.
"EXCHANGE OFFER REGISTRATION STATEMENT" shall mean an exchange offer
registration statement on Form S-4 (or, if applicable, on another appropriate
form), and
3
<PAGE>
all amendments and supplements to such registration statement, in each case
including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"EXCHANGE PERIOD" shall have the meaning set forth in Section 2(a)
hereof.
"EXCHANGE SECURITIES" shall mean the 95/8%Senior Subordinated Notes
due 2007, issued by the Company under the Indenture containing terms identical
to the Securities (except that (i) interest thereon shall accrue from the last
date on which interest was paid on the Securities or, if no such interest has
been paid, from June 30, 1997 and (ii) the transfer restrictions thereon shall
be eliminated) to be offered to Holders of Securities in exchange for Securities
pursuant to the Exchange Offer.
"HOLDER" shall mean any Purchasers, for so long as it owns any
Registrable Securities, and each of their respective successors, assigns and
direct and indirect transferees who become registered owners of Registrable
Securities under the Indenture.
"INDENTURE" shall mean the Indenture relating to the Securities dated
as of June 30, 1997 between Leiner Group, as issuer and United States Trust
Company of New York, as trustee, as the same may be amended and supplemented
from time to time in accordance with the terms thereof, including but not
limited to pursuant to the First Supplemental Indenture.
"INSPECTORS" shall have the meaning set forth in Section 3(n) hereof.
"MAJORITY HOLDERS" shall mean the Holders of a majority of the
aggregate principal amount of outstanding (as determined under the Indenture)
Registrable Securities.
"PARTICIPATING BROKER-DEALER" shall have the meaning set forth in
Section 3(t) hereof.
"PERSON" shall mean an individual, partnership, corporation, limited
liability company, trust or unincorporated organization, or a government or
agency or political subdivision thereof.
"PRIVATE EXCHANGE" shall have the meaning set forth in Section 2(a)
hereof.
4
<PAGE>
"PRIVATE EXCHANGE SECURITIES" shall have the meaning set forth in
Section 2(a) hereof.
"PROSPECTUS" shall mean the prospectus included in a Registration
Statement, including any preliminary prospectus, and any such prospectus as
amended or supplemented by any prospectus supplement, including a prospectus
supplement with respect to the terms of the offering of any portion of the
Registrable Securities covered by a Shelf Registration Statement, and by all
other amendments and supplements to a prospectus, including post-effective
amendments, and in each case including all material incorporated by reference
therein.
"PURCHASE AGREEMENT" shall have the meaning set forth in the preamble
to this Agreement.
"PURCHASERS" shall have the meaning set forth in the preamble to this
Agreement.
"RECORDS" shall have the meaning set forth in Section 3(n) hereof.
"REGISTRABLE SECURITIES" shall mean the Securities and, if issued, the
Private Exchange Securities; PROVIDED, HOWEVER, that Securities or Private
Exchange Securities, as the case may be, shall cease to be Registrable
Securities when (i) a Registration Statement with respect to such Securities or
Private Exchange Securities for the exchange or resale thereof, as the case may
be, shall have been declared effective under the Securities Act and such
Securities or Private Exchange Securities, as the case may be, shall have been
disposed of pursuant to such Registration Statement, (ii) such Securities or
Private Exchange Securities, as the case may be, shall have been sold to the
public pursuant to Rule 144(k) (or any similar provision then in force, but not
Rule 144A) under the Securities Act, (iii) such Securities or Private Exchange
Securities, as the case may be, shall have ceased to be outstanding or (iv) with
respect to the Securities, such Securities have been exchanged for Exchange
Securities upon consummation of the Exchange Offer and are thereafter freely
tradeable by the holder thereof unless such holder is an affiliate of the
Company.
"REGISTRATION EXPENSES" shall mean any and all expenses incident to
performance of or compliance by the Company with this Agreement, including
without limitation: (i) all SEC or National Association of Securities Dealers,
Inc. (the "NASD") registration and filing fees, including, if applicable, the
fees and expenses of any "qualified independent underwriter" (and its counsel)
that is required to be retained by any Holder of Registrable Securities in
accordance with the rules and regulations of
5
<PAGE>
the NASD, (ii) all fees and expenses incurred in connection with compliance with
state securities or blue sky laws (including reasonable fees and disbursements
of counsel for any underwriters or Holders in connection with blue sky
qualification of any of the Exchange Securities or Registrable Securities) and
compliance with the rules of the NASD, (iii) all expenses of any Persons in
preparing or assisting in preparing, word processing, printing and distributing
any Registration Statement, any Prospectus and any amendments or supplements
thereto, and in preparing or assisting in preparing, printing and distributing
any underwriting agreements, securities sales agreements and other documents
relating to the performance of and compliance with this Agreement, (iv) all
rating agency fees, (v) the fees and disbursements of counsel for the Company
and of the independent certified public accountants of the Company, including
the expenses of any "cold comfort" letters required by or incident to such
performance and compliance, (vi) the fees and expenses of the Trustee, and any
exchange agent or custodian, (vii) all fees and expenses incurred in connection
with the listing, if any, of any of the Registrable Securities on any securities
exchange or exchanges, and (viii) any fees and disbursements of any underwriter
customarily required to be paid by issuers or sellers of securities and the
reasonable fees and expenses of any special experts retained by the Company in
connection with any Registration Statement, but excluding fees of counsel to the
underwriters and underwriting discounts and commissions and transfer taxes, if
any, relating to the sale or disposition of Registrable Securities by a Holder.
"REGISTRATION STATEMENT" shall mean any registration statement of the
Company which covers any of the Exchange Securities or Registrable Securities
pursuant to the provisions of this Agreement, and all amendments and supplements
to any such Registration Statement, including post-effective amendments, in each
case including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"SEC" shall mean the Securities and Exchange Commission.
"SECURITIES" shall have the meaning set forth in the preamble to this
Agreement.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended
from time to time.
"SHELF REGISTRATION" shall mean a registration effected pursuant to
Section 2(b) hereof.
6
<PAGE>
"SHELF REGISTRATION EVENT" shall have the meaning set forth in Section
2(b) hereof.
"SHELF REGISTRATION EVENT DATE" shall have the meaning set forth in
Section 2(b) hereof.
"SHELF REGISTRATION STATEMENT" shall mean a "shelf" registration
statement of the Company pursuant to the provisions of Section 2(b) hereof which
covers all of the Registrable Securities or all of the Private Exchange
Securities, as the case may be, on an appropriate form under Rule 415 under the
Securities 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.
"SUPPLEMENTAL INDENTURE" shall have the meaning set forth in the
preamble to this Agreement.
"TIA" shall have the meaning set forth in Section 3(l) hereof.
"TRUSTEE" shall mean the trustee with respect to the Securities under
the Indenture.
2. REGISTRATION UNDER THE SECURITIES ACT.
(a) EXCHANGE OFFER. To the extent not prohibited by any applicable
law or applicable interpretation of the staff of the SEC, the Company shall, for
the benefit of the Holders, at the Company's cost, use its best efforts to (i)
cause to be filed with the SEC within 60 days after the Closing Time an Exchange
Offer Registration Statement on an appropriate form under the Securities Act
covering the Exchange Offer, (ii) cause such Exchange Offer Registration
Statement to be declared effective under the Securities Act by the SEC not later
than the date which is 120 days after the Closing Time, (iii) keep such Exchange
Offer Registration Statement effective until the consummation of the Exchange
Offer and (iv) cause the Exchange Offer to be consummated not later than 150
days after the Closing Time. The Exchange Securities will be issued under the
Indenture. Upon the effectiveness of the Exchange Offer Registration Statement,
the Company shall promptly commence the Exchange Offer, it being the objective
of such Exchange Offer to enable each Holder eligible and electing to exchange
Registrable Securities for a like principal amount of Exchange Securities
(assuming that such Holder is not an affiliate of the Company within the meaning
of
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Rule 405 under the Securities Act and is not a broker-dealer tendering
Registrable Securities acquired directly from the Company for its own account,
acquires the Exchange Securities in the ordinary course of such Holder's
business and has no arrangements or understandings with any Person to
participate in the Exchange Offer for the purpose of distributing the Exchange
Securities) to transfer such Exchange Securities from and after their receipt
without any limitations or restrictions under the Securities Act and under state
securities or blue sky laws.
In connection with the Exchange Offer, the Company shall:
(i) mail to each Holder a copy of the Prospectus forming part of the
Exchange Offer Registration Statement, together with an appropriate letter
of transmittal and related documents;
(ii) keep the Exchange Offer open for acceptance for a period of not
less than 30 days after the date notice thereof is mailed to the Holders
(or longer if required by applicable law) (such period referred to herein
as the "EXCHANGE PERIOD");
(iii) utilize the services of the Depositary for the Exchange Offer;
(iv) permit Holders to withdraw tendered Securities at any time prior
to the close of business, New York time, on the last Business Day of the
Exchange Period, by sending to the institution specified in the notice, a
telegram, telex, facsimile transmission or letter setting forth the name of
such Holder, the principal amount of Securities delivered for exchange, and
a statement that such Holder is withdrawing his election to have such
Securities exchanged;
(v) notify each Holder that any Security not tendered by such Holder
in the Exchange Offer will remain outstanding and continue to accrue
interest, but will not retain any rights under this Agreement (except in
the case of the Purchasers and Participating Broker-Dealers as provided
herein); and
(vi) otherwise comply in all respects with all applicable laws
relating to the Exchange Offer.
If any Purchaser reasonably determines upon advice of its outside
counsel that it is not eligible to participate in the Exchange Offer with
respect to the exchange of Securities constituting any portion of an unsold
allotment in the initial distribution, as soon as practicable upon receipt by
the Company of a written request
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<PAGE>
from such Purchaser and an opinion of outside counsel for such Purchaser,
reasonably satisfactory in form and substance to outside counsel of the Company,
to the effect that such exchange does not require compliance with the
registration requirements under the Securities Act, the Company shall issue and
deliver to such Purchaser in exchange (the "PRIVATE EXCHANGE") for the
Securities held by such Purchaser, a like principal amount of debt securities of
the Company that are identical (except that such securities shall bear
appropriate transfer restrictions) to the Exchange Securities (the "PRIVATE
EXCHANGE SECURITIES") and which are issued pursuant to the Indenture (which will
provide that the Exchange Securities will not be subject to the transfer
restrictions set forth in the Indenture and that the Exchange Securities, the
Private Exchange Securities and the Securities will vote and consent together on
all matters as one class and that neither the Exchange Securities, the Private
Exchange Securities nor the Securities will have the right to vote or consent as
a separate class on any matter). The Private Exchange Securities shall be of
the same series as the Exchange Securities and the Company will seek to cause
the CUSIP Service Bureau to issue the same CUSIP Number for the Private Exchange
Securities as for the Exchange Securities issued pursuant to the Exchange Offer.
As soon as practicable after the close of the Exchange Offer or the
Private Exchange, as the case may be, the Company shall:
(i) accept for exchange all Securities or portions thereof tendered
and not validly withdrawn pursuant to the Exchange Offer or the Private
Exchange;
(ii) deliver, or cause to be delivered, to the Trustee for
cancellation all Securities or portions thereof so accepted for exchange by
the Company; and
(iii) issue, and cause the Trustee under the Indenture to promptly
authenticate and deliver to each Holder, a new Exchange Security or Private
Exchange Security, as the case may be, equal in principal amount to the
principal amount of the Securities surrendered by such Holder.
Interest on each Exchange Security and Private Exchange Security
issued pursuant to the Registered Exchange Offer and in the Private Exchange
will accrue from the last interest payment date on which interest was paid on
the Securities surrendered in exchange therefor or, if no interest has been paid
on the Securities, from the date of original issue of the Securities. To the
extent not prohibited by any law or applicable interpretation of the staff of
the SEC, the Company shall use its best efforts to complete the Exchange Offer
as provided above, and shall comply with the applicable requirements of the
Securities Act, the Exchange Act and other applicable
9
<PAGE>
laws in connection with the Exchange Offer. The Exchange Offer shall not be
subject to any conditions, other than that the Exchange Offer does not violate
applicable law or any applicable interpretation of the staff of the SEC. Each
Holder of Registrable Securities who wishes to exchange such Registrable
Securities for Exchange Securities in the Exchange Offer and each Purchaser who
holds and wishes to exchange Registrable Securities for Exchange Securities in
the Private Exchange will be required to make certain customary representations
in connection therewith, including, in the case of any Holder, representations
that such Holder is not an affiliate of the Company within the meaning of Rule
405 under the Securities Act or, if it is an affiliate, that such Holder will
comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable, that any Exchange Securities to be
received by it will be acquired in the ordinary course of business and that at
the time of the commencement of the Exchange Offer it has no arrangement with
any Person to participate in the distribution (within the meaning of the
Securities Act) of the Exchange Securities. The Company shall inform the
Purchasers, after consultation with the Trustee and the Purchasers, of the names
and addresses of the Holders to whom the Exchange Offer is made, and the
Purchasers shall have the right to contact such Holders and otherwise facilitate
the tender of Registrable Securities in the Exchange Offer.
Upon consummation of the Exchange Offer in accordance with this
Section 2(a) (whether or not the actions or events specified in the first
sentence of this Section 2(a) occur within the time periods specified therefor),
the provisions of this Agreement shall continue to apply, MUTATIS MUTANDIS,
solely with respect to Registrable Securities that are Private Exchange
Securities and Exchange Securities held by Participating Broker-Dealers, and the
Company shall have no further obligation to register Registrable Securities
(other than Private Exchange Securities) pursuant to Section 2(b) of this
Agreement.
(b) SHELF REGISTRATION. In the event that (i) the Company or the
Majority Holders reasonably determine, after conferring with outside counsel,
that the Exchange Offer Registration provided in Section 2(a) above is not
available or may not be consummated as soon as practicable after the last day of
the Exchange Period because it would violate applicable securities laws or
because the applicable interpretations of the staff of the SEC would not permit
the Company to effect the Exchange Offer, or (ii) the Exchange Offer is not for
any other reason consummated within 150 days of the Closing Time, or (iii) the
Company or the Majority Holders reasonably determine, after conferring with
outside counsel, that the Exchange Securities would not, upon receipt, be freely
tradeable by such Holders which are not affiliates of the Company without
restriction under the Securities Act, or a Holder is not permitted by
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<PAGE>
applicable law to participate in the Exchange Offer or (iv) upon the request of
any Purchaser with respect to any Registrable Securities which it acquired
directly from the Company and, with respect to other Registrable Securities held
by it, if such Purchaser is not permitted, as confirmed by a written opinion of
outside counsel to such Purchaser, pursuant to applicable law or applicable
interpretations of the Staff of the SEC, to participate in the Exchange Offer
and thereby receive securities that are freely tradeable without restriction
under the Securities Act and applicable blue sky or state securities laws (any
of the events specified in (i)-(iv) being a "SHELF REGISTRATION EVENT" and the
date of occurrence thereof, the "SHELF REGISTRATION EVENT DATE"), the Company
shall, at its cost, use its best efforts to cause to be filed as promptly as
practicable after such Shelf Registration Event Date, as the case may be, and,
in any event, within 30 days after such Shelf Registration Event Date (which
shall be no earlier than 90 days after the Closing Time), a Shelf Registration
Statement providing for the sale by the applicable Holder or Holders of all of
its or their Registrable Securities, and shall use its best efforts to have such
Shelf Registration Statement declared effective by the SEC as soon as
practicable. No Holder of Registrable Securities shall be entitled to include
any of its Registrable Securities in any Shelf Registration pursuant to this
Agreement unless and until such Holder agrees in writing to be bound by all of
the provisions of this Agreement applicable to such Holder and furnishes to the
Company in writing, within 15 days after receipt of a request therefor, such
information as the Company may, after conferring with counsel with regard to
information relating to Holders that would be required by the SEC to be included
in such Shelf Registration Statement or Prospectus included therein, reasonably
request for inclusion in any Shelf Registration Statement or Prospectus included
therein. Each Holder as to which any Shelf Registration is being effected
agrees to furnish to the Company all information with respect to such Holder
necessary to make the information previously furnished to the Company by such
Holder not materially misleading.
The Company agrees to use its best efforts to keep the Shelf
Registration Statement continuously effective for a period of two years from the
date of issuance of the Securities (subject to extension pursuant to the last
paragraph of Section 3 hereof) or for such shorter period which will terminate
when all of the Registrable Securities covered by the Shelf Registration
Statement have been sold pursuant to the Shelf Registration Statement or cease
to be outstanding (the "EFFECTIVENESS PERIOD"). The Company shall not permit
any securities other than Registrable Securities to be included in the Shelf
Registration. The Company will, in the event a Shelf Registration Statement is
declared effective, provide to each Holder a reasonable number of copies of the
Prospectus which is a part of the Shelf Registration Statement, and notify each
such Holder when the Shelf Registration has become effective. The Company
further agrees, if necessary, to supplement or amend the Shelf Registration
Statement, if
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<PAGE>
required by the rules, regulations or instructions applicable to the
registration form used by the Company for such Shelf Registration Statement or
by the Securities Act or by any other rules and regulations thereunder for shelf
registrations, and the Company agrees to furnish to the Holders of Registrable
Securities copies of any such supplement or amendment promptly after its being
used or filed with the SEC.
(c) EXPENSES. The Company shall pay all Registration Expenses in
connection with the registration pursuant to Section 2(a) or 2(b) hereof and
shall pay the reasonable fees and disbursements of any one counsel designated in
writing by the Majority Holders to act as counsel for the Holders of the
Registrable Securities in connection with a Shelf Registration Statement, which
counsel shall be reasonably satisfactory to the Company. Except as provided
herein, each Holder shall pay all expenses of its counsel, underwriting
discounts and commissions and transfer taxes, if any, relating to the sale or
disposition of such Holder's Registrable Securities pursuant to the Shelf
Registration Statement.
(d) EFFECTIVE REGISTRATION STATEMENT. An Exchange Offer Registration
Statement pursuant to Section 2(a) hereof or a Shelf Registration Statement
pursuant to Section 2(b) hereof will not be deemed to have become effective
unless it has been declared effective by the SEC; PROVIDED, HOWEVER, that if,
after it has been declared effective, the offering of Registrable Securities
pursuant to a Shelf Registration Statement is interfered with by any stop order,
injunction or other order or requirement of the SEC or any other governmental
agency or court, such Registration Statement will be deemed not to have been
effective during the period of such interference, until the offering of
Registrable Securities pursuant to such Registration Statement may legally
resume. The Company will be deemed not to have used its best efforts to cause
the Exchange Offer Registration Statement or the Shelf Registration Statement,
as the case may be, to become, or to remain, effective during the requisite
period if it voluntarily takes any action that would result in any such
Registration Statement not being declared effective or in the Holders of
Registrable Securities covered thereby not being able to exchange or offer and
sell such Registrable Securities during that period unless such action is
required by applicable law.
(e) ADDITIONAL INTEREST. In the event that (i) the Exchange Offer
Registration Statement is not filed with the SEC on or prior to the 60th
calendar day following the Closing Time, (ii) the Exchange Offer Registration
Statement is not declared effective on or prior to the 120th calendar day
following the Closing Time, (iii) the Exchange Offer is not consummated on or
prior to the 150th calendar day following the Closing Time or (iv) if a Shelf
Registration Event shall have occurred and if by 180 days after the Closing Time
a Shelf Registration Statement is not declared
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<PAGE>
effective, in each case (i)-(iv) the interest rate borne by the Securities shall
be increased (the "ADDITIONAL INTEREST") by one-half of one percent (0.5%) per
annum from and including the 61st day following the Closing Time until, but
excluding, the date the Exchange Offer Registration Statement is filed in the
case of (i) above, from and including the 121st day following the Closing Time
until, but excluding, the date the Exchange Offer Registration Statement is
declared effective in the case of clause (ii) above, from and including the
151st day following the Closing Time until, but excluding, the consummation of
the Exchange Offer in the case of (iii) above or, solely with respect to
Securities which could not be exchanged as set forth above, Exchange Securities
that are not freely tradeable and Private Exchange Securities, from and
including the 181st day after the Closing Time until, but excluding, the date
the Shelf Registration Statement is declared effective in the case of clause
(iv) above. In addition, such interest rate shall be increased by an additional
one-half of one percent (0.5%) per annum for each 90-day period that any such
Additional Interest continues to accrue pursuant to this Section 2(e); PROVIDED,
HOWEVER, that the aggregate maximum increase in such interest rate pursuant to
this Section 2(e) will in no event exceed one percent (1.0%) per annum. Upon
(w) the filing of the Exchange Offer Registration Statement in the case of
clause (i) above, (x) the effectiveness of the Exchange Offer Registration
Statement in the case of clause (ii) above, (y) the date of the consummation of
the Exchange Offer in the case of clause (iii) above or (z) the effectiveness of
a Shelf Registration Statement in the case of clause (iv) above, provided that
none of the conditions set forth in clauses (i), (ii), (iii) and (iv) above
continues to exist, the interest rate borne by the Securities from the date of
such filing, effectiveness or consummation, as the case may be, will be reduced
to the original interest rate.
In the event that the Shelf Registration Statement has been declared
effective and subsequently ceases to be effective (other than in connection with
the consummation of the Exchange Offer, as contemplated by the last paragraph of
Section 2(a)) prior to the end of the Effectiveness Period (subject to extension
pursuant to the last paragraph of Section 3 hereof), for a period in excess of
45 days, whether or not consecutive, in any given year, then, the interest rate
borne by the Securities, or the Private Exchange Securities, as the case may be,
shall be increased by an additional one-half of one percent (0.5%) per annum on
the 46th day in the applicable year such Shelf Registration Statement ceases to
be effective. Such interest rate shall be increased by an additional one-half
of one percent (0.5%) per annum for each additional 90 days that such Shelf
Registration Statement is not effective, subject to the same aggregate maximum
increase in the interest rate per annum of one percent (1.0%) per annum referred
to above. Upon the effectiveness of a Shelf Registration Statement, the
interest rate borne by the Securities, or the Private Exchange Securities, as
the case
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<PAGE>
may be, shall be reduced to their original interest rate unless and until
increased as described in this paragraph.
The Company shall notify the Trustee within three Business Days after
each and every date on which an event occurs in respect of which Additional
Interest is required to be paid (an "EVENT DATE"). Additional Interest shall be
paid by depositing with the Trustee, in trust, for the benefit of the Holders of
Securities or of Private Exchange Securities, as the case may be, on or before
the applicable semiannual interest payment date, immediately available funds in
sums sufficient to pay the Additional Interest then due. The Additional
Interest due shall be payable on each interest payment date to the record Holder
of Securities entitled to receive the interest payment to be paid on such date
as set forth in the Indenture. Each obligation to pay Additional Interest shall
be deemed to accrue from and including the day following the applicable Event
Date.
(f) SPECIFIC ENFORCEMENT. Without limiting the remedies available to
the Purchasers and the Holders, the Company acknowledges that any failure by the
Company to comply with its obligations under Section 2(a) and Section 2(b)
hereof may result in material irreparable injury to the Purchasers or the
Holders for which there is no adequate remedy at law, that it would not be
possible to measure damages for such injuries precisely and that, in the event
of any such failure, the Purchasers or any Holder may obtain such relief as may
be required to specifically enforce the Company's obligations under Section 2(a)
and Section 2(b) hereof.
3. REGISTRATION PROCEDURES. In connection with the obligations of
the Company with respect to the Registration Statements pursuant to Sections
2(a) and 2(b) hereof, the Company shall use its best efforts to:
(a) prepare and file with the SEC a Registration Statement or
Registration Statements as prescribed by Sections 2(a) and 2(b) hereof within
the relevant time period specified in Section 2 hereof on the appropriate form
under the Securities Act, which form (i) shall be selected by the Company, (ii)
shall, in the case of a Shelf Registration, be available for the sale of the
Registrable Securities by the selling Holders thereof and (iii) shall comply as
to form in all material respects with the requirements of the applicable form
and include all financial statements required by the SEC to be filed therewith;
and use its best efforts to cause such Registration Statement to become
effective and remain effective in accordance with Section 2 hereof; PROVIDED,
HOWEVER, that if (1) such filing is pursuant to Section 2(b), or (2) a
Prospectus contained in an Exchange Offer Registration Statement filed pursuant
to Section 2(a) is required to be delivered under the Securities Act by any
Participating Broker-Dealer
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<PAGE>
who seeks to sell Exchange Securities, before filing any Registration Statement
or Prospectus or any amendments or supplements thereto, the Company shall
furnish to and afford the Holders of the Registrable Securities and each such
Participating Broker-Dealer, as the case may be, covered by such Registration
Statement, 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 (at least 10 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 if the
Majority Holders or such Participating Broker-Dealer, as the case may be, their
counsel or the managing underwriters, if any, shall reasonably object;
(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 the Effectiveness Period or the Applicable
Period, as the case may be; and cause each Prospectus to be supplemented, if so
determined by the Company or requested by the SEC, by any required prospectus
supplement and as so supplemented to be filed pursuant to Rule 424 (or any
similar provision then in force) under the Securities Act, and comply with the
provisions of the Securities Act, the Exchange Act and the rules and regulations
promulgated thereunder applicable to it with respect to the disposition of all
securities covered by each Registration Statement during the Effectiveness
Period or the Applicable Period, as the case may be, in accordance with the
intended method or methods of distribution by the selling Holders thereof
described in this Agreement (including sales by any Participating
Broker-Dealer);
(c) in the case of a Shelf Registration, (i) notify each Holder of
Registrable Securities included in the Shelf Registration Statement, at least
three Business Days prior to filing, that a Shelf Registration Statement with
respect to the Registrable Securities is being filed and advising such Holder
that the distribution of Registrable Securities will be made in accordance with
the method selected by the Majority Holders; and (ii) furnish to each Holder of
Registrable Securities included in the Shelf Registration Statement 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; and (iii)
consent to the use of the Prospectus or any amendment or supplement thereto by
each of the selling Holders of Registrable Securities included in the Shelf
Registration
15
<PAGE>
Statement in connection with the offering and sale of the Registrable Securities
covered by the Prospectus or any amendment or supplement thereto;
(d) in the case of a Shelf Registration, register or qualify the
Registrable Securities under all applicable state securities or "blue sky" laws
of such jurisdictions by the time the applicable Registration Statement is
declared effective by the SEC as any Holder of Registrable Securities covered by
a Registration Statement and each underwriter of an underwritten offering of
Registrable Securities shall reasonably request in writing in advance of such
date of effectiveness, and do any and all other acts and things which may be
reasonably necessary or advisable to enable such Holder and underwriter to
consummate the disposition in each such jurisdiction of such Registrable
Securities owned by such Holder; PROVIDED, HOWEVER, that the Company shall not
be required to (i) qualify as a foreign corporation or as a dealer in securities
in any jurisdiction where it would not otherwise be required to qualify but for
this Section 3(d), (ii) file any general consent to service of process in any
jurisdiction where it would not otherwise be subject to such service of process
or (iii) subject itself to taxation in any such jurisdiction if it is not then
so subject;
(e) in the case of (1) a Shelf Registration or (2) Participating
Broker-Dealers from whom the Company has received prior written notice that they
will be utilizing the Prospectus contained in the Exchange Offer Registration
Statement as provided in Section 3(t) hereof, are seeking to sell Exchange
Securities and are required to deliver Prospectuses, notify each Holder of
Registrable Securities, or such Participating Broker-Dealers, as the case may
be, their counsel and the managing underwriters, if any, promptly and promptly
confirm such notice 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 or Prospectus or for
additional information after the Registration Statement has become effective,
(iii) of the issuance by the SEC or any state securities authority of any stop
order suspending the effectiveness of a Registration Statement or the
qualification of the Registrable Securities or the Exchange Securities to be
offered or sold by any Participating Broker-Dealer in any jurisdiction described
in paragraph 3(d) hereof or the initiation of any proceedings for that purpose,
(iv) in the case of a Shelf Registration, 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 relating to such Registrable Securities so sold, if any cease to be
true and correct in all material respects, and (v) of the happening of any event
or the failure of any event to occur or the discovery of any facts or otherwise,
during the
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Effectiveness Period which makes any statement made in such Registration
Statement or the related Prospectus untrue in any material respect or which
causes such Registration Statement or Prospectus to 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, and (vi) the Company's reasonable
determination that a post-effective amendment to the Registration Statement
would be appropriate;
(f) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of a Registration Statement at the earliest
possible moment;
(g) in the case of a Shelf Registration, furnish to each Holder of
Registrable Securities included within the coverage of such Shelf Registration
Statement, without charge, at least one conformed copy of each Registration
Statement relating to such Shelf Registration and any post-effective amendment
thereto (without documents incorporated therein by reference or exhibits
thereto, unless reasonably requested);
(h) in the case of a Shelf Registration, 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 in such denominations (consistent with the
provisions of the Indenture) and registered in such names as the selling Holders
or the underwriters may reasonably request at least two Business Days prior to
the closing of any sale of Registrable Securities pursuant to such Shelf
Registration Statement;
(i) in the case of a Shelf Registration or an Exchange Offer
Registration, upon the occurrence of any circumstance or event contemplated by
Section 3(e)(ii), 3(e)(iii), 3(e)(v) or 3(e)(vi) hereof, 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 the light of the circumstances under which they were made, not misleading;
and to notify each Holder to suspend use of the Prospectus as promptly as
practicable after the occurrence of such a circumstance or 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;
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<PAGE>
(j) in the case of a Shelf Registration, a reasonable time prior to
the filing of any document which is to be incorporated by reference into a
Registration Statement or a Prospectus after the initial filing of a
Registration Statement, provide a reasonable number of copies of such document
to the Holders; and make such of the representatives of the Company as shall be
reasonably requested by the Holders of Registrable Securities or the Purchasers
on behalf of such Holders available for discussion of such document;
(k) obtain a CUSIP number for all Exchange Securities or Registrable
Securities, as the case may be, not later than the effective date of a
Registration Statement, and provide the Trustee with printed certificates for
the Exchange Securities or the Registrable Securities, as the case may be, in a
form eligible for deposit with the Depositary;
(l) cause the Indenture to be qualified under the Trust Indenture Act
of 1939 (the "TIA") in connection with the registration of the Exchange
Securities or Registrable Securities, as the case may be, and effect such
changes to the Indenture as may be required for the Indenture to be so qualified
in accordance with the terms of the TIA and execute, and use its best efforts to
cause the Trustee to execute, all documents as may be required to effect such
changes, and all other forms and documents required to be filed with the SEC to
enable the Indenture to be so qualified in a timely manner;
(m) in the case of a Shelf Registration, enter into such agreements
(including underwriting agreements) as are customary in underwritten offerings
and take all such other appropriate actions as are reasonably requested in order
to expedite or facilitate the registration or the disposition of such
Registrable Securities, and in such connection, whether or not an underwriting
agreement is entered into and whether or not the registration is an underwritten
registration, if requested by (x) any Purchaser, in the case where a Purchaser
holds Securities acquired by it as part of its initial distribution or (y)
Holders of Securities covered thereby, in the case where no Purchaser holds any
such Securities: (i) make such reasonable representations and warranties to
Holders of such Registrable Securities and the underwriters (if any), with
respect to the business of the Company and its subsidiaries as then conducted
and the Registration Statement, Prospectus and documents, if any, incorporated
or deemed to be incorporated by reference therein, in each case, as are
customarily made by issuers to underwriters in underwritten offerings, and
confirm the same if and when reasonably requested; (ii) obtain opinions of
counsel to the Company and updates thereof (which may be in the form of a
reliance letter) in form and substance reasonably satisfactory to the managing
underwriters (if any) and the Holders of a majority in principal amount of the
Registrable Securities being sold, addressed to each selling Holder and the
18
<PAGE>
underwriters (if any) covering the matters customarily covered in opinions
requested in underwritten offerings and such other matters as may be reasonably
requested by such Holders and underwriters (it being agreed that the matters to
be covered by such opinion may be subject to customary or other reasonable
qualifications and exceptions); (iii) obtain "cold comfort" letters and updates
thereof in form and substance reasonably satisfactory to the managing
underwriters from the independent certified public accountants of the Company
(and, if necessary, any other independent certified public accountants of any
subsidiary of the Company or of any business acquired by the Company for which
financial statements and financial data are, or are required to be, included in
the Registration Statement), addressed to each of the underwriters with copies
thereof to the selling Holders of Registrable Securities, such letters to be in
customary form and covering matters of the type customarily covered in "cold
comfort" letters in connection with underwritten offerings and such other
matters as reasonably requested by such underwriters in accordance with
Statement on Accounting Standards No. 72; and (iv) if an underwriting agreement
is entered into, the same shall contain indemnification provisions and
procedures no less favorable than those set forth in Section 4 hereof (or such
other provisions and procedures acceptable to Holders of a majority in aggregate
principal amount of Registrable Securities covered by such Registration
Statement and the managing underwriters or agents) with respect to all parties
to be indemnified pursuant to said Section (including, without limitation, such
underwriters and selling Holders). 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 2(b) or
(2) a Prospectus contained in an Exchange Offer Registration Statement filed
pursuant to Section 2(a) is required to be delivered under the Securities Act by
any Participating Broker-Dealer who seeks to sell Exchange Securities during the
Applicable Period, make reasonably available for inspection by any selling
Holder of such Registrable Securities being sold, or each such Participating
Broker-Dealer, as the case may be, any underwriter participating in any such
disposition of Registrable Securities, if any, and any attorney, accountant or
other agent retained by any such selling Holder or each such Participating
Broker-Dealer, as the case may be, or underwriter (collectively, the
"INSPECTORS"), at the offices where normally kept, during reasonable business
hours, all financial and other records, pertinent corporate documents and
properties of the 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 subsidiaries to supply all relevant information in each case
reasonably requested by any such Inspector in connection with such Registration
Statement PROVIDED, HOWEVER, that the foregoing inspection and information
gathering shall be coordinated on behalf of the Purchasers
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by Merrill Lynch & Co. and on behalf of the other parties, by one counsel
designated by Merrill Lynch & Co. and on behalf of such other parties as
described in Section 2(c) hereof. Records which the Company determines, in good
faith, to be confidential and any records which it notifies the Inspectors are
confidential shall not be disclosed by the Inspectors unless (i) the disclosure
of such Records is necessary to avoid or correct a material misstatement or
omission in such Registration Statement, (ii) the release of such Records is
ordered pursuant to a subpoena or other order from a court of competent
jurisdiction or is necessary in connection with any action, suit or proceeding
or (iii) the information in such Records has been made generally available to
the public (other than by or through any Inspector, any such selling Holder of
Registrable Securities or any such Participating Broker-Dealer). Each
Inspector, each selling Holder of such Registrable Securities and each such
Participating Broker-Dealer will be required to agree in writing, pursuant to a
confidentiality agreement in form and substance reasonably satisfactory to the
Company, that (1) 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 is
made generally available to the public (other than by or through any Inspector,
any such selling Holder of Registrable Securities or any such Participating
Broker-Dealer) and (2) 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 at its expense to undertake appropriate action to prevent
disclosure of the Records deemed confidential;
(o) comply with all applicable rules and regulations of the SEC so
long as any provision of this Agreement shall be applicable and make generally
available to its security holders 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 Securities 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) upon consummation of an Exchange Offer or a Private Exchange, if
requested by the Trustee, obtain an opinion of counsel to the Company addressed
to the Trustee for the benefit of all Holders of Registrable Securities
participating in the Exchange Offer or the Private Exchange, as the case may be,
and which includes an opinion that (i) the Company has duly authorized, executed
and delivered the Exchange
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Securities and Private Exchange Securities, and (ii) each of the Exchange
Securities or the Private Exchange Securities, as the case may be, constitute a
legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its respective terms (in each case, with customary
exceptions and qualifications);
(q) if an Exchange Offer or a Private Exchange is to be consummated,
upon delivery of the Registrable Securities by Holders to the Company (or to
such other Person as directed by the Company) in exchange for the Exchange
Securities or the Private Exchange Securities, as the case may be, the Company
shall mark, or cause to be marked, on such Registrable Securities delivered by
such Holders that such Registrable Securities are being cancelled in exchange
for the Exchange Securities or the Private Exchange Securities, as the case may
be; in no event shall such Registrable Securities be marked as paid or otherwise
satisfied;
(r) cooperate in all reasonable respects with each seller of
Registrable Securities covered by any Registration Statement and each
underwriter, if any, participating in the disposition of such Registrable
Securities and their respective counsel in connection with any filings required
to be made with the NASD;
(s) take all other steps reasonably necessary to effect the
registration of the Registrable Securities covered by a Registration Statement
contemplated hereby;
(t) (A) in the case of the Exchange Offer Registration Statement (i)
include in the Exchange Offer Registration Statement a section entitled "Plan of
Distribution," which section shall be reasonably acceptable to the Purchasers or
another representative of the Participating Broker-Dealers, and 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 (a "PARTICIPATING BROKER-DEALER") that holds Registrable
Securities acquired for its own account as a result of market-making activities
or other trading activities and that will be the beneficial owner (as defined in
Rule 13d-3 under the Exchange Act) of Exchange Securities to be received by such
broker-dealer in the Exchange Offer, whether such positions or policies have
been publicly disseminated by the staff of the SEC or such positions or
policies, in the reasonable judgment of the Purchasers or such other
representative, represent the prevailing views of the staff of the SEC,
including a statement that any such broker-dealer who receives Exchange
Securities for Registrable Securities pursuant to the Exchange Offer may be
deemed a statutory underwriter and must deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such
Exchange Securities, (ii) furnish to each Participating Broker-Dealer who has
delivered to the Company the notice referred to in Section 3(e),
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without charge, as many copies of each Prospectus included in the Exchange Offer
Registration Statement, including any preliminary prospectus, and any amendment
or supplement thereto, as such Participating Broker-Dealer may reasonably
request, (iii) hereby consent to the use (to the extent permitted under the
positions and policies of the staff of the SEC) of the Prospectus forming part
of the Exchange Offer Registration Statement or any amendment or supplement
thereto, by any Person subject to the prospectus delivery requirements of the
SEC, including all Participating Broker-Dealers, in connection with the sale or
transfer of the Exchange Securities covered by the Prospectus or any amendment
or supplement thereto, (iv) keep the Exchange Offer Registration Statement
effective and to amend and supplement the Prospectus contained therein in order
to permit such Prospectus to be lawfully delivered by all such Persons subject
to the prospectus delivery requirements of the Securities Act (to the extent
permitted under the positions and policies of the staff of the SEC) for such
period of time as such Persons must comply with such requirements under the
Securities Act and applicable rules and regulations in order to resell the
Exchange Securities; PROVIDED, HOWEVER, that such period shall not be required
to exceed 180 days (or such longer period if extended pursuant to the last
sentence of Section 3 hereof) (the "APPLICABLE PERIOD"), and (v) except as may
be otherwise required by the SEC, include in the transmittal letter or similar
documentation to be executed by an exchange offeree in order to participate in
the Exchange Offer (x) a provision substantially to the following effect:
"If the exchange offeree is a broker-dealer holding
Registrable Securities acquired for its own account as a
result of market-making activities or other trading
activities, it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any
resale of Exchange Securities received in respect of such
Registrable Securities pursuant to the Exchange Offer";
and (y) a statement to the effect that by a broker-dealer making the
acknowledgment described in clause (x) and by delivering a Prospectus in
connection with the exchange of Registrable Securities, the broker-dealer will
not be deemed to admit that it is an underwriter within the meaning of the
Securities Act; and
(B) in the case of any Exchange Offer Registration Statement, the
Company agrees to deliver to the Purchasers or to another representative of the
Participating Broker-Dealers, if requested by any such Purchasers or such other
representative of the Participating Broker-Dealers, on behalf of the
Participating Broker-Dealers upon consummation of the Exchange Offer (i) an
opinion of counsel in
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form and substance reasonably satisfactory to the Purchasers or such other
representative of the Participating Broker-Dealers, covering the matters
customarily covered in opinions requested in connection with Exchange Offer
Registration Statements and such other matters as may be reasonably requested
(it being agreed that the matters to be covered by such opinion should be
subject to customary or other reasonable qualifications and exceptions), (ii) an
officers' certificate containing certifications substantially similar to those
set forth in Section 5(f) of the Purchase Agreement and such additional
certifications as are customarily delivered in a public offering of debt
securities and (iii) as well as upon the effectiveness of the Exchange Offer
Registration Statement, a comfort letter, in each case, in customary form if
permitted by Statement on Auditing Standards No. 72 of the American Institute of
Certified Public Accountants or any successor or supplemental standard.
The Company may require each seller of Registrable Securities as to
which any registration is being effected to furnish to the Company such
information regarding such seller and the proposed distribution of such
Registrable Securities, as the Company may from time to time reasonably request
in writing. The Company may exclude from such registration the Registrable
Securities of any seller who unreasonably fails to furnish such information
within a reasonable time after receiving such request.
In the case of (1) a Shelf Registration Statement or (2) Participating
Broker-Dealers who have notified the Company that they will be utilizing the
Prospectus contained in the Exchange Offer Registration Statement as provided in
Section 3(t) hereof, are seeking to sell Exchange Securities and are required to
deliver Prospectuses, each Holder agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section
3(e)(ii), 3(e)(iii), 3(e)(v) or 3(e)(vi) hereof, such Holder will forthwith
discontinue disposition of Registrable Securities pursuant to a Registration
Statement until such Holder's receipt of the copies of the supplemented or
amended Prospectus contemplated by Section 3(i) hereof or until it is advised in
writing (the "ADVICE") by the Company that the use of the applicable Prospectus
may be resumed, and, if so directed by the Company, such Holder will deliver to
the Company (at the Company's expense) all copies in such Holder's possession,
other than permanent file copies then in such Holder's possession, of the
Prospectus covering such Registrable Securities or Exchange Securities, as the
case may be, current at the time of receipt of such notice. If the Company
shall give any such notice to suspend the disposition of Registrable Securities
or Exchange Securities, as the case may be, pursuant to a Registration
Statement, the Company shall use its best efforts to file and have declared
effective (if an amendment) as soon as practicable an amendment or supplement to
the Registration Statement and shall extend
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<PAGE>
the period during which such Registration Statement shall be maintained
effective pursuant to this Agreement by the number of days in the period from
and including the date of the giving of such notice to and including the date
when the Company shall have made available to the Holders (x) copies of the
supplemented or amended Prospectus necessary to resume such dispositions or (y)
the Advice.
4. INDEMNIFICATION AND CONTRIBUTION.
(a) In connection with any Registration Statement, the Company shall
indemnify and hold harmless, each Holder, each Participating Broker-Dealer, each
Person, if any, who controls any of such parties within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act and each of their
respective directors, officers, employees and agents, as follows:
(i) from and against any and all loss, liability, claim, damage and
expense whatsoever, joint or several, as incurred, arising out of any
untrue statement or alleged untrue statement of a material fact contained
in any Registration Statement (or any amendment thereto), covering
Registrable Securities or Exchange Securities, including all documents
incorporated therein by reference, or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to
make the statements therein not misleading or arising out of any untrue
statement or alleged untrue statement of a material fact contained in any
Prospectus (or any amendment or supplement thereto) or the omission or
alleged omission therefrom of a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading;
(ii) from and against any and all loss, liability, claim, damage and
expense whatsoever, joint or several, as incurred, to the extent of the
aggregate amount paid in settlement of any litigation, or any
investigation or proceeding by any court or governmental agency or body,
commenced or threatened, or of any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue statement or
omission, if such settlement is effected with the prior written consent of
the Company; and
(iii) from and against any and all expenses whatsoever, as incurred
(including reasonable fees and disbursements of counsel chosen by such
Holder or such Participating Broker-Dealer (except to the extent otherwise
expressly provided in Section 4(c) hereof)), reasonably incurred in
investigating,
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<PAGE>
preparing or defending against any litigation, or any investigation or
proceeding by any court or governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission, to the extent
that any such expense is not paid under subparagraph (i) or (ii) of this
Section 4(a);
PROVIDED, HOWEVER, that (i) this indemnity does not apply to any loss,
liability, claim, damage or expense to the extent arising out of an untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished in writing to the
Company by such Holder or such Participating Broker-Dealer with respect to such
Holder or Participating Broker-Dealer, as the case may be, expressly for use in
the Registration Statement (or any amendment thereto) or any Prospectus (or any
amendment or supplement thereto) and (ii) the Company shall not be liable to any
such Holder, Participating Broker-Dealer or controlling person, with respect to
any untrue statement or alleged untrue statement or omission or alleged omission
in any preliminary Prospectus to the extent that any such loss, liability,
claim, damage or expense of any Holder, Participating Broker-Dealer or
controlling person results from the fact that such Holder or Participating
Broker-Dealer sold Securities to a person to whom there was not sent or given,
at or prior to the written confirmation of such sale, a copy of the final
Prospectus as then amended or supplemented if the Company had previously
furnished copies thereof to such Holder or Participating Broker-Dealer and the
loss, liability, claim, damage or expense of such Holder, Participating
Broker-Dealer or controlling person results from an untrue statement or omission
of a material fact contained in the preliminary Prospectus which was corrected
in the final Prospectus. Any amounts advanced by the Company to an indemnified
party pursuant to this Section 4 as a result of such losses shall be returned to
the Company if it shall be finally determined by such a court in a judgment not
subject to appeal or final review that such indemnified party was not entitled
to indemnification by the Company.
(b) Each Holder agrees, severally and not jointly, to indemnify and
hold harmless the Company and the other selling Holders and each of their
respective directors, officers (including each officer of the Company who signed
the Registration Statement), employees and agents and each Person, if any, who
controls the Company or any other selling Holder within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act, from and against any
and all loss, liability, claim, damage and expense whatsoever described in the
indemnity contained in Section 4(a) hereof, as incurred, but only with respect
to untrue statements or omissions, or alleged untrue statements or omissions,
made in the Registration Statement (or any amendment thereto) or any Prospectus
(or any amendment or supplement thereto) in reliance upon
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<PAGE>
and in conformity with written information furnished to the Company by such
selling Holder with respect to such Holder expressly for use in the Registration
Statement (or any amendment thereto), or any such Prospectus (or any amendment
or supplement thereto).
(c) Each indemnified party shall give prompt notice to each
indemnifying party of any action commenced against it in respect of which
indemnity may be sought hereunder, enclosing a copy of all papers properly
served on such indemnified party, but failure to so notify an indemnifying party
shall not relieve such indemnifying party from any liability which it may have
under this Section 4, except to the extent that it is materially prejudiced by
such failure. An indemnifying party may participate at its own expense in the
defense of such action. If an indemnifying party so elects within a reasonable
time after receipt of such notice, an indemnifying party, severally or jointly
with any other indemnifying parties receiving such notice, may assume the
defense of such action with counsel chosen by it and reasonably acceptable to
the indemnified parties defendant in such action, PROVIDED, HOWEVER, that if (i)
representation of such indemnified party by the same counsel would present a
conflict of interest or (ii) the actual or potential defendants in, or targets
of, any such action include both the indemnified party and the indemnifying
party and any such indemnified party reasonably determines that there may be
legal defenses available to such indemnified party which are different from or
in addition to those available to such indemnifying party, then in the case of
clauses (i) and (ii) of this Section 4(c) such indemnifying party and counsel
for each indemnifying party or parties shall not be entitled to assume such
defense. If an indemnifying party is not entitled to assume the defense of such
action as a result of the proviso to the preceding sentence, counsel for such
indemnifying party and counsel for each indemnified party or parties shall be
entitled to conduct the defense of such indemnified party or parties. If an
indemnifying party assumes the defense of such action, in accordance with and as
permitted by the provisions of this paragraph, such indemnifying parties shall
not be liable for any fees and expenses of counsel for the indemnified parties
incurred thereafter in connection with such action. In no event shall the
indemnifying parties be liable for the fees and expenses of more than one
counsel (in addition to local counsel), separate from its own counsel, for all
indemnified parties in connection with any one action or separate but similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances. No indemnifying party shall, without the prior
written consent of the indemnified parties, settle or compromise or consent to
the entry of any judgment with respect to any litigation, or any investigation
or proceeding by any governmental agency or body, commenced or threatened, or
any claim whatsoever in respect of which indemnification or contribution could
be sought under this Section 4 (whether or not the indemnified parties are
actual or potential parties thereto), unless
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<PAGE>
such settlement, compromise or consent (i) includes an unconditional written
release in form and substance satisfactory to the indemnified parties of each
indemnified party from all liability arising out of such litigation,
investigation, proceeding or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act by or on behalf of any
indemnified party.
(d) If at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for reasonable fees and
expenses of counsel pursuant to and to the extent required by Section 4(a)(iii)
above, such indemnifying party agrees that it shall be liable for any settlement
of the nature contemplated by Section 4(a)(ii) effected without its written
consent if (i) such settlement is entered into more than 30 days after receipt
by such indemnifying party of the aforesaid request, (ii) such indemnifying
party shall have received notice of the terms of such settlement at least 30
days prior to such settlement being entered into and (iii) such indemnifying
party shall not have reimbursed such indemnified party in accordance with such
request prior to the date of such settlement. Notwithstanding the immediately
preceding sentence, if at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel, an indemnifying party shall not be liable for any settlement of the
nature contemplated by Section 4(a)(ii) effected without its consent if such
indemnifying party (i) reimburses such indemnified party in accordance with such
request to the extent it considers such request to be reasonable and (ii)
provides written notice to the indemnified party substantiating the unpaid
balance as unreasonable, in each case prior to the date of such settlement.
(e) In order to provide for just and equitable contribution in
circumstances under which any of the indemnity provisions set forth in this
Section 4 is for any reason held to be unavailable to the indemnified parties
although applicable in accordance with its terms, the Company and the Holders
shall contribute to the aggregate losses, liabilities, claims, damages and
expenses of the nature contemplated by such indemnity agreement incurred by the
Company and the Holders, as incurred; PROVIDED that 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 that was not
guilty of such fraudulent misrepresentation. As between the Company and the
Holders, such parties shall contribute to such aggregate losses, liabilities,
claims, damages and expenses of the nature contemplated by such indemnity
agreement in such proportion as shall be appropriate to reflect the relative
fault of the Company, on the one hand, and the Holders, on the other hand, with
respect to the statements or omissions which resulted in such loss, liability,
claim, damage or expense, or action in respect thereof, as well as any other
relevant equitable considerations. The relative
27
<PAGE>
fault of the Company, on the one hand, and of 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, on the
one hand, or by or on behalf of the Holders, on the other, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company and the Holders of the
Registrable Securities agree that it would not be just and equitable if
contribution pursuant to this Section 4 were to be determined by pro rata
allocation or by any other method of allocation that does not take into account
the relevant equitable considerations. For purposes of this Section 4, each
affiliate of a Holder, and each director, officer, employee, agent and Person,
if any, who controls a Holder or such affiliate within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act shall have the same
rights to contribution as such Holder, and each affiliate of the Company, each
director, officer, employee or agent of the Company, each officer of the Company
who signed the Registration Statement, and each Person, if any, who controls
each of the Company or such affiliate within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act shall have the same rights to
contribution as the Company.
5. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Holder may
participate in any underwritten registration hereunder unless such Holder
(a) agrees to sell such Holder's Registrable Securities on the basis provided in
any underwriting arrangements approved by the Persons entitled hereunder to
approve such arrangements and (b) completes and executes all reasonable
questionnaires, powers of attorney, indemnities, underwriting agreements,
lock-up letters and other documents reasonably required under the terms of such
underwriting arrangements.
6. SELECTION OF UNDERWRITERS. The Holders of Registrable Securities
covered by the Shelf Registration Statement who desire to do so may sell the
securities covered by such Shelf Registration in an underwritten offering. In
any such underwritten offering, the underwriter or underwriters and manager or
managers that will administer the offering will be selected by the Holders of a
majority in aggregate principal amount of the Registrable Securities included in
such offering; PROVIDED, HOWEVER, that such underwriters and managers must be
reasonably satisfactory to the Company.
7. MISCELLANEOUS.
(a) RULE 144 AND RULE 144A. For so long as the Company is subject to
the reporting requirements of Section 13 or 15 of the Exchange Act and any
Registrable
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Securities remain outstanding, the Company will use its best efforts to file the
reports required to be filed by it under the Securities Act and Section 13(a) or
15(d) of the Exchange Act and the rules and regulations adopted by the SEC
thereunder, that if it ceases to be so required to file such reports, it will,
upon the request of any Holder of Registrable Securities (a) make publicly
available such information as is necessary to permit sales of their securities
pursuant to Rule 144 under the Securities Act, (b) deliver such information to a
prospective purchaser as is necessary to permit sales of their securities
pursuant to Rule 144A under the Securities Act and it will take such further
action as any Holder of Registrable Securities may reasonably request, and (c)
take such further action that is reasonable in the circumstances, in each case,
to the extent required from time to time to enable such Holder to sell its
Registrable Securities without registration under the Securities Act within the
limitation of the exemptions provided by (i) Rule 144 under the Securities Act,
as such rule may be amended from time to time, (ii) Rule 144A under the
Securities Act, as such rule may be amended from time to time, or (iii) any
similar rules or regulations hereafter adopted by the SEC. Upon the request of
any Holder of Registrable Securities, the Company will deliver to such Holder a
written statement as to whether it has complied with such requirements.
(b) NO INCONSISTENT AGREEMENTS. The Company has not entered into nor
will the Company on or after the date of this Agreement enter into any agreement
which is inconsistent with the rights granted to the Holders of Registrable
Securities in this Agreement or otherwise conflicts with the provisions hereof.
The rights granted to the Holders hereunder do not in any way conflict with and
are not inconsistent with the rights granted to the holders of the Company's
other issued and outstanding securities under any such agreements.
(c) AMENDMENTS AND WAIVERS. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of Holders
of at least a majority in aggregate principal amount of the outstanding
Registrable Securities affected by such amendment, modification, supplement,
waiver or departure; PROVIDED no amendment, modification or supplement or waiver
or consent to the departure with respect to the provisions of Section 4 hereof
shall be effective as against any Holder of Registrable Securities unless
consented to in writing by such Holder of Registrable Securities.
(d) NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class
29
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mail, telex, telecopier, or any courier guaranteeing overnight delivery (i) if
to a Holder, at the most current address given by such Holder to the Company by
means of a notice given in accordance with the provisions of this Section 7(d),
which address initially is, with respect to the Purchasers, the address set
forth in the Purchase Agreement; and (ii) if to the Company, initially at the
Company's address set forth in the Purchase Agreement and thereafter at such
other address, notice of which is given in accordance with the provisions of
this Section 7(d).
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when
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.
Copies of all such notices, demands, or other communications shall be
concurrently delivered by the Person giving the same to the Trustee, at the
address specified in the Indenture.
(e) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors, assigns and transferees of the
Purchasers, including, without limitation and without the need for an express
assignment, subsequent Holders; PROVIDED, HOWEVER, that nothing herein shall be
deemed to permit any assignment, transfer or other disposition of Registrable
Securities in violation of the terms of the Purchase Agreement or the Indenture.
If any transferee of any Holder shall acquire Registrable Securities, in any
manner, whether by operation of law or otherwise, such Registrable Securities
shall be held subject to all of the terms of this Agreement, and by taking and
holding such Registrable Securities, 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.
(f) THIRD PARTY BENEFICIARY. Each of the Purchasers shall be a third
party beneficiary of the agreements made hereunder between the Company, on the
one hand, and the Holders, on the other hand, and shall have the right to
enforce such agreements directly to the extent it deems such enforcement
necessary or advisable to protect its rights or the rights of Holders hereunder.
(g) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so
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executed shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
(h) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE DEEMED TO HAVE BEEN MADE
IN THE STATE OF NEW YORK. 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 WITHOUT GIVING
EFFECT TO ANY PROVISIONS RELATING TO CONFLICTS OF LAWS. 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.
(j) SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
(k) SECURITIES HELD BY THE COMPANY OR ITS AFFILIATES. Whenever the
consent or approval of Holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities 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.
31
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
LEINER HEALTH PRODUCTS GROUP INC.
By: /s/ William B. Towne
----------------------------------
Name: William B. Towne
Title: Executive Vice President,
Chief Financial Officer
LEINER HEALTH PRODUCTS INC.
By: /s/ William B. Towne
----------------------------------
Name: William B. Towne
Title: Executive Vice President,
Chief Financial Officer
Confirmed and accepted as of
the date first above
written:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
SALOMON BROTHERS INC
SCOTIA CAPITAL MARKETS (USA) INC.
Acting on behalf of themselves and the several Purchasers.
By MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: /s/ Jack Mann
------------------------------------
Name: Jack Mann
Title: Authorized Signatory
32
<PAGE>
Exhibit 12.1
LEINER HEALTH PRODUCTS INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MARCH 31,
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
UNAUDITED
PRO FORMA
1993(1) 1994 1995 1996 1997 1997(2)
--------- --------- --------- --------- --------- -----------
Net income (loss)....................................... $ (1,033) $ 3,417 $ 3,813 $ 1,166 $ 7,638 $ (836)
Extraordinary item...................................... -- -- -- -- 2,756 2,756
Income taxes............................................ 999 3,573 3,524 4,686 8,028 2,489
Fixed charges........................................... 7,054 8,627 10,863 11,484 9,866 24,759
--------- --------- --------- --------- --------- -----------
Earnings.............................................. $ 7,020 $ 15,617 $ 18,200 $ 17,336 $ 28,288 $ 29,168
--------- --------- --------- --------- --------- -----------
--------- --------- --------- --------- --------- -----------
Fixed charges:
Interest expense........................................ $ 5,791 $ 7,144 $ 9,010 $ 9,924 $ 8,281 $ 23,147
Interest portion of rent expense........................ 1,263 1,483 1,853 1,560 1,585 1,612
--------- --------- --------- --------- --------- -----------
Total fixed charges................................... $ 7,054 $ 8,627 $ 10,863 $ 11,484 $ 9,866 $ 24,759
--------- --------- --------- --------- --------- -----------
--------- --------- --------- --------- --------- -----------
Ratio of earnings to fixed charges(3)................... 1.0 1.8 1.7 1.5 2.9 1.2
--------- --------- --------- --------- --------- -----------
--------- --------- --------- --------- --------- -----------
</TABLE>
- ------------------------
(1) The computation of ratio of earnings to fixed charges for the fiscal year
ended March 31, 1993 represents the results of operations of LHP, the
results of operations for XCEL from the date of its acquisition, and
purchase accounting for the acquisitions of LHP and XCEL during that fiscal
year. See "The Company."
(2) On January 30, 1997, the Company purchased Vita Health. This column gives
effect to the acquisition of Vita Health, as well as the Recapitalization
and related transactions. See "Unaudited Pro Forma Financial Information."
The Vita Health acquisition was accounted for under the purchase method of
accounting. Consequently, the results of operations of Vita Health were
included in the consolidated financial results of the Company for the two
months ended March 31, 1997. The pro forma column includes the operating
results of Vita Health for the additional ten months ended January 30, 1997
and excludes certain non-recurring bonuses paid to the former owners of Vita
Health of $2.4 million.
(3) In calculating the ratio of earnings to fixed charges, earnings consist of
income before taxes plus fixed charges. Fixed charges consist of interest
expense and amortization of deferred financing fees, whether capitalized or
expensed, plus one-third of rental expense under operating leases (the
portion that has been deemed by the Company to be representative of an
interest factor).
<PAGE>
EXHIBIT 12.2
LEINER HEALTH PRODUCTS INC.
COMPUTATION OF EBITDA TO INTEREST EXPENSE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MARCH 31,
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
UNAUDITED
PRO FORMA
1993(1) 1994 1995 1996 1997 1997(2)
--------- --------- --------- --------- --------- -----------
Net income (loss)...................................... $ (1,033) $ 3,417 $ 3,813 $ 1,166 $ 7,638 $ (836)
Add Back:
Interest expense, net................................ 5,791 7,144 9,010 9,924 8,281 23,147
Income taxes......................................... 999 3,573 3,524 4,686 8,028 2,489
Depreciation and amortization........................ 4,586 7,247 10,514 12,288 12,309 12,862
Extraordinary item................................... -- -- -- -- 2,756 2,756
Non-recurring charges:
Impairment and closure of facility................. -- -- -- 4,730 1,416 1,416
Management reorganization.......................... -- -- -- -- 1,000 1,000
Other charges...................................... 3,631 2,017 132 132 528 553
--------- --------- --------- --------- --------- -----------
Subtotal......................................... 15,007 19,981 23,180 31,760 34,318 44,223
--------- --------- --------- --------- --------- -----------
EBITDA(3).............................................. $ 13,974 $ 23,398 $ 26,993 $ 32,926 $ 41,956 $ 43,387
--------- --------- --------- --------- --------- -----------
Interest expense, net(3)............................... $ 5,791 $ 7,144 $ 9,010 $ 9,924 $ 8,281 $ 23,147
Less amortization of deferred financing charges........ -- -- 184 212 239 1,171
--------- --------- --------- --------- --------- -----------
Adjusted interest expense, net......................... $ 5,791 $ 7,144 $ 8,826 $ 9,912 $ 8,042 $ 21,976
--------- --------- --------- --------- --------- -----------
--------- --------- --------- --------- --------- -----------
Ratio of EBITDA to interest expense.................... 2.4 3.3 3.1 3.4 5.2 2.0
--------- --------- --------- --------- --------- -----------
--------- --------- --------- --------- --------- -----------
</TABLE>
- ------------------------
(1) The computation of EBITDA to interest expense for the fiscal year ended
March 31, 1993 represents the results of operations of LHP, the results of
operations for XCEL from the date of its acquisition, and purchase
accounting for the acquisitions of LHP and XCEL during that fiscal year. See
"The Company."
(2) On January 30, 1997, the Company purchased Vita Health. This column gives
effect to the acquisition of Vita Health, as well as the Recapitalization
and related transactions. See "Unaudited Pro Forma Financial Information."
The Vita Health acquisition was accounted for under the purchase method of
accounting. Consequently, the results of operations of Vita Health were
included in the consolidated financial results of the Company for the two
months ended March 31, 1997. The pro forma column includes the operating
results of Vita Health for the additional ten months ended January 30, 1997
and excludes certain non-recurring bonuses paid to the former owners of Vita
Health of $2.4 million.
(3) For purposes of calculating the ratio of EBITDA to interest expense,
interest expense excludes the amortization of deferred financing fees, which
is included in interest expense in the income statement in the audited
consolidated financial statements.
"EBITDA," as presented, represents earnings before interest expense, income
taxes, depreciation and amortization and extraordinary item, and also
excludes certain expenses that are not expected to be continued. (See Note 5
to the "Summary Historical and Pro Forma Financial Data"). EBITDA is
included because management understands that such information is considered
by certain investors to be an additional basis for evaluating the Company's
ability to pay interest, repay debt and make capital expenditures. EBITDA
should not be considered an alternative to measures of operating performance
as determined in accordance with generally accepted accounting principles,
including net income as a measure of the Company's operating results and
cash flows as a measure of the Company's liquidity. Because EBITDA is not
calculated identically by all companies, the presentation herein may not be
comparable to other similarly titled measures of other companies.
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Summary
Historical and Pro Forma Financial Data," "Selected Historical and Pro Forma
Financial Information" and "Experts" and to the use of our reports dated April
25, 1997 in the Registration Statement (Form S-4) and related Prospectus of
Leiner Health Products Inc. for the registration of $85,000,000 of its Senior
Subordinated Notes due 2007.
ERNST & YOUNG LLP
Orange County, California
August 1, 1997
<PAGE>
EXHIBIT 99.1
[FORM OF LETTER OF TRANSMITTAL]
LEINER HEALTH PRODUCTS
OFFER TO EXCHANGE ITS 9 5/8 % SENIOR SUBORDINATED NOTES
DUE 2007 ("NEW NOTES"), WHICH HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT, FOR ANY AND ALL OUTSTANDING 9 5/8% SENIOR SUBORDINATED NOTES DUE
2007 ("EXISTING NOTES"), PURSUANT TO THE PROSPECTUS DATED ____________, 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
BY MAIL: BY FACSIMILE:
(For Eligible Institutions Only)
Attention:
BY OVERNIGHT COURIER OR BY HAND TO 4:30 P.M.:
BY HAND AFTER 4:30 P.M.:
Attention: Attention:
FOR INFORMATION CALL:
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 Existing Notes to which this Letter of Transmittal
relates. If the space provided below is inadequate, the certificate number(s)
and principal amount of Existing Notes should be listed on a separate signed
schedule affixed hereto.
<TABLE>
<CAPTION>
Description of Existing (1) (2) (3) (4)
Notes Tendered
- -----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT OF
AGGREGATE EXISTING NOTES TENDERED
PRINCIPAL AGGREGATE PRINCIPAL IN EXCHANGE FOR
NAME(S) AND ADDRESS(ES) OF CERTIFICATE AMOUNT OF AMOUNT OF EXISTING CERTIFICATED NEW
REGISTERED HOLDER(S) NUMBERS(S)* EXISTING NOTES NOTES TENDERED** NOTES***
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Need not be completed by book-entry holders.
** Unless otherwise indicated in this column, the holder will be deemed to
have tendered the full aggregate principal amount represented by such
Existing Notes.
*** Unless otherwise indicated, the holder will be deemed to have
tendered Existing Notes in exchange for a beneficial interest in
one or more fully registered global notes, which will be
deposited with, or on behalf of, The Depository Trust Company
("DTC") and registered in the name of Cede & Co., its nominee.
<PAGE>
The undersigned acknowledges that he, she or it has received and
reviewed the Prospectus, dated ____________, 1997 (the "Prospectus"), of Leiner
Health Products Inc. a Delaware Corporation ("LHP"), and this Letter of
Transmittal (the "Letter of Transmittal"), which together constitute LHP'S offer
(the "Exchange Offer") to exchange up to $85,000,000 aggregate principal amount
of its New Notes, which will have been registered under the Securities Act of
1933, for a like principal amount of its outstanding Existing Notes. The New
Notes and the Existing 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.
This Letter of Transmittal is to be used either if certificates
of Existing Notes are to be forwarded herewith or if delivery of Existing Notes
is to be made by book-entry transfer to an account maintained by the Exchange
Agent at DTC, pursuant to the procedures set forth in "The Exchange
Offer--Procedures for Tendering" in the Prospectus. Delivery of this Letter of
Transmittal and any other required documents should be made to the Exchange
Agent. Delivery of documents to a book-entry transfer facility does not
constitute delivery to the Exchange Agent.
Holders whose Existing Notes are not immediately available or who
cannot deliver their Existing Notes and all other documents required hereby to
the Exchange Agent on or prior to the Expiration Date must tender their Existing
Notes according to the guaranteed delivery procedure set forth in the Prospectus
under the caption "The Exchange Offer--Procedures for Tendering." See
Instruction 1.
/ / CHECK HERE IF TENDERED EXISTING 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 Existing Notes Tendered" and (ii) has checked the box above, the
undersigned will be deemed to have tendered Existing 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 EXISTING 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 EXISTING NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND
COMPLETE THE FOLLOWING:
Name 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 ___________________
/ / CHECK HERE IF YOU ARE A BROKER-DEALER MAKING A MARKET IN EXISTING NOTES
WITH LHP'S PRIOR WRITTEN CONSENT AND WISH TO RECEIVE 10 ADDITIONAL COPIES
OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS MADE
THERETO WITHIN 90 DAYS AFTER THE EXPIRATION DATE:
Name
Address ______________________________________________________________________
2
<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 LHP the aggregate principal amount of Existing
Notes indicated above. Subject to, and effective upon, the acceptance for
exchange of Existing Notes tendered hereby, the undersigned hereby sells,
assigns and transfers to, or upon the order of, the Exchange Agent, as agent of
LHP, all right, title and interest in and to such Existing 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 Existing 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
Existing Notes tendered hereby and to acquire the New Notes issuable upon the
exchange of such tendered Existing Notes, and that the Exchange Agent, as agent
of LHP, 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 LHP. The
undersigned will, upon request, execute and deliver any additional documents
deemed by LHP or the Exchange Agent to be necessary or desirable to complete the
exchange, sale, assignment and transfer of the Existing 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 no-action letters issued to
third parties (including EXXON CAPITAL HOLDINGS CORPORATION (available May 13,
1988), MORGAN STANLEY & CO. INCORPORATED (available June 5, 1991), K-III
COMMUNICATIONS CORPORATION (available July 2, 1993) and SHEARMAN & STERLING
(available July 2, 1993)). Based on such interpretation of the staff of the SEC
set forth in such no-action letters, LHP believes that the New Notes issued in
exchange for the Existing Notes pursuant to the Exchange Offer may be offered
for resale, resold and otherwise transferred by a holder thereof (other than any
such holder that is an "affiliate" of LHP 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
Existing Notes in exchange for New Notes, each holder will represent to LHP
that: (i) it is not such an affiliate of LHP, (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 Existing 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 Existing Notes, where such Existing 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 and that it has not entered into any arrangement or understanding
with LHP or an affiliate of LHP 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
3
<PAGE>
an "underwriter" within the meaning of the Securities Act. 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
Existing 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 Expiration date in connection with the sale or transfer of
such New Notes. LHP has agreed that, for such period of time, it will make the
Prospectus (as it may be amended or supplemented) available to a broker-dealer
which, with LHP's prior written consent, makes a market in the Existing 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 LHP
prior to using the Prospectus in connection with the sale or transfer of New
Notes and that, upon receipt of notice from LHP 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) LHP 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 LHP 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. LHP agrees to deliver
such notice and such amended or supplemented Prospectus promptly to any
Participating Broker-Dealer that has so notified LHP. 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. A broker-dealer that acquired
Existing Notes in a transaction other than as part of its market-making
activities or other trading activities will not be able to participate in the
Exchange Offer.
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
Existing 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 LHP 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.
The undersigned, if a California resident, hereby further represents
and warrants that the undersigned (or the beneficial owner of the Existing Notes
tendered hereby, if not the undersigned) (i) is a bank, savings and loan
association, trust company, insurance company, investment company registered
under the Investment Company Act of 1940, pension or profit-sharing trust (other
than a pension or profit-sharing trust of LHP, a self-employed individual
retirement plan, or individual retirement account), a corporation which has a
net worth on a consolidated basis according to its most recent audited financial
statements of not less than $14,000,000, or a wholly owned subsidiary of any of
the foregoing, and (ii) is acquiring the New Notes for its own account for
investment purposes (or for the account of the beneficial owner of such New
Notes for investment purposes).
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,
4
<PAGE>
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 Existing 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 LHP in
accordance with the terms and subject to the conditions of the Exchange Offer.
The undersigned understands that if its Existing Notes are accepted
for exchange, interest on the New Notes will accrue from the last interest
payment date on which interest was paid on the Existing Notes surrendered in
exchange thereof, or if no interest has been paid, from the original date of
issuance of the Existing Notes.
The undersigned recognizes that unless the holder of Existing Notes
(i) completes item (4) of the Box entitled "Description of Existing Notes
Tendered" above and (ii) checks the box entitled "Check here if tendered shares
of Existing Notes are being delivered to the Exchange Agent in exchange for
certificated New Notes" above, such holder, when tendering such Existing Notes,
will be deemed to have tendered such Existing 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," LHP may not be
required to accept for exchange any of the Existing Notes tendered. Existing
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.
The undersigned acknowledges that by tendering the Existing Notes
pursuant to any one of the procedures described under "The Exchange
Offer--Procedures for Tendering" in the Prospectus and in the instructions
hereto, the undersigned agrees that once the Exchange Offer is consummated, LHP
shall not be obligated to file or prepare a Shelf Registration Statement (as
defined in the Registration Rights Agreement, dated as of June 30, 1997, as
amended (the "Registration Rights Agreement"), among Leiner Health Products
Group Inc., LHP and the Initial Purchasers, or take any other action provided in
Sections 2 or 3 of the Registration Rights Agreement with respect to a Shelf
Registration Statement, and the undersigned hereby waives any requirement of the
Registration Rights Agreement that LHP files, prepares or takes any other action
relating to a Shelf Registration Statement once the Exchange Offer is
consummated.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptability of any tender will be determined by LHP, in its sole
discretion, and such determination will be final and binding. Unless waived by
LHP, irregularities and defects must be cured by the Expiration Date. LHP 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
5
<PAGE>
representing Existing Notes for any Existing 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 Existing Notes for any Existing Notes not exchanged) be sent to the
undersigned at the address shown above in the box entitled "Description of
Existing Notes Tendered."
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF
EXISTING NOTES TENDERED" ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE
TENDERED THE EXISTING NOTES AS SET FORTH IN SUCH BOX(ES) ABOVE.
6
<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 Existing Notes, this Letter of Transmittal must
be signed by the registered holders(s) as the name(s) appear(s) on the
certificate(s) for the Existing Notes or by any person(s) authorized to
become registered holders(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)
<TABLE>
<CAPTION>
<S> <C>
- ----------------------------------------- --------------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4) (SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if New To be completed ONLY if certificates for New
Notes (and, if applicable, substitute Notes (and, if applicable, substitute
certificates representing Existing certificates representing Existing Notes for any
Notes for any Existing Notes not Existing Notes not exchanged) are to be sent to
exchanged) are to be issued in the name someone other than the person or persons whose
of and sent to someone other than the signature(s) appear(s) on this Letter of
person or persons whose signature(s) Transmittal above or to such person or persons
appear(s) on this Letter of Transmittal at an address other than shown in the box
above. entitled "Description of Existing Notes
Tendered" on this Letter of Transmittal above.
Issue New Notes to:
. . . . . . . . . . Mail New Notes to:
Name(s): .....................
Name(s) .................................
...............................
(Please Type or Print) .................................
(Please Type or Print)
...............................
(Please Type or Print) .................................
(Please Type or Print)
Address: .....................
Address: .............................
...............................
(Zip Code) .................................
(Zip Code)
(Complete Substitute Form W-9)
- ----------------------------------------- --------------------------------------------------
</TABLE>
IMPORTANT: UNLESS GUARANTEED DELIVERY PROCEDURES ARE COMPLIED WITH,
THIS LETTER OF TRANSMITTAL OR A FACSIMILE HEREOF (TOGETHER WITH THE
CERTIFICATE(S) FOR EXISTING NOTES OR A CONFIRMATION OF BOOK-ENTRY TRANSFER OF
SUCH EXISTING NOTES AND
<PAGE>
ALL OTHER REQUIRED DOCUMENTS) MUST BE RECEIVED BY THE
EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
<PAGE>
TO BE COMPLETED BY ALL TENDERING HOLDERS
(SEE INSTRUCTION 5)
PAYOR'S NAME: LEINER HEALTH PRODUCTS INC.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
<S> <C> <C>
SUBSTITUTE
PART I--TAXPAYER IDENTIFICATION NUMBER
FORM W-9
DEPARTMENT OF THE
TREASURY ENTER YOUR TAXPAYER
INTERNAL REVENUE SERVICE IDENTIFICATION NUMBER IN THE
APPROPRIATE BOX. FOR MOST SOCIAL SECURITY NUMBER
INDIVIDUALS, THIS IS YOUR
SOCIAL SECURITY NUMBER. IF OR
YOU DO NOT HAVE A NUMBER, SEE
HOW TO OBTAIN A "TIN" IN THE
ENCLOSED GUIDELINES. EMPLOYER IDENTIFICATION NUMBER
NOTE: IF THE ACCOUNT IS IN
MORE THAN ONE NAME, SEE THE
CHART ON PAGE 2 OF THE
ENCLOSED GUIDELINES TO
DETERMINE WHAT NUMBER TO GIVE.
- ----------------------------------------------------------------------------------------
PART II--FOR PAYEES EXEMPT FROM BACKUP WITHHOLDING (SEE
ENCLOSED GUIDELINES)
---------------------------------------------------------------
PAYOR'S REQUEST FOR CERTIFICATION--UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT:
TAXPAYER
IDENTIFICATION NUMBER (1) THE NUMBER SHOWN ON THIS FORM IS MY CORRECT TAXPAYER
(TIN) IDENTIFICATION NUMBER (OR I AM WAITING FOR A NUMBER
AND CERTIFICATION 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
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 EXISTING NOTES; GUARANTEED
DELIVERY PROCEDURE
The Letter of Transmittal is to be used to forward, and must accompany, all
certificates representing Existing Notes tendered pursuant to the Exchange
Offer. Certificates representing the Existing Notes in proper form for transfer
(or a confirmation of book-entry transfer of such Existing Notes into the
Exchange Agent's account at the book-entry transfer facility) as well as a
properly completed and duly executed copy of this Letter of Transmittal and all
other documents required by this Letter of Transmittal, 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. Existing Notes tendered must be in integral
multiples of $1000.
The method of delivery of this Letter of Transmittal, the Existing Notes
and all other required documents is at the election and risk of the tendering
holders, but the delivery will be deemed made only when actually received or
confirmed by the Exchange Agent. If such delivery is by mail, it is recommended
that registered or certified mail properly insured, with return receipt
requested, be used. In all cases, sufficient time should be allowed to permit
timely delivery.
If a holder desires to tender Existing Notes and such holder's Existing
Notes are not immediately available or time will not permit such holder's Letter
of Transmittal, Existing Notes (or a confirmation of book-entry transfer of
Existing Notes into the Exchange Agent's account at the book-entry transfer
facility) or other required documents to reach the Exchange Agent prior to 5:00
p.m., New York City time, on the Expiration Date, or such holder cannot complete
the procedure of book-entry transfer on a timely basis, such holder may
nevertheless tender Existing Notes if:
(a) such tender is made by or through an Eligible Institution (as
defined below);
(b) the Exchange Agent has received from such Eligible Institution
prior to 5:00 p.m., New York City time, on the Expiration Date, a properly
completed and duly executed Letter of Transmittal (of facsimile thereof)
and Notice of Guaranteed Delivery, substantially in the form provided by
LHP (by facsimile transmission, mail or hand delivery), setting forth the
name and address of the holder of such Existing Notes and the principal
amount of Existing Notes tendered, stating that the tender is being made
thereby and guaranteeing that, within three New York Stock Exchange
("NYSE") trading days after the execution of the Notice of Guaranteed
Delivery, a Book-Entry Confirmation and any other documents required by
this Letter of Transmittal and the instructions hereto, will be deposited
by such Eligible Institution with the Exchange Agent; and
(c) a Book-Entry Confirmation and all other required documents
required by the Letter of Transmittal are received by the Exchange Agent
within three NYSE trading days after the Notice of Guaranteed Delivery.
A tender will be deemed to have been received as of the date when the
tendering holder's duly signed Letter of Transmittal accompanied by Existing
Notes (or a timely confirmation of a book-entry transfer of Existing Notes into
the Exchange Agent's account at the book-entry transfer facility) or a Notice of
Guaranteed Delivery from an Eligible Institution is received by the Exchange
Agent.
<PAGE>
See "The Exchange Offer" in the Prospectus.
2. WITHDRAWALS
Any holder may withdraw a tender of Existing Notes prior to 5:00 p.m., New
York City time on the Expiration Date. For a withdrawal to be effective, a
written notice of withdrawal must be received by the Exchange Agent prior to
5:00 p.m., New York City time on the Expiration Date at one of its addresses set
forth herein. Any such notice of withdrawal must specify the name and number of
the account at the Book-Entry Transfer Facility from which the Existing Notes
was tendered, identify the aggregate liquidation preference of the Existing
Notes to be withdrawn, and specify the name and number of the account at the
Book-Entry Transfer Facility to be credited with the withdrawn Existing Notes
and otherwise comply with the procedures of such facility. The Exchange Agent
will return properly withdrawn Existing Notes as soon as practicable following
receipt of notice of withdrawal. All questions as to the validity (including
time of receipt) of notices of withdrawals will be determined by LHP, in its
sole discretion, and such determination will be final and binding on all
parties. See "The Exchange Offer--Withdrawal of Tenders" in the Prospectus. If
Existing Notes have been tendered pursuant to the procedures for book-entry
transfer, any notice of withdrawal must specify the name and number of the
participant's account at DTC to be credited with the withdrawn Existing Notes or
otherwise comply with DTC's procedures. 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
Existing 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 Existing Notes are owned of record by two or more joint
owners, all such owners must sign this Letter of Transmittal.
If any tendered Existing 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 Existing 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 LHP,
proper evidence satisfactory to LHP 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 Existing Notes surrendered for
exchange pursuant thereto are tendered (I) by a registered holder of the
Existing 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 17Ad-15 of the Securities
Exchange Act of 1934, as amended (each an "Eligible Institution"). If Existing
Notes
2
<PAGE>
are registered in the name of a person other than the signer of this Letter of
Transmittal, the Existing 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 LHP 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 Existing 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 Existing 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 LHP 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 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, LHP (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 LHP 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 LHP 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 Existing 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
Existing Notes to be deemed invalidly tendered, but may require LHP 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
3
<PAGE>
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
LHP will pay all transfer taxes, if any, applicable to the transfer of
Existing Notes to it or its order pursuant to the Exchange Offer. If, however,
New Notes and/or substitute Existing 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 Existing Notes tendered hereby, or if tendered Existing
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 Existing Notes to LHP 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 Existing Notes specified in this Letter
of Transmittal.
7. WAIVER OF CONDITIONS
LHP 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 Existing Notes, by execution of this Letter
of Transmittal, shall waive any right to receive notice of the acceptance of
their Existing Notes for exchange.
LHP 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 Existing 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 EXISTING NOTES
Any holder whose Existing 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.
4
