<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 15, 1997
REGISTRATION NO. ________
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
ARCHIBALD CANDY CORPORATION
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
ILLINOIS 2064/5441 360743280
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation) Classification Code Numbers) Identification
No.)
</TABLE>
1137 WEST JACKSON BOULEVARD, CHICAGO, ILLINOIS 60607
(312) 243-2700
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive office)
---------------------
TED A. SHEPHERD
PRESIDENT AND CHIEF OPERATING OFFICER
ARCHIBALD CANDY CORPORATION
1137 WEST JACKSON BOULEVARD
CHICAGO, ILLINOIS 60607
(312) 243-2700
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
WITH A COPY TO:
JOSEPH A. WALSH, JR.
WINSTON & STRAWN
35 West Wacker Drive
Chicago, Illinois 60601
(312) 558-5600
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
---------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act of 1933 registration statement number
of the earlier effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Section 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
AGGREGATE
TITLE OF EACH CLASS OF OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
<S> <C> <C>
10 1/4% Senior Secured Notes due 2004.................................... $100,000,000 $30,304
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(o) under the Securities Act of 1933.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 15, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
STATE.
<PAGE>
PROSPECTUS
ARCHIBALD CANDY CORPORATION
OFFER TO EXCHANGE $1,000 IN PRINCIPAL AMOUNT OF ITS
10 1/4% SENIOR SECURED NOTES DUE 2004
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT FOR
EACH $1,000 IN PRINCIPAL AMOUNT OF ITS OUTSTANDING
10 1/4% SENIOR SECURED NOTES DUE 2004
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1997, UNLESS EXTENDED.
-------------------
Archibald Candy Corporation, an Illinois corporation ("Archibald" or the
"Company"), hereby offers to exchange (the "Exchange Offer") up to $100,000,000
in aggregate principal amount of its new 10 1/4% Senior Secured Notes due 2004
(the "New Notes") for up to $100,000,000 in aggregate principal amount of its
outstanding 10 1/4% Senior Secured Notes due 2004 (the "Old Notes" and, together
with the New Notes, the "Notes") that were issued and sold in a transaction
exempt from registration under the Securities Act of 1933, as amended (the
"Securities Act"). The Company is a wholly owned subsidiary of Fannie May
Holdings, Inc., a Delaware corporation ("Holdings").
The form and terms of the New Notes are substantially identical (including
principal amount, interest rate, maturity, security and ranking) to the form and
terms of the Old Notes for which they may be exchanged pursuant to the Exchange
Offer, except that the New Notes (i) are freely transferable by holders thereof
(except as provided below) and (ii) are not entitled to certain registration
rights and certain liquidated damage provisions which are applicable to the Old
Notes under the Registration Rights Agreement (as defined). The New Notes will
be issued under the Indenture (as defined) governing the Old Notes.
For each Old Note accepted for exchange, the holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. The New Notes will bear interest at the rate of 10 1/4% per annum,
payable semi-annually on January 1 and July 1 of each year, commencing January
1, 1998. Interest on the New Notes will accrue from the last interest payment
date on which interest was paid on the Old Notes surrendered in exchange
therefor or, if no interest has been paid on the Notes, from the date of
original issue of the Old Notes.
The New Notes will be, and the Old Notes are, senior secured obligations of
the Company and rank senior in right of payment to all subordinated indebtedness
of the Company, and pari passu in right of payment with all senior indebtedness
of the Company. The Notes will be unconditionally guaranteed by each future
Restricted Subsidiary (as defined) of the Company, if any, and secured by
security interests in certain of the Company's equipment, fixtures and general
intangibles, including trademarks, and mortgages on certain of the Company's
owned real property, and proceeds of the foregoing, and a security interest in
and a pledge of all of the capital stock of the Company's future Restricted
Subsidiaries, if any. Lenders under the New Credit Facility (as defined) will
have claims with respect to the Company's accounts receivable, raw materials and
finished goods inventories and certain of the Company's owned store locations
and the proceeds therefrom constituting collateral for such indebtedness that
are effectively senior in right of payment to the claims of the holders of the
Notes with respect to such assets. As of May 31, 1997, on a pro forma basis
after giving effect to the Offering (as defined), the application of the
proceeds therefrom and the closing of the New Credit Facility (together the
"Transactions"), the Company would not have had any indebtedness outstanding
(excluding trade payables and other accrued liabilities) other than the Notes
and capital lease obligations. In addition, the Company would have had up to
$20.0 million of unused senior secured borrowing capacity under the New Credit
Facility.
(CONTINUED ON NEXT PAGE)
-------------------
HOLDERS OF OLD NOTES SHOULD CAREFULLY CONSIDER THE MATTERS SET FORTH IN
"RISK FACTORS" COMMENCING ON PAGE 9 OF THIS PROSPECTUS PRIOR TO MAKING A
DECISION WITH RESPECT TO THE EXCHANGE OFFER.
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------
The date of this Prospectus is , 1997.
<PAGE>
The Notes are redeemable at the option of the Company, in whole or in part,
on or after July 1, 2001, at the redemption prices set forth herein, plus
accrued and unpaid interest, if any, to the date of redemption. Notwithstanding
the foregoing, at any time or from time to time prior to July 1, 2000, the
Company may redeem up to $33.0 million of the original principal amount of the
Notes at the redemption price of 110.250% of the principal amount thereof, plus
accrued and unpaid interest, if any, through the date of redemption with the net
cash proceeds of one or more Public Equity Offerings (as defined); provided,
that at least $67.0 million aggregate principal amount of the Notes remain
outstanding immediately thereafter. See "Description of New Notes --
Redemption." Upon a Change of Control (as defined), the Company will be required
to offer to repurchase all of the outstanding Notes at a price equal to 101% of
the principal amount thereof, together with accrued and unpaid interest, if any,
to the date of repurchase. There can be no assurance, however, that the Company
will have, or will have access to, sufficient funds to repurchase the Notes
properly tendered in connection with the Change of Control event. Further, the
New Credit Facility prohibits, and successor financings may prohibit, the
repurchase of any Notes as a result of a Change of Control. See "Risk Factors --
Inability to Purchase Notes Upon a Change of Control" and "Description of New
Notes -- Repurchase Upon Change of Control."
The Old Notes were originally issued and sold on July 2, 1997 in a
transaction (the "Offering") not registered under the Securities Act in reliance
upon the exemption provided in Section 4(2) of the Securities Act and Rule 144A
promulgated under the Securities Act. Accordingly, the Old Notes may not be
reoffered, resold or otherwise pledged, hypothecated or transferred in the
United States unless so registered or unless an applicable exemption from the
registration requirements of the Securities Act is available. Based upon its
view of interpretations provided to third parties by the staff of the Securities
and Exchange Commission (the "Commission"), the Company believes that the New
Notes issued pursuant to the Exchange Offer in exchange for the Old Notes may be
offered for resale, resold or otherwise transferred by any holder thereof (other
than any holder which is (i) an "affiliate" of the Company within the meaning of
Rule 405 under the Securities Act (an "Affiliate"), (ii) a broker-dealer who
acquired Old Notes directly from the Company or (iii) a broker-dealer who
acquired Old Notes as a result of market making or other trading activities)
without further compliance with the registration and prospectus delivery
requirements of the Securities Act provided that such New Notes are acquired in
the ordinary course of such holder's business and such holder is not engaged in,
and does not intend to engage in, and has no arrangement or understanding with
any person to participate in, a distribution of such New Notes. However, the
Company does not intend to request the Commission to consider, and the
Commission has not considered, the Exchange Offer in the context of a no-action
letter and there can be no assurance that the staff of the Commission would make
a similar determination with respect to the Exchange Offer as in other
circumstances. See "Risk Factors--Consequences of Exchange and Failure to
Exchange Old Notes." 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. The Letter of
Transmittal that is filed as an exhibit to the Registration Statement (as
defined) of which this Prospectus is a part (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. Broker-dealers who acquired Old Notes as a result of market
making or other trading activities may use this Prospectus, as supplemented or
amended, in connection with resales of the New Notes. The Company has agreed
that, for a period of 180 days after this Registration Statement is declared
effective by the Commission, it will make this Prospectus available to any
broker-dealer for use in connection with any such resale. Any holder who tenders
in the Exchange Offer for the purpose of participating in a distribution of the
New Notes and any holder that cannot rely upon the interpretations of the
Commission discussed above must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale transaction.
There will be no cash proceeds to the Company from the Exchange Offer. The
Company will pay all the expenses incident to the Exchange Offer (which shall
not include the expenses of any holder in connection with resales of the New
Notes). Tenders of Old Notes pursuant to the Exchange Offer may be
i
<PAGE>
withdrawn at any time prior to the Expiration Date. The Exchange Offer is
subject to certain customary conditions. If the Company terminates the Exchange
Offer and does not accept for exchange any Old Notes, the Company will promptly
return the Old Notes to the holders thereof. The Company can, in its sole
discretion, extend the Exchange Offer indefinitely, subject to the Company's
obligation to pay liquidated damages as described in "Old Notes Registration
Rights; Liquidated Damages" if the Exchange Offer is not consummated by ,
1997 and, under certain circumstances, file a shelf registration statement with
respect to the Old Notes. See "The Exchange Offer."
Old Notes initially purchased by qualified institutional buyers were
initially represented by a single, global Note in registered form, registered in
the name of a nominee of The Depository Trust Company ("DTC"), as depository.
The New Notes exchanged for Old Notes represented by the global Note will be
represented by one or more global New Notes in registered form, registered in
the name of the nominee of DTC. See "Description of New Notes -- Book-Entry,
Delivery and Form." New Notes issued to non-qualified institutional buyers in
exchange for Old Notes held by such investors will be issued only in
certificated, fully registered, definitive form. Except as described herein, New
Notes in definitive certificated form will not be issued in exchange for the
global New Note(s) or interests therein.
The Old Notes and the New Notes constitute new issues of securities with no
established public trading market. Any Old Notes not tendered and accepted in
the Exchange Offer will remain outstanding. To the extent that Old Notes are
tendered and accepted in the Exchange Offer, a holder's ability to sell
untendered, Old Notes could be adversely affected. Following consummation of the
Exchange Offer, the holders of any remaining Old Notes will continue to be
subject to the existing restrictions on transfer thereof and the Company will
have no further obligation to such holders to provide for the registration under
the Securities Act of the Old Notes except under certain limited circumstances.
See "Risk Factors -- Consequences of Exchange and Failure to Exchange Old Notes"
and "Old Notes Registration Rights; Liquidated Damages." No assurance can be
given as to the liquidity of the trading market for either the Old Notes or the
New Notes.
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Old Notes being tendered or accepted for exchange. The Exchange Offer
will expire at 5:00 p.m., New York City time, on , 1997, unless
extended (the "Expiration Date"). The date of acceptance for exchange of the Old
Notes (the "Exchange Date") will be the first business day following the
Expiration Date, upon surrender of the Old Notes. Old Notes tendered pursuant to
the Exchange Offer may be withdrawn at any time prior to the Expiration Date;
otherwise such tenders are irrevocable.
ii
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (together with all amendments, exhibits, schedules and supplements thereto,
the "Registration Statement") under the Securities Act with respect to the New
Notes being offered hereby. This Prospectus, which forms a part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement, certain items of which are omitted as permitted by the
rules and regulations of the Commission. For further information with respect to
the Company and the New Notes, reference is hereby made to the Registration
Statement. Statements contained in this Prospectus as to the contents of any
contract or other document are not necessarily complete and, where such contract
or other document is an exhibit to the Registration Statement, each such
statement is qualified in all respects by the provisions in such exhibit, to
which reference is hereby made.
The Company is not currently subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Upon the
effectiveness of the Registration Statement or, if earlier, the Shelf
Registration Statement (as defined), the Company will become subject to the
informational requirements of the Exchange Act and, in accordance therewith,
will file all reports and other information required by the Commission. The
Registration Statement as well as periodic reports, proxy statements and other
information filed by the Company with the Commission may be inspected at the
public reference facilities maintained by the Commission at Room 1025, 450 Fifth
Street, N.W., Washington, D.C. 20549, or at its regional offices located at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
and Seven World Trade Center, Suite 1300, New York, New York 10048. In addition,
registration statements and certain other documents filed with the Commission
through its Electronic Data Gathering, Analysis and Retrieval ("EDGAR") system
are publicly available through the Commission's site on the Internet's World
Wide Web, located at HTTP://WWW.SEC.GOV. The Registration Statement, including
all exhibits thereto and amendments thereof, has been filed with the Commission
through EDGAR. Copies of the Registration Statement, periodic reports, proxy
statements and other information also can be obtained from the Company upon
request. Any such request should be addressed to the Company's principal office
at 1137 West Jackson Boulevard, Chicago, Illinois 60607; Attention: Secretary
(telephone number (312) 243-2700).
iii
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED
INFORMATION AND FINANCIAL STATEMENTS OF THE COMPANY, AND THE RELATED NOTES
THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. IN AUGUST 1995, THE COMPANY
CHANGED ITS FISCAL YEAR END FROM AUGUST 31 TO THE LAST SATURDAY IN AUGUST.
UNLESS OTHERWISE INDICATED, ALL REFERENCES TO THE "COMPANY" OR "ARCHIBALD" REFER
TO ARCHIBALD CANDY CORPORATION AND ALL REFERENCES TO "HOLDINGS" REFER TO FANNIE
MAY HOLDINGS, INC. THE COMPANY IS A WHOLLY OWNED SUBSIDIARY OF HOLDINGS.
THE COMPANY
The Company is a leading manufacturer and retailer of quality boxed
chocolates and other confectionery items. Founded in 1921, the Company sells its
popular Fannie May and Fanny Farmer candies in 330 Company-operated stores and
approximately 6,000 third-party retail outlets as well as through quantity
order, mail order and fundraising programs primarily in the Midwestern and
Eastern United States. Management believes that the Company's products are
widely recognized for their quality, freshness and value and that the Fannie May
and Fanny Farmer brand names are among the strongest in the confectionery
industry and offer significant opportunities for growth.
In late fiscal 1994, the Company installed its current management team with
the immediate goal of integrating the Fanny Farmer brand name and stores, which
were acquired in fiscal 1992, into the Company's existing Fannie May operations.
Since the arrival of the current management team, EBITDA (as defined) has
increased from $8.7 million in fiscal 1994 to $15.2 million for fiscal 1996.
Management believes that the integration of Fannie May and Fanny Farmer has been
principally completed, and, more recently, has turned its focus to growing sales
and earnings by building on the Fannie May and Fanny Farmer brand names,
increasing points of availability for the Company's branded products and
pursuing certain initiatives designed to maintain and strengthen operating
margins. See "-- Summary Historical and Pro Forma Financial Data."
THE INDUSTRY
The domestic candy industry is characterized by moderate long-term growth in
consumer demand and the existence of strong national and regional brands.
According to the National Confectioners Association, the per capita consumption
of candy in the United States increased from approximately 18 pounds in 1987 to
over 23 pounds in 1995 and total U.S. retail candy sales grew to approximately
$21 billion. Total sales in the boxed chocolate market were approximately $1.2
billion in 1995. Management believes that the boxed chocolate market can be
divided into premium, mid-priced and low-priced segments. The Company competes
in the mid-priced segment in which products generally retail for between $10.00
and $18.00 and are commonly purchased for gift-giving occasions. Competition
within this price tier is regional, and management believes that Fannie May and
Fanny Farmer are the leading brands in the mid-priced segment east of the Rocky
Mountains.
BUSINESS STRATEGY
The Company's business strategy is to leverage the highly-regarded Fannie
May and Fanny Farmer brand names, principally by strengthening and expanding its
multi-channeled distribution network. To further this strategy, the Company has
sought to (i) build on recent improvements in Company-operated store performance
as measured by same store sales and overall profitability, (ii) increase product
availability nationwide among third-party retailers by expanding existing and
establishing new distribution channels and (iii) grow non-retail sales through
enhanced product merchandising and database management. In addition, the Company
plans to continue to strengthen operating margins through a variety of
merchandising, production and logistical initiatives.
CONTINUE IMPROVEMENT IN COMPANY-OPERATED RETAIL PERFORMANCE. The Company
has 330 Fannie May and Fanny Farmer retail stores in 20 states, making it the
largest specialty retailer of boxed chocolates in
1
<PAGE>
the United States. These Company-operated stores represent a mature, highly
efficient and profitable distribution channel. The Company's retail store
strategy is focused on (i) continuing to improve same store sales by enhancing
merchandising, customer service, and product selection and (ii) reducing store
operating costs, primarily by selectively closing unprofitable Fanny Farmer
stores. Management believes that it has been successful in the execution of this
strategy. For the period from fiscal 1994 through fiscal 1996, same store sales
have increased each year at an average annual rate in excess of 2.6%, and store
operating costs have decreased by $3.4 million.
INCREASE PRODUCT AVAILABILITY THROUGH THIRD-PARTY RETAIL PROGRAMS. The
Company's several third-party retail programs are designed to make its Fannie
May and Fanny Farmer brands more readily available to customers in new and
existing markets. Management has implemented a two-tiered distribution and
pricing strategy to capitalize on the Company's strong brand names. Management's
strategy is to position the Company's third-party retail programs under the
Fannie May brand at a higher retail price point for the specialty retail market
while offering the Fanny Farmer brand at a lower retail price point more
appropriate for the mass market. The Fannie May third-party retail programs (i)
service approximately 1,200 grocery, drug and variety stores in the greater
Chicago metropolitan area, on a year-round basis, and (ii) target department
stores, specialty shops and card and gift stores nationwide, during the
Christmas, Valentine's Day and Easter seasons. The Fanny Farmer third-party
retail program sells to the mass market through approximately 5,000 grocery
stores, drug stores and mass merchandisers nationwide, during the peak holiday
seasons. Management believes that the Fannie May and Fanny Farmer third-party
retail programs provide the Company with significant potential for future sales
growth by strategically increasing points of availability and brand awareness,
especially during key selling periods, without significant capital expenditure.
As a result of this strategy, the Company has increased sales through
third-party retail programs from $13.0 million in fiscal 1994 to $14.9 million
in fiscal 1996.
GROW NON-RETAIL SALES. The Company has developed several non-retail sales
channels for its Fannie May and Fanny Farmer brands, including its (i) quantity
order program, through which the Company markets its products to 43,000
organizations for corporate gift giving or member purchases, (ii) mail order
program, which has a national circulation of over 2.1 million catalogs annually
and a database of 345,000 customers, and (iii) fundraising program, in which
product is sold to schools and non-profit organizations nationwide for resale to
their supporters. Management believes that these channels provide potential
future sales growth without the overhead traditionally associated with
maintaining a retail store presence. The Company has increased sales through
non-retail sales channels from $11.3 million in fiscal 1994 to $13.5 million in
fiscal 1996.
STRENGTHEN OPERATING MARGINS. Since 1994, the Company's new management team
has implemented a coordinated pricing and merchandising strategy to increase the
average dollar value of retail consumer transactions which, in conjunction with
more efficient operations and lower overhead costs, has resulted in improved
margins. From fiscal 1994 to fiscal 1996, the Company's gross margin improved
from 62.5% to 65.1%. During this period, management also reduced selling,
general and administrative expenses by $3.3 million, and raised EBITDA margins
from 7.5% to 13.0%. Management's strategy is to continue to strengthen operating
margins primarily by (i) pursuing innovative merchandising and packaging
strategies, (ii) reducing production costs through process and productivity
improvements and (iii) containing fulfillment and distribution costs while
improving service to Company-operated stores, third-party retailers and
consumers.
2
<PAGE>
MANAGEMENT
The Company believes that the depth, experience and ability of its
management team have led to the successful execution of its current business
strategy. The Company's executive officers and key managers, led by Ted A.
Shepherd, President and Chief Operating Officer, average over 17 years of
industry experience. Mr. Shepherd, who joined the Company in late fiscal 1994,
and the rest of the current management team have been chiefly responsible for
the development of the Company's business strategy and improved operating
results as reflected in the increase in EBITDA from $8.7 million in fiscal 1994
to $15.2 million for fiscal 1996. The stockholders of Holdings include
affiliates of The Jordan Company ("TJC"), a private merchant banking firm that
has completed over 60 transactions and currently has a portfolio of investments
representing over $2.5 billion in sales. Affiliates of TJC (the "TJC Investors")
hold a majority of the voting common stock of Holdings and maintain majority
representation on the Boards of Directors of the Company and Holdings. The other
principal stockholders of Holdings are funds affiliated with TCW Capital, an
investment management firm. Such funds (the "TCW Investors") control the
remaining positions on the Boards of Directors of the Company and Holdings. See
"Principal Stockholders," "Capitalization of Holdings" and "Risk Factors --
Control and Capitalization of Holdings."
The Company's principal executive offices are located at 1137 West Jackson
Boulevard, Chicago, Illinois 60607, and its telephone number is (312) 243-2700.
The Company was incorporated in Illinois on May 31, 1922.
THE EXCHANGE OFFER
<TABLE>
<S> <C>
THE EXCHANGE OFFER.................... The Company is offering to exchange up to $100,000,000
aggregate principal amount of its new 10 1/4% Senior Secured
Notes due 2004 (the "New Notes") for up to $100,000,000
aggregate principal amount of its outstanding 10 1/4% Senior
Secured Notes due 2004 (the "Old Notes") that were issued and
sold in a transaction exempt from registration under the
Securities Act. The Old Notes were initially offered and sold
by Jefferies & Company, Inc. and First Chicago Capital
Markets, Inc., as the initial purchasers of the Old Notes (the
"Initial Purchasers"), to certain institutional and accredited
investors at a price of 100% of the principal amount thereof.
The form and terms of the New Notes are substantially
identical (including principal amount, interest rate,
maturity, security and ranking) to the form and terms of the
Old Notes for which they may be exchanged pursuant to the
Exchange Offer, except that the New Notes (i) are freely
transferable by holders thereof except as provided herein (see
"The Exchange Offer -- Terms of the Exchange" and "-- Terms
and Conditions of the Letter of Transmittal") and (ii) are not
entitled to certain registration rights and certain liquidated
damage provisions that are applicable to the Old Notes under a
registration rights agreement dated as of July 2, 1997 (the
"Registration Rights Agreement") between the Company and the
Initial Purchasers. New Notes issued pursuant to the Exchange
Offer in exchange for the Old Notes may be offered for resale,
resold or otherwise transferred by any holder thereof (other
than any holder which is (i) an Affiliate of the Company, (ii)
a broker-dealer who acquired Old Notes directly from the
Company or (iii) a broker-dealer who acquired Old Notes as a
result of market making or other trading activities) without
further compliance with the registration and prospectus
delivery requirements of the Securities Act, provided that
such New Notes are acquired in the ordinary course of such
holder's business and such holder is not engaged in, and does
not intend to engage in, and has no arrangement or
understanding with any person to participate in, a
distribution of such New Notes.
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
MINIMUM CONDITION..................... The Exchange Offer is not conditioned upon any minimum
aggregate principal amount of Old Notes being tendered or
accepted for exchange.
EXPIRATION DATE....................... The Exchange Offer will expire at 5:00 p.m., New York City
time, on , 1997, unless extended.
EXCHANGE DATE......................... The first date of acceptance for exchange for the Old Notes
will be the first business day following the Expiration Date.
PROCEDURES FOR TENDERING OLD NOTES.... See "The Exchange Offer -- Procedures for Tendering Old
Notes."
CONDITIONS TO THE EXCHANGE OFFER...... The obligation of the Company to consummate the Exchange Offer
is subject to certain conditions. See "The Exchange Offer --
Conditions to the Exchange Offer." The Company reserves the
right to terminate or amend the Exchange Offer at any time
prior to the Expiration Date upon the basis of any such
condition.
WITHDRAWAL RIGHTS..................... Tenders of Old Notes pursuant to the Exchange Offer may be
withdrawn at any time prior to the Expiration Date. Any Old
Notes not accepted for any reason will be returned without
expense to the tendering holders thereof as promptly as
practicable after the expiration or termination of the
Exchange Offer.
ACCEPTANCE OF OLD NOTES AND DELIVERY The Company will accept for exchange any and all Old Notes
OF NEW NOTES........................ which are properly tendered in the Exchange Offer prior to
5:00 p.m., New York City time, on the Expiration Date. The New
Notes issued pursuant to the Exchange Offer will be delivered
promptly after acceptance of the Old Notes. See "The Exchange
Offer-- Acceptance of Old Notes for Exchange; Delivery of New
Notes."
FEDERAL INCOME TAX CONSEQUENCES....... The exchange of Old Notes for New Notes by tendering holders
will not be a taxable exchange for federal income tax
purposes, and such holders should not recognize any taxable
gain or loss as a result of such exchange. See "Certain United
States Federal Income Tax Consequences."
USE OF PROCEEDS....................... There will be no cash proceeds to the Company resulting from
the Exchange Offer.
EFFECT ON HOLDERS OF OLD NOTES........ As a result of the making of this Exchange Offer, and upon
acceptance for exchange of all validly tendered Old Notes
pursuant to the terms of this Exchange Offer, the Company will
have fulfilled a covenant contained in the terms of the Old
Notes and the Registration Rights Agreement, and, accordingly,
the holders of the Old Notes will have no further registration
or other rights under the Registration Rights Agreement,
except under certain limited circumstances. See "Old Notes
Registration Rights; Liquidated Damages." Holders of Old Notes
who do not tender their Old Notes in the Exchange Offer will
continue to hold such Old Notes and will be entitled to all
the rights and limitations applicable thereto under the
Indenture. All untendered, and tendered but unaccepted, Old
Notes will continue to be subject to the restrictions on
transfer provided for in the Old Notes and the Indenture. To
the extent that Old Notes are tendered and accepted in the
Exchange Offer, the trading market, if any, for the Old Notes
not so tendered could be adversely affected. See "Risk Factors
-- Consequences of Exchange and Failure to Exchange Old
Notes."
</TABLE>
4
<PAGE>
TERMS OF THE NEW NOTES
The form and terms of the New Notes are substantially identical to the form
and terms of the Old Notes except that the New Notes have been registered under
the Securities Act and, therefore, will not bear legends restricting the
transfer thereof. The New Notes will evidence the same debt as the Old Notes and
will be entitled to the benefits of the Indenture. See "Description of New
Notes."
<TABLE>
<S> <C>
SECURITIES OFFERED................ $100,000,000 aggregate principal amount of 10 1/4%
Senior Secured Notes due 2004.
MATURITY DATE..................... July 1, 2004.
INTEREST RATE AND PAYMENT DATES... The Notes will bear interest at a rate of 10 1/4% per
annum. Interest on the Notes will be payable
semi-annually in cash in arrears on January 1 and July 1
of each year, commencing January 1, 1998.
GUARANTEES........................ The Notes will be unconditionally guaranteed by each
future Restricted Subsidiary of the Company, if any
(collectively, the "Guarantors").
SECURITY.......................... The Notes will be secured by (i) security interests in
certain of the Company's equipment, fixtures and general
intangibles, including trademarks, and mortgages on
certain of the Company's owned real property, and
proceeds of the foregoing, and (ii) a security interest
in and a pledge of all of the capital stock of the
Company's future Restricted Subsidiaries, if any. The
Notes will not be secured by certain other assets of the
Company, such as the Company's accounts receivable, raw
materials and finished goods inventories and the
Company's owned store locations, and the proceeds
therefrom. See "Description of New Notes -- Collateral."
RANKING........................... The Notes will be senior secured obligations of the
Company and rank senior in right of payment to all
subordinated indebtedness of the Company, and PARI PASSU
in right of payment with all senior indebtedness of the
Company. The lenders under the New Credit Facility,
however, will have claims with respect to the Company's
accounts receivable, raw materials and finished goods
inventories and certain of the Company's owned store
locations, and the proceeds therefrom constituting
collateral for such indebtedness that are effectively
senior in right of payment to the claims of the holders
of the Notes with respect to such assets. The indenture
(the "Indenture") dated July 2, 1997 between the Company
and the Trustee (as defined) under which the Notes will
be issued limits, among other things, the incurrence of
indebtedness or the existence of liens on the assets of
the Company subject to certain exceptions. See
"Description of New Credit Facility" and "Description of
New Notes -- Collateral."
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
OPTIONAL REDEMPTION............... The Notes will be redeemable at the option of the
Company, in whole or in part, on or after July 1, 2001,
at the redemption prices set forth herein, plus accrued
and unpaid interest, if any, to the date of redemption.
Notwithstanding the foregoing, at any time or from time
to time prior to July 1, 2000, the Company may redeem up
to $33.0 million of the original aggregate principal
amount of the Notes at the redemption price of 110.250%
of the principal amount thereof, plus accrued and unpaid
interest, if any, through the date of redemption with
the net cash proceeds of one or more Public Equity
Offerings; provided that at least $67.0 million
aggregate principal amount of the Notes remains
outstanding immediately thereafter. See "Description of
New Notes -- Redemption."
MANDATORY REDEMPTION.............. None.
CHANGE OF CONTROL................. Upon a Change of Control, the Company will be required
to offer to repurchase all of the outstanding Notes at a
price equal to 101% of the principal amount thereof,
together with accrued and unpaid interest, if any, to
the date of repurchase. See "Risk Factors -- Control and
Capitalization of Holdings" and "-- Inability to
Purchase Notes Upon a Change of Control."
CERTAIN COVENANTS................. The Indenture contains certain covenants that limit the
ability of the Company and its Restricted Subsidiaries,
if any, to (i) incur additional indebtedness, (ii) make
restricted payments, (iii) issue and sell capital stock
of subsidiaries, (iv) enter into certain transactions
with affiliates, (v) create certain liens, (vi) sell
certain assets and (vii) merge, consolidate or sell
substantially all of the Company's assets. See
"Description of New Notes -- Certain Covenants" and
"Risk Factors -- Restrictive Covenants; Term of New
Credit Facility; Need for Seasonal Financing."
</TABLE>
RISK FACTORS
Holders of Old Notes should consider carefully the specific factors set
forth under "Risk Factors," as well as the other information set forth in this
Prospectus, before making an investment decision with respect to the Exchange
Offer.
6
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table sets forth the summary historical financial data of the
Company for the ten months ended August 31, 1992, the fiscal years ended August
31, 1993, August 31, 1994, August 26, 1995 and August 31, 1996, which have been
derived from the audited financial statements of the Company, and for the
thirty-nine weeks ended May 25, 1996 and May 31, 1997 and at May 31, 1997, which
have been derived from the unaudited financial statements of the Company. The
Company's operations are subject to seasonal factors, and, therefore, operating
results from interim periods are not indicative of results for the entire fiscal
year. The following information should be read in conjunction with the Financial
Statements of the Company, and the related notes thereto, included elsewhere
herein. See "Selected Historical Financial Data" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere herein.
<TABLE>
<CAPTION>
TEN MONTHS THIRTY-NINE WEEKS
ENDED FISCAL YEARS ENDED ENDED
----------- ---------------------------------------------- ----------------------
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 26, AUGUST 31, MAY 25, MAY 31,
1992(1) 1993 1994 1995(2) 1996(2) 1996 1997
----------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales:
Company-Operated Retail (3)......... $ 56,443 $ 89,109 $ 91,408 $ 90,077 $ 88,938 $ 76,236 $ 76,862
Third-Party Retail (4).............. 9,330 13,542 13,027 12,954 14,924 12,993 15,098
Non-Retail (5)...................... 7,631 9,919 11,297 12,524 13,486 13,146 15,017
----------- ---------- ---------- ---------- ---------- ---------- ----------
Total net sales................... $ 73,404 $ 112,570 $ 115,732 $ 115,555 $ 117,348 $ 102,375 $ 106,977
----------- ---------- ---------- ---------- ---------- ---------- ----------
----------- ---------- ---------- ---------- ---------- ---------- ----------
Gross profit............................ $ 44,703 $ 71,135 $ 72,298 $ 75,309 $ 76,338 $ 66,683 $ 70,236
Operating income (loss)................. 2,623 (3,485) (5,850) 3,290 7,945 13,513 16,155
OTHER DATA:
EBITDA (6).............................. $ 12,284 $ 10,742 $ 8,717 $ 14,003 $ 15,197 $ 18,853 $ 21,287
Depreciation and amortization........... 9,297 13,478 13,216 9,999 6,807 4,909 4,672
Capital expenditures.................... 2,289 3,085 3,655 2,325 2,280 1,995 1,646
STORE DATA:
Company-operated stores at period end... 251 433 400 372 340 350 330
Increase in same store sales (7)........ n/a n/a 4.5% 3.4% 2.6% 0.7% 4.8%
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THIRTY-NINE WEEKS
AUGUST 31, 1996(8) ENDED MAY 31, 1997(9)(10)
--------------------- ---------------------------
<S> <C> <C>
PRO FORMA COVERAGES:
EBITDA to pro forma net interest expense............................ 1.5x 3.0x
Pro forma net total debt to EBITDA.................................. 6.1 3.6
</TABLE>
<TABLE>
<CAPTION>
AT MAY 31, 1997
----------------------
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 26, AUGUST 31, PRO
1992 1993 1994 1995 1996 ACTUAL FORMA(10)
----------- ---------- ----------- ----------- ----------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............ $ 6,876 $ 830 $ 1,359 $ 482 $ 380 $ 2,450 $ 23,010
Working capital (deficiency)......... 12,356 (4,042) (4,768) (2,886) (3,721) 3,724 32,828
Total assets......................... 93,710 101,438 88,548 83,098 78,668 75,347 99,407
Long-term debt....................... 65,000 65,435 73,883 73,676 72,721 69,233 100,602
Shareholder's equity (deficit)....... 15,903 8,273 (8,429) (14,033) (15,448) (6,092) (8,992)
</TABLE>
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
7
<PAGE>
(1) Holdings acquired the Company in October, 1991. As a result of this
acquisition, the 1992 period reflects only ten months of financial
information.
(2) In 1995, the Company changed its fiscal year to the last Saturday in August
from the last day in August. As a result of this change, fiscal 1995 had
less than 52 weeks (360 days) and fiscal 1996 had 53 weeks (371 days).
(3) Company-Operated Retail includes sale of Company branded products through
Company-operated Fannie May and Fanny Farmer stores. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Overview."
(4) Third-Party Retail includes grocery stores, drug stores and other
independent retailers that purchase the Company's branded products at
wholesale pricing for resale to the consumer. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Overview."
(5) Non-Retail includes sale of Company branded products through the Company's
quantity order, mail order and fundraising programs. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Overview."
(6) EBITDA consists of earnings before interest, income taxes, depreciation,
amortization, and management, director and consulting fees. While EBITDA
should not be construed as a substitute for operating income or a better
indicator of liquidity than cash flow from operating activities, which are
determined in accordance with GAAP, it is included herein to provide
additional information with respect to the ability of the Company to meet
its future debt service, capital expenditure and working capital
requirements. Although EBITDA is not necessarily a measure of the Company's
ability to fund its cash needs, management believes that certain investors
find EBITDA to be a useful tool for measuring the ability of the Company to
service its debt. For a description of management, director and consulting
fees, see "Certain Transactions -- Management Consulting Agreement and
Investment Banking Fees" and "Certain Transactions -- Director's Consulting
Fee and TCW Investors' Expense Reimbursement." The Company's financial
results as reported herein for fiscal 1994 exclude a loss of $0.7 million
relating to the discontinued Fanny Farmer Homestead product line (the
"Homestead Loss"). In fiscal 1994, the Fanny Farmer Homestead product line
accounted for $0.9 million of Third-Party Retail sales.
(7) Same store sales are defined as the aggregate sales from stores open for the
entire periods being compared. Increases reflect changes from the
immediately prior comparable period. Such data is not available for fiscal
1992 and 1993.
(8) EBITDA to pro forma net interest expense coverage reflects the Transactions
as if the Transactions occurred at the beginning of the fiscal year ended
August 31, 1996 and is based upon EBITDA of $15.2 million and pro forma net
interest expense (including interest on capital leases and seasonal
borrowings) of $9.8 million (net of $.7 million of interest income) for the
fiscal year ended August 31, 1996. Pro forma net total debt to EBITDA
reflects the Transactions as if the Transactions occurred on August 31, 1996
and is based upon pro forma net total debt of $92.0 million at August 31,
1996 and EBITDA of $15.2 million for the fiscal year ended August 31, 1996.
(9) Pro forma to reflect the Transactions as if the Transactions had occurred at
the beginning of the 39 week period ending on May 31, 1997. See
"Capitalization." EBITDA to pro forma net interest expense coverage is based
upon EBITDA of $21.3 million and pro forma net interest expense (including
interest on capital leases and seasonal borrowings) of $7.2 million (net of
$.7 million of interest income) for the 39 week period ending on May 31,
1997.
(10) Pro forma to reflect the Transactions as if the Transactions had occurred
on May 31, 1997. Pro forma net total debt to EBITDA coverage is based upon
pro forma net total debt (total debt less cash and cash equivalents) of
$77.6 million and EBITDA of $21.3 million for the 39 week period ending on
May 31, 1997. See "Capitalization."
8
<PAGE>
RISK FACTORS
IN ADDITION TO OTHER INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN
THIS PROSPECTUS, BEFORE TENDERING THEIR OLD NOTES FOR THE NEW NOTES OFFERED
HEREBY, HOLDERS OF OLD NOTES SHOULD CONSIDER CAREFULLY THE FOLLOWING FACTORS,
WHICH MAY BE GENERALLY APPLICABLE TO THE OLD NOTES AS WELL AS TO THE NEW NOTES:
CONSEQUENCES OF EXCHANGE AND FAILURE TO EXCHANGE OLD NOTES
Issuance of the New Notes in exchange for the Old Notes pursuant to the
Exchange Offer will be made only after timely receipt by the Exchange Agent (as
defined) of such Old Notes, a properly completed and duly executed Letter of
Transmittal and all other required documents. Therefore, holders of Old Notes
desiring to tender such Old Notes in exchange for New Notes should allow
sufficient time to ensure timely delivery. The Company is under no duty to give
notification of defects or irregularities with respect to tenders of Old Notes
for exchange. Holders of Old Notes who do not exchange their Old Notes for New
Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Old Notes, as set forth in the legend thereon.
In general, the Old Notes may not be offered or sold, unless registered under
the Securities Act, except pursuant to an exemption from, or in a transaction
not subject to, the Securities Act and applicable state securities laws. The
Company does not currently anticipate that it will register the Old Notes under
the Securities Act, except under certain limited circumstances. In addition,
upon the consummation of the Exchange Offer, holders of Old Notes which remain
outstanding will not be entitled to any rights to have such Old Notes registered
under the Securities Act or to any rights under the Registration Rights
Agreement. To the extent that Old Notes are tendered and accepted in the
Exchange Offer, a holder's ability to sell untendered, or tendered but
unaccepted, Old Notes could be adversely affected. Further, any holder of Old
Notes who tenders in the Exchange Offer for the purpose of participating in a
distribution of New Notes may be deemed to have received restricted securities
and, if so, will be required to comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction. See "The Exchange Offer" and "Old Notes Registration Rights;
Liquidated Damages."
Based upon its view of interpretations provided to third parties by the
staff of the Commission, the Company believes that the New Notes issued pursuant
to the Exchange Offer in exchange for the Old Notes may be offered for resale,
resold or otherwise transferred by any holder thereof (other than any holder
which is (i) an Affiliate of the Company, (ii) a broker-dealer who acquired Old
Notes directly from the Company or (iii) a broker-dealer who acquired Old Notes
as a result of market making or other trading activities) without further
compliance with the registration and prospectus delivery requirements of the
Securities Act provided that such New Notes are acquired in the ordinary course
of such holder's business and such holder is not engaged in, and does not intend
to engage in, and has no arrangement or understanding with any person to
participate in, a distribution of such New Notes. The Company has not, however,
sought its own no-action letter from the staff of the Commission. Although there
has been no indication of any change in the staff's position, there can be no
assurance that the staff of the Commission would make a similar determination
with respect to the resale of the New Notes. Any holder that cannot rely upon
such prior staff interpretations must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction, unless such sale is made pursuant to an exemption
from such requirements. See "The Exchange Offer -- Terms of the Exchange."
SIGNIFICANT LEVERAGE
The Company has substantial indebtedness and debt service obligations. As of
May 31, 1997, on a pro forma basis after giving effect to the Transactions, the
Company's total indebtedness would have been $100.6 million. On a pro forma
basis after giving effect to the Transactions as if they had occurred at the
beginning of the period, the Company's ratio of EBITDA to net interest expense
(including interest on capital leases and seasonal borrowings) would have been
3.0x for the 39 week period ending on May 31,
9
<PAGE>
1997. In addition, subject to restrictions under the New Credit Facility and the
Indenture, the Company may incur additional indebtedness (including additional
secured indebtedness and senior indebtedness) from time to time. See "Use of
Proceeds", "Capitalization" and "Description of New Notes."
The level of the Company's indebtedness and debt service requirements have
important consequences to the holders of the Notes, including, but not limited
to, the following: (i) a substantial portion of the Company's cash flow from
operations will be dedicated to servicing its indebtedness and will not be
available for other purposes; (ii) the Company's ability to obtain additional
financing in the future for debt service, working capital, capital expenditures,
acquisitions or general corporate purposes may be limited; and (iii) the
Company's level of indebtedness could limit its flexibility to react to
competitive pressures, changes in its operating environment and general economic
conditions. In addition, the Company's shareholder's deficit and the possible
incurrence of net losses in the future may adversely affect the Company's
ability to negotiate or obtain acceptable terms from its vendors or future
financing sources.
The Company's ability to meet its debt service obligations and reduce its
total indebtedness will depend upon its future performance, which will be
subject to general economic conditions and certain financial, business and other
factors affecting the operations of the Company, many of which are beyond its
control. If the Company is unable to generate sufficient cash flow from future
operations to service its debt, the Company or Holdings may be required to
refinance all or a portion of such debt (including the Notes), sell capital
stock or assets or obtain additional financing (each such event, a
"Recapitalization"). There can be no assurance that any such Recapitalization
would be possible or would not contain terms and conditions that could have a
material adverse effect on the Company and its results of operations.
RESTRICTIVE COVENANTS; TERM OF NEW CREDIT FACILITY; NEED FOR SEASONAL FINANCING
The Indenture restricts, among other things, the ability of the Company and
its Subsidiaries, if any, to pay dividends or make certain other restricted
payments, incur additional indebtedness, encumber or sell assets, enter into
transactions with affiliates, enter into certain guarantees of indebtedness,
merge or consolidate with any other entity or transfer or lease all or
substantially all of its assets. The breach of any of these covenants could
result in an event of default under the Notes resulting in the acceleration of
the amounts due under the Notes. The acceleration of the amounts due under the
Notes would constitute a default under the New Credit Facility which could also
give rise to an acceleration of the amounts due under the New Credit Facility.
See "Description of New Notes -- Certain Covenants."
The New Credit Facility includes certain restrictive covenants and also
requires the Company to comply with certain financial ratios, including, but not
limited to, minimum fixed charge coverage and maximum leverage ratios. The
ability of the Company to comply with these and other provisions of the New
Credit Facility may be affected by events beyond the Company's control. The
breach of any of these covenants or other violations of the terms of the New
Credit Facility could result in a default under the New Credit Facility, in
which case, the lenders thereunder could elect to declare all amounts borrowed
under the New Credit Facility, together with accrued interest, to be due and
payable. If the Company is unable to repay such borrowings, such lenders could
proceed against their collateral. The acceleration of the indebtedness under the
New Credit Facility may constitute an event of default under the Notes which
could also give rise to an acceleration of the amounts due under the Notes. If
the indebtedness under the New Credit Facility is accelerated as a result of a
breach of a covenant, there can be no assurance that the assets of the Company
would be sufficient to repay in full such indebtedness and the other
indebtedness of the Company, including the Notes, or that the Company could
continue to operate its business as a result of such acceleration. See
"Description of New Notes" and "Description of New Credit Facility."
Additionally, the New Credit Facility, which is designed to address the
Company's seasonal working capital needs, will expire on July 1, 2000. There can
be no assurance that, at such time, the Company will be able to extend or renew
the New Credit Facility or obtain alternative financing to meet its seasonal
working capital needs. In the event that the Company does not have a revolving
credit facility in place, the
10
<PAGE>
Company may not be able to satisfy its seasonal working capital needs, which
would have a material adverse effect on the Company and its results of
operations.
COLLATERAL; OTHER SECURED INDEBTEDNESS
The Notes are secured by a security interest in certain of the Company's
equipment, fixtures and general intangibles, including trademarks, and mortgages
on the Company's manufacturing, storage and distribution facility located in
Chicago, Illinois, and warehouse and distribution facility located in Bensalem,
Pennsylvania, and proceeds of the foregoing (collectively, the "Collateral").
Upon the occurrence of an Event of Default (as defined), the proceeds from the
sale of Collateral may not be sufficient to satisfy in full the Company's
obligations under the Notes. In addition, the ability of the holders of Notes to
realize upon such Collateral may be limited and subject to substantial delays.
Upon the occurrence of an Event of Default, before the Trustee or holders of
Notes can take possession of or sell any Collateral, the Trustee and the holders
of the Notes will have to comply with all applicable state judicial or
non-judicial foreclosure and sale laws. Such laws may include cure provisions,
mandatory sale notice provisions, manner of sale provisions and redemption
period provisions. These provisions may significantly increase the time
associated with taking possession or the sale of any Collateral and may reduce
the amount of proceeds realized therefrom. Failure to comply with such
provisions could void the foreclosure on or sale of any Collateral.
The Notes are not secured by certain other assets of the Company, such as
the Company's accounts receivable, raw materials and finished goods inventories
and certain of the Company's owned store locations, and the proceeds therefrom.
As a result, the Notes will be effectively subordinated to the claims of the
lenders under the New Credit Facility (or any successor or additional financing)
with respect to the Company's accounts receivable, inventories and certain of
the Company's owned store locations, including proceeds therefrom, which assets
will be pledged under the New Credit Facility (or any successor or additional
financing). In the event of a default on the Notes, or a bankruptcy, liquidation
or reorganization of the Company, such assets would be available to satisfy
obligations under the New Credit Facility (or any successor or additional
financing) before any payment therefrom could be made on the Notes. To the
extent that the value of such collateral granted under the New Credit Facility
(or any successor or additional financing) is not sufficient to satisfy
obligations thereunder, the lenders thereunder would be entitled to share with
holders of the Notes and other claims on the Company with respect to the
unencumbered assets of the Company. See "Description of New Credit Facility" and
"Description of New Notes -- Collateral."
SUBSTANTIAL COMPETITION
The production and sale of confectionery products and, in particular, boxed
chocolates is highly competitive. The Company competes with numerous businesses
that manufacture, distribute or retail boxed chocolates and other confectionery
products, including confectionery manufacturers, distributors and retailers who
supply or seek to supply various segments of the confectionary market currently
being targeted by the Company for growth and development. The Company also
competes with manufacturers, distributors and retailers of other snack food
products, including cookies, ice cream and coffee, as well as with gift
distributors and retailers, such as florists and card and gift shops, that offer
products at price points comparable to those of the Company's products. Many of
the Company's competitors have greater name recognition and greater financial,
marketing and other resources than the Company. Competitive market conditions
could have a material adverse effect on the Company and its results of
operations. See "Business -- Competition."
SEASONALITY
The Company's sales and earnings are highly seasonal. Accordingly, results
from any interim period are not necessarily indicative of the results that may
be realized for the full year. In addition, a majority of
11
<PAGE>
the Company's annual sales and profits are generated during the periods
preceding Christmas, Valentine's Day and Easter. If for any reason demand for
the Company's products during any such holiday period is insufficient, the
Company's total sales and profits will be materially reduced for such period and
for the fiscal year in general. Further, the Company is required to establish
inventory levels in anticipation of projected seasonal demand. To the extent
that the Company underestimates such demand, sales and profits could be lost. To
the extent that the Company establishes inventories in excess of actual demand,
the Company may be required to sell inventory at reduced prices or write-off the
excess inventory as unsaleable. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Quarterly Results and
Seasonality."
FLUCTUATIONS IN COST OF SALES AND IMPACT ON PRICING
The principal components of the Company's cost of sales are raw materials,
purchased product, labor and manufacturing overhead, which represented 32%, 23%,
29% and 16%, respectively, of the Company's cost of sales in fiscal 1996.
Although the overall supply and price of raw materials and purchased products
have been relatively stable in recent years, the supply and price of specific
raw materials and purchased products may be significantly affected by many
factors, including market fluctuations and economic, political and weather
conditions affecting commodity supplies, over which the Company has no control.
Although the Company has long-standing relationships with many of its principal
raw material and candy product suppliers and generally does not depend on any
single supplier for key ingredients or products, a significant or prolonged
increase in the prices of chocolate, nutmeats or other key ingredients or
purchased candy products, or the unavailability of adequate supplies of such
materials or products of the quality sought by the Company, could have a
material adverse effect on the Company and its results of operations. In
addition, in many of the Company's sales channels, the Company must set its
prices prior to or at the beginning of the fiscal year. Therefore, if the cost
of sales or operating expenses rise unexpectedly during the fiscal year, the
Company's ability to pass along such cost increases to its customers through
higher prices may be limited or unavailable. Furthermore, the Company generally
may be unable or limited in its ability to pass along cost increases to its
customers through higher prices. The Company's sensitivity to cost increases and
inability to raise prices may have a material adverse effect on the Company and
its results of operations. See "Business -- Products."
REGIONAL CONCENTRATION OF OPERATIONS
A majority of Company-operated stores and third-party retailers carrying the
Company's products are located in the Midwestern United States, particularly in
the greater Chicago metropolitan area. Such stores and retailers account for a
significant percentage of the Company's net sales and profits. Many of the
remaining Company-operated stores are located in and around large metropolitan
areas in the upper Midwestern United States, the Northeastern United States and
Florida. Accordingly, the Company is susceptible to adverse developments in the
economy, weather conditions, competition, consumer preferences or demographics
in any of these metropolitan areas. For example, severe weather conditions in
any of the Company's principal metropolitan markets may have a material negative
impact on customer traffic and sales, especially if such weather occurs during
one of the Company's peak selling periods. Due to the Company's susceptibility
to such adverse developments, there can be no assurance that the current
geographic concentration of the Company's business will not have a material
adverse effect on the Company and its results of operations.
OTHER FACTORS AFFECTING SALES AND PROFITABILITY
A number of factors beyond the Company's control may adversely affect its
sales and profitability. Such factors include general customer traffic in
shopping centers and malls in which the Company-operated stores and third-party
retailers of the Company's products are located, the timing of the
12
<PAGE>
Christmas and Valentine's Day holidays (I.E., the days of the week on which such
holidays occur) and changes in discretionary spending priorities and in consumer
tastes, preferences and eating habits.
In addition, the Company distributes its Third-Party Retail and Non-Retail
products pursuant to an arrangement with United Parcel Service and its
fundraising sales are highly dependent upon an independent national distributor.
If either of such distributors were to suffer a work stoppage or otherwise be
unable to distribute the Company's products, especially during one of the
Company's key selling periods, the Company's operations would be materially
adversely affected.
Further, within the next five years, approximately 90% of the Company's
retail store leases are due to expire. There can be no assurance that the
Company will be able to renew these leases or that the terms of any such
renewals will be favorable to the Company.
GOVERNMENT REGULATIONS
As a manufacturer, packager, distributor and retailer of food products, the
Company is subject to extensive regulation by various federal and state
regulatory agencies, including, among others, the Food and Drug Administration.
In addition, each of the retail stores operated by the Company is subject to
licensing and regulation by the health, sanitation, safety, building and fire
agencies of the respective states and municipalities in which such stores are
located. A failure to comply with one or more regulations could result in the
imposition of sanctions, including the closing of all or a portion of the
Company's facilities for an indeterminate period of time and/or the recall of
products that were manufactured under improper conditions, or third-party
litigation, any of which could have a material adverse effect on the Company and
its results of operations.
Under various federal, state and local laws, ordinances and regulations, an
owner or operator of real estate may be liable for the costs of removal or
remediation of certain hazardous or toxic substances on or in such property.
Such liability may be imposed without regard to whether the owner or operator
knew of, or was responsible for, the presence of such hazardous or toxic
substances. A number of properties owned or operated by the Company were
formerly operated as gasoline stations. The Company has engaged in a limited
review of these properties and removed underground storage tanks and associated
contamination where such underground storage tanks were identified. Although the
Company is not aware of any material environmental conditions that require
remediation under federal, state or local law at these properties, no assurance
can be given that the Company has identified all of the potential environmental
liabilities at these properties or that such liabilities would not have a
material impact on the financial condition of the Company.
The Company also is subject to laws governing its relationships with
employees, including minimum wage requirements, overtime, work and safety
conditions and citizenship requirements. Because a significant number of the
Company's employees are paid at rates related to the federal minimum wage, an
increase in the minimum wage would increase the Company's labor costs. An
increase in the minimum wage rate or employee benefits costs (including costs
associated with mandated health insurance coverage) could have a material
adverse effect on the Company and its results of operations.
DEPENDENCE ON KEY PERSONNEL; LABOR RELATIONS
The Company believes that its success is largely dependent on the abilities
and experience of its senior management team. The loss of services of one or
more of these senior executives could adversely affect the Company's ability to
effectively manage the overall operations of the Company or successfully execute
current or future business strategies, either of which could have a material
adverse effect on the Company and its results of operations. In addition, the
Company believes that its continued success will depend upon its ongoing ability
to attract and retain qualified management and employees. See "Management" and
"Business -- Employees."
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<PAGE>
The Company currently is subject to eight collective bargaining agreements,
all of which expire on or before June 30, 2000. The Company historically has had
satisfactory labor relations with its employees and their labor unions and has
not experienced an organized work stoppage in over 15 years. The Company's
inability to negotiate acceptable union contracts in the future could result in
higher wages or benefits paid to union members and, therefore increase operating
costs, which could have a material adverse effect on the Company and its results
of operations. A work stoppage or strike by the Company's employees, especially
during one of the Company's key selling periods (i.e., Christmas, Valentine's
Day or Easter), also could have a material adverse effect on the Company and its
results of operations. See "Business -- Employees."
CONTROL AND CAPITALIZATION OF HOLDINGS
The TJC Investors own a majority of the issued and outstanding capital stock
of Holdings, which in turn owns all of the issued and outstanding capital stock
of the Company. See "Principal Stockholders." Subject to the rights of the other
holders of Holdings' capital stock, the TJC Investors have the right to elect
directors that have a majority of the voting power of the Boards of Directors of
Holdings and the Company. As a result, the TJC Investors generally will have the
ability to control the business affairs of the Company and Holdings and to
determine the outcome of any corporate transaction or other matter requiring
stockholder approval, such as an amendment to the articles of incorporation of
Holdings or the Company, the authorization of additional shares of capital stock
or a merger, consolidation or sale of all or substantially all of the assets or
stock of Holdings or the Company. The TJC Investors thus can prevent or cause a
change of control of Holdings or the Company, either of which may adversely
affect the Company and its results of operations. Messrs. John W. Jordan, II,
Thomas H. Quinn and Adam E. Max, each a director of Holdings and the Company,
are affiliated with the TJC Investors. In addition, following the Offering, the
Company or Holdings will maintain certain agreements with the TJC Investors or
certain affiliates thereof. See "Certain Transactions" and "Principal
Stockholders."
Pursuant to the terms of Holdings' charter, the Securities Purchase
Agreement (as defined) and the Shareholders Agreement (as defined), the TCW
Investors have the right to take control of the Board of Directors of Holdings
and the Company upon the occurrence of certain Triggering Events (as defined in
the Securities Purchase Agreement), subject to the prior right of the holders of
the Senior Preferred Stock of Holdings ("Senior Preferred Stock"). See
"Capitalization of Holdings -- Securities Purchase Agreement." The Senior
Preferred Stock has various dividend and redemption rights, which, if not
satisfied by Holdings, would result in the holders of the Senior Preferred Stock
acquiring the right to control the Board of Directors of Holdings and the
Company. See "Capitalization of Holdings." Acquisition of control of the Board
of Directors of Holdings or the Company by the holders of the Senior Preferred
Stock would constitute a Change of Control under the Indenture. See "--
Inability to Purchase Notes Upon a Change of Control."
In 2001, Holdings will be required to redeem the Senior Preferred Stock,
Class A Preferred Stock (as defined) and Class B Preferred Stock (as defined).
Commencing January 2000, Holdings, pursuant to the occurrence of a Purchase
Event (as defined), may be required to redeem shares of Class A Common Stock and
Class D Common Stock held by the TCW Investors and certain of the TJC Investors.
In order for Holdings to make such redemption payments, Holdings must elect
either to pursue a sale of the Company or cause the Company, to the extent
permitted by the Indenture and the New Credit Facility, to advance the necessary
funds to Holdings by dividend or otherwise. Such advances, if made, will reduce
the funds available for the Company's operations. See "Capitalization of
Holdings" and "Description of New Notes -- Certain Covenants -- Limitation on
Restricted Payments."
INABILITY TO PURCHASE NOTES UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company will be required to
offer to purchase all outstanding Notes at a price equal to 101% of the
principal amount of the Notes, together with accrued
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<PAGE>
and unpaid interest, if any, to the date of repurchase. The New Credit Facility
will provide that the occurrence of certain change of control events with
respect to the Company will constitute a default under the New Credit Facility.
Therefore, in the event of such a change of control, the Company may be required
to repay or refinance all borrowings under the New Credit Facility. In addition,
even if a Change of Control does not constitute a default under the New Credit
Facility, the offer to purchase the Notes would constitute a default thereunder.
There can be no assurance that the Company will have the financial ability or
resources to purchase the Notes or repay the New Credit Facility under such
circumstances. See "Description of New Notes -- Repurchase Upon Change of
Control."
The holders of Notes have limited rights to require the Company to purchase
or redeem the Notes in the event of a takeover, recapitalization or similar
restructuring, including an issuer recapitalization or similar transaction with
management. Consequently, the Change of Control provisions will not afford
holders of Notes any protection in a highly leveraged or other type of
transaction, including any such transaction initiated by the Company, management
of the Company or an affiliate of the Company, if such transaction does not
result in a Change of Control. Accordingly, the Change of Control provisions are
likely to be of limited usefulness in such situations.
ABSENCE OF PUBLIC MARKET FOR THE NOTES
The New Notes are being offered to the holders of the Old Notes. The Old
Notes were offered and sold in July 1997 to a small number of institutional
investors and are eligible for trading in the Private Offerings, Resale and
Trading through Automatic Linkages ("PORTAL") Market, the National Association
of Securities Dealers' screen based, automated market for trading of securities
eligible for resale under Rule 144A.
The Company does not intend to apply for a listing of the New Notes on any
securities exchange. There is currently no established market for the New Notes
and there can be no assurance as to the liquidity of markets that may develop
for the New Notes, the ability of the holders of the New Notes to sell their New
Notes or the price at which such holders would be able to sell their New Notes.
If such markets were to exist, the New Notes could trade at prices that may be
lower than the initial market values thereof depending on many factors,
including prevailing interest rates, the markets for similar securities, and the
financial performance of the Company. Although there is currently no market for
the New Notes, the Initial Purchasers advised the Company that they currently
intend to make a market in the New Notes. However, the Initial Purchasers are
not obligated to do so, and any such market making with respect to the New Notes
may be discontinued at any time without notice. In addition, such market making
activities will be subject to the limits imposed by the Securities Act and the
Exchange Act and may be limited during the Exchange Offer or the pendency of an
applicable Shelf Registration Statement.
In addition, the liquidity of, and trading markets for, New Notes also may
be adversely affected by declines in the market for high yield securities
generally. Such a decline may adversely affect such liquidity and trading
markets independent of the financial performance of, and prospects for, the
Company.
FRAUDULENT TRANSFER CONSIDERATIONS
In the United States, under federal fraudulent transfer and similar laws, if
a court were to find, in a lawsuit by an unpaid creditor or representative of
creditors of the Company or any Guarantor of the Notes (such as a trustee in
bankruptcy or any such person as debtor in possession), that the Company or such
Guarantor received less than fair consideration or reasonable equivalent value
for incurring the indebtedness represented by the Notes or such Guarantor's
guarantee, and, at the time of such incurrence, the Company or such Guarantor,
as the case may be, (i) was insolvent or was rendered insolvent by reason of
such incurrence, (ii) was engaged or about to engage in a business or
transaction for which its remaining property constituted unreasonably small
capital or (iii) intended to incur, or believed it would incur, debts beyond its
ability to pay as such debts mature, such court could, among other things, (a)
void all or a
15
<PAGE>
portion of the Company's or such Guarantor's obligations to holders of the Notes
and/or the liens securing the Notes or such Guarantor's guarantee and/or (b)
subordinate the Company's obligations to holders of the Notes or such
Guarantor's guarantee to other existing and future indebtedness of the Company
or such Guarantor and/or subordinate the liens securing the Notes or such
Guarantor's guarantee to other existing or future liens, the effect of which
would be to entitle such other creditors to be paid in full before any payment
could be made on the Notes. The measure of insolvency for purposes of
determining whether a transfer is voidable as a fraudulent transfer varies
depending upon the law of the jurisdiction which is being applied. Generally,
however, a debtor would be considered insolvent if the sum of all of its
liabilities was greater than the value of all of its property at a fair
valuation, or if the present fair saleable value of the debtor's assets was less
than the amount required to repay its probable liability on its debts as they
become absolute and mature. There can be no assurance as to what standard a
court would apply in order to determine solvency.
CERTAIN BANKRUPTCY CONSIDERATIONS
The ability of holders of the Notes to realize upon the Collateral will be
subject to certain bankruptcy law limitations in the event of a bankruptcy of
the Company. Under applicable federal bankruptcy laws, secured creditors are
prohibited from repossessing their security from a debtor in a bankruptcy case,
or from disposing of security repossessed from such a debtor, without bankruptcy
court approval. Moreover, applicable federal bankruptcy laws generally permit
the debtor to continue to retain collateral even though the debtor is in default
under the applicable debt instruments, provided generally that the secured
creditor is given "adequate protection." The meaning of the term "adequate
protection" may vary according to the circumstances, but is intended in general
to protect the value of the secured creditor's interest in the collateral at the
commencement of the bankruptcy case and may include cash payments or the
granting of additional security, if and at such times as the court in its
discretion determines, for any diminution in the value of the collateral as a
result of the stay of repossession or disposition of the collateral by the
debtor during the pendency of the bankruptcy case. In view of the lack of a
precise definition of the term "adequate protection" and the broad discretionary
powers of a bankruptcy court, the Company cannot predict whether payments under
the Notes would be made following commencement of and during a bankruptcy case,
whether or when the Trustee could foreclose upon or sell the Collateral or
whether or to what extent holders of Notes would be compensated for any delay in
payment or loss of value of the Collateral through the requirement of "adequate
protection." Furthermore, in the event the bankruptcy court determines that the
value of the Collateral is not sufficient to repay all amounts due on the Notes,
holders of Notes would hold "under secured claims." Applicable federal
bankruptcy laws do not permit the payment and/or accrual of interest, costs and
attorney's fees for "under secured claims" during a debtor's bankruptcy case.
-------------------
CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Prospectus contains certain forward-looking statements that involve
substantial risks and uncertainties. When used in this Prospectus, the words
"anticipate," "believe," "estimate," and "expect" and similar expressions as
they relate to the Company or its management are intended to identify such
forward-looking statements. The Company's actual results, performance or
achievements could differ materially from the results expressed in, or implied
by, these forward-looking statements. Factors that could cause or contribute to
such differences include those discussed in "Risk Factors."
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<PAGE>
USE OF PROCEEDS
There will be no proceeds to the Company resulting from the Exchange Offer.
The net proceeds from the Offering (after the deduction of discounts and
commissions, fees and other expenses associated with the Offering) was
approximately $93.6 million. The net proceeds from the Offering were used by the
Company (i) to repay in full all outstanding indebtedness under the Company's
then existing bank credit facility (the "Old Credit Facility"), including
accrued and unpaid interest thereon, (ii) to repurchase all of the Company's
Senior Subordinated Notes (the "Subordinated Notes") and to pay accrued and
unpaid interest thereon and the prepayment premium applicable thereto, and (iii)
for general corporate and working capital purposes. See "Capitalization of
Holdings" and "Certain Transactions."
The following table summarizes the sources and uses of funds contemplated by
the Transactions, assuming the Transactions were consummated on May 31, 1997
(amounts shown are in millions):
<TABLE>
<CAPTION>
SOURCES OF FUNDS
- --------------------------------------------------
<S> <C>
Senior Secured Notes (1).......................... $100.0
------
Total sources............................... $100.0
------
------
<CAPTION>
USES OF FUNDS
- --------------------------------------------------
<S> <C>
Repay Old Credit Facility (2)..................... $35.0
Repurchase Subordinated Notes (3)................. 38.0
Working capital................................... 20.6
Estimated fees and expenses (4)................... 6.4
------
Total uses.................................. $100.0
------
------
</TABLE>
- ------------
(1) Concurrently with the consummation of the Offering, the Company entered into
a new credit facility with The First National Bank of Chicago, as agent (the
"New Credit Facility"), which provides for revolving loans of up to $20.0
million, subject to certain borrowing conditions and limitations. See
"Description of New Credit Facility."
(2) As of May 31, 1997, revolving and term (the "Term Loan") borrowings under
the Old Credit Facility totaled $35.0 million, including $1.4 million of
accrued interest. The Old Credit Facility had a final maturity date of
January 31, 2000. Indebtedness under the Old Credit Facility accrued
interest at a variable rate equal to the Alternate Base Rate (generally
defined as the greater of (i) the corporate base rate of interest announced
by The First National Bank of Chicago from time to time or (ii) the Federal
Funds Effective Rate (as defined in the Old Credit Facility) plus 0.5% per
annum) plus 2.0% or a fixed rate equal to the Eurodollar base rate (as
defined in the Old Credit Facility) plus 3.25%. As of May 31, 1997,
approximately $33.6 million of the Company's principal indebtedness under
the Old Credit Facility accrued interest at 9.10%. See Certain Transactions
-- Participation by Jordan Industries in Old Credit Facility."
(3) As of May 31, 1997, consists of $35.0 million in aggregate principal amount
of Subordinated Notes, $1.2 million in accrued and unpaid interest and a
$1.8 million, or 5.0%, prepayment premium. The Subordinated Notes are held
by certain of the TJC Investors and the TCW Investors. See "Certain
Transactions -- Subordinated Notes."
(4) Includes estimated discounts, fees and legal, accounting and printing
expenses incurred in connection with the Transactions and other accrued
management and investment banking fees and expenses paid to affiliates of
TJC. See "Capitalization of Holdings -- Securities Purchase Agreement" and
"Certain Transactions -- Management Consulting Agreement and Investment
Banking Fees."
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<PAGE>
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The sole purpose of the Exchange Offer is to fulfill the obligations of the
Company with respect to the registration of the Old Notes.
The Old Notes were originally issued and sold on July 2, 1997 (the "Issue
Date"). Such sales were not registered under the Securities Act in reliance upon
the exemption provided by Section 4(2) of the Securities Act and Rule 144A
promulgated under the Securities Act. In connection with the sale of the Old
Notes, the Company and the Initial Purchasers entered into the Registration
Rights Agreement pursuant to which the Company agreed, for the benefit of the
holders of Old Notes, that it would, at its cost, (i) within 60 days of the
Issue Date file with the Commission a registration statement (the "Exchange
Offer Registration Statement") with respect to an offer to exchange the Old
Notes for the New Notes, which would have terms substantially identical in all
material respects to the Old Notes; (ii) use its best efforts to cause such
Exchange Offer Registration Statement to become effective under the Securities
Act as promptly as practicable after the filing of the Exchange Offer
Registration Statement, but in no event later than the 120th day after the Issue
Date; (iii) keep the Exchange Offer Registration Statement effective until the
consummation of the Exchange Offer pursuant to its terms and (iv) unless the
Exchange Offer was not permitted by a policy of the Commission, commence the
Exchange Offer and use its best efforts to issue, on or prior to 45 days after
the date on which the Exchange Offer Registration Statement is declared
effective, New Notes in exchange for all Old Notes tendered prior thereto in the
Exchange Offer. The Company has agreed to keep the Exchange Offer open for not
less than 30 days (or longer if required by applicable law) after the date
notice thereof is mailed to the holders of Old Notes.
If (i) prior to the consummation of the Exchange Offer, either the Company
or the holders of a majority in aggregate principal amount of Notes determines
in its reasonable judgment that (a) the New Notes would not, upon receipt, be
tradeable by the holders thereof without restriction under the Securities Act
and the Exchange Act and without material restrictions under applicable Blue Sky
or state securities laws, or (b) the interests of the holders under the
Registration Rights Agreement, taken as a whole, would be materially adversely
affected by the consummation of the Exchange Offer, (ii) applicable
interpretations of the staff of the Commission would not permit the consummation
of the Exchange Offer within 120 days of the Issue Date, (iii) subsequent to the
consummation of the Private Exchange (as defined in the Registration Rights
Agreement) but within one year of the Issue Date, the Initial Purchasers so
request, (iv) the Exchange Offer is not consummated within 165 days of the Issue
Date for any reason or (v) in the case of any holder not permitted to
participate in the Exchange Offer or of any holder participating in the Exchange
Offer that receives New Notes that may not be sold without restriction under
state and federal securities laws (other than due solely to the status of such
holder as an affiliate of the Company within the meaning of the Securities Act)
and, in either case contemplated by clause (v), such holder notifies the Company
within six months of consummation of the Exchange Offer, then the Company shall
promptly deliver to the holders (or in the case of any occurrence of the event
described in clause (v) to any such holder) and the Trustee notice thereof and
shall as promptly as possible thereafter file a shelf registration statement
(the "Shelf Registration Statement").
If (a) neither the Exchange Offer Registration Statement nor the Shelf
Registration Statement has been filed with the Commission within 60 days of the
Issue Date, (b) neither the Exchange Offer Registration Statement nor the Shelf
Registration Statement is declared effective by the Commission within 120 days
of the Issue Date, (c) the Company has not exchanged New Notes for Old Notes
validly tendered in accordance with the terms of the Exchange Offer within 45
days after the date on which an Exchange Offer Registration Statement is
declared effective by the Commission or (d) if a Shelf Registration Statement is
filed and declared effective by the Commission but thereafter ceases to be
effective without being succeeded within 30 days by a subsequent shelf
registration statement filed and declared effective (each of the foregoing a
"Registration Default"), then the Company will be required to
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<PAGE>
pay Liquidated Damages (as defined) to the holders of Notes. See "Old Notes
Registration Rights; Liquidated Damages."
TERMS OF THE EXCHANGE
The Company hereby offers to exchange, upon the terms and subject to the
conditions set forth herein and in the Letter of Transmittal accompanying the
Registration Statement of which this Prospectus is a part, $1,000 in principal
amount of New Notes for each $1,000 in principal amount of Old Notes. The form
and terms of the New Notes are substantially identical (including principal
amount, interest rate, maturity, security and ranking) to the form and terms of
the Old Notes for which they may be exchanged pursuant to the Exchange Offer,
except that such New Notes generally will be freely transferable by holders
thereof, and the holders of the New Notes (as well as remaining holders of any
Old Notes) are not entitled to certain registration rights or liquidated damages
which are applicable to the Old Notes under the Registration Rights Agreement.
The New Notes will be obligations of the Company evidencing the same
indebtedness as the Old Notes and will be entitled to the benefits of the
Indenture. See "Description of New Notes."
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Old Notes being tendered or accepted for exchange. The Company intends
to conduct the Exchange Offer in accordance with the applicable requirements of
the Exchange Act, and the rules and regulations of the Commission thereunder,
including Rule 14e-1, to the extent applicable.
Based on its view of interpretations provided by the staff of the Commission
to third parties in several no-action letters, the Company believes that the New
Notes issued pursuant to the Exchange Offer in exchange for the Old Notes may be
offered for resale, resold or otherwise transferred by any holder thereof (other
than any holder which is (i) an Affiliate of the Company, (ii) a broker-dealer
who acquired Old Notes directly from the Company or (iii) a broker-dealer who
acquired Old Notes as a result of market making or other trading activities)
without further compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that such New Notes are acquired in
the ordinary course of such holder's business, and such holder is not engaged
in, and does not intend to engage in, and has no arrangement or understanding
with any person to participate in, a distribution of such New Notes. However,
the Company does not intend to request the Commission to consider, and the
Commission has not considered, the Exchange Offer in the context of a no-action
letter and there can be no assurance that the staff of the Commission would make
a similar determination with respect to the Exchange Offer as in other
circumstances. 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 on any
such resale of New Notes and any commissions or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities Act.
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. 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. Broker-dealers who acquired Old Notes as a result of market making or other
trading activities may use this Prospectus, as supplemented or amended, in
connection with resales of the New Notes. The Company has agreed that, for a
period of 180 days after the Registration Statement is declared effective, it
will make this Prospectus available to any broker-dealer for use in connection
with any such resale. Any holder who tenders in the Exchange Offer for the
purpose of participating in a distribution of the New Notes or 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.
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<PAGE>
Tendering holders of Old Notes will not be required to pay brokerage
commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of the Old Notes
pursuant to the Exchange Offer.
Interest on the New Notes will accrue from the last interest payment date on
which interest was paid on the Old Notes surrendered in exchange therefor or, if
no interest has been paid on the Notes, from the date of original issue of the
Old Notes. The New Notes will bear interest at a rate of 10 1/4% per annum,
payable semi-annually on January 1 and July 1 of each year, commencing January
1, 1998.
EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS
The Exchange Offer expires on the Expiration Date. The term "Expiration
Date" means 5:00 p.m., New York City time, on , 1997 unless the
Company in its sole discretion extends the period during which the Exchange
Offer is open, in which event the term "Expiration Date" means the latest time
and date on which the Exchange Offer, as so extended by the Company, expires.
The Company reserves the right to extend the Exchange Offer at any time and from
time to time prior to the Expiration Date by giving written notice to The Bank
of New York, as Exchange Agent (the "Exchange Agent") and by timely public
announcement communicated by no later than 5:00 p.m. on the next business day
following the Expiration Date, unless otherwise required by applicable law or
regulation, by making a release to the Dow Jones News Service. During any
extension of the Exchange Offer, all Old Notes previously tendered pursuant to
the Exchange Offer will remain subject to the Exchange Offer.
The initial Exchange Date will be the first business day following the
Expiration Date. The Company expressly reserves the right to (i) terminate the
Exchange Offer and not accept for exchange any Old Notes for any reason,
including if any of the events set forth below under "Conditions to the Exchange
Offer" shall have occurred and shall not have been waived by the Company and
(ii) amend the terms of the Exchange Offer in any manner, whether before or
after any tender of the Old Notes. If any such termination or amendment occurs,
the Company will notify the Exchange Agent in writing and will either issue a
press release or give written notice to the holders of the Old Notes as promptly
as practicable. Unless the Company terminates the Exchange Offer prior to 5:00
p.m., New York City time, on the Expiration Date, the Company will exchange the
New Notes for Old Notes on the Exchange Date.
This Prospectus and the related Letter of Transmittal and other relevant
materials will be mailed by the Company to record holders of Old Notes and will
be furnished to brokers, banks and similar persons whose names, or the names of
whose nominees, appear on the lists of holders for subsequent transmittal to
beneficial owners of Old Notes.
PROCEDURES FOR TENDERING OLD NOTES
The tender to the Company of Old Notes by a holder thereof pursuant to one
of the procedures set forth below will constitute an agreement between such
holder and the Company in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.
GENERAL PROCEDURES
A holder of an Old Note may tender the same by (i) properly completing and
signing the Letter of Transmittal or a facsimile thereof (all references in this
Prospectus to the Letter of Transmittal shall be deemed to include a facsimile
thereof) and delivering the same, together with the certificate or certificates
representing the Old Notes being tendered and any required signature guarantees
(or a timely confirmation of a book-entry transfer (a "Book-Entry Confirmation")
pursuant to the procedure described below), to the Exchange Agent at its address
set forth below under "-- Exchange Agent" on or prior to the Expiration Date or
(ii) complying with the guaranteed delivery procedures described below.
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<PAGE>
If tendered Old Notes are registered in the name of the signer of the Letter
of Transmittal and the New Notes to be issued in exchange therefor are to be
issued (and any untendered Old Notes are to be reissued) in the name of the
registered holder, the signature of such signer need not be guaranteed. In any
other case, the tendered Old Notes must be endorsed or accompanied by written
instruments of transfer in form satisfactory to the Company and duly executed by
the registered holder and the signature on the endorsement or instrument of
transfer must be guaranteed by a bank, broker, dealer, credit union, savings
association, clearing agency or other institution (each an "Eligible
Institution") that is a member of a recognized signature guarantee medallion
program within the meaning of Rule 17Ad-15 under the Exchange Act. If the New
Notes and/or Old Notes not exchanged are to be delivered to an address other
than that of the registered holder appearing on the note register for the Old
Notes, the signature on the Letter of Transmittal must be guaranteed by an
Eligible Institution.
Any beneficial owner whose Old Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to tender
Old Notes should contact such holder promptly and instruct such holder to tender
Old Notes on such beneficial owner's behalf. If such beneficial owner wishes to
tender such Old Notes himself, such beneficial owner must, prior to completing
and executing the Letter of Transmittal and delivering such Old Notes, either
make appropriate arrangements to register ownership of the Old Notes in such
beneficial owner's name or follow the procedures described in the immediately
preceding paragraph. The transfer of record ownership may take considerable
time.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Depository Trust Company ("DTC") (the "Book-Entry
Transfer Facility") for purposes of the Exchange Offer within two business days
after receipt of this Prospectus, and any financial institution that is a
participant in the Book-Entry Transfer Facility's systems may make book-entry
delivery of Old Notes by causing the Book-Entry Transfer Facility to transfer
such Old Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility in accordance with the Book-Entry Transfer Facility's procedures for
transfer. However, although delivery of Old Notes may be effected through
book-entry transfer at the Book-Entry Transfer Facility, the Letter of
Transmittal, with any required signature guarantees and any other required
documents, must, in any case, be transmitted to and received by the Exchange
Agent at the address set forth below under "-- Exchange Agent" on or prior to
the Expiration Date or the guaranteed delivery procedures described below must
be complied with.
THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER
DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER. IF SUCH DELIVERY IS BY
MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, RETURN RECEIPT REQUESTED, BE USED,
PROPER INSURANCE BE OBTAINED, AND THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF
THE EXPIRATION DATE TO PERMIT DELIVERY TO THE EXCHANGE AGENT ON OR BEFORE THE
EXPIRATION DATE.
Unless an exemption applies under the applicable law and regulations
concerning "backup withholding" of federal income tax, the Exchange Agent will
be required to withhold, and will withhold, 31% of the gross proceeds otherwise
payable to a holder pursuant to the Exchange Offer if the holder does not
provide a taxpayer identification number (social security number or employer
identification number, as applicable) and certify that such number is correct.
Each tendering holder should complete and sign the main signature form and the
Substitute Form W-9 included as part of the Letter of Transmittal, so as to
provide the information and certification necessary to avoid backup withholding,
unless an applicable exemption exists and is proved in a manner satisfactory to
the Company and the Exchange Agent.
GUARANTEED DELIVERY PROCEDURES
If a holder desires to accept the Exchange Offer and time will not permit a
Letter of Transmittal or Old Notes to reach the Exchange Agent before the
Expiration Date, a tender may be effected if the Exchange Agent has received at
its office listed on the Letter of Transmittal on or prior to the Expiration
Date a letter, telegram or facsimile transmission from an Eligible Institution
setting forth the name and
21
<PAGE>
address of the tendering holder, the principal amount of the Old Notes being
tendered, the names in which the Old Notes are registered and, if possible, the
certificate numbers of the Old Notes to be tendered, and stating that the tender
is being made thereby and guaranteeing that within three New York Stock Exchange
trading days after the date of execution of such letter, telegram or facsimile
transmission by the Eligible Institution, the Old Notes, in proper form for
transfer, will be delivered by such Eligible Institution together with a
properly completed and duly executed Letter of Transmittal (and any other
required documents). Unless Old Notes being tendered by the above-described
method (or a timely Book-Entry Confirmation) are deposited with the Exchange
Agent within the time period set forth above (accompanied or preceded by a
properly completed Letter of Transmittal and any other required documents), the
Company may, at its option, reject the tender. Copies of a Notice of Guaranteed
Delivery which may be used by Eligible Institutions for the purposes described
in this paragraph are available from the Exchange Agent.
A tender will be deemed to have been received as of the date when the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Old Notes (or a timely Book-Entry Confirmation) is received
by the Exchange Agent. Issuances of New Notes in exchange for Old Notes tendered
pursuant to a Notice of Guaranteed Delivery or letter, telegram or facsimile
transmission to similar effect (as provided above) by an Eligible Institution
will be made only against deposit of the Letter of Transmittal (and any other
required documents) and the tendered Old Notes (or a timely Book-Entry
Confirmation).
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of Old Notes will be
determined by the Company, whose determination will be final and binding. The
Company reserves the absolute right to reject any or all tenders not in proper
form or the acceptances for exchange of which may, in the opinion of counsel to
the Company, be unlawful. The Company also reserves the absolute right to waive
any of the conditions of the Exchange Offer or any defect or irregularities in
tenders of any particular holder whether or not similar defects or
irregularities are waived in the case of other holders. Neither the Company, the
Exchange Agent nor any other person will be under any duty to give notification
of any defects or irregularities in tenders or shall incur any liability for
failure to give any such notification. The Company's interpretation of the terms
and conditions of the Exchange Offer (including the Letter of Transmittal and
the instructions thereto) will be final and binding.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Exchange Offer.
The party tendering Old Notes for exchange (the "Transferor") exchanges,
assigns and transfers the Old Notes to the Company and irrevocably constitutes
and appoints the Exchange Agent as the Transferor's agent and attorney-in-fact
to cause the Old Notes to be assigned, transferred and exchanged. The Transferor
represents and warrants that it has full power and authority to tender,
exchange, assign and transfer the Old Notes and to acquire New Notes issuable
upon the exchange of such tendered Old Notes, and that, when the same are
accepted for exchange, the Company will acquire good and unencumbered title to
the tendered Old Notes, free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claim. The Transferor also warrants
that it will, upon request, execute and deliver any additional documents deemed
by the Company to be necessary or desirable to complete the exchange, assignment
and transfer of tendered Old Notes. The Transferor further agrees that
acceptance of any tendered Old Notes by the Company and the issuance of New
Notes in exchange therefor shall constitute performance in full by the Company
of its obligations under the Registration Rights Agreement and the Company shall
have no further obligations or liabilities thereunder (except in certain limited
circumstances). All authority conferred by the Transferor will survive the death
or incapacity of the Transferor and every obligation of the Transferor shall be
binding upon the heirs, legal representatives, successors, assigns, executors
and administrators of such Transferor.
22
<PAGE>
By tendering Old Notes and executing the Letter of Transmittal, the
Transferor certifies (a) that it is not an Affiliate of the Company, that it is
not a broker-dealer that owns Old Notes acquired directly from the Company or an
Affiliate of the Company, that it is acquiring the New Notes offered hereby in
the ordinary course of such Transferor's business and that such Transferor is
not engaged in and does not intend to engage in and has no arrangement or
understanding with any person to participate in the distribution of such New
Notes; (b) that it is an Affiliate of the Company or one of the Initial
Purchasers of the Old Notes and that it will comply with the registration and
prospectus delivery requirements of the Securities Act to the extent applicable
to it; or (c) that it is a broker-dealer which is a beneficial owner (as defined
in Rule 13d-3 under the Exchange Act) of New Notes received by such broker
dealer in the Exchange Offer (a "Participating Broker-Dealer") and that it will
deliver a prospectus in connection with any resale of such New Notes. By
tendering Old Notes and executing a Letter of Transmittal, the Transferor
further certifies that it is not engaged in and does not intend to engage in a
distribution of the New Notes.
WITHDRAWAL RIGHTS
Old Notes tendered pursuant to the Exchange Offer may be withdrawn at any
time prior to the Expiration Date.
For a withdrawal to be effective, a written or facsimile transmission notice
of withdrawal must be timely received by the Exchange Agent at the address set
forth below under "-- Exchange Agent" prior to the Expiration Date. Any such
notice of withdrawal must specify the person named in the Letter of Transmittal
as having tendered Old Notes to be withdrawn, the certificate numbers of Old
Notes to be withdrawn, the principal amount of Old Notes to be withdrawn, a
statement that such holder is withdrawing his election to have such Old Notes
exchanged, and the name of the registered holder of such Old Notes, and must be
signed by the holder in the same manner as the original signature on the Letter
of Transmittal (including any required signature guarantees) or be accompanied
by evidence satisfactory to the Company that the person withdrawing the tender
has succeeded to the beneficial ownership of the Old Notes being withdrawn. The
Exchange Agent will return the properly withdrawn Old Notes promptly following
receipt of notice of withdrawal. All questions as to the validity of notices of
withdrawals, including time of receipt, will be determined by the Company, and
such determination will be final and binding on all parties.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon the terms and subject to the conditions of the Exchange Offer, the
acceptance for exchange of Old Notes validly tendered and not withdrawn and the
issuance of the New Notes will be made on the Exchange Date. For the purposes of
the Exchange Offer, the Company shall be deemed to have accepted for exchange
validly tendered Old Notes when, as and if the Company has given written notice
thereof to the Exchange Agent.
The Exchange Agent will act as agent for the tendering holders of Old Notes
for the purposes of receiving New Notes from the Company and causing the Old
Notes to be assigned, transferred and exchanged. Upon the terms and subject to
conditions of the Exchange Offer, delivery of New Notes to be issued in exchange
for accepted Old Notes will be made by the Exchange Agent promptly after
acceptance of the tendered Old Notes. Old Notes not accepted for exchange by the
Company will be returned without expense to the tendering holders (or in the
case of Old Notes tendered by book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility pursuant to the procedures described
above, such non-exchanged Old Notes will be credited to an account maintained
with such Book-Entry Transfer Facility) promptly following the Expiration Date
or, if the Company terminates the Exchange Offer prior to the Expiration Date,
promptly after the Exchange Offer is so terminated.
23
<PAGE>
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, or any extension
of the Exchange Offer, the Company will not be required to issue New Notes in
respect of any properly tendered Old Notes not previously accepted and may
terminate the Exchange Offer (by oral or written notice to the Exchange Agent
and by timely public announcement communicated by no later than 5:00 p.m. on the
next business day following the Expiration Date, unless otherwise required by
applicable law or regulation, by making a release to the Dow Jones News Service)
or, at its option, modify or otherwise amend the Exchange Offer, if (a) there
shall be threatened, instituted or pending any action or proceeding before, or
any injunction, order or decree shall have been issued by, any court or
governmental agency or other governmental regulatory or administrative agency or
commission, (i) seeking to restrain or prohibit the making or consummation of
the Exchange Offer or any other transaction contemplated by the Exchange Offer,
(ii) assessing or seeking any damages as a result thereof or (iii) resulting in
a material delay in the ability of the Company to accept for exchange or
exchange some or all of the Old Notes pursuant to the Exchange Offer; (b) any
statute, rule, regulation, order or injunction shall be sought, proposed,
introduced, enacted, promulgated or deemed applicable to the Exchange Offer or
any of the transactions contemplated by the Exchange Offer by any government or
governmental authority, domestic or foreign, or any action shall have been
taken, proposed or threatened, by any government, governmental authority, agency
or court, domestic or foreign, that in the reasonable judgment of the Company
might directly or indirectly result in any of the consequences referred to in
clause (a)(i) above or, in the reasonable judgment of the Company, might result
in the holders of New Notes having obligations with respect to resales and
transfers of New Notes which are greater than those described in the
interpretations of the staff of the Commission, or would otherwise make it
inadvisable to proceed with the Exchange Offer; or (c) a material adverse change
shall have occurred in the business, condition (financial or otherwise),
operations or prospects of the Company.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by it with respect to all or any portion of the Exchange Offer
regardless of the circumstances (including any action or inaction by the
Company) giving rise to such condition or may be waived by the Company in whole
or in part at any time or from time to time in its sole discretion. The failure
by the Company at any time to exercise any of the foregoing rights will not be
deemed a waiver of any such right, and each right will be deemed an ongoing
right which may be asserted at any time or from time to time.
In addition, the Company has reserved the right, notwithstanding the
satisfaction of each of the foregoing conditions, to terminate or amend the
Exchange Offer.
Any determination by the Company concerning the fulfillment or
nonfulfillment of any conditions will be final and binding upon all parties.
In addition, the Company will not accept for exchange any Old Notes tendered
and no New Notes will be issued in exchange for any such Old Notes, if at such
time any stop order shall be threatened or in effect with respect to the
Registration Statement of which this Prospectus constitutes a part or
qualification of the Indenture under the Trust Indenture Act of 1939, as amended
(the "Trust Indenture Act").
24
<PAGE>
EXCHANGE AGENT
The Bank of New York has been appointed as the Exchange Agent for the
Exchange Offer. Delivery of the Letters of Transmittal and any other required
documents, questions, requests for assistance, and requests for additional
copies of this Prospectus or of the Letter of Transmittal should be directed to
the Exchange Agent as follows:
<TABLE>
<CAPTION>
BY REGISTERED OR CERTIFIED MAIL: BY HAND OR OVERNIGHT DELIVERY:
- -------------------------------------------- --------------------------------------------
<S> <C>
The Bank of New York The Bank of New York
101 Barclay Street, 7E 101 Barclay Street, 7E
New York, New York 10286 Corporate Trust Services Window
Attention:Reorganization Department, Ground Level
Arwen Gibbons New York, New York 10286
Attention:Reorganization Department,
Arwen Gibbons
</TABLE>
CONFIRM BY TELEPHONE:
(212) 815-5920
FACSIMILE TRANSMISSIONS:
(ELIGIBLE INSTITUTIONS ONLY)
(212) 815-6339
DELIVERY OF A LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE OR TELEX NUMBER OTHER
THAN AS SET FORTH ABOVE, DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF
TRANSMITTAL.
SOLICITATION OF TENDERS; EXPENSES
The Company has not retained any dealer-manager or similar agent in
connection with the Exchange Offer and will not make any payments to brokers,
dealers or others for soliciting acceptances of the Exchange Offer. The Company
will, however, pay the Exchange Agent reasonable and customary fees for its
services and will reimburse it for reasonable out-of-pocket expenses in
connection therewith. The Company will also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding tenders for their customers. The expenses to be
incurred in connection with the Exchange Offer, including the fees and expenses
of the Exchange Agent and printing, accounting, legal fees and miscellaneous
expenses, will be paid by the Company and are estimated to be approximately
$311,304.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by the Company. Neither the
delivery of this Prospectus nor any exchange made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the respective dates as of which information is
given herein. The Exchange Offer is not being made to (nor will tenders be
accepted from or on behalf of) holders of Old Notes in any jurisdiction in which
the making of the Exchange Offer or the acceptance thereof would not be in
compliance with the laws of such jurisdiction. However, the Company may, at its
discretion, take such action as it may deem necessary to make the Exchange Offer
in any such jurisdiction and extend the Exchange Offer to holders of Old Notes
in such jurisdiction. In any jurisdiction the securities laws or blue sky laws
of which require the Exchange Offer to be made by a licensed broker or dealer,
the Exchange Offer is being made on behalf of the Company by one or more
registered brokers or dealers which are licensed under the laws of such
jurisdiction.
25
<PAGE>
APPRAISAL RIGHTS
HOLDERS OF OLD NOTES WILL NOT HAVE DISSENTERS' RIGHTS OR APPRAISAL RIGHTS IN
CONNECTION WITH THE EXCHANGE OFFER.
FEDERAL INCOME TAX CONSEQUENCES
The exchange of Old Notes for New Notes by tendering holders will not be a
taxable exchange for federal income tax purposes, and such holders should not
recognize any taxable gain or loss as a result of such exchange. See "Certain
United States Federal Income Tax Consequences."
OTHER
Participation in the Exchange Offer is voluntary and holders of Old Notes
should carefully consider whether to accept the terms and conditions thereof.
Holders of Old Notes are urged to consult their financial and tax advisors in
making their own decisions on what action to take with respect to the Exchange
Offer.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Old Notes pursuant to the terms of this Exchange Offer, the
Company will have fulfilled a covenant contained in the terms of the Old Notes
and the Registrations Rights Agreement. Holders of Old Notes who do not tender
their Old Notes in the Exchange Offer will continue to hold such Old Notes and
will be entitled to all the rights, and limitations applicable thereto, under
the Indenture, except for any such rights under the Registration Rights
Agreement which by their terms terminate or cease to have further effect as a
result of the making of this Exchange Offer. See "Description of New Notes." All
untendered Old Notes will continue to be subject to the restriction on transfer
set forth in the Indenture. To the extent that Old Notes are tendered and
accepted in the Exchange Offer, the trading market, if any, for any remaining
Old Notes could be adversely affected. See "Risk Factors -- Consequences of
Exchange and Failure to Exchange Old Notes."
Subject to the restrictions contained in the Indenture, the Company may in
the future seek to acquire untendered Old Notes in open market or privately
negotiated transactions, through subsequent exchange offers or otherwise. The
Company has no present plan to acquire any Old Notes which are not tendered in
the Exchange Offer.
26
<PAGE>
CAPITALIZATION
The following table sets forth the cash and cash equivalents, long-term debt
and total capitalization of the Company as of May 31, 1997 and the pro forma
cash and cash equivalents, long-term debt and total capitalization of the
Company as of May 31, 1997, as adjusted to give effect to the Transactions as of
such date. See "Use of Proceeds." The table should be read in conjunction with
the Financial Statements of the Company, and the related notes thereto, and
other information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF MAY 31, 1997
----------------------
ACTUAL PRO FORMA
--------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Cash and cash equivalents................................................................... $ 2.4 $ 23.0
--------- -----------
--------- -----------
Long-term debt (including current maturities):
Old Credit Facility (1)................................................................... $ 33.6 $ --
Senior Secured Notes...................................................................... -- 100.0
Subordinated Notes........................................................................ 35.0 --
Capital lease obligations................................................................. 0.6 0.6
--------- -----------
Total long-term debt (including current maturities)..................................... 69.2 100.6
Shareholder's equity (deficit):
Common Stock, $.01 par value, 25,000 shares authorized, 19,200 shares issued and
outstanding............................................................................. -- --
Additional paid-in capital................................................................ 18.7 18.7
Retained earnings (accumulated deficit) (2)............................................... (24.8) (27.7)
--------- -----------
Total shareholder's equity (deficit).................................................... (6.1) (9.0)
--------- -----------
Total capitalization.................................................................... $ 63.1 $ 91.6
--------- -----------
--------- -----------
</TABLE>
- ------------
(1) Concurrently with the consummation of the Offering, the Company entered into
the New Credit Facility, which provides for revolving loans of up to $20.0
million, subject to certain borrowing conditions and limitations. See "Use
of Proceeds" and "Description of New Credit Facility."
(2) Pro forma accumulated deficit includes a $2.9 million extraordinary loss
related to the prepayment of the Old Credit Facility and the Subordinated
Notes. The extraordinary loss consists of a $1.1 million write-off of
deferred financing fees and a $1.8 million prepayment premium relating to
the Subordinated Notes.
27
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth the selected historical financial data of the
Company for the ten months ended August 31, 1992, the fiscal years ended August
31, 1993, August 31, 1994, August 26, 1995 and August 31, 1996, which have been
derived from the audited financial statements of the Company, and for the
thirty-nine weeks ended May 25, 1996 and May 31, 1997, and as of May 31, 1997,
which have been derived from the unaudited financial statements of the Company.
The Company's operations are subject to seasonal factors, and, therefore,
operating results for interim periods are not indicative of results for the
entire fiscal year. See "Risk Factors -- Seasonality." The following information
should be read in conjunction with the Financial Statements of the Company, and
the related notes thereto, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere herein.
<TABLE>
<CAPTION>
TEN MONTHS THIRTY-NINE WEEKS
ENDED FISCAL YEARS ENDED ENDED
----------- -------------------------------------------------- --------------------
AUGUST 31, AUGUST 31, AUGUST 31 AUGUST 26, AUGUST 31, MAY 25, MAY 31,
1992(1) 1993 1994 1995(2) 1996(2) 1996 1997
----------- ----------- ----------- ----------- ----------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales:
Company-Operated Retail
(3)........................ $56,443 $ 89,109 $ 91,408 $ 90,077 $ 88,938 $ 76,236 $ 76,862
Third-Party Retail (4)....... 9,330 13,542 13,027 12,954 14,924 12,993 15,098
Non-Retail (5)............... 7,631 9,919 11,297 12,524 13,486 13,146 15,017
----------- ----------- ----------- ----------- ----------- --------- ---------
Total net sales............ $73,404 $ 112,570 $ 115,732 $ 115,555 $ 117,348 $ 102,375 $ 106,977
----------- ----------- ----------- ----------- ----------- --------- ---------
----------- ----------- ----------- ----------- ----------- --------- ---------
Gross profit................... $44,703 $ 71,135 $ 72,298 $ 75,309 $ 76,338 $ 66,683 $ 70,236
Operating income (loss)........ 2,623 (3,485 ) (5,850 ) 3,290 7,945 13,513 16,155
Interest expense............... 6,823 8,492 8,913 9,237 9,455 7,023 6,697
Other income................... 488 307 207 275 444 91 206
Income tax (benefit)........... (1,106 ) (4,295 ) (358 ) (68 ) 349 85 308
Net income (loss) (6).......... (2,589 ) (7,375 ) (16,440 ) (5,604 ) (1,415 ) 6,486 9,356
OTHER DATA:
EBITDA (7)..................... $ 12,284 $ 10,742 $ 8,717 $ 14,003 $ 15,197 $ 18,853 $ 21,287
Depreciation and
amortization................. 9,297 13,478 13,216 9,999 6,807 4,909 4,672
Capital expenditures........... 2,289 3,085 3,655 2,325 2,280 1,995 1,646
Total net sales growth......... n/a n/a 2.8 % (0.2 %) 1.6 % 2.5% 3.5%
Gross margin................... 60.9 % 63.2 % 62.5 % 65.2 % 65.1 % 65.1% 65.7%
EBITDA margin (8).............. 16.7 % 9.5 % 7.5 % 12.1 % 13.0 % 18.4% 19.9%
Ratio of earnings to fixed
charges (9).................. -- -- -- -- -- 1.6 to 1 2.0 to 1
STORE DATA:
Number of Company-operated
stores at period end:
Fannie May stores............ 251 246 231 228 225 226 225
Fanny Farmer stores.......... -- 187 169 144 115 124 105
----------- ----------- ----------- ----------- ----------- --------- ---------
Total number of stores..... 251 433 400 372 340 350 330
----------- ----------- ----------- ----------- ----------- --------- ---------
----------- ----------- ----------- ----------- ----------- --------- ---------
Increase in same store sales:
(10)
Fannie May stores............ n/a n/a 1.5 % 4.6 % 2.1 % 1.2% 4.8%
Fanny Farmer stores.......... n/a n/a 11.8 % 0.0 % 4.5 % 3.1% 4.6%
Total increase............. n/a n/a 4.5 % 3.4 % 2.6 % 0.7% 4.8%
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THIRTY-NINE WEEKS
AUGUST 31, 1996 (11) ENDED MAY 31, 1997 (12)(13)
----------------------- -------------------------------
<S> <C> <C>
PRO FORMA COVERAGES:
EBITDA to pro forma net interest expense (11)................... 1.5x 3.0x
Pro forma net total debt to EBITDA (12)......................... 6.1 3.6
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
AT MAY 31, 1997
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 26, AUGUST 31, -------------------------
1992 1993 1994 1995 1996 ACTUAL PRO FORMA(12)
---------- ---------- ---------- ---------- ---------- --------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents... $ 6,876 $ 830 $ 1,359 $ 482 $ 380 $ 2,450 $ 23,010
Working capital
(deficiency).............. 12,356 (4,042) (4,768) (2,886) (3,721) 3,724 32,828
Total assets................ 93,710 101,438 88,548 83,098 78,668 75,347 99,407
Long-term debt.............. 65,000 65,435 73,883 73,676 72,721 69,233 100,602
Shareholder's equity
(deficit)................. 15,903 8,273 (8,429) (14,033) (15,448) (6,092) (8,992)
</TABLE>
- ---------------
(1) Holdings acquired the Company in October 1991. As a result of this
acquisition, the 1992 period reflects only ten months of financial
information.
(2) In 1995, the Company changed its fiscal year to the last Saturday in August
from the last day in August. As a result of this change, fiscal 1995 had
less than 52 weeks (360 days) and fiscal 1996 had 53 weeks (371 days).
(3) Company-Operated Retail includes sale of Company branded products through
Company-operated Fannie May and Fanny Farmer stores. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Overview."
(4) Third-Party Retail includes grocery stores, drug stores and other
independent retailers that purchase the Company's branded products at
wholesale pricing for resale to the consumer. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Overview."
(5) Non-Retail includes sale of Company branded product through the Company's
quantity order, mail order and fundraising programs. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Overview."
(6) The Company's net loss for fiscal 1994 includes an extraordinary loss of
$2.2 million for the write-off of deferred financing fees related to an
early extinguishment of debt. The Company's net loss for fiscal 1994 also
includes the Homestead Loss.
(7) EBITDA consists of earnings before interest, income taxes, depreciation,
amortization, and management, director and consulting fees. While EBITDA
should not be construed as a substitute for operating income or a better
indicator of liquidity than cash flow from operating activities, which are
determined in accordance with GAAP, it is included herein to provide
additional information with respect to the ability of the Company to meet
its future debt service, capital expenditure and working capital
requirements. Although EBITDA is not necessarily a measure of the Company's
ability to fund its cash needs, management believes that certain investors
find EBITDA to be a useful tool for measuring the ability of the Company to
service its debt. For a description of management, director and consulting
fees, see "Certain Transactions -- Management Consulting Agreement and
Investment Banking Fees" and "Certain Transactions -- Director's Consulting
Fee and TCW Investors' Expense Reimbursement." The Company's financial
results as reported herein for fiscal 1994 exclude the Homestead Loss. In
fiscal 1994, the Fanny Farmer Homestead product line accounted for $0.9
million of Third-Party Retail sales.
(8) EBITDA margin is EBITDA divided by total net sales.
(9) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as earnings before taxes plus fixed charges. Fixed charges
consist of interest expense on all indebtedness and capitalized interest,
amortization of deferred financing costs and that portion of rental expense
on operating leases deemed by the Company to be attributable to interest.
For the ten months ended August 31, 1992 and for fiscal 1993, 1994, 1995 and
1996, earnings were insufficient to cover fixed charges by approximately
$13.0 million, $25.7 million, $29.0 million, $20.2 million and $15.2
million, respectively.
(10) Same store sales are defined as the aggregate sales from stores open for
the entire periods being compared. Increases reflect changes from the
immediately prior comparable period. Such data is not available for fiscal
1992 and 1993.
(11) EBITDA to pro forma net interest expense coverage reflects the Transactions
as if the Transactions occurred at the beginning of the fiscal year ended
August 31, 1996 and is based upon EBITDA of $15.2 million and pro forma net
interest expense (including interest on capital leases and seasonal
borrowings) of $9.8 million (net of $.7 million of interest income) for the
fiscal year ended August 31, 1996. Pro forma net total debt to EBITDA
reflects the Transactions as if the Transactions occurred on August 31, 1996
and is based upon pro forma net total debt of $92.0 million at August 31,
1996 and EBITDA of $15.2 million for the fiscal year ended August 31, 1996.
(12) Pro forma to reflect the Transactions as if the Transactions had occurred
at the beginning of the 39 week period ending on May 31, 1997. See
"Capitalization." EBITDA to pro forma net interest expense coverage is based
upon EBITDA of $21.3 million and pro forma net interest expense (including
interest on capital leases and seasonal borrowings) of $7.2 million (net of
$.7 million of interest income) for the 39 week period ending on May 31,
1997.
(13) Pro forma to reflect the Transactions as if the Transactions had occurred
on May 31, 1997. Pro forma net total debt to EBITDA coverage is based upon
pro forma net total debt (total debt less cash and cash equivalents) of
$77.6 million and EBITDA of $21.3 million for the 39 week period ending on
May 31, 1997. See "Capitalization."
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with, and is
qualified in its entirety by, "Selected Historical Financial Data" and the
Company's Financial Statements, and the related notes thereto, included
elsewhere herein.
OVERVIEW
The Company is a leading manufacturer and retailer of quality boxed
chocolates and other confectionery items. The Company sells its popular Fannie
May and Fanny Farmer candies in 330 Company-operated stores ("Company-Operated
Retail") and approximately 6,000 third-party grocery stores, drug stores and
independent retail accounts ("Third-Party Retail"), as well as through a variety
of non-retail programs, including quantity order, mail order and fundraising
programs ("Non-Retail"). In fiscal 1996, EBITDA was $15.2 million, or 13.0% of
total net sales, as compared to $8.7 million, or 7.5% of total net sales in
fiscal 1994. This increase in EBITDA and EBITDA margin reflects the benefits of
certain initiatives implemented by the current management team, which joined the
Company in late fiscal 1994. These initiatives included (i) a number of programs
to improve same store sales and overall profitability in the Company-Operated
Retail channel, (ii) the expansion of existing and the introduction of new
Third-Party Retail and Non-Retail programs to increase product availability and
(iii) merchandising and pricing strategies which, in conjunction with reduced
overhead and other improvements in operating efficiencies, were intended to
strengthen margins.
Historically, Company-Operated Retail has represented the most significant
distribution channel for the Company's products and accounted for $88.9 million,
or 75.8% of total net sales in fiscal 1996. The Company's Third-Party Retail and
Non-Retail businesses collectively accounted for $28.4 million, or 24.2% of
total net sales in fiscal 1996. The continued growth of Third-Party Retail and
Non-Retail channels remains a priority for the Company because management
believes that these channels present opportunities for significant sales growth
and greater product distribution without the higher operating expenses and
capital expenditures required by Company-operated stores.
The Company's costs of sales include (i) costs associated with the Company's
manufactured products and (ii) costs associated with product purchased from
third parties and resold by the Company. The principal elements of the Company's
cost of sales are raw materials, labor, manufacturing overhead, and purchased
product costs, which accounted for 32%, 29%, 16% and 23%, respectively, of total
cost of sales in fiscal 1996. Raw materials consist primarily of chocolate,
nutmeats, natural sweeteners and fresh dairy products, the cost of which has
remained relatively stable despite susceptibility to significant fluctuations
for specific items. See "Business -- Operations -- Suppliers and Purchasing."
Labor costs consist primarily of hourly wages plus incentives based on operating
efficiencies. Manufacturing overhead generally includes employee fringe
benefits, utilities, rents and manufacturing supplies. Historically, the Company
generally has been able to pass through to its customers increases in cost of
sales; however, there can be no assurance that the Company will be able to
continue to do so in the future. See "Risk Factors -- Fluctuations in Cost of
Sales and Impact on Pricing."
Selling, general and administrative ("SG&A") costs include, but are not
limited to: (i) Company-Operated Retail store operating costs, such as wages,
rent and utilities, (ii) expenses associated with Third-Party Retail and
Non-Retail sales, which include, among other things, catalog expenses and direct
wages and (iii) general overhead expenses, which consist primarily of
non-allocable wages, professional fees and office overhead. In fiscal 1996, SG&A
costs were $61.1 million, or 52.1% of total net sales, compared to $64.5
million, or 55.7% of total net sales in fiscal 1994. The reductions in SG&A
costs and SG&A margins during this period were primarily a result of lower store
operating costs, due to management's strategy of selectively closing
unprofitable stores, and reduced general overhead expenses. These reductions
were
30
<PAGE>
partially offset by an increase in costs related to the development of
Third-Party Retail and Non-Retail programs.
RESULTS OF OPERATIONS
The following tables summarize the Company's percentage of total net sales,
pounds of product sold and average selling price, according to distribution
channel, and number of Company-operated stores, in each case for the periods
indicated.
<TABLE>
<CAPTION>
AUGUST 31, AUGUST 26, AUGUST 31,
1994 1995 1996
---------- ---------- ----------
FISCAL YEARS ENDED(1)
----------------------------------
<S> <C> <C> <C>
PERCENTAGE OF TOTAL NET SALES:
Company-Operated Retail................................................... 79.0% 78.0% 75.8%
Third-Party Retail........................................................ 11.3 11.2 12.7
Non-Retail................................................................ 9.7 10.8 11.5
---------- ---------- ----------
Total net sales....................................................... 100.0% 100.0% 100.0%
---------- ---------- ----------
---------- ---------- ----------
POUNDS SOLD (IN MILLIONS):
Company-Operated Retail................................................... 10.9 9.1 8.7
Third-Party Retail........................................................ 2.0 1.7 1.9
Non-Retail................................................................ 1.5 1.5 1.5
---------- ---------- ----------
Total pounds sold..................................................... 14.4 12.3 12.1
---------- ---------- ----------
---------- ---------- ----------
AVERAGE SELLING PRICE:
Company-Operated Retail................................................... $ 8.39 $ 9.83 $ 10.23
Third-Party Retail........................................................ 6.52 7.71 7.92
Non-Retail................................................................ 7.37 8.52 8.75
Total average selling price........................................... 8.03 9.38 9.68
COMPANY-OPERATED STORES (AT PERIOD END)....................................... 400 372 340
</TABLE>
- ------------
(1) See "Selected Historical Financial Data."
As a percentage of total net sales, Company-Operated Retail sales decreased
from 79.0% in fiscal 1994 to 75.8% for fiscal 1996. This decline was due
primarily to management's strategy of (i) increasing the average dollar value of
retail consumer transactions in Company-operated stores, (ii) closing
unprofitable stores and (iii) expanding channels of distribution other than
Company-Operated Retail. As a result, from fiscal 1994 to fiscal 1996, the
average price per pound of candy sold in Company-Operated Retail increased from
$8.39 to $10.23 and the number of Company-operated stores decreased from 433 to
340, both of which contributed to a decline in total pounds sold in
Company-Operated Retail from 10.9 million to 8.7 million. Management has
targeted approximately 40 additional unprofitable stores for closure over the
next four years and intends to selectively open new stores.
As a percentage of total net sales, Third-Party Retail sales increased from
11.3% in fiscal 1994 to 12.7% for fiscal 1996. This increase was due primarily
to a general increase in pounds of product sold to existing customers and
limited price increases. Pounds sold declined in fiscal 1995 to 1.7 million as a
result of the termination of the Homestead product line, but have since
increased to 1.9 million for fiscal 1996 as a result of increased volume with
existing customers, the launch of new Fannie May products and the introduction
of the Fanny Farmer mass market program in fiscal 1996. Management intends to
launch the sale of Fannie May products to department stores, specialty shops and
card and gift stores this year, and expects Third-Party Retail sales to continue
to grow as a percentage of total net sales.
As a percentage of total net sales, Non-Retail sales increased from 9.7% in
fiscal 1994 to 11.5% for fiscal 1996. This increase was due primarily to the
growth in number and value of mail order transactions
31
<PAGE>
as well as the launch of the fundraising program. Pounds sold have remained
constant while the price per pound sold has increased primarily as a result of
improved product mix and merchandising.
THIRTY-NINE WEEKS ENDED MAY 31, 1997 COMPARED TO THIRTY-NINE WEEKS ENDED MAY 25,
1996
TOTAL NET SALES. Total net sales for the thirty-nine week period ended May
31, 1997 (the "1997 Interim Period") were $107.0 million, an increase of $4.6
million, or 4.5%, from $102.4 million for the thirty-nine week period ended May
25, 1996 (the "1996 Interim Period"). Pounds sold increased 0.9% to 10.5 million
in the 1997 Interim Period from 10.4 million in the 1996 Interim Period.
Company-Operated Retail sales were $76.9 million in the 1997 Interim Period, an
increase of $0.7 million, or 0.8%, from $76.2 million in the 1996 Interim
Period. This increase was a result of same store sales growth of 4.8% between
the comparable interim periods offset by 20 fewer Company-operated stores at the
end of the 1997 Interim Period versus the end of the 1996 Interim Period.
Third-Party Retail sales were $15.1 million in the 1997 Interim Period, an
increase of $2.1 million, or 16.2%, from $13.0 million in the 1996 Interim
Period. The increase was a result of growth in sales in both the Fanny Farmer
mass merchandising program and new Fannie May products which were launched in
early fiscal 1996. Non-Retail sales were $15.0 million in the 1997 Interim
Period, an increase of $1.9 million, or 14.2%, from $13.1 million in the 1996
Interim Period. Sales growth in Non-Retail was primarily a result of growth in
sales through the fundraising program launched in early fiscal 1996.
GROSS PROFIT. Gross profit in the 1997 Interim Period was $70.2 million, an
increase of $3.5 million, or 5.3%, from $66.7 million in the 1996 Interim
Period. Gross profit as a percentage of total net sales increased slightly to
65.7% in the 1997 Interim Period from 65.1% in the 1996 Interim Period. This
increase in gross margin reflects the higher price per pound of candy sold due
to the Company's coordinated merchandising and pricing strategy partially offset
by (i) the significant growth in lower priced Third-Party Retail sales and (ii)
an increase in cost of sales primarily due to higher purchased product and labor
costs.
SELLING, GENERAL AND ADMINISTRATIVE. SG&A costs were $49.1 million in the
1997 Interim Period, an increase of $1.2 million, or 2.4%, from $47.9 million in
the 1996 Interim Period. This increase was a result of higher expenses relating
to expansion of the Company's activities in Third-Party Retail and Non-Retail
offset by lower store costs, due to 20 store closings. SG&A costs also included
$0.3 million and $0.4 million of corporate management and administrative
expenses in the 1997 Interim Period and the 1996 Interim Period, respectively,
for positions that management has eliminated and for which it does not expect
the Company to incur costs on an ongoing basis. As a percentage of total net
sales, SG&A costs decreased to 45.9% in the 1997 Interim Period from 46.8% in
the 1996 Interim Period.
EBITDA. As a result of the foregoing, EBITDA was $21.3 million in the 1997
Interim Period, an increase of $2.4 million, or 12.9%, from $18.9 million in the
1996 Interim Period. As a percentage of total net sales, EBITDA was 19.9% in the
1997 Interim Period compared to 18.4% in the 1996 Interim Period.
FISCAL YEAR ENDED AUGUST 31, 1996 COMPARED TO FISCAL YEAR ENDED AUGUST 26, 1995
TOTAL NET SALES. Total net sales in fiscal 1996 were $117.3 million, an
increase of $1.7 million, or 1.6%, from $115.6 million in fiscal 1995. Pounds
sold decreased 1.6% to 12.1 million in fiscal 1996 from 12.3 million in fiscal
1995, primarily as a result of lower Company-Operated Retail pounds sold
partially offset by an increase in Third-Party Retail pounds sold. Company-
Operated Retail sales were $88.9 million in fiscal 1996, a decrease of $1.2
million, or 1.3%, from $90.1 million in fiscal 1995. This decrease was a result
of 32 fewer Company-operated stores at the end of fiscal 1996 compared to the
end of fiscal 1995, partially offset by same store sales growth of 2.6%. In
fiscal 1996, Third-Party Retail sales were $14.9 million, an increase of $1.9
million, or 15.2%, from $13.0 million in fiscal 1995. This increase reflects the
first tangible results of management's strategy to expand Third-Party Retail
sales into new markets, including providing Fanny Farmer branded products to
mass merchandisers and developing Fannie May
32
<PAGE>
product line extensions. Non-Retail sales were $13.5 million, an increase of
$1.0 million, or 7.7%, from $12.5 million in fiscal 1995. The launch of the
boxed chocolate fundraising business commencing in early fiscal 1996 and the
increase in mail order sales were the primary contributors to this growth in
Non-Retail sales.
GROSS PROFIT. Gross profit in fiscal 1996 was $76.3 million, an increase of
$1.0 million, or 1.4%, from $75.3 million in fiscal 1995. Gross profit as a
percentage of total net sales decreased slightly to 65.1% in fiscal 1996 from
65.2% in fiscal 1995. This reduction in gross margin was primarily due to
increased raw material costs and a shift in sales mix from Company-Operated
Retail to lower priced Third-Party Retail, partially offset by an overall higher
price per pound of candy sold.
SELLING, GENERAL AND ADMINISTRATIVE. SG&A costs were $61.1 million in
fiscal 1996, a decrease of $0.4 million, or 0.7%, from $61.5 million in fiscal
1995. This decrease reflected reduced store operating costs resulting from the
closing of 32 Company-operated stores during fiscal 1996 offset by an increase
in Third-Party Retail operating expenses as a result of the start-up of the
Fanny Farmer mass merchandising program. SG&A costs also included $0.5 million
and $0.4 million of corporate management and administrative expenses in fiscal
1996 and fiscal 1995, respectively, for positions that management has eliminated
and for which it does not expect the Company to incur costs on an ongoing basis.
As a percentage of total net sales, SG&A decreased to 52.1% in fiscal 1996 from
53.3% in fiscal 1995.
EBITDA. As a result of the foregoing, EBITDA was $15.2 million in fiscal
1996, an increase of $1.2 million, or 8.5%, from $14.0 million in fiscal 1995.
As a percentage of total net sales, EBITDA was 13.0% in fiscal 1996 as compared
to 12.1% in fiscal 1995.
FISCAL YEAR ENDED AUGUST 26, 1995 COMPARED TO FISCAL YEAR ENDED AUGUST 31, 1994
TOTAL NET SALES. Total net sales in fiscal 1995 were $115.6 million, a
decrease of $0.1 million, or 0.2%, from $115.7 million in fiscal 1994. This
decrease in total net sales was a result of a decrease in pounds sold due to a
strategic decision to terminate the promotion and discounting strategy
implemented by prior management and, instead, to coordinate merchandising and
pricing strategy in order to increase the average dollar value of retail
consumer transactions. Pounds sold in fiscal 1995 were 12.3 million, a decrease
of 2.1 million pounds, or 14.6%, from 14.4 million pounds in fiscal 1994.
Company-Operated Retail sales were $90.1 million in fiscal 1995, a decrease of
$1.3 million, or 1.5%, from $91.4 million in fiscal 1994. This decrease was the
result of 28 fewer Company-operated stores at the end of fiscal 1995 compared to
the end of fiscal 1994 offset by same store sales growth of 3.4%. Third-Party
Retail sales were $13.0 million in both fiscal 1994 and fiscal 1995, reflecting
the discontinuance of the Fanny Farmer Homestead product line (a purchased
product offered by the Company to compete in the low-priced boxed chocolate
segment, which accounted for $0.9 million in sales in fiscal 1994) offset by
improved performance in the Fannie May brand programs. Non-Retail sales were
$12.5 million, an increase of $1.2 million, or 10.9%, from $11.3 million in
fiscal 1994. Sales growth in Non-Retail was due primarily to increases in mail
order and quantity order sales.
GROSS PROFIT. Gross profit in fiscal 1995 was $75.3 million, an increase of
$3.0 million, or 4.2%, from $72.3 million in fiscal 1994. Gross profit as a
percentage of total net sales increased to 65.1% in fiscal 1995 from 62.5% in
fiscal 1994 as a result of the pricing strategy described above partially offset
by higher labor costs and lower overhead absorption due to the decline in pounds
of candy sold.
SELLING, GENERAL AND ADMINISTRATIVE. SG&A costs were $61.5 million in
fiscal 1995, a decrease of $3.0 million, or 4.5%, from $64.5 million in fiscal
1994. The primary reason for the decrease was 28 fewer Company-operated stores
open at the end of fiscal 1995 as compared to the end of fiscal 1996. As a
percentage of total net sales, SG&A decreased to 53.3% in fiscal 1995 from 55.7%
in fiscal 1994.
33
<PAGE>
EBITDA. As a result of the foregoing, EBITDA was $14.0 million in fiscal
1995, an increase of $5.3 million, or 60.6%, from $8.7 million in fiscal 1994.
As a percentage of total net sales, EBITDA was 12.1% in fiscal 1995 as compared
to 7.5% in fiscal 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements have arisen principally from various
capital expenditures, seasonal and general working capital requirements and debt
service obligations. The Company has satisfied these requirements during the
past three fiscal years primarily with long-term and seasonal borrowings and
cash generated by operating activities. During fiscal 1994, 1995 and 1996, the
net cash generated (used) by the Company's operating activities was ($1.1)
million, $4.6 million and $4.1 million, respectively.
The Company's capital expenditures (including capital lease obligations) for
fiscal 1994, 1995 and 1996 were $4.2 million, $2.6 million and $2.5 million,
respectively. These expenditures related primarily to retail store development
and renovation as well as the purchase of manufacturing and distribution
equipment. Management expects that capital expenditures for the foreseeable
future will relate primarily to the remodeling of existing stores and the
purchase of manufacturing and distribution equipment and expects capital
expenditures of $4.0 million for fiscal 1998.
The Company has historically financed its seasonal working capital needs
through bank borrowings. For fiscal 1996, average revolver borrowings under the
Old Credit Facility were $7.0 million, with peak borrowings of $17.5 million.
Inventories historically have represented the Company's most significant working
capital requirement and inventory levels fluctuate significantly during the
year. The Company's ratio of inventories to total net sales is typically highest
during the fiscal fourth quarter when the Company experiences lower seasonal
demand for its products and begins to build inventories for its key sales
periods. See "-- Quarterly Results and Seasonality" and "Risk Factors --
Seasonality." Receivables have not been a material component of the Company's
working capital because sales through Company-operated stores are made on a cash
or credit card basis. As the Company continues to pursue a strategy to develop
its Third-Party Retail business with grocery stores, drug stores and other
independent retailers, all of which typically pay vendors on 45 to 60 day terms
or longer and which often require large shipments in order to roll-out product
simultaneously in several markets, the Company expects its working capital needs
relating to inventory and receivables to increase.
The consummation of the Transactions has resulted in a significant increase
in the Company's entire debt over historical levels due to the issuance of the
Notes and potential borrowings under the New Credit Facility. Pursuant to the
terms of the New Credit Facility, the Company has the ability to borrow up to
$20.0 million, on a revolving basis, for seasonal working capital and other
corporate purposes, subject to certain terms and conditions. Loans under the New
Credit Facility will bear interest at a rate based upon LIBOR or the lender's
corporate base rate plus a negotiated margin. See "Description of New Credit
Facility." Based upon the Company's current level of operations and anticipated
growth, management believes that available cash flow, together with available
borrowings under the New Credit Facility, will be adequate to meet the Company's
anticipated future requirements for capital expenditures, working capital and
debt service obligations. The New Credit Facility will expire on July 1, 2000,
and the Company will need to seek to extend or renew the New Credit Facility or
obtain alternative financing to meet its seasonal working capital needs and
other requirements. See "Risk Factors -- Restrictive Covenants; Term of New
Credit Facility; Need for Seasonal Financing."
Instruments governing the Company's indebtedness, including the New Credit
Facility and the Indenture, contain financial and other covenants that restrict,
among other things, the Company's ability to make investments, loans and
advances, pay dividends and make certain other restricted payments, including as
necessary for Holdings to satisfy its obligations, incur additional
indebtedness, incur liens, merge or consolidate with any other person, sell,
assign, transfer, lease, convey or otherwise dispose of all
34
<PAGE>
or substantially all of the assets of the Company, consummate certain other
asset sales and enter into certain transactions with affiliates. Such
limitations, together with the highly leveraged nature of the Company, could
limit corporate and operating activities, including the Company's ability to
respond to market conditions, to provide for unanticipated capital expenditures
or to take advantage of business opportunities. See "Risk Factors -- Restrictive
Covenants; Term of New Credit Facility; Need for Seasonal Financing" and "Risk
Factors -- Control and Capitalization of Holdings."
INFLATION
Inflationary factors such as increases in the costs of ingredients,
purchased product, labor and corporate overhead may adversely affect the
Company's operating profit. In addition, store operating costs, including most
of the Company's retail store leases which require the Company to pay additional
rent based on a percentage of sales as well as taxes, insurance and maintenance
expenses, are subject to inflation. Although the Company's results to date have
not been significantly affected by inflation, there can be no assurance that a
high rate of inflation in the future would not have an adverse effect on the
Company and its operating results. See "Risk Factors -- Fluctuations in Cost of
Sales and Impact on Pricing."
QUARTERLY RESULTS AND SEASONALITY
The Company's sales and earnings are highly seasonal with the second and
third fiscal quarters historically generating the highest sales and profits due
to increased consumer demand during the Christmas, Valentine's Day and Easter
holidays. The Company's sales generally have been lowest during the fourth
quarter, reflecting reduced demand for the Company's products during the summer
months and resulting in an operating loss in this period. In light of the
seasonality of the Company's business, results for any interim period are not
necessarily indicative of the results that may be realized for the full year.
The Company's working capital requirements also fluctuate throughout the year
based on the Company's inventories in anticipation of sales. Such inventory
requirements generally are highest during the first four months of each fiscal
year as the Company increases its raw material and other inventories to
accommodate anticipated product sales for the Christmas, Valentine's Day and
Easter holiday periods.
The following table summarizes the total net sales and EBITDA of the Company
by quarter for fiscal 1996 and each of the first three quarters of fiscal 1997.
<TABLE>
<CAPTION>
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER FIRST QUARTER SECOND QUARTER
ENDED ENDED ENDED ENDED ENDED ENDED
NOV. 25, 1995 FEB. 24, 1996 MAY 25, 1996 AUG. 31, 1996(1) NOV. 30, 1996 MARCH 1, 1997(2)
------------- --------------- -------------- ----------------- ------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net sales........ $ 22,436 $ 52,827 $ 27,112 $ 14,973 $ 24,892 $ 56,180
EBITDA........... 424 15,995 2,434 (3,656) 1,178 18,005
<CAPTION>
THIRD QUARTER
ENDED
MAY 31, 1997(2)
---------------
<S> <C>
Net sales........ $ 25,905
EBITDA........... 2,104
</TABLE>
- -----------------
(1) The fourth quarter of fiscal 1996 consisted of 14 weeks. All other quarters
presented above consisted of 13 weeks.
(2) Because of the timing of the 1997 Easter holiday, management estimates that
total net sales of $1.4 million and EBITDA of $0.6 million attributable to
1997 Easter sales were realized during the second quarter of fiscal 1997. If
Easter had occurred later in calendar year 1997, some or all of such total
net sales and EBITDA would have been realized in the third quarter of fiscal
1997, and therefore, would not have been included in the second quarter of
fiscal 1997. See "Selected Historical Financial Data."
35
<PAGE>
BUSINESS
The Company is a leading manufacturer and retailer of quality boxed
chocolates and other confectionery items. Founded in 1921, the Company sells its
popular Fannie May and Fanny Farmer candies in 330 Company-operated stores and
approximately 6,000 third-party retail outlets as well as through quantity
order, mail order and fundraising programs primarily in the Midwestern and
Eastern United States. Management believes that the Company's products are
widely recognized for their quality, freshness and value, and that the Fannie
May and Fanny Farmer brand names are among the strongest in the confectionery
industry and offer significant opportunities for growth.
In late fiscal 1994, the Company installed its current management team with
the immediate goal of integrating the Fanny Farmer brand name and stores, which
were acquired in fiscal 1992, into the Company's existing Fannie May operations.
Since the arrival of the current management team, EBITDA has increased from $8.7
million in fiscal 1994 to $15.2 million for fiscal 1996. Management believes
that the integration of Fannie May and Fanny Farmer has been principally
completed, and, more recently, has turned its focus to growing sales and
earnings by building on the Fannie May and Fanny Farmer brand names, increasing
points of availability for the Company's branded products and pursuing certain
initiatives designed to maintain and strengthen operating margins.
THE INDUSTRY
The domestic candy industry is characterized by moderate long-term growth in
consumer demand and the existence of strong national and regional brands.
According to the National Confectioners Association, the per capita consumption
of candy in the United States increased from approximately 18 pounds in 1987 to
over 23 pounds in 1995, and total U.S. retail candy sales grew to $21 billion.
Total sales in the boxed chocolate market were approximately $1.2 billion in
1995. Management believes that the boxed chocolate market can be divided into
premium, mid-priced and low-priced segments. The Company competes in the
mid-priced segment in which products generally retail for between $10.00 and
$18.00 and are commonly purchased for gift-giving occasions. Competition within
this price tier is regional, and management believes that Fannie May and Fanny
Farmer are the leading brands in the mid-priced segment east of the Rocky
Mountains.
BUSINESS STRATEGY
The Company's business strategy is to leverage the highly-regarded Fannie
May and Fanny Farmer brand names, principally by strengthening and expanding its
multi-channeled distribution network. To further this strategy, the Company has
sought to (i) build on recent improvements in Company-operated store performance
as measured by same store sales and overall profitability, (ii) increase product
availability nationwide among third-party retailers by expanding existing and
establishing new distribution channels and (iii) grow Non-Retail sales through
enhanced product merchandising and database management. In addition, the Company
plans to continue to strengthen operating margins through a variety of
merchandising, production and logistical initiatives.
CONTINUE IMPROVEMENT IN COMPANY-OPERATED RETAIL PERFORMANCE. The Company
has 330 Fannie May and Fanny Farmer retail stores in 20 states, making it the
largest specialty retailer of boxed chocolates in the United States. These
Company-operated stores represent a mature, highly efficient and profitable
distribution channel. The Company's retail store strategy is focused on (i)
continuing to improve same store sales by enhancing merchandising, customer
service, and product selection and (ii) reducing store operating costs,
primarily by selectively closing unprofitable Fanny Farmer stores. Management
believes that it has been successful in the execution of this strategy. For the
period from fiscal 1994 through fiscal 1996, same store sales have increased
each year at an average annual rate in excess of 2.6%, and store operating costs
have declined by $3.4 million.
36
<PAGE>
INCREASE PRODUCT AVAILABILITY THROUGH THIRD-PARTY RETAIL PROGRAMS. The
Company's several Third-Party Retail programs are designed to make its Fannie
May and Fanny Farmer brands more readily available to customers in new and
existing markets. Management has implemented a two-tiered distribution and
pricing strategy to capitalize on the Company's strong brand names. Management's
strategy is to position the Company's Third-Party Retail programs under the
Fannie May brand at a higher retail price point for the specialty retail market
while offering the Fanny Farmer brand at a lower retail price point more
appropriate for the mass market. The Fannie May Third-Party Retail programs (i)
service approximately 1,200 grocery, drug and variety stores in the greater
Chicago metropolitan area, on a year-round basis, and (ii) target department
stores, specialty shops and card and gift stores nationwide, during the
Christmas, Valentine's Day and Easter seasons. The Fanny Farmer Third-Party
Retail program sells to the mass market through approximately 5,000 grocery
stores, drug stores and mass merchandisers nationwide, during the peak holiday
seasons. Management believes that the Fannie May and Fanny Farmer Third-Party
Retail programs provide the Company with significant potential for future sales
growth by strategically increasing points of availability and brand awareness,
especially during key selling periods, without significant capital expenditure.
As a result of this strategy, the Company has increased sales through Third-
Party Retail programs from $13.0 million in fiscal 1994 to $14.9 million for
fiscal 1996.
GROW NON-RETAIL SALES. The Company has developed several Non-Retail sales
channels for its Fannie May and Fanny Farmer brands, including its (i) quantity
order program, through which the Company markets its products to 43,000
organizations for corporate gift giving or member purchases, (ii) mail order
program, which has a national circulation of over 2.1 million catalogs annually
and a database of 345,000 customers, and (iii) fundraising program, in which
product is sold to schools and non-profit organizations nationwide for resale to
their supporters. Management believes that these channels provide potential
future sales growth without the overhead traditionally associated with
maintaining a retail store presence. The Company has increased sales through
Non-Retail sales channels from $11.3 million in fiscal 1994 to $13.5 million for
fiscal 1996.
STRENGTHEN OPERATING MARGINS. Since 1994, the Company's new management team
has implemented a coordinated pricing and merchandising strategy in order to
increase the average dollar value of retail consumer transactions which, in
conjunction with more efficient operations and lower overhead costs, has
resulted in improved margins. From fiscal 1994 to fiscal 1996, the Company's
gross margin improved from 62.5% to 65.1%. During this period, management also
reduced selling, general and administrative expenses by $3.3 million, and raised
EBITDA margins from 7.5% to 13.0%. Management's strategy is to continue to
strengthen operating margins primarily by (i) pursuing innovative merchandising
and packaging strategies, (ii) reducing production costs through process and
productivity improvements and (iii) containing fulfillment and distribution
costs while improving service to Company-operated stores, third-party retailers
and consumers.
PRODUCTS
The Company manufactures over three-quarters of the products it sells and
maintains proprietary specifications for a significant amount of the
confectionery product, such as seasonal novelties, that it purchases from other
sources for resale. The Company's manufactured products include more than 125
items, including its best selling Pixie, Mint Meltaway and Trinidad lines.
Products sourced from vendors for resale include assorted nuts, hard candy,
novelties, ice cream and an extensive line of gift items. The Company believes
that the superior quality and freshness of its products differentiates the
Company from many other confectionery manufacturers. The Company relies on
proven recipes, many dating back to the 1920s, for its traditional chocolates.
Because the Company relies on freshness rather than preservatives to ensure a
high-quality product, all items produced are date-stamped and it is the
Company's policy to destroy products not sold within specified periods.
37
<PAGE>
OPERATIONS
MANUFACTURING AND PRODUCTION. All of the Company's manufacturing operations
are located in its headquarters facility in Chicago, Illinois. The facility
includes space for manufacturing, cold and dry storage and office and
administrative functions.
The production process is split functionally into cooking, enrobing and
packaging. Each area is managed by one department head who in turn reports to
the plant manager. Additional departmental detail is shown below.
COOKING
There are separate cooking areas in the Company's plant for its various
products. Gas-fired copper kettles and steam-jacketed stainless steel kettles
are used to cook ingredients to achieve the appropriate moisture level and
flavor profile. The finished batches are further processed at the enrobers or in
other areas of the plant.
ENROBING
Approximately 75% of the pounds of candy produced in the Company's plant
pass through six enrobers ranging in size from 34 to 42 inches. The enrobers
form batches of cooked candy into shapes and cover the candy with a variety of
coatings, including milk chocolate, vanilla chocolate, liquor chocolate and
pastel.
PACKAGING
Approximately 65% of the pounds produced at the Company's plant are
hand-packed into boxes for sale through Company-Operated Retail or other
distribution channels. The Company utilizes six packing lines with an average
crew size of 21 packers to place the pieces of candy into distinctive white
paper cups and then into boxes. The boxes are wrapped by automatic wrapping
machines and placed into corrugated cartons for storage or shipment. Candy which
is not packed in the factory is delivered on pans to Company-operated stores so
that customers can select their own assortments.
The Company's plant currently operates on a seasonal basis with the busiest
seven-month period commencing after Labor Day and running through Easter. After
Easter, the Company reduces production by approximately 20% until late summer.
There is an annual two-week plant shutdown during the summer to allow for
comprehensive maintenance and cleaning activities.
WAREHOUSING AND DISTRIBUTION. In order to maintain product freshness and to
ensure prompt deliveries, the Company maintains warehousing and distribution
facilities in both Chicago, Illinois and Bensalem, Pennsylvania, which
facilities have 112,000 and 17,000 square feet of warehousing and distribution
space, respectively. These facilities maintain temperature and sanitation
controls in order to protect the quality of the products. Employees generally
fill orders daily to allow weekly deliveries to each of the Company-operated
retail locations and on an "as needed" basis to others. The Company's fleet of
24 trucks is refrigerated in order to provide appropriate shipping conditions
for pan candy, pre-boxed chocolates and necessary shop supplies. With the
exception of all Florida locations and certain Minnesota and North and South
Dakota locations, all shops typically are serviced by the Company's own fleet.
All other sales channels are supplied via parcel service and selected common
carriers and freight forwarding companies.
SUPPLIERS AND PURCHASING. The Company's primary raw materials include
chocolate coatings, nutmeats, natural sweeteners such as corn syrup and sugar,
and fresh dairy products, including sweetened-condensed milk, high-butterfat
cream and butter. The Company has long-standing relationships with its suppliers
for each of these products to ensure quality, consistency and cost control.
Written specifications are provided to the suppliers and certificates of
analysis must accompany incoming shipments. Peter's
38
<PAGE>
Chocolate Company ("Peter's Chocolate"), a division of Nestle Company, Inc., has
been the Company's primary chocolate coating supplier for over 50 years and
accounted for approximately one-half of the Company's chocolate purchases in
fiscal 1996. Merckens Chocolate Company ("Merckens") also has been a leading
supplier of chocolate coating to the Company for over 20 years, and accounted
for approximately one-third of the Company's chocolate purchases in fiscal 1996.
Management believes that the Company is one of the leading bulk customers of
each of Peter's Chocolate and Merckens. All chocolate coatings prepared for the
Company are proprietary and are produced according to the Company's recipes. All
other raw materials are provided by multiple suppliers that meet the Company's
specifications for quality and price. The Company believes that its substantial
volume requirements and long-standing relationships provide leverage to obtain
favorable pricing and terms from many of its suppliers. In addition, the Company
continues efforts to certify other suppliers of key ingredients in order to
improve vendor performance. See "Risk Factors -- Fluctuations in Cost of Sales
and Impact on Pricing."
MARKETING AND SALES
The Company sells its candy products through three channels: (i)
Company-Operated Retail, (ii) Third-Party Retail and (iii) Non-Retail.
COMPANY-OPERATED RETAIL. As of May 31, 1997, the Company operated 225
Fannie May stores and 105 Fanny Farmer stores. In fiscal 1996, this sales
channel accounted for $88.9 million, or 75.8%, of the Company's total net sales;
however, other sales channels are growing and have become an increasingly
important element of the Company's ongoing business strategy. While Fannie May
and Fanny Farmer stores co-exist in certain states, such stores generally do not
compete in the same local markets. Fannie May stores are found in strip centers
and shopping malls or as street front units and stand-alone roadside sites.
Fanny Farmer stores typically are located in shopping malls.
As of May 31, 1997, the Company's stores were located in 20 states and the
District of Columbia as follows:
<TABLE>
<CAPTION>
STATE FANNIE MAY FANNY FARMER TOTAL STORES
- ------------------------------------------------------------------------ --------------- ----------------- ---------------
<S> <C> <C> <C>
Illinois................................................................ 150 -- 150
Minnesota............................................................... 4 24 28
New York................................................................ -- 24 24
Indiana................................................................. 22 1 23
Michigan................................................................ 8 12 20
Florida................................................................. 11 6 17
Wisconsin............................................................... 6 11 17
Massachusetts........................................................... -- 9 9
Pennsylvania............................................................ 6 1 7
Missouri................................................................ 8 -- 8
Iowa.................................................................... 2 4 6
Virginia................................................................ 4 -- 4
Ohio.................................................................... -- 4 4
North Dakota............................................................ -- 3 3
New Hampshire........................................................... -- 2 2
Maryland................................................................ 2 -- 2
Rhode Island............................................................ -- 2 2
New Jersey.............................................................. 1 -- 1
District of Columbia.................................................... 1 -- 1
South Dakota............................................................ -- 1 1
Maine................................................................... -- 1 1
--- --- ---
Total............................................................... 225 105 330
--- --- ---
--- --- ---
</TABLE>
39
<PAGE>
The Company owns 33 Fannie May stores. These stores typically are located in
stand-alone roadside structures and tend to be among the Company's highest
grossing sales locations. The Company's leased stores are in the following
locations: 158 in shopping malls, 81 in strip centers, 42 in street-front units
and 16 in other locations. Lease terms and rates vary by location with the
typical lease providing a five-year term with a minimum base rent plus
additional rent based on a percentage of sales and common area charges.
Historically, the Company has been able to renew its store leases upon
expiration.
Store sizes, including both leased and Company-owned stores, generally range
from 600 square feet mall locations to 2,900 square feet stand-alone roadside
locations, with an average store size of approximately 824 square feet.
Company-operated stores typically are open seven days per week and employ six to
ten people, including a full-time manager and several part-time employees.
Employees are trained to provide customers with customized selections and to
weigh and price each purchase accordingly. Customers are served primarily by
store staff, although many of the larger stores also have a self-service section
with prepacked boxes. The Company maintains tight control over each store's
design, signage and layout to maintain consistency among all Fannie May and
Fanny Farmer stores.
Company-operated store openings and closings for fiscal 1994, 1995 and 1996
and the thirty-nine weeks ended May 31, 1997 are set forth below.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
-------------------------------------------------
AUGUST 31, 1994 AUGUST 26, 1995 AUGUST 31, 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
OPENINGS:
Fannie May................................................... 8 7 4
Fanny Farmer................................................. 4 5 0
-- -- --
Total...................................................... 12 12 4
-- -- --
-- -- --
CLOSINGS:
Fannie May................................................... 23 10 7
Fanny Farmer................................................. 22 30 29
-- -- --
Total...................................................... 45 40 36
-- -- --
-- -- --
<CAPTION>
THIRTY-NINE WEEKS
ENDED MAY 31,
1997
-----------------
<S> <C>
OPENINGS:
Fannie May................................................... 10
Fanny Farmer................................................. 0
--
Total...................................................... 10
--
--
CLOSINGS:
Fannie May................................................... 10
Fanny Farmer................................................. 10
--
Total...................................................... 20
--
--
</TABLE>
Since fiscal 1994, the Company has opened 38 new stores and closed 141
stores, most of which were unprofitable. The majority of the closed stores had
been acquired by the Company in fiscal 1992 as part of its acquisition of the
Fanny Farmer brand name and selected assets. As a result of management's efforts
to improve Company-operated retail store performance and to eliminate weaker
store locations, same store sales increased 4.5%, 3.4%, 2.6% and 4.8% in fiscal
1994, 1995, 1996 and the thirty-nine week period ended May 31, 1997,
respectively, and store operating costs decreased 7.2% during the period from
fiscal 1994 through fiscal 1996.
Management plans to continue its emphasis on improving store mix rather than
store expansion for the near future, and, over the next four fiscal years,
intends to open approximately 14 new stores and close approximately 40
additional unprofitable stores upon expiration of their respective lease terms.
THIRD-PARTY RETAIL. Through its Third-Party Retail channel, the Company
markets its products to grocery stores, drug stores, department stores and other
variety stores through its frozen fresh, specialty market and mass market
programs. These programs are designed to make its Fannie May and Fanny Farmer
branded products more readily available to consumers in new and existing
markets. Within the mid-priced segment of the boxed chocolate market, management
has implemented a two-tiered distribution and pricing strategy to differentiate
the Company's strong brand names. The Company utilizes the Fannie May brand for
its higher price point frozen fresh and specialty market programs and has
positioned the Fanny Farmer brand at a lower price point for the mass market.
40
<PAGE>
The Company believes that it was the first and remains the only candy
company to use the frozen fresh concept for selling candy. Under this program,
the Company distributes frozen products to higher price point retailers who then
maintain the products in freezer display cases. The Company initiated the frozen
fresh program under the Fannie May brand name in the early 1950's as a way to
market a limited number of its best-selling assortments through independent
retailers on a year-round basis. The Company has approximately 1,200 frozen
fresh accounts, the vast majority of which are in the greater Chicago
metropolitan area and include stores operated by Osco Drug, Dominick's and
Walgreen (which collectively account for over 65% of the Company's frozen fresh
candy sales). These accounts generally purchase Fannie May branded products from
the Company at wholesale prices and mark-up the product to prices comparable to
those for products sold in Company-operated stores. Management believes that
additional growth in the frozen fresh format is obtainable by expanding product
offerings and improving point of sale merchandising. For fiscal 1996, frozen
fresh sales accounted for $13.3 million, or 11.3%, of total net sales.
In fiscal 1996, the Company established a national mass market program under
the Fanny Farmer brand name. This wholesale program is targeted to grocery
stores, drug stores and mass merchandisers, with product availability limited to
the peak selling seasons of Christmas, Valentine's Day and Easter. The terms of
sale are similar to those terms given to frozen fresh accounts, but the products
for this program are selected and packaged to meet lower price points typical of
the mass market. The Company has obtained approximately 5,000 outlets, operated
mostly by retail chains, under this program. For fiscal 1996, mass market sales
accounted for $1.6 million, or 1.4%, of total net sales.
In fiscal 1997, the Company announced the roll-out of its specialty markets
program through which it will market nationally under the Fannie May brand name
to department stores, card and gift stores and direct mail catalog companies.
The product line for this program, which consists of a variety of boxed and
novelty items, is intended to meet unfulfilled consumer demand in the mid-priced
segment of the specialty market. This product line will be positioned at higher
price points and sold only during the peak seasons of Christmas, Valentine's Day
and Easter. Management expects that initial revenues will be realized during the
1997 Christmas season.
NON-RETAIL. The Company's Non-Retail channel consists of quantity order,
fundraising and mail order catalog programs. Under the quantity order program,
companies and organizations buy large amounts of prepackaged candy for
gift-giving purposes or consolidate individual orders from employees or members
in order to obtain discount pricing. Under this program, the Company is
responsible for all of the administrative details and timely delivery of
product. Historically, the Company has found a high level of repeat sales in
this segment, as quantity order customers tend to renew or expand on their prior
year's order. The Company's current active quantity order database includes
approximately 43,000 customers. The quantity order program is available
year-round, but peaks in activity during the Christmas, Valentine's Day and
Easter holidays. A quantity order catalog is distributed at the beginning of
each fiscal year and prior to each holiday season. The Company has also targeted
fundraising organizations, including over 90,000 schools throughout the United
States, for its product offerings. The Company's fundraising sales are primarily
through, and highly dependent upon, an independent national distributor. For
fiscal 1996, quantity order and fundraising sales accounted for $8.2 million, or
7.0%, of total net sales.
In addition, the Company sells its products through a mail order program. In
fiscal 1996, approximately 136,000 orders were placed, with an average
transaction value of approximately $42.50. While this program was established in
1985, mail order sales have been particularly strong in recent years, growing at
an average annual rate of 14.7% since fiscal 1994. This growth, which
corresponds with the arrival of the current management team, is the result of
improved product selection and catalog presentation as well as more effective
database management. The Company sends both Fannie May and Fanny Farmer mail
order catalogs to over 345,000 established and prospective customers during key
selling seasons. Mail order catalogs are also made available to the general
public through Company-operated retail stores. Management believes that growth
potential exists in mail order sales through (i) improved targeted mailings for
41
<PAGE>
holiday seasons, (ii) purchasing additional customer lists and (iii) increasing
promotion of overnight delivery services. For fiscal 1996, mail order sales
accounted for $5.3 million, or 4.5%, of total net sales.
COMPETITION
The Company generally competes in the quality boxed chocolate market, which
management believes can be divided into premium, mid-priced and low-priced
segments. The low-priced segment, which represents the largest share of the
boxed chocolate market, is generally comprised of products retailing for less
than $10.00, which management believes usually are of lower quality than other
boxed chocolates. The primary competitor in this market is Russell Stover
Candies, Inc. which sells under the Whitman's Chocolates and Russell Stover
brand names and competes primarily on price for sales to grocery stores, drug
stores and discount stores. The mid-priced segment is generally comprised of
those chocolates which retail for between $10.00 and $18.00. The Company
believes that it competes primarily in the mid-priced segment though it also
competes against Russell Stover Candies and other lower-priced suppliers in
certain distribution channels. See's Candies, a subsidiary of Berkshire Hathaway
Inc., is believed by management to be the largest participant in the mid-priced
segment, with fiscal 1996 sales of $248.9 million. Although Company-operated
stores do not compete directly with See's Candies stores, which are located
primarily west of the Rocky Mountains, Company-operated stores do compete
indirectly with certain mail order and corporate gift programs which See's
Candies markets nationally. The premium segment is generally comprised of
expensive chocolates retailing in excess of $18.00. The leading participant in
this segment is Godiva Chocolatier, Inc., a subsidiary of the Campbell Soup
Company. Other brands in this market include Perugina, Tobler and Lindt. Most of
these chocolates are imported from abroad and, despite their high prices,
management does not believe that such brands provide the same freshness as the
Company's chocolates. The Company also competes with manufacturers, distributors
and retailers of other snack food products, including cookies, ice cream and
coffee, as well as with gift manufacturers, distributors and retailers, such as
florists and card and gift shops, that offer products at price points comparable
to those of the Company's products. See "Risk Factors -- Substantial
Competition."
EMPLOYEES
As of May 31, 1997, the Company employed approximately 2,244 people of which
1,246 worked in Fannie May stores, 482 worked in Fanny Farmer stores and the
remainder primarily worked in the Chicago manufacturing, distribution and
headquarters facilities. Of the total number of employees, 120 were salaried and
the remainder, including all store personnel, were compensated on an hourly
basis. Typically, the number of employees increases by approximately 500 (many
of whom work part-time in Company-operated retail stores) during periods of high
seasonal retail demand in the Company's second and third fiscal quarters. As of
May 31, 1997, over one-half of the hourly store personnel were employed on a
part-time basis. Management believes that the hourly store personnel represent a
relatively well-trained and stable base of employees, with many averaging
several years of tenure with the Company. As of May 31, 1997, approximately 800
of the Company's employees were members of one of the various labor unions that
represent Company employees. The Company currently is subject to eight
collective bargaining agreements, all of which expire on or before June 30,
2000. Management generally considers its employee relations to be good. See
"Risk Factors -- Dependence on Key Personnel; Labor Relations."
PROPERTIES
As of May 31, 1997, the Company operated 225 Fannie May stores and 105 Fanny
Farmer stores. Of the 225 Fannie May stores, 33 are owned by the Company and 192
are leased by the Company. See "Description of New Credit Facility." The Company
leases all 105 of its Fanny Farmer stores.
Within five years following May 31, 1997, approximately 90% of the Company's
retail store leases are due to expire. The Company believes that it will be able
to renew expiring leases at reasonable rates in the
42
<PAGE>
future, but there can be no assurances that it will be able to do so. See "Risk
Factors -- Other Factors Affecting Sales and Profitability."
In addition to its Company-operated stores, the Company has three other
principal properties: an approximately 320,000 square foot manufacturing,
storage and headquarters facility that the Company owns in Chicago, Illinois; an
approximately 112,000 square foot warehouse and distribution facility that the
Company leases in Chicago, Illinois; and an approximately 17,000 square foot
warehouse and distribution facility that the Company owns in Bensalem,
Pennsylvania. At the Chicago manufacturing and headquarters facility,
approximately 162,000 square feet are used for manufacturing, 118,000 square
feet for cold and dry storage and 40,000 square feet for office and
administrative functions. The lease of the Chicago warehouse and distribution
facility expires in June 2000. Management believes that substantially all of the
Company's property and equipment is in good condition and that it has sufficient
capacity to meet its current manufacturing and distribution requirements. See
"Description of New Notes -- Collateral."
INTELLECTUAL PROPERTY
The Company owns numerous trademarks in the United States. The names Fannie
May and Fanny Farmer and certain product names, including Pixie and Trinidad,
are registered trademarks of the Company. The Company's trademarks are of
material importance to the Company. Trademarks generally are valid as long as
they are in use and/or their registrations are properly maintained and provided
that such trademarks have not been found to have become generic. See
"Description of New Notes -- Collateral."
LEGAL PROCEEDINGS
From time to time, the Company is involved in routine litigation incidental
to its business. The Company is not a party to any pending or threatened legal
proceeding which would have a material adverse effect on the Company's results
of operations or financial condition.
43
<PAGE>
MANAGEMENT
DIRECTORS AND MANAGEMENT EMPLOYEES
The following table and summary below set forth certain information with
respect to the directors and management employees of the Company as of the date
of this Prospectus.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- -------------------------------------------- --- --------------------------------------------------------------
<S> <C> <C>
Thomas H. Quinn............................. 50 Chairman of the Board and Chief Executive Officer*
Ted A. Shepherd............................. 38 President and Chief Operating Officer*
Donna M. Snopek............................. 38 Vice President -- Finance and Accounting and Secretary*
Alan W. Petrik.............................. 44 Vice President -- Operations
Michael A. Perrino.......................... 43 Vice President -- Specialty Division
Ricky L. Lelli.............................. 45 Vice President -- Manufacturing
John W. Jordan II........................... 49 Director*
Adam E. Max................................. 39 Director, Vice President, Assistant Treasurer and Assistant
Secretary*
Jeffrey Rosen............................... 48 Director*
Robert A. Schmitz........................... 56 Director*
</TABLE>
- ---------------
* Reflects positions held with both Holdings and the Company.
MR. QUINN has served as Chairman of the Board and Chief Executive Officer of
the Company since its acquisition by Holdings in 1991. Since 1988, Mr. Quinn has
been President, Chief Operating Officer and a director of Jordan Industries,
Inc., a diversified industrial holding company affiliated with TJC. Mr. Quinn is
the Chairman of the Board and Chief Executive Officer of American Safety Razor
Company, a director of AmeriKing, Inc. and a director of other privately held
companies.
MR. SHEPHERD has served as President and Chief Operating Officer of the
Company since 1996. Mr. Shepherd joined the Company in December 1993 as Vice
President of the Specialty Division and was named Vice President of Sales and
Marketing in 1995. Mr. Shepherd has over 15 years of general management, sales
and marketing experience in the confectionery industry. Prior to joining the
Company, Mr. Shepherd worked for 11 years at Mars, Incorporated and affiliated
entities, where he held a variety of sales, marketing and general management
positions.
MS. SNOPEK has served as Vice President of Finance and Accounting of the
Company since 1996 and as Secretary of the Company since 1995. Ms. Snopek joined
the Company in 1993 as Controller. Ms. Snopek has over 17 years experience in
various finance and accounting positions. Prior to joining the Company, Ms.
Snopek worked for the NutraSweet Company, where she served as Planning and
Analysis Director.
MR. PETRIK has served as Vice President of Operations of the Company since
1996. Mr. Petrik has been with the Company for 17 years and has held various
senior management positions with the Company, including Vice President of
Manufacturing.
MR. PERRINO has served as Vice President of the Specialty Division of the
Company since joining the Company in January 1997. Mr. Perrino has over 17 years
of sales and marketing experience in the consumer products industry. Prior to
joining the Company, Mr. Perrino worked for Weaver Popcorn Company as Senior
Manager, Concession Snack and Retail Business.
MR. LELLI has served as Vice President of Manufacturing of the Company since
1997. Mr. Lelli joined the Company in 1994 as Director of Manufacturing. Mr.
Lelli has over 21 years of experience in the food processing industry. Prior to
joining the Company, Mr. Lelli worked for five years at The Masterson Company, a
confectionery company, where he served as Vice President of Manufacturing.
44
<PAGE>
MR. JORDAN has served as Director of the Company since its acquisition by
Holdings in 1991. Mr. Jordan is a managing partner of The Jordan Company, a
private merchant banking firm which he founded in 1982. Mr. Jordan is also a
director of Jordan Industries, Inc., American Safety Razor Company, Carmike
Cinemas, Inc., AmeriKing, Inc., Winning Ways, Inc., Motor and Gears, Inc.,
Rockshox, Inc. and Apparel Ventures, Inc., all of which are affiliates of TJC,
as well as other privately-held companies.
MR. MAX has served as Director of the Company since its acquisition by
Holdings in 1991. Mr. Max is a principal of The Jordan Company, which he joined
in 1986. Mr. Max is also a director of Rockshox, Inc. and Great American Cookie
Company, Inc.
MR. ROSEN has recently been designated by the TCW Investors to serve as a
Director of the Company. Mr. Rosen is a partner in the law firm of O'Melveny &
Meyers LLP, counsel for TCW Capital.
MR. SCHMITZ has been designated by the TCW Investors as a Director of the
Company and has served as such since 1994. Mr. Schmitz is President of Quest
Capital Ltd. and a director of several privately held companies which are
affiliates of TCW Capital. Mr. Schmitz was formerly a director of Trust Company
of the West and TCW Capital.
SHAREHOLDERS AGREEMENT
In connection with the formation of Holdings and its acquisition of the
Company in 1991, the TJC Investors, the TCW Investors and the other initial
stockholders of Holdings entered into a shareholders agreement (the
"Shareholders Agreement") which contains provisions relating to the governance
of the Company and Holdings and restrictions on, and rights in the event of, the
transfer of Holdings Common Stock (as defined). See "Capitalization of Holdings"
and "Principal Stockholders."
The Shareholders Agreement contains certain governance provisions which,
among other things, provide for the election to each of the Company's and
Holdings' Boards of Directors of three directors nominated by the TJC Investors
and two directors nominated by the TCW Investors. Messrs. Jordan, Quinn and Max
are the directors nominated by the TJC Investors and Messrs. Rosen and Schmitz
are the directors nominated by the TCW Investors. See "Capitalization of
Holdings" and "Principal Stockholders."
BOARD OF DIRECTORS -- INDEMNIFICATION AND COMPENSATION
INDEMNIFICATION. The Company's By-Laws authorize the Company to indemnify
its present and former directors and officers and to pay or reimburse expenses
for such individuals in advance of the final disposition of a proceeding upon
receipt of an undertaking by or on behalf of such individuals to repay such
amounts if so required.
INDEMNIFICATION AGREEMENTS. Simultaneously with the consummation of the
Offering, the Company entered into a separate indemnification agreement with
each of its directors and officers. These indemnification agreements provide
that the Company will indemnify its directors and officers against certain
liabilities (including settlements) and expenses actually and reasonably
incurred by them in connection with any threatened or pending legal action,
proceeding or investigation (other than actions brought by or in the right of
the Company) to which any of them is, or is threatened to be, made a party by
reason of their status as a director, officer or agent of the Company, or
serving at the request of the Company in any other capacity for or on behalf of
the Company; provided that (i) such director or officer acted in good faith and
in a manner not opposed to the best interest of the Company, (ii) with respect
to any criminal proceedings, such director or officer had no reasonable cause to
believe his or her conduct was unlawful, (iii) such director or officer is not
finally adjudged to be liable for negligence or misconduct in the performance of
his or her duty to the Company, unless the court views in light of the
circumstances the director or officer is nevertheless entitled to
indemnification and (iv) the indemnification does not relate to any liability
arising under Section 16(b) of the Exchange Act or the rules or regulations
promulgated
45
<PAGE>
thereunder. With respect to any action brought by or in the right of the
Company, directors and officers may also be indemnified, to the extent not
prohibited by applicable laws or as determined by a court of competent
jurisdiction, against costs and expenses actually and reasonably incurred by
them in connection with such action if they acted in good faith and in the best
interest of the Company.
DIRECTOR COMPENSATION. The Company pays each director a quarterly fee of
$2,500. In fiscal 1996, Mr. Quinn also was paid a $52,000 consulting fee by the
Company. See "Certain Transactions -- Director's Consulting Fee and TCW
Investors' Expense Reimbursement." The Company also reimburses directors for
their travel and other expenses incurred in connection with attending meetings
of the Board of Directors.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding compensation
paid or accrued by the Company during each of the three most recent fiscal years
to the Company's chief executive officer and each of the executive officers of
the Company whose total annual salary and bonus for each of such fiscal years
exceeded $100,000 (collectively, the "Named Executives").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------- -----------------
OTHER ANNUAL SECURITIES
NAME AND COMPENSATION UNDERLYING SARS
PRINCIPAL POSITION(1) YEAR SALARY ($) BONUS ($) ($) (#)
- --------------------------------------------------- --------- ---------- ---------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Thomas H. Quinn, 1996 -- -- $ 52,000(2) --
Chairman of the Board and Chief Executive Officer 1995 -- -- 52,000(2) --
1994 -- -- 52,000(2) --
Ted A. Shepherd, 1996 $ 200,163 $ 101,491 -- 7.00
President and Chief Operating Officer (3) 1995 179,999 10,000 -- --
1994 122,379 15,000 -- 3.00
Donna M. Snopek, 1996 93,500 24,310 -- 3.00
Vice President -- Finance and Accounting and 1995 83,334 10,000 -- --
Secretary (4) 1994 62,154 12,000 -- --
</TABLE>
- ------------
(1) Joseph S. Secker was the Chief Financial Officer of the Company during each
of fiscal 1996, 1995 and 1994. Mr. Secker resigned from the Company
following the end of fiscal 1996. His combined salary and bonus for fiscal
1996, 1995 and 1994 was equal to $266,123, $187,000 and $210,000,
respectively. In connection with his resignation from the Company, Mr.
Secker received in November 1996 a payment equal to $100,000 in
consideration for the cancellation of 5.264 SARs previously granted to him.
(2) Reflects a consulting fee the Company paid Mr. Quinn in each of fiscal 1996,
1995 and 1994 in lieu of salary. See "Certain Transactions -- Director's
Consulting Fee and TCW Investors' Expense Reimbursement."
(3) Reflects position held by Mr. Shepherd since March, 1996. In fiscal 1995,
Mr. Shepherd served as Vice President of Sales and Marketing. In fiscal
1994, he served as Vice President of the Specialty Division.
(4) Reflects position currently held by Ms. Snopek. During fiscal 1996, 1995 and
1994, Ms. Snopek served as Vice President-Controller of the Company. Ms.
Snopek has served as Secretary of the Company since fiscal 1995.
46
<PAGE>
HOLDINGS' STOCK APPRECIATION RIGHTS PLAN
The Fannie May Holdings, Inc. Stock Appreciation Rights Plan (the "Plan")
was adopted by the Board of Directors of Holdings in October, 1991 to afford
selected employees of Holdings and its subsidiaries, including the Company, an
opportunity to participate in the potential economic appreciation of Holdings'
consolidated common stock equity value. A total of 52.75 stock appreciation
rights ("SARs") are authorized for grant under the Plan representing the
economic equivalent of 52.75 shares, or 5.0%, of Holdings Common Stock, on a
fully diluted basis. As of May 31, 1997, 40 SARs were outstanding under the
Plan, with 28 SARs issued to current employees of the Company and the balance
held by former employees.
The Plan is administered by the Board of Directors of Holdings. The Board
selects the employees to receive SARs and the number of SARs subject to each
such grant and determines the exercise or vesting schedule for each SAR granted.
Pursuant to the Plan, each SAR entitles the holder to surrender all or any
portion thereof to Holdings upon the occurrence of any Cash Out Event (as
defined in the Plan) for a cash payment in an amount equal to the value of one
share of common stock of Holdings determined with reference to the applicable
Cash Out Event. In certain cases, all such payments may be deferred if Holdings
is not permitted to pay the same by the governing debt documents. The Plan
generally defines a Cash Out Event to include (i) certain public offerings of
Holdings Common Stock, (ii) any merger, combination, consolidation or similar
transaction involving Holdings in which the holders of a majority of the
outstanding Holdings Common Stock immediately prior to such transaction are not
the holders of a majority of the ordinary voting securities of the entity
surviving such transaction, (iii) the sale of all or substantially all of the
assets of Holdings or (iv) the sale of a majority of Holdings Common Stock. The
Plan provides that in the event the employment of any holder of an SAR
terminates for (i) Cause (as defined in the Plan) at any time or (ii) any other
reason except death or disability within a prescribed period (the "Vesting
Period") following the grant of the subject SAR, then all of such holder's
rights in such SAR shall automatically terminate. The Plan further provides that
upon any termination of any SAR holder's employment following the Vesting
Period, such holder's SARs shall be subject to repurchase by Holdings at the
option of either Holdings or the holder. The price payable by Holdings in
connection with any such repurchase is the amount by which the value of the SAR
(determined by reference to certain book value and earnings measures established
by the Plan) exceeds a prescribed dollar amount that is intended to evidence the
value of the SAR on the date of grant. At the Company's option, such repurchase
amounts may be paid by a note payable over three years.
SAR GRANTS IN FISCAL 1996
The following table sets forth certain information with respect to SAR
grants made to the Named Executives for the fiscal year ended August 31, 1996.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF TOTAL GRANT DATE
SECURITIES SARS GRANTED TO PRESENT
UNDERLYING SARS EMPLOYEES IN FISCAL EXERCISE PRICE EXPIRATION VALUE
NAME GRANTED (2) YEAR (3) ($/SH) DATE ($)(4)
- ------------------------------------------- --------------- ------------------- ----------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Thomas H. Quinn (1)........................ -- -- -- -- --
Ted A. Shepherd............................ 7.00 43.7% $ 0 None $ 112,796
Donna M. Snopek............................ 3.00 18.7 0 None 48,341
</TABLE>
- ------------
(1) Does not include shares of Holdings Common Stock which Mr. Quinn holds
directly or beneficially.
(2) Each SAR is exercisable only upon the occurrence of a Cash Out Event (as
defined in the Plan).
(3) An aggregate of 16.00 SARs were granted to four Company employees during the
fiscal year ended August 31, 1996.
(4) Grant date present value is calculated based on the estimated fair market
value of Holdings Common Stock determined by the Board of Directors of
Holdings at the date of grant.
47
<PAGE>
AGGREGATED SAR EXERCISES IN FISCAL YEAR 1996 AND 1996 FISCAL YEAR-END SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED SARS AT VALUE OF UNEXERCISED IN-THE-
FISCAL YEAR-END, MONEY SARS AT FISCAL YEAR-
SHARES ACQUIRED EXERCISABLE/ END,
ON EXERCISE VALUE REALIZED UNEXERCISABLE EXERCISABLE/UNEXERCISABLE (#)
NAME (#)(1) ($) (#)(2) (3)
- ----------------------------------- ----------------- ----------------- ------------------- -----------------------------
<S> <C> <C> <C> <C>
Thomas H. Quinn (1)................ -- -- 0/0 $ 0/$0
Ted A. Shepherd.................... -- -- 0/10.00 0/161,137
Donna M. Snopek.................... -- -- 0/3.00 0/48,341
</TABLE>
- ------------
(1) No SARs were exercised during the fiscal year ended August 31, 1996.
(2) Each SAR is exercisable only upon the occurrence of a Cash Out Event (as
defined in the Plan).
(3) Based on the estimated fair market value of Holdings Common Stock determined
by the Board of Directors of Holdings at the date of grant. The actual
amount payable upon exercise of an SAR is subject to and not determinable
until the occurrence of a Cash Out Event.
BENEFIT PLANS
The Company sponsors two noncontributory defined benefit pension plans, one
for eligible collective bargaining employees and one for eligible non-collective
bargaining employees (collectively, the "Pension Plans"). An employee of the
Company is generally eligible to become a participant in the applicable Pension
Plan upon attaining age 21 and completing a 12-month period of service to the
Company. Participants become vested in their accrued benefits under the
applicable Pension Plan based on a three to seven year graded vesting schedule
at the rate of 20% per year after three years of "Vesting Service" as defined in
the Pension Plans. The Company makes annual contributions to the Pension Plans
in amounts determined by the actuary for the Pension Plans.
The normal retirement age under the Pension Plans is the later of age 65 or
the fifth anniversary of participation for participants who enter the Plan on or
after September 1, 1988 and age 65 for participants who enter the Plan before
September 1, 1988. A reduced early retirement benefit is available when a
participant has attained age 55 and completed at least ten years of Vesting
Service. A participant's accrued annual benefit under the applicable Pension
Plan, starting at age 65, is the sum of (a) his accrued annual benefit, if any,
as of August 31, 1992 and (b) one-half of one percent of the compensation (as
defined) paid to the participant during each year of "Credited Service" (as
defined in the Pension Plans) after August 31, 1992. Compensation is generally
defined in the Pension Plans as the total cash remuneration paid for the 12
months ending August 31 of each year, and is limited by federal law to $150,000
per year (as adjusted for cost-of-living increases).
The estimated annual benefits payable to the Named Executives under the
Pension Plans upon retirement at normal retirement age, assuming continuous
service and constant salary to normal retirement date, is approximately $36,000,
in aggregate.
48
<PAGE>
CAPITALIZATION OF HOLDINGS
GENERAL
Holdings, which owns all of the issued and outstanding capital stock of the
Company, has four classes of outstanding common stock and three series of
outstanding preferred stock.
COMMON STOCK
Holdings has the following four classes of authorized common stock: Class A
Common Stock, Class B Common Stock, Class C Common Stock and Class D Common
Stock (collectively, "Holdings Common Stock").
Upon a liquidation or dissolution of Holdings, all classes of Holdings
Common Stock will rank pari passu in terms of distribution preferences. In the
event of an initial public offering of common stock by Holdings, all outstanding
shares of Class B Common Stock, Class C Common Stock and Class D Common Stock
automatically will be converted into an equal number of shares of Class A Common
Stock.
With respect to voting rights, the Class B Common Stock is non-voting
(except as provided by law) while each of the other classes of common stock has
one vote per share for the election of directors and all other corporate
matters, except as follows: (i) the holders of Class C Common Stock, as a class,
subject to the rights of holders of Senior Preferred Stock and Class D Common
Stock described below, may elect a director with 51% of the voting power of the
Board of Directors; (ii) upon the occurrence of a Triggering Event (unless the
holders of Senior Preferred Stock have elected a director who is entitled to
exercise 51% of the voting power of the Board of Directors because of a failure
to make a dividend payment or a mandatory redemption payment (whether or not
such payment is legally permissible) due on the Senior Preferred Stock), the
holders of the Class D Common Stock, voting separately as a class, have the
right to elect an additional director and such director shall have 51% of the
voting power of the Board of Directors; and (iii) certain events, such as
amendments to the Certificate of Incorporation or By-laws which adversely affect
holders rights and certain merger and consolidation transactions, require the
approval of a majority of holders of each class voting separately as a class.
The TJC Investors hold Class A Common Stock and all of the Class C Common Stock
and the TCW Investors hold Class A Common Stock and all of the Class D Common
Stock. No Class B Common Stock is currently outstanding. See "Principal
Stockholders."
The Shareholders Agreement provides, among other things, that: (i) the
composition of the Board of Directors of Holdings and the Company shall be
identical; (ii) the number of directors of Holdings and the Company shall be
five, with the TJC Investors nominating three directors and the TCW Investors
nominating two directors; (iii) upon the occurrence of a Triggering Event
(unless the TCW Investors as holders of the Class D Common Stock have already
elected their director with 51% of the voting power of the Board of Directors),
certain transactions, such as certain types of mergers, liquidations or
dissolutions, significant sales of assets or acquisitions, certain issuances of
equity securities or redemptions of equity shares, shall require the approval of
60% of the outstanding common stock (other than the Class B Common Stock); (iv)
certain matters, such as amendments to the Certificate of Incorporation or
By-laws which adversely affect the TCW Investors and certain transactions with
affiliates of the TJC Investors shall require the approval of a director
nominated by the TCW Investors; (v) for pre-emptive rights; and (vi)
restrictions on transfers of shares. See "Principal Stockholders" and "--
Securities Purchase Agreement."
PREFERRED STOCK
Holdings has the following three series of preferred stock: Senior Preferred
Stock, Junior Class A PIK Preferred Stock ("Class A Preferred Stock") and Junior
Class B PIK Preferred Stock ("Class B Preferred Stock").
49
<PAGE>
The Senior Preferred Stock, which was issued in 1991 in the original face
amount of $10.0 million to the former shareholders of the Company in connection
with Holdings' acquisition of the Company, has the following rights and
preferences: (i) cumulative dividends at the annual rate of 5% ($500.00 per
share) are payable on the last business day of August in each year and, at the
option of Holdings, 50% of any dividend may be payable in kind (with in kind
shares valued at $10,000 per share); (ii) upon liquidation or dissolution, the
Senior Preferred Stock has preference (valued at $10,000 per share) over all
classes of Holdings Common Stock and the Class A Preferred Stock and Class B
Preferred Stock; (iii) shares are subject to optional redemption at any time at
the Company's option at a price of $10,000 per share plus accrued and unpaid
dividends; and (iv) shares are subject to mandatory redemption at a price of
$10,000 per share plus accrued and unpaid dividends on August 31, 2001; and (v)
no voting rights are provided, except that: (a) upon a default of a dividend or
redemption payment due to the holders of Senior Preferred Stock, such holders,
voting as a class, may elect a director with 51% of the voting power of
Holdings' Board of Directors; and (b) consent of each of the holders of Senior
Preferred Stock is required for the issuance of any equity security which is
pari passu or senior to the Senior Preferred Stock and for any Certificate of
Incorporation or By-law amendment which may adversely affect the interest of
such holders. As of May 31, 1997, the redemption value of the Senior Preferred
Stock was approximately $11.5 million and, assuming that Holdings continues to
exercise its option to pay 50% of the dividends in kind, the redemption value of
the Senior Preferred Stock on August 31, 2001 will be approximately $12.7
million.
In the event the holders of the Senior Preferred Stock are entitled to elect
a director with 51% of the voting power of the Boards of Directors of Holdings
and the Company, the TJC Investors or TCW Investors would fail to control
Holdings and the Company, and such event would constitute a Change in Control
under the Indenture, which could have a material adverse effect on the Company.
See "Risk Factors-Inability to Purchase Notes Upon a Change of Control."
The Class A Preferred Stock and Class B Preferred Stock, which were issued
in 1991 in the original face amounts of $7.0 million and $700,000, respectively,
in connection with Holdings' acquisition of the Company, are entitled to
cumulative dividends at the annual rate of 8% and generally possess similar
rights, including the following: (i) each pays a dividend of $2,000 per share,
payable at Holdings' option either in cash or in kind, wholly or in part (with
in kind shares valued at $25,000 per share), on November 1; (ii) upon
liquidation or dissolution, the Class A Preferred Stock is junior to the Senior
Preferred Stock, the Class B Preferred Stock is junior to both the Senior
Preferred Stock and the Class A Preferred Stock and all classes of Holdings
Common Stock are junior to the Class A Preferred Stock and Class B Preferred
Stock; (iii) shares are subject to mandatory redemption on November 1, 2001 at a
price of $25,000 per share plus accrued and unpaid dividends for the Class A
Preferred Stock (provided that no shares of Senior Preferred Stock are
outstanding) and November 1, 2001 for the Class B Preferred Stock (provided that
all shares of the Senior Preferred Stock and Class A Preferred Stock have
theretofore been redeemed in full for cash); and (iv) the Securities Purchase
Agreement provides for the mandatory redemption of the Class A Preferred Stock
upon the happening of certain events, including certain equity sales, asset
sales, recapitalizations, liquidations and change of control events. Neither the
holders of Class A Preferred Stock or Class B Preferred Stock possess any voting
rights, except that consent of a majority of the holders of Class A Preferred
Stock and Class B Preferred Stock, each voting separately as a class, is
required for the issuance of any equity security that is pari passu or senior to
such shares and for any amendment to the Certificate of Incorporation or By-law
which may adversely affect the interest of such holders. As of May 31, 1997, the
redemption value of the Class A Preferred Stock and Class B Preferred Stock was
approximately $10.8 million and approximately $1.1 million, respectively and,
assuming that Holdings exercises its option to pay all dividends in kind, the
redemption value of the Class A Preferred Stock on November 1, 2001 will be
approximately $15.1 million and the redemption value of the Class B Preferred
Stock on November 1, 2001 will be approximately $1.5 million. As of May 31,
1997, TCW Investors held approximately 64% of the Class A Preferred Stock and
TJC Investors held approximately 36% of the Class A Preferred Stock. As of May
31, 1997, approximately 80% of the Class B Preferred Stock is held by TJC
Investors. See "-- Securities Purchase Agreement" and "Principal Stockholders."
50
<PAGE>
SECURITIES PURCHASE AGREEMENT
In connection with Holdings' acquisition of the Company in 1991, the
Company, Holdings, certain TCW Investors, certain TJC Investors and other
investors entered into a Securities Purchase Agreement (the "Securities Purchase
Agreement") pursuant to which Holdings issued the Subordinated Notes, the Class
A Preferred Stock and the Class A, B and D Common Stock. In connection with the
Offering, the TCW Investors and the TJC Investors amended the Securities
Purchase Agreement to provide, among other things, the following: (i) the
issuance of the Notes and New Credit Facility are permitted indebtedness
thereunder and the liens granted pursuant to the Indenture and the New Credit
Facility are permitted liens; (ii) the date that certain holders of Class A and
Class D Common Stock may elect to cause the Company to begin the process to
either sell the Company or redeem their shares of Holdings Common Stock has been
extended to January 1, 2000 from December 10, 1998; (iii) the prepayment penalty
with regard to the Subordinated Notes which were retired out of the proceeds
from the Offering was increased to 5% from 4%; and (iv) in the event the Company
is required to redeem the shares of Holdings Common Stock held by certain TJC
Investors or the TCW Investors pursuant to the Securities Purchase Agreement and
the purchase price is based on fair market value, the appraisal shall consider
the discount or premium at which the Notes trade, but shall not consider any
costs arising from a prepayment of the Notes. See "Certain Transactions --
Director's Consulting Fee and TCW Investors' Expense Reimbursement."
The Securities Purchase Agreement provides, among other things, that the
Company and Holdings are subject to certain covenants, including the following:
(i) so long as at least 92 shares of Class A Preferred Stock are outstanding,
the Company and Holdings are restricted in their ability to pay certain
dividends or from making certain other restricted payments, incurring additional
indebtedness or liens on its assets, or making certain investments and must
comply with certain financial ratios and (ii) so long as at least 92 shares of
Class A Preferred Stock or 333 shares of Common Stock purchased pursuant to the
Securities Purchase Agreement are outstanding, the Company and Holdings are
restricted in entering into certain transactions with affiliates and certain
mergers or consolidations with other entities or from transferring or leasing a
substantial portion of its assets or issuing additional capital stock except for
dividends in kind. The Securities Purchase Agreement also provides that certain
holders of Class A Common Stock and Class D Common Stock of Holdings (which
include both TCW Investors and certain TJC Investors) ("Original Purchasers")
have the right to require the Company to either initiate a sale of the Company
or to redeem their shares of Holdings Common Stock, at any time, or from time to
time, after the earlier of any of the following (each a "Purchase Event") (A)
January 1, 2000, (B) the consummation of certain events, such as a sale of a
significant portion of the Company's assets, certain recapitalizations of
Holdings, certain issuances of equity securities of Holdings or the liquidation,
dissolution or change of control of Holdings ("Exit Events") or (C) the first
date as of which all Subordinated Notes have been repaid and all shares of Class
A Preferred Stock have been redeemed. If Holdings elects to redeem such Holdings
Common Stock, the redemption price depends on the event giving rise to the
redemption. The redemption price for the Common Stock issued under the
Securities Purchase Agreement is the greater of (x) fair market value or (y) an
amount intended to yield a "preferred return" equal to an annual 16% internal
rate of return (calculated semi-annually) on the holder's original investment in
the Subordinated Notes, Class A Preferred Stock and Holdings Common Stock. In
the case of Exit Events involving a sale of assets or issuance of equity
securities, the fair market value is based upon the proceeds received from such
transactions. If Holdings elects to sell the Company, Holdings has up to one
year to arrange such sale. If Holdings elects not to initiate a sale of the
Company or does not conclude a sale within one year, fair market value is
determined by an independent appraisal process.
The Securities Purchase Agreement also provides that (i) upon a sale of
equity securities, 50% of the net proceeds must be applied to the redemption of
the Senior Preferred Stock and then to the redemption of Class A Preferred
Stock; and (ii) upon the occurrence of an Exit Event (other than a sale of
equity securities), Holdings must redeem all outstanding shares of Class A
Preferred Stock (the "Exit Events Redemptions").
51
<PAGE>
There can be no assurance that, if a Purchase Event occurs, Holdings will be
able to sell the Company or have sufficient funds to satisfy its obligations to
redeem the applicable shares of Holdings Common Stock or with respect to any
Exit Events Redemption, that such redemptions would be permitted under the
Indenture, the New Credit Facility or any successor financings. A failure to
satisfy such obligations could result in the occurrence of a Triggering Event
which would entitle the TCW Investors to elect a director with 51% of the voting
power of the Boards of Directors of Holdings and the Company.
"Triggering Events," as defined in the Securities Purchase Agreement,
includes (i) the failure by Holdings to either effect a sale of the Company or
redeem certain shares of Class A Common Stock and Class D Common Stock held by
both the TCW Investors and certain TJC Investors in accordance with the terms of
the Securities Purchase Agreement; (ii) the failure by Holdings to redeem on
November 1, 2001 the Class A Preferred Stock held by both the TCW Investors and
certain TJC Investors; and (iii) the failure by Holdings to redeem the Class A
Preferred Stock upon certain events, such as certain equity sales, asset sales,
recapitalizations, liquidations and change of control events. The TCW Investors
hold approximately 64.3% of the Class A Preferred Stock and approximately 45% of
Holdings Common Stock possessing the right to either initiate a sale of the
Company or a redemption of their Holdings Common Stock described in clause (i)
above, with the balance held by certain of the TJC Investors. Accordingly, the
TCW Investors can assert that a Triggering Event has occurred upon the
occurrence of any one of the events described above until such Triggering Event
is resolved and thus assume control of 51% of the voting power of the Boards of
Directors of Holdings and the Company, provided that the holders of the Senior
Preferred Stock have not exercised their right to control 51% of the voting
power of the Board of Directors of Holdings. See "-- Preferred Stock" and
"Principal Stockholders."
52
<PAGE>
PRINCIPAL STOCKHOLDERS
Holdings owns all of the Company's issued and outstanding capital stock. The
following table sets forth certain information with respect to the beneficial
ownership of the equity securities of Holdings as of May 31, 1997 by (i) each
person who is known by the Company to beneficially own more than 5% of the
outstanding shares of any class of Holdings' voting securities; (ii) each of the
directors and Named Executives of Holdings who own shares of Holdings' equity
securities; and (iii) all directors and executive officers of Holdings, as a
group, who own shares of Holdings' equity securities.
<TABLE>
<CAPTION>
PERCENTAGE OF
ALL OUTSTANDING
NUMBER OF PERCENTAGE OF VOTING
NAME(1) TITLE OF CLASS(2) SHARES CLASS(3) COMMON STOCK
- ---------------------------------------------- -------------------- ------------ -------------- ----------------
<S> <C> <C> <C> <C>
TCW Capital (4)............................... Class A Common 339.741000 48.9% 34.0 %
Jordan Industries, Inc. (5)................... Class A Common 151.128000 21.7 15.1
MCIT (Existing Pool) Limited (6)(7)........... Class A Common 100.752000 14.5 10.1
WCT Investment Pte Ltd. (8)................... Class A Common 82.573000 11.9 8.3
Mezzanine Capital (9)(10)..................... Class A Common 21.069000 3.0 2.1
Leucadia Investors, Inc. (7)(11).............. Class C Common 65.788625 22.3 6.6
John W. Jordan II (12)........................ Class C Common 43.945960 14.9 4.4
Thomas H. Quinn (13).......................... Class C Common 31.582500 10.7 3.2
Adam E. Max (14).............................. Class C Common 26.315450 8.9 2.6
TCW Special Placements Fund III (10).......... Class D Common 10.000000 100.0 1.0
All directors and executive officers of Class C Common
Holdings as a group......................... 101.84296 34.5 10.2
</TABLE>
- ------------
(1) For purposes of this Prospectus, (a) the term "TCW Investors" includes the
following: TCW Capital, WCT Investment Pte Ltd., Mezzanine Capital and TCW
Special Placements Fund III; and (b) the term "TJC Investors" includes the
following: Jordan Industries, Inc., Leucadia Investors, Inc., MCIT (Existing
Pool) Limited, John W. Jordan II, Thomas H. Quinn and Adam E. Max.
(2) See "Capitalization of Holdings -- Common Stock."
(3) As of May 31, 1997, there were outstanding (i) 695.263 shares of Holdings'
Class A Common Stock, (ii) no shares of Holdings' Class B Common Stock,
(iii) 294.737 of Holdings' Class C Common Stock and (iv) 10 shares of
Holdings' Class D Common Stock, aggregating to 1,000 outstanding shares of
Holdings' Common Stock. As of May 31, 1997, there also were outstanding (A)
1,126.871995 shares of the Company's 5% Senior Preferred Stock, all of which
is owned by former owners of the Company, (B) 411.5785 shares of the
Company's Junior Class A PIK Preferred Stock, approximately 36% of which is
owned by TJC Investors and approximately 64% of which is owned by TCW
Investors, and (C) 41.1578 shares of the Company's Junior Class B PIK
Preferred Stock, approximately 80% of which is owned by TJC Investors.
(4) The Class A Common Stock indicated as owned by TCW Capital is actually held
as follows: (i) 311.408 shares are held in the name of TCW Special
Placements Fund III; (ii) 23.74 shares are held in the name of TCW Capital,
as Investment Manager pursuant to an Investment Management Agreement dated
as of April 18, 1990; and (iii) 4.593 shares are held in the name of TCW
Capital, as Investment Management pursuant to an Investment Management
Agreement dated as of June 19, 1989. As of May 31, 1997, TCW Investors owned
43.3% of the outstanding voting Holdings' Common Stock. As of May 31, 1997,
TCW Investors also owned approximately 64% of Holdings' Junior Class A PIK
Preferred Stock. The principal address of TCW Capital is c/o Trust Company
of the West, Representative Office, 200 Park Avenue, Suite 2200, New York,
New York 10166.
53
<PAGE>
(5) As of May 31, 1997, Jordan Industries, Inc. and other TJC Investors also
owned approximately 36% of Holdings' Junior Class A PIK Preferred Stock. The
principal address of Jordan Industries, Inc. is Arbor Lake Center, 1751 Lake
Cook Road, Suite 550, Deerfield, Illinois 60015. Mr. Jordan is Chairman of
the Board and Chief Executive Officer of Jordan Industries, Inc. Mr. Quinn
is President, Chief Operating Officer and a director of Jordan Industries,
Inc.
(6) As of May 31, 1997, MCIT (Existing Pool) Limited also owned 58.7969 shares
of Holdings' Junior Class A PIK Preferred Stock.
(7) The principal address of each of MCIT (Existing Pool) Limited and Leucadia
Investors, Inc. is 315 Park Avenue South, New York, New York 10010.
(8) As of May 31, 1997, WCT Investment Pte Ltd. also owned 46.7356 shares of
Holdings' Junior Class A PIK Preferred Stock. In connection with its
acquisition in 1992 from certain affiliates of TCW Capital of shares of
Holdings' Class A Common Stock and Junior Class A PIK Preferred Stock, WCT
Investment Pte Ltd. granted an irrevocable proxy to TCW Special Placements
Fund III for the purpose of approving or consenting to certain actions by
Holdings. The principal address of WCT Investment Pte Ltd. is c/o Government
of Singapore Investment Corporation, 255 Shoreline Drive, Suite 600, Redwood
City, California 94065.
(9) Mezzanine Capital is affiliated with TCW Capital. As of May 31, 1997,
Mezzanine Capital also owned 12.8763 shares of Holdings' Junior Class A PIK
Preferred Stock.
(10) The principal address for each of Mezzanine Capital and TCW Special
Placements Fund III is c/o TCW Special Placements Fund III, 865 S. Figueroa
St., Suite 1800, Los Angeles, California 90017.
(11) As of May 31, 1997, Leucadia Investors, Inc. also owned 10.2894 shares of
Holdings' Junior Class B PIK Preferred Stock.
(12) 43.945960 shares of Holdings' Class C Common Stock are held by The John W.
Jordan II Revocable Trust, of which Mr. Jordan is trustee. Mr. Jordan's
address is c/o The Jordan Company, 9 West 57th Street, New York, New York
10019.
(13) Mr. Quinn's address is c/o Archibald Candy Corporation, 1137 West Jackson
Boulevard, Chicago, Illinois 60607.
(14) As of May 31, 1997, Mr. Max also owned 4.1158 shares of Holdings' Junior
Class B PIK Preferred Stock. The address of Mr. Max is c/o The Jordan
Company, 9 West 57th Street, New York, New York 10019.
54
<PAGE>
CERTAIN TRANSACTIONS
MANAGEMENT CONSULTING AGREEMENT AND INVESTMENT BANKING FEES
Since the formation of Holdings and its acquisition of the Company in 1991,
the Company has paid (or accrued), pursuant to a Management Consulting Agreement
dated as of October 30, 1991 between Holdings and TJC Management Corp. (the
"Original Management Consulting Agreement") certain fees to TJC Management Corp.
and its designees, affiliates of the TJC Investors, in exchange for management,
consulting, investment banking and similar services to the Company and Holdings
and has reimbursed TJC Management Corp. for expenses incurred in connection with
the performance of such services. For fiscal 1994, 1995, 1996 and 1997 (through
May 31, 1997), the Company had accrued $273,000, $364,000, $364,000 and
$273,000, respectively, representing fees due to TJC Management Corp. under the
Original Management Consulting Agreement for an aggregate amount of 1,274,000.
The Company paid all such accrued and unpaid amounts out of the proceeds of the
Offering. See "Use of Proceeds." Concurrently with the Offering, the Original
Management Consulting Agreement was terminated and Holdings simultaneously
entered into a new, five year Management Consulting Agreement with TJC
Management Corp. (the "Management Consulting Agreement"), pursuant to which TJC
Management Corp. or its designee will receive a fixed fee for management,
consulting and similar services in the amount of $364,000 per annum plus any
out-of-pocket expenses and additional fees for any investment banking services
rendered. See
"-- Tax Sharing and Management Agreement." In addition, affiliates of the TCW
Investors will be paid $48,000 in aggregate per year as reimbursement of
expenses. See "Certain Transactions -- Director's Consulting Fee and TCW
Investors' Expense Reimbursement."
Pursuant to the terms of an Investment Banking Fee Agreement dated as of
October 30, 1991 (and amended in September 1992) between Holdings and an
affiliate of the TJC Investors, such affiliate earned investment banking fees of
$2.0 million in aggregate in connection with Holdings' acquisition of the
Company in 1991, of which $1.5 million was paid at that time. The Company paid
$0.5 million of such accrued but unpaid fees out of the proceeds of the
Offering. See "Use of Proceeds."
TAX SHARING AND MANAGEMENT AGREEMENT
Concurrently with the closing of the Offering, Holdings and the Company
entered into a Tax Sharing and Management Agreement ("Tax Sharing and Management
Agreement"), pursuant to which the Company agrees to advance to Holdings (i) so
long as Holdings files consolidated income tax returns that include the Company,
payments for the Company's share of income taxes without giving effect to any
consolidated net operating loss carryforwards of Holdings accumulated through
August 30, 1997 and assuming the Company is a stand-alone entity; (ii) an annual
fee of $412,000 for management, consulting, investment banking and similar
services, plus an amount equal to the expenses incurred by Holdings in
connection with the performance of such services, (iii) investment banking fees
incurred by Holdings on behalf of the Company with the TJC Investors in
connection with (a) any future recapitalizations, acquisitions or any similar
transaction, which fee shall not exceed 2% of the transaction value, and (b) any
financing transactions, which fee shall not exceed 1% of the transaction value;
(iv) amounts sufficient for Holdings to pay fees, expenses and indemnities to
directors of Holdings in accordance with its bylaws and indemnification
agreements in effect as of the closing of the Offering; and (v) payments to or
on behalf of Holdings in respect of franchise or similar taxes and governmental
charges incurred by it relating to the business, operations or finances of the
Company.
PARTICIPATION BY JORDAN INDUSTRIES IN OLD CREDIT FACILITY
In June 1995, in connection with an amendment to the Old Credit Facility,
and contemporaneously with its acquisition of certain securities that had been
issued under the Securities Purchase Agreement, Jordan Industries, Inc. ("Jordan
Industries"), which is one of the TJC Investors, acquired a $7.0 million
undivided participating interest in the Term Loan under the Old Credit Facility
and agreed to acquire additional participating interests therein under certain
circumstances in an amount not to exceed $3.0
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million. Jordan Industries did not acquire any such additional interests. Under
the terms of the participation agreement, Jordan Industries was not entitled to
repayment of any principal or interest on its portion of the Term Loan until all
other lenders under the Term Loan were paid in full. As of May 31, 1997, $1.4
million of interest was accrued and unpaid on the Old Credit Facility, of which
$1.2 million was accrued and deferred with respect to Jordan Industries'
participation in the Term Loan. The repayment of the Old Credit Facility out of
the net proceeds of the Offering satisfied the principal and interest owing to
Jordan Industries ($8.2 million, as of May 31, 1997) with respect to its
participation in the Old Credit Facility. See "Use of Proceeds." Jordan
Industries is not a participant in the New Credit Facility, but continues to
hold Class A Preferred Stock and Holdings Common Stock.
SUBORDINATED NOTES
Certain of the TJC Investors, including Jordan Industries, and the TCW
Investors owned $12.5 million and $22.5 million, respectively, in aggregate
principal amount of Subordinated Notes which were prepaid in their entirety out
of the proceeds of the Offering. As a result of such prepayment, the holders of
the Subordinated Notes received a 5.0% prepayment premium with the TCW Investors
receiving $1,125,000 and the TJC Investors receiving $625,000. See "Use of
Proceeds." See "Capitalization of Holdings -- Securities Purchase Agreement."
PREFERRED STOCK
As of May 31, 1997, the TCW Investors owned approximately 64% of the Class A
Preferred Stock and the TJC Investors owned approximately 36% of the Class A
Preferred Stock and approximately 80% of the Class B Preferred Stock, all of
which is subject to redemption. See "Capitalization of Holdings -- Preferred
Stock."
DIRECTOR'S CONSULTING FEE AND TCW INVESTORS' EXPENSE REIMBURSEMENT
In each of fiscal 1994, 1995 and 1996, the Company paid Mr. Quinn a
consulting fee equal to $52,000 in lieu of a salary. Such fee is expected to
continue in the future and is subject to reasonable increases. Pursuant to the
Management Consulting Agreement, certain affiliates of the TCW Investors will
receive $48,000 in the aggregate per year as reimbursement of expenses. See
"Management -- Board of Directors -- Indemnification and Compensation" and
"Certain Transactions -- Tax Sharing and Management Agreement."
OFFICER BONUS
The Board of Directors has awarded a discretionary bonus to Mr. Shepherd,
the Company's President and Chief Operating Officer, in an amount equal to
$120,000 in recognition of his efforts in the closing of the Transactions.
SHAREHOLDERS AGREEMENT
In connection with the formation of Holdings and its acquisition of the
Company in 1991, TJC Investors and TCW Investors and the other initial investors
entered into the Shareholders Agreement, which contains provisions relating to
the governance of the Company and Holdings and restrictions on, and rights in
the event of, the transfer of Holdings' Common Stock. See "Capitalization of
Holdings" and "Principal Stockholders." In connection with its acquisition in
1992 from certain affiliates of TCW Capital of shares of Holdings' Class A
Common Stock and Junior Class A PIK Preferred Stock, WCT Investment Pte Ltd.
granted an irrevocable proxy to TCW Special Placements Fund III for the purpose
of approving or consenting to certain actions by Holdings.
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DESCRIPTION OF NEW CREDIT FACILITY
The following summary of the New Credit Facility does not purport to be
complete and is qualified in its entirety by reference to the definitive New
Credit Facility loan documents that were entered into as of July 2, 1997 between
the Company and the lenders thereunder.
Concurrently with the closing of the Offering, the Company and the
Subsidiaries (as defined in the New Credit Facility) entered into a credit
facility (the "New Credit Facility") with The First National Bank of Chicago
(the "Bank"), as agent, which provides for revolving loans of up to $20.0
million, subject to certain borrowing conditions and limitations. Borrowings
under the New Credit Facility are available for general corporate purposes,
including letters of credit, subject to the borrowing conditions contained
therein. The New Credit Facility is secured by first priority liens on the
Company's accounts receivable, raw materials and finished good inventories and
certain of the Company's owned store locations, and the proceeds therefrom. The
Company did not draw upon the New Credit Facility in connection with the
consummation of the Transactions. Under the terms of the New Credit Facility,
each Material Subsidiary (as defined in the New Credit Facility), if any, will
guarantee the obligations of the Company.
The New Credit Facility includes certain covenants that restrict, among
other things: (i) investment, loans, advances, dividends and other restricted
payments; (ii) prepayment of other indebtedness, including the Notes; (iii) the
incurrence or existence of additional indebtedness; (iv) the granting of liens,
other than liens created pursuant to the New Credit Facility, the Indenture and
certain permitted liens; (v) mergers, consolidations and sales of all or a
substantial part of the Company's business or property; (vi) the sale of assets;
and (vii) certain transactions with affiliates. The New Credit Facility also
requires the Company to comply with certain financial ratios, including, but not
limited to, minimum fixed charge coverage and maximum leverage ratios.
The New Credit Facility also contains customary representations and
warranties and events of default. See "Risk Factors -- Significant Leverage",
"Risk Factors -- Restrictive Covenants; Term of New Credit Facility; Need for
Seasonal Financing" and "Risk Factors -- Collateral; Other Secured
Indebtedness."
The New Credit Facility will expire on July 1, 2000, unless extended. The
New Credit Facility provides that borrowings thereunder will accrue interest at
a variable annual rate equal to the Alternate Base Rate (generally defined as
the greater of (i) the corporate base rate of interest announced by The First
National Bank of Chicago from time to time or (ii) the Federal Funds Effective
Rate (as defined in the New Credit Facility) plus 0.5% per annum) plus 1.25% or
a fixed rate equal to the Eurodollar Rate (as defined in the New Credit
Facility) plus 2.50%. Interest rates may be adjusted downward, depending upon
the Company's leverage ratio (as defined therein). The Company paid certain fees
in connection with the closing of the New Credit Facility and is required to pay
other ongoing fees in connection with the New Credit Facility, including, but
not limited to, a commitment fee of 0.375% to 0.50%, on the undrawn portion
(based on the Company's Leverage Ratio (as defined in the New Credit Facility)).
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DESCRIPTION OF NEW NOTES
GENERAL
The New Notes will be issued, and the Old Notes were issued, under the
Indenture between the Company and The Bank of New York, as trustee (the
"Trustee"). The form and terms of the New Notes are substantially identical
(including principal amount, interest rate, maturity, security and ranking) to
the form and terms of the Old Notes, except that such New Notes (i) are freely
transferable by holders thereof (except as provided below) and (ii) are not
entitled to certain registration rights which are applicable to the Old Notes
under the Registration Rights Agreement.
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. The Notes are
subject to all such terms, and holders of Notes are referred to the Indenture
and Trust Indenture Act for a statement of those terms.
A copy of the Indenture is filed as an exhibit to the Registration Statement
of which this Prospectus is a part. The following is a summary of certain
provisions of the Notes and the Indenture. This summary does not purport to be
complete and is subject to the detailed provisions of, and is qualified in its
entirety by reference to, the Notes and the Indenture. The definitions of
certain terms used in the following summary are set forth below under "--
Certain Definitions." Unless the context otherwise requires, all references
herein to the "Notes" shall include the Old Notes and the New Notes.
RANKING AND SECURITY
The Notes will be senior secured obligations of the Company and rank senior
in right of payment to all subordinated Indebtedness of the Company and PARI
PASSU in right of payment with all senior Indebtedness. The Notes will be issued
in registered form, without coupons, and in denominations of $1,000 and integral
multiples thereof.
The Notes will be effectively subordinated to all other senior secured
indebtedness of the Company and its Subsidiaries, including indebtedness under
the New Credit Facility, to the extent of the assets securing such debt. As of
May 31, 1997, on a pro forma basis after giving effect to the Transactions, the
Company would not have had any secured indebtedness outstanding, other than the
Notes and capital lease obligations.
PRINCIPAL, MATURITY AND INTEREST
The Notes will be senior secured obligations of the Company limited in
aggregate principal amount to $100,000,000 and will mature on July 1, 2004.
Interest on the Notes will be payable semi-annually on January 1 and July 1 of
each year, commencing on January 1, 1998, to holders of record on the
immediately preceding December 15 and June 15, respectively. The Notes will bear
interest at 10 1/4% per annum from the date of original issue. 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 date of original issuance. Interest will
be computed on the basis of a 360-day year comprised of twelve 30-day months.
The Notes will be payable both as to principal and interest at the office or
agency of the Company maintained for such purpose within 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 set forth in
the register of holders of Notes, PROVIDED, that all payments with respect to
Global Notes, and certificated notes the Holders of which have given wire
transfer instructions to the Company and the paying agent, will be required to
be made by wire transfer of immediately available funds to the accounts
specified by the Holders thereof. Until otherwise designated by the Company, the
Company's office or agency will be the office of the Trustee maintained for such
purpose. If a payment date is a Legal Holiday, payment may be made at that place
on the next succeeding day that is not a Legal Holiday, and no interest shall
accrue for the intervening period.
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REDEMPTION
The Notes are not redeemable at the Company's option prior to July 1, 2001.
Thereafter, the Notes will be subject to redemption at the option of the
Company, in whole or in part, upon not less than 30 nor more than 60 days'
notice, at the redemption prices (expressed as percentages of principal amount)
set forth below plus accrued and unpaid interest, if any, thereon to the
applicable date of redemption, if redeemed during the 12-month period beginning
on July 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ----------------------------------------------------------------------- -----------
<S> <C>
2001................................................................... 105.125%
2002................................................................... 102.563
2003 and thereafter.................................................... 100.000
</TABLE>
Notwithstanding the foregoing, at any time or from time to time prior to
July 1, 2000, the Company may, at its option, redeem up to $33.0 million of the
original principal amount of the Notes, at a redemption price of 110.250% of the
principal amount thereof, plus accrued and unpaid interest, if any, through the
date of redemption, with the net cash proceeds of one or more Public Equity
Offerings; PROVIDED, that (a) such redemption shall occur within 90 days of the
date of closing of such public offering and (b) at least $67.0 million aggregate
principal amount of Notes remains outstanding immediately after giving effect to
each such redemption.
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed, or, if the Notes are not so listed, on a PRO RATA basis, by
lot or by such method as the Trustee deems to be fair and appropriate, PROVIDED,
HOWEVER, that Notes of $1,000 or less may not be redeemed in part. Notice of
redemption will 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 will state the portion of the
principal amount thereof to be redeemed. A new Note in principal amount equal to
the unredeemed portion thereof will be issued in the name of the holder thereof
upon cancellation of the original Note. On and after the date of redemption,
interest will cease to accrue on the Notes or such portions called for
redemption.
The Notes will not be entitled to any mandatory redemption or sinking fund.
GUARANTORS
The repayment of the Notes will be unconditionally and irrevocably
guaranteed by all future Restricted Subsidiaries of the Company.
The obligations of each Guarantor will be limited to the maximum amount as
will, after giving effect to all other contingent and fixed liabilities of such
Guarantor and after giving effect to any collections from or payments made by or
on behalf of any other Guarantor in respect of the obligations of such other
Guarantor under its Guarantee, result in the obligations of such Guarantor under
the Guarantee not constituting a fraudulent conveyance or fraudulent transfer
under Federal or state law. See "Risk Factors -- Fraudulent Transfer
Considerations."
COLLATERAL
Subject to certain exceptions, the Notes and Guarantees will be secured by
(i) security interests in certain of the equipment, fixtures and general
intangibles, including trademarks, of the Company and its Restricted
Subsidiaries, (ii) mortgages on the Company's Chicago, Illinois manufacturing
and headquarters facility and Bensalem, Pennsylvania warehouse and distribution
facility and (iii) all of the Capital Stock of the future Restricted
Subsidiaries owned by the Company or any Restricted Subsidiary. All of the
assets of the Company and the Guarantors described above are collectively
referred to herein as the
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"Collateral." The Notes will not be secured by any other property including any
of the Company-owned retail locations.
The Company and the Guarantors will enter into security agreements,
mortgages, deeds of trust and certain other collateral assignment agreements
(collectively, the "Collateral Agreements") that will provide for the grant of a
security interest in or pledge of the Collateral to the Trustee, as collateral
agent (in such capacity, the "Collateral Agent"), for the benefit of the holders
of the Notes. Such pledges and security interests will secure the payment and
performance when due of all of the Obligations of the Company and the Guarantors
under the Indenture, the Notes, the Guarantees and the Collateral Agreements.
So long as no Event of Default has occurred and is continuing, and subject
to certain terms and conditions in the Indenture and the Collateral Agreements,
the Company will be entitled to receive all cash dividends, interest and other
payments made upon or with respect to the Capital Stock of any Subsidiary
pledged by it, and to exercise any voting, other consensual rights and other
rights pertaining to such collateral pledged by it. Upon the occurrence and
during the continuance of an Event of Default (i) all rights of the Company to
exercise such voting, other consensual rights or other rights will cease upon
notice from the Collateral Agent, and all such rights will become vested in the
Collateral Agent, which to the extent permitted by law, will have sole right to
exercise such voting, other consensual rights or other rights and (ii) all
rights of the Company to receive all cash dividends, interest and other payments
made upon or with respect to the Collateral will, upon notice from the
Collateral Agent, cease and such cash dividends, interest and other payments
will be paid to the Collateral Agent. All funds distributed under the Collateral
Agreements and received by the Collateral Agent for the benefit of the holders
of the Notes will be retained and/or distributed by the Collateral Agent in
accordance with the provisions of the Indenture.
Under the terms of the Collateral Agreements, the Collateral Agent will
determine the circumstances and manner in which the Collateral will be disposed
of, including, but not limited to, the determination of whether to foreclose on
the Collateral following an Event of Default. Holders of the Notes may not
enforce the Collateral Agreements. Subject to certain limitations, holders of a
majority in principal amount of the then outstanding Notes may direct the
Collateral Agent in its exercise of any trust or power under the Collateral
Agreements. Upon the full and final payment and performance of all Obligations
of the Company under the Indenture and the Notes, the Collateral Agreements will
terminate and the pledged Collateral will be released. In addition, in the event
that the pledged Collateral is sold and the Net Proceeds are or will be applied
in accordance with the terms of the covenant described under "-- Limitation on
Asset Sales," the Collateral Agent will release simultaneously with such sale
the Liens in favor of the Collateral Agent in the assets sold, PROVIDED,
HOWEVER, that the Collateral Agent has received all documentation required by
the Trust Indenture Act therefor.
In the event of a default under the Notes, the proceeds from the sale of the
Collateral may not be sufficient to satisfy the Company's Obligations under the
Notes in full. The amount to be received upon such a sale would be dependent
upon numerous factors including the condition, age and useful life of the
Collateral at the time of such sale, the timing and the manner of the sale, and
whether the Collateral were being sold as part of an ongoing business. In
addition, the book value of the Collateral should not be relied upon as a
measure of realizable value. By its nature, the Collateral will be illiquid and
may have no readily ascertainable market value. Accordingly, there can be no
assurance that the Collateral can be sold in a short period of time. To the
extent that third parties enjoy Permitted Liens, such third parties may have
rights and remedies with respect to the property subject to such Lien that, if
exercised, could adversely affect the value of the Collateral. In addition, the
ability of the Holders to realize upon any of the Collateral may be subject to
certain bankruptcy law limitations in the event of a bankruptcy. See "Risk
Factors -- Collateral; Other Secured Indebtedness" and "-- Certain Bankruptcy
Considerations."
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REPURCHASE UPON CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company will be required to
offer to repurchase all the Notes then outstanding (the "Change of Control
Offer") at a purchase price 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 Payment"). Within 10 days following any Change of Control,
the Company must mail a notice to each holder stating, among other things: (i)
that the Change of Control Offer is being made pursuant to this provision and
that all Notes tendered will be accepted for payment, (ii) the purchase price
and the purchase date, which will be no earlier than 30 days nor later than 40
days from the date such notice is mailed (the "Change of Control Payment Date"),
(iii) that any Note not tendered will continue to accrue interest, (iv) that,
unless the Company defaults in the payment of the Change of Control Payment, all
Notes accepted for payment pursuant to the Change of Control Offer will cease to
accrue interest after the Change of Control Payment Date, (v) that any holder
electing to have Notes purchased pursuant to a Change of Control Offer will be
required to surrender the Notes, with the form entitled "Option of Holder to
Elect Purchase" on the reverse of the Notes completed, to the paying agent with
respect to the Notes (the "Paying Agent") at the address specified in the notice
prior to the close of business on the third business day preceding the Change of
Control Payment Date, (vi) that the holder will be entitled to withdraw such
election if the Paying Agent receives, not later than the close of business on
the second business day preceding the Change of Control Payment Date, a
telegram, telex, facsimile transmission or letter setting forth the name of the
holder, the principal amount of Notes delivered for purchase, and a statement
that such holder is withdrawing his election to have such Notes purchased, and
(vii) that a holder whose Notes are being purchased only in part will be issued
new Notes equal in principal amount to the unpurchased portion of the Notes
surrendered, which unpurchased portion must be equal to $1,000 in principal
amount or an integral multiple thereof. The Company will comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Notes in connection with a
Change of Control. To the extent that the provisions of any securities laws or
regulations conflict with the "Change of Control" provisions of the Indenture,
the Company will comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under the "Change of
Control" provisions of the Indenture by virtue thereof.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (i) accept for payment the Notes or portions thereof tendered pursuant
to the Change of Control Offer, (ii) deposit with the Paying Agent an amount
equal to the Change of Control Payment in respect of all Notes or portions
thereof so tendered, and (iii) deliver or cause to be delivered to the Trustee
the Notes so accepted together with an Officer's Certificate stating that the
Notes or portions thereof tendered to the Company are accepted for payment. The
Paying Agent will promptly mail to each holder of Notes so accepted payment in
an amount equal to the purchase price for such Notes, and the Trustee will
authenticate and mail to each holder a new Note equal in principal amount to any
unpurchased portion of the Notes surrendered, if any, provided, however, that
each such new Note will be in principal amount of $1,000 or an integral multiple
thereof. The Company will announce the result of the Change of Control Offer on
or as soon as practicable after the Change of Control Payment Date.
Except as described above with respect to a Change of Control, the Indenture
does not contain provisions that permit the holders of the Notes to require that
the Company repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar restructuring.
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There can be no assurance that sufficient funds will be available at the
time of any Change of Control Offer to make required repurchases. See "Risk
Factors -- Inability to Purchase Notes Upon a Change of Control." Further, the
New Credit Facility prohibits, and successor financings may prohibit, the
repurchase of any Notes as a result of a Change of Control. The Company will
therefore, upon the occurrence of a Change of Control, either have to obtain the
consent of the lenders under the New Credit Facility, or successor financing, to
such repurchase, or repay or refinance the indebtedness under the New Credit
Facility or successor financing. A failure to secure the lenders' consent or
repay or refinance the indebtedness under the New Credit Facility will result in
a default thereunder and an acceleration of all obligations under the New Credit
Facility. See "Risk Factors -- Restrictive Covenants; Term of New Credit
Facility; Need for Seasonal Financing."
"CHANGE OF CONTROL" means (i) the sale, assignment, lease, transfer or
conveyance (in one transaction or a series of transactions) of all or
substantially all of the Company's assets to any Person or group (as such term
is used in Section 13(d)(3) of the Exchange Act), (ii) the liquidation or
dissolution of the Company or the adoption of a plan by the shareholders of the
Company relating to the dissolution or liquidation of the Company, (iii) the
acquisition by any Person or group (as such term is used in Section 13(d)(3) of
the Exchange Act) (other than the TJC Investors, the TCW Investors or their
respective affiliates) of beneficial ownership, directly or indirectly, of
Voting Stock of the Company or Holdings having the right to elect directors
having a majority of the voting power of the Board of Directors of the Company
or Holdings, respectively, by way of purchase, merger or consolidation or
otherwise, or (iv) any Person or group (as such term is used in Section 13(d)(3)
of the Exchange Act) (other than the TJC Investors, the TCW Investors or their
respective affiliates) exercises the right to elect director(s) having (or
existing directors, acquire the right to have) a majority of the voting power of
the Board of Directors of the Company or Holdings.
CERTAIN COVENANTS
LIMITATION ON RESTRICTED PAYMENTS. The Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly (i) declare
or pay any dividend or make any distribution on account of any Equity Interests
of the Company or any of its Subsidiaries (other than dividends or distributions
payable in Equity Interests (other than Disqualified Stock) of the Company or
dividends or distributions payable to the Company or any Wholly Owned
Subsidiary), (ii) purchase, redeem or otherwise acquire or retire for value any
Equity Interest of the Company or any Subsidiary or other Affiliate of the
Company, (iii) make any principal payment on, or purchase, redeem, defease or
otherwise acquire or retire for value any Indebtedness of the Company or any
Guarantor that is subordinated in right of payment to the Notes or such
Subsidiary's Guarantees thereof, as the case may be, prior to any scheduled
principal payment, sinking fund payment or other payment at the stated maturity
thereof, (iv) make any Restricted Investment or (v) make any other payment to or
on behalf of Holdings (all such payments and other actions set forth in clauses
(i) through (v) above being collectively referred to as "Restricted Payments")
unless, at the time of such Restricted Payment:
(a) no Default or Event of Default has occurred and is continuing or would
occur as a consequence thereof, and
(b) immediately after such Restricted Payment and after giving effect
thereto on a pro forma basis, the Company could incur at least $1.00 of
additional Indebtedness under the Interest Coverage Ratio test set forth
in the covenant described under "-- Limitation on Incurrence of
Indebtedness," and
(c) such Restricted Payment (the value of any such payment, if other than
cash, being determined in good faith by the Board of Directors and
evidenced by a resolution set forth in an Officers' Certificate delivered
to the Trustee), together with the aggregate of all other Restricted
Payments made after the date of the Indenture (including Restricted
Payments permitted by clauses (i) and (ii) of the next following
paragraph and excluding Restricted Payments permitted by the other
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clauses therein), is less than the sum of (w) 50% of the Adjusted
Consolidated Net Income of the Company for the period (taken as one
accounting period) from the beginning of the first quarter commencing
immediately after the Issue Date to the end of the Company's most
recently ended full fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or, if
such Adjusted Consolidated Net Income for such period is a deficit, 100%
of such deficit), plus (x) $2 million, plus (y) 100% of the aggregate net
cash proceeds received by the Company from the issuance or sale, other
than to a Subsidiary, of Equity Interests of the Company (other than
Disqualified Stock) after the date of the Indenture and on or prior to
the time of such Restricted Payment, plus (z) 100% of the aggregate net
cash proceeds received by the Company from the issuance or sale, other
than to a Subsidiary, of any convertible or exchangeable debt security of
the Company that has been converted or exchanged into Equity Interests of
the Company (other than Disqualified Stock) pursuant to the terms thereof
after the date of the Indenture and on or prior to the time of such
Restricted Payment (including any additional net cash proceeds received
by the Company upon such conversion or exchange).
Notwithstanding the foregoing, the Indenture does not prohibit as Restricted
Payments (i) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would not have
been prohibited by the provisions of the Indenture, (ii) the redemption,
purchase, retirement or other acquisition of any Equity Interests of the Company
in exchange for, or out of the proceeds of, the substantially concurrent sale
(other than to a Subsidiary of the Company) of other Equity Interests of the
Company (other than Disqualified Stock), (iii) the redemption, repurchase or
payoff of any Indebtedness with proceeds of any Refinancing Indebtedness
permitted to be incurred pursuant to the provision described under "--
Limitation on Incurrence of Indebtedness," (iv) the payment of dividends to
Holdings for purposes of the repurchase, redemption, retirement or acquisition
of Equity Interests of Holdings from executives, management or employees of the
Company or Holdings pursuant to the Plan as in existence on the Issue Date, (v)
payments by the Company to Holdings under the Tax Sharing and Management
Agreement between Holdings and the Company (see "Certain Transactions -- Tax
Sharing and Management Agreement"), (vi) payments of the Preferred Stock (other
than to pay dividends or redeem shares of preferred stock owned by the TJC
Investors on the Issue Date); PROVIDED, that no such payments will be made with
proceeds from the New Credit Facility, and
(vii) payments in connection with the application of the net proceeds of the
Offering as described under "Use of Proceeds," PROVIDED that with respect to
clauses (i) through (vi) (other than payments with respect to taxes under the
Tax Sharing and Management Agreement), at such time there shall have been no
default in payment when due of interest on the Notes or any default of the types
described in clause (ii) or (iii) of "Events of Default and Remedies."
LIMITATION ON INCURRENCE OF INDEBTEDNESS. The Company will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly, (1)
create, incur, issue, assume, guaranty or otherwise become directly or
indirectly liable, contingently or otherwise, (collectively, "incur"), with
respect to any Indebtedness (including Acquired Debt) or (2) issue any
Disqualified Stock, PROVIDED, HOWEVER, that the Company may incur Indebtedness
or issue shares of Disqualified Stock and a Restricted Subsidiary may incur
Acquired Debt if (x) no Default or Event of Default shall have occurred and be
continuing at the time of, or would occur after giving effect on a PRO FORMA
basis to such incurrence or issuance, (y) the Interest Coverage Ratio for the
Company's most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on which such
additional Indebtedness is incurred or such Disqualified Stock is issued would
have been at least equal to the ratio set forth below opposite the period in
which such incurrence or issuance occurs, determined on a PRO FORMA basis
(including a pro forma application of the net proceeds therefrom), as if the
additional Indebtedness had
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been incurred, or the Disqualified Stock has been issued, as the case may be, at
the beginning of such four-quarter period:
<TABLE>
<CAPTION>
PERIOD ENDING RATIO
- ---------------------------------------------------------------------------- ---------
<S> <C>
February 28, 1999........................................................... 2.00x
Thereafter.................................................................. 2.25x
</TABLE>
and (z) in the case of Indebtedness, (i) the Weighted Average Life to Maturity
of such Indebtedness is greater than the remaining Weighted Average Life to
Maturity of the Notes and (ii) such Indebtedness has a final scheduled maturity
that exceeds the final stated maturity of the Notes.
The foregoing limitations will not prohibit the incurrence of
(a) Indebtedness pursuant to the New Credit Facility and repayment
obligations in respect of letters of credit, PROVIDED, HOWEVER, that the
aggregate principal amount of such Indebtedness so incurred on any date
shall not exceed $25.0 million,
(b) performance bonds, surety bonds, insurance obligations or bonds and
other similar bonds or obligations incurred in the ordinary course of
business,
(c) Hedging Obligations incurred to fix the interest rate on any variable
rate Indebtedness otherwise permitted by the Indenture,
(d) Indebtedness arising out of sale and leaseback transactions, capital
lease obligations or Purchase Money Obligations in an aggregate amount
not to exceed $1.5 million at any one time,
(e) Indebtedness owed by the Company to any Wholly Owned Subsidiary or by
any Wholly Owned Subsidiary to the Company or any other Wholly Owned
Subsidiary,
(f) Indebtedness outstanding on the Issue Date, including the Notes,
(g) other Permitted Indebtedness,
(h) Indebtedness issued in exchange for, or the proceeds of which are
contemporaneously used to extend, refinance, renew, replace, or refund
(collectively, "Refinance") Indebtedness referred to in clauses (a), (d),
(f) and (i) and outstanding Indebtedness incurred pursuant to the debt
incurrence tests set forth in the immediately preceding paragraph (the
"Refinancing Indebtedness"), PROVIDED, HOWEVER, that (1) the principal
amount of such Refinancing Indebtedness does not exceed the principal
amount of Indebtedness so Refinanced, (2) the Refinancing Indebtedness
has a final scheduled maturity that exceeds the final stated maturity,
and a Weighted Average Life to Maturity that is equal to or greater than
the Weighted Average Life to Maturity, of the Indebtedness being
Refinanced and (3) the Refinancing Indebtedness ranks, in right of
payment, no more favorable to the Notes as the Indebtedness being
Refinanced,
(i) additional Indebtedness of the Company in an aggregate principal amount
up to $5.0 million and
(j) additional Indebtedness of the Company in an aggregate principal amount
up to $5.0 million; PROVIDED, that such Indebtedness is subordinated in
right of payment to the Notes and has a final scheduled maturity that
exceeds the final stated maturity, and a Weighted Average Life to
Maturity that is equal to or greater than the Weighted Average Life to
Maturity, of the Notes.
LIMITATION ON ASSET SALES. The Company will not, and will not permit any
Restricted Subsidiary to, make any Asset Sale unless (i) the Company or such
Restricted Subsidiary receives consideration at the time of such Asset Sale at
least equal to the fair market value of the assets subject to such Asset Sale,
(ii) at least 85% of the consideration for such Asset Sale is in the form of
cash, Cash Equivalents or liabilities of the Company or any Restricted
Subsidiary (other than liabilities that are, by their terms, subordinated to the
Notes or any Guarantee thereof) that are assumed by the transferee of such
assets (PROVIDED, that following such Asset Sale there is no further recourse to
the Company and its Restricted Subsidiaries with
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respect to such assets) and (iii) within 12 months of such Asset Sale, the Net
Proceeds thereof are (a) invested in assets related to the business of the
Company or its Restricted Subsidiaries as conducted on the date of the
Indenture, (b) used to permanently reduce any Indebtedness which ranks PARI
PASSU with the Notes (provided in the case of a revolver or similar arrangement
that makes credit available, such commitment is also permanently reduced) or (c)
to the extent not used as provided in clause (a) or (b), applied to make an
offer to purchase Notes as described below (an "Excess Proceeds Offer"),
PROVIDED, HOWEVER, that if the amount of Net Proceeds from any Asset Sale not
invested pursuant to clause (a) or used to repay Indebtedness pursuant to clause
(b) above is less than $2 million, the Company will not be required to make an
offer pursuant to clause (c).
The amount of Net Proceeds not invested or applied as set forth in the
preceding clauses (a) or (b) constitutes "Excess Proceeds." If the Company
elects, or becomes obligated to make an Excess Proceeds Offer, the Company will
offer to purchase Notes having an aggregate principal amount equal to the Excess
Proceeds (the "Purchase Amount"), at a purchase price equal to 100% of the
aggregate principal amount thereof, plus accrued and unpaid interest, if any, to
the purchase date. The Company must commence such Excess Proceeds Offer not
later than 30 days after the expiration of the 12-month period following the
Asset Sale that produced Excess Proceeds. If the aggregate purchase price for
the Notes tendered pursuant to the Excess Proceeds Offer is less than the Excess
Proceeds, the Company and its Restricted Subsidiaries may use the portion of the
Excess Proceeds remaining after payment of such purchase price for general
corporate purposes.
The Indenture provides that the Excess Proceeds Offer will remain open for a
period of 20 business days and no longer, unless a longer period is required by
law (the "Excess Proceeds Offer Period"). Promptly after the termination of the
Excess Proceeds Offer Period (the "Excess Proceeds Payment Date"), the Company
will purchase and mail or deliver payment for the Purchase Amount for the Notes
or portions thereof tendered, PRO RATA or by such other method as may be
required by law, or, if less than the Purchase Amount has been tendered, all
Notes tendered pursuant to the Excess Proceeds Offer. The principal amount of
Notes to be purchased pursuant to an Excess Proceeds Offer may be reduced by the
principal amount of Notes acquired by the Company through purchase or redemption
(other than pursuant to a Change of Control Offer) subsequent to the date of the
Asset Sale and surrendered to the Trustee for cancellation. Any Excess Proceeds
Offer will be conducted in compliance with applicable regulations under the
Federal securities law, including Exchange Act Rule 14e-1. To the extent that
the provisions of any securities laws or regulations conflict with the "Asset
Sale" provisions of the Indenture, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under the "Asset Sale" provisions of the Indenture by virtue
thereof.
There can be no assurance that sufficient funds will be available at the
time of any Excess Proceeds Offer to make required repurchases.
LIMITATION ON LIENS. The Indenture provides that the Company will not, and
will not permit any Restricted Subsidiary to, directly or indirectly, create,
incur, assume or suffer to exist any Lien on any asset (including, without
limitation, all real, tangible or intangible property) of the Company or any
Restricted Subsidiary now owned or hereafter acquired, or on any income or
profits therefrom, or assign, or convey any right to receive income therefrom,
except (i) Liens on (x) accounts receivable and inventory and the proceeds
thereof (and certain rights relating thereto) and (y) real property of the
Company not constituting Collateral under the Indenture securing Indebtedness
permitted to be incurred pursuant to clauses (a) or (i) under "-- Limitation on
Incurrence of Indebtedness" or any Indebtedness used to Refinance such
Indebtedness, (ii) Purchase Money Liens securing Indebtedness incurred pursuant
to clause (d) under "-- Limitation on Incurrence of Indebtedness," and (iii)
Permitted Liens.
LIMITATION ON RESTRICTIONS ON SUBSIDIARY DIVIDENDS. 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 encumbrance or
restriction on the ability of any Restricted Subsidiary (a) to (i) pay dividends
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or make any other distributions to the Company or any of its Restricted
Subsidiaries (A) on such Restricted Subsidiary's Capital Stock or (B) with
respect to any other interest or participation in, or measured by, such
Restricted Subsidiary's profits or (ii) pay any indebtedness owed to the Company
or any of its Subsidiaries, or (b) make loans or advances to the Company or any
of its Restricted Subsidiaries, or (c) transfer any of its assets to the Company
or any of its Restricted Subsidiaries, except for such encumbrances or
restrictions existing under or by reason of (i) the Indenture, the Notes and the
Collateral Agreements, (ii) applicable law, (iii) any Acquired Debt, which
encumbrance or restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person, or the property or assets of the
Person, so acquired, and (iv) permitted Refinancing Indebtedness, provided,
however, that such restrictions contained in any agreement governing such
Refinancing Indebtedness are no more restrictive than those contained in any
agreements governing the Indebtedness being refinanced.
MERGER, CONSOLIDATION OR SALE OF ASSETS. The Company may not consolidate or
merge with or into (whether or not the Company is the surviving corporation), or
sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its properties or assets (determined on a consolidated
basis for the Company and its Restricted Subsidiaries) in one or more related
transactions to, any other Person unless (i) the Company is the surviving Person
or the person formed by or surviving any such consolidation or merger (if other
than the Company) or to which such sale, assignment, transfer, lease, conveyance
or other disposition has been made is a corporation organized and existing under
the laws of the United States, any state thereof or the District of Columbia,
(ii) the Person formed by or surviving any such consolidation or merger (if
other than the Company) or the Person to which such sale, assignment, transfer,
lease, conveyance or other disposition has been made assumes all the obligations
of the Company, pursuant to a supplemental indenture and Collateral Agreements
in a form reasonably satisfactory to the Trustee and the Collateral Agent, under
the Notes, the Indenture, the Collateral Agreements and the Registration Rights
Agreement, (iii) immediately before, and after giving effect on a PRO FORMA
basis to, such transaction, no Default or Event of Default exists or would
occur, and (iv) the Company, or any Person formed by or surviving any such
consolidation or merger, or to which such sale, assignment, transfer, lease,
conveyance or other disposition has been made, (A) has a Consolidated Net Worth
(immediately after the transaction but prior to any purchase accounting
adjustments resulting from the transaction) equal to or greater than the
Consolidated Net Worth of the Company immediately preceding the transaction and
(B) is permitted, at the time of such transaction and after giving pro forma
effect thereto as if such transaction had occurred at the beginning of the
applicable four-quarter period, to incur at least $1.00 of additional
Indebtedness pursuant to the Interest Coverage Ratio test set forth in the
covenant described under "-- Limitation on Incurrence of Indebtedness."
In the event of any transaction (other than a lease) complying with the
conditions listed in the immediately preceding paragraph in which the Company is
not the surviving Person, such surviving Person or transferee 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, the Collateral Agreements and the Registration Rights Agreement.
LIMITATION ON TRANSACTIONS WITH AFFILIATES. The Company will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly, sell,
lease, transfer or otherwise dispose of any of its properties or assets to, or
purchase any property or assets from, or enter into any contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of, any
Affiliate (each of the foregoing, an "Affiliate Transaction"), except for (i)
Affiliate Transactions, which together with all related Affiliate Transactions,
have an aggregate value of not more than $1 million; PROVIDED, that such
transactions are conducted in good faith and on terms that are no less favorable
to the Company or the relevant Restricted Subsidiary than those that would have
been obtained in a comparable transaction at such time on an arm's-length basis
with a Person that is not an Affiliate of the Company or such Restricted
Subsidiary, (ii) Affiliate Transactions, which together with all related
Affiliate Transactions have an aggregate value of not more than $2 million;
PROVIDED, that a majority of the disinterested members of the Board of Directors
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<PAGE>
of the Company determine that such transactions are conducted in good faith and
on terms that are no less favorable to the Company or the relevant Restricted
Subsidiary than those that would have been obtained in a comparable transaction
at such time on an arm's-length basis from a Person that is not an Affiliate of
the Company or such Restricted Subsidiary, and (iii) Affiliate Transactions for
which the Company delivers to the Trustee an opinion as to the fairness to the
Company or such Restricted Subsidiary from a financial point of view issued by
an investment banking firm of national standing; PROVIDED, HOWEVER, that the
following will not be deemed to be Affiliate Transactions: (i) employment or
consulting agreements entered into by the Company or any Restricted Subsidiary
in the ordinary course of business with the approval of the independent members
of the Company's Board of Directors, (ii) transactions between or among the
Company and/or its Wholly Owned Subsidiaries or Guarantors, (iii) transactions
permitted by the provisions of the Indenture described above under "--
Limitations on Restricted Payments," and (iv) reasonable and customary
directors' fees for independent members of the Board of Directors of the
Company.
RESTRICTIONS ON SALE AND ISSUANCE OF SUBSIDIARY STOCK. The Company shall
not sell, and shall not permit any of its Restricted Subsidiaries to issue or
sell, any shares of Capital Stock of any Restricted Subsidiary to any Person
other than the Company or a Wholly Owned Subsidiary of the Company; PROVIDED,
that the Company and its Restricted Subsidiaries may sell all of the Capital
Stock of a Restricted Subsidiary owned by the Company and its Restricted
Subsidiaries if the Net Proceeds from such Asset Sale are used in accordance
with the terms of the covenant described under "-- Limitation on Asset Sales."
LINE OF BUSINESS. The Company will not, and will not permit any Subsidiary
to, directly or indirectly engage in any business other than (a) the business
described in this Prospectus, (b) the manufacture, distribution and retailing of
confectionery items and (c) any business that in the reasonable, good faith
judgment of the Board of Directors of the Company is directly related to such
business.
GUARANTORS. The Indenture provides that so long as any Notes remain
outstanding, any Restricted Subsidiary shall (a) execute and deliver to the
Trustee a supplemental indenture in form reasonably satisfactory to the Trustee
pursuant to which such Restricted Subsidiary shall unconditionally guarantee all
of the Company's obligations under the Notes and the Indenture on the terms set
forth in the Indenture and (b) deliver to the Trustee an opinion of counsel that
such supplemental indenture has been duly authorized, executed and delivered by
such Restricted Subsidiary and constitutes a legal, valid, binding and
enforceable obligation of such Restricted Subsidiary. Thereafter, such
Restricted Subsidiary shall be a Guarantor for all purposes of the Indenture.
If all of the Capital Stock of any Guarantor is sold to a Person (other than
the Company or any of its Restricted Subsidiaries) and the Net Proceeds from
such Asset Sale are used in accordance with the terms of the covenant described
under "-- Limitation on Asset Sales," then such Guarantor will be released and
discharged from all of its obligations under its Guarantee of the Notes and the
Indenture.
REPORTS. Whether or not required by the rules and regulations of the
Commission, so long as any Notes are outstanding, the Company will furnish to
the holders of Notes (i) all quarterly and annual financial information that
would be required to be contained in a filing with the Commission on Forms 10-Q
and 10-K if the Company were required to file such Forms, including for each a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual financial statements only, a report
thereon by the Company's independent auditors and (ii) all reports that would be
required to be filed with the Commission on Form 8-K if the Company were
required to file such reports. From and after the time the Company files a
registration statement with the Commission with respect to the Notes, the
Company will file such information with the Commission, provided the Commission
will accept such filing.
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EVENTS OF DEFAULT AND REMEDIES
Each of the following will constitute an Event of Default under the
Indenture: (i) default for 30 days in the payment when due of interest on the
Notes, (ii) default in payment of principal (or premium, if any) on the Notes
when due at maturity, upon redemption, by acceleration or otherwise, (iii)
default in the performance or breach of the provisions of "-- Merger,
Consolidation or Sale of Assets," and "-- Repurchase Upon Change of Control,"
(iv) failure by the Company or any Guarantor for 30 days after notice to comply
with certain other covenants and agreements in the Indenture, the Notes or the
Collateral Agreements, (v) default under (after giving effect to any applicable
grace periods or any extension of any maturity date) any mortgage, indenture or
instrument under which there may be issued or by which there may be secured or
evidenced any Indebtedness for money borrowed by the Company or any Guarantor
(or the payment of which is guaranteed by the Company or any Guarantor), whether
such Indebtedness or guarantee now exists or is created after the date of the
Indenture, if (a) either (1) such default results from the failure to pay
principal of such Indebtedness or (2) as a result of such default the maturity
of such Indebtedness has been accelerated, and (b) the principal amount of such
Indebtedness, together with the principal amount of any other such Indebtedness
with respect to which such a payment default (after the expiration of any
applicable grace period or any extension of the maturity date) has occurred, or
the maturity of which has been so accelerated, exceeds $5 million in the
aggregate, (vi) failure by the Company or any Guarantor to pay final judgments
(other than any judgment as to which a reputable insurance company has accepted
full liability) aggregating in excess of $7.5 million which judgments are not
stayed within 60 days after their entry, (vii) breach by the Company or any
Guarantor of any material representation or warranty set forth in the Collateral
Agreements, which breach is not cured by the Company or such Guarantor or waived
within 30 days after notice to comply with such breach of a material
representation or warranty, (viii) repudiation by the Company or any of the
Guarantors of their obligations under the Indenture, the Notes, the Collateral
Agreements or the Guarantees or the Company or any Guarantor takes any action
that causes, or asserts, or fails to take any action that it knows, or has been
notified by the Trustee, is necessary to prevent, the unenforceability of the
Indenture, the Notes, the Collateral Agreements or the Guarantees against the
Company or any of the Guarantors or is necessary to maintain the priority and
perfection of the Liens of the Collateral Agreements, and (ix) certain events of
bankruptcy or insolvency with respect to the Company or any of the Guarantors.
If any Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in principal amount of the then outstanding Notes may declare by
written notice all the Notes to be due and payable immediately. Notwithstanding
the foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, all outstanding Notes will become due and payable
without further action or notice. Holders of the Notes may not enforce the
Indenture or the Notes except as provided in the Indenture. Subject to certain
limitations, holders of a majority in principal amount of the then outstanding
Notes may direct the Trustee in its exercise of any trust or power.
The holders of a majority in aggregate principal amount of the Notes then
outstanding, by written notice to the Trustee, may on behalf of the holders of
all of the Notes (i) waive any existing Default or Event of Default and its
consequences under the Indenture except a continuing Default or Event of Default
in the payment of interest on, or the principal of, the Notes or a Default or an
Event of Default with respect to any covenant or provision which cannot be
modified or amended without the consent of the holder of each outstanding Note
affected, and/or (ii) rescind an acceleration and its consequences if the
rescission would not conflict with any judgment or decree if all existing Events
of Default (except nonpayment of principal or interest that has become due
solely because the acceleration) have been cured or waived.
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 and what action the Company is taking or proposes to take with
respect thereto.
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NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
or any Guarantor, as such, will have any liability for any obligations of the
Company under the Notes, the Indenture, the Collateral Agreements or the
Registration Rights Agreement or for any claim based on, in respect of, or by
reason of, such obligations of their creation. Each holder of the Notes by
accepting a Note waives and releases all such liability. The waiver and release
are part of the consideration for issuance of the Notes. Such waiver may not be
effective to waive liabilities under the Federal securities laws and it is the
view of the Commission that such a waiver is against public policy.
DEFEASANCE AND DISCHARGE OF THE INDENTURE AND THE NOTES
The Indenture provides that the Company will be discharged from any and all
obligations in respect of the Notes, other than the obligation to 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 the Indenture upon irrevocable
deposit with the Trustee, in trust, of money and/or U.S. government obligations
that will provide money in an amount sufficient in the opinion of a nationally
recognized accounting firm to pay the principal of and premium, if any, and each
installment of interest, if any, on the due dates thereof on the Notes. Such
trust may only be established if, among other things, (i) the Company has
delivered to the Trustee an opinion of independent counsel to the effect that
the holders of the Notes will not recognize income, gain or loss for Federal
income tax purposes as a result of such deposit and defeasance and will be
subject to federal income tax on the same amount, in the same manner and at the
same times as would have been the case if such deposit and defeasance had not
occurred, (ii) no Event of Default or event that with the passing of time or the
giving of notice, or both, shall constitute an Event of Default shall have
occurred or be continuing, and (iii) certain customary conditions precedent are
satisfied.
The Company may satisfy and discharge its obligations and the Guarantors'
obligations under the Indenture to holders of the Notes by delivering to the
Trustee for cancellation all outstanding Notes or by depositing with the Trustee
or the Paying Agent, if applicable, after the Notes have become due and payable,
cash sufficient to pay at the stated maturity all of the Notes and paying all
other sums payable under the Indenture by the Company.
TRANSFER AND EXCHANGE
A holder may transfer or exchange New Notes in accordance with the
Indenture. The Registrar and the Trustee may require a holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to transfer or exchange
any Note selected for redemption. In addition, the Company is not required to
transfer or exchange any Note for a period of 15 days before a selection of
Notes to be redeemed.
The registered holder of a Note will be treated as the owner of it for all
purposes.
PAYMENTS FOR CONSENT
Neither the Company nor any of its Subsidiaries shall, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any holder of any Notes for or as an inducement
to any consent, waiver or amendment of any of the terms or provisions of the
Indenture or the Notes unless such consideration is offered to be paid or agreed
to be paid to all holders of the Notes that consent, waive or agree to amend in
the time frame set forth in the solicitation documents relating to such consent,
waiver or agreement, which solicitation documents must be mailed to all Holders
of the Notes a reasonable length of time prior to the expiration of the
solicitation.
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AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the two succeeding paragraphs, the Indenture and the
Notes may be amended or supplemented with the consent of the holders of at least
a majority in principal amount of the Notes then outstanding (including consents
obtained in connection with a tender offer or exchange offer for Notes) and any
existing Default or Event of Default or compliance with any provision of the
Indenture, the Notes or the Collateral Agreements may be waived with the consent
of the holders of a majority in principal amount of the then outstanding Notes
(including consents obtained in connection with a tender offer or exchange offer
for Notes).
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting holder of Notes) (i) reduce
the principal amount of Notes whose holders must consent to an amendment,
supplement or waiver, (ii) reduce the principal of, or the premium on, or change
the fixed maturity of any Note or alter the provisions with respect to the
redemption of the Notes or alter the price at which repurchases of the Notes may
be made pursuant to an Excess Proceeds Offer or Change of Control Offer, (iii)
reduce the rate of or change the time for payment of interest on any Note, (iv)
waive a Default or Event of Default in the payment of principal of or premium,
if any, or interest on the Notes, (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 interest on the Notes, (vii) waive a
redemption payment with respect to any Note, (viii) make any change in the
provisions of any of the Guarantees that adversely affects the rights of any
holder of Notes, (ix) adversely affect the contractual ranking of the Notes or
Guarantees, or (x) make any change in the foregoing amendment and waiver
provisions.
Notwithstanding the foregoing, without the consent of the holder of Notes,
the Company and the Trustee may amend or supplement the Indenture or the Notes
to cure any ambiguity, defect or inconsistency, to provide for uncertificated
Notes in addition to or in place of certificated Notes, to provide for the
assumption of the Company's obligations to holders of the Notes or a Guarantor's
obligation under a Guarantee in the case of a merger or consolidation, to make
any change that would provide any additional rights or benefits to the holders
of the Notes or that does not adversely affect the legal rights under the
Indenture of any such holder, or to comply with requirements of the Commission
in order to effect or maintain the qualification of the Indenture under the
Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; provided, however, if it acquires any conflicting interest it must
eliminate such conflict within 90 days, apply to the Commission for permission
to continue or resign.
The holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
occurs (and is not cured), the Trustee will be required, in the exercise of its
power, to use the degree of care of a prudent man in the conduct of his own
affairs. Subject to such provisions, the Trustee will be under no obligation to
exercise any of its rights or powers under the Indenture at the request of any
holder of Notes, unless such holder shall have offered to the Trustee security
and indemnity satisfactory to it against any loss, liability or expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture
without charge by writing to Archibald Candy Corporation, 1137 West Jackson
Boulevard, Chicago, Illinois 60607, Attention: Secretary.
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CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full definition of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"ACQUIRED DEBT" means, with respect to the Company or a Restricted
Subsidiary, Indebtedness of any other Person existing at the time such other
Person merged with or into the Company or a Restricted Subsidiary or became a
Restricted Subsidiary, other than Indebtedness incurred in connection with, or
in contemplation of, such other Person merging with or into the Company or a
Restricted Subsidiary or becoming a Restricted Subsidiary.
"ADJUSTED CONSOLIDATED NET INCOME" means, with respect to any Person for any
period, the Consolidated Net Income of such Person plus amortization (including
amortization of goodwill, deferred costs and other intangibles) of such Person
for such period to the extent such amortization was deducted in computing
Consolidated Net Income.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, will mean
(i) the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; (ii) in the case of a
corporation, beneficial ownership of 10% or more of any class of Capital Stock
of such Person; and (iii) in the case of an individual (A) members of such
Person's immediate family (as defined in Instruction 2 of Item 404(a) of
Regulation S-K under the Securities Act) and (B) trusts, any trustee or
beneficiaries of which are such Person or members of such Person's immediate
family. Notwithstanding the foregoing to the contrary, neither the Initial
Purchasers nor any of their Affiliates will be deemed to be Affiliates of the
Company.
"ASSET SALE" means any direct or indirect (i) sale, assignment, transfer,
lease, conveyance, or other disposition (including, without limitation, by way
of merger or consolidation) (collectively, a "transfer"), other than in the
ordinary course of business, of any assets of the Company or its Restricted
Subsidiaries, or (ii) issuance or sale of any Capital Stock of any Subsidiary
(in each case, other than to the Company or a Wholly Owned Subsidiary).
"CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be so required to be capitalized on the balance sheet in accordance
with GAAP.
"CAPITAL STOCK" means (i) with respect to any Person that is a corporation,
any and all shares, interests, participations, rights or other equivalents
(however designated) of corporate stock, and (ii) with respect to any other
Person, any and all partnership interests, membership interests or other indicia
of ownership of such Person.
"CASH EQUIVALENT" means (i) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof), (ii) time deposits and
certificates of deposit and commercial paper issued by the parent corporation of
any domestic commercial bank of recognized standing having capital and surplus
in excess of $500,000,000 and commercial paper issued by others rated at least
A-2 or the equivalent thereof by Standard & Poor's Corporation or at least P-2
or the equivalent thereof by Moody's Investors Service, Inc. and in each case
maturing within one year after the date of acquisition and (iii) investments in
money market funds substantially all of whose assets comprise securities of the
types described in clauses (i) and (ii) above.
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"CONSOLIDATED EBITDA" means, with respect to any Person (the referent
Person) for any period, consolidated income (loss) from operations of such
Person for such period, determined in accordance with GAAP, plus (to the extent
such amounts are deducted in calculating such income (loss) from operations of
such Person for such period, and without duplication) amortization, depreciation
and other non-cash charges (including, without limitation, amortization of
goodwill, deferred financing fees and other intangibles but excluding (a)
non-cash charges incurred after the date of the Indenture that require an
accrual of or a reserve for cash charges for any future period, except for
accrued and unpaid management fee charges under the Tax Sharing and Management
Agreement and (b) normally recurring accruals such as reserves against accounts
receivable); PROVIDED, HOWEVER that (i) the income from operations of any Person
that is not a Wholly Owned Subsidiary or that is accounted for by the equity
method of accounting will be included only to the extent of the amount of
dividends or distributions paid during such period to the referent Person or a
Wholly Owned Subsidiary of the referent Person, (ii) the income from operations
of any Person acquired in a pooling of interests transaction for any period
prior to the date of such acquisition will be excluded, and (iii) the income
from operations of any Subsidiary will not be included to the extent that
declarations of dividends or similar distributions by that Subsidiary are not at
the time permitted, directly or indirectly, by operation of the terms of its
organization documents or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to that Subsidiary or its
owners.
"CONSOLIDATED INTEREST EXPENSE" means, with respect to any Person for any
period, the consolidated interest expense of such Person for such period,
whether paid or accrued (including amortization of original issue discount,
non-cash interest payment, and the interest component of Capital Lease
Obligations), to the extent such expense was deducted in computing Consolidated
Net Income of such Person for such period.
"CONSOLIDATED NET INCOME" means, with respect to any Person (the [referent]
Person) for any period, the aggregate of the Net Income of such Person and its
consolidated subsidiaries for such period, determined on a consolidated basis in
accordance with GAAP; PROVIDED, HOWEVER that (i) the Net Income of any Person
that is not a Wholly Owned Subsidiary or that is accounted for by the equity
method of accounting will be included only to the extent of the amount of
dividends or distributions paid during such period to the referent Person or a
Wholly Owned Subsidiary of the referent Person, (ii) the Net Income of any
Person acquired in a pooling of interests transaction for any period prior to
the date of such acquisition will be excluded, and (iii) the Net Income of any
Subsidiary will not be included to the extent that declarations of dividends or
similar distributions by that Subsidiary are not at the time permitted, directly
or indirectly, by operation of the terms of its organization documents or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Subsidiary or its owners.
"CONSOLIDATED NET WORTH" means, with respect to any Person, the total
shareholders' equity of such Person determined on a consolidated basis in
accordance with GAAP, adjusted to exclude (to the extent included in calculating
such equity), (a) the amount of any such shareholders' equity attributable to
Disqualified Stock or treasury stock of such Person and its consolidated
subsidiaries, and (b) all upward revaluations and other write-ups in the book
value of any asset of such Person or a consolidated subsidiary of such Person
subsequent to the Issue Date, and (c) all investments in subsidiaries of such
Person that are not Restricted Subsidiaries and in Persons that are not
subsidiaries of such Person.
"DEFAULT" means any event that is, or after notice or the passage of time or
both would be, an Event of Default.
"DISQUALIFIED STOCK" means any Equity Interest that, (i) either by its terms
or the terms of any security into which it is convertible or for which it is
exchangeable or otherwise, is or upon the happening of an event or the passage
of time would be, required to be redeemed or repurchased (in whole or in part)
prior to the final stated maturity of the Notes or is redeemable (in whole or in
part) at the option of the holder
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thereof at any time prior to such final stated maturity or (ii) is convertible
into or exchangeable at the option of the issuer thereof or any other Person for
debt securities or Disqualified Stock.
"EQUITY INTERESTS" means Capital Stock or warrants, options or other rights
to acquire Capital Stock (but excluding any debt security that is convertible
into, or exchangeable for, Capital Stock).
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting profession,
and in the rules and regulations of the Commission, that are in effect on the
Issue Date.
"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" of any Person means (without duplication) (i) all liabilities
and obligations, contingent or otherwise, of such Person (a) in respect of
borrowed money (whether or not the recourse of the lender is to the whole of the
assets of such Person or only to a portion thereof), (b) evidenced by bonds,
debentures, notes or other similar instruments, (c) representing the deferred
purchase price of property or services (other than trade payables on customary
terms incurred in the ordinary course of business which are not more than 90
days past due), (d) created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even
though the rights and remedies of the seller or lender under such agreement in
the event of default are limited to repossession or sale of such property), (e)
as lessee under capitalized leases, (f) under bankers' acceptance and letter of
credit facilities, (g) to purchase, redeem, retire, defease or otherwise acquire
for value any Disqualified Stock, or (h) in respect of Hedging Obligations, (ii)
all liabilities and obligations of others of the type described in clause (i)
that are Guaranteed by such Person, and (iii) all liabilities and obligations of
others of the type described in clause (i) that are secured by (or for which the
holder of such Indebtedness has an existing right, contingent or otherwise, to
be secured by) any Lien on property (including, without limitation, accounts and
contract rights) owned by such Person, even though such Person has not assumed
or become liable for the payment of such Indebtedness, PROVIDED, HOWEVER, that
the amount of such Indebtedness shall (to the extent such Person has not assumed
or become liable for the payment of such Indebtedness) be the lesser of (x) the
fair market value of such property at the time of determination and (y) the
amount of such Indebtedness. The amount of Indebtedness of any Person at any
date shall be the outstanding balance at such date of all unconditional
obligations as described above and the maximum liability, upon the occurrence of
the contingency giving rise to the obligation, of any contingent obligations at
such date.
"INTEREST COVERAGE RATIO" means, for any period, the ratio of (i)
Consolidated EBITDA of the Company for such period, over (ii) Consolidated
Interest Expense of the Company for such period. In calculating Interest
Coverage Ratio for any period, pro forma effect shall be given to: (a) the
incurrence, assumption, guarantee, repayment, repurchase, redemption or
retirement by the Company or any of its Subsidiaries of any Indebtedness
subsequent to the commencement of the period for which the Interest Coverage
Ratio is being calculated, as if the same had occurred at the beginning of the
applicable period; and (b) the occurrence of any Asset Sale during such period
by reducing Consolidated EBITDA for such period by an amount equal to the
Consolidated EBITDA (if positive) directly attributable to the assets sold and
by reducing Consolidated Interest Expense by an amount equal to the Consolidated
Interest Expense directly attributable to any Indebtedness secured by the assets
sold and assumed by third parties or repaid with the proceeds of such Asset
Sale, in each case as if the same had occurred at the beginning of the
applicable period. For purposes of making the computation referred to above,
acquisitions that have been made by the Company or any of its Restricted
Subsidiaries, including all mergers and consolidations, subsequent to the
commencement of such period shall be calculated on a PRO FORMA basis, assuming
that all
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such acquisitions, mergers and consolidations had occurred on the first day of
such period. Without limiting the foregoing, the financial information of the
Company with respect to any portion of a period that falls before the Issue Date
shall be adjusted to give pro forma effect to the issuance of the Notes and the
application of the proceeds therefrom as if they had occurred at the beginning
of such period.
"INVESTMENTS" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of loans,
Guarantees, advances or capital contributions (excluding (i) commission, travel
and similar advances to officers and employees of such Person made in the
ordinary course of business and (ii) bona fide accounts receivable arising from
the sale of goods or services in the ordinary course of business consistent with
past practice), purchases or other acquisitions for consideration of
Indebtedness, Equity Interests or other securities, and any other items that are
or would be classified as investments on a balance sheet prepared in accordance
with GAAP.
"ISSUE DATE" means the date upon which the Notes are first issued.
"LIEN" means any mortgage, lien, pledge, charge, security interest or
encumbrance of any kind, whether or not filed, recorded or otherwise perfected
under applicable law (including any conditional sale or other title retention
agreement, any lease in the nature thereof, any option or other agreement to
sell or give a security interest in and any filing of or agreement to give any
financing statement under the Uniform Commercial Code (or equivalent statutes)
of any jurisdiction).
"NET INCOME" means, with respect to any Person for any period, the net
income (loss) of such Person for such period, determined in accordance with
GAAP, excluding any gain (but not loss), together with any related provision for
taxes on such gain (but not loss), realized in connection with any Asset Sales
and dispositions pursuant to sale and leaseback transactions, and excluding any
extraordinary gain (but not loss), together with any related provision for taxes
on such gain (but not loss).
"NET PROCEEDS" means the aggregate cash proceeds received in respect of any
Asset Sale, net of (i) the reasonable and customary direct out-of-pocket costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees and sales commissions), other than any such costs
payable to an Affiliate of the Company, (ii) amounts required to be applied to
the repayment of Indebtedness secured by a Lien on the asset or assets the
subject of such Asset Sale, (iii) any reserve for adjustment in respect of the
sale price of such asset or assets, (iv) taxes paid or payable as a result
thereof, (v) any relocation expenses and pension, severance and shutdown costs
incurred as a result thereof, and (vi) any deduction or appropriate amounts to
be provided by the Company or any of its Subsidiaries as a reserve in accordance
with GAAP against any liabilities associated with the assets disposed of in such
transaction and retained by the Company or any Subsidiary after such sale or
disposition thereof including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to environmental
matters or against any indemnification obligations with respect to such
transaction.
"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other obligations and liabilities
of the Company or any of the Guarantors under the Indenture, the Notes, the
Guarantees of the Notes or any of the Collateral Agreements.
"OTHER PERMITTED INDEBTEDNESS" means:
(i) Indebtedness in respect of reimbursement-type obligations regarding
workers' compensation claims;
(ii) Indebtedness of the Company and its Restricted Subsidiaries in
connection with performance, surety, statutory, appeal or similar bonds
in the ordinary course of business;
(iii) Indebtedness of the Company and its Restricted Subsidiaries in
connection with agreements providing for indemnification, purchase price
adjustments and similar obligations in connection with the sale or
disposition of any of their business, properties or assets; and
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(iv) The guarantee by the Company or any of its Restricted Subsidiaries of
Indebtedness of the Company or a Restricted Subsidiary of the Company
that was permitted to be incurred by another provision of the covenant
entitled "Limitation on Incurrence of Indebtedness."
"PERMITTED INVESTMENTS" means (a) Investments in the Company or any Wholly
Owned Subsidiary, (b) Investments in Cash Equivalents, (c) Investments in a
Person, if as a result of such Investment (i) such Person becomes a Wholly Owned
Subsidiary and the Capital Stock of such Person is pledged to secure the
Obligations, or (ii) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to, or is
liquidated into, the Company or a Wholly Owned Subsidiary, and (d) other
Investments that do not exceed in the aggregate $7.5 million at any time
outstanding.
"PERMITTED LIENS" means (i) Liens in favor of the Company and/or its
Restricted Subsidiaries other than with respect to intercompany Indebtedness,
(ii) Liens on property of a Person existing at the time such Person is acquired
by, merged into or consolidated with the Company or any Restricted Subsidiary,
PROVIDED, HOWEVER, that such Liens were not created in contemplation of such
acquisition and do not extend to assets other than those subject to such Liens
immediately prior to such acquisition, (iii) Liens on property existing at the
time of acquisition thereof by the Company or any Restricted Subsidiary,
PROVIDED, HOWEVER, that such Liens were not created in contemplation of such
acquisition and do not extend to assets other than those subject to such Liens
immediately prior to such acquisition, (iv) Liens incurred in the ordinary
course of business in respect of Hedging Obligations, (v) Liens to secure
Indebtedness for borrowed money of a Subsidiary in favor of the Company or a
Wholly Owned Subsidiary, (vi) Liens (other than pursuant to ERISA or
environmental laws) to secure the performance of statutory obligations, surety
or appeal bonds, performance bonds or other obligations (exclusive of
obligations constituting Indebtedness) of a like nature incurred in the ordinary
course of business, (vii) Liens existing or created on the Issue Date, (viii)
Liens for taxes, assessments or governmental charges or claims that are not yet
delinquent or that are being contested or remedied in good faith by appropriate
proceedings promptly instituted and diligently concluded, PROVIDED, HOWEVER,
that any reserve or other appropriate provision as may be required in conformity
with GAAP has been made therefor, (ix) Liens arising by reason of any judgment,
decree or order of any court with respect to which the Company or any of its
Restricted Subsidiaries is then in good faith prosecuting an appeal or other
proceedings for review, the existence of which judgment, order or decree is not
an Event of Default under the Indenture, (x) encumbrances consisting of zoning
restrictions, survey exceptions, utility easements, licenses, rights of way,
easements of ingress or egress over property of the Company or any of its
Restricted Subsidiaries, rights or restrictions of record on the use of real
property, minor defects in title, landlord's and lessor's liens under leases on
property located on the premises rented, mechanics' liens, vendors' liens, and
similar encumbrances, rights or restrictions on personal or real property, in
each case not interfering in any material respect with the ordinary conduct of
the business of the Company or any of its Restricted Subsidiaries, (xi) Liens
incidental to the conduct of business or the ownership of properties incurred in
the ordinary course of business in connection with workers' compensation,
unemployment insurance and other types of social security, or to secure the
performance of tenders, bids, and government contracts and leases and subleases,
and (xii) any extension, renewal, or replacement (or successive extensions,
renewals or replacements), in whole or in part, of Liens described in clauses
(i) through (xi) above.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint stock company, limited liability company, trust,
unincorporated organization, government or any agency or political subdivision
thereof, or any other entity.
"PREFERRED STOCK" means amounts sufficient to pay (i) cash dividends and
mandatory redemption payments under the Senior Preferred Stock and the Class A
Preferred Stock and Class B Preferred Stock and (ii) interest payments on
Indebtedness of Holdings, the net proceeds of which are in an amount no greater
than the amount necessary to redeem the Senior Preferred Stock and Class A
Preferred Stock and Class B Preferred Stock and which Indebtedness has no
installment of principal due prior to the first anniversary of the Stated
Maturity of the Notes.
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"PUBLIC EQUITY OFFERING" means a BONA FIDE underwritten public offering of
Qualified Stock of the Company, pursuant to a registration statement filed with
and declared effective by the Commission in accordance with the Securities Act.
"PURCHASE MONEY LIENS" means Liens to secure or securing Purchase Money
Obligations permitted to be incurred under the Indenture.
"PURCHASE MONEY OBLIGATIONS" means Indebtedness representing, or incurred to
finance, the cost (i) of acquiring any assets and (ii) of construction or build-
out of manufacturing, distribution or administrative facilities (including
Purchase Money Obligations of any other Person at the time such other Person is
merged with or into or is otherwise acquired by the Company or any Restricted
Subsidiary), PROVIDED, HOWEVER, that (a) the principal amount of such
Indebtedness does not exceed 100% of such cost, including construction charges,
(b) any Lien securing such Indebtedness does not extend to or cover any other
asset or property other than the asset or property being so acquired and (c)
such Indebtedness is incurred, and any Liens with respect thereto are granted,
within 180 days of the acquisition of such property or asset.
"QUALIFIED STOCK" means, with respect to any Person, Capital Stock of such
Person other than Disqualified Stock.
"RESTRICTED INVESTMENT" means an Investment other than a Permitted
Investment.
"RESTRICTED SUBSIDIARY" means a Subsidiary other than an Unrestricted
Subsidiary.
"SUBSIDIARY" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Voting Stock thereof is at the time owned or controlled,
directly or indirectly, by such Person or one or more of the other subsidiaries
of that Person or a combination thereof and (ii) any partnership in which such
Person or any of its subsidiaries is a general partner.
"SUBSIDIARY" means any subsidiary of the Company.
"UNRESTRICTED SUBSIDIARY" means (a) the Inactive Subsidiaries and (b) any
other Subsidiary that has been designated by the Company (by written notice to
the Trustee as provided below) as an Unrestricted Subsidiary; PROVIDED, that a
Subsidiary may not be designated as an "Unrestricted Subsidiary" unless (i) such
Subsidiary does not own any Capital Stock of, or own or hold any Lien on any
property of, the Company or any Restricted Subsidiary (other than such
Subsidiary), (ii) neither immediately prior thereto nor after giving pro forma
effect to such designation, would there exist a Default or Event of Default,
(iii) immediately after giving effect to such designation on a pro forma basis,
the Company could incur at least $1.00 of Indebtedness pursuant to the Interest
Coverage Ratio test set forth in the covenant described under "-- Limitation on
Incurrence of Indebtedness" and (iv) the creditors of such Subsidiary have no
direct or indirect recourse (including, without limitation, recourse with
respect to the payment of principal or interest on Indebtedness of such
Subsidiary) to the assets of the Company or of a Restricted Subsidiary (other
than such Subsidiary). The Board of Directors of the Company may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary only if (i) no Default or
Event of Default is existing or will occur as a consequence thereof; and (ii)
immediately after giving effect to such designation, on a pro forma basis, the
Company could incur at least $1.00 of Indebtedness pursuant to the Interest
Coverage Ratio test set forth in the covenant described under "-- Limitation on
Incurrence of Indebtedness." Each such designation shall be evidenced by filing
with the Trustee a certified copy of the board resolution giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing conditions. The Company shall be deemed to make an
Investment in each Subsidiary designated as an "Unrestricted Subsidiary"
immediately following such designation in an amount equal to the Investment in
such Subsidiary and its subsidiaries immediately prior to such designation;
provided, that if such Subsidiary is subsequently redesignated as a Restricted
Subsidiary, the amount of such Investment shall be deemed to be reduced (but not
below zero) by the fair market value of the net consolidated assets of such
Subsidiary on the date of such redesignation.
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"VOTING STOCK" means, with respect to any Person, (i) one or more classes of
the Capital Stock of such Person having general voting power 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 Capital Stock of any other class or
classes have or might have voting power by reason of the happening of any
contingency) and (ii) any Capital Stock of such Person convertible or
exchangeable without restriction at the option of the holder thereof into
Capital Stock of such Person described in clause (i) above.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
at any date, the number of years (rounded to the nearest one-twelfth) obtained
by dividing (i) the then outstanding principal amount of such Indebtedness into
(ii) the total of the product obtained by multiplying (x) the amount of each
then remaining installment, sinking fund, serial maturity or other required
payments of principal, including payment at final maturity, in respect thereof,
by (y) the number of years (calculated to the nearest one-twelfth) that will
elapse between such date and the making of such payment.
"WHOLLY OWNED SUBSIDIARY" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares) is owned by the Company
or one or more Wholly Owned Subsidiaries.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth in the next paragraph, the New Notes to be issued as set
forth herein will initially be issued in the form of one or more registered
Global New Notes (the "Global New Notes"), each of which will be deposited on
the date of the acceptance for exchange of Old Notes and the issuance of the New
Notes with, or on behalf of, the Depository and registered in the name of Cede &
Co., as nominee of the Depository (such nominee being referred to herein as the
"Global New Note Holder"). Interests in Global New Notes will be available for
purchase only by QIBs (defined below). The following are summaries of certain
rules and operating procedures of the Depository which affect the Global New
Notes.
New Notes that are (i) originally issued to or transferred to institutional
"accredited investors" who are not QIBs or to any other persons who are not QIBs
(the "Non-Global Purchasers") or (ii) issued as described under "Certificated
New Notes," will be issued in registered form (the "Certificated New Notes").
Upon the transfer to a QIB of Certificated New Notes initially issued to a
Non-Global Purchaser, such Certificated New Notes will, unless the applicable
Global New Note has previously been exchanged for Certificated New Notes, be
exchanged for an interest in the Global New Note representing the principal
amount of New Notes being transferred.
The Depository has advised the Company that it is a limited-purpose trust
company that was created to hold securities for its participating organizations
(collectively, the "Participants" or the "Depository's Participants") and to
facilitate the clearance and settlement of transactions in such securities
between Participants through electronic book-entry changes in accounts of its
Participants. The Depository's Participants include securities brokers and
dealers (including the Initial Purchasers), banks and trust companies, clearing
corporations and certain other organizations. Access to the Depository's system
is also available to other entities such as banks, brokers, dealers and trust
companies (collectively, the "Indirect Participants" or the "Depository's
Indirect Participants") that clear through or maintain a custodial relationship
with a Participant, either directly or indirectly. Persons who are not
Participants may beneficially own securities held by or on behalf of the
Depositary only through the Depository's Participants or the Depository's
Indirect Participants.
The Company expects that pursuant to procedures established by the
Depository (i) upon deposit of the Global New Notes, the Depository will credit
the accounts of Participants designated by the Initial Purchasers with portions
of the Global New Notes and (ii) ownership of the New Notes will be shown on,
and the transfer of ownership thereof will be effected only through, records
maintained by the Depository (with respect to the interests of the Depository's
Participants), the Depository's Participants and the Depository's Indirect
Participants. The laws of some states require that certain persons take physical
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delivery in definitive form of securities that they own. Consequently, the
ability to transfer New Notes will be limited to such extent.
So long as the Global New Note Holder is the registered owner of any New
Notes, the Global New Note Holder will be considered the sole owner of such New
Notes outstanding under the Indenture. Except as provided below, owners of
beneficial interests in a Global New Note will not be entitled to have New Notes
represented by such Global New Note registered in their names, will not receive
or be entitled to receive physical delivery of New Notes in certificated form,
and will not be considered the owners or holders thereof under the Indenture for
any purpose. As a result, the ability of a person having a beneficial interest
in New Notes represented by a Global New Note to pledge such interest to persons
or entities that do not participate in the Depository's system or to otherwise
take actions in respect of such interest, may be affected by the lack of a
physical certificate evidencing such interest. Accordingly, each QIB owning a
beneficial interest in a Global New Note must rely on the procedures of the
Depository and, if such QIB is not a Participant or an Indirect Participant, on
the procedures of the Participant through which such QIB owns its interest, to
exercise any rights of a holder under such Global New Note or the Indenture.
Neither the Company nor the Trustee will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of New Notes by the Depository, or for maintaining, supervising or reviewing any
records of the Depository relating to such New Notes.
Payments in respect of the principal of, premium, if any, and interest on
any New Notes registered in the name of a Global New Note Holder on the
applicable record date will be payable by the Trustee to or at the direction of
such Global New Note Holder in its capacity as the registered holder under the
Indenture. Under the terms of the Indenture, the Company and the Trustee may
treat the persons in whose names the New Notes, including the Global New Notes,
are registered as the owners thereof for the purpose of receiving such payments
and for any and all other purposes whatsoever. Consequently, neither the Company
nor the Trustee has or will have any responsibility or liability for the payment
of such amounts to beneficial owners of New Notes (including principal, premium,
if any, and interest), or to immediately credit the accounts of the relevant
Participants with such payment, in amounts proportionate to their respective
interests in the Global New Notes in principal amount of beneficial interests in
the relevant security as shown on the records of the Depository. Payments by the
Depository's Participants and the Depository's Indirect Participants to the
beneficial owners of New Notes will be governed by standing instructions and
customary practice and will be the responsibility of the Depository's
Participants or the Depository's Indirect Participants.
CERTIFICATED SECURITIES
If (i) the Company notifies the Trustee in writing that the Depository is no
longer willing or able to act as a depository and the Company is unable to
locate a qualified successor within 90 days or (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of New
Notes in definitive form under the Indenture, then, upon surrender by the
relevant Global New Note Holder of its Global New Note, Certificated New Notes
in such form will be issued to each person that such Global New Note Holder and
the Depository identify as the beneficial owner of the related New Notes. In
addition, subject to certain conditions, any person having a beneficial interest
in the Global New Note may, upon request to the Trustee, exchange such
beneficial interest for New Notes in the form of Certificated New Notes. Upon
any such issuance, the Trustee is required to register such Certificated New
Notes in the name of, and cause the same to be delivered to, such person or
persons (or the nominee of any thereof) in fully registered form.
78
<PAGE>
OLD NOTES REGISTRATION RIGHTS; LIQUIDATED DAMAGES
In connection with the sale of the Old Notes, the Company and the Initial
Purchasers entered into the Registration Rights Agreement pursuant to which the
Company agreed, for the benefit of the holders of Old Notes, that it would, at
its cost, (i) within 60 days of the Issue Date file with the Commission an
Exchange Offer Registration Statement; (ii) use its best efforts to cause such
Exchange Offer Registration Statement to become effective under the Securities
Act as promptly or practicable after the filing of the Exchange Offer
Registration Statement, but in no event later than the 120th day after the Issue
Date; (iii) keep the Exchange Offer Registration Statement effective until the
consummation of the Exchange Offer pursuant to its terms and (iv) unless the
Exchange Offer would not be permitted by a policy of the Commission, commence
the Exchange Offer and use its best efforts to issue, on or prior to 45 days
after the date on which the Exchange Offer Registration Statement is declared
effective, New Notes in exchange for all Old Notes tendered prior thereto in the
Exchange Offer. The Company has agreed to keep the Exchange Offer open for not
less than 30 days (or longer if required by applicable law) after the date
notice thereof is mailed to the holders of Old Notes.
If (i) prior to the consummation of the Exchange Offer, either the Company
or the holders of a majority in aggregate principal amount of Notes determines
in its reasonable judgment that (a) the New Notes would not, upon receipt, be
tradeable by the holders thereof without restriction under the Securities Act
and the Exchange Act and without material restrictions under applicable Blue Sky
or state securities laws, or (B) the interests of the holders under the
Registration Rights Agreement, taken as a whole, would be materially adversely
affected by the consummation of the Exchange Offer, (ii) applicable
interpretations of the staff of the Commission would not permit the consummation
of the Exchange Offer within 120 days of the Issue Date, (iii) subsequent to the
consummation of the Private Exchange but within one year of the Issue Date, the
Initial Purchasers so request, (iv) the Exchange Offer is not consummated within
165 days of the Issue Date for any reason or (v) in the case of any holder not
permitted to participate in the Exchange Offer or of any holder participating in
the Exchange Offer that receives New Notes that may not be sold without
restriction under state and federal securities laws (other than due solely to
the status of such holder as an affiliate of the Company within the meaning of
the Securities Act) and, in either case contemplated by clause (v), such holder
notifies the Company within six months of consummation of the Exchange Offer,
then the Company shall promptly deliver to the holders (or in the case of any
occurrence of the event described in clause (v), to any such holder) and the
Trustee notice thereof and shall as promptly as possible thereafter file the
Shelf Registration Statement.
If (a) neither the Exchange Offer Registration Statement nor the Shelf
Registration Statement has been filed with the Commission within 60 days of the
Issue Date; (b) neither the Exchange Offer Registration Statement nor the Shelf
Registration Statement is declared effective by the Commission within 120 days
of the Issue Date; (c) the Company has not exchanged New Notes for Old Notes
validly tendered in accordance with the terms of the Exchange Offer within 45
days after the date on which an Exchange Offer Registration Statement is
declared effective by the Commission; or (d) if a Shelf Registration Statement
is filed and declared effective by the Commission but thereafter ceases to be
effective without being succeeded within 30 days by a subsequent shelf
registration statement filed and declared effective (each of the foregoing a
"Registration Default"), then the Company will pay as liquidated damages
("Liquidated Damages") to each holder of Notes with respect to the first 90-day
period immediately following the occurrence of such Registration Default an
amount equal to $.05 per week per $1,000 principal amount of Notes held by such
holder. Upon a Registration Default, Liquidated Damages will accrue at the rate
specified above until such Registration Default is cured and the amount of
Liquidated Damages will increase by an additional $.05 per week per $1,000
principal amount of Notes with respect to each subsequent week after the first
90-day period until all Registration Defaults have been cured, up to a maximum
amount of Liquidated Damages of $.40 per week per $1,000 principal amount of
Notes. All accrued Liquidated Damages will be paid by the Company by depositing
with the Trustee, in trust, for the benefit of the holders thereof, by 12:00
noon, New York City time, on or before the applicable
79
<PAGE>
semi-annual interest payment date for the Notes, immediately available funds in
sums sufficient to pay the liquidated damages then due. The liquidated damages
amount due shall be payable on each interest payment date to the record holder
of Notes entitled to receive the interest payment to be made on such date as set
forth in the Indenture.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS OF NEW NOTES
The following summary is based on current law and certain proposed
regulations and is for general information only. Forthcoming legislative,
regulatory, judicial or administrative changes or interpretations could affect
the federal income tax consequences to holders of New Notes. The tax treatment
of a holder may vary depending upon whether the holder is a cash-method or
accrual-method taxpayer and upon the holder's particular status. For example,
certain holders, including insurance companies, tax-exempt organizations,
financial institutions, broker-dealers, holders that hold Notes as part of a
straddle, hedge or conversion transaction and foreign persons may be subject to
special rules not discussed below.
EXCHANGE OFFER
The exchange of New Notes for Old Notes pursuant to the Exchange Offer will
not be treated as an "exchange" for federal income tax purposes because the New
Notes will not be considered to differ materially in kind or extent from the Old
Notes. Rather, the New Notes received by a holder will be treated as a
continuation of the Old Notes in the hands of such holder. As a result, there
will be no federal income tax consequences to holders exchanging Old Notes for
New Notes pursuant to the Exchange Offer. The holder must continue to include
stated interest in income as if the exchange had not occurred (including
interest on Old Notes that ceased to accrue from the most recent date that
interest has been paid on the Old Notes to the date of issuance of the New
Notes). If, however, the exchange of Old Notes for New Notes were treated as an
"exchange" for federal income tax purposes, such exchange would constitute a
recapitalization for federal income tax purposes. Holders exchanging Old Notes
pursuant to such a recapitalization would not recognize any gain or loss upon
the exchange.
STATED INTEREST/ORIGINAL ISSUE DISCOUNT
The Company intends to take the position (which generally will be binding on
holders) that the Old Notes were not issued with original issue discount.
Accordingly, holders of Old Notes and New Notes should include stated interest
(subject to the amortization of any amortizable bond premium, as discussed
below) in gross income in accordance with their methods of accounting for
federal income tax purposes. The Company's position is based on the assumptions
made by the Company that an optional redemption of the Old Notes or New Notes
will not occur and that no liquidated damages will be paid pursuant to the
Registration Rights Agreement. The Internal Revenue Service may take a different
position, which could affect the timing and character of income by holders.
Holders should consult their tax advisors as to the possible treatment of
liquidated damages.
AMORTIZABLE BOND PREMIUM
If a holder's purchase price for an Old Note (excluding amounts paid that
are attributable to accrued interest) was greater than the Old Note's face
amount, such holder will be considered to have purchased the New Note exchanged
for such Old Note with "amortizable bond premium" equal in amount to such
80
<PAGE>
excess. A holder of an Old Note that has elected to amortize such amortizable
bond premium (to reduce the amount of stated interest income on the Old Note)
will continue to amortize such premium on the New Note (to reduce the amount of
stated interest income on the New Note) using the same constant yield method and
term as that determined for the Old Note. A holder of a New Note with
amortizable bond premium that did not elect to amortize such premium on the Old
Note may elect to amortize such premium (to reduce the amount of stated interest
income on the New Note), using a constant yield method, over the remaining term
of the New Note (beginning from the first taxable year of the holder for which
the holder makes such election, as described below) with reference to either the
amount payable on maturity or, if it results in a smaller premium attributable
to the period through an earlier call date, with reference to the amount payable
on such earlier call date. An election to amortize bond premium on the New Note
will apply to the New Note, as well as all taxable debt obligations owned by
such holder at the beginning of the holder's taxable year for which the holder
makes the election and thereafter acquired by the holder and may be revoked only
with the consent of the Internal Revenue Service.
The Internal Revenue Service has published proposed regulations concerning
amortizable bond premium, which if made final in their present form could affect
the accrual of amortizable bond premium by holders of Old Notes and New Notes.
Although such proposed regulations, by their terms, will not be effective until
at least 60 days after they are made final, in their present form, if a holder
of an Old Note or New Note elects to amortize bond premium for the taxable year
containing such effective date, the proposed regulations would apply to all the
holder's debt instruments held on or after the first day of that taxable year.
It cannot be predicted at this time whether the proposed regulations will become
effective or what, if any, modifications will be made to them prior to their
becoming effective. Holders of Old Notes and New Notes should consult their tax
advisors concerning the making of an election to amortize bond premium.
SALE OR OTHER DISPOSITION OF NEW NOTES
A holder of a New Note will have a tax basis in the New Note equal to the
holder's purchase price for the Old Note, increased by the amount of interest,
determined in accordance with the rules concerning amortizable bond premium
described above, and market discount that is included in the holder's gross
income and decreased by payments of such interest and market discount received
(in cash) by the holder.
A holder of a New Note will generally recognize gain or loss on the sale,
exchange, redemption or retirement of the New Note equal to the difference (if
any) between the amount realized from such sale, exchange, redemption or
retirement and the holder's basis in the New Note. Such gain or loss will
generally be long-term capital gain (except to the extent attributable to market
discount) or loss if the New Note has been held more than one year (including
the period that such holder held the Old Note prior to exchange).
BACKUP WITHHOLDING
A noncorporate holder of New Notes that either (a) is (i) a citizen or
resident of the United States, (ii) a partnership, corporation or generally
another entity created or organized in or under the laws of the United States or
of any political subdivision thereof, (iii) an estate, the income of which is
subject to United States federal income taxation regardless of its source, or
(iv) generally a trust if (x) a court within the United States is able to
exercise primary supervision over the administration of the trust and (y) one or
more fiduciaries, which are United States persons, have the authority to control
all substantial decisions of the trust or (b) is not described in the preceding
clause (a), but whose income from interest (including amortizable bond premium)
with respect to the New Notes or proceeds from the disposition of the New Notes
is effectively connected with such holder's conduct of the United States trade
or business, and that receives interest with respect to the New Notes or
proceeds from the disposition of the New Notes will generally not be subject to
backup withholding on such payments or distributions if it certifies, under
penalty of perjury, that it has furnished a correct Taxpayer Identification
Number ("TIN") and it is not
81
<PAGE>
subject to backup withholding either because it has not been notified by the
Internal Revenue Service that it is subject to backup withholding or because the
Internal Revenue Service has notified it that it is no longer subject to backup
withholding. Such certification may be made on an Internal Revenue Service Form
W-9 or substantially similar form. However, backup withholding will apply to
such a holder if the holder (i) fails to furnish its TIN, (ii) furnishes an
incorrect TIN, (iii) is notified by the Internal Revenue Service that it has
failed to properly report such payments of interest or dividends or (iv) under
certain circumstances, fails to make such certification.
The Company will withhold (at a rate of 31%) all amounts required by law to
be withheld from reportable payments made with respect to the New Notes. Any
amounts withheld from a payment to a holder under the backup withholding rules
will be allowed as a credit against such holder's United States federal income
tax liability and may entitle such holder to a refund, provided that the
required information is furnished to the Internal Revenue Service.
Holders of the New Notes should consult their tax advisors regarding the
application of backup withholding in their particular situations, the
availability of an exemption therefrom, and the procedure for obtaining such an
exemption, if available.
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS FOR
GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, EACH HOLDER OF NEW
NOTES SHOULD CONSULT ITS OWN TAX ADVISOR AS TO PARTICULAR TAX CONSEQUENCES OF
HOLDING, EXCHANGING OR SELLING THE NEW NOTES INCLUDING THE APPLICATION AND
EFFECT OF ANY FEDERAL, STATE, LOCAL OR FOREIGN TAX LAWS, AND OF ANY CHANGES IN
APPLICABLE TAX LAWS.
PLAN OF DISTRIBUTION
Based on its view of interpretations provided by the staff of the Commission
to third parties in several no-action letters, the Company believes that New
Notes issued pursuant to the Exchange Offer in exchange for the Old Notes may be
offered for resale, resold or otherwise transferred by any holder thereof (other
than any holder which is (i) an Affiliate of the Company, (ii) a broker-dealer
who acquired Old Notes directly from the Company or (iii) a broker-dealer who
acquired Old Notes as a result of market making or other trading activities)
without further compliance with the registration and prospectus delivery
requirements of the Securities Act provided that such New Notes are acquired in
the ordinary course of such holder's business, and such holder is not engaged
in, and does not intend to engage in, and has no arrangement or understanding
with any person to participate in, a distribution of such New Notes; provided
that broker-dealers ("Participating Broker-Dealers") receiving New Notes in the
Exchange Offer will be subject to a prospectus delivery requirement with respect
to resales of such New Notes. However, the Company does not intend to request
the Commission to consider, and the Commission has not considered, the Exchange
Offer in the context of a no-action letter and there can be no assurance that
the staff of the Commission would make a similar determination with respect to
the Exchange Offer as in other circumstances. To date, the staff of the
Commission has taken the position that Participating Broker-Dealers may fulfill
their prospectus delivery requirements with respect to transactions involving an
exchange of securities such as the exchange pursuant to the Exchange Offer
(other than a resale of an unsold allotment from the sale of the Old Notes to
the Initial Purchasers) with the prospectus contained in the Registration
Statement. Pursuant to the Registration Rights Agreement, the Company has agreed
to permit Participating Broker Dealers and other persons, if any, subject to
similar prospectus delivery requirements to use this Prospectus in connection
with the resale of such New Notes. The Company has agreed that, for a period of
180 days after the Exchange Date, it will make this Prospectus, and any
amendment or supplement to this Prospectus, available to any broker-dealer that
requests such documents in the Letter of Transmittal.
82
<PAGE>
Each holder of the Old Notes who wishes to exchange its Old Notes for New
Notes in the Exchange Offer will be required to make certain representations to
the Company as set forth in "The Exchange Offer -- Terms and Conditions of the
Letter of Transmittal." In addition, each holder who is a broker-dealer and who
receives New Notes for its own account in exchange for Old Notes that were
acquired by it as a result of market making activities or other trading
activities, will be required to acknowledge that it will deliver a prospectus in
connection with any resale by it of such New Notes.
The Company 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 at negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer 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 on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
The Company has agreed to pay all expenses incidental to the Exchange Offer
other than commissions and concession of any brokers or dealers and will
indemnify holders of the Notes (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act, as set forth in the
Registration Rights Agreement.
LEGAL MATTERS
The validity of the New Notes will be passed upon for the Company by Winston
& Strawn, Chicago, Illinois.
EXPERTS
The financial statements of Archibald Candy Corporation as of August 26,
1995 and August 31, 1996 and for each of the fiscal years in the three year
period ended August 31, 1996, appearing in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein, and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
83
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
ARCHIBALD CANDY CORPORATION
Report of Independent Auditors............................................................................. F-2
Balance Sheets as of August 26, 1995 and August 31, 1996................................................... F-3
Statements of Operations for the fiscal years ended August 31, 1994, August 26, 1995 and August 31, 1996... F-4
Statements of Changes in Shareholder's Equity (Deficit) for the fiscal years ended August 31, 1994, August
26, 1995 and August 31, 1996............................................................................. F-5
Statements of Cash Flows for the fiscal years ended August 31, 1994, August 26, 1995 and August 31, 1996... F-6
Notes to Financial Statements.............................................................................. F-7
Balance Sheets as of May 25, 1996 and May 31, 1997 (UNAUDITED)............................................. F-15
Statements of Operations and Changes in Accumulated Deficit for the thirty-nine weeks ended May 25, 1996
and May 31, 1997 (UNAUDITED)............................................................................. F-16
Statements of Cash Flows for the thirty-nine weeks ended May 25, 1996 and May 31, 1997 (UNAUDITED)......... F-17
Notes to Financial Statements (UNAUDITED).................................................................. F-18
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Archibald Candy Corporation
We have audited the accompanying balance sheets of Archibald Candy
Corporation as of August 26, 1995 and August 31, 1996 and the related statements
of operations, shareholder's equity (deficit) and cash flows for the fiscal
years ended August 31, 1994, August 26, 1995 and August 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the 1994, 1995 and 1996 financial statements referred to
above present fairly, in all material respects, the financial position of
Archibald Candy Corporation as of August 26, 1995 and August 31, 1996 and the
results of its operations and its cash flows for the fiscal years ended August
31, 1994, August 26, 1995 and August 31, 1996 in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
October 25, 1996
F-2
<PAGE>
ARCHIBALD CANDY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF FANNIE MAY HOLDINGS, INC.)
BALANCE SHEETS
AS OF AUGUST 26, 1995 AND AUGUST 31, 1996
<TABLE>
<CAPTION>
1995 1996
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................... $ 482 $ 380
Accounts receivable, less allowance for doubtful accounts of $15 in 1995 and $126 in
1996.................................................................................. 684 329
Due from affiliate...................................................................... -- 543
Inventories............................................................................. 18,365 18,638
Prepaid expenses and other current assets............................................... 1,287 1,083
---------- ----------
Total current assets...................................................................... 20,818 20,973
Property, plant, and equipment............................................................ 23,543 20,651
Goodwill less accumulated amortization of $4,443 ($3,509 in 1995)......................... 33,827 32,893
Noncompete agreements and other intangibles, less accumulated amortization of $72 ($54 in
1995)................................................................................... 162 145
Deferred financing fees less accumulated amortization of $1,613 ($893 in 1995)............ 2,438 1,701
Other assets.............................................................................. 2,310 2,305
---------- ----------
Total assets.............................................................................. $ 83,098 $ 78,668
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Accounts payable........................................................................ $ 4,073 $ 4,467
Accrued liabilities..................................................................... 5,586 3,846
Accrued management fee.................................................................. 1,137 1,501
Payroll and related liabilities......................................................... 1,550 1,717
Revolving line of credit................................................................ 11,000 9,100
Current portion of long-term debt and capital lease obligations......................... 358 4,063
---------- ----------
Total current liabilities................................................................. 23,704 24,694
Long-term debt and accrued interest, less current portion................................. 72,759 68,872
Capital lease obligations, less current portion........................................... 668 550
Shareholder's equity (deficit):
Common stock, $0.01 par value:
Authorized -- 25,000 shares
Issued and outstanding -- 19,200 shares............................................... -- --
Additional paid-in-capital.............................................................. 18,700 18,700
Accumulated deficit..................................................................... (32,733) (34,148)
---------- ----------
Total shareholder's equity (deficit)...................................................... (14,033) (15,448)
---------- ----------
Total liabilities and shareholder's equity (deficit) $ 83,098 $ 78,668
---------- ----------
---------- ----------
</TABLE>
See accompanying notes.
F-3
<PAGE>
ARCHIBALD CANDY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF FANNIE MAY HOLDINGS, INC.)
STATEMENTS OF OPERATIONS
YEARS ENDED AUGUST 31, 1994, AUGUST 26, 1995 AND AUGUST 31, 1996
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net sales.................................................................... $ 115,732 $ 115,555 $ 117,348
Cost of sales, excluding depreciation........................................ 43,434 40,246 41,010
Selling, general, and administrative expenses, excluding depreciation and
amortization............................................................... 64,454 61,544 61,120
Depreciation and amortization expense........................................ 7,391 6,651 5,135
Amortization of goodwill and other intangibles............................... 5,825 3,348 1,672
Management fees and other fees............................................... 478 476 466
---------- ---------- ----------
Operating income (loss)...................................................... (5,850) 3,290 7,945
Other (income) and expense:
Interest expense........................................................... 8,913 9,237 9,455
Interest and other income and expense...................................... (207) (275) (444)
---------- ---------- ----------
Loss before income taxes and extraordinary item.............................. (14,556) (5,672) (1,066)
Provision (benefit) for income taxes......................................... (358) (68) 349
---------- ---------- ----------
Loss before extraordinary item............................................... (14,198) (5,604) (1,415)
Extraordinary item -- Loss from early extinguishment of debt................. 2,242 -- --
---------- ---------- ----------
Net loss..................................................................... $ (16,440) $ (5,604) $ (1,415)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes.
F-4
<PAGE>
ARCHIBALD CANDY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF FANNIE MAY HOLDINGS, INC.)
STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
------------------- ADDITIONAL TOTAL
NUMBER PAID-IN- ACCUMULATED SHAREHOLDER'S
OF SHARES AMOUNT CAPITAL DEFICIT EQUITY (DEFICIT)
---------- ------- ----------- ------------ -----------------
<S> <C> <C> <C> <C> <C>
Balance at August 31, 1993.......................... 19,200 $ -- $ 18,700 $ (10,427 ) $ 8,273
Net loss............................................ -- -- -- (16,440 ) (16,440 )
Common stock dividends.............................. -- -- -- (262 ) (262 )
---------- ------- ----------- ------------ --------
Balance at August 31, 1994.......................... 19,200 -- 18,700 (27,129 ) (8,429 )
Net loss............................................ -- -- -- (5,604 ) (5,604 )
---------- ------- ----------- ------------ --------
Balance at August 26, 1995.......................... 19,200 -- 18,700 (32,733 ) (14,033 )
Net loss............................................ -- -- -- (1,415 ) (1,415 )
---------- ------- ----------- ------------ --------
Balance at August 31, 1996.......................... 19,200 $ -- $ 18,700 $ (34,148 ) $ (15,448 )
---------- ------- ----------- ------------ --------
---------- ------- ----------- ------------ --------
</TABLE>
See accompanying notes.
F-5
<PAGE>
ARCHIBALD CANDY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF FANNIE MAY HOLDINGS, INC.)
STATEMENTS OF CASH FLOWS
YEARS ENDED AUGUST 31, 1994, AUGUST 26, 1995 AND AUGUST 31, 1996
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss............................................ $ (16,440) $ (5,604) $ (1,415)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization..................... 13,216 9,999 6,807
Net gain on disposal of property, plant, and
equipment....................................... (593) -- (441)
Loss from early extinguishment of debt............ 2,242 -- --
Changes in operating assets and liabilities:
Accounts receivable, net.......................... 400 (382) 355
Due from affiliate................................ -- -- (543)
Inventories....................................... (900) (1,863) (273)
Prepaid expenses and other current assets......... (107) (793) (263)
Other assets...................................... 385 380 5
Accounts payable and accrued liabilities.......... 726 2,814 (115)
---------- ---------- ----------
Net cash provided by (used in) operating
activities........................................ (1,071) 4,551 4,117
INVESTING ACTIVITIES
Purchase of property, plant, and equipment.......... (3,655) (2,325) (2,280)
Proceeds from sale of property, plant, and
equipment......................................... 54 367 1,159
---------- ---------- ----------
Net cash used in investing activities............... (3,601) (1,958) (1,121)
FINANCING ACTIVITIES
Borrowings of long-term debt........................ 38,000 34,200 --
Net increase (decrease) in revolving line of
credit............................................ 500 (2,500) (1,900)
Repayments of long-term debt........................ (30,000) (34,450) (900)
Principal payments of capital lease obligations..... (137) (229) (269)
Finance fees new loan agreement..................... (2,400) (491) (29)
The Jordan Company investment banking fee........... (500) -- --
Dividends paid...................................... (262) -- --
---------- ---------- ----------
Net cash provided by (used in) financing
activities........................................ 5,201 (3,470) (3,098)
---------- ---------- ----------
Net increase (decrease) in cash and cash
equivalents....................................... 529 (877) (102)
Cash and cash equivalents beginning of period....... 830 1,359 482
---------- ---------- ----------
Cash and cash equivalents end of period............. $ 1,359 $ 482 $ 380
---------- ---------- ----------
---------- ---------- ----------
SUPPLEMENTAL SCHEDULE OF NONCASH TRANSACTIONS
Acquisition of equipment under capital lease
agreements........................................ $ 585 $ 272 $ 214
---------- ---------- ----------
---------- ---------- ----------
SUPPLEMENTAL SCHEDULE OF CASH TRANSACTIONS
Interest paid....................................... $ 8,950 $ 6,566 $ 10,631
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes.
F-6
<PAGE>
ARCHIBALD CANDY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF FANNIE MAY HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1996
(DOLLARS IN THOUSANDS)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
The Company is one of the best known and most highly regarded confectioners
in the Midwestern and Eastern United States. The Company is both a manufacturer
and retailer of quality boxed chocolates sold under the popular Fannie May and
Fanny Farmer brand names. Fannie May and Fanny Farmer candies are sold through
more than 1,100 supermarkets, drug stores and gift shops. The Company also
operates mail order, quantity order and wholesale specialty programs.
In 1995, the Company changed its fiscal year end to the last Saturday in
August from the last day in August. As a result of this change 1995 had less
than 52 weeks. The fiscal year ended August 31, 1996 had 53 weeks.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market. Inventories are
valued primarily at either average or first-in, first-out (FIFO) cost.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are recorded at cost. Depreciation and
amortization are determined over the estimated useful lives of the assets using
the straight-line method for both financial reporting and tax purposes. Building
and leasehold improvements at various locations are amortized over a
predetermined life, considering the term of each lease.
INTANGIBLES AND DEFERRED COSTS
Goodwill is amortized on a straight-line basis over a 40-year period.
Deferred financing costs are amortized over the terms of the loans.
INCOME TAXES
Income taxes are accounted for under Financial Accounting Standards Board
(FASB) Statement 109, ACCOUNTING FOR INCOME TAXES. Statement 109 requires the
liability method for financial accounting and reporting for income taxes. Under
this method, a current tax asset or liability is recognized for the estimated
taxes payable or refundable on tax returns for the current year, and deferred
tax assets or liabilities are recognized for the estimated future tax effects
attributable to temporary differences and carryforwards using the enacted rates
and laws that will be in effect when the differences are expected to reverse.
F-7
<PAGE>
ARCHIBALD CANDY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF FANNIE MAY HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1996 (CONTINUED)
(DOLLARS IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
ADVERTISING COSTS
The Company expenses advertising costs as incurred, except for the costs
associated with the development of print advertising which are deferred and
expensed upon first showing. Advertising expense was $3,145, $3,170 and $2,733
for 1994, 1995 and 1996, respectively. At August 26, 1995 and August 31, 1996,
the Company had $483 and $388, respectively, of print advertising costs which
are included in prepaids and other current assets in the accompanying balance
sheets.
3. INVENTORIES
Inventories at August 26, 1995 and August 31, 1996, are comprised of the
following:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Raw materials........................................................... $ 7,935 $ 8,101
Work in process......................................................... 144 168
Finished goods.......................................................... 10,286 10,369
--------- ---------
$ 18,365 $ 18,638
--------- ---------
--------- ---------
</TABLE>
4. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment at August 26, 1995 and August 31, 1996, are
comprised of the following:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Land.................................................................. $ 3,635 $ 3,539
Machinery and equipment............................................... 12,948 13,569
Buildings and improvements............................................ 15,094 15,208
Furniture and fixtures................................................ 2,639 2,323
Leasehold improvements................................................ 10,625 10,704
---------- ----------
44,941 45,343
Less: Accumulated depreciation........................................ (21,398) (24,692)
---------- ----------
$ 23,543 $ 20,651
---------- ----------
---------- ----------
</TABLE>
F-8
<PAGE>
ARCHIBALD CANDY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF FANNIE MAY HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1996 (CONTINUED)
(DOLLARS IN THOUSANDS)
5. BENEFIT PLANS
The Company maintains noncontributory pension plans for substantially all
employees. The Company intends to fund pension costs in amounts not less than
amounts required by the Employee Retirement Income Security Act of 1974.
The net periodic pension cost recognized as expense for the years ended
August 31, 1994, August 26, 1995 and August 31, 1996, consists of the following:
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Service cost........................................................ $ 278 $ 350 $ 350
Interest cost....................................................... 334 366 379
Return on plan assets............................................... (194) (531) (710)
Other............................................................... (275) 123 267
--------- --------- ---------
.................................................................... $ 143 $ 308 $ 286
--------- --------- ---------
--------- --------- ---------
</TABLE>
The following table sets forth the Plans' funded status and amounts
recognized in the Company's consolidated balance sheets at August 26, 1995 and
August 31, 1996:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Actuarial present value of:
Accumulated benefit obligations:
Vested................................................................. $ 3,739 $ 3,630
Nonvested.............................................................. 283 810
--------- ---------
4,022 4,440
Present value of future compensation..................................... 825 384
--------- ---------
4,847 4,824
Assets relating to such benefits:
Market value of funded assets, primarily invested in money market and
equity securities...................................................... 5,929 6,001
--------- ---------
Overfunded projected benefit obligation.................................. 1,082 1,177
Unrecognized gain........................................................ 557 177
--------- ---------
Pension asset recorded as a long-term asset................................ $ 1,639 $ 1,354
--------- ---------
--------- ---------
</TABLE>
The assumptions used in determining the present value of benefits were:
<TABLE>
<CAPTION>
<S> <C>
Discount rate......................................................................... 8.0%
Expected rate of return on assets..................................................... 8.0
Rate of increase in compensation...................................................... 3.0
</TABLE>
The Company also maintains 401(k) and profit sharing trust plans for
substantially all employees. Effective January 1, 1994, the Company amended the
Plan to include the 401(k) deferral option for the
F-9
<PAGE>
ARCHIBALD CANDY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF FANNIE MAY HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1996 (CONTINUED)
(DOLLARS IN THOUSANDS)
5. BENEFIT PLANS (CONTINUED)
employees. The Company allows full-time, regular employees to elect to
participate in the 401(k) portion of the plans upon hire or upon the next entry
date of March 1 or September 1 upon the attainment of age 21. Employees can also
become participants in the profit sharing portion of the plans on March 1 or
September 1 upon the attainment of the age of 21 and the completion of one year
and at least 1,000 hours of service. Employees may contribute 1% to 15% of their
compensation. The Company contributes to the Plans a discretionary amount as
approved by the Board of Directors. In 1994, 1995 and 1996, the total Company
expense related to the Plans was $175, $75 and $75, respectively.
6. LEASES
The Company leases the majority of its retail stores under operating leases.
Rent expense, for the years ended August 31, 1994, August 26, 1995 and August
31, 1996, consisted of the following:
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Fixed minimum................................................. $ 12,323 $ 11,480 $ 8,390
Rent based on percentage of sales............................. 523 563 523
--------- --------- ---------
$ 12,846 $ 12,043 $ 8,913
--------- --------- ---------
--------- --------- ---------
</TABLE>
During 1994 the Company entered into capital leases for several tractors and
trailers. During 1995 and 1996 the Company entered into capital leases for
machinery and equipment.
Future minimum lease payments required under the noncancellable leases
having lease terms in excess of one year at August 31, 1996, are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
----------- -----------
<S> <C> <C>
1997..................................................................... $ 7,589 $ 396
1998..................................................................... 5,788 408
1999..................................................................... 4,412 106
2000..................................................................... 2,907 31
2001..................................................................... 1,604 22
Thereafter............................................................... 2,129 --
----------- -----
24,429 963
Interest................................................................. -- (92)
----------- -----
$ 24,429 $ 871
----------- -----
----------- -----
</TABLE>
F-10
<PAGE>
ARCHIBALD CANDY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF FANNIE MAY HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1996 (CONTINUED)
(DOLLARS IN THOUSANDS)
7. DEBT
Debt at August 26, 1995 and August 31, 1996, is comprised of the following:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Revolving credit agreement.............................................. $ 11,000 $ 9,100
Senior term loan A...................................................... 30,750 29,850
Senior term loan B...................................................... 7,000 7,000
Subordinated notes...................................................... 35,000 35,000
--------- ---------
83,750 80,950
Less: Current portion................................................... 11,100 12,842
--------- ---------
Long-term debt.......................................................... $ 72,650 $ 68,108
--------- ---------
--------- ---------
</TABLE>
On August 12, 1994, the Company and its parent, Fannie May Holdings, Inc.
(Holdings), refinanced its Revolving Credit Facility and its Senior Secured
Notes. As a result of the refinancing, the Company recognized an extraordinary
charge of $2,242 related to deferred financing fees for the original credit
agreements.
On June 28, 1995, the Company amended its revolving credit facility and its
senior secured notes. The new agreement consists of a $30,750 term loan A,
$7,000 term loan B and a $20,000 revolving credit facility. The revolving credit
facility expires on January 31, 2000, and requires a commitment fee of one-half
percent per annum on the unused commitment, payable quarterly. Borrowings under
the line of credit were $9,100 at August 31, 1996, and $11,000 at August 26,
1995. The available borrowings under the revolving credit facility shall be
subject to a borrowing base (defined in the agreement as certain percentages of
accounts receivable and inventories); provided that during the period from May 1
to July 31 the Company may borrow $5,000 in addition to the borrowing base
limit; and from August 1 to December 31 the Company may borrow $13,000 in
addition to the borrowing base limit. The term loan A is to be repaid in eight
installments which commenced on January 31, 1995, and will continue through
January 31, 2000. The term loan will be permanently reduced by the amount of
each installment. On March 31 of each year, mandatory prepayments are made for
an amount equal to the lesser of (A) 50% of the excess cash flow shown in the
projections for such fiscal year and (B) 100% of the excess cash flow for the
two fiscal quarter periods ending in the immediately preceding February. On
September 30 of each year, for the then most recently ended fiscal year, the
borrower shall make a mandatory prepayment in an amount equal to 100% of the
excess cash flow, if positive, for such fiscal year minus the amount paid on the
prior March 31.
Senior term loan B is payable on the earlier of (A) January 2000, or (B) the
date on which the aggregate principal balance of term loans A and B is reduced
to $7,000. Interest accrues on term loan B and is payable when the principal
balance is due. At August 26, 1995 and August 31, 1996, accrued interest on term
loan B was $109 and $764, respectively.
Both facilities bear interest at the bank's base rate plus 2% or the
Eurodollar Rate plus 3.25%. Interest rates may be adjusted downward after August
31, 1996, depending upon the Company's leverage ratio, as defined. At August 31,
1996, debt of $41,450 bears an average interest rate of 9.03% and $4,500 bears
interest at a rate of 10.25%.
F-11
<PAGE>
ARCHIBALD CANDY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF FANNIE MAY HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1996 (CONTINUED)
(DOLLARS IN THOUSANDS)
7. DEBT (CONTINUED)
The credit facility requires a quarterly payment of 0.5% per annum on the
unused portion of the revolving credit facility.
In August 1995, the Company entered into an interest rate swap agreement to
hedge the impact of changes in interest rates on its term loan A. The agreement
converts the interest rate on the term loan to a fixed rate of 9.11%. The
agreement applies to $25,000 of the outstanding principal balance. Net amounts
paid or received on interest rate swap agreements that qualify as hedges are
recognized over the term of the agreement as an adjustment to interest expense.
Realized gains and losses resulting from interest rate swap agreements are
recognized in the period the agreement is terminated. Unrealized gains and
losses from interest rate swap agreements are deferred until realized.
The facilities are secured by substantially all of the Company's assets.
Under certain conditions the agreement requires mandatory prepayments upon the
sale of assets, excess cash flow, or the sale of equity.
The Company has $35,000 of subordinated notes outstanding which mature on
October 31, 2000. The notes bear interest at the rate of 14% per annum from the
date of issuance through maturity. Interest is payable on February 28 and August
31 of each year. The principal amount of the notes are due in equal installments
on February 28, 2000, and October 31, 2000. The notes are redeemable at the
option of the Company for 101% to 107% of the principal amount if redeemed in
whole under certain circumstances, depending on the year of redemption, plus
accrued interest to the date of redemption.
The carrying amount reported on the balance sheet for the subordinated notes
at August 26, 1995 and August 31, 1996, approximates fair value.
The subordinated notes and the credit agreements contain numerous financial
and operating covenants, which include limitations on extraordinary losses,
fixed charge coverage, interest expense coverage and minimum earnings before
interest, taxes, depreciation and amortization requirements (as defined in the
various agreements), as well as management fee limitations.
The future maturities of long term debt outstanding (excluding the $9,100
revolving credit agreement) at August 31, 1996, are as follows:
<TABLE>
<CAPTION>
1997............................................................... $ 3,742
<S> <C>
1998............................................................... 1,750
1999............................................................... 3,000
2000............................................................... 45,858
2001............................................................... 17,500
---------
$ 71,850
---------
---------
</TABLE>
Prepayments in 1997 as a result of projected excess cash flow and assets
sales are anticipated to be $3,242; this amount has been included in the current
portion of long-term debt at August 31, 1996.
F-12
<PAGE>
ARCHIBALD CANDY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF FANNIE MAY HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1996 (CONTINUED)
(DOLLARS IN THOUSANDS)
8. INCOME TAXES
The provision (benefit) for income taxes consists of the following for the
years ended August 31, 1994, August 26, 1995 and August 31, 1996:
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal............................................................. $ -- $ -- $ 133
State............................................................... 235 (68) 216
--------- --- ---------
235 (68) 349
Deferred.............................................................. (593) -- --
--------- --- ---------
$ (358) $ (68) $ 349
--------- --- ---------
--------- --- ---------
</TABLE>
Deferred taxes consist of the following at August 26, 1995 and August 31,
1996:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Assets:
Net operating loss carryforward........................................ $ 8,756 $ 7,207
Other.................................................................. 2,673 3,432
--------- ---------
Total assets............................................................. 11,429 10,639
Liabilities:
Accelerated tax depreciation........................................... 1,245 670
Other.................................................................. 2,691 2,422
--------- ---------
Total liabilities........................................................ 3,936 3,092
--------- ---------
7,493 7,547
Valuation allowance...................................................... (7,493) (7,547)
--------- ---------
$ -- $ --
--------- ---------
--------- ---------
</TABLE>
The Company files a consolidated income tax return with Holdings. The
provision (benefit) for income taxes has been determined as if the Company had
filed a separate income tax return.
Deferred income tax assets consist primarily of net operating loss
carryforwards, the federal benefit related to deferred state tax liability, as
well as temporary differences between book and tax deductibility for certain
items. Deferred tax liabilities consist primarily of the tax effects of excess
book over tax depreciation, deferred state income taxes and tax liabilities
related to fair value adjustments.
The provision (benefit) for income taxes differs from the amount of income
tax expense computed by applying the United States federal income tax rate to
the loss before income taxes and extraordinary item.
F-13
<PAGE>
ARCHIBALD CANDY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF FANNIE MAY HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1996 (CONTINUED)
(DOLLARS IN THOUSANDS)
8. INCOME TAXES (CONTINUED)
A reconciliation of the differences for the years ended August 31, 1994, August
26, 1995 and August 31, 1996, is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Computed statutory tax benefit.................................. $ (4,949) $ (1,928) $ (362)
Increase (decrease) resulting from:
Loss on early extinguishment of debt.......................... (762) -- --
Amortization of goodwill...................................... 292 277 317
Alternative minimum tax....................................... -- -- 133
Valuation allowance........................................... 6,065 1,894 54
Other items, net.............................................. (1,004) (311) 207
--------- --------- ---------
Provision (benefit) for income taxes............................ $ (358) $ (68) $ 349
--------- --------- ---------
--------- --------- ---------
</TABLE>
At August 31, 1996, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $18,480. These carryforwards are
available to reduce future taxable income and expire in varying amounts between
2006 and 2010.
9. RELATED PARTY TRANSACTIONS
The Board of Directors, which is comprised of certain partners and
affiliated persons of The Jordan Company, was paid $63, $60 and $50 for
director's fees for 1994, 1995 and 1996, respectively. A member of the Board of
Directors was paid $52 as a consulting fee during 1994, 1995 and 1996. Two
employees of noteholders are also members of the Board of Directors.
Substantially all of the subordinated notes are held by shareholders of
Holdings, two of which are affiliated with The Jordan Company. In addition,
senior term loan B is held by a shareholder of Holdings, which is affiliated
with The Jordan Company.
Management and consulting fees to The Jordan Company of $1,137 and $1,501
were accrued at August 26, 1995 and August 31, 1996, respectively.
F-14
<PAGE>
ARCHIBALD CANDY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF FANNIE MAY HOLDINGS, INC.)
BALANCE SHEETS
(UNAUDITED)
AS OF MAY 25, 1996 AND MAY 31, 1997
<TABLE>
<CAPTION>
1996 1997
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................... $ 638 $ 2,450
Accounts receivable..................................................................... 687 739
Due from affiliate...................................................................... 269 543
Inventories............................................................................. 13,370 15,655
Prepaid expenses and other current assets............................................... 1,409 1,074
---------- ----------
Total current assets...................................................................... 16,373 20,461
Property, plant, and equipment, net....................................................... 22,185 19,183
Goodwill less accumulated amortization.................................................... 33,127 32,193
Noncompete agreements and other intangibles, less accumulated amortization................ 149 131
Deferred financing fees less accumulated amortization..................................... 1,870 1,219
Other assets.............................................................................. 2,231 2,160
---------- ----------
Total assets.............................................................................. $ 75,935 $ 75,347
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)
Current Liabilities
Accounts payable........................................................................ $ 2,315 $ 2,508
Accrued liabilities..................................................................... 4,421 4,420
Accrued management fee.................................................................. 1,410 1,774
Payroll and related liabilities......................................................... 1,954 2,253
Current portion of long-term debt and capital lease obligations......................... 3,542 5,782
---------- ----------
Total current liabilities................................................................. 13,642 16,737
Long-term debt and accrued interest, less current portion................................. 69,311 64,496
Capital lease obligations, less current portion........................................... 519 206
Shareholder's equity (deficit)
Common stock, $.01 par value
Authorized -- 25,000 shares
Issued and outstanding - 19,200 shares................................................ -- --
Additional paid-in-capital.............................................................. 18,700 18,700
Accumulated deficit..................................................................... (26,237) (24,792)
---------- ----------
Total shareholder's equity (deficit)...................................................... (7,537) (6,092)
---------- ----------
Total liabilities and shareholder's equity (deficit)...................................... $ 75,935 $ 75,347
---------- ----------
---------- ----------
</TABLE>
See accompanying notes.
F-15
<PAGE>
ARCHIBALD CANDY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF FANNIE MAY HOLDINGS, INC.)
STATEMENTS OF OPERATIONS AND CHANGES IN ACCUMULATED DEFICIT
(UNAUDITED)
THIRTY-NINE WEEKS ENDED MAY 25, 1996 AND MAY 31, 1997
<TABLE>
<CAPTION>
1996 1997
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Net sales................................................................................. $ 102,375 $ 106,977
Cost of sales, excluding depreciation..................................................... 35,692 36,741
Selling, general and administrative expenses, excluding depreciation and amortization..... 47,903 49,058
Depreciation and amortization expense..................................................... 3,640 3,465
Amortization of goodwill and other intangibles............................................ 1,269 1,207
Management fees and other fees............................................................ 358 351
---------- ----------
Operating income.......................................................................... 13,513 16,155
Other (income) and expense:
Interest expense........................................................................ 7,023 6,697
Interest and other income and expense................................................... (91) (206)
---------- ----------
Income before income taxes................................................................ 6,581 9,664
Provision for income taxes................................................................ 85 308
---------- ----------
Net income................................................................................ 6,496 9,356
Accumulated deficit at beginning of period................................................ (32,733) (34,148)
---------- ----------
Accumulated deficit at end of period...................................................... $ (26,237) $ (24,792)
---------- ----------
---------- ----------
</TABLE>
See accompanying notes.
F-16
<PAGE>
ARCHIBALD CANDY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF FANNIE MAY HOLDINGS, INC.)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
THIRTY-NINE WEEKS ENDED MAY 25, 1996 AND MAY 31, 1997
<TABLE>
<CAPTION>
1996 1997
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net income................................................................................ $ 6,496 $ 9,356
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization........................................................... 4,909 4,672
Changes in operating assets and liabilities:
Accounts receivable, net................................................................ (3) (410)
Inventories............................................................................. 4,995 2,983
Prepaid expenses and other current assets............................................... (416) (341)
Other assets............................................................................ 79 145
Accounts payable and accrued liabilities................................................ (1,979) (89)
---------- ----------
Net cash provided by operating activities................................................. 14,081 16,316
INVESTING ACTIVITIES
Purchase of property, plant and equipment................................................. (1,902) (1,646)
FINANCING ACTIVITIES
Net decrease in revolving line of credit.................................................. (11,000) (9,100)
Repayments of long-term debt.............................................................. (891) (3,218)
Principal payments of capital lease obligations........................................... (100) (270)
Finance fees new loan agreement........................................................... (32) (12)
---------- ----------
Net cash used in financing activities..................................................... (12,023) (12,600)
---------- ----------
Net increase in cash equivalents.......................................................... 156 2,070
Cash and cash equivalents beginning of the period......................................... 482 380
---------- ----------
Cash and cash equivalents end of period................................................... $ 638 $ 2,450
---------- ----------
---------- ----------
SUPPLEMENTAL SCHEDULE OF NONCASH TRANSACTIONS
Acquisition of equipment under capital lease agreements................................... $ 91 $ --
---------- ----------
---------- ----------
SUPPLEMENTAL SCHEDULE OF CASH TRANSACTIONS
Interest paid............................................................................. $ 7,660 $ 5,457
---------- ----------
---------- ----------
</TABLE>
See accompanying notes.
F-17
<PAGE>
ARCHIBALD CANDY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF FANNIE MAY HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
MAY 31, 1997
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION
The unaudited financial statements have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in annual financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes these disclosures are adequate to make the information
presented not misleading. In the opinion of management, all adjustments
necessary for a fair presentation for the periods presented have been reflected
and are of a normal recurring nature. These financial statements should be read
in conjunction with the financial statements and the notes thereto for the year
ended August 31, 1996.
Results of operations for the period from September 1, 1996 to May 31, 1997
are not necessarily indicative of the results that may be achieved for the
entire year ending August 30, 1997.
2. INVENTORIES
Inventories at May 25, 1996 and May 31, 1997 are comprised of the following:
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Raw materials........................................................... $ 7,147 $ 7,147
Work in process......................................................... 159 242
Finished goods.......................................................... 6,064 8,266
--------- ---------
$ 13,370 $ 15,655
--------- ---------
--------- ---------
</TABLE>
3. DEBT
Debt at May 25, 1996 and May 31, 1997 is comprised of the following:
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Senior term loan A...................................................... $ 29,950 $ 26,632
Senior term loan B...................................................... 7,000 7,000
Subordinated notes...................................................... 35,000 35,000
--------- ---------
71,950 68,632
Less: Current portion................................................... 3,235 5,387
--------- ---------
Long-term debt.......................................................... $ 68,715 $ 63,245
--------- ---------
--------- ---------
</TABLE>
F-18
<PAGE>
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE EXCHANGE OFFER MADE BY
THIS PROSPECTUS TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT
CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, THE NEW NOTES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM,
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN
THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... iii
Prospectus Summary........................................................ 1
Risk Factors.............................................................. 9
Use of Proceeds........................................................... 17
The Exchange Offer........................................................ 18
Capitalization............................................................ 27
Selected Historical Financial Data........................................ 28
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 30
Business.................................................................. 36
Management................................................................ 44
Capitalization of Holdings................................................ 49
Principal Stockholders.................................................... 53
Certain Transactions...................................................... 55
Description of New Credit Facility........................................ 57
Description of New Notes.................................................. 58
Old Notes Registration Rights;
Liquidated Damages...................................................... 79
Certain United States Federal Income Tax Consequences..................... 80
Plan of Distribution...................................................... 82
Legal Matters............................................................. 83
Experts................................................................... 83
Index to Financial Statements............................................. F-1
</TABLE>
OFFER TO EXCHANGE $1,000
PRINCIPAL AMOUNT OF ITS
10 1/4% SENIOR SECURED NOTES
DUE 2004 WHICH
HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT
FOR EACH $1,000 PRINCIPAL
AMOUNT OF ITS OUTSTANDING
10 1/4 SENIOR SECURED NOTES
DUE 2004
---------------------------
PROSPECTUS
---------------------------
, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all fees and expenses payable by the
Registrant in connection with the exchange offer described in this Registration
Statement. All amounts shown are estimates, except the SEC registration fee.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee............... $ 30,304
Printing and Engraving Expenses................................... 70,000
Legal Fees and Expenses........................................... 125,000
Accounting Fees and Expenses...................................... 70,000
Exchange Agent Fees and Expenses.................................. 6,000
Miscellaneous..................................................... 10,000
---------
$ 311,304
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Certain provisions of the Illinois Business Corporation Act of 1983, as
amended, provide that Archibald Candy Corporation ("the Registrant") may, and in
some circumstances must, indemnify the directors and officers of the Registrant
and of each subsidiary company against liabilities and expenses incurred by such
person by reason of the fact that such person was serving in such capacity,
subject to certain limitations and conditions set forth in the statute.
The By-laws of the Registrant generally provide that the Registrant shall
indemnify its officers and directors if such person acted in good faith and in a
manner reasonably believed to be in, or not opposed to, the best interests of
the Registrant, and, with respect to any criminal action or proceeding, if such
person had no reasonable cause to believe his or her conduct was unlawful.
Indemnification shall be provided only upon a determination that such
indemnification is proper in the circumstances because the person has met the
applicable standard of conduct. Such determination shall be made (a) by the
Registrant's Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding, or (b) if
such a quorum is not obtainable, or, even if attainable, a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or (c) by the Registrant's shareholders, or any successor provisions.
Expenses may be advanced to the indemnified party upon receipt of an undertaking
by, or on behalf of, such person to repay such amounts if it is ultimately
determined that he or she is not entitled to be indemnified by the Registrant.
Simultaneously with the consummation of the Offering, the Registrant entered
into a separate indemnification agreement with each of its directors and
officers. These indemnification agreements provide that the Registrant will
indemnify its directors and officers against certain liabilities (including
settlements) and expenses actually and reasonably incurred by them in connection
with any threatened or pending legal action, proceeding or investigation (other
than actions brought by or in the right of the Registrant) to which any of them
is, or is threatened to be, made a party by reason of their status as a
director, officer or agent of the Registrant, or serving at the request of the
Registrant in any other capacity for or on behalf of the Registrant; provided
that (i) such director or officer acted in good faith and in a manner not
opposed to the best interest of the Registrant, (ii) with respect to any
criminal proceedings, such director or officer had no reasonable cause to
believe his or her conduct was unlawful, (iii) such director or officer is not
finally adjudged to be liable for negligence or misconduct in the performance of
his or her duty to the Registrant, unless the court views in light of the
circumstances the director or officer is nevertheless entitled to
indemnification and (iv) the indemnification does not relate to any liability
arising under Section 16(b) of the Exchange Act or the rules or regulations
promulgated thereunder. With
II-1
<PAGE>
respect to any action brought by or in the right of the Registrant, directors
and officers may also be indemnified, to the extent not prohibited by applicable
laws or as determined by a court of competent jurisdiction, against costs and
expenses actually and reasonably incurred by them in connection with such action
if they acted in good faith and in the best interest of the Registrant.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On July 2, 1997, the Registrant issued and sold to Jefferies & Company, Inc.
and First Chicago Capital Markets, Inc. (together, the "Initial Purchasers")
$100 million aggregate principal amount of 10 1/4% Senior Secured Notes due 2004
(sold with a 3% discount to the Initial Purchasers). This sale to the Initial
Purchasers was exempt from the registration requirements of the Securities Act
in reliance on Section 4(2) of the Securities Act and Rule 144A promulgated
under the Securities Act on the basis that such sale did not involve a public
offering. In accordance with the agreement pursuant to which the Initial
Purchasers purchased the Notes, the Initial Purchasers agreed to offer and sell
the Notes only to "qualified institutional buyers" (as defined in Rule 144A
under the Securities Act) or a limited number of institutional "accredited
investors" (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under
the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ----------- ---------------------------------------------------------------------------------------------------
<S> <C>
3.1 Amended and Restated Articles of Incorporation of the Company
3.2 Amended and Restated By-Laws of the Company
4.1 Form of the Old Notes
4.2 Form of the New Notes
4.3 Purchase Agreement dated as of June 27, 1997 between the Company and the Initial Purchasers
4.4 Indenture dated as of July 2, 1997 between the Company and the Trustee
4.5 Registration Rights Agreement dated as of July 2, 1997 between the Company and the Initial
Purchasers
4.6 Pledge and Security Agreement dated as of July 2, 1997 between the Company and the Trustee
4.7 Intellectual Property Security Agreement dated as of July 2, 1997 between the Company and the
Trustee
4.8 Mortgage, Security Agreement, Assignment of Leases and Rents, Fixture Filing and Financing
Statement dated July 2, 1997 relating to the Company's Chicago, Illinois manufacturing and
headquarters facility
4.9 Open-End Mortgage, Security Agreement, Assignment of Leases and Rents, Fixture Filing and Financing
Statement dated July 2, 1997 relating to the Company's Bensalem, Pennsylvania warehouse and
distribution facility
4.10 Amended and Restated Credit Agreement dated as of July 2, 1997 among the Company, the lenders
signatory thereto and The First National Bank of Chicago, as Agent
4.11 Amended and Restated Security Agreement dated as of July 2, 1997 between the Company and The First
National Bank of Chicago, as Agent
4.12 Form of SAR Agreements
4.13 Lease dated April 17, 1997 between Chicago Midway Joint Venture, as landlord, and the Company, as
tenant, relating to the Company's Chicago, Illinois warehouse and distribution facility
5.1 Opinion of Winston & Strawn
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ----------- ---------------------------------------------------------------------------------------------------
<S> <C>
10.1 Indemnification Agreements dated as of July 2, 1997 between the Company and each of its directors
and executive officers
10.2 Securities Purchase Agreement dated as of October 30, 1991 among Holdings, the Company and the
Purchasers (as defined therein), together with First Amendment thereto dated as of September 18,
1992, Second Amendment thereto dated as of August 12, 1994 and Third Amendment thereto dated as of
July 2, 1997
10.3 Shareholders Agreement dated as of October 30, 1991 among the holders of the Company's common
stock, together with First Amendment thereto dated as of July 2, 1997
10.4 Tax Sharing and Management Consulting Agreement dated as of July 2, 1997 between the Company and
Holdings
10.5 Management Consulting Agreement by and between Holdings and TJC Management Corp. dated as of July
2, 1997
12.1 Statements re: Computation of Earnings to Fixed Charges
21.1 Subsidiaries of the Company
23.1 Consent of Ernst & Young LLP
23.2 Consent of Winston & Strawn (contained in its opinion filed as Exhibit 5.1 hereto)
24.1 Power of Attorney (contained in the signature page hereto)
25.1 Statement of Eligibility and Qualification on Form T-1 under the Trust Indenture Act of 1939 of The
Bank of New York, as trustee under the Indenture
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
99.3 Form of Letter to Securities Dealers, Commercial Banks, Trust Companies and Other Nominees
99.4 Form of Letter to Clients
99.5 Guidelines for Certification of Taxpayer Identification Number on Form W-9
</TABLE>
ITEM 17. UNDERTAKINGS.
(a) The undersigned 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
this 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 that contains a
form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-3
<PAGE>
(b) Insofar as indemnification of liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Chicago, State of
Illinois, on August 15, 1997.
<TABLE>
<S> <C> <C>
ARCHIBALD CANDY CORPORATION
By: /s/ TED A. SHEPHERD
-----------------------------------------
Ted A. Shepherd
PRESIDENT AND CHIEF OPERATING OFFICER
</TABLE>
POWER OF ATTORNEY
The undersigned directors and officers of Archibald Candy Corporation do
hereby constitute and appoint Ted A. Shepherd and Donna M. Snopek, and each of
them, with full power of substitution and resubstitution, our true and lawful
attorneys-in-fact and agents to do any and all acts and things in our name and
on our behalf in our capacities as directors and officers, and to execute and
file any and all instruments for us and in our names in the capacities indicated
below, which such person may deem necessary or advisable to enable Archibald
Candy Corporation to comply with the Securities Act of 1933, as amended (the
"Act"), and any rules, regulations and requirements of the Securities and
Exchange Commission, in connection with this Registration Statement, including
specifically, but not limited to, full power and authority to sign for us, or
any of us, in the capacities indicated below any and all amendments (including
pre-effective and post-effective amendments or any other registration statement
filed pursuant to the provisions of Rule 462(b) under the Act) hereto; and we do
hereby ratify and confirm all that such person or persons shall do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Act, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ------------------------------------- ------------------
<C> <S> <C>
/s/ THOMAS H. QUINN
------------------------------------------- Chairman of the Board and Chief August 15, 1997
Thomas H. Quinn Executive Officer
/s/ TED A. SHEPHERD
------------------------------------------- President and Chief Operating Officer August 15, 1997
Ted A. Shepherd (Principal Executive Officer)
/s/ DONNA M. SNOPEK Vice President--Finance and
------------------------------------------- Accounting (Principal Financial and August 15, 1997
Donna M. Snopek Accounting Officer)
/s/ JOHN W. JORDAN II
------------------------------------------- Director August 15, 1997
John W. Jordan II
/s/ ADAM E. MAX
------------------------------------------- Director August 15, 1997
Adam E. Max
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ------------------------------------- ------------------
<C> <S> <C>
/s/ ROBERT A. SCHMITZ
------------------------------------------- Director August 13, 1997
Robert A. Schmitz
/s/ JEFFREY ROSEN
------------------------------------------- Director August 12, 1997
Jeffrey Rosen
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ----------- ---------------------------------------------------------------------------------------------------
<S> <C>
3.1 Amended and Restated Articles of Incorporation of the Company
3.2 Amended and Restated By-Laws of the Company
4.1 Form of the Old Notes
4.2 Form of the New Notes
4.3 Purchase Agreement dated as of June 27, 1997 between the Company and the Initial Purchasers
4.4 Indenture dated as of July 2, 1997 between the Company and the Trustee
4.5 Registration Rights Agreement dated as of July 2, 1997 between the Company and the Initial
Purchasers
4.6 Pledge and Security Agreement dated as of July 2, 1997 between the Company and the Trustee
4.7 Intellectual Property Security Agreement dated as of July 2, 1997 between the Company and the
Trustee
4.8 Mortgage, Security Agreement, Assignment of Leases and Rents, Fixture Filing and Financing
Statement dated July 2, 1997 relating to the Company's Chicago, Illinois manufacturing and
headquarters facility
4.9 Open-End Mortgage, Security Agreement, Assignment of Leases and Rents, Fixture Filing and Financing
Statement dated July 2, 1997 relating to the Company's Bensalem, Pennsylvania warehouse and
distribution facility
4.10 Amended and Restated Credit Agreement dated as of July 2, 1997 among the Company, the lenders
signatory thereto and The First National Bank of Chicago, as Agent
4.11 Amended and Restated Security Agreement dated as of July 2, 1997 between the Company and The First
National Bank of Chicago, as Agent
4.12 Form of SAR Agreements
4.13 Lease dated April 17, 1997 between Chicago Midway Joint Venture, as landlord, and the Company, as
tenant, relating to the Company's Chicago, Illinois warehouse and distribution facility
5.1 Opinion of Winston & Strawn
10.1 Indemnification Agreements dated as of July 2, 1997 between the Company and each of its directors
and executive officers
10.2 Securities Purchase Agreement dated as of October 30, 1991 among Holdings, the Company and the
Purchasers (as defined therein), together with First Amendment thereto dated as of September 18,
1992, Second Amendment thereto dated as of August 12, 1994 and Third Amendment thereto dated as of
July 2, 1997
10.3 Shareholders Agreement dated as of October 30, 1991 among the holders of the Company's common
stock, together with First Amendment thereto dated as of July 2, 1997
10.4 Tax Sharing and Management Consulting Agreement dated as of July 2, 1997 between the Company and
Holdings
10.5 Management Consulting Agreement by and between Holdings and TJC Management Corp. dated as of July
2, 1997
12.1 Statements re: Computation of Earnings to Fixed Charges
21.1 Subsidiaries of the Company
23.1 Consent of Ernst & Young LLP
23.2 Consent of Winston & Strawn (contained in its opinion filed as Exhibit 5.1 hereto)
24.1 Power of Attorney (contained in the signature page hereto)
25.1 Statement of Eligibility and Qualification on Form T-1 under the Trust Indenture Act of 1939 of The
Bank of New York, as trustee under the Indenture
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
99.3 Form of Letter to Securities Dealers, Commercial Banks, Trust Companies and Other Nominees
99.4 Form of Letter to Clients
99.5 Guidelines for Certification of Taxpayer Identification Number on Form W-9
</TABLE>
<PAGE>
ARCHIBALD CANDY CORPORATION
AMENDED AND RESTATED ARTICLES OF INCORPORATION
The text of the Amended and Restated Articles of Incorporation is as
follows:
RESTATED ARTICLE 1. The name of the corporation is ARCHIBALD CANDY
CORPORATION.
The corporation was incorporated on May 31, 1922 under the name Archibald
Candy Corporation.
RESTATED ARTICLE 2. The purpose or purposes for which the corporation is
organized are:
(a) to manufacture, produce, buy, sell and deal in, at wholesale,
candies and confectionery, confectionery novelties and
confectionery supplies, and the ingredients and by-products
thereof, to manufacture and produce, buy, sell and deal in, at
wholesale, any and all equipment used in or appertaining to the
manufacture and production of candies and confectionery,
confectionery novelties and supplies, and the ingredients and by-
products thereof; and
(b) to engage in any lawful act or activity for which a corporation
may be incorporated under the Illinois Business Corporation Act
of 1983, as amended.
RESTATED ARTICLE 3. The duration of the corporation is perpetual.
AMENDED AND RESTATED ARTICLE 4. The total number of shares which the
corporation shall have authority to issue is Twenty-Five Thousand (25,000)
shares of common stock with a par value of $0.01 per share. Cumulative voting
is eliminated. The provisions of the Illinois Business Corporation Act of 1983,
as amended, that require for approval of corporate action a two-thirds vote of
the shareholders are hereby superseded and there shall be required in lieu
thereof a majority of the outstanding shares entitled to vote on the matter and
a majority of the outstanding shares of each class of shares entitled to vote as
a class on the matter.
The address of the registered office and the name of the registered agent
on the date of filing the restated articles are:
John E. Hughes
1137 West Jackson Boulevard
Chicago, Illinois 60607
Cook County, Illinois
The number of shares issued on the date of filing this Amended and Restated
Articles of Incorporation is 4,210 common shares, par value $0.01 per share, and
the amount of paid-in capital as of such date is $3,004,182.00.
<PAGE>
AMENDED AND RESTATED BY-LAWS
OF
ARCHIBALD CANDY CORPORATION
ARTICLE I
OFFICES
The corporation shall continuously maintain in the State of Illinois a
registered office and a registered agent whose business office is identical
with such registered office, and may have other offices within or without the
state.
ARTICLE II
SHAREHOLDERS
SECTION 1. ANNUAL MEETING. An annual meeting of the shareholders shall
be held on the fourth Tuesday in December of each year, or at such time as
the board of directors may designate for the purpose of electing directors
and for the transaction of such other business as may come before the
meeting. If the day fixed for the annual meeting shall be a legal holiday,
such meeting shall be held on the next succeeding business day.
SECTION 2. SPECIAL MEETINGS. Special meetings of the shareholders may
be called either by the president, by the board of directors or by the
holders of not less than one-fifth of all the outstanding shares of the
corporation entitled to vote, for the purpose or purposes stated in the call
of the meeting.
SECTION 3. PLACE OF MEETING. The board of directors may designate any
place as the place of meeting for any annual meeting or for any special
meeting called by the board of directors. If no designation is made, or if a
special meeting be otherwise called, the place of meeting shall be at the
offices of the corporation.
SECTION 4. NOTICE OF MEETINGS. Written notice stating 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, shall be delivered not
less than 10 nor more than 60 days before the date of the meeting, or in the
case of a merger, consolidation, share exchange, dissolution or sale, lease
or exchange of assets not less than 20 nor more than 60 days before the date
of the meeting, either personally or by mail, by or at the direction of the
president, or the secretary, or the officer or persons calling the meeting,
to each shareholder of record entitled to vote at such meeting. If mailed,
such notice shall be deemed to be delivered when deposited in the United
States mail addressed to the shareholder at his or her address as it appears
on the records of the corporation, with postage thereon prepaid. When a
meeting is adjourned to another time or place, notice need not be given of
the adjourned
<PAGE>
meeting if the time and place thereof are announced at the meeting at which
the adjournment is taken.
SECTION 5. FIXING OF RECORD DATE. For the purpose of determining the
shareholders entitled to notice of or to vote at any meeting of shareholders,
or shareholders entitled to receive payment of any dividend, or in order to
make a determination of shareholders for any other proper purpose, the board
of directors of the corporation may fix in advance a date as the record date
for any such determination of shareholders, such date in any case to be not
more than 60 days and for a meeting of shareholders, not less than 10 days,
or in the case of a merger, consolidation, share exchange, dissolution or
sale, lease or exchange of assets, not less than 20 days before the date of
such meeting. If no record date is fixed for the determination of
shareholders entitled to notice of or to vote at a meeting of shareholders,
or shareholders entitled to receive payment of a dividend, the date on which
notice of the meeting is mailed or the date on which the resolution of the
board of directors declaring such dividend is adopted, as the case may be,
shall be the record date for such determination of shareholders. When
determination of shareholders entitled to vote at any meeting of shareholders
has been made as provided in this Section, such determination shall apply to
any adjournment of the meeting.
SECTION 6. VOTING LISTS. The officer or agent having charge of the
transfer book for shares of the corporation shall make, within 20 days after
the record date for a meeting of shareholders or 10 days before such meeting,
whichever is earlier, a complete list of the shareholders entitled to vote at
such meeting, arranged in alphabetical order, with the address of and the
number of shares held by each, which list, for a period of 10 days prior to
such meeting, shall be kept on file at the registered office of the
corporation and shall be subject to inspection by any shareholder, and to
copying at the shareholder's expense, at any time during usual business
hours. Such list shall also be produced and kept open at the time and place
of the meeting and shall be subject to the inspection of any shareholder
during the whole time of the meeting. The original share ledger or transfer
book, or a duplicate thereof kept in the State of Illinois, shall be prima
facie evidence as to who are the shareholders entitled to examine such list
or share ledger or transfer book or to vote at any meeting of shareholders.
SECTION 7. QUORUM. The holders of a majority of the outstanding
shares of the corporation entitled to vote on a matter, represented in person
or by proxy, shall constitute a quorum for consideration of such matter at
any meeting of shareholders; provided that if less than a majority of the
outstanding shares are represented at said meeting, a majority of the shares
so represented may adjourn the meeting at any time without further notice.
If a quorum is present, the affirmative vote of the majority of the shares
represented at the meeting shall be the act of the shareholders, unless the
vote of a greater number or voting by classes is required by the Business
Corporation Act of 1983 of the State of Illinois, the articles of
incorporation or these by-laws, all as the same may be amended from time to
time. At any adjourned meeting at which a quorum shall be present, any
business may be transacted which might have been transacted at the original
meeting. Withdrawal of shareholders from any meeting shall not cause failure
of a duly constituted quorum at that meeting.
-2-
<PAGE>
SECTION 8. PROXIES. Each shareholder may appoint a proxy to vote or
otherwise act for him or her by signing an appointment form and delivering it
to the person so appointed, but no such proxy shall be valid after 11 months
from the date of its execution, unless otherwise provided in the proxy.
SECTION 9. VOTING OF SHARES. Each outstanding share, regardless of
class, shall be entitled to one vote in each matter submitted to vote at a
meeting of shareholders. Each shareholder may vote either in person or by
proxy as provided in SECTION 8 of this Article.
SECTION 10. VOTING OF SHARES BY CERTAIN HOLDERS. Shares held by the
corporation in a fiduciary capacity may be voted and shall be counted in
determining the total number of outstanding shares entitled to vote at any
given time.
Shares registered in the name of another corporation, domestic or
foreign, may be voted by any officer, agent, proxy or other legal
representative authorized to vote such shares under the law of incorporation
of such corporation. The corporation may treat the president or other person
holding the position of chief executive officer of such other corporation as
authorized to vote such shares, together with any other person indicated and
any other holder of an office indicated by the corporate shareholder to this
corporation as a person or an office authorized to vote such shares.
Shares registered in the name of a deceased person, a minor ward or a
person under legal disability, may be voted by his or her administrator,
executor or court appointed guardian, either in person or by proxy without a
transfer of such shares into the name of such administrator, executor or
court appointed guardian. Shares registered in the name of a trustee may be
voted by him or her, either in person or by proxy.
Shares registered in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted
by such receiver without the transfer thereof into his or her name if
authority to do so is contained in an appropriate order of the court by which
such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee,
and thereafter the pledgee shall be entitled to vote the shares so
transferred.
Any number of shareholders may create a voting trust for the purpose of
conferring upon a trustee or trustees the right to vote or otherwise
represent their shares, for a period not to exceed 10 years, by entering into
a written voting trust agreement specifying the terms and conditions of the
voting trust, and by transferring their shares to such trustee or trustees
for the purpose of the agreement. Any such trust agreement shall not become
effective until a counterpart of the agreement is deposited with the
corporation at its registered office. The counterpart of the voting trust
agreement so deposited with the corporation shall be subject to the same
right of examination by a shareholder of the corporation, in person or by
agent or attorney, as are the books and records of the
-3-
<PAGE>
corporation, and shall be subject to examination by any holder of a
beneficial interest in the voting trust, either in person or by agent or
attorney, at any reasonable time for any proper purpose.
Shares of its own stock belonging to this corporation shall not be
voted, directly or indirectly, at any meeting and shall not be counted in
determining the total number of outstanding shares at any given time, but
shares of its own stock held by it in a fiduciary capacity may be voted and
shall be counted in determining the total number of outstanding shares at any
given time.
SECTION 11.INSPECTORS. At any meeting of shareholders, the
presiding officer may, or upon the request of any shareholder, shall appoint
one or more persons as inspectors for such meeting.
Such inspectors shall ascertain and report the number of shares
represented at the meeting, based upon their determination of the validity
and effect of proxies; count all votes and report the results; and do such
other acts as are proper to conduct the election and voting with impartiality
and fairness to all the shareholders.
Each report of an inspector shall be in writing and signed by him or her
or by a majority of them if there be more than one inspector acting at such
meeting. If there is more than one inspector, the report of a majority shall
be the report of the inspectors. The report of the inspector or inspectors
on the number of shares represented at the meeting and the results of the
voting shall be prima facie evidence thereof.
SECTION 12.INFORMAL ACTION BY SHAREHOLDERS. Any action required by
the Business Corporation Act of 1983 of the State of Illinois to be taken at
a meeting of the shareholders, or any other action which may be taken at a
meeting of the shareholders, may be taken without a meeting and without a
vote, if a consent in writing, setting forth the action so taken shall be
signed (a) by the holders of outstanding shares 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 voting or (b) by all of the shareholders entitled to vote with respect to
the subject matter thereof. If such consent is signed by less than all the
shareholders entitled to vote, then such consent shall become effective only
if at least 5 days prior to the execution of the consent a notice in writing
is delivered to all the shareholders entitled to vote with respect to the
subject matter thereof and, after the effective date of the consent, prompt
notice of the taking of the action without a meeting by less than unanimous
written consent shall be delivered in writing to those shareholders who have
not consented in writing.
In the event that the action which is consented to is such as would have
required the filing of a certificate under any section of the Business
Corporation Act of 1983 of the State of Illinois if such action had been
voted on by the shareholders at a meeting thereof, the certificate filed
under such section shall state, in lieu of any statement required by such
section concerning any vote of shareholders, that written consent has been
given in accordance with the provisions of SECTION 7.10 of the Business
Corporation Act of 1983 of the State of Illinois and that written notice has
been given as provided in such SECTION 7.10.
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SECTION 13. VOTING BY BALLOT. Voting on any question or in any election
may be by voice unless the presiding officer shall order or any shareholder
shall demand that voting be by ballot.
ARTICLE III
DIRECTORS
SECTION 1. GENERAL POWERS. The business of the corporation shall be
managed by or under the direction of its board of directors.
SECTION 2. NUMBER, TENURE AND QUALIFICATIONS. The number of directors
of the corporation shall be not less than five (5) nor more than ten (10)
with the exact number to be determined by the directors or the shareholders.
Each director shall hold office until the next annual meeting of shareholders
at which directors are elected; or until his successor shall have been
elected or qualified. Directors need not be residents of Illinois or
shareholders of the corporation. The number of directors may be increased or
decreased from time to time by the amendment of this section. No decrease
shall have the effect of shortening the term of any incumbent director.
SECTION 3. REGULAR MEETINGS. A regular meeting of the board of
directors shall be held without other notice than this by-law, immediately
after the annual meeting of shareholders. The board of directors may
provide, by resolution, the time and place for holding of additional regular
meetings without other notice than such resolution.
SECTION 4. SPECIAL MEETINGS. Special meetings of the board of directors
may be called by or at the request of the president or any one director. The
person or persons authorized to call special meetings of the board of
directors may fix any place as the place for holding any special meeting of
the board of directors called by them.
SECTION 5. NOTICE. Notice of any special meeting shall be given at
least two (2) days previous thereto by written notice to each director at his
business address. If mailed, such notice shall be deemed to be delivered
when deposited in the United States mail so addressed, with postage thereon
prepaid. If notice is given by telegram, such notice shall be deemed to be
delivered when the telegram is delivered to the telegram company. The
attendance of a director at any meeting shall constitute a waiver of notice
of such meeting, except where a director attends a meeting for the express
purpose of objecting to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted
at, nor the purpose of, any regular or special meeting of the board of
directors need be specified in the notice or waiver of notice of such meeting.
SECTION 6. QUORUM. A majority of the number of directors fixed by the
by-laws shall constitute a quorum for transaction of business at any meeting
of the board of directors, provided that if less than a majority of such
number of directors are present at said meeting, a majority of the directors
present may adjourn the meeting at any time without further notice.
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SECTION 7. MANNER OF ACTING. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the
board of directors, unless the act of a greater number is required by
statute, the by-laws, or the articles of incorporation.
SECTION 8. VACANCIES. Any vacancy on the board of directors, including
any vacancy arising from an increase in the number of directors constituting
the entire board, may be filled by election at the next annual or special
meeting of shareholders. A majority of the board of directors may fill any
vacancy prior to such annual or special meeting of shareholders.
SECTION 9. RESIGNATION AND REMOVAL OF DIRECTORS. A director may resign
at any time upon written notice to the board of directors. A director may be
removed with or without cause, by a majority of shareholders if the notice of
the meeting names the director or directors to be removed at said meeting.
SECTION 10. INFORMAL ACTION BY DIRECTORS. The authority of the board of
directors may be exercised without a meeting if a consent in writing, setting
forth the action taken, is signed by all of the directors entitled to vote.
SECTION 11. COMPENSATION. Subject to any agreements to which the
corporation is a party limiting compensation of directors and officers, the
board of directors, by the affirmative vote of a majority of directors then
in office, and irrespective of any personal interest of any of its members,
shall have authority to establish reasonable compensation of all directors
for services to the corporation as directors, officers or otherwise
notwithstanding any director conflict of interest. By resolution of the
board of directors, the directors may be paid their expenses, if any, of
attendance at each meeting of the board. No such payment previously
mentioned in this section shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor.
SECTION 12. PRESUMPTION OF ASSENT. A director of the corporation who is
present at a meeting of the board of directors at which action on any
corporate matter is taken shall be conclusively presumed to have assented to
the action taken under his or her dissent shall be entered in the minutes of
the meeting or unless he or she shall file his or her written dissent to such
action with the person acting as the secretary of the meeting before the
adjournment thereof or shall forward such dissent by registered or certified
mail to the secretary of the corporation immediately after the adjournment of
the meeting. Such right to dissent shall not apply to a director who voted
in favor of such action.
SECTION 13. COMMITTEES. A majority of the board of directors may create
one or more committees of two or more members to exercise the authority of
the board of directors to the extent specified by the board of directors and
permitted by the Business Corporation Act of 1983 of the State of Illinois.
A majority of such committee shall constitute a quorum for transaction of
business. A committee may transact business without a meeting by unanimous
written consent.
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ARTICLE IV
OFFICERS
SECTION 1. NUMBER. The officers of the corporation shall be a chairman,
chief exclusive officer, president, one or more vice-presidents, a treasurer,
a secretary, and such other officers as may be elected or appointed by the
board of directors. Any two or more offices may be held by the same person.
In addition, the board of directors may appoint divisional officers who shall
perform such duties and have such responsibilities as shall be assigned to
them by the board of directors.
SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the corporation
shall be elected annually by elected annually by the board of directors at
the first meeting of the board of directors held after each annual meeting of
shareholders. If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as conveniently may be.
Vacancies may be filled or new offices created and filled at any meeting of
the board of directors. Each officer shall hold office until his successor
shall have been duly elected and shall have qualified or until his death or
until he shall resign or shall have been removed in the manner hereinafter
provided. Election of an officer shall not of itself create contract rights.
SECTION 3. REMOVAL. Any officer elected or appointed by the board of
directors may be removed by the board of directors whenever in its judgment
the best interest of the corporation would be served thereby, but such
removal shall be without prejudice to the contract rights, if any, of the
person so removed.
SECTION 4. CHAIRPERSON. The Chairperson shall preside at all meetings
of the shareholders and of the board of directors and shall have such other
duties as may be prescribed by the board of directors. Except in those
instances in which the authority to execute is expressly delegated to another
officer or agent of the corporation or a different mode of execution is
expressly prescribed by the board of directors or these by-laws, he/she may
execute for the corporation certificates for its shares, and any contracts,
deeds, mortgages, bonds or other instruments which the board of directors has
authorized to be executed, and he/she may accomplish such execution either
under or without the seal of the corporation and either individually or with
the secretary, any assistant secretary, or any other officer thereunto
authorized by the board of directors, according to the requirements of the
form of the instrument. He/she may vote all securities which the corporation
is entitled to vote except as and to the extent such authority shall be
vested in a different officer or agent of the corporation by the board of
directors.
SECTION 5. CHIEF EXECUTIVE. The Chief Executive shall be the principal
executive officer of the corporation. Subject to the direction and control
of the board of directors, he/she shall be in charge of the business of the
corporation; he/she shall see that the resolutions and directions of the
board of directors are carried into effect except in those instances in which
that responsibility is specifically assigned to some other person by the
board of directors; and, in general, he/she shall discharge all duties
incident to the chief executive office and such other duties as may be
prescribed
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by the board of directors from time to time. In the absence of
the chairperson or in the event of his/her inability or refusal to act,
he/she shall preside at all meetings of the shareholders and of the board of
directors. Except in those instances in which the authority to execute is
expressly delegated to another officer or agent of the corporation or a
different mode of execution is expressly prescribed by the board of directors
or these by-laws, he/she may execute for the corporation certificates for its
shares, and any contracts, deeds, mortgages, bonds or other instruments which
the board of directors has authorized to be executed, and he/she may
accomplish such execution either under or without the seal of the corporation
and either individually or with the secretary, any assistant secretary or any
other officer thereunto authorized by the board of directors, according to
the requirements of the form of the instrument.
SECTION 6. THE PRESIDENT. The president shall be the chief operating
officer of the corporation. Subject to the direction and control of the
board of directors, he/she be in charge of the day-to-day operations of the
corporation and shall discharge such other duties as may be prescribed by the
chairperson, the chief executive or the board of directors. In the absence
of the chairperson and the chief executive officer or in the event of their
inability to act, the president shall preside at all meetings of the
shareholders and of the board of directors. Except in those instances in
which the authority to execute is expressly delegated to another officer or
agent of the corporation or a different mode of execution is expressly
prescribed by the board of directors or these by-laws, he/she may execute for
the corporation certificates for its shares, and any contracts, deeds,
mortgages, bonds or other instruments which the board of directors has
authorize to be executed and he/she may accomplish such execution either
under or without the seal of the corporation and either individually or with
the secretary, any assistant secretary, or any other officer thereunto
authorized by the board of directors, according to the requirements of the
form of the instrument.
SECTION 7. THE VICE-PRESIDENTS. The vice-president (or in the event
there be more than one vice-president, each of the vice-presidents) shall
assist the president in the discharge of his/her duties as the president may
direct and shall perform such other duties as from time to time may be
assigned to him/her by the president or by the board of directors. In the
absence of the president or in the event of his/her inability or refusal to
act, the vice-president (or in the event there be more than one
vice-president, the vice-presidents in the order designated by the board of
directors, or by the president if the board of directors has not made such a
designation, or in the absence of any designation, then in the order of
seniority of tenure as vice-president) shall perform the duties of the
president, and when so acting, shall have the powers of and be subject to all
the restrictions upon the president. Except in those instances in which the
authority to execute is expressly delegated to another officer or agent of
the corporation or a different mode of execution is expressly prescribed by
the board of directors or these by-laws, the vice-president (or each of them
if there are more than one) may execute for the corporation certificates for
its shares and any contracts, deeds, mortgages, bonds or other instruments
which the board of directors has authorized to be executed, and he/she may
accomplish such execution either under or without the seal of the corporation
and either individually or with the secretary, any assistant secretary, or
any other officer thereunto authorized by the board of directors, according
to the requirements of the form of the instrument.
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SECTION 8. THE TREASURER. The treasurer shall be the principal
accounting and financial officer of the corporation. He/she shall: (a) have
charge of and be responsible for the maintenance of adequate books of account
for the corporation; (b) have charge and custody of all funds and securities
of the corporation and be responsible therefor and for the receipt and
disbursement thereof; and (c) perform all the duties incident to the office
of treasurer and such other duties as from time to time may be assigned to
him by the president or by the board of directors. If required by the board
of directors, the treasurer shall give a bond for the faithful discharge of
his/her duties in such sum and with such surety or sureties as the board of
directors may determine.
SECTION 9. THE SECRETARY. The secretary shall: (a) record the minutes
of the shareholders' and of the board of directors' meetings in one or more
books provided for that purpose; (b) see that all notices are duly given in
accordance with the provisions of these by-laws or as required by law; (c) be
custodian of the corporate records and of the seal of the corporation; (d)
keep a register of the post-office of each shareholder which shall be
furnished to the secretary by such shareholder; (e) sign with the president,
or a vice-president, or any other officer thereunto authorized by the board
of directors, certificates for shares of the corporation, the issue of which
shall have been authorized by the board of directors, and any contracts,
deeds, mortgages, bonds, or other instruments which the board of directors
has authorized to be executed, according to the requirements of the form of
the instrument, except when a different mode of execution is expressly
prescribed by the board of directors or these by-laws; (f) have general
charge of the stock transfer books of the corporation; (g) have authority to
certify the by-laws, resolutions of the shareholders and board of directors
and committees thereof, and other documents of the corporation as true and
correct copies thereof; and (h) perform all duties incident to the office of
secretary and such other duties as from time to time may be assigned to
him/her by the president or by the board of directors.
SECTION 10. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. The
assistant treasurers and assistant secretaries shall perform such duties as
shall be assigned to them by the treasurer or the secretary, respectively, or
by the president or the board of directors. Any assistant secretary may sign
with the president, or a vice-president, or any other officer thereunto
authorized by the board of directors, certificates for shares of the
corporation, the issue of which shall have been authorized by the board of
directors, and any contracts, deeds, mortgages, bonds, or other instruments
which the board of directors has authorized to be executed, according to the
requirements of the form of the instrument, except when a different mode of
execution is expressly prescribed by the board of directors or these by-laws.
The assistant treasurers shall respectively, if required by the board of
directors, give bonds for the faithful discharge of their duties in such sums
and with such sureties as the board of directors shall determine.
SECTION 11. SALARIES. Subject to any agreement to which the corporation
is a party limiting compensation, the salaries of the officers shall be fixed
from time to time by the board of directors and no officer shall be prevented
from receiving such salary by reason of the fact that he is also a director
of the corporation.
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ARTICLE V
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 1. CONTRACTS. The board of directors may authorize any officer
or officers, agent or agents, to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the corporation, and
such authority may be general or confined to specific instances.
SECTION 2. LOANS. No loans shall be contracted on behalf of the
corporation and no evidences of indebtedness shall be issued in its name
unless authorized by a resolution of the board of directors.
SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness if issued in
the name of the corporation, shall be signed by such officer or officers,
agent or agents of the corporation and in such manner as shall from time to
time be determined by resolution of the board of directors.
SECTION 4. DEPOSITS. All funds of the corporation not otherwise
employed shall be deposited from time to time to the credit of the
corporation in such banks, trust companies or other depositaries as the board
of directors may select.
ARTICLE VI
SHARES AND THEIR TRANSFER
SECTION 1. SHARE REPRESENTED BY CERTIFICATES AND UNCERTIFICATED SHARES.
Shares shall be represented by certificates or shall be uncertificated shares.
Certificates representing shares of the corporation shall be signed by
the appropriate officers and may be sealed with the seal or a facsimile of
the seal of the corporation. If a certificate is countersigned by a transfer
agent or registrar, other than the corporation or its employee, any other
signatures may be facsimile. Each certificate representing shares shall be
consecutively numbered or otherwise identified, and shall also state the name
of the person to whom issued, the number and class of shares (with
designation of series, if any) which such certificate represents, the date of
issue, and that the corporation is organized under the laws of Illinois. If
the corporation is authorized to issue shares of more than one class or of
series within a class, the certificate shall also contain such information or
statement as may be required by law.
Unless prohibited by the articles of incorporation, the board of
directors may provide by resolution that some or all of any class or series
of shares shall be uncertificated shares. Any such resolution shall not
apply to shares represented by a certificate until the certificate has been
surrendered to the corporation. Within a reasonable time after the issuance
or transfer of uncertificated shares, the corporation shall send the
registered owner thereof a written notice of all
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information that would appear on a certificate. Except as otherwise
expressly provided by law, the rights and obligations of the holders of
uncertificated shares shall be identical to those of the holders of
certificates representing shares of the same class and series.
The name and address of each shareholder, the number and class of shares
held and the date on which the shares were issued shall be entered on the
books of the corporation. The person in whose name shares stand on the books
of the corporation shall be deemed the owner thereof for all purposes as
regards the corporation.
SECTION 2. LOST CERTIFICATES. If a certificate representing shares has
allegedly been lost or destroyed the board of directors may in its
discretion, except as may be required by law, direct that a new certificate
be issued upon such indemnification and other reasonable requirements as it
may impose.
SECTION 3. TRANSFERS OF SHARES. Transfer of shares of the corporation
shall be recorded on the books of the corporation. Transfer of shares
represented by a certificate, except in the case of a lost or destroyed
certificate, shall be made on surrender for cancellation of the certificate
for such shares. A certificate presented for transfer must be duly endorsed
and accompanied by proper guaranty of signature and other appropriate
assurances that the endorsement is effective. Transfer of an uncertificated
share shall be made on receipt by the corporation of an instruction from the
registered owner or other appropriate person. The instruction shall be in
writing or a communication in such form as may be agreed upon in writing by
the corporation.
ARTICLE VII
FISCAL YEAR
The fiscal year of the corporation shall be fixed by resolution of the
board of directors.
ARTICLE VIII
DISTRIBUTIONS
The board of directors may authorize, and the corporation may make,
distributions to its shareholders, subject to any restrictions in its
articles of incorporation or provided by law.
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ARTICLE IX
SEAL
The corporate seal shall have inscribed thereon the name of the
corporation and the words "Corporate Seal, Illinois." The seal may be used
by causing it or a facsimile thereof to be impressed or affixed or in any
other manner reproduced, provided that the affixing of the corporate seal to
an instrument shall not give the instrument additional force or effect, or
change the construction thereof, and the use of the corporate seal is not
mandatory.
ARTICLE X
WAIVER OF NOTICE
Whenever any notice is required to be given under the provisions of
these by-laws or the articles of incorporation or under the provisions of the
Business Corporation Act of 1983 of the State of Illinois, a waiver thereof
in writing, signed by the person or persons entitled to such notice, whether
before or after the time stated therein, shall be deemed equivalent to the
giving of such notice. Attendance at any meeting shall constitute waiver of
notice thereof unless the person at the meeting objects to the holding of the
meeting because proper notice was not given.
ARTICLE XI
INDEMNIFICATION OF OFFICERS,
DIRECTORS, EMPLOYEES AND AGENTS
SECTION 1. The corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation)
by reason of the fact that such person is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding if he or she acted in good faith and in a
manner he or she 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 or her 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 or she reasonably believed to
be in or not opposed to the best interests of the
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corporation, or with respect to any criminal action or
proceeding, had reasonable cause to believe that his or her conduct was
unlawful.
SECTION 2. The corporation shall indemnify any person who was or is a
parry or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that such person is or was a
director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or
settlement of such action or suit if he or she acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the corporation, 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 for negligence or misconduct in the performance of his
or her duty to the corporation unless and only to the extent that 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 shall deem proper.
SECTION 3. To the extent that a director, officer, employee or agent of
a corporation has been successful, on the merits or otherwise, in the defense
of any action, suit or proceeding referred to in sections 1 and 2, or in
defense of any claim, issue or matter therein, such person shall be
indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith.
SECTION 4. Any indemnification under sections 1 and 2 (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 he or she
has met the applicable standard of conduct set forth in sections 1 and 2.
Such determination shall be made (a) by the board of directors by a majority
vote of a quorum consisting of directors who were not parties to such action,
suit or proceeding, or (b) if such a quorum is not obtainable, or, even if
obtainable, a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (c) by the shareholders.
SECTION 5. Expenses incurred in defending a civil or criminal action,
suit or proceeding may be paid by the corporation in advance of the final
disposition of such action, suit or proceeding, as authorized by the board of
directors in the specific case, upon receipt of an undertaking by or on
behalf of the director, officer, employee or agent to repay such amount,
unless it shall ultimately be determined that he or she is entitled to be
indemnified by the corporation as authorized in this article.
SECTION 6. The indemnification provided by this article shall not be
deemed exclusive of any other rights to which those seeking indemnification
may be entitled under any by-law, agreement, vote of shareholders or
disinterested directors or otherwise, both as to action in his or her
official capacity and as to action in another capacity while holding such
office, and shall
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continue as to a person who has 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.
SECTION 7. The 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 such person and incurred by such person in any such
capacity, or arising out of his or her status as such, whether or not the
corporation would have the power to indemnify such person against such
liability under the provisions of this article.
SECTION 8. If the corporation has paid indemnity or had advanced
expenses to a director, officer, employee or agent, the corporation shall report
such indemnification or advance in writing to the shareholders with or before
the notice of the next shareholders' meeting.
SECTION 9. References to "the corporation" shall include, in addition
to the surviving corporation, any merging corporation, including any corporation
having merged with a merging corporation, absorbed in a merger which otherwise
would have lawfully been entitled to indemnify its directors, officers, and
employees agents.
ARTICLE XII
AMENDMENTS
Unless the power to make, alter, amend or repeal the by-laws is reserved
to the shareholders by the articles of incorporation, the bylaws of the
corporation may be made, altered, amended or repealed by the shareholders or
the board of directors, but no by-law adopted by the shareholders may be
altered, amended or repealed by the board of directors if the by-laws so
provide. The by-laws may contain any provisions for the regulation and
management of the affairs of the corporation not inconsistent with the law or
the articles of incorporation.
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(Face of Security)
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE
FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY TRUST
COMPANY (THE "DEPOSITORY") TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE
DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY OR BY THE
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 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 MAY BE REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DEPOSITORY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR
SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
DEPOSITORY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY
OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE &
CO., HAS AN INTEREST HEREIN.1
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS. NEITHER THIS NOTE NOR ANY
INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION
OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF AGREES NOT TO OFFER, SELL OR
OTHERWISE TRANSFER SUCH NOTE, PRIOR TO THE DATE WHICH IS TWO YEARS (OR SUCH
SHORTER PERIOD THAT MAY HEREAFTER BE PROVIDED UNDER RULE 144(K) AS PERMITTING
RESALES BY NON-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 NOTE (OR ANY
PREDECESSOR OF SUCH NOTE) EXCEPT (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRA-
TION 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 IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) 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 FOREIGN PERSONS THAT OCCUR IN OFFSHORE TRANSACTIONS AND
WITHOUT DIRECTED SELLING EFFORTS WITHIN THE MEANINGS OF SUCH TERMS AS DEFINED IN
REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED
INVESTOR" WITHIN THE MEANING OF RULE 501(A)(1), (2), (3) OR (7) UNDER THE
SECURITIES ACT THAT IS PURCHASING THE NOTE FOR ITS OWN ACCOUNT, OR FOR THE AC-
COUNT 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,
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, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH
OF THEM, AND IN EACH OF THE FOREGOING CASES, A CERTIFICATE OF TRANSFER IN THE
FORM APPEARING ON THIS NOTE IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE
TRUSTEE.
- -------------------
(1) This paragraph should be included only if the Note is issued in global
form.
1
<PAGE>
ARCHIBALD CANDY CORPORATION
10-1/4% SENIOR SECURED NOTE
DUE 2004
NO. $
CUSIP NO.
Archibald Candy Corporation, an Illinois corporation (the "Company"),
as obligor, for value received promises to pay to ______________ or registered
assigns, the principal sum of [ ] Dollars on July 1, 2004. Inter-
est Payment Dates: January 1 and July 1 and on the maturity date. Record
Dates: December 15 and June 15 (whether or not a Business Day).
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
IN WITNESS WHEREOF, the Company has caused this Note to be signed
manually or by facsimile by its duly authorized officers.
Dated:
ARCHIBALD CANDY CORPORATION
By:
-------------------------------------------------
Name:
Title:
By:
------------------------------------------------
Name:
Title:
Trustee's Certificate of Authentication:
This is one of the Notes referred to
in the within-mentioned Indenture:
THE BANK OF NEW YORK, as Trustee
By:______________________________
Authorized Signature
2
<PAGE>
(Back of Security)
10-1/4% SENIOR SECURED NOTE
DUE 2004
1. INTEREST. Archibald Candy Corporation, an Illinois corporation
(the "Company"), as obligor, promises to pay interest on the principal amount of
this Note at the rate and in the manner specified below.
The Company shall pay, in cash, interest on the principal amount of
this Note, at the rate of 10-1/4% per annum. The Company shall pay interest
semi-annually on January 1 and July 1 of each year, and on the maturity date,
commencing on January 1, 1998, or if any such day is not a Business Day, on the
next succeeding Business Day (each an "Interest Payment Date").
Interest shall be computed on the basis of a 360-day year consisting
of twelve 30-day months. Interest shall accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from July 2,
1997. To the extent lawful, the Company shall pay interest on overdue install-
ments of interest (without regard to any applicable grace periods) at the same
rate.
2. METHOD OF PAYMENT. The Company shall pay interest on the Notes
(except defaulted interest) to the Persons who are registered Holders of Notes
at the close of business on the record date next preceding the Interest Payment
Date, even if such Notes are cancelled after such record date and on or before
such Interest Payment Date. The Holder must surrender this Note to a Paying
Agent to collect principal payments. The Company shall pay principal and
interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts. The Company may pay principal
and interest by check to a Holder's registered address, PROVIDED, that all
payments with respect to Global Notes, and certificated notes the Holders of
which have given wire transfer instructions to the Company and the paying agent,
will be required to be made by wire transfer of immediately available funds to
the accounts specified by the Holders thereof.
3. PAYING AGENT AND REGISTRAR. Initially, the Trustee shall act as
Paying Agent and Registrar. The Company may change any Paying Agent, Registrar
or co-registrar without notice to any Holder. Subject to certain exceptions,
the Company or any of its Subsidiaries may act in any such capacity.
4. INDENTURE. The Company issued the Notes under an Indenture dated
as of July 2, 1997 (the "Indenture") among the Company and The Bank of New York,
as the Trustee. The terms of the Notes include those stated in the Indenture
and those made part of the Indenture by reference to the Trust Indenture Act of
1939 (the "TIA") (15 U.S. Code Sections 77aaa-77bbbb) as in effect on the date
of the Indenture until such time as the Indenture is qualified under the TIA and
thereafter as in effect on the date the Indenture is so qualified. The Notes
are subject to all such terms, and Holders are referred to the Indenture and
such act for a statement of such terms. The terms of the Indenture shall govern
any inconsistencies between the Indenture and the Notes. Terms not otherwise
defined herein shall have the meanings assigned in the Indenture. The Notes are
limited to $100,000,000 in aggregate principal amount.
5. OPTIONAL REDEMPTION. The Notes are not redeemable at the
Company's option prior to July 1, 2001. Thereafter, the Notes will be subject
to redemption 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 thereon, if any, to the applicable redemption
date, if redeemed during the 12-month period beginning on July 1 of the years
indicated below:
3
<PAGE>
YEAR PERCENTAGE
---- ----------
2001 . . . . . . . . . 105.125%
2002 . . . . . . . . . 102.563
2003 and thereafter. . 100.000
Notwithstanding the foregoing, at any time or from time to time prior
to July 1, 2000, the Company may, at its option, redeem up to $33.0 million of
the original principal amount of the Notes, at a redemption price of 110.250% of
the principal amount thereof, plus accrued and unpaid interest, if any, to the
applicable redemption date, with the net cash proceeds of one or more Public
Equity Offerings; PROVIDED, that (a) such redemption shall occur within 90 days
of the date of closing of such public offering and (b) at least $67.0 million
aggregate principal amount of Notes remains outstanding immediately after giving
effect to each such redemption.
6. MANDATORY REDEMPTION. There shall be no mandatory redemption of
the Notes.
7. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered
form without coupons in denominations of $1,000 and integral multiples of
$1,000. The transfer of Notes may be registered and Notes may be exchanged as
provided in the Indenture. The Registrar and the Trustee may require a Holder,
among other things, to furnish appropriate endorsements and transfer documents
and the Company may require a Holder to pay any taxes and fees required by law
or permitted by the Indenture. The Registrar and the Company need not exchange
or register the transfer (i) of any Note or portion of a Note selected for re-
demption or (ii) of any Notes for a period of 15 days before a selection of
Notes to be redeemed or during the period between a record date and the corre-
sponding Interest Payment Date.
8. PERSONS DEEMED OWNERS. The registered Holder of a Note may be
treated as its owner for all purposes, subject to the provisions of the
Indenture with respect to the record dates for the payment of interest.
9. AMENDMENTS AND WAIVERS. Subject to certain exceptions, the
Indenture or the Notes may be amended with the written consent of the Holders of
at least a majority in principal amount of the then outstanding Notes (including
consents obtained in connection with a tender offer or exchange offer for
Notes), and any existing Default or Event of Default (except certain payment de-
faults) or compliance with any provision of the Indenture, the Notes or the
Security Documents 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 any Holders, the Indenture and the Notes may be amended or supple-
mented to cure any ambiguity, defect or inconsistency, to provide for assumption
of the Company's obligations to the Holders in the case of a merger or
consolidation, to provide for uncertificated Notes in addition to or in place of
certificated Notes, to make any change that would provide any additional rights
or benefits to the Holders of the Notes, or that does not adversely affect the
legal rights under the Indenture of any Holder, to release any Guarantee of the
Notes permitted to be released under the terms of the Indenture or to comply
with requirements of the Commission in order to effect or maintain the quali-
fication of the Indenture under the TIA.
10. DEFAULTS AND REMEDIES. If an Event of Default occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount of
the then outstanding Notes may declare by written notice to the Company and
the Trustee all the Notes to be due and payable immediately, except that in
the case of an Event of Default arising from certain events of bankruptcy or
insolvency, all outstanding Notes become due and payable immediately without
further action or notice. Holders may not enforce the Indenture or the Notes
except as provided in the Indenture. The Trustee may require indemnity
satisfactory to it before it enforces the Indenture or the Notes. 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 Company must furnish an annual compliance certificate to the
Trustee.
4
<PAGE>
11. TRUSTEE DEALINGS WITH COMPANY. The Trustee under the
Indenture, in its individual or any other capacity, may make loans to, accept
deposits from, and perform services for the Company or its Affiliates, and
may otherwise deal with the Company or its Affiliates, as if it were not
Trustee.
12. NO RECOURSE AGAINST OTHERS. No director, officer, employee,
incorporator, shareholder or controlling person of the Company or Guarantor,
as such, shall have any liability for any obligations of the Company or any
Guarantor under the Notes, the Indenture or the Registration Rights Agreement
or for any claim based on, in respect of, or by reason of such obligations or
their creation. Each Holder by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for the
issuance of the Notes and the Guarantees. Notwithstanding the foregoing,
nothing in this provision shall be construed as a waiver or release of any
claims under the Federal securities laws.
13. AUTHENTICATION. This Note shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating
agent.
14. ABBREVIATIONS. Customary abbreviations may be used in the name
of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT
(= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A
(= Uniform Gifts to Minors Act).
15. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has
caused CUSIP numbers to be printed on the Notes and has directed the Trustee
to use CUSIP numbers in notices of redemption as a convenience to Holders.
No representation is made as to the accuracy of such numbers either as
printed on the Notes or as contained in any notice of redemption and reliance
may be placed only on the other identification numbers placed thereon.
16. HOLDERS' COMPLIANCE WITH REGISTRATION RIGHTS AGREEMENT. Each
Holder of a Note, by his acceptance thereof, acknowledges and agrees to the
provisions of the Registration Rights Agreement, dated as of July 2, 1997,
among the Company and the parties named on the signature page thereof (the
"Registration Rights Agreement"), including but not limited to the
obligations of the Holders with respect to a registration and the
indemnification of the Company and the Purchasers (as defined therein) to the
extent provided therein.
The Company shall furnish to any Holder upon written request and
without charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to: Archibald Candy Corporation, 1137 West Jackson
Boulevard, Chicago, Illinois 60607, Attention: Secretary.
5
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and
transfer this Note to
- ------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint______________________________ agent to transfer this
Note on the books of the Company. The agent may substitute another to act for
him.
______________________________________________________________________________
Date:____________________
Your Signature:_________________________________
(Sign exactly as your name appears
on the face of this Note)
Signature Guarantee*
________________
* NOTICE: The signature must be guaranteed by an institution which is a
member of one of the following recognized signature guarantee
programs:
(1) The Securities Transfer Agent Medallian Program (STAMP);
(2) The New York Stock Exchange Medallian Program (MSP);
(3) The Stock Exchange Medallian Program (SEMP).
6
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have all or any part of this Note purchased by the
Company pursuant to Section 4.10 or Section 4.14 of the Indenture, as the case
may be, state the amount you elect to have purchased (if all, write "ALL"):
$______________
Date:__________________________
Your Signature:_________________________
(Sign exactly as your name appears
on the face of this Note)
Signature Guarantee*
______________
* NOTICE: The signature must be guaranteed by an institution which is a
member of one of the following recognized signature guarantee
programs:
(1) The Securities Transfer Agent Medallian Program (STAMP);
(2) The New York Stock Exchange Medallian Program (MSP);
(3) The Stock Exchange Medallian Program (SEMP).
7
<PAGE>
SCHEDULE OF EXCHANGES OF DEFINITIVE NOTES(2)
The following exchanges of a part of this Global Note for
Definitive Notes have been made:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF THIS
AMOUNT OF DECREASE IN AMOUNT OF INCREASE IN GLOBAL NOTE FOLLOWING
PRINCIPAL AMOUNT OF THIS PRINCIPAL AMOUNT OF THIS SUCH DECREASE (OR IN- SIGNATURE OF AUTHO-
DATE OF EXCHANGE GLOBAL NOTE GLOBAL NOTE CREASE) RIZED OFFICER OF TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
</TABLE>
- -------------------
(2) This should be included only if the Note is issued in global
form.
8
<PAGE>
ARCHIBALD CANDY CORPORATION
10-1/4% SENIOR SECURED NOTE
DUE 2004
NO. $
CUSIP NO.
Archibald Candy Corporation, an Illinois corporation (the "Company"),
as obligor, for value received promises to pay to ______________ or registered
assigns, the principal sum of [ ] Dollars on July 1, 2004. Inter-
est Payment Dates: January 1 and July 1 and on the maturity date. Record
Dates: December 15 and June 15 (whether or not a Business Day).
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
IN WITNESS WHEREOF, the Company has caused this Note to be signed
manually or by facsimile by its duly authorized officers.
Dated:
ARCHIBALD CANDY CORPORATION
By:
-------------------------------------------------
Name:
Title:
By:
------------------------------------------------
Name:
Title:
Trustee's Certificate of Authentication:
This is one of the Notes referred to
in the within-mentioned Indenture:
THE BANK OF NEW YORK, as Trustee
By:
----------------------------
Authorized Signature
A-1
<PAGE>
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE
FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY TRUST
COMPANY (THE "DEPOSITORY") TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE
DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY OR BY THE
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 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 MAY BE REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DEPOSITORY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR
SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
DEPOSITORY), 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.
A-2
<PAGE>
10-1/4% SENIOR SECURED NOTE
DUE 2004
1. INTEREST. Archibald Candy Corporation, an Illinois corporation
(the "Company"), as obligor, promises to pay interest on the principal amount of
this Note at the rate and in the manner specified below.
The Company shall pay, in cash, interest on the principal amount of
this Note, at the rate of 10-1/4% per annum. The Company shall pay interest
semi-annually on January 1 and July 1 of each year, and on the maturity date,
commencing on January 1, 1998, or if any such day is not a Business Day, on the
next succeeding Business Day (each an "Interest Payment Date").
Interest shall be computed on the basis of a 360-day year consisting
of twelve 30-day months. Interest shall accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from July 2,
1997. To the extent lawful, the Company shall pay interest on overdue install-
ments of interest (without regard to any applicable grace periods) at the same
rate.
2. METHOD OF PAYMENT. The Company shall pay interest on the Notes
(except defaulted interest) to the Persons who are registered Holders of Notes
at the close of business on the record date next preceding the Interest Payment
Date, even if such Notes are cancelled after such record date and on or before
such Interest Payment Date. The Holder must surrender this Note to a Paying
Agent to collect principal payments. The Company shall pay principal and
interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts. The Company may pay principal
and interest by check to a Holder's registered address, PROVIDED, that all
payments with respect to Global Notes, and certificated notes the Holders of
which have given wire transfer instructions to the Company and the paying agent,
will be required to be made by wire transfer of immediately available funds to
the accounts specified by the Holders thereof.
3. PAYING AGENT AND REGISTRAR. Initially, the Trustee shall act as
Paying Agent and Registrar. The Company may change any Paying Agent, Registrar
or co-registrar without notice to any Holder. Subject to certain exceptions,
the Company or any of its Subsidiaries may act in any such capacity.
4. INDENTURE. The Company issued the Notes under an Indenture dated
as of July 2, 1997 (the "Indenture") among the Company and The Bank of New York,
as the Trustee. The terms of the Notes include those stated in the Indenture
and those made part of the Indenture by reference to the Trust Indenture Act of
1939 (the "TIA") (15 U.S. Code Sections 77aaa-77bbbb) as in effect on the date
of the Indenture until such time as the Indenture is qualified under the TIA and
thereafter as in effect on the date the Indenture is so qualified. The Notes
are subject to all such terms, and Holders are referred to the Indenture and
such act for a statement of such terms. The terms of the Indenture shall govern
any inconsistencies between the Indenture and the Notes. Terms not otherwise
defined herein shall have the meanings assigned in the Indenture. The Notes are
limited to $100,000,000 in aggregate principal amount.
5. OPTIONAL REDEMPTION. The Notes are not redeemable at the
Company's option prior to July 1, 2001. Thereafter, the Notes will be
subject to redemption 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 thereon, if any, to the
applicable redemption date, if redeemed during the 12-month period beginning
on July 1 of the years indicated below:
A-3
<PAGE>
YEAR PERCENTAGE
---- ----------
2001 . . . . . . . . . 105.125%
2002 . . . . . . . . . 102.563
2003 and thereafter. . 100.000
Notwithstanding the foregoing, at any time or from time to time prior
to July 1, 2000, the Company may, at its option, redeem up to $33.0 million of
the original principal amount of the Notes, at a redemption price of 110.250% of
the principal amount thereof, plus accrued and unpaid interest, if any, to the
applicable redemption date, with the net cash proceeds of one or more Public
Equity Offerings; PROVIDED, that (a) such redemption shall occur within 90 days
of the date of closing of such public offering and (b) at least $67.0 million
aggregate principal amount of Notes remains outstanding immediately after giving
effect to each such redemption.
6. MANDATORY REDEMPTION. There shall be no mandatory redemption of
the Notes.
7. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered
form without coupons in denominations of $1,000 and integral multiples of
$1,000. The transfer of Notes may be registered and Notes may be exchanged as
provided in the Indenture. The Registrar and the Trustee may require a Holder,
among other things, to furnish appropriate endorsements and transfer documents
and the Company may require a Holder to pay any taxes and fees required by law
or permitted by the Indenture. The Registrar and the Company need not exchange
or register the transfer (i) of any Note or portion of a Note selected for re-
demption or (ii) of any Notes for a period of 15 days before a selection of
Notes to be redeemed or during the period between a record date and the corre-
sponding Interest Payment Date.
8. PERSONS DEEMED OWNERS. The registered Holder of a Note may be
treated as its owner for all purposes, subject to the provisions of the
Indenture with respect to the record dates for the payment of interest.
9. AMENDMENTS AND WAIVERS. Subject to certain exceptions, the
Indenture or the Notes may be amended with the written consent of the Holders of
at least a majority in principal amount of the then outstanding Notes (including
consents obtained in connection with a tender offer or exchange offer for
Notes), and any existing Default or Event of Default (except certain payment de-
faults) or compliance with any provision of the Indenture, the Notes or the
Security Documents 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 any Holders, the Indenture and the Notes may be amended or supple-
mented to cure any ambiguity, defect or inconsistency, to provide for assumption
of the Company's obligations to the Holders in the case of a merger or
consolidation, to provide for uncertificated Notes in addition to or in place of
certificated Notes, to make any change that would provide any additional rights
or benefits to the Holders of the Notes, or that does not adversely affect the
legal rights under the Indenture of any Holder, to release any Guarantee of the
Notes permitted to be released under the terms of the Indenture or to comply
with requirements of the Commission in order to effect or maintain the quali-
fication of the Indenture under the TIA.
A-4
<PAGE>
10. DEFAULTS AND REMEDIES. If an Event of Default occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount of
the then outstanding Notes may declare by written notice to the Company and
the Trustee all the Notes to be due and payable immediately, except that in
the case of an Event of Default arising from certain events of bankruptcy or
insolvency, all outstanding Notes become due and payable immediately without
further action or notice. Holders may not enforce the Indenture or the Notes
except as provided in the Indenture. The Trustee may require indemnity
satisfactory to it before it enforces the Indenture or the Notes. 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 Company must furnish an annual compliance certificate to the
Trustee.
11. TRUSTEE DEALINGS WITH COMPANY. The Trustee under the
Indenture, in its individual or any other capacity, may make loans to, accept
deposits from, and perform services for the Company or its Affiliates, and
may otherwise deal with the Company or its Affiliates, as if it were not
Trustee.
12. NO RECOURSE AGAINST OTHERS. No director, officer, employee,
incorporator, shareholder or controlling person of the Company or Guarantor,
as such, shall have any liability for any obligations of the Company or any
Guarantor under the Notes, the Indenture or the Registration Rights Agreement
or for any claim based on, in respect of, or by reason of such obligations or
their creation. Each Holder by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for the
issuance of the Notes and the Guarantees. Notwithstanding the foregoing,
nothing in this provision shall be construed as a waiver or release of any
claims under the Federal securities laws.
13. AUTHENTICATION. This Note shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating
agent.
14. ABBREVIATIONS. Customary abbreviations may be used in the name
of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT
(= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A
(= Uniform Gifts to Minors Act).
15. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has
caused CUSIP numbers to be printed on the Notes and has directed the Trustee
to use CUSIP numbers in notices of redemption as a convenience to Holders.
No representation is made as to the accuracy of such numbers either as
printed on the Notes or as contained in any notice of redemption and reliance
may be placed only on the other identification numbers placed thereon.
16. ADDITIONAL RIGHTS OF HOLDERS OF SECURITIES. The Company shall
furnish to any Holder upon written request and without charge a copy of the
Indenture. Requests may be made to: Archibald Candy Corporation, 1137 West
Jackson Boulevard, Chicago, Illinois 60607, Attention: Secretary.
A-5
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and
transfer this Note to
- ------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint______________________________ agent to transfer this
Note on the books of the Company. The agent may substitute another to act for
him.
______________________________________________________________________________
Date:____________________
Your Signature:_________________________________
(Sign exactly as your name appears
on the face of this Note)
Signature Guarantee*
________________
* NOTICE: The signature must be guaranteed by an institution which is a
member of one of the following recognized signature guarantee
programs:
(1) The Securities Transfer Agent Medallian Program (STAMP);
(2) The New York Stock Exchange Medallian Program (MSP);
(3) The Stock Exchange Medallian Program (SEMP).
A-6
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have all or any part of this Note purchased by the
Company pursuant to Section 4.10 or Section 4.14 of the Indenture, as the case
may be, state the amount you elect to have purchased (if all, write "ALL"):
$______________
Date:__________________________
Your Signature:_________________________
(Sign exactly as your name appears
on the face of this Note)
Signature Guarantee*
- ---------------
* NOTICE: The signature must be guaranteed by an institution which is a
member of one of the following recognized signature guarantee
programs:
(1) The Securities Transfer Agent Medallian Program (STAMP);
(2) The New York Stock Exchange Medallian Program (MSP);
(3) The Stock Exchange Medallian Program (SEMP).
A-7
<PAGE>
SCHEDULE OF EXCHANGES OF DEFINITIVE NOTES(2)
The following exchanges of a part of this Global Note for
Definitive Notes have been made:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF THIS
AMOUNT OF DECREASE IN AMOUNT OF INCREASE IN GLOBAL NOTE FOLLOWING
PRINCIPAL AMOUNT OF THIS PRINCIPAL AMOUNT OF THIS SUCH DECREASE (OR IN- SIGNATURE OF AUTHO-
DATE OF EXCHANGE GLOBAL NOTE GLOBAL NOTE CREASE) RIZED OFFICER OF TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
</TABLE>
- -------------------
(2) This should be included only if the Note is issued in global
form.
A-8
<PAGE>
ARCHIBALD CANDY CORPORATION
$100,000,000 10-1/4% Senior Secured Notes due 2004
PURCHASE AGREEMENT
June 27, 1997
Jefferies & Company, Inc.
First Chicago Capital Markets, Inc.
c/o Jefferies & Company, Inc.
11100 Santa Monica Boulevard, Suite 1100
Los Angeles, California 90025
Ladies and Gentlemen:
Archibald Candy Corporation, an Illinois corporation (the "ISSUER")
and a wholly-owned subsidiary of Fannie May Holdings, Inc. ("Holdings") hereby
agrees with you as follows:
1. ISSUANCE OF SECURITIES. The Issuer proposes to issue and sell to
Jefferies & Company, Inc. and First Chicago Capital Markets, Inc. (each a
"PURCHASER" and together the "PURCHASERS") $100,000,000 aggregate principal
amount of 10-1/4% Senior Secured Notes due 2004, Series A (the "SERIES A
NOTES"). The Series A Notes will be issued pursuant to an indenture (the
"INDENTURE"), to be dated as of July 2, 1997, among the Issuer and The Bank of
New York, as trustee (the "TRUSTEE"). The obligations under the Notes will be
secured by security interests in or pledges of (the "SECURITY INTERESTS")
certain owned property and assets (the "COLLATERAL") of the Issuer and of all of
the capital stock of the Issuer's future subsidiaries, as set forth in the
Offering Circular (defined below). Such Security Interests will be evidenced by
a security and pledge agreement, intellectual property security agreement and
mortgages (collectively, the "SECURITY AGREEMENTS").
The Series A Notes will be offered and sold to the Purchasers pursuant
to an exemption from the registration requirements under the Securities Act of
1933, as amended (the "ACT"). The Issuer has prepared a preliminary offering
circular, dated June 13, 1997 (the "PRELIMINARY OFFERING CIRCULAR"), and a final
offering circular, dated June 27, 1997 (the "OFFERING CIRCULAR"), relating to
the offer and sale of the Series A Notes (the "OFFERING").
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Concurrently with the consummation of the Offering, the Issuer will
enter into an amendment of its revolving credit facility with The First National
Bank of Chicago providing for borrowings of up to $20,000,000 (as amended, the
"NEW CREDIT FACILITY").
Upon original issuance thereof, and until such time as the same is no
longer required under the applicable requirements of the Act, the Series A Notes
shall bear the following legend:
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 TRANSACTIONS ARE EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES NOT TO
OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE
THAT IS TWO YEARS (OR SUCH SHORTER PERIOD THAT MAY HEREAFTER BE
PROVIDED UNDER RULE 144(K) AS PERMITTING RESALES BY NON-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 SUCH SECURITY) EXCEPT (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 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 FOREIGN PERSONS THAT OCCUR IN OFFSHORE
TRANSACTIONS AND WITHOUT DIRECTED SELLING EFFORTS WITHIN THE MEANINGS
OF SUCH TERMS AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT, (E)
TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE
501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES
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ACT THAT IS PURCHASING 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, 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, AND IN EACH OF THE FOREGOING CASES, A
CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THIS SECURITY IS
COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE.
2. AGREEMENTS TO SELL AND PURCHASE. On the basis of the
representations, warranties and agreements contained herein, and subject to the
terms and conditions hereof, the Issuer shall issue and sell to the Purchasers
and each Purchaser, severally and not jointly, shall purchase from the Issuer,
the principal amount of Series A Notes set forth opposite the names of the
Purchasers in Schedule I hereto. The purchase price for the Series A Notes
shall be 10-1/4% of the principal amount thereof.
3. TERMS OF OFFERING. The Purchasers have advised the Issuer that
the Purchasers will make offers to sell (the "EXEMPT RESALES") some or all of
the Series A Notes purchased by the Purchasers hereunder on the terms set forth
in the Offering Circular, as amended or supplemented, solely to (i) persons whom
the Purchasers reasonably believe to be "qualified institutional buyers" as
defined in Rule 144A under the Act ("QIBS") and (ii) a limited number of
institutional "accredited investors" as defined in Rule 501(a)(1), (2), (3) or
(7) under the Act ("ACCREDITED INVESTORS") (such persons specified in clauses
(i) and (ii) being referred to herein as the "ELIGIBLE PURCHASERS").
Holders of the Series A Notes (including subsequent transferees) will
have the registration rights set forth in the registration rights agreement (the
"REGISTRATION RIGHTS AGREEMENT"), to be executed on and dated as of the Closing
Date. Pursuant to the Registration Rights Agreement, the Issuer will agree,
among other things, to file with the Securities and Exchange Commission (the
"COMMISSION") (i) a registration statement under the Act (the "EXCHANGE OFFER
REGISTRATION STATEMENT") relating to, among other things, the 10-1/4% Senior
Secured Notes due 2004, Series B, of the Issuer (the "SERIES B NOTES" and,
together with the Series A Notes, the "NOTES"), identical in all material
respects to the Series A Notes (except that the Series B Notes shall have been
registered pursuant to such registration statement) to be offered in exchange
for the Series
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A Notes (such offer to exchange being referred to as the "REGISTERED EXCHANGE
OFFER") and/or (ii) under certain circumstances, a shelf registration
statement pursuant to Rule 415 under the Act (the "SHELF REGISTRATION
STATEMENT") relating to the resale by certain holders of the Series A Notes.
On the Closing Date, the Issuer will enter into the Security
Agreements that will provide for the grant of the Security Interests in the
Collateral to the Trustee, as collateral agent, for the benefit of the holders
of the Notes. The Security Interests will secure the payment and performance
when due of all of the obligations of the Issuer, under the Indenture, the
Notes, and the Security Agreements.
This Agreement, the Indenture, the Registration Rights Agreement, the
Security Agreements, the Notes and all other documents or instruments executed
by the Issuer or any of the Subsidiaries in connection with the transactions
contemplated hereby and thereby are referred to herein as the "DOCUMENTS." The
transactions contemplated by the Documents, including without limitation, the
Offering and the use of the proceeds therefrom as described in the Offering
Circular, are collectively referred to herein as the "TRANSACTIONS."
4. DELIVERY AND PAYMENT. Delivery to the Purchasers of and payment
for the Series A Notes shall be made at a Closing (the "CLOSING") to be held at
9:00 a.m., Chicago time, on July 2, 1997 (the "CLOSING DATE") at the offices of
Winston & Strawn, 35 West Wacker Drive, Chicago, Illinois 60601. The Closing
Date and the location of delivery of and the form of payment for the Series A
Notes may be varied by agreement between the Purchasers and the Issuer.
The Issuer shall deliver to the Purchasers (i) one or more
certificates representing the Series A Notes (the "GLOBAL SECURITIES"), each in
definitive form, registered in the name of Cede & Co., as nominee of The
Depository Trust Company ("DTC"), or such other names as the Purchasers may
request upon at least one business day's notice to the Issuer, in an amount
corresponding to the aggregate principal amount of the Series A Notes sold
pursuant to Exempt Resales to QIBs, and (ii) one or more certificates
representing the Series A Notes (the "INDIVIDUAL SECURITIES") in definitive
form, registered in such names and denominations as the Purchasers may so
request, in an aggregate amount corresponding to the aggregate principal amount
of Series A Notes sold pursuant to Exempt Resales to Accredited Investors, in
each case against payment by the Purchasers of the purchase price therefor by
immediately available Federal funds bank wire transfer to such bank account as
the Issuer shall designate at least two business days prior to the Closing.
The Global Securities and the Individual Securities in definitive form
shall be made available to the Purchasers for inspection at the Chicago offices
of Winston & Strawn (or such other place as shall be acceptable to the
Purchasers) not later than 9:30 a.m. on the business day immediately preceding
the Closing Date.
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5. AGREEMENTS OF THE ISSUER. The Issuer hereby agrees:
(a) To (i) advise the Purchasers promptly after obtaining
knowledge (and, if requested by the Purchasers, confirm such advice in
writing) of (A) the issuance by any state securities commission of any stop
order suspending the qualification or exemption from qualification of any
of the Notes for offering or sale in any jurisdiction, or the initiation of
any proceeding for such purpose by any state securities commission or other
regulatory authority, or (B) the happening of any event that makes any
statement of a material fact made in the Offering Circular untrue or that
requires the making of any additions to or changes in the Offering Circular
in order to make the statements therein, in the light of the circumstances
under which they are made, not misleading, (ii) use its best efforts to
prevent the issuance of any stop order or order suspending the
qualification or exemption from qualification of any of the Notes under any
state securities or Blue Sky laws and (iii) if at any time any state
securities commission or other regulatory authority shall issue an order
suspending the qualification or exemption from qualification of any of the
Notes under any such laws, use its best efforts to obtain the withdrawal or
lifting of such order at the earliest possible time.
(b) To (i) furnish the Purchasers, without charge, as many
copies of the Offering Circular, and any amendments or supplements thereto,
as the Purchasers may request and (ii) promptly prepare, upon the
Purchasers' request, any amendment or supplement to the Offering Circular
that the Purchasers may deem to be reasonably necessary in connection with
Exempt Resales (and the Issuer hereby consents to the use of the
Preliminary Offering Circular and the Offering Circular, and any amendments
and supplements thereto, by the Purchasers in connection with Exempt
Resales).
(c) Not to amend or supplement the Offering Circular prior to
the Closing Date unless the Purchasers shall previously have been advised
thereof and shall not have objected thereto within five business days after
being furnished a copy thereof.
(d) So long as the Purchasers shall hold any Notes, (i) if any
event shall occur as a result of which, in the reasonable judgment of the
Issuer or the Purchasers, it becomes necessary or advisable to amend or
supplement the Offering Circular in order to make the statements therein,
in the light of the circumstances under which they were made, not
misleading, or if it is necessary to amend or supplement the Offering
Circular to comply with Applicable Law (defined below), forthwith to
prepare an appropriate amendment or supplement to the Offering Circular (in
form and substance satisfactory to the Purchasers) so that (A) as so
amended or supplemented the Offering Circular will not include an untrue
statement of 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, and (B) the Offering Circular
will comply with applicable law and (ii) if it becomes necessary or
advisable to amend or supplement the Offering
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Circular so that the Offering Circular will contain all of the
information specified in, and meet the requirements of, Rule
144(A)(d)(4) of the Act, forthwith to prepare an appropriate amendment
or supplement to the Offering Circular (in form and substance
satisfactory to the Purchasers) so that the Offering Circular, as so
amended or supplemented, will contain the information specified in, and
meet the requirements of, such Rule.
(e) To cooperate with the Purchasers and the Purchasers'
counsel in connection with the qualification of the Notes under the
securities or Blue Sky laws of such jurisdictions as the Purchasers may
request and continue such qualification in effect so long as reasonably
required for Exempt Resales; PROVIDED, that the Issuer shall not be
required in connection therewith to file any general consent to service of
process or to qualify as a foreign corporation in any jurisdiction where it
is not now so qualified or to subject itself to taxation in respect of
doing business in any jurisdiction in which it is not otherwise so subject.
(f) Whether or not any of the Transactions are consummated or
this Agreement is terminated, to pay (i) all costs, expenses, fees and
taxes incident to and in connection with: (A) the preparation, printing and
distribution of the Preliminary Offering Circular and the Offering Circular
and all amendments and supplements thereto (including, without limitation,
financial statements and exhibits), and all preliminary and final Blue Sky
memoranda and all other agreements, memoranda, correspondence and other
documents prepared and delivered in connection herewith, (B) the printing,
processing and distribution (including, without limitation, word processing
and duplication costs) and delivery of, and performance under, each of the
Documents, (C) the issuance and delivery of the Notes, including the fees
of the Trustee and the cost of its personnel, (D) the qualification of the
Notes for offer and sale under the securities or Blue Sky laws of the
several states (including, without limitation, the fees and disbursements
of the Purchasers' counsel relating to such registration or qualification),
(E) furnishing such copies of the Preliminary Offering Circular and the
Offering Circular, and all amendments and supplements thereto, as may
reasonably be requested for use by the Purchasers, and (F) the preparation
of the Notes (including, without limitation, printing and engraving
thereof), (ii) all fees and expenses of the counsel and accountants of the
Issuer, (iii) all expenses and listing fees in connection with the
application for quotation of the Notes in the National Association of
Securities Dealers, Inc. ("NASD") Automated Quotation System - PORTAL
("PORTAL"), (iv) all fees and expenses (including fees and expenses of
counsel) of the Issuer in connection with approval of the Notes by DTC for
"book-entry" transfer and (v) all fees charged by rating agencies in
connection with the rating of the Notes.
(g) To use the proceeds from the sale of the Series A Notes in
the manner described in the Offering Circular under the caption "USE OF
PROCEEDS."
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(h) To the extent it may lawfully do so, not to insist upon,
plead, or in any manner whatsoever claim or take the benefit or advantage
of, any stay, extension, usury or other law, wherever enacted, now or at
any time hereafter in force, that would prohibit or forgive the payment of
all or any portion of the principal of or interest on the Notes, or that
may affect the covenants or the performance of the Indenture (and, to the
extent it may lawfully do so, the Issuer hereby expressly waives all
benefit or advantage of any such law, and covenants that it shall not, by
resort to any such law, hinder, delay or impede the execution of any power
granted to the Trustee in the Indenture or the Security Agreements but
shall suffer and permit the execution of every such power as though no such
law had been enacted).
(i) To do and perform all things required to be done and
performed under the Documents prior to and after the Closing Date.
(j) Not to, and to ensure that no affiliate (as defined in Rule
501(b) of the Act) of any of them will, sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any "security" (as
defined in the Act) that would be integrated with the sale of the Series A
Notes in a manner that would require the registration under the Act of the
sale to the Purchasers or to the Eligible Purchasers of the Series A Notes.
(k) For so long as any of the Notes remain outstanding, during
any period in which any of them is not subject to Section 13 or 15(d) of
the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), to
make available, upon request, to any owner of the Notes in connection with
any sale thereof and any prospective Eligible Purchaser of such Notes from
such owner, the information required by Rule 144A(d)(4) under the Act.
(l) To comply with the representation letter of the Issuer to
DTC relating to the approval of the Notes by DTC for "book-entry" transfer.
(m) To use its best efforts to effect the inclusion of the
Notes in PORTAL.
(n) For so long as the Notes are outstanding, and whether or
not required to do so by the rules and regulations of the Commission, to
furnish to the Trustee and deliver or cause to be delivered to the holders
of the Notes and the Purchasers (i) all quarterly and annual financial
information that would be required to be contained in a filing with the
Commission on Forms 10-Q and 10-K if the Issuer were required to file such
Forms, including for each a "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and, with respect to the
annual information only, a report thereon by the Issuer's independent
certified public accountants and (ii) all reports that would be required
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to be filed with the Commission on Form 8-K if the Issuer were required to
file such reports.
(o) Except in connection with the Registered Exchange Offer or
the filing of the Shelf Registration Statement, not to, and not to
authorize or permit any person acting on its behalf to, (i) distribute any
offering material in connection with the offering and sale of the Notes
other than the Preliminary Offering Circular and the Offering Circular and
any amendments and supplements to the Offering Circular prepared in
compliance with Section 5(c) hereof or (ii) solicit any offer to buy or
offer to sell the Notes by means of any form of general solicitation or
general advertising (including, without limitation, as such terms are used
in Regulation D under the Act) or in any manner involving a public offering
within the meaning of Section 4(2) of the Act.
(p) Not to, directly or indirectly, without the prior consent
of the Purchasers, offer, sell, grant any option to purchase or otherwise
dispose (or announce any offer, sale, grant of any option to purchase or
other disposition) of any securities of any of them for a period of 90 days
after the date of the Offering Circular, except as contemplated by the
Registration Rights Agreement.
(q) For so long as the Purchasers shall hold any Notes, to
notify the Purchasers promptly in writing if the Issuer or any of its
Affiliates becomes a party in interest or a disqualified person with
respect to any employee benefit plan. The terms "ERISA," "Affiliates,"
"party in interest," "disqualified person" and "employee benefit plan"
shall have the meanings as set forth in Section 6(y) hereof.
6. REPRESENTATIONS AND WARRANTIES OF THE ISSUER. The Issuer
represents and warrants to the Purchasers that:
(a) The Preliminary Offering Circular as of its date did not,
and the Offering Circular as of its date does not and as of the Closing
Date will not, and each supplement or amendment thereto as of its date will
not, contain any untrue statement of a material fact or omit to state any
material fact (except, in the case of the Preliminary Offering Circular,
for pricing terms and other financial terms intentionally left blank)
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. No injunction or
order has been issued that either (i) asserts that any of the Transactions
is subject to the registration requirements of the Act or (ii) would
prevent or suspend the issuance or sale of the Notes or the use of the
Preliminary Offering Circular, the Offering Circular, or any amendment or
supplement thereto, in any jurisdiction. Each of the Preliminary Offering
Circular and the Offering Circular, as of their respective dates contained,
and the Offering Circular as amended or supplemented as of the Closing Date
will contain,
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all the information specified in, and meet the requirements of, Rule
144A(d)(4) under the Act. Except as adequately disclosed in the
Offering Circular, there are no related party transactions that would be
required to be disclosed in the Offering Circular if the Offering
Circular were a prospectus included in a registration statement on Form
S-1 filed under the Act.
(b) There are no securities of the Issuer registered under the
Exchange Act or listed on a national securities exchange registered under
Section 6 of the Exchange Act or quoted in a United States automated inter-
dealer quotation system.
(c) The Issuer and each Subsidiary (as defined below) (i) has
been duly organized, is validly existing and is in good standing under the
laws of its jurisdiction of organization, (ii) has all requisite power and
authority to carry on its business and to own, lease and operate its
properties and assets as described in the Offering Circular and (iii) is
duly qualified or licensed to do business and is in good standing as a
foreign corporation authorized to do business in each jurisdiction in which
the nature of such businesses or the ownership or leasing of such
properties requires such qualification, except where the failure to be so
qualified could not reasonably be expected to, singly or in the aggregate,
have a material adverse effect on (A) the properties, business, prospects,
operations, earnings, assets, liabilities or condition (financial or
otherwise) of the Issuer, taken as a whole, (B) the ability of the Issuer
to perform its obligations under any of the Documents or (C) the perfection
or priority of any Security Interest in any portion of the Collateral (a
"MATERIAL ADVERSE EFFECT").
(d) Immediately following the Closing, (i) the only direct or
indirect subsidiaries of the Issuer (collectively, the "SUBSIDIARIES") will
be the corporations identified on Schedule 6(d) hereto, all of which are
Inactive Subsidiaries (as defined in the Indenture), and (ii) the Issuer
directly or indirectly owns 100% of the outstanding shares of capital stock
of each Subsidiary, free and clear of Liens (as defined in the Indenture),
and all of such shares of capital stock are duly authorized and validly
issued, fully paid and nonassessable and not issued in violation of, or
subject to, any preemptive or similar rights. There are no outstanding (x)
securities convertible into or exchangeable for any capital stock of the
Issuer or any of the Subsidiaries, (y) options, warrants or other rights to
purchase or subscribe to capital stock of the Issuer or any of the
Subsidiaries or securities convertible into or exchangeable for capital
stock of the Issuer or any of the Subsidiaries or (z) contracts,
commitments, agreements, understandings, arrangements, calls or claims of
any kind relating to the issuance of any capital stock of the Issuer or any
of the Subsidiaries, any such convertible or exchangeable securities or any
such options, warrants or rights. Immediately following the Closing, the
Issuer will not directly or indirectly own any capital stock or other
equity interest in any person other than the Subsidiaries.
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(e) The total authorized capital stock of the Issuer consists
of 25,000 shares of common stock, par value $.01, 19,200 of which are
issued and outstanding. All of the outstanding shares of capital stock of
the Issuer have been duly authorized and validly issued, are owned
beneficially and of record by Holdings free and clear of Liens, are fully
paid and nonassessable, and were not issued in violation of, and are not
subject to, any preemptive or similar rights. The table under the caption
"CAPITALIZATION" in the Offering Circular (including the footnotes thereto)
sets forth, as of its date, (i) the capitalization of the Issuer and (ii)
the pro forma capitalization of the Issuer after giving effect to the
Transactions. Except as set forth in such table, neither the Issuer nor
any of the Subsidiaries will have any liabilities, absolute, accrued,
contingent or otherwise other than (x) liabilities that are reflected in
the Financial Statements (defined below), or (y) liabilities incurred
subsequent to the date thereof in the ordinary course of business,
consistent with past practice, that could not, singly or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
(f) Except for this Agreement and the Registration Rights
Agreement, neither the Issuer nor any of the Subsidiaries has entered into
any agreement (i) to register its securities under the Act or (ii) to
purchase or offer to purchase any securities of the Issuer, any of the
Subsidiaries or any of their respective affiliates.
(g) The Issuer has all requisite power and authority to enter
into, deliver and perform its obligations under the Documents and to
consummate the Transactions. Each of the Documents has been duly and
validly authorized by the Issuer, and this Agreement is, and when executed
and delivered on the Closing Date each other Document will be, a legal,
valid and binding obligation of the Issuer, enforceable against the Issuer
in accordance with its terms, except as the enforceability thereof may be
(i) subject to applicable bankruptcy, insolvency, fraudulent conveyance,
moratorium, reorganization or similar laws now or hereafter in effect
relating to or affecting the enforcement of creditors rights and remedies
generally and (ii) limited by general principles of equity (whether
considered in a proceeding at law or in equity). When executed and
delivered, each Document will conform in all material respects to the
description thereof in the Offering Circular. On the Closing Date, the
Indenture will conform to the requirements of the Trust Indenture Act of
1939, as amended (the "TIA"), applicable to an indenture that is required
to be qualified under the TIA.
(h) The Series A Notes have been duly and validly authorized by
the Issuer for issuance and sale to the Purchasers pursuant to this
Agreement and, when executed and authenticated in accordance with the terms
of the Indenture and delivered to and paid for by the Purchasers in
accordance with the terms hereof, will be legal, valid and binding
obligations of the Issuer, enforceable against the Issuer in accordance
with their terms, except as the enforceability thereof may be (i) subject
to applicable bankruptcy, insolvency, fraudulent conveyance, moratorium,
reorganization or similar laws now or hereafter in effect relating to
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or affecting the enforcement of creditors rights and remedies generally and
(ii) limited by general principles of equity (whether considered in a
proceeding at law or in equity). The Series B Notes have been duly and
validly authorized by the Issuer and, when executed, authenticated and
delivered in accordance with the terms of the Indenture and the
Registration Rights Agreement, will be legal, valid and binding obligations
of the Issuer, enforceable against the Issuer in accordance with their
terms, except as the enforceability thereof may be (i) subject to
applicable bankruptcy, insolvency, fraudulent conveyance, moratorium,
reorganization or similar laws now or hereafter in effect relating to or
affecting the enforcement of creditors rights and remedies generally and
(ii) limited by general principles of equity (whether considered in a
proceeding at law or in equity).
(i) Neither the Issuer nor any of the Subsidiaries is (i) in
violation of its charter or bylaws (collectively, "CHARTER DOCUMENTS"),
(ii) other than violations that could not, singly or in the aggregate,
reasonably be expected to result in a Material Adverse Effect, in violation
of any Federal, state, local or foreign statute, law (including, without
limitation, common law) or ordinance, or any judgment, decree, rule,
regulation or order (collectively, "APPLICABLE LAW") of any government,
governmental or regulatory agency or body, court or arbitrator, domestic or
foreign (each, a "GOVERNMENTAL AUTHORITY") or (iii) other than breaches or
defaults that could not, singly or in the aggregate, reasonably be expected
to result in a Material Adverse Effect, in breach of or default under (with
the passage of time or otherwise) any bond, debenture, note or other
evidence of indebtedness, indenture, mortgage, deed of trust, lease or any
other agreement or instrument to which any such person is a party or by
which any of them or their respective property is bound (collectively,
"APPLICABLE AGREEMENTS"). There exists no condition that, with the passage
of time or otherwise, would constitute a violation of such Charter
Documents or Applicable Laws or a breach of or default under any Applicable
Agreement or result in the imposition of any penalty or the acceleration of
any indebtedness, other than breaches, violations, penalties, defaults or
conditions which could not, singly or in the aggregate, reasonably be
expected to result in a Material Adverse Effect.
(j) The Security Agreements have been duly and validly
authorized, executed and delivered by the Issuer and constitute a valid and
legally binding agreement of the Issuer, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar
laws, now or hereafter in effect, relating to or affecting creditors'
rights and remedies generally and to general principles of equity
(regardless of whether enforcement is sought at law or in equity).
(k) Neither the execution, delivery or performance of the
Documents nor the consummation of the Transactions shall conflict with,
violate, constitute a breach of or a default (with the passage of time or
otherwise) under, require the consent of any person
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under, result in the imposition of a Lien on any assets of the Issuer or
any of the Subsidiaries (except pursuant to the Documents), or result in
an acceleration of indebtedness pursuant to (i) the Charter Documents of
the Issuer or any of the Subsidiaries, (ii) any Applicable Agreement,
other than (A) such breaches, violations or defaults that could not,
singly or in the aggregate, reasonably be expected to result in a
Material Adverse Effect, and (B) violations under the Old Credit
Facility and the Securities Purchase Agreement (as defined in the
Offering Circular), consents for which will be obtained on or prior to
the Closing Date or (iii) any Applicable Law. After giving effect to
the Transactions, no Default or Event of Default (as defined in the
Indenture) will exist.
(l) No permit, authorization, approval, consent, license or
order of, or filing, registration or qualification with, any Governmental
Authority (collectively, "PERMITS") is required in connection with, or as a
condition to, the execution, delivery or performance of any of the
Documents or the consummation of any of the Transactions, other than such
Permits (i) as have been made or obtained on or prior to the Closing Date,
(ii) as are not required to be made or obtained on or prior to the Closing
Date that will be made or obtained when required and (iii) the failure of
which to make or obtain could not, singly or in the aggregate, result in a
Material Adverse Effect.
(m) Except as adequately disclosed in the Offering Circular,
there is no action, claim, suit or proceeding (including, without
limitation, an investigation or partial proceeding, such as a deposition),
domestic or foreign (collectively, "PROCEEDINGS"), pending or threatened,
that either (i) seeks to restrain, enjoin, prevent the consummation of, or
otherwise challenge any of the Documents or any of the Transactions, or
(ii) could, singly or in the aggregate, reasonably be expected to have a
Material Adverse Effect. Neither the Issuer nor any of the Subsidiaries is
subject to any judgment, order, decree, rule or regulation of any
Governmental Authority that could, singly or in the aggregate, reasonably
be expected to have a Material Adverse Effect.
(n) The Issuer and each of the Subsidiaries has such Permits as
are necessary to own, lease and operate the properties and to conduct the
businesses described in the Offering Circular other than those the failure
of which to have could not, singly or in the aggregate, reasonably be
expected to result in a Material Adverse Effect. All such Permits are in
full force and effect. No event has occurred which allows, or after notice
or lapse of time would allow the imposition of, any material penalty,
revocation or termination by the issuer thereof or which results in any
material impairment of the rights of the holder of any such Permits.
Neither the Issuer nor any of the Subsidiaries has reason to believe, after
due inquiry, that any issuer is considering limiting in any material
respect, suspending or revoking any such Permit.
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(o) Immediately following the Closing, the Issuer and the
Subsidiaries (i) will have good and marketable title, free and clear of all
Liens (except for Permitted Liens (as defined below)), to all property and
assets described in the Offering Circular as being owned by them and (ii)
will enjoy peaceful and undisturbed possession under all leases to which
any of them is a party as lessee. "PERMITTED LIENS" means, collectively,
(i) Permitted Liens as defined in the Indenture, (ii) Liens on assets
securing Indebtedness outstanding under the New Credit Facility and the
Notes and (iii) Purchase Money Liens as defined in the Indenture. All
Applicable Agreements are in full force and effect and are legal, valid and
binding obligations of the Issuer, and no default has occurred or is
continuing thereunder, other than such defaults that could not, singly or
in the aggregate, reasonably be expected to have a Material Adverse Effect.
The Issuer and the Subsidiaries maintain insurance (including self-
insurance consistent with prior practice) covering their properties,
operations, personnel and businesses against such losses and risks as they
reasonably deem adequate in accordance with customary industry practice.
Any such insurance is outstanding and duly in force.
(p) Upon execution and delivery thereof, the Security
Agreements will create, in favor of the Trustee, for the benefit of the
holders of the Notes, a valid grant of a security interest in the
Collateral and the proceeds thereof and, upon the filings or the recording
required by the Security Agreements, the Trustee will have a first priority
perfected security interest in the Collateral.
(q) All tax returns required to be filed by the Issuer in any
jurisdiction (including foreign jurisdictions) have been filed and, when
filed, all such returns were accurate in all material respects, and all
taxes, assessments, fees and other charges (including, without limitation,
withholding taxes, penalties and interest) due or claimed to be due from
such entities have been paid, other than those being contested in good
faith by appropriate proceedings, or those that are currently payable
without penalty or interest and, in each case, for which an adequate
reserve or accrual has been established on the books and records of the
Issuer in accordance with generally accepted accounting principles of the
United States, consistently applied ("GAAP"). There are no actual or
proposed additional tax assessments for any fiscal period against the
Issuer or any of the Subsidiaries that could, singly or in the aggregate,
reasonably be expected to have a Material Adverse Effect. The charges,
accruals and reserves on the books of each of the Issuer and the
Subsidiaries in respect of any income and tax liability for any years not
finally determined are adequate to meet any assessments or re-assessments
for additional income tax for any years not finally determined.
(r) The Issuer and the Subsidiaries own, or are licensed under,
and have the right to use, all 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 and trade names
(collectively, "INTEL-
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LECTUAL PROPERTY") currently used in, or necessary for the conduct of,
their businesses as set forth in the Offering Circular. No written
claims and, to the knowledge of the Issuer after due inquiry, no other
claims have been asserted by any person challenging the use of any such
Intellectual Property by the Issuer or any of the Subsidiaries
questioning the validity or effectiveness of any license or agreement
related thereto, there is no valid basis for any such claim (other than
any claims that could not, singly or in the aggregate, reasonably be
expected to have a Material Adverse Effect), and the use of such
Intellectual Property by the Issuer will not infringe on the
Intellectual Property rights of any other person.
(s) The Issuer maintains a system of internal accounting
controls sufficient to provide reasonable assurance that (i) material
transactions are executed in accordance with management's general or
specific authorization, (ii) material transactions are recorded as
necessary to permit preparation of financial statements in conformity with
GAAP, and to maintain asset accountability, (iii) access to assets is
permitted only in accordance with management's general or specific
authorization and (iv) the recorded accountability for assets is compared
with the existing assets at reasonable intervals and appropriate action is
taken with respect to any material differences.
(t) Each of (i) the audited financial statements of the Issuer
and related notes contained in the Offering Circular (the "AUDITED
FINANCIAL STATEMENTS") and (ii) the unaudited historical consolidated
financial statements of the Issuer and related notes contained in the
Offering Circular (the "INTERIM FINANCIAL STATEMENTS" and, together with
the Audited Financial Statements, the "FINANCIAL STATEMENTS") present
fairly the consolidated financial position, results of operations and cash
flows of the Issuer, as of the respective dates and for the respective
periods to which they apply, and have been prepared in accordance with GAAP
and the requirements of Regulation S-X that would be applicable if the
Offering Circular were a prospectus included in a registration statement on
Form S-1 filed under the Act. The summary historical financial data
included in the Offering Circular have been prepared on a basis consistent
with that of the Financial Statements and present fairly the consolidated
financial position and results of operations of the Issuer and the
Subsidiaries as of the respective dates and for the respective periods
indicated. All other financial and statistical data included in the
Offering Circular are fairly and accurately presented in all material
respects. Ernst & Young LLP are independent public accountants with
respect to the Issuer.
(u) Subsequent to the respective dates as of which information
is given in the Offering Circular, except as adequately disclosed in the
Offering Circular, (i) neither the Issuer nor any of the Subsidiaries has
incurred any liabilities, direct or contingent, that are material, singly
or in the aggregate, to any of them, or has entered into any material
transactions not in the ordinary course of business, (ii) there has not
been any decrease in the capital stock or any increase in long-term
indebtedness or any material increase in short-term indebt-
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<PAGE>
edness of any of them, or any payment of or declaration to pay any
dividends or any other distribution with respect to any of them and
(iii) there has not been any material adverse change in the properties,
business, prospects, operations, earnings, assets, liabilities or
condition (financial or otherwise) of the Issuer and the Subsidiaries
taken as a whole (each of clauses (i), (ii) and (iii), a "MATERIAL
ADVERSE CHANGE"). To the knowledge of the Issuer after due inquiry,
there is no event that is reasonably likely to occur, which if it were
to occur, could, singly or in the aggregate, have a Material Adverse
Effect, except such events that have been adequately disclosed in the
Offering Circular.
(v) Immediately following the Closing, after giving effect to
the Transactions, (i) the present fair salable value of the assets of the
Issuer will exceed the amount that will be required to be paid on or in
respect of the then existing debts and other liabilities (including
contingent liabilities) as they become absolute and matured and (ii) the
Issuer will not have unreasonably small capital to carry out its businesses
as conducted or as proposed to be conducted. Neither the Issuer nor any of
its Subsidiaries intends to, or believes that it will, incur debts beyond
its ability to pay such debts as they mature.
(w) Except as contemplated by this Agreement, neither the
Issuer nor any of its Affiliates has (i) taken, directly or indirectly, any
action designed to cause or to result in, or that has constituted or which
might reasonably be expected to constitute, the stabilization or
manipulation of the price of any security of any of them to facilitate the
sale or resale of any of the Notes or (ii) except as disclosed in the
Offering Circular, (A) sold, bid for, purchased, or paid anyone any
compensation for soliciting purchases of, any of the Notes or (B) paid or
agreed to pay to any person any compensation for soliciting another to
purchase any other securities of any of them.
(x) No registration under the Act, and no qualification of the
Indenture under the TIA is required for the sale of the Series A Notes to
the Purchasers as contemplated hereby or for the Exempt Resales, assuming
(i) that the Eligible Purchasers who buy the Series A Notes in the Exempt
Resales are QIBs or Accredited Investors, (ii) the accuracy of the
Purchasers' representations contained herein regarding the absence of
general solicitation in connection with the sale of the Series A Notes to
the Purchasers and the Exempt Resales and (iii) the accuracy of the
representations made by each Accredited Investor who purchases the Series A
Notes pursuant to an Exempt Resale as set forth in the letters of
representation in the form of Annex A to the Offering Circular. No form of
general solicitation or general advertising was used by the Issuer or any
of its Affiliates or any of their representatives in connection with the
offer and sale of any of the Series A Notes or in connection with Exempt
Resales. No securities of the same class as any of the Notes have been
offered, issued or sold by the Issuer or any of its Affiliates within the
six-month period immediately prior to the date hereof.
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(y) Neither the Issuer nor any of its "Affiliates" is a "party
in interest" or a "disqualified person" with respect to any employee
benefit plans except for those set forth on Annex B of the Offering
Circular. No condition exists or event or transaction has occurred in
connection with any employee benefit plan that could result in the Issuer
or any such "Affiliate" incurring any liability, fine or penalty that
could, singly or in the aggregate, reasonably be expected to have a
Material Adverse Effect. With respect to any employee pension benefit plan
that is subject to Title IV of ERISA, (i) the fair market value of the
assets of such employee pension benefit plan equals or exceeds the present
value of the liabilities of such pension plan (as determined in accordance
with the actuarial methods and assumptions set forth in the latest
actuarial report for such employee pension benefit plan), except where the
failure to so equal or exceed would not, singly or in the aggregate, have a
Material Adverse Effect and (ii) there exists no accumulated funding
deficiency which could, singly or in the aggregate, reasonably be expected
to have a Material Adverse Effect. The terms "employee benefit plan,"
"employee pension benefit plan," and "party in interest" shall have the
meanings assigned to such terms in Section 3 of the Employee Retirement
Income Act of 1974, as amended, or the rules and regulations promulgated
thereunder ("ERISA"), the term "Affiliate" shall have the meaning assigned
to such term in Section 407(d)(7) of ERISA, and the term "disqualified
person" shall have the meaning assigned to such term in section 4975 of the
Internal Revenue Code of 1986, as amended, or the rules, regulations and
published interpretations promulgated thereunder (the "CODE").
(z) None of the Transactions will violate or result in a
violation of Section 7 of the Exchange Act (including, without limitation,
Regulation T (12 C.F.R. Part 220), Regulation U (12 C.F.R. Part 221) or
Regulation X (12 C.F.R. Part 224) of the Board of Governors of the Federal
Reserve System). Neither the Issuer nor any of the Subsidiaries is subject
to regulation, or shall become subject to regulation upon the consummation
of the Transactions, under the Investment Company Act of 1940, as amended,
and the rules and regulations and interpretations promulgated thereunder,
the Public Utility Holding Company Act of 1935, as amended.
(aa) Neither the Issuer nor any of the Subsidiaries has dealt
with any broker, finder, commission agent or other person (other than the
Purchasers) in connection with the Transactions and neither the Issuer nor
any of the Subsidiaries is under any obligation to pay any broker's fee or
commission in connection with such transactions (other than commissions and
fees to the Purchasers as set forth in the Offering Circular).
(bb) Neither the Issuer nor any Subsidiary is engaged in any
unfair labor practice that could, singly or in the aggregate, reasonably be
expected to have a Material Adverse Effect. There is (i) no unfair labor
practice complaint or other proceeding pending
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or, to the Issuer's knowledge after due inquiry, threatened against the
Issuer before the National Labor Relations Board or any state or local
labor relations board or any industrial tribunal, and no grievance or
arbitration proceeding arising out of or under any collective bargaining
agreement is so pending, to the Issuer's knowledge after due inquiry, or
threatened, (ii) no strike, general labor dispute, slowdown or stoppage
pending or threatened against any the Issuer and (iii) no union
representation question existing with respect to the employees of the
Issuer, and, to the Issuer's knowledge after due inquiry, no union
organizing activities are taking place, that in each of clauses (i),
(ii) and (iii) above, singly or in the aggregate, could reasonably be
expected to have a Material Adverse Effect.
(ac) Except as adequately disclosed in the Offering Circular or
as otherwise could not, singly or in the aggregate, reasonably be expected
to have a Material Adverse Effect:
(1) each of the Issuer and the Subsidiaries (i) has
obtained all Permits that are required with respect to the operation
of its business, property and assets under the Environmental Laws (as
defined below) and are in compliance with all terms and conditions of
such required Permits and (ii) is in compliance with all Environmental
Laws (including, without limitation, compliance with standards,
schedules and timetables therein);
(2) no real property or facility owned, used, operated,
leased, managed or controlled by the Issuer or any of the
Subsidiaries, or any predecessor in interest, is listed or proposed
for listing on the National Priorities List or the Comprehensive
Environmental Response, Compensation, and Liability Information
System, both promulgated under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended
("CERCLA"), or on any other state or local list established pursuant
to any Environmental Law, and neither the Issuer nor any of the
Subsidiaries has received any notification of potential or actual
liability or request for information under CERCLA or any comparable
state or local law;
(3) no underground storage tank or other underground
storage receptacle, or related piping, is located on a facility or
property currently owned, operated, leased, managed or controlled by
the Issuer or any of the Subsidiaries in violation of any
Environmental Law;
(4) there have been no releases (i.e., any past or present
releasing, spilling, leaking, pumping, pouring, emitting, emptying,
discharging, injecting, escaping, leaching, disposing or dumping, on-
site or, to the knowledge of the Issuer and the Subsidiaries after due
inquiry, off-site) of Hazardous Materials (as defined below) by the
Issuer, any of the Subsidiaries or, to the Issuer's knowledge, any
predecessor in interest or any person or entity whose liability for
any release of Hazardous Materials, the Issuer or any of the
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Subsidiaries has retained or assumed either contractually or by
operation of law at, on, under, from or into any facility or real
property owned, operated, leased, managed or controlled by any such
person;
(5) neither the Issuer, the Subsidiaries nor, to the
Issuer's knowledge, any person or entity whose liability the Issuer
has retained or assumed either contractually or by operation of law
has any liability, absolute or contingent, under any Environmental
Law, and there is no civil, criminal or administrative action, suit,
demand, hearing, notice of violation or deficiency, investigation,
proceeding, notice or demand letter pending or threatened against any
of them under any Environmental Law;
(6) to the Issuer's knowledge, there are no events,
activities, practices, incidents or actions or conditions,
circumstances or plans that may interfere with or prevent compliance
by the Issuer or any of the Subsidiaries with any Environmental Law,
or that may give rise to any liability under any Environmental Laws;
and
(7) the Issuer and each of the Subsidiaries have reasonably
concluded that the costs and liabilities associated with compliance
with Environmental Laws could not reasonably be expected, singly or in
the aggregate, to have a Material Adverse Effect on the Issuer and
each of the Subsidiaries, taken as a whole.
"ENVIRONMENTAL LAWS" means all Applicable Laws, now or
hereafter in effect, relating to pollution or protection of human
health or the environment, including, without limitation, laws
relating to (1) emissions, discharges, releases or threatened releases
of pollutants, contaminants, chemicals, or industrial, toxic or
hazardous constituents, substances or wastes, including, without
limitation, asbestos or asbestos-containing materials, polychlorinated
biphenyls, petroleum or any constituents relating to or arising out of
any oil production activities, including crude oil or any fraction
thereof, or any petroleum product or other wastes, chemicals or
substances regulated by any Environmental Law (collectively referred
to as "HAZARDOUS MATERIALS"), into the environment (including, without
limitation, ambient air, surface water, ground water, land surface or
subsurface strata), (2) the manufacture, processing, distribution,
use, generation, treatment, storage, disposal, transport or handling
of Hazardous Materials and (3) underground storage tanks, and related
piping, and emissions, discharges, releases or threatened releases
therefrom.
7. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each of the
Purchasers represents and warrants with respect to itself only that:
(a) It is a QIB.
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(b) It (i) is not acquiring the Series A Notes with a view to
any distribution thereof that would violate the Act or the securities laws
of any state of the United States or any other applicable jurisdiction and
(ii) will be soliciting offers for the Series A Notes only from, and will
be reoffering and reselling the Series A Notes only to (A) persons in the
United States whom it reasonably believes to be QIBs in reliance on the
exemption from the registration requirements of the Act provided by Rule
144A, and (B) a limited number of Accredited Investors that execute and
deliver to the Issuer and the Purchaser a letter containing certain
representations and agreements in the form attached as Annex A to the
Offering Circular.
(c) No form of general solicitation or general advertising in
violation of the Securities Act has been or will be used by such Purchaser
or any of its representatives in connection with the offer and sale of any
of the Series A Notes.
(d) In connection with the Exempt Resales, it will solicit
offers to buy the Series A Notes only from, and will offer and sell the
Series A Notes only to, Eligible Purchasers who, in purchasing such Series
A Notes, will be deemed to have represented and agreed (i) if such Eligible
Purchasers are QIBs, that they are purchasing the Series A Notes for their
own accounts or accounts with respect to which they exercise sole
investment discretion and that they or such accounts are QIBs, (ii) that
such Series A Notes will not have been registered under the Act and may be
resold, pledged or otherwise transferred only (A) inside the United States
to a person who the seller reasonably believes is a QIB in a transaction
meeting the requirements of Rule 144A, in a transaction meeting the
requirements of Rule 144 or in accordance with another exemption from the
registration requirements of the Act, (B) to the Issuer, (C) pursuant to an
effective registration statement and (D) outside the United States to
foreign persons in offshore transactions and without directed selling
efforts within the meanings of such terms as defined in Regulation S under
the Act and, in each case, in accordance with any applicable securities
laws of any state of the United States or any other applicable
jurisdiction, and (iii) that the holder will, and each subsequent holder is
required to, notify any purchaser from it of the security evidenced thereby
of the resale restrictions set forth in (ii) above.
(e) It has all requisite power and authority to enter into,
deliver and perform its obligations under this Agreement and the
Registration Rights Agreement and each of this Agreement and the
Registration Rights Agreement has been duly and validly authorized by it.
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8. INDEMNIFICATION.
(a) The Issuer shall, without limitation as to time, indemnify
and hold harmless the Purchasers and each person, if any, who controls
(within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act) the Purchasers (any of such persons being hereinafter
referred to as a "controlling person"), and the respective officers,
directors, partners, employees, representatives and agents of the
Purchasers and any such controlling person, to the fullest extent lawful,
from and against any and all losses, claims, damages, liabilities, costs
(including, without limitation, costs of preparation and reasonable
attorneys' fees) and expenses (including, without limitation, costs and
expenses incurred in connection with investigating, preparing, pursuing or
defending against any of the foregoing) (collectively, "LOSSES"), as
incurred, directly or indirectly caused by, related to, based upon, arising
out of or in connection with (i) any untrue statement or alleged untrue
statement of a material fact contained in the Preliminary Offering Circular
or the Offering Circular (or any amendment or supplement thereto), or any
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading or (ii) any
act, omission, transaction or event contemplated by the Documents; PROVIDED
that the Issuer shall not be liable to any indemnified party for any Losses
that arise solely with respect to untrue statements or omissions, or
alleged untrue statements or omissions made in the Preliminary Offering
Circular or Offering Circular in reliance upon and in conformity with
written information furnished to the Issuer by the Purchasers expressly for
use in the Preliminary Offering Circular or Offering Circular. The Issuer
shall notify the Purchasers promptly of the institution, threat or
assertion of any Proceeding of which the Issuer or any Subsidiary is aware
in connection with the matters addressed by this Agreement which involves
the Issuer, any of the Subsidiaries or any of the indemnified parties.
(b) Each Purchaser severally agrees to indemnify and hold
harmless the Issuer, and each person, if any, who controls the Issuer
within the meaning of Section 15 of the Act or Section 20(c) of the
Exchange Act and the respective officers, directors, partners, employees,
representatives and agents of the Issuer and any such controlling person,
to the fullest extent possible, from and against any and all Losses
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 Preliminary Offering
Circular or Offering Circular in reliance upon and in conformity with
written information furnished to the Issuer by such Purchasers expressly
for use in the Preliminary Offering Circular or Offering Circular. For all
purposes of this Agreement, the only such written information shall be
deemed to be the last paragraph on the cover page of the Offering Circular
and the third full paragraph of the section "Plan of Distribution" in the
Offering Circular.
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(c) If any Proceeding shall be brought or asserted against any
person entitled to indemnification hereunder, such indemnified party shall
give prompt written notice to the indemnifying party; PROVIDED that the
failure to so notify the indemnifying party shall not relieve the
indemnifying party from any obligation or liability except to the extent
(but only to the extent) that it shall be finally determined by a court of
competent jurisdiction (which determination is not subject to appeal) that
the indemnifying party has been prejudiced materially by such failure.
The indemnifying party shall have the right, exercisable by
giving written notice to an indemnified party within 20 business days after
the receipt of written notice from such indemnified party of such
Proceeding, to assume, at its expense, the defense of any such Proceeding;
PROVIDED, HOWEVER, that an indemnified party shall have the right to employ
separate counsel in any such Proceeding and to participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless: (1) the indemnifying party agrees to pay
such fees and expenses; or (2) the indemnifying party fails promptly to
assume the defense of such Proceeding or fails to employ counsel reasonably
satisfactory to such indemnified party; or (3) the named parties to any
such Proceeding (including any impleaded parties) include both such
indemnified party and the indemnifying party, or any of their respective
affiliates or controlling persons, and such indemnified party shall have
been advised by counsel that there may be one or more material defenses
available to such indemnified party that are in addition to, or in conflict
with, those available to the indemnifying party or such affiliate or
controlling person (in which case, if such indemnified party notifies the
indemnifying party in writing that it elects to employ separate counsel at
the expense of the indemnifying party, the indemnifying party shall not
have the right to assume the defense thereof and the reasonable fees and
expenses of counsel shall be at the expense of the indemnifying party; it
being understood, however, that the indemnifying party shall not, in
connection with any one such Proceeding or separate but substantially
similar or related Proceedings in the same jurisdiction, arising out of the
same general allegations or circumstances, be liable for the fees and
expenses of more than one separate firm of attorneys (together with
appropriate local counsel) at any time for each such indemnified party).
The indemnifying party shall not consent to entry of any judgment
in or enter into any settlement of any pending or threatened Proceeding in
respect of which indemnification or contribution may be sought hereunder
(whether or not any indemnified party is a party thereto) unless such
judgment or settlement includes, as an unconditional term thereof, the
giving by the claimant or plaintiff to each indemnified party of a release,
in form and substance satisfactory to the indemnified party, from all
Losses that may arise from such Proceeding or the subject matter thereof
(whether or not any indemnified party is a party thereto).
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(d) If the indemnification provided for in this Section 8 is
unavailable to an indemnified party or is insufficient to hold such
indemnified party harmless for any Losses in respect of which this Section
8 would otherwise apply by its terms (other than by reason of exceptions
provided in this Section 8), then each indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such Losses (i) in such
proportion as is appropriate to reflect the relative benefits received by
the Issuer, on the one hand, and the Purchasers, on the other hand, from
the offering of the Series A Notes or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in
clause (i) above but also the relative fault of the Issuer, on the one
hand, and the Purchasers, on the other hand, in connection with the
actions, statements or omissions that resulted in such Losses, as well as
any other relevant equitable considerations. The relative benefits
received by the Issuer, on the one hand, and the Purchasers, on the other
hand, shall be deemed to be in the same proportion as the total net
proceeds from the offering (before deducting expenses) received by the
Issuer, and the total discounts and commissions received by the Purchasers,
bear to the total price of the Series A Notes in Exempt Resales in each
case as set forth in the table on the cover page of the Offering Circular.
The relative fault of the Issuer, on the one hand, and the Purchasers, on
the other hand, shall be determined by reference to, among other things,
whether any 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 Issuer, on the one hand, or the Purchasers, on
the other hand, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. The amount paid or payable by an indemnified party as a result
of any Losses shall be deemed to include any legal or other fees or
expenses incurred by such party in connection with any Proceeding, to the
extent such party would have been indemnified for such fees or expenses if
the indemnification provided for in this Section 8 was available to such
party.
Each party hereto agrees that it would not be just and equitable
if contribution pursuant to this Section 8(d) were determined by PRO RATA
allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 8(d), the
Purchasers shall not be required to contribute, in the aggregate, any
amount in excess of the amount by which the total discounts and commissions
received by them with respect to the Series A Notes exceeds the amount of
any damages that the Purchasers have 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 Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
22
<PAGE>
(e) The indemnity and contribution agreements contained in this
Section 8 are in addition to any liability that the Issuer and Purchasers
may otherwise have to the indemnified parties.
9. CONDITIONS.
(a) The obligation of the Purchasers to purchase the Series A
Notes under this Agreement is subject to the satisfaction or waiver of each
of the following conditions:
(i) All the representations and warranties of the
Issuer in this Agreement shall be true and correct in all material
respects (other than representations and warranties with a materiality
qualifier, which shall be true and correct as written) at and as of
the Closing Date after giving effect to the Transactions with the same
force and effect as if made on and as of such date. On or prior to
the Closing Date, the Issuer shall have performed or complied in all
material respects with all of the agreements and satisfied in all
material respects all conditions on its part to be performed, complied
with or satisfied pursuant to this Agreement.
(ii) The Offering Circular shall have been printed
and copies made available to the Purchasers not later than 12:00 noon,
New York City time, on the first business day following the date of
this Agreement or at such later date and time as the Purchasers may
approve.
(iii) No injunction, restraining order or order of
any nature by a Governmental Authority shall have been issued as of
the Closing Date that would prevent or interfere with the consummation
of any of the Transactions; and no stop order suspending the
qualification or exemption from qualification of any of the Series A
Notes in any jurisdiction shall have been issued and no Proceeding for
that purpose shall have been commenced or be pending or contemplated.
(iv) No action shall have been taken and no
Applicable Law shall have been enacted, adopted or issued that would,
as of the Closing Date, prevent the consummation of any of the
Transactions. No Proceeding shall be pending or threatened other than
Proceedings that (A) if adversely determined could not, singly or in
the aggregate, adversely affect the issuance or marketability of the
Series A Notes and (B) could not reasonably be expected to have a
Material Adverse Effect.
23
<PAGE>
(v) Since the date as of which information is given
in the Offering Circular, there shall not have been any Material
Adverse Change.
(vi) The Notes shall have (A) been designated PORTAL
securities in accordance with the rules and regulations adopted by the
NASD relating to trading in the PORTAL market, and (B) received a
rating of B and B2 from Standard & Poor's Corporation and Moody's
Investors Services, Inc., respectively.
(vii) The Purchasers shall have received on the
Closing Date (A) certificates dated the Closing Date, signed by (1)
the President and (2) the principal financial or accounting officer of
the Issuer, on behalf of the Issuer, (x) confirming the matters set
forth in paragraphs (i) through (v) of this Section 9(a) and (y)
certifying as to such other matters as the Purchasers may reasonably
request, (B) a certificate, dated the Closing Date, signed by the
Secretary of the Issuer, certifying such matters as the Purchasers may
reasonably request and (C) a certificate of solvency, dated the
Closing Date, signed by the principal financial or accounting officer
of the Issuer substantially in the form previously approved by the
Purchasers.
(viii) The Purchasers shall have received:
(1) an opinion of Winston & Strawn, counsel to the Issuer
("Winston & Strawn"), dated the Closing Date, in the form of Exhibit A
hereto; and
(2) an opinion, dated the Closing Date, of Skadden, Arps,
Slate, Meagher & Flom (Illinois), in form and substance reasonably
satisfactory to the Purchasers covering such matters as are
customarily covered in such opinions.
(ix) The Purchasers shall have received from Ernst &
Young LLP (A) a customary comfort letter, dated the date of the
Offering Circular, in form and substance reasonably satisfactory to
the Purchasers, with respect to the financial statements and certain
financial information contained in the Offering Circular, and (B) a
customary comfort letter, dated the Closing Date, in form and
substance reasonably satisfactory to the Purchasers, to the effect
that they reaffirm the statements made in the letter furnished
pursuant to clause (A), except that the specified date referred to
shall be a date not more than five days prior to the Closing Date.
(x) The Documents shall have been executed and
delivered by all parties thereto and the Purchasers shall have
received a fully executed original of each Document.
24
<PAGE>
(xi) The Purchasers shall have received copies of
duly executed payoff letters, UCC-3 termination statements, mortgage
releases and other collateral releases and terminations, each in form
and substance satisfactory to the Purchasers, evidencing (1) the
repayment of the outstanding indebtedness of the Issuer under the Old
Credit Facility (as defined in the Offering Circular) and (2) the
release of all Liens created under the Old Credit Facility on each
item constituting Collateral under the Indenture, and each such
release shall be in full force and effect.
(xii) The Purchasers shall have received copies of
commitments to issue ALTA title insurance policies on the real
property collateral in form and substance satisfactory to the
Purchasers.
(xiii) The Trustee shall have received executed
copies of each UCC-1 financing statement signed by the Issuer, naming
the Trustee as secured party and filed in such jurisdictions as the
Purchasers may reasonably require.
(xiv) The Issuer shall have entered into the New
Credit Facility and an amendment to the Securities Purchase Agreement
on or prior to the Closing.
(xv) Counsel to the Purchasers shall have been
furnished with such documents as they may reasonably require for the
purpose of enabling them to review or pass upon the matters referred
to in this Section 9 and in order to evidence the accuracy,
completeness or satisfaction in all material respects of any of the
representations, warranties or conditions herein contained.
(b) The obligation of the Issuer to sell the Series A Notes
under this Agreement is subject to the satisfaction or waiver of each of
the following conditions:
(i) The Purchasers shall have delivered payment to
the Issuer for the Series A Notes pursuant to Sections 2 and 4 of this
Agreement.
(ii) All of the representations and warranties of the
Purchasers in this Agreement shall be true and correct in all material
respects at and as of the Closing Date, with the same force and effect
as if made on and as of such date.
(iii) No injunction, restraining order or order of
any nature by a Governmental Authority shall have been issued as of
the Closing Date that would prevent or interfere with the issuance and
sale of the Series A Notes; and no stop
25
<PAGE>
order suspending the qualification or exemption from qualification of
any of the Series A Notes in any jurisdiction shall have been issued and
no Proceeding for that purpose shall have been commenced or be pending
or contemplated as of the Closing Date.
10. TERMINATION. The Purchasers may terminate this Agreement at any
time prior to the Closing Date by written notice to the Issuer if any of the
following has occurred:
(a) since the date as of which information is given in the
Offering Circular, any material adverse effect or development involving a
prospective adverse effect on the properties, business, prospects,
operations, earnings, assets, liabilities or condition (financial or
otherwise), of the Issuer or any Subsidiary, whether or not arising in the
ordinary course of business, which would, in the Purchasers' judgment, (i)
make it impracticable or inadvisable to proceed with the offering or
delivery of the Series A Notes on the terms and in the manner contemplated
in the Offering Circular or (ii) materially impair the investment quality
of any of the Notes;
(b) any outbreak or escalation of hostilities or other national
or international calamity or crisis or material adverse change in economic
conditions in or the financial markets of the United States or elsewhere,
if the effect of such outbreak, escalation, calamity, crisis or material
adverse change in the economic conditions in or in the financial markets of
the United States or elsewhere would make it, in the Purchasers' judgment,
impracticable or inadvisable to market or proceed with the offering or
delivery of the Series A Notes on the terms and in the manner contemplated
in the Offering Circular or to enforce contracts for the sale of any of the
Series A Notes;
(c) the suspension or limitation of trading generally in
securities on the New York Stock Exchange, the American Stock Exchange or
the Nasdaq National Market or any setting of limitations on prices for
securities on any such exchange or Nasdaq National Market;
(d) the enactment, publication, decree or other promulgation
after the date hereof of any Applicable Law that in the Purchasers' opinion
materially and adversely affects, or could materially and adversely affect,
the properties, business, prospects, operations, earnings, assets,
liabilities or condition (financial or otherwise) of the Issuer;
(e) any securities of the Issuer shall have been downgraded or
placed on any "watch list" for possible downgrading by any "nationally
recognized statistical rating organization", as such term is defined for
purposes of Rule 431(g)(2) under the Act; or
26
<PAGE>
(f) the declaration of a banking moratorium by any Governmental
Authority; or the taking of any Governmental Authority after the date
hereof in respect of its monetary or fiscal affairs that in the Purchasers'
opinion could have a material adverse effect on the financial markets in
the United States.
The indemnities and contribution and expense reimbursement provisions
and other agreements, representations and warranties of the Issuer set forth in
or made pursuant to this Agreement shall remain operative and in full force and
effect, and will survive, regardless of (i) any investigation, or statement as
to the results thereof, made by or on behalf of the Purchasers, (ii) acceptance
of the Notes, and payment for them hereunder, and (iii) any termination of this
Agreement. Without limiting the foregoing, notwithstanding any termination of
this Agreement, the Issuer shall be liable (i) for all expenses that they have
agreed to pay pursuant to Section 5(f) hereof, and (ii) pursuant to Section 8
hereof.
If this Agreement shall be terminated pursuant to any of the
provisions hereof (otherwise than pursuant to (i) notification by the Purchasers
as provided in Section 10(b) through (d) and (f) hereof or (ii) Section 11
hereof), or if the sale of the Notes provided for herein is not consummated
because of the failure or refusal on the part of the Issuer to comply with the
terms or to fulfill any of the conditions of this Agreement, the Issuer agrees
to reimburse the Purchasers for all out-of-pocket expenses (including the fees
and disbursements of counsel) incurred by the Purchasers. Notwithstanding any
termination of this Agreement, the Issuer shall be liable (i) for all expenses
that they have agreed to pay pursuant to Section 5(f) hereof and (iii) pursuant
to Section 8 hereof.
11. DEFAULT BY PURCHASERS. If either of the Purchasers shall fail or
refuse to purchase the Series A Notes that they have agreed to purchase
hereunder on the Closing Date and arrangements satisfactory to the Issuer for
the purchase of such Series A Notes are not made within 48 hours after such
default, this Agreement shall terminate without liability on the part of the
Issuer and the non-defaulting Purchaser. Nothing herein shall relieve a
defaulting Purchaser from liability for its default.
12. MISCELLANEOUS.
(a) Notices given pursuant to any provision of this Agreement
shall be addressed as follows: (i) if to the Issuer, 1137 W. Jackson
Boulevard, Chicago, IL 60607, Attention: President, with a copy to Winston
& Strawn, 35 West Wacker Drive, Chicago, IL 60601, Attention: Joseph A.
Walsh and (ii) if to the Purchasers, to Jefferies & Company, Inc. c/o
Jefferies & Company, Inc., 11100 Santa Monica Boulevard, 10th Floor, Los
Angeles, California 90025, Attention: Andrew Whittaker, with a copy to
Skadden, Arps, Slate, Meagher & Flom (Illinois), 333 West Wacker Drive,
Chicago, Illinois 60606, Attention: Gary
27
<PAGE>
P. Cullen (PROVIDED that any notice pursuant to Section 9 hereof will be
mailed, delivered, telegraphed or telecopied and confirmed to the party
to be notified and its counsel), or in any case to such other address as
the person to be notified may have requested in writing.
(b) This Agreement has been and is made solely for the benefit
of and shall be binding upon the Issuer, the Purchasers and, to the extent
provided in Section 8 hereof, the controlling persons officers, directors,
partners, employees, representatives and agents referred to in Section 8
and their respective heirs, executors, administrators, successors and
assigns, all as and to the extent provided in this Agreement, and no other
person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" shall not include a purchaser
of any of the Series A Notes from the Purchasers merely because of such
purchase. Notwithstanding the foregoing, it is expressly understood and
agreed that each purchaser who purchases Series A Notes from the Purchasers
is intended to be a beneficiary of the Issuer's covenants contained in the
Registration Rights Agreement to the same extent as if the Notes were sold
and those covenants were made directly to such purchaser by the Issuer, and
each such purchaser shall have the right to take action against the Issuer
to enforce, and obtain damages for any breach of, those covenants.
(c) THIS AGREEMENT SHALL BE CONSTRUED, INTERPRETED AND THE
RIGHTS OF THE PARTIES DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. THE ISSUER
HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE COURT
SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK OR ANY FEDERAL
COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN
RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT, AND IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS
PROPERTY, GENERALLY AND UNCONDITIONALLY, JURISDICTION OF THE AFORESAID
COURTS. THE ISSUER IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY
EFFECTIVELY DO SO UNDER APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT,
ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM. THE ISSUER IRREVOCABLY CONSENTS, TO THE FULLEST EXTENT
IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, TO THE SERVICE OF PROCESS OF
ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE
MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID,
TO THE ISSUER AT THE ADDRESS SET FORTH HEREIN, SUCH SERVICE TO
28
<PAGE>
BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL
AFFECT THE RIGHT OF THE PURCHASERS TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED
AGAINST THE ISSUER IN ANY OTHER JURISDICTION.
(d) This Agreement may be signed in various counterparts which
together shall constitute one and the same instrument.
(e) The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(f) If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the
parties hereto shall use their best efforts to find and employ an
alternative means to achieve the same or substantially the same result as
that contemplated by such term, provision, covenant or restriction. It is
hereby stipulated and declared to be the intention of the parties that they
would have executed the remaining terms, provisions, covenants and
restrictions without including any of such that may be hereafter declared
invalid, illegal, void or unenforceable.
(g) This Agreement may be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may be
given, provided that the same are in writing and signed by each of the
signatories hereto.
[signature page follows]
29
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
between the Issuer and the Purchasers.
Very truly yours,
ARCHIBALD CANDY CORPORATION
By: /s/ Ted A. Shepherd
------------------------
Name: Ted A. Shepherd
Title: President and Chief Operating
Officer
<PAGE>
Accepted and Agreed to:
JEFFERIES & COMPANY, INC.
By: /s/ Andrew R. Whittaker
-----------------------------------
Name: Andrew R. Whittaker
Title: Executive Vice President
FIRST CHICAGO CAPITAL MARKETS, INC.
By: /s/ Brad Bernstein
-----------------------------------
Name: Brad Bernstein
Title: Managing Director
<PAGE>
SCHEDULE I
PRINCIPAL AMOUNT OF SERIES A NOTES PURCHASED
PURCHASERS PRINCIPAL AMOUNT OF SERIES A NOTES PURCHASED
- ---------- --------------------------------------------
Jefferies & Company, Inc. $80,000,000
First Chicago Capital Markets, Inc. $20,000,000
<PAGE>
SCHEDULE 6(d)
SUBSIDIARIES OF THE ISSUER
PERCENTAGE
SUBSIDIARIES OWNERSHIP JURISDICTION OF
ORGANIZATION BY ISSUER
1. Mrs. Snyders Home Made Candies, Inc. 100% Illinois
2. Fannie May Candy Company, Inc. 100% Delaware
3. Grandmother's Candy Shops, Inc. 100% Illinois
4. Archibald Home Made Candies, Inc. 100% Illinois
5. Archibald Box Corporation 100% Illinois
<PAGE>
EXHIBIT A
July 2, 1997
Jefferies & Company, Inc.
First Chicago Capital Markets, Inc.
c/o Jefferies & Company, Inc.
11100 Santa Monica Boulevard
10th Floor
Los Angeles, CA 90025
Re: Sale of $100,000,000 Aggregate Principal Amount of 10 1/4%
Senior Secured Notes due 2004 by Archibald Candy Corporation
-------------------------------------------------------------
Ladies and Gentlemen:
We have acted as special counsel for Archibald Candy Corporation,
an Illinois corporation (the "COMPANY" or the "ISSUER"), in connection with
the issuance and sale of $100,000,000 aggregate principal amount of its 10 1/4%
Senior Secured Notes due 2004 (the "NOTES"), issued and sold pursuant to
an Indenture dated as of July 2, 1997 (as amended, the "INDENTURE") between
the Company and The Bank of New York, as trustee (the "TRUSTEE"). The Notes
are issued subject to that certain Purchase Agreement dated June 27, 1997
(the "PURCHASE AGREEMENT") between the Company and Jefferies & Company, Inc.
and First Chicago Capital Markets, Inc. (collectively, the "INITIAL
PURCHASERS"). All capitalized terms used but not otherwise defined herein
shall have the meanings set forth in the Purchase Agreement. This opinion is
being furnished to you at our client's request pursuant to Section
9(a)(viii)(1) of the Purchase Agreement.
In rendering the opinions set forth herein, we have examined originals
or copies, certified or otherwise identified to our satisfaction, of:
1. the Offering Circular dated June 27, 1997 relating to the Notes
(the "OFFERING CIRCULAR");
2. the Purchase Agreement;
3. the Registration Rights Agreement (the "REGISTRATION RIGHTS
AGREEMENT") dated as of July 2, 1997 among the Company and the Initial
Purchasers;
4. the Indenture;
<PAGE>
July 2, 1997
Page 2
5. the form of Notes and a specimen of the certificates representing
the Notes;
6. the Amended and Restated Articles of Incorporation of the
Company, as in effect on the date hereof;
7. the Amended and Restated By-Laws of the Company, as in effect on
the date hereof;
8. certain resolutions adopted by the Board of Directors of the
Company relating to the authorization, issuance and sale of the Notes and
the transactions referred to herein;
9. the Pledge and Security Agreement (the "PLEDGE AND SECURITY
AGREEMENT") dated as of July 2, 1997 between the Company and the Trustee;
10. the Intellectual Property Security Agreement (the "INTELLECTUAL
PROPERTY SECURITY AGREEMENT") dated as of July 2, 1997 between the Company
and the Trustee;
11. the Mortgage, Security Agreement, Assignment of Leases and Rents,
Fixture Filing and Financing Statement dated as of July 2, 1997 between the
Company and the Trustee with respect to real property located in Illinois
(the "ILLINOIS MORTGAGE"); and
12. the financing statements on Form UCC-1 (the "ILLINOIS FINANCING
STATEMENTS") under the Uniform Commercial Code of Illinois (the "ILLINOIS
CODE") executed by the Company and delivered to the Trustee for filing in
the Illinois filing offices described in SCHEDULE I hereto (the "ILLINOIS
FILING OFFICES"), and copies of which are attached as part of SCHEDULE I
hereto.
The documents described clauses 10 through 12 above are hereinafter
collectively referred to as the "SECURITY DOCUMENTS". The Security Documents,
the Purchase Agreement, the Registration Rights Agreement and the Indenture are
hereinafter collectively referred to as the "TRANSACTION DOCUMENTS". In
addition, we have examined (a) such other agreements, instruments and documents,
and such questions of law, and (b) originals or copies, certified to our
satisfaction, of such certificates of public officials and officers and
representatives of the Company and we have made such inquiries of officers and
representatives of the Company, in each case as we have deemed relevant,
appropriate or necessary as the basis for the opinions set forth herein. As to
any facts material to the opinions and beliefs expressed herein that were not
independently established or verified, we have relied upon oral or written
statements and representations of officers and other representatives of the
Company and others.
In rendering the opinions expressed below, we have, with your consent,
assumed the legal capacity of all natural persons, that the signatures of
persons signing all documents in connection with which this opinion is rendered
are genuine, all documents submitted to us as originals or
<PAGE>
July 2, 1997
Page 3
duplicate originals are authentic and all documents submitted to us as
copies, whether certified or not, conform to authentic original documents.
Additionally, we have, with your consent, assumed and relied upon, the
following:
(a) the accuracy and completeness of all certificates and other
statements, documents, records, financial statements and papers reviewed by
us, and the accuracy and completeness of all representations, warranties,
schedules and exhibits contained in the Transaction Documents, with respect
to the factual matters set forth therein;
(b) all parties to the documents reviewed by us (other than the
Company) are duly organized, validly existing and in good standing under
the laws of all jurisdictions where they are conducting their businesses or
otherwise required to be so qualified, and have full power and authority to
execute, deliver and perform their respective obligations under such
documents and all such documents have been duly authorized, executed and
delivered by such parties;
(c) neither the Trustee, any Initial Purchaser nor any of their
representatives have any knowledge (actual or constructive) of any adverse
claim, lien, security interest, encumbrance, interest or other condition of
title affecting any of the Collateral, except for Liens described in the
Transaction Documents;
(d) all items of Collateral for which possession must be taken by a
secured party in order to perfect its security interest under Section 9-304
of the Illinois Code or Section 9-304 of the New York Uniform Commercial
Code (the "NEW YORK CODE") are in the possession or constructive possession
of the Trustee and not in the possession of the Company or any of its
affiliates or agents or any other person acting on behalf of the Company;
(e) the Company has acquired good and sufficient title to each
existing item of Collateral for which the creation and perfection of a
security interest are not governed by Article 9 of the New York Code or
Article 9 of the Illinois Code existing on the date hereof, and have
"rights" in and to Collateral for which the creation and perfection of a
security interest are governed by Article 9 of the New York Code or Article
9 of the Illinois Code consistent with and sufficient for purposes of the
Transaction Documents, and the same will be true of each item of Collateral
arising after the date hereof;
(f) each Transaction Document constitutes the valid and binding
obligation of each party thereto (other than the Company) enforceable
against such party in accordance with its terms; and
(g) value (as defined in Section 1-201(44) of the New York Code) has
been given by the Initial Purchasers to the Company for the security
interests and other rights in and assignments of Collateral described in or
contemplated by the Transaction Documents.
<PAGE>
July 2, 1997
Page 4
Whenever our opinion with respect to the existence or absence of facts
is indicated to be based on our knowledge or awareness, we are referring to the
actual present knowledge of the Winston & Strawn attorneys who have represented
the Company. Except as expressly set forth herein, we have not undertaken any
independent investigation, examination or inquiry to determine the existence or
absence of any facts (and have not caused the review of any court file or
indices) and no inference as to our knowledge concerning any facts should be
drawn from the fact that such representation has been undertaken by us.
Based upon the foregoing and subject to the assumptions,
qualifications and other matters stated herein, we are of the opinion that:
1. The Issuer has been duly organized, is validly existing as a
corporation in good standing under the laws of the State of Illinois, and, based
on good standing certificates from the jurisdictions that have been certified by
an appropriate officer of the Issuer as the only jurisdictions where the Issuer
owns or leases property or conducts business, such certificate attached as
Schedule II hereto, is duly qualified to do business and in good standing in
each such jurisdiction and has the corporate power and authority to own its
properties and to transact the business in which it is engaged.
2. The Issuer is authorized by its Amended and Restated Articles of
Incorporation to issue 25,000 shares of common stock, $.01 par value ("Common
Stock"). Based solely on our review of the Issuer's corporate minute books and
stock transfer records, 19,200 shares of Common Stock are outstanding. Each
share of capital stock of the Issuer that is issued and outstanding is duly
authorized and validly issued, fully paid and nonassessable and, to our
knowledge, is not subject to preemptive or similar rights.
3. The Issuer has all requisite corporate power and authority to
issue, sell, deliver and perform its obligations under the Notes to be issued by
it and to enter into, deliver and perform its obligations under the Purchase
Agreement and each of the other Transaction Documents to which it is a party and
to consummate the transactions contemplated to be consummated by it thereby.
4. The Notes have been duly authorized by all necessary corporate
action on the part of the Issuer and, when executed and authenticated in
accordance with the provisions of the Indenture and delivered to and paid for by
the Initial Purchasers in accordance with the terms of the Purchase Agreement,
the Notes will be valid and binding obligations of the Issuer and will be
entitled to the benefits of the Indenture and enforceable against the Issuer in
accordance with their terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance or transfer, reorganization, moratorium, liquidation,
conservatorship and similar laws now or hereafter in effect relating to or
affecting rights and remedies of creditors, and to general principles of equity
(regardless of whether enforcement is sought in a proceeding at law or equity)
and to the discretion of the court before which any proceeding therefor may be
brought.
<PAGE>
July 2, 1997
Page 5
5. Each of the Purchase Agreement, the Indenture and the
Registration Rights Agreement has been duly authorized, executed and delivered
by the Issuer and each is a valid and binding agreement of the Issuer,
enforceable against the Issuer in accordance with its respective terms, subject
to (a) applicable bankruptcy, insolvency, fraudulent conveyance or transfer,
reorganization, moratorium, liquidation, conservatorship and similar laws now or
hereafter in effect relating to or affecting rights and remedies of creditors,
(b) general principles of equity (regardless of whether enforcement is sought in
a proceeding at law or equity), (c) limitations on the enforceability of
indemnification provisions imposed by law or public policy and (d) the
discretion of the court before which any proceeding therefor may be brought.
6. Insofar as the statements under the caption "Description of
Notes" in the Offering Circular purport to summarize the terms of the Indenture
or the Registration Rights Agreement, such statements present a fair summary in
all material respects.
7. No registration under the Act of the Series A Notes is required
for the sale of the Series A Notes to the Initial Purchasers as contemplated by
the Purchase Agreement or for Exempt Resales (assuming (i) that the Eligible
Purchasers who buy the Series A Notes in the Exempt Resales are QIBs or
Accredited Investors, (ii) the accuracy of, and compliance with, the
representations of the Initial Purchasers contained in the Purchase Agreement,
and (iii) the accuracy of the representations made by each Accredited Investor
who purchases the Series A Notes pursuant to an Exempt Resale as set forth in
the letters of representation executed by such Accredited Investors in the form
of Annex A to the Offering Circular).
8. The Indenture is not required to be qualified under TIA prior to
the first to occur of (i) the Registered Exchange Offer and (ii) the
effectiveness of the Shelf Registration Statement.
9. The Issuer is not an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
10. The Pledge and Security Agreement has been duly authorized,
executed and delivered by the Issuer and is a valid and binding agreement of the
Issuer enforceable against the Issuer in accordance with its terms, subject to
(a) applicable bankruptcy, insolvency, fraudulent conveyance or transfer,
reorganization, moratorium, liquidation, conservatorship and similar laws now or
hereafter in effect relating to or affecting rights and remedies of creditors,
(b) general principles of equity (regardless of whether enforcement is sought in
a proceeding at law or equity), (c) limitations on the enforceability of
indemnification provisions imposed by law or public policy and (d) the
discretion of the court before which any proceeding therefor may be brought.
11. The provisions of the Pledge and Security Agreement are
sufficient to create in the Trustee's favor a security interest in all right,
title and interest of the Issuer in those items and
<PAGE>
July 2, 1997
Page 6
types of collateral described in the Pledge and Security Agreement in which a
security interest can be created under Article 9 of the New York Code (the
"CODE COLLATERAL").
12. The description of the Code Collateral set forth in the Illinois
Financing Statements is sufficient to perfect a security interest in the items
and types of collateral in which a security interest may be perfected by a
filing of a financing statement under Article 9 of the Illinois Code.
13. The Illinois Financing Statements are in proper form for filing;
assuming the Illinois Financing Statements are filed in the Illinois Filing
Offices and have not been subsequently released, terminated or modified, the
Trustee's security interests in the Code Collateral will be perfected to the
extent a security interest may be perfected under Article 9 of the Illinois Code
by the filing of a financing statement in the Illinois Filing Offices.
14. The Intellectual Property Security Agreement has been duly
authorized, executed and delivered by the Issuer and is a valid and binding
agreement of the Issuer enforceable against the Issuer in accordance with its
terms, subject to (a) applicable bankruptcy, insolvency, fraudulent conveyance
or transfer, reorganization, moratorium, liquidation, conservatorship and
similar laws now or hereafter in effect relating to or affecting rights and
remedies of creditors, (b) general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or equity), (c) limitations on the
enforceability of indemnification provisions imposed by law or public policy and
(d) the discretion of the court before which any proceeding therefor may be
brought.
15. Upon the issuance of the Notes under the Indenture, the
Intellectual Property Security Agreement creates in favor of the Assignee (as
defined in the Intellectual Property Security Agreement) for the benefit of the
Holders of the Notes as security for the Obligations (as defined in the
Indenture) a valid security interest in the Issuer's right, title and interest
in the Collateral described therein. Upon creation of such security interest
and (i) due filing of the Illinois Financing Statements with the Filing Offices
and (ii) the filing of an executed copy of the Intellectual Property Security
Agreement for recording in the United States Patent and Trademark Office, within
three months of the execution thereof, and in the United States Copyright
Office, within one month of the execution thereof, the Assignee will have, for
the benefit of the Holders of Notes, a perfected security interest in that
portion of the Collateral constituting United States registered trademarks and
service marks and trademark and service mark applications and registered
copyrights and copyright applications.
16. The Illinois Mortgage, including with respect to fixtures, is a
valid and binding obligation of the Issuer and enforceable against the Issuer in
accordance with its terms, subject to (a) applicable bankruptcy, insolvency,
fraudulent conveyance or transfer, reorganization, moratorium, liquidation,
conservatorship and similar laws now or hereafter in effect relating to or
affecting rights and remedies of creditors, (b) general principles of equity
(regardless of whether enforcement is sought in a proceeding at law or in
equity), (c) limitations on enforceability of indemnification provisions imposed
by law or public policy and (d) the discretion of the court before which any
<PAGE>
July 2, 1997
Page 7
proceeding therefor may be brought, provided, however, that 735 ILCS 5/15-1602
(1992) grants a mortgagor the right, which in certain circumstances is
exercisable not more than once in any five year period, to cure the default of
indebtedness secured by real estate within certain time periods specified in
such statute.
17. The Illinois Mortgage is in proper form for recording in the
mortgage and conveyance records of the Cook County Recorders Office and upon
recordation of the Illinois Mortgage, such Illinois Mortgage will constitute
constructive notice of the lien of the Illinois Mortgage to third parties.
18. To our knowledge and based upon representations made to us in a
certificate from an appropriate officer of the Issuer attached as Schedule II
hereto, there is no Proceeding before or by any Governmental Authority now
pending or threatened either (i) that seeks to restrain, enjoin, prevent the
consummation of or otherwise challenge any of the Transaction Documents or any
of the transactions contemplated thereby or (ii) that could reasonably be
expected to, singly or in the aggregate, have a Material Adverse Effect.
19. Neither the execution or delivery by the Issuer of any of the
Transaction Documents nor the performance by the Issuer of any of its obligation
under the Transaction Documents will conflict with, violate, constitute a breach
of or a default (with the passage of time or otherwise) under, or result in the
imposition of a Lien on any properties of the Issuer or an acceleration of
indebtedness pursuant to, (i) the Charter Documents of the Issuer or (ii) any
Applicable Agreement identified to us as a material agreement in a certificate
of an appropriate officer of the Issuer attached as Schedule II hereto.
In addition, we have participated in conferences with directors,
officers and other representatives of the Issuer, representatives of the
independent public accountants for the Issuer, your representatives and your
counsel, at which conferences the content of the Offering Circular and related
matters were discussed and, although we are not passing upon, and assume no
responsibility for the accuracy, completeness or fairness of, the statements
contained in the Offering Circular, and have not made any independent check or
verification thereof, during the course of such participation no facts have come
to our attention that have led us to believe that, as of its date, the Offering
Circular contained an untrue statement of a material fact or omitted to state
any material fact necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not misleading or that,
as of the date hereof, the Offering Circular contains an untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, except that we express no opinion or belief with respect to the
financial statements (including the notes thereto), schedules and other
financial and statistical data included therein or omitted therefrom.
Our opinions are subject to the following further qualifications:
<PAGE>
July 2, 1997
Page 8
(a) we express no opinion as to the creation and perfection of security
interests in any Collateral not governed solely by Article 9 of the New York
Code or, as applicable, the Illinois Code, any Collateral consisting of goods
that are or may become fixtures on any premises, nor do we express any opinion
with respect to the creation, perfection or enforceability of security interests
in property in which it is illegal or violative of governmental rules or
regulations to grant a security interest, or "general intangibles" (as defined
in the Illinois Code or New York Code) which terminate or become terminable
(pursuant to the terms of an agreement) if a security interest is granted
therein, or any security interest in any "accounts," "chattel paper,"
"documents," "instruments" or "general intangibles" (as defined in the Illinois
Code or New York Code) with respect to which the account debtor or obligor is
the United States of America, any state, county, city, municipality or other
governmental body, or any department, agency or instrumentality thereof, unless
the same has been assigned to any Holder pursuant to and in accordance with the
Assignment of Claims Act of 1940, as amended, or any similar law or regulation
relating to the assignment or pledge thereof;
(b) we express no opinion as to the perfection of a security interest in
any Collateral consisting of "proceeds" (as such term is defined in the Illinois
Code or New York Code) to the extent such perfection is limited as set forth in
Section 9-306 of each of the Illinois Code and the New York Code and under
certain circumstances described in Sections 9-307 and 9-308 of each of the
Illinois Code and the New York Code, purchasers of Collateral may take the same
free of a perfected security interest;
(c) we have not made nor undertaken to make any investigation of the state
of title to the Collateral or the location thereof and we express no opinion
with respect to the existence or title of the Collateral, the location thereof
or to the priority of the liens, security interests or pledges granted or
purported to be granted by the Transaction Documents;
(d) any purported assignment of any agreement or any governmental
approval, license or permit may be subject to restrictions upon assignment or
transfer which, although not necessarily applicable to assignments intended as
security, may be required to be satisfied before the Trustee, on behalf of the
Holders, will be treated as an assignee (other than a collateral assignee)
thereof, except to the extent that consents to or approvals of such assignment
have been obtained from the appropriate governmental body or third party;
(e) the rights of debtors, guarantors and other secured parties to
receive certain notices under Sections 9-504 and 9-505 of each of the Illinois
Code and the New York Code may not be waived prior to default and the failure to
comply with such notice requirements may bar or limit the recovery of any
deficiency remaining after the retention or sale of repossessed collateral and
further, we express no opinion as to the right of the Trustee to enforce any of
its rights without notice to the Company and to the extent applicable without
judicial hearing or without bond, nor do we express any opinion as to whether
the periods of notice set forth in the Transaction Documents are enforceable;
<PAGE>
July 2, 1997
Page 9
(f) notwithstanding certain language of the Transaction Documents,
the Trustee and the Holders may be limited to recovering only reasonable
expenses with respect to the retaking, holding, preparing for sale or lease,
selling, leasing and the like of Collateral;
(g) the duties to exercise reasonable care in the custody and preservation
of Collateral in a secured party's possession and to deal with and to dispose of
Collateral in a commercially reasonable manner as required by the Illinois Code,
the New York Code or other applicable law may not be disclaimed by agreement,
modified, waived or released prior to a default;
(h) provisions in the Transaction Documents deemed to impose the payment
of interest on interest may be unenforceable, void or voidable under applicable
law;
(i) any rights of the Trustee to foreclose its liens or enforce its
remedies against the Collateral must be enforced pursuant to the provisions of
the Illinois Code and the New York Code and other applicable federal, state or
local laws;
(j) requirements in the Transaction Documents specifying that
provisions thereof may only be waived in writing may not be valid, binding or
enforceable to the extent that an oral agreement or an implied agreement by
trade practice or course of conduct has been created modifying any provision of
such documents;
(k) we express no opinion with respect to the validity, binding effect or
enforceability of any provision of the Transaction Documents which purports to
authorize the Trustee to sign or file financing statements or other documents
without the signature of the Company (except to the extent a secured party may
execute and file financing statements without the signature of the debtor under
Section 9-402(2) of each of the Illinois Code and the New York Code);
(l) we express no opinion with respect to the validity, binding effect or
enforceability of any purported waiver, release or disclaimer under any of the
Transaction Documents relating to (i) statutory or equitable rights and defenses
of the Company which are not subject to waiver, release or disclaimer, or (ii)
rights or claims of, or duties owing to, the Company with respect to the
Collateral (including, without limitation, any waiver, release or disclaimer of
any provision of the Illinois Code or the New York Code) to the extent limited
by Sections 1-102(3), 9-207 and 9-501(3) of the Illinois Code or the New York
Code or other provisions of applicable law, or to the extent such rights, claims
and duties otherwise exist as a matter of law except to the extent the Company
has effectively so waived, released or disclaimed such rights, claims or duties
in accordance with Section 9-501 of the Illinois Code or the New York Code or
other applicable law;
(m) we express no opinion as to the Trustee's ability to use "self-help"
remedies to repossess the Collateral if a breach of the peace were to occur;
<PAGE>
July 2, 1997
Page 10
(n) certain other rights, remedies and waivers contained in the
Transaction Documents may be rendered ineffective, or limited by, applicable
laws, rules, regulations, constitutional requirements or judicial decisions
governing such provisions, but such laws, rules, regulations, constitutional
limitations and judicial decisions do not, in our opinion, make the Transaction
Documents inadequate for the practical realization of the benefits and/or
security provided by such Transaction Documents, although they may result in a
delay thereof (and we express no opinion with respect to the economic
consequences of any such delay);
(o) we express no opinion with respect to the applicability or effect of
federal or state antitrust or tax laws, or state securities or "blue sky" laws,
with respect to the transactions contemplated by the Transaction Documents;
(p) we express no opinion with respect to the validity, binding effect or
enforceability of any provision of the Transaction Documents purporting to
establish evidentiary standards or waiving jury trial or service of process or
purporting to eliminate any obligation to marshall assets;
(q) we express no opinion with respect to any provisions of the
Transaction Documents purporting to appoint the Trustee as attorney-in-fact or
agent for the Company; and
(r) the opinions set forth herein are based on the assumption that
all necessary recordings, filings and transfers of instruments necessary to
release any security interests, liens or other encumbrances in favor of The
First National Bank of Chicago, for the benefit of the lenders under the Old
Credit Facility (as defined in the Offering Circular) in the Collateral have
been made.
The opinions expressed herein are based upon and are limited to the
laws of the State of Illinois, the State of New York and the laws of the United
States of America and we express no opinion with respect to the laws of any
other state or jurisdiction.
Our opinions set forth in this letter are based upon the facts in
existence and laws in effect on the date hereof and we expressly disclaim any
obligation to update our opinions herein, regardless of whether changes in such
facts or laws come to our attention after the delivery hereof.
This opinion is rendered to you in connection with the closing of the
referenced offering occurring today. This opinion is solely for your benefit
and is not to be used, circulated, quoted or otherwise referred to for any other
purpose without our express prior written permission.
Respectfully submitted,
WINSTON & STRAWN
<PAGE>
July 2, 1997
Page 11
SCHEDULE I
ILLINOIS FILING OFFICES
Debtor Name Location of Filing Office
- --------------------------- ---------------------------
Archibald Candy Corporation Illinois Secretary of State
Cook County, Illinois
<PAGE>
SCHEDULE II
CERTIFICATE OF OFFICER
The undersigned, as Vice President - Finance and Accounting and
Secretary of Archibald Candy Corporation (the "COMPANY"), hereby certifies that:
(i) the Company is incorporated under the laws of Illinois and that
the only jurisdictions where the Company owns or leases property
or conducts business are the States of Minnesota, New York,
Indiana, Michigan, Florida, Wisconsin, Massachusetts,
Pennsylvania, Missouri, Iowa, Virginia, Ohio, North Dakota, New
Hampshire, Maryland, Rhode Island, New Jersey, South Dakota and
Maine and the District of Columbia;
(ii) there is no action, claim, suit or proceeding (including, without
limitation, an investigation or partial proceeding, such as a
deposition), domestic or foreign, before or by any government,
governmental or regulatory agency or body, court or arbitrator,
domestic or foreign, now pending or threatened either (a) that
seeks to restrain, enjoin, prevent the consummation of or
otherwise challenge any of the Indenture, the Registration Rights
Agreement or the Security Documents (as defined in the Indenture)
or any of the transactions contemplated by the Purchase Agreement
(as hereafter defined) or (b) that could reasonably be expected
to, singly or in the aggregate, have a Material Adverse Effect;
and
(iii) attached hereto as ANNEX A is a true and complete list of
all Applicable Agreements that are material to the conduct
of the business of the Company.
Unless otherwise defined herein, each capitalized term used herein
shall have the meaning ascribed to such term in the Purchase Agreement dated
June 27, 1997 between the Company and the Purchasers listed therein (the
"PURCHASE AGREEMENT").
IN WITNESS WHEREOF, I have hereunto set my hand this 2nd day of July,
1997.
ARCHIBALD CANDY CORPORATION,
an Illinois corporation
By: _______________________________
Donna Snopek
Vice President - Finance and
Accounting and Secretary
<PAGE>
ANNEX A
TO
SCHEDULE II
1. Purchase Agreement
2. Registration Rights Agreement
3. Indenture
4. Notes
5. Pledge and Security Agreement
6. Intellectual Property Security Agreement
7. Mortgage, Security Agreement, Assignment of Leases and Rents, Fixture
Filing and Financing Statement dated as of July 2, 1997 between the
Company and the Trustee for the property located at 1123 W. Jackson,
1129 W. Jackson, 1137 W. Jackson, and 1128-1142 W. Van Buren, Chicago,
Illinois
8. Open-End Mortgage, Security Agreement, Assignment of Leases and Rents,
Fixture Filing and Financing Statement dated as of July 2, 1997
between the Company and the Trustee for the property located at 1694
Winchester Rd., Bensalem, Pennsylvania
9. Securities Purchase Agreement dated as of October 30, 1991 among the
Company, Parent and the Purchasers signatory thereto (as amended by
the First Amendment thereto dated as of September 18, 1992; the Second
Amendment thereto dated as of August 12, 1994; and the Third Amendment
thereto dated as of July 2, 1997)
10. Tax Sharing and Management Consulting Agreement dated as of July 2, 1997
between the Company and Parent
11. Management Consulting Agreement dated as of July 2, 1997 between Parent and
TJC Management Corp.
12. Shareholders Agreement dated as of October 30, 1991 among the Company,
Parent and the Shareholders named therein
13. The following Stock Appreciation Right Agreements:
a. Stock Appreciation Rights Agreement, dated as of October 31, 1991, by
and between Fannie May Holdings, Inc. and Thomas R. Arenth.
b. Stock Appreciation Rights Agreement, dated as of October 31, 1991, by
and between Fannie May Holdings, Inc. and James H. Jones.
c. Stock Appreciation Rights Agreement, dated as of October 31, 1991, by
and between Fannie May Holdings, Inc. and Richard M. Peritz.
d. Stock Appreciation Rights Agreement, dated as of October 31, 1991, by
and between Fannie May Holdings, Inc. and Richard M. Peritz, Jr.
e. Stock Appreciation Rights Agreement, dated as of October 31, 1991, by
and between Fannie May Holdings, Inc. and Alan W. Petrik.
f. Stock Appreciation Rights Agreement, dated as of October 31, 1991, by
and between Fannie May Holdings, Inc. and Nancy R. Pusey.
g. Stock Appreciation Rights Agreement, dated as of December 13, 1993 by
and between Fannie May Holdings, Inc. and Ted A. Shepherd.
<PAGE>
h. Stock Appreciation Rights Agreement, dated as of August 1, 1996 by and
between Fannie May Holdings, Inc. and Donna M. Snopek.
i. Stock Appreciation Rights Agreement, dated as of April 1, 1996 by and
between Fannie May Holdings, Inc. and Joseph Chipollini.
j. Stock Appreciation Rights Agreement, dated as of April 1, 1996 by and
between Fannie May Holdings, Inc. and Ted A. Shepherd.
k. Stock Appreciation Rights Agreement, dated as of August 1, 1996 by and
between Fannie May Holdings, Inc. and Ricky Lelli.
l. Stock Appreciation Rights Agreement, dated as of January 27, 1997 by
and between Fannie May Holdings, Inc. and Mike Perrino.
14. Indemnification Agreements dated as of July 2, 1997 between the Company and
each of its directors and officers
15. The following Union Contracts:
<TABLE>
<CAPTION>
<S> <C> <C>
a. General Services Employees Union General Service May 1,1994 -
(AFL-CIO Local #73) April 30, 1997
(proposed
contract extension
to June 30, 2000)
b. Miscellaneous Warehousemen Miscellaneous July 1, 1996 -
(IBT Local #781) Warehousemen June 30, 1999
c. International Brotherhood of Teamsters Cartage April 1, 1994 -
(AFL - CIO Local #705) (Road Carriers) March 31, 1998
d. Highway Truck Drivers & Helpers Highway Truck July 1, 1996 -
(AFL - CIO Local #107) Drivers & Helpers June 30, 1999
addendum
April 1, 1994 -
March 31, 1997
e. United Brotherhood of Carpenters Carpenters June 1, 1995 -
and Joiners of America & Joiners (All May 31, 1998
(AFL - CIO Local #13) subdivisions of
trade)
f. Woodworkers Assoc. of Chicago Woodworkers Assoc. June 1, 1995 -
May 31, 2000
g. Joint Area Cartage Agreement Cartage April 1, 1994 -
Cartage/Road Carriers Road Carriers March 31, 1998
(AFL - CIO Local #107)
h. International Union of Operating Engineers January 1, 1997-
Engineers December 31, 1999
(Local #399)
</TABLE>
<PAGE>
ARCHIBALD CANDY CORPORATION
as obligor
$100,000,000
10-1/4% Senior Notes due 2004
-----------------------------------
INDENTURE
Dated as of July 2, 1997
-----------------------------------
THE BANK OF NEW YORK,
Trustee
<PAGE>
INDENTURE, dated as of July 2, 1997, among ARCHIBALD CANDY
CORPORATION, an Illinois corporation (the "Company"), and THE BANK OF NEW
YORK, a New York banking corporation, as trustee (the "Trustee").
The Company and the Trustee agree as follows for the benefit of
each other and for the equal and ratable benefit of the Holders of the
Company's 10-1/4% Senior Secured Notes due 2004.
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
SECTION 1.1. DEFINITIONS.
"ACQUIRED DEBT" means, with respect to the Company or a Restricted
Subsidiary, Indebtedness of any other Person existing at the time such other
Person merged with or into the Company or a Restricted Subsidiary or became a
Restricted Subsidiary, other than Indebtedness incurred in connection with,
or in contemplation of, such other Person merging with or into the Company or
a Restricted Subsidiary or becoming a Restricted Subsidiary.
"ADJUSTED CONSOLIDATED NET INCOME" means, with respect to any
Person for any period, the Consolidated Net Income of such Person plus
amortization (including amortization of goodwill, deferred costs and other
intangibles) of such Person for such period to the extent such amortization
was deducted in computing Consolidated Net Income.
"AFFILIATE" of any specified Person means any other Person directly
or indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean (i) the possession, directly or indirectly, of the power
to direct or cause the direction of the management or policies of such
Person, whether through the ownership of voting securities, by agreement or
otherwise; (ii) in the case of a corporation, beneficial ownership of 10% or
more of any class of Capital Stock of such Person; and (iii) in the case of
an individual (A) members of such Person's immediate family (as defined in
Instruction 2 of Item 404(a) of Regula-tion S-K under the Securities Act) and
(B) trusts, any trustee
<PAGE>
or beneficiaries of which are such Person or members of such Person's
immediate family. Notwith-standing the foregoing to the contrary, neither
the Initial Purchasers nor any of their respective Affiliates shall be deemed
to be Affiliates of the Company.
"AGENT" means any Registrar or Paying Agent.
"ASSET SALE" means any direct or indirect (i) sale, assignment,
trans-fer, lease, conveyance, or other disposition (including, without
limitation, by way of merger or consolidation) (collectively, a "transfer"),
other than in the ordinary course of business, of any assets of the Company
or its Restricted Subsidiaries, or (ii) issuance or sale of any Capital Stock
of any Subsidiary (in each case, other than to the Company or a Wholly Owned
Subsidiary). For purposes of this definition, (a) any series of transfers
that are part of a common plan shall be deemed a single Asset Sale and (b)
the term "Asset Sale" shall not include any disposition of all or
substantially all of the assets of the Company that is governed under and
complies with Article 5 of this Indenture.
"BANKRUPTCY LAW" means title 11, U.S. Code or any similar Federal,
state or foreign law for the relief of debtors.
"BOARD OF DIRECTORS" means the board of directors or any duly
constituted committee of any corporation or of a corporate general partner of
a partnership and any similar body empowered to direct the affairs of any
other entity.
"BUSINESS DAY" means any day other than a Legal Holiday.
"CAPITAL LEASE OBLIGATION" means, at the time any determination
thereof is to be made, the amount of the liability in respect of a capital
lease that would at such time be so required to be capitalized on the balance
sheet in accordance with GAAP.
"CAPITAL STOCK" means (i) with respect to any Person that is a
corporation, any and all shares, interests, participations, rights or other
equivalents (however designated) of corporate stock, and (ii) with respect to
any other Person, any and all partnership interests, membership interests or
other indicia of ownership of such Person.
"CASH EQUIVALENT" means (i) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or instru-
mentality thereof (provided that the full faith and credit of the United States
of
2
<PAGE>
America is pledged in support thereof), (ii) time deposits and certificates
of deposit and commercial paper issued by the parent corporation of any
domestic commercial bank of recognized standing having capital and surplus in
excess of $500,000,000 and commercial paper issued by others rated at least
A-2 or the equivalent thereof by Standard & Poor's Corporation or at least
P-2 or the equivalent thereof by Moody's Investors Service, Inc. and in each
case maturing within one year after the date of acquisition and (iii)
investments in money market funds substantially all of whose assets comprise
securities of the types described in clauses (i) and (ii) above.
"CHANGE OF CONTROL" means (i) the sale, assignment, lease, transfer
or conveyance (in one transaction or a series of transactions) of all or
substantially all of the Company's assets to any Person or group (as such
term is used in Section 13(d)(3) of the Exchange Act), (ii) the liquidation
or dissolution of the Company or the adoption of a plan by the shareholders
of the Company relating to the dissolution or liquidation of the Company,
(iii) the acquisition by any Person or group (as such term is used in Section
13(d)(3) of the Exchange Act) (other than the TJC Investors, the TCW
Investors or their respective affiliates) of beneficial ownership, directly
or indirectly, of Voting Stock of the Company or Holdings having the right to
elect directors having a majority of the voting power of the Board of
Directors of the Company or Holdings, respectively, by way of purchase,
merger or consolidation or other-wise, or (iv) any Person or group (as such
term is used in Section 13(d)(3) of the Exchange Act) (other than the TJC
Investors, the TCW Investors or their respective affiliates) exercises the
right to elect director(s) having (or existing directors, acquire the right
to have) a majority of the voting power of the Board of Directors of the
Company or Holdings.
"CLASS A PREFERRED STOCK" means Holdings' Junior Class A PIK
Preferred Stock.
"CLASS B PREFERRED STOCK" means Holdings' Junior Class B PIK
Preferred Stock.
"CLOSING DATE" means the date upon which the Series A Notes are
first issued.
"COLLATERAL" means any assets of the Company or any of its
Subsidiaries defined as "Collateral" in any of the Security Documents and
assets from time to time in which a Lien exists as security for any of the
Obligations.
3
<PAGE>
"COMMISSION" means the Securities and Exchange Commission, as from
time to time constituted, created under the Exchange Act, or if at any time
after the execution of this Indenture such Commission is not existing and
per-forming the duties now assigned to it under the TIA, then the body
performing such duties at such time.
"COMPANY" means the party named as such above, until a successor
replaces such Person in accordance with the terms of this Indenture, and
thereafter means such successor.
"COMPANY ORDER" means a written request or order signed in the name
of the Company by its Chairman of the Board, President, Chief Executive
Officer, Chief Financial Officer or Senior Vice President, and by its
Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary
and delivered to the Trustee.
"CONSOLIDATED EBITDA" means, with respect to any Person (the
referent Person) for any period, consolidated income (loss) from operations
of such Person for such period, determined in accordance with GAAP, plus (to
the extent such amounts are deducted in calculating such income (loss) from
operations of such Person for such period, and without duplication)
amortization, depreciation and other non-cash charges (including, without
limitation, amortization of goodwill, deferred financing fees and other
intangibles but excluding (a) non-cash charges incurred after the date of
this Indenture that require an accrual of or a reserve for cash charges for
any future period, except for accrued and unpaid management fee charges under
the Tax Sharing Agreement and (b) normally recurring accruals such as
reserves against accounts receivable); PROVIDED, HOWEVER, that (i) the income
from operations of any Person that is not a Wholly Owned Subsidiary or that
is accounted for by the equity method of accounting will be included only to
the extent of the amount of dividends or distributions paid during such
period to the referent Person or a Wholly Owned Subsidiary of the referent
Person, (ii) the income from operations of any Person acquired in a pooling
of interests transaction for any period prior to the date of such acquisition
will be excluded and (iii) the income from operations of any Subsidiary will
not be included to the extent that declarations of dividends or similar
distributions by that Subsidiary are not at the time permitted, directly or
indirectly, by operation of the terms of its organization documents or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Subsidiary or its owners.
"CONSOLIDATED INTEREST EXPENSE" means, with respect to any Person
for any period, the consolidated interest expense of such Person for such
period,
4
<PAGE>
whether paid or accrued (including amortization of original issue discount,
non-cash interest payment, and the interest component of Capital Lease
Obligations), to the extent such expense was deducted in computing
Consolidated Net Income of such Person for such period.
"CONSOLIDATED NET INCOME" means, with respect to any Person (the
referent Person) for any period, the aggregate of the Net Income of such
Person and its consolidated subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP; PROVIDED, HOWEVER, that (i) the
Net Income of any Person that is not a Wholly Owned Subsidiary or that is
accounted for by the equity method of accounting will be included only to the
extent of the amount of dividends or distributions paid during such period to
the referent Person or a Wholly Owned Subsidiary of the referent Person, (ii)
the Net Income of any Person acquired in a pooling of interests transaction
for any period prior to the date of such acquisition will be excluded, and
(iii) the Net Income of any Subsidiary will not be included to the extent
that declarations of dividends or similar distributions by that Subsidiary
are not at the time permitted, directly or indirectly, by operation of the
terms of its organization documents or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to that
Subsidiary or its owners.
"CONSOLIDATED NET WORTH" means, with respect to any Person, the
total shareholders' equity of such Person determined on a consolidated basis
in accor-dance with GAAP, adjusted to exclude (to the extent included in
calculating such equity), (i) the amount of any such shareholders' equity
attributable to Disqualified Stock or treasury stock of such Person and its
consolidated subsidiaries, and (ii) all upward revaluations and other
write-ups in the book value of any asset of such Person or a consolidated
subsidiary of such Person subsequent to the Issue Date and (iii) all
investments in subsidiaries of such Person that are not Restricted
Subsidiaries and in Persons that are not subsidiaries of such Person.
"CORPORATE TRUST OFFICE" shall be at the address of the Trustee
specified in Section 11.2 or such other address as the Trustee may specify by
notice to the Company.
"CUSTODIAN" means any receiver, trustee, assignee, liquidator or
similar official under any Bankruptcy Law.
"DEFAULT" means any event that is, or after notice or the passage
of time or both would be, an Event of Default.
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"DEPOSITORY" means the Person specified in Section 2.3 hereof as
the Depository with respect to the Notes issuable in global form, until a
successor shall have been appointed and becomes such pursuant to the
applicable provision of this Indenture, and, thereafter, "Depository" shall
mean or include such successor.
"DISQUALIFIED STOCK" means any Equity Interest that, (i) either by
its terms or the terms of any security into which it is convertible or for
which it is exchangeable or otherwise, is or upon the happening of an event
or the passage of time would be, required to be redeemed or repurchased (in
whole or in part) prior to the final stated maturity of the Notes or is
redeemable (in whole or in part) at the option of the holder thereof at any
time prior to such final stated maturity or (ii) is convertible into or
exchangeable at the option of the issuer thereof or any other Person for debt
securities or Disqualified Stock.
"DTC" means The Depository Trust Company.
"EQUITY INTERESTS" means Capital Stock or warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that
is convertible into, or exchangeable for, Capital Stock).
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXCHANGE OFFER" means the offer that may be made by the Company
pursuant to the Registration Rights Agreement to exchange Series B Notes for
Series A Notes.
"GAAP" means generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession, and in the rules and regulations of the Commission,
that are in effect on the Issue Date.
"GUARANTEE" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
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indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"GUARANTORS" means all direct or indirect future Restricted
Subsidiaries.
"HOLDER" means a Person in whose name a Note is registered.
"HOLDINGS" means Fannie May Holdings, Inc., a Delaware corporation.
"INACTIVE SUBSIDIARIES" means Mrs. Snyders Home Made Candies, Inc.,
Fannie May Candy Company, Inc., Grandmother's Candy Shops, Inc., Archibald
Home Made Candies, Inc. and Archibald Box Corporation.
"INDEBTEDNESS" of any Person means (without duplication) (i) all
liabilities and obligations, contingent or otherwise, of such Person (a) in
respect of borrowed money (whether or not the recourse of the lender is to
the whole of the assets of such Person or only to a portion thereof), (b)
evidenced by bonds, debentures, notes or other similar instruments, (c)
representing the deferred purchase price of property or services (other than
trade payables on customary terms incurred in the ordinary course of business
which are not more than 90 days past due), (d) created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person (even though the rights and remedies of the seller or
lender under such agree-ment in the event of default are limited to
repossession or sale of such property), (e) as lessee under capitalized
leases, (f) under bankers' acceptance and letter of credit facilities, (g) to
purchase, redeem, retire, defease or otherwise acquire for value any
Disqualified Stock, or (h) in respect of Hedging Obligations, (ii) all
liabilities and obligations of others of the type described in clause (i)
that are Guaranteed by such Person, and (iii) all liabilities and obligations
of others of the type described in clause (i) that are secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien on property (including, without
limitation, accounts and contract rights) owned by such Person, even though
such Person has not assumed or become liable for the payment of such
Indebtedness, PROVIDED, HOWEVER, that the amount of such Indebtedness shall
(to the extent such Person has not assumed or become liable for the payment
of such Indebtedness) be the lesser of (x) the fair market value of such
property at the time of determination and (y) the amount of such
Indebtedness. The amount of Indebtedness of any Person at any date shall be
the outstanding balance at such date of all unconditional obligations as
described above and the maximum
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liability, upon the occurrence of the contingency giving rise to the
obligation, of any contingent obligations at such date.
"INDENTURE" means this Indenture as amended or supplemented from
time to time.
"INITIAL PURCHASERS" means Jefferies & Company, Inc. and First
Chicago Capital Markets, Inc.
"INTELLECTUAL PROPERTY SECURITY AGREEMENT" means the Intellectual
Property Security Agreement dated the date hereof by and between the Company,
on the one hand, and the Trustee, on the other, as amended or supplemented
from time to time.
"INTEREST COVERAGE RATIO" means, for any period, the ratio of (i)
Consolidated EBITDA of the Company for such period, over (ii) Consolidated
Interest Expense of the Company for such period. In calculating Interest
Coverage Ratio for any period, pro forma effect shall be given to: (a) the
incurrence, assumption, guarantee, repayment, repurchase, redemption or
retirement by the Company or any of its Subsidiaries of any Indebtedness
subsequent to the commencement of the period for which the Interest Coverage
Ratio is being calculated, as if the same had occurred at the beginning of
the applicable period; and (b) the occurrence of any Asset Sale during such
period by reducing Consolidated EBITDA for such period by an amount equal to
the Consolidated EBITDA (if positive) directly attributable to the assets
sold and by reducing Consolidated Interest Expense by an amount equal to the
Consolidated Interest Expense directly attributable to any Indebtedness
secured by the assets sold and assumed by third parties or repaid with the
proceeds of such Asset Sale, in each case as if the same had occurred at the
beginning of the applicable period. For purposes of making the computation
referred to above, acquisitions that have been made by the Company or any of
its Restricted Subsidiaries, including all mergers and consolidations,
subsequent to the commencement of such period shall be calculated on a PRO
FORMA basis, assuming that all such acquisitions, mergers and consolidations
had occurred on the first day of such period. Without limiting the
foregoing, the financial information of the Company with respect to any
portion of a period that falls before the Issue Date shall be adjusted to
give pro forma effect to the issuance of the Notes and the application of the
proceeds therefrom as if they had occurred at the beginning of such period.
"INVESTMENTS" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the forms of loans,
Guarantees,
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advances or capital contributions (excluding (i) commission, travel and
similar advances to officers and employees of such Person made in the
ordinary course of business and (ii) bona fide accounts receivable arising
from the sale of goods or services in the ordinary course of business
consistent with past practice), purchases or other acquisitions for
consideration of Indebted-ness, Equity Interests or other securities, and any
other items that are or would be classified as investments on a balance sheet
prepared in accordance with GAAP.
"ISSUE DATE" means the date upon which the Notes are first issued.
"LEGAL HOLIDAY" means a Saturday, a Sunday or a day on which
banking institutions in Chicago, Illinois, the City of New York or at a place
of payment are authorized by law, regulation or executive order to remain
closed.
"LIEN" means any mortgage, lien, pledge, charge, security interest
or encumbrance of any kind, whether or not filed, recorded or otherwise
perfected under applicable law (including any conditional sale or other title
retention agreement, any lease in the nature thereof, any option or other
agreement to sell or give a security interest in and any filing of or
agreement to give any financing statement under the Uniform Commercial Code
(or equivalent statutes) of any jurisdiction).
"LIQUIDATED DAMAGES" means "Weekly Liquidated Damages Amount" set
out in the Registration Rights Agreement.
"MATERIAL SUBSIDIARY" means any Subsidiary (a) that is a
"Significant Subsidiary" of the Company as defined in Rule 1-02 of Regulation
S-X promulgated by the Commission or (b) is otherwise material to the
business of the Company.
"MORTGAGES" means those certain Mortgages dated the date hereof
between the Company, on the one hand, and the Trustee, on the other, as
amended or supplemented from time to time, with respect to the Company's
Chicago, Illinois, headquarters and manufacturing facility located on W.
Jackson Boulevard and Bensalem, Pennsylvania warehouse and distribution
facility.
"NET INCOME" means, with respect to any Person for any period, the
net income (loss) of such Person for such period, determined in accordance
with GAAP, excluding any gain (but not loss), together with any related
provision for taxes on such gain (but not loss), realized in connection with
any Asset Sales and dispositions pursuant to sale and leaseback transactions,
and excluding any extraordi-
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nary gain (but not loss), together with any related provision for taxes on
such gain (but not loss).
"NET PROCEEDS" means the aggregate cash proceeds received in
respect of any Asset Sale, net of (i) the reasonable and customary direct
out-of-pocket costs relating to such Asset Sale (including, without
limitation, legal, accounting and investment banking fees and sales
commissions), other than any such costs payable to an Affiliate of the
Company, (ii) amounts required to be applied to the repayment of Indebtedness
secured by a Lien on the asset or assets the subject of such Asset Sale,
(iii) any reserve for adjustment in respect of the sale price of such asset
or asset, (iv) taxes paid or payable as a result thereof, (v) any relocation
expenses and pension, severance and shutdown costs incurred as a result
thereof and (vi) any deduction or appropriate amounts to be provided by the
Company or any of its Subsidiaries as a reserve in accordance with GAAP
against any liabilities associated with the assets disposed of in such
transaction and retained by the Company or any Subsidiary after such sale or
disposition thereof including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to environmental
matters or against any indemnification obligations with respect to such
transaction.
"NOTES" means, collectively, the Series A Notes and the Series B
Notes.
"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other obligations and
liabilities of the Company or any of the Guarantors under this Indenture, the
Notes or the Guarantees of the Notes, the Registration Rights Agreement or
any of the Security Documents.
"OFFERING CIRCULAR" means the final offering circular, dated June
27, 1997 used in connection with the sale of the Series A Notes.
"OFFICERS" means the Chairman of the Board, the President, the
Chief Financial Officer, the Chief Operating Officer, the Treasurer, any
Assistant Treasurer, the Controller, the Secretary, any Assistant Secretary
or any Senior Vice President of the Company.
"OFFICERS' CERTIFICATE" means a certificate signed on behalf of the
Company by two Officers of the Company, one of whom must be the President,
Chief Executive Officer, Chief Financial Officer, Treasurer, Assistant
Treasurer, Con-troller or a Senior Vice President of the Company.
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"OPINION OF COUNSEL" means an opinion from legal counsel who is
reasonably acceptable to the Trustee. Such counsel may be an employee of or
counsel to the Company, any Subsidiary of the Company or the Trustee.
"OTHER PERMITTED INDEBTEDNESS" means: (i) Indebtedness in respect
of reimbursement-type obligations regarding workers' compensation claims,
(ii) Indebtedness of the Company and its Restricted Subsidiaries in
connection with performance, surety, statutory, appeal or similar bonds in
the ordinary course of business, (iii) Indebtedness of the Company and its
Restricted Subsidiaries in connection with agreements providing for
indemnification, purchase price adjustments and similar obligations in
connection with the sale or disposition of any of their business, properties
or assets, and (iv) the guarantee by the Company or any of its Restricted
Subsidiaries of Indebtedness of the Company or a Restricted Subsidiary of the
Company that was permitted to be incurred under Section 4.9.
"PERMITTED INVESTMENTS" means (i) Investments in the Company or any
Wholly Owned Subsidiary, (ii) Investments in Cash Equivalents, (iii)
Investments in a Person, if as a result of such Investment (a) such Person
becomes a Wholly Owned Subsidiary and the Capital Stock of such Person is
pledged to secure the Obligations, or (b) such Person is merged, consolidated
or amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, the Company or a Wholly Owned Subsidiary,
and (iv) other Investments that do not exceed in the aggregate $7.5 million
at any time outstanding.
"PERMITTED LIENS" means (i) Liens in favor of the Company and/or
its Restricted Subsidiaries other than with respect to intercompany
Indebtedness, (ii) Liens on property of a Person existing at the time such
Person is acquired by, merged into or consolidated with the Company or any
Restricted Subsidiary, PROVIDED, HOWEVER, that such Liens were not created in
contemplation of such acquisition and do not extend to assets other than
those subject to such Liens immediately prior to such acquisition, (iii)
Liens on property existing at the time of acquisition thereof by the Company
or any Restricted Subsidiary, PROVIDED, HOWEVER, that such Liens were not
created in contemplation of such acquisition and do not extend to assets
other than those subject to such Liens immediately prior to such acquisition,
(iv) Liens incurred in the ordinary course of business in respect of Hedging
Obligations, (v) Liens to secure Indebtedness for borrowed money of a
Subsidiary in favor of the Company or a Wholly Owned Subsidiary, (vi) Liens
(other than pursuant to ERISA or environmental laws) to secure the
performance of statutory obligations, surety or appeal bonds, performance
bonds or other obligations (exclusive of obligations constituting
Indebtedness) of a like nature incurred in the ordinary course of
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business, (vii) Liens existing or created on the Issue Date, (viii) Liens for
taxes, assessments or governmental charges or claims that are not yet
delinquent or that are being contested or remedied in good faith by
appropriate proceedings promptly instituted and diligently concluded,
PROVIDED, HOWEVER, that any reserve or other appropriate provision as may be
required in conformity with GAAP has been made therefor, (ix) Liens arising
by reason of any judgment, decree or order of any court with respect to which
the Company or any of its Restricted Subsidiaries is then in good faith
prosecuting an appeal or other proceedings for review, the existence of which
judgment, order or decree is not an Event of Default under this Indenture,
(x) encumbrances consisting of zoning restrictions, survey exceptions,
utility easements, licenses, rights of way, easements of ingress or egress
over property of the Company or any of its Restricted Subsidiaries, rights or
restrictions of record on the use of real property, minor defects in title,
landlord's and lessor's liens under leases on property located on the
premises rented, mechanics' liens, vendors' liens, and similar encumbrances,
rights or restrictions on personal or real property, in each case not
interfering in any material respect with the ordinary conduct of the business
of the Company or any of its Restricted Subsidiaries, (xi) Liens incidental
to the conduct of business or the ownership of properties incurred in the
ordinary course of business in connection with workers' compensation,
unem-ployment insurance and other types of social security, or to secure the
perfor-mance of tenders, bids, and government contracts and leases and
subleases and (xii) any extension, renewal, or replacement (or successive
extensions, renewals or replacements), in whole or in part, of Liens
described in clauses (i) through (xi) above.
"PERSON" means any individual, corporation, partnership, joint
venture, association, joint stock company, limited liability company, trust,
unincorporated organization, government or any agency or political
subdivision thereof, or any other entity.
"PREFERRED STOCK" means amounts sufficient to pay (i) cash
dividends and mandatory redemption payments under the Senior Preferred Stock
and the Class A Preferred Stock and Class B Preferred Stock and (ii) interest
payments on Indebtedness of Holdings, the net proceeds of which are in an
amount no greater than the amount necessary to redeem the Senior Preferred
Stock and Class A Preferred Stock and Class B Preferred Stock and which
Indebtedness has no installment of principal due prior to the first
anniversary of the stated maturity of the Notes.
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"PUBLIC EQUITY OFFERING" means a bona fide underwritten public
offering of Qualified Stock of the Company, pursuant to a registration
statement filed with and declared effective by the Commission in accordance
with the Securities Act.
"PURCHASE MONEY LIENS" means Liens to secure or securing Purchase
Money Obligations permitted to be incurred under this Indenture.
"PURCHASE MONEY OBLIGATIONS" means Indebtedness representing, or
incurred to finance, the cost (i) of acquiring any assets and (ii) of
construction or build-out of manufacturing, distribution or administrative
facilities (including Purchase Money Obligations of any other Person at the
time such other Person is merged with or into or is otherwise acquired by the
Company or any Restricted Subsidiary), PROVIDED, HOWEVER, that (a) the
principal amount of such Indebtedness does not exceed 100% of such cost,
including construction charges, (b) any Lien securing such Indebtedness does
not extend to or cover any other asset or property other than the asset or
property being so acquired and (c) such Indebtedness is incurred, and any
Liens with respect thereto are granted, within 180 days of the acquisition of
such property or asset.
"QIB" shall mean "qualified institutional buyer" as defined in Rule
144A.
"QUALIFIED STOCK" means, with respect to any Person, Capital Stock
of such Person other than Disqualified Stock.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated as of the Closing Date, by and among the Company and the
Initial Purchasers as such agreement may be amended, modified or supplemented
from time to time.
"RESPONSIBLE OFFICER" when used with respect to the Trustee, means
any officer within the corporate trust department of the Trustee located at
the Corporate Trust Office (or any successor group of the Trustee) or any
other officer of the Trustee customarily performing functions similar to
those performed by any of the designated officers, and also means, with
respect to a particular corporate trust matter, any other officer to whom
such matter is referred because of his knowledge of and familiarity with the
particular subject.
"RESTRICTED INVESTMENT" means an Investment other than a Permitted
Investment.
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"RESTRICTED SECURITIES" means Notes that bear or are required to
bear the legends set forth in Exhibit A hereto.
"RESTRICTED SUBSIDIARY" means a Subsidiary other than an
Unrestricted Subsidiary.
"REVOLVING CREDIT FACILITY" means the Amended and Restated Credit
Agreement, entered into on the Closing Date between The First National Bank
of Chicago, as agent and lender, and the Company, as borrower, as the same
may be amended, modified, renewed, refunded, replaced or refinanced from time
to time, including (i) any related notes, letters of credit, guarantees,
collateral documents, instruments and agreements executed in connection
therewith, and in each case as amended, modified, renewed, refunded, replaced
or refinanced from time to time, and (ii) any notes, guarantees, collateral
documents, instruments and agreements executed in connection with such
amendment, modification, renewal, refunding, replacement or refinancing.
"RULE 144A" means Rule 144A under the Securities Act, as such Rule
may be amended from time to time, or under any similar rule or regulation
hereafter adopted by the Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITY AGREEMENT" means the Pledge and Security Agreement, dated
as of the date hereof, by and between the Company, on the one hand, and the
Trustee on the other, as amended or supplemented from time to time.
"SECURITY DOCUMENTS" means, collectively, the Security Agreement,
the Intellectual Property Security Agreement, the Mortgages and any other
document, instrument or agreement executed or delivered by the Company or any
of its Subsidiaries from time to time pursuant to which the Company or any
such Subsidiary shall grant a Lien on any of their respective properties,
assets or revenues to secure payment of the Obligations hereunder and under
the Notes.
"SENIOR PREFERRED STOCK" means Holdings' Senior Preferred Stock.
"SERIES A NOTES" means the Company's 10-1/4% Series A Senior Notes
due 2004, as authenticated and issued under this Indenture.
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"SERIES B NOTES" means the Company's 10-1/4% Series B Senior Notes
due 2004, as authenticated and issued under this Indenture.
"SUBSIDIARY" means, with respect to any Person, (i) any
corporation, association or other business entity of which more than 50% of
the total voting power of shares of Voting Stock thereof is at the time owned
or controlled, directly or indirectly, by such Person or one or more of the
other subsidiaries of that Person or a combination thereof and (ii) any
partnership in which such Person or any of its subsidiaries is a general
partner.
"SUBSIDIARY" means any subsidiary of the Company.
"TAX SHARING AGREEMENT" means the Tax Sharing and Management
Agree-ment, dated as of the Closing Date, by and between the Company and
Holdings as in effect on the date hereof.
"TCW INVESTORS" means TCW Capital and its Affiliates.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections
77aaa-77bbbb), as amended, as in effect on the date hereof until such time as
this Indenture is qualified under the TIA, and thereafter as in effect on the
date on which this Indenture is qualified under the TIA.
"TJC INVESTORS" means The Jordan Company and its Affiliates.
"TRANSFER" means any direct or indirect sale, assignment, transfer,
lease, conveyance, or other disposition (including, without limitation, by
way of merger or consolidation).
"TRUSTEE" means the party named as such above until a successor
replaces it in accordance with the applicable provisions of this Indenture
and thereafter means the successor serving hereunder.
"UNRESTRICTED SUBSIDIARY" means (i) the Inactive Subsidiaries and
(ii) any other Subsidiary that has been designated by the Company (by written
notice to the Trustee as provided below) as an Unrestricted Subsidiary;
provided, that a Subsidiary may not be designated as an "Unrestricted
Subsidiary" unless (a) such Subsidiary does not own any Capital Stock of, or
own or hold any Lien on any property of, the Company of any Restricted
Subsidiary (other than such Subsidiary), (b) neither immediately prior
thereto nor after giving pro forma effect to such
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designation, would there exist a Default or Event of Default, (c) immediately
after giving effect to such designation on a pro forma basis, the Company
could incur at least $1.00 of Indebtedness pursuant to the Interest Coverage
Ratio test set forth in the covenant described under Section 4.9(a) hereof
and (d) the creditors of such Subsidiary have no direct or indirect recourse
(including, without limitation, recourse with respect to the payment of
principal or interest on Indebtedness of such Subsidiary) to the assets of
the Company or of a Restricted Subsidiary (other than such Subsidiary). The
Board of Directors of the Company may designate any Unrestricted Subsidiary
to be Restricted Subsidiary only if (i) no Default or Event of Default is
existing or will occur as a consequence thereof; and (ii) immediately after
giving effect to such designation, on a pro forma basis, the Company could
incur at least $1.00 of Indebtedness pursuant to the Interest Coverage Ratio
test set forth in Section 4.9(a) hereof. Each such designation shall be
evidenced by filing with the Trustee a certified copy of the board resolution
giving effect to such designation and an Officers' Certificate certifying
that such designation complied with the foregoing conditions. The Company
shall be deemed to make an Investment in each Subsidiary designated as an
"Unrestricted Subsidiary" immediately following such designation in an amount
equal to the Investment in such Subsidiary and its subsidiaries immediately
prior to such designation; provided, that if such Subsidiary is subsequently
redesignated as a Restricted Subsidiary, the amount of such Investment shall
be deemed to be reduced (but not below zero) by the fair market value of the
net consolidated assets of such Subsidiary on the date of such redesignation.
"U.S. GOVERNMENT OBLIGATIONS" means direct obligations of the
United States of America, or any agency or instrumentality thereof for the
payment of which the full faith and credit of the United States of America is
pledged.
"VOTING STOCK" means, with respect to any Person, (i) one or more
classes of the Capital Stock of such Person having general voting power 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 Capital Stock of any
other class or classes have or might have voting power by reason of the
happening of any contingency) and (ii) any Capital Stock of such Person
convertible or exchangeable without restriction at the option of the holder
thereof into Capital Stock of such Person described in clause (i) above.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any
Indebtedness at any date, the number of years (rounded to the nearest
one-twelfth) obtained by dividing (i) the then outstanding principal amount
of such Indebtedness into (ii) the total of the product obtained by
multiplying (x) the amount of each then
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remaining installment, sinking fund, serial maturity or other required
payments of principal, including payment at final maturity, in respect
thereof, by (y) the number of years (calculated to the nearest one-twelfth)
that will elapse between such date and the making of such payment.
"WHOLLY OWNED SUBSIDIARY" means a Restricted Subsidiary all the
Capital Stock of which (other than directors' qualifying shares) is owned by
the Company or one or more Wholly Owned Subsidiaries.
SECTION 1.2. OTHER DEFINITIONS.
Defined in
Term Section
---- ----------
"Affiliate Transaction" . . . . . . 4.11
"Change of Control Offer" . . . . . 4.14
"Change of Control Payment" . . . . 4.14
"Change of Control Payment Date". . 4.14
"Definitive Notes". . . . . . . . . 2.1
"Event of Default". . . . . . . . . 6.1
"Excess Proceeds" . . . . . . . . . 4.10
"Excess Proceeds Offer" . . . . . . 4.10
"Excess Proceeds Offer Period". . . 4.10
"Excess Proceeds Payment Date". . . 4.10
"Global Note" . . . . . . . . . . . 2.1
"Guaranty". . . . . . . . . . . . . 10.7
"Hedging Obligations" . . . . . . . 4.9(b)(iii)
"Paying Agent". . . . . . . . . . . 2.3
"Purchase Amount" . . . . . . . . . 4.10
"Purchase Money Indebtedness" . . . 4.9(b)(iv)
"Refinance" . . . . . . . . . . . . 4.9(b)(viii)
"Refinancing Indebtedness". . . . . 4.9(b)(viii)
"Registrar" . . . . . . . . . . . . 2.3
"Restricted Payments" . . . . . . . 4.7(a)
SECTION 1.3. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the provi-
sion is incorporated by reference in and made a part of this Indenture.
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The following TIA terms used in this Indenture have the following
meanings:
"INDENTURE SECURITIES" means the Notes;
"INDENTURE SECURITY HOLDER" means a Holder of a Note;
"INDENTURE TO BE QUALIFIED" means this Indenture;
"INDENTURE TRUSTEE" or "INSTITUTIONAL TRUSTEE" means the Trustee;
"OBLIGOR" on the Notes means the Company, the Guarantors and any
successor obligor upon the Notes.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by Commission rule
under the TIA have the meanings so assigned to them.
SECTION 1.4. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural include
the singular; and
(5) provisions apply to successive events and transactions.
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ARTICLE 2
THE NOTES
SECTION 2.1. FORM AND DATING.
The Notes and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit A attached hereto, the terms of which
are incorporated in and made a part of this Indenture. The Notes may have
notations, legends or endorsements required by law, stock exchange rule,
agreements to which the Company is subject or usage. Each Note shall be
dated the date of its authentication. The Notes shall be issued in
denominations of $1,000 and integral multiples thereof.
The Notes will be issued (i) in global form (the "GLOBAL NOTE"),
substantially in the form of Exhibit A attached hereto (including the text
referred to in footnotes 1 and 2 thereto) and (ii) in definitive form (the
"DEFINITIVE NOTES"), substantially in the form of Exhibit A attached hereto
(excluding the text referred to in footnotes 1 and 2 thereto). The Global
Note shall represent the aggregate amount of outstanding Notes from time to
time endorsed thereon; PROVIDED, that the aggregate amount of outstanding
Notes represented thereby may from time to time be reduced or increased, as
appropriate, to reflect exchanges and redemptions. Any endorsement of the
Global Note to reflect the amount of any increase or decrease in the amount
of outstanding Notes represented thereby shall be made by the Trustee, in
accordance with instructions given by the Holder thereof as required by
Section 2.6 hereof.
SECTION 2.2. EXECUTION AND AUTHENTICATION.
Two Officers shall sign the Notes for the Company by manual or
facsimile signature. If an Officer whose signature is on a Note no longer
holds that office at the time the Note is authenticated, the Note shall
nevertheless be valid.
A Note shall not be valid until authenticated by the manual
signature of the Trustee. The signature of the Trustee shall be conclusive
evidence that the Note has been authenticated under this Indenture. The form
of Trustee's certificate of authentication to be borne by the Notes shall be
substantially as set forth in Exhibit A attached hereto.
The Trustee shall, upon a Company Order, authenticate for original
issue up to $100,000,000 aggregate principal amount of the Notes. The
aggregate principal amount of Notes outstanding at any time may not exceed
$100,000,000 except as provided in Section 2.7 hereof.
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The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Notes. Unless limited by the terms of such
appointment, an authenticating agent may authenticate Notes whenever the
Trustee may do so. Each reference in this Indenture to authenticating by the
Trustee includes authenticating by such agent. An authenticating agent has
the same rights as an Agent to deal with the Company or an Affiliate of the
Company.
The Company, the Trustee and any agent of the Company or the
Trustee may treat the Person in whose name any Note is registered as the
owner of such Note for the purpose of receiving payment of principal of and
(subject to the provisions of this Indenture and the Notes with respect to
record dates) interest on such Note and for all other purposes whatsoever,
whether or not such Note is 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 2.3. REGISTRAR, PAYING AGENT AND DEPOSITORY.
The Company shall maintain (i) an office or agency where Notes may
be presented for registration of transfer or for exchange ("REGISTRAR") and
(ii) an office or agency where Notes may be presented for payment ("PAYING
AGENT"). The Company initially appoints the Trustee as Registrar and Paying
Agent. The Registrar shall keep a register of the Notes and of their
transfer and exchange. The Company may appoint one or more co-registrars and
one or more additional paying agents. The term "Registrar" includes any
co-registrar and the term "Paying Agent" includes any additional paying
agent. The Company may change any Paying Agent or Registrar without notice
to any Holder. The Company shall notify the Trustee of the name and address
of any Agent not a party to this Indenture. If the Company fails to appoint
or maintain another entity as Registrar or Paying Agent, the Trustee shall
act as such. The Company or any of its Subsidiaries may act as Paying Agent
or Registrar, except that for purposes of Articles Three and Eight and
Sections 4.1, 4.10 and 4.14 neither the Company nor any of its Subsidiaries
shall act as Paying Agent.
The Company shall enter into an appropriate agency agreement with
any Agent not a party to this Indenture, which shall incorporate the
provisions of the TIA. The agreement shall implement the provisions of this
Indenture that relate to such Agent.
The Company initially appoints DTC to act as Depository with
respect to the Global Notes. The Trustee shall act as custodian for the
Depository with respect to the Global Notes.
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SECTION 2.4. PAYING AGENT TO HOLD MONEY IN TRUST.
The Company shall require each Paying Agent other than the Trustee
to agree in writing that the Paying Agent shall hold in trust for the benefit
of the Holders or the Trustee all money held by the Paying Agent for the
payment of principal, premium, if any, or interest on the Notes and shall
notify the Trustee of any default by the Company in making any such payment.
While any such default continues, the Trustee may require a Paying Agent to
pay all money held by it to the Trustee. The Company at any time may require
a Paying Agent to pay all money held by it to the Trustee. Upon payment over
to the Trustee, the Paying Agent (if other than the Company or a Subsidiary
of the Company) shall have no further liability for the money delivered to
the Trustee. If the Company or a Subsidiary of the Company acts as Paying
Agent (subject to Section 2.3), it shall segregate and hold in a separate
trust fund for the benefit of the Holders all money held by it as Paying
Agent.
SECTION 2.5. HOLDER LISTS.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses
of all Holders and shall otherwise comply with TIA Section 312(a). If the
Trustee is not the Registrar, the Company shall furnish to the Trustee at
least seven Business Days before each interest payment date and at such other
times as the Trustee may request in writing a list in such form and as of
such date as the Trustee may reasonably require of the names and addresses of
the Holders, including the aggregate principal amount thereof, and the
Company shall otherwise comply with TIA Section 312(a).
SECTION 2.6. TRANSFER AND EXCHANGE.
(a) TRANSFER AND EXCHANGE OF DEFINITIVE NOTES. When Definitive
Notes are presented by a Holder to the Registrar with a request (1) to
register the transfer of the Definitive Notes or (2) to exchange such
Definitive Notes for an equal principal amount of Definitive Notes of other
authorized denominations, the Registrar shall register the transfer or make
the exchange as requested if its requirements for such transactions are met;
PROVIDED, that the Definitive Notes so presented (A) have been duly endorsed
or accompanied by a written instruction of transfer in form satisfactory to
the Registrar duly executed by such Holder or by his attorney, duly
authorized in writing; and (B) in the case of a Restricted Security, such
request shall be accompanied by the following additional documents:
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(i) if such Restricted Security is being delivered to the Registrar
by a Holder for registration in the name of such Holder, without transfer,
a certification to that effect (in substantially the form of Exhibit B
attached hereto); or
(ii) if such Restricted Security is being transferred to a QIB in
accordance with Rule 144A or pursuant to an effective registration state-
ment under the Securities Act, a certification to that effect (in
substantially the form of Exhibit B attached hereto);
(iii) if such Restricted Security is being transferred to an ac-
credited "institutional investor," as defined in Rule 501(a)(1), (2), (3)
or (7) under the Securities Act, a transferee letter of representations (in
substantially the form attached as Annex A to the Offering Circular); or
(iv) if such Restricted Security is being transferred in reliance on
another exemption from the registration requirements of the Securities Act,
a certification to that effect (in substantially the form of Exhibit B
attached hereto) and an opinion of counsel reasonably acceptable to the
Company and the Registrar to the effect that such transfer is in compliance
with the Securities Act.
(b) TRANSFER OF A DEFINITIVE NOTE FOR A BENEFICIAL INTEREST IN A
GLOBAL NOTE. A Definitive Note may be exchanged for a beneficial interest in a
Global Note only upon receipt by the Trustee of a Definitive Note, duly endorsed
or accompanied by appropriate instruments of transfer, in form satisfactory to
the Trustee, together with:
(i) written instructions directing the Trustee to make an endorse-
ment on the Global Note to reflect an increase in the aggregate principal
amount of the Notes represented by the Global Note; and
(ii) if such Definitive Note is a Restricted Security, a
certification (in substantially the form of Exhibit B attached hereto) to
the effect that such Definitive Note is being transferred to a QIB in
accordance with Rule 144A;
in which case the Trustee shall cancel such Definitive Note and cause the aggre-
gate principal amount of Notes represented by the Global Note to be increased
accordingly. If no Global Note is then outstanding, the Company shall issue and
the Trustee shall authenticate a new Global Note in the appropriate principal
amount.
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(c) TRANSFER AND EXCHANGE OF GLOBAL NOTES. The transfer and exchange
of Global Notes or beneficial interests therein shall be effected through the
Depository in accordance with this Indenture and the procedures of the
Depository therefor, which shall include restrictions on transfer comparable to
those set forth herein to the extent required by the Securities Act.
(d) TRANSFER OF A BENEFICIAL INTEREST IN A GLOBAL NOTE FOR A DEFINI-
TIVE NOTE. Upon receipt by the Trustee of written transfer instructions (or
such other form of instructions as is customary for the Depository), from the
Depository (or its nominee) on behalf of any Person having a beneficial interest
in a Global Note, the Trustee shall, in accordance with the standing instruc-
tions and procedures existing between the Depository and the Trustee, cause the
aggregate principal amount of Global Notes to be reduced accordingly and,
following such reduction, the Company shall execute and the Trustee shall
authenticate and make available for delivery to the transferee a Definitive Note
in the appropriate principal amount; PROVIDED, that in the case of a Restricted
Security, such instructions shall be accompanied by the following additional
documents:
(i) if such beneficial interest is being transferred to the Person
designated by the Depository as being the beneficial owner, a certification
to that effect (in substantially the form of Exhibit B attached hereto); or
(ii) if such beneficial interest is being transferred to a QIB in
accordance with Rule 144A or pursuant to an effective registration state-
ment under the Securities Act, a certification to that effect (in substan-
tially the form of Exhibit B attached hereto);
(iii) if such Restricted Security is being transferred to an ac-
credited "institutional investor," as defined in Rule 501(a)(1), (2), (3)
or (7) under the Securities Act, a transferee letter of representations (in
substantially the form attached as Annex A to the Offering Circular); or
(iv) if such beneficial interest is being transferred in reliance on
another exemption from the registration requirements of the Securities Act,
a certification to that effect (in substantially the form of Exhibit B
attached hereto) and an opinion of counsel reasonably acceptable to the
Company and to the Registrar to the effect that such transfer is in compli-
ance with the Securities Act.
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Definitive Notes issued in exchange for a beneficial interest in a
Global Note shall be registered in such names and in such authorized denomina-
tions as the Depository shall instruct the Trustee.
(e) TRANSFER AND EXCHANGE OF GLOBAL NOTES. Notwithstanding any other
provision of this Indenture, the Global Note may not be transferred as a whole
except by the Depository to a nominee of the Depository or by a nominee of the
Depository to the Depository or another nominee of the Depository or by the
Depository or any such nominee to a successor Depository or a nominee of such
successor Depository; PROVIDED, that if:
(i) the Depository notifies the Company that the Depository is
unwilling or unable to continue as Depository and a successor Depository is
not appointed by the Company within 90 days after delivery of such notice;
or
(ii) the Company, at its sole discretion, notifies the Trustee in
writing that it elects to cause the issuance of Definitive Notes under this
Indenture,
then the Company shall execute and the Trustee shall authenticate and make
available for delivery, Definitive Notes in an aggregate principal amount equal
to the aggregate principal amount of the Global Note in exchange for such Global
Note.
(f) CANCELLATION AND/OR ADJUSTMENT OF GLOBAL NOTES. At such time as
all beneficial interests in the Global Note have either been exchanged for
Definitive Notes, redeemed, repurchased or cancelled, the Global Note shall be
returned to or retained and cancelled by the Trustee. At any time prior to such
cancellation, if any beneficial interest in the Global Note is exchanged for
Definitive Notes, redeemed, repurchased or cancelled, the aggregate principal
amount of Notes represented by such Global Note shall be reduced accordingly and
an endorsement shall be made on such Global Note by the Trustee to reflect such
reduction.
(g) GENERAL PROVISIONS RELATING TO TRANSFERS AND EXCHANGES. To
permit registrations of transfers and exchanges, the Company shall execute and
the Trustee shall authenticate Definitive Notes and Global Notes at the
Registrar's request. All Definitive Notes and Global Notes issued upon any
registration of transfer or exchange of Definitive Notes or Global Notes shall
be legal, valid and binding obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Definitive
Notes or Global Notes surrendered upon such registration of transfer or ex-
change.
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No service charge shall be made to a Holder for any registration of
transfer or exchange, but the Company may require payment of a sum sufficient to
cover any transfer tax or similar governmental charge payable in connection
therewith (other than any such transfer taxes or similar governmental charge
payable upon exchange (without transfer to another Person) pursuant to Sections
2.10, 3.7, 4.10, 4.14 and 9.5 of this Indenture).
The Company shall not be required to (i) issue, register the transfer
of or exchange Notes during a period beginning at the opening of business 15
days before the day of any selection of Notes for redemption under Section 3.2
hereof and ending at the close of business on the day of selection; or (ii)
register the transfer of or exchange any Note so selected for redemption in
whole or in part, except the unredeemed portion of any Note being redeemed in
part; or (iii) register the transfer of or exchange a Note between a record date
and the next succeeding interest payment date.
Prior to due presentment for the registration of a transfer of any
Note, the Trustee, any Agent and the Company may deem and treat the Person in
whose name any Note is registered as the absolute owner of such Note for all
purposes, and neither the Trustee, any Agent nor the Company shall be affected
by notice to the contrary.
(h) EXCHANGE OF SERIES A NOTES FOR SERIES B NOTES. The Series A
Notes may be exchanged for Series B Notes pursuant to the terms of the Exchange
Offer. The Trustee and Registrar shall make the exchange as follows:
The Company shall present the Trustee with an Officers' Certificate
certifying the following:
(A) upon issuance of the Series B Notes, the transactions contemplat-
ed by the Exchange Offer have been consummated; and
(B) the principal amount of Series A Notes properly tendered in the
Exchange Offer that are represented by a Global Note and the
principal amount of Series A Notes properly tendered in the Ex-
change Offer that are represented by Definitive Notes, the name
of each Holder of such Definitive Notes, the principal amount at
maturity properly tendered in the Exchange Offer by each such
Holder and the name and address to which Definitive
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Notes for Series B Notes shall be registered and sent for each
such Holder.
The Trustee, upon receipt of (i) such Officers' Certificate, (ii) an
Opinion of Counsel (x) to the effect that the Series B Notes have been
registered under Section 5 of the Securities Act and this Indenture has been
qualified under the TIA and (y) with respect to the matters set forth in Section
6(p) of the Registration Rights Agreement and (iii) a Company Order, shall au-
thenticate (A) a Global Note for Series B Notes in aggregate principal amount
equal to the aggregate principal amount of Series A Notes represented by a Glob-
al Note indicated in such Officers' Certificate as having been properly tendered
and (B) Definitive Notes representing Series B Notes registered in the names of,
and in the principal amounts indicated in such Officers' Certificate.
If the principal amount at maturity of the Global Note for the Series
B Notes is less than the principal amount at maturity of the Global Note for the
Series A Notes, the Trustee shall make an endorsement on such Global Note for
Series A Notes indicating a reduction in the principal amount at maturity repre-
sented thereby.
The Trustee shall make available for delivery such Definitive Notes
for Series B Notes to the Holders thereof as indicated in such Officers'
Certificate.
SECTION 2.7. REPLACEMENT NOTES.
If any mutilated Note is surrendered to the Trustee, or the Company
and the Trustee receive evidence to their satisfaction of the destruction, loss
or theft of any Note, the Company shall issue and the Trustee shall authenticate
a replacement Note if the Trustee's requirements for replacements of Notes are
met. If required by the Trustee or the Company, an indemnity bond must be sup-
plied by the Holder that is sufficient in the judgment of the Trustee and the
Company to protect the Company, the Trustee, any Agent or any authenticating
agent from any loss that any of them may suffer if a Note is replaced. The
Company and the Trustee may charge for their respective expenses in replacing a
Note.
Every replacement Note is an obligation of the Company and shall be
entitled to all of the benefits of this Indenture equally and proportionately
with all other Notes duly issued hereunder.
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SECTION 2.8. OUTSTANDING NOTES.
The Notes outstanding at any time are all the Notes authenticated by
the Trustee except for those cancelled by it, those delivered to it for cancel-
lation, those reductions in the interest in a Global Note effected by the
Trustee in accordance with the provisions hereof, and those described in this
Section as not outstanding.
If a Note is replaced pursuant to Section 2.7 hereof, the replaced
Note ceases to be outstanding unless the Trustee receives proof satisfactory to
it that the replaced Note is held by a bona fide purchaser.
If the principal amount of any Note is considered paid under Section
4.1 hereof, it ceases to be outstanding and interest on it ceases to accrue.
Subject to Section 2.9 hereof, a Note does not cease to be outstanding
because the Company or an Affiliate of the Company holds the Note.
SECTION 2.9. TREASURY NOTES.
In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver or consent, Notes owned by the
Company or any Affiliate of the Company shall be considered as though not out-
standing, except that for purposes of determining whether the Trustee shall be
protected in relying on any such direction, waiver or consent, only Notes that a
Trustee knows to be so owned shall be considered as not outstanding.
SECTION 2.10. TEMPORARY NOTES.
Pending the preparation of definitive Notes, the Company (and the
Guarantors, if any) may execute, and upon Company Order the Trustee shall
authenticate and make available for delivery, temporary Notes that are printed,
lithographed, typewritten, mimeographed or otherwise reproduced, in any
authorized denomination, substantially of the tenor of the definitive Notes in
lieu of which they are issued and with such appropriate insertions, omissions,
substitutions and other variations as the Officers executing such Notes may
determine, as conclusively evidenced by their execution of such Notes.
If temporary Notes are issued, the Company (and the Guarantors, if
any) shall cause definitive Notes to be prepared without unreasonable delay.
The definitive Notes shall be printed, lithographed or engraved, or provided by
any
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combination thereof, or in any other manner permitted by the rules and
regulations of any principal national securities exchange, if any, on which
the Notes are listed, all as determined by the Officers executing such
definitive Notes. 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 maintained by the Company for such
purpose pursuant to Section 4.2 hereof, without charge to the Holder. Upon
surrender for cancellation of any one or more temporary Notes, the Company
(and the Guarantors, if any), shall execute, and the Trustee shall
authenticate and make available for delivery, in exchange therefor the same
aggregate 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 2.11. CANCELLATION.
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment.
The Trustee and no one else shall cancel all Notes surrendered for registration
of transfer, exchange, payment, replacement or cancellation and shall return
such cancelled Notes to the Company. The Company may not issue new Notes to
replace Notes that have been redeemed or paid or that have been delivered to the
Trustee for cancellation.
SECTION 2.12. DEFAULTED INTEREST.
If the Company defaults in a payment of interest on the Notes, it
shall pay the defaulted interest in any lawful manner plus, to the extent
lawful, interest payable on the defaulted interest, to the Persons who are
Holders on a subsequent special record date, which date shall be at the earliest
practicable date but in all events at least five Business Days prior to the
payment date, in each case at the rate provided in the Notes and in Section 4.1
hereof. The Company shall, with the consent of the Trustee, fix or cause to be
fixed each such special record date and payment date. At least 15 days before
the special record date, the Company (or the Trustee, in the name of and at the
expense of the Company) shall mail to the Holders a notice that states the spe-
cial record date, the related payment date and the amount of such interest to be
paid.
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SECTION 2.13. LEGENDS.
(a) Except as permitted by subsections (b) or (c) hereof, each Note
shall bear legends relating to restrictions on transfer pursuant to the securi-
ties laws in substantially the form set forth on Exhibit A attached hereto.
(b) Upon any sale or transfer of a Restricted Security (including any
Restricted Security represented by a Global Note) pursuant to Rule 144 under
the Securities Act or pursuant to an effective registration statement under the
Securities Act:
(i) in the case of any Restricted Security that is a Definitive Note,
the Registrar shall permit the Holder thereof to exchange such Restricted
Security for a Definitive Note that does not bear the legends required by
subsection (a) above; and
(ii) in the case of any Restricted Security represented by a Global
Note, such Restricted Security shall not be required to bear the legends
required by subsection (a) above, but shall continue to be subject to the
provisions of Section 2.6(c) hereof; PROVIDED, that with respect to any
request for an exchange of a Restricted Security that is represented by a
Global Note for a Definitive Note that does not bear the legends required
by subsection (a) above, which request is made in reliance upon Rule 144,
the Holder thereof shall certify in writing to the Registrar that such re-
quest is being made pursuant to Rule 144.
(c) The Company (and the Guarantors, if any) shall issue and the
Trustee shall authenticate Series B Notes in exchange for Series A Notes
accepted for exchange in the Exchange Offer. The Series B Notes shall not bear
the legends required by subsection (a) above unless the Holder of such Series A
Notes is either (A) a broker-dealer who purchased such Series A Notes directly
from the Company to resell pursuant to Rule 144A or any other available exemp-
tion under the Securities Act, (B) a Person participating in the distribution of
the Series A Notes or (C) a Person who is an affiliate (as defined in Rule 144A)
of the Company.
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ARTICLE 3
REDEMPTION
SECTION 3.1. NOTICES TO TRUSTEE.
If the Company elects to redeem Notes pursuant to the optional
redemption provisions of Section 3.7 hereof, it shall furnish to the Trustee, at
least 30 days but not more than 60 days before a redemption date, an Officers'
Certificate setting forth (i) the clause of Section 3.7 pursuant to which the
redemption shall occur, (ii) the redemption date, (iii) the principal amount of
Notes to be redeemed and (iv) the redemption price.
SECTION 3.2. SELECTION OF NOTES TO BE REDEEMED.
If less than all the Notes are to be redeemed, the Trustee shall
select the Notes to be redeemed in compliance with the requirements of the
principal national securities exchange, if any, on which the Notes are listed,
or, if the Notes are not so listed, PRO RATA, by lot or by such method as the
Trustee deems to be fair and appropriate.
The Trustee shall promptly notify the Company in writing of the Notes
selected for redemption and, in the case of any Note selected for partial
redemption, the principal amount thereof to be redeemed. Notes and portions of
Notes selected shall be in amounts of $1,000 or whole multiples of $1,000.
Provisions of this Indenture that apply to Notes called for redemption also
apply to portions of Notes called for redemption.
SECTION 3.3. NOTICE OF REDEMPTION.
At least 30 days but not more than 60 days before a redemption date,
the Company shall mail a notice of redemption by first class mail to each Holder
whose Notes are to be redeemed at such Holder's registered address.
The notice shall identify the Notes to be redeemed and shall state:
(1) the redemption date;
(2) the redemption price;
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(3) if any Note is being redeemed in part only, the portion of
the principal amount of such Note to be redeemed and that, after the
redemption date, upon cancellation of the original Note, a new Note or
Notes in principal amount equal to the unredeemed portion shall be issued;
(4) the name and address of the Paying Agent;
(5) that Notes called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(6) that, unless the Company defaults in making such redemption
payment, interest on Notes or portions of Notes called for redemption
ceases to accrue on and after the redemption date;
(7) the paragraph of the Notes and/or the section of this Inden-
ture pursuant to which the Notes called for redemption are being redeemed;
and
(8) the CUSIP number of the Notes to be redeemed.
At the Company's request, the Trustee shall give the notice of redemp-
tion in the name of the Company and at its expense; PROVIDED that the Company
shall deliver to the Trustee, at least 45 days (unless a shorter period is
acceptable to the Trustee) prior to the redemption date, an Officers'
Certificate requesting that the Trustee give such notice and setting forth the
information to be stated in such notice as provided in the preceding paragraph.
SECTION 3.4. EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption has been mailed to the Holders in accordance
with Section 3.3 herein, Notes called for redemption become due and payable on
the redemption date at the redemption price. At any time prior to the mailing
of a notice of redemption to the Holders pursuant to Section 3.3, the Company
may withdraw, revoke or rescind any notice of redemption delivered to the
Trustee without any continuing obligation to redeem the Notes as contemplated by
such notice of redemption.
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SECTION 3.5. DEPOSIT OF REDEMPTION PRICE.
On or before 10:00 a.m. on the redemption date, the Company shall
deposit with the Trustee (to the extent not already held by the Trustee) or with
the Paying Agent money in immediately available funds sufficient to pay the re-
demption price of and accrued interest on all Notes to be redeemed on that date.
The Trustee or the Paying Agent shall return to the Company any money deposited
with the Trustee or the Paying Agent by the Company in excess of the amounts
necessary to pay the redemption price of, and accrued interest on, all Notes to
be redeemed.
Interest on the Notes to be redeemed shall cease to accrue on the
applicable redemption date, whether or not such Notes are presented for payment,
if the Company makes or deposits the redemption payment in accordance with this
Section 3.5. If any Note called for redemption shall not be paid upon surrender
for redemption because of the failure of the Company to comply with the preced-
ing paragraph, interest shall be paid on the unpaid principal, from the redemp-
tion date until such principal is paid, and to the extent lawful on any interest
not paid on such unpaid principal, in each case at the rate provided in the
Notes.
SECTION 3.6. NOTES REDEEMED IN PART.
Upon surrender of a Note that is redeemed in part, the Company shall
issue and the Trustee shall authenticate for the Holder at the expense of the
Company a new Note equal in principal amount to the unredeemed portion of the
Note surrendered.
SECTION 3.7. OPTIONAL REDEMPTION.
(a) Except as set forth in Section 3.7(b), the Notes are not redeem-
able at the Company's option prior to July 1, 2001. Thereafter, the Notes will
be subject to redemption 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 thereon, if any, to the applicable
redemption date, if redeemed during the 12-month period beginning on July 1 of
the years indicated below:
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YEAR PERCENTAGE
---- ----------
2001 105.125%
2002 102.563
2003 and thereafter 100.000
(b) At any time or from time to time prior to July 1, 2000, the
Company may, at its option, redeem up to $33.0 million of the original principal
amount of the Notes, at a redemption price of 110.250% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the applicable redemption
date, with the net cash proceeds of one or more Public Equity Offerings; PROVID-
ED, that (i) such redemption shall occur within 90 days of the date of closing
of such public offering and (ii) at least $67.0 million aggregate principal
amount of Notes remains outstanding immediately after giving effect to each such
redemption.
(c) The restrictions on optional redemptions set forth in this
Section 3.7 shall not limit the Company's right to make open market purchases of
the Notes from time to time.
ARTICLE 4
COVENANTS
SECTION 4.1. PAYMENT OF NOTES.
The Company shall pay the principal and premium, if any, of, and
interest on, the Notes on the dates and in the manner provided in the Notes.
Principal, premium, if any, and interest shall be considered paid on the date
due if the Paying Agent, other than the Company or a Subsidiary of the Company,
holds on or before that date money deposited by the Company in immediately
available funds and designated for and sufficient to pay all principal, premium,
if any, and interest then due. Such Paying Agent shall return to the Company,
no later than three Business Days following the date of payment, any money that
exceeds such amount of principal, premium, if any, and interest then due and
payable on the Notes. The Company shall pay any and all amounts, including
without limitation Liquidated Damages, if any, on the dates and in the manner
required under the Registration Rights Agreement.
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The Company shall pay interest (including post-petition interest) on
overdue installments of interest (without regard to any applicable grace period)
at the rate specified in the Notes to the extent lawful.
SECTION 4.2. MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain an office or agency (which may be an office
of the Trustee, Registrar or co-registrar) in the Borough of Manhattan, the City
of New York where Notes may be surrendered for registration of transfer or ex-
change and where notices and demands to or upon the Company in respect of the
Notes and this Indenture may be served. The Company shall give prompt written
notice to the Trustee of the location, and any change in the location, of such
office or agency. If at any time the Company shall fail to maintain any such
required office or agency or shall fail to furnish the Trustee with the address
thereof, such presentations, surrenders, notices and demands may be made or
served at the Corporate Trust Office of the Trustee.
The Company may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations; PROVIDED,
that no such designation or rescission shall in any manner relieve the Company
of its obligation to maintain an office or agency for such purposes. The
Company shall give prompt written notice to the Trustee of any such designation
or rescission and of any change in the location of any such other office or
agency.
The Company hereby designates the Corporate Trust Office of the
Trustee as one such office or agency of the Company in accordance with Section
2.3.
SECTION 4.3. REPORTS.
(a) If the Company is required to furnish annual, quarterly or
current reports pursuant to the Exchange Act, the Company shall cause any
annual, quarterly, current or other financial report furnished by it generally
to its stockholders to be filed with the Trustee and mailed to the Holders at
their addresses appearing in the register of Notes maintained by the Registrar.
If the Company is not required to furnish annual, quarterly or current reports
pursuant to the Exchange Act, the Company shall cause the financial statements
of the Company and its consolidated Subsidiaries (and similar financial
statements for all unconsolidated Subsidiaries, if any), including any notes
thereto (and, with respect to annual reports, an auditors' report by an
accounting firm of established national reputation), and a "Management's
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Discussion and Analysis of Financial Condition and Results of Operations,"
comparable to that which would have been required to appear in annual or
quarterly reports filed under Section 13 or 15(d) of the Exchange Act, and
current reports containing information which the Company would have been
required to file on Form 8-K, to be so filed with the Trustee and mailed to
the Holders promptly, but in any event, within 90 days after the end of each
of the fiscal years of the Company for annual reports and within 45 days
after the end of each of the first three quarters of each such fiscal year
for quarterly reports. The Company shall file with the Commission all such
reports as if it were subject to the requirements of Section 13 or 15(d) of
the Exchange Act after the filing of a registration statement under the
Registration Rights Agreement; PROVIDED, that the Company shall not be in
default of the provisions of this Section 4.3 for any failure to file reports
with the Commission solely by refusal by the Commis-sion to accept the same
for filing.
(b) So long as is required for an offer or sale of the Series A Notes
to qualify for an exemption under Rule 144A, the Company shall, upon request,
provide the information required by clause (d)(4) thereunder to each Holder and
to each beneficial owner and prospective purchaser of Series A Notes identified
by any Holder of Restricted Securities.
SECTION 4.4. COMPLIANCE CERTIFICATE.
(a) The Company shall deliver to the Trustee, within 120 days after
the end of each fiscal year, an Officers' Certificate (PROVIDED, that one of the
signatories to such Officers' Certificate shall be the Company's principal
executive officer, principal financial officer or principal accounting officer)
stating that a review of the activities of the Company and its Subsidiaries
during the preceding fiscal year has been made under the supervision of the
signing Officers with a view to determine whether each has kept, observed,
performed and fulfilled its obligations under this Indenture, and further
stating, as to each such Officer signing such certificate, that, to such
Officer's knowledge, each of the Company and its Subsidiaries has kept, ob-
served, performed and fulfilled each and every covenant contained in this Inden-
ture and is not in default in the performance or observance of any of the terms,
provisions and conditions hereof (or, if a Default or Event of Default shall
have occurred and is continuing, describing all such Defaults or Events of
Default of which he may have knowledge and what action each is taking or
proposes to take with respect thereto).
(b) The year-end financial statements delivered pursuant to Section
4.3 above shall be accompanied by a written statement of the independent public
accountants of the Company (which shall be a firm of established national
reputation
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reasonably satisfactory to the Trustee) that in making the examination
necessary for certification of such financial statements nothing has come to
their attention which would lead them to believe that either the Company or
any of its Subsidiaries has violated any provisions of this Indenture or, if
any such violation has occurred, specifying the nature and period of
existence thereof, it being understood that such accountants shall not be
liable directly or indirectly to any Person for any failure to obtain
knowledge of any such violation.
(c) So long as any of the Notes are outstanding, the Company shall
deliver to the Trustee forthwith upon any Officer becoming aware of (i) any
Default or Event of Default or (ii) any event of default under any mortgage,
indenture or instrument referred to in Section 6.1(5) hereof, an Officers' Cer-
tificate specifying such Default, Event of Default or other event of default and
what action the Company is taking or proposes to take with respect thereto.
SECTION 4.5. TAXES.
The Company shall, pursuant to the Tax Sharing Agreement, and shall
cause its Subsidiaries to, file all tax returns required to be filed and to pay
prior to delinquency all material taxes, assessments and governmental levies
except as contested in good faith and by appropriate proceedings and for which
reserves have been established if required by GAAP.
SECTION 4.6. STAY, EXTENSION AND USURY LAWS.
The Company covenants (to the extent that it may lawfully do so) that
it shall not at any time insist upon, plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay, extension or usury law wherever
enacted, now or at any time hereafter in force, 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 shall not, by resort to any such law, hinder, delay or
impede the execution of any power herein granted to the Trustee but shall suffer
and permit the execution of every such power as though no such law has been
enacted.
SECTION 4.7. LIMITATION ON RESTRICTED PAYMENTS.
(a) The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly:
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(i) declare or pay any dividend or make any distribution on
account of any Equity Interests of the Company or any of its Subsidiaries
(other than (x) dividends or distributions payable in Equity Interests
(other than Disqualified Stock) of the Company or (y) dividends or
distributions payable to the Company or any Wholly Owned Subsidiary),
(ii) purchase, redeem or otherwise acquire or retire for value
any Equity Interest of the Company, any Subsidiary or any other Affiliate
of the Company,
(iii) make any principal payment on, or purchase, redeem,
defease or otherwise acquire or retire for value any Indebtedness of the
Company or any Guarantor that is subordinated in right of payment to the
Notes or such Subsidiary's Guarantee thereof, as the case may be, prior to
any scheduled principal payment, sinking fund payment or other payment at
the stated maturity thereof,
(iv) make any Restricted Investment; or
(v) make any other payment to or on behalf of Holdings
(all such payments and other actions set forth in clauses (i) through (v) above
being collectively referred to as "RESTRICTED PAYMENTS") unless, at the time of
such Restricted Payment:
(1) no Default or Event of Default has occurred and is continu-
ing or would occur as a consequence thereof, and
(2) immediately after such Restricted Payment and after giving
effect thereto on a PRO FORMA basis, the Company could incur at least $1.00
of additional Indebtedness under Section 4.9(a) hereof, and
(3) such Restricted Payment (the value of any such payment, if
other than cash, being determined in good faith by the Board of Directors
of the Company and evidenced by a resolution set forth in an Officers'
Certificate delivered to the Trustee), together with the aggregate of all
other Restricted Payments made after the date of this Indenture (including
Restricted Payments permitted by clauses (i) and (ii) of Section 4.7(b) and
excluding Restricted Payments permitted by the other clauses therein), is
less than the sum of (w) 50% of the Adjusted Consolidated Net Income of the
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Company for the period (taken as one accounting period) from the beginning
of the first quarter commencing immediately after the Issue Date to the end
of the Company's most recently ended full fiscal quarter for which internal
financial statements are available at the time of such Restricted Payment
(or, if such Adjusted Consolidated Net Income for such period is a deficit,
100% of such deficit), plus (x) $2.0 million, plus (y) 100% of the aggre-
gate net cash proceeds received by the Company from the issuance or sale,
other than to a Subsidiary, of Equity Interests of the Company (other than
Disqualified Stock) after the Issue Date and on or prior to the time of
such Restricted Payment, plus (z) 100% of the aggregate net cash proceeds
received by the Company from the issuance or sale, other than to a Subsid-
iary, of any convertible or exchangeable debt security of the Company that
has been converted or exchanged into Equity Interests of the Company (other
than Disqualified Stock) pursuant to the terms thereof after the date of
this Indenture and on or prior to the time of such Restricted Payment
(including any additional net cash proceeds received by the Company upon
such conversion or exchange).
(b) The provisions of subsection (a) above shall not prohibit:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would not
have been prohibited by the provisions of this Indenture,
(ii) the redemption, purchase, retirement or other acquisition
of any Equity Interests of the Company in exchange for, or out of the
proceeds of, the substantially concurrent sale (other than to a Subsidiary
of the Company) of other Equity Interests of the Company (other than Dis-
qualified Stock),
(iii) the redemption, repurchase or payoff of any Indebtedness
with proceeds of any Refinancing Indebtedness permitted to be incurred
pursuant to the provisions of Section 4.9(b)(viii) hereof,
(iv) the payment of dividends to Holdings for purposes of the
repurchase, redemption, retirement or acquisition of Equity Interests of
Holdings from executives, management or employees of the Company or
Holdings pursuant to the Fannie May Holdings, Inc. Stock Appreciation
Rights Plan, adopted by the Board of Directors of Holdings in October,
1991, as in existence on the Issue Date,
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(v) payments by the Company to Holdings under the Tax Sharing
Agreement between Holdings and the Company,
(vi) payments of the Preferred Stock (other than to pay
dividends or redeem shares of preferred stock owned by TJC Investors on the
Issue Date); PROVIDED that no such payments will be made with proceeds from
the New Credit Facility, and
(vii) payments in connection with the application of the net
proceeds of the offering of the Notes in accordance with the section of the
Offering Circular titled "Use of Proceeds";
PROVIDED, that with respect to clauses (i) through (vi) above (other than
payments with respect to taxes under the Tax Sharing Agreement), no Default
in the payment when due of interest on the Notes or Event of Default
described in Section 6.1(2) and (3) hereof shall have occurred and be
continuing at the time, or shall occur as a consequence thereof.
SECTION 4.8. LIMITATION ON RESTRICTIONS ON SUBSIDIARY DIVIDENDS.
The Company shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, create or otherwise cause or suffer to exist or
become effective any encumbrance or restriction on the ability of any Restricted
Subsidiary
(a) to (i) pay dividends or make any other distributions to the
Company or any of its Restricted Subsidiaries (A) on such Restricted
Subsidiary's Capital Stock or (B) with respect to any other interest or
participation in, or measured by, such Restricted Subsidiary's profits or (ii)
pay any indebtedness owed to the Company or any of its Restricted Subsidiaries,
or
(b) to make loans or advances to the Company or any of its Restricted
Subsidiaries, or
(c) to transfer any of its assets to the Company or any of its Re-
stricted Subsidiaries, except, with respect to any of clauses (a), (b) or (c),
for such encumbrances or restrictions existing under or by reason of:
(i) this Indenture, the Security Documents and the Notes,
(ii) applicable law,
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(iii) any Acquired Debt, which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other
than the Person, or the property or assets of the Person, so acquired and
(iv) permitted Refinancing Indebtedness, provided, however, that
such restrictions contained in any agreement governing such Refinancing
Indebtedness are no more restrictive than those contained in any agreements
governing the Indebtedness being refinanced.
SECTION 4.9. LIMITATION ON INCURRENCE OF INDEBTEDNESS.
(a) The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, (i) create, incur, issue, assume,
guaranty or otherwise become directly or indirectly liable with respect to,
contingently or otherwise (collectively, "incur"), any Indebtedness (including
Acquired Debt) or (ii) issue any Disqualified Stock; PROVIDED, HOWEVER, that the
Company may incur Indebtedness or issue shares of Disqualified Stock and any
Restricted Subsidiary may incur Acquired Debt, in each case if (x) no Default or
Event of Default shall have occurred and be continuing at the time of, or would
occur after giving effect on a PRO FORMA basis to such incurrence or issuance,
and (y) the Interest Coverage Ratio for the Company's most recently ended four
full fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is incurred
or such Disqualified Stock is issued would have been at least equal to the ratio
set forth below opposite the period in which such incurrence or issuance occurs,
determined on a PRO FORMA basis (including a PRO FORMA application of the net
proceeds therefrom), as if the additional Indebtedness had been incurred, or the
Disqualified Stock had been issued, as the case may be, at the beginning of such
four-quarter period:
PERIOD ENDING RATIO
------------- -----
February 28, 1999. . . . . . . . 2.00x
Thereafter . . . . . . . . . . . 2.25x
and (z) in the case of Indebtedness the Weighted Average Life to Maturity and
final scheduled maturity of such Indebtedness exceeds the remaining Weighted
Average Life to Maturity and final stated maturity of the Notes.
(b) The limitations of Section 4.9(a) shall not prohibit the
incurrence of:
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(i) Indebtedness under the Revolving Credit Facility and
repayment obligations in respect of letters of credit, PROVIDED, that the
aggregate principal amount of such Indebtedness so incurred on any date,
together with all other Indebtedness incurred pursuant to this clause (i)
and outstanding on such date, shall not exceed $25.0 million,
(ii) performance bonds, appeal bonds, surety bonds, insurance
obligations or bonds and other similar bonds or obligations incurred in the
ordinary course of business,
(iii) obligations incurred to fix the interest rate on any
variable rate Indebtedness otherwise permitted by this Indenture ("HEDGING
OBLIGATIONS"),
(iv) Indebtedness arising out of sale and leaseback transac-
tions, capital lease obligations or Purchase Money Obligations (collective-
ly, "PURCHASE MONEY INDEBTEDNESS") in an aggregate amount not to exceed
$1.5 million outstanding at any time,
(v) Indebtedness owed by the Company to any Wholly Owned Subsid-
iary or by any Wholly Owned Subsidiary to the Company or any other Wholly
Owned Subsidiary,
(vi) Indebtedness outstanding on the Issue Date, including the
Notes,
(vii) other Permitted Indebtedness,
(viii) Indebtedness issued in exchange for, or the proceeds of
which are contemporaneously used to extend, refinance, renew, replace, or
refund (collectively, "REFINANCE") Indebtedness referred to in clauses (i),
(iv), (vi) and (ix) of this Section 4.9(b) and outstanding Indebtedness in-
curred pursuant to the Interest Coverage Ratio test set forth in Section
4.9(a) hereof ("REFINANCING INDEBTEDNESS"); PROVIDED, that (A) the princi-
pal amount of such Refinancing Indebtedness does not exceed the principal
amount of Indebtedness so Refinanced, (B) the Refinancing Indebtedness has
a final scheduled maturity that exceeds the final stated maturity, and a
Weighted Average Life to Maturity that is equal to or greater than the
Weighted Average Life to Maturity, of the Indebtedness being Refinanced,
and (C) the Refinancing
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Indebtedness ranks, in right of payment, no more favorable to the Notes
than the Indebtedness being Refinanced,
(ix) additional Indebtedness of the Company in an aggregate
principal amount of up to $5.0 million and
(x) additional Indebtedness of the Company in an aggregate
principal amount up to $5.0 million; PROVIDED, that such Indebtedness is
subordinated in right of payment to the Notes and has a final scheduled
maturity that exceeds the final stated maturity, and a Weighted Average
Life to Maturity that is equal to or greater than the Weighted Average Life
to Maturity, of the Notes.
SECTION 4.10. LIMITATION ON ASSET SALES.
The Company shall not, and shall not permit any Restricted Subsidiary
to, make any Asset Sale unless (i) the Company or such Restricted Subsidiary
receives consideration at the time of such Asset Sale at least equal to the fair
market value (as determined in good faith by the Board of Directors of the
Company as evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee) of the assets subject to such
Asset Sale, (ii) at least 85% of the consideration for such Asset Sale is in the
form of cash, Cash Equivalents or liabilities of the Company or any Restricted
Subsidiary (other than liabilities that are by their terms subordinated to the
Notes or any Guarantee of the Notes) that are assumed by the transferee of such
assets (PROVIDED, that following such Asset Sale there is no further recourse to
the Company and its Restricted Subsidiaries with respect to such assets), and
(iii) within 12 months of such Asset Sale, the Net Proceeds thereof are (a)
invested in assets related to the business of the Company or its Restricted
Subsidiaries as conducted on the Issue Date, (b) used to permanently reduce any
Indebtedness which ranks pari passu with the Notes (PROVIDED in the case of a
revolver or similar arrangement that makes credit available, such commitment is
also permanently reduced) or (c) to the extent not used as provided in clause
(a) or (b), applied to make an offer to purchase Notes as described below (an
"EXCESS PROCEEDS OFFER"); PROVIDED, that if the amount of Net Proceeds from any
Asset Sale not invested pursuant to clause (a) above or used to repay
Indebtedness pursuant to clause (b) above is less than $2.0 million, the Company
shall not be required to make an offer pursuant to clause (c).
The amount of Net Proceeds not invested or applied as set forth in the
preceding clause (a) or (b) constitutes "EXCESS PROCEEDS." If the Company
elects, or
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becomes obligated to make an Excess Proceeds Offer, the Company shall
offer to purchase Notes having an aggregate principal amount equal to the Excess
Proceeds (the "PURCHASE AMOUNT"), at a purchase price equal to 100% of the
aggregate principal amount thereof, plus accrued and unpaid interest, if any, to
the purchase date. The Company must commence such Excess Proceeds Offer not
later than 30 days after the expiration of the 12-month period following the
Asset Sale that produced Excess Proceeds. If the aggregate purchase price for
the Notes tendered pursuant to the Excess Proceeds Offer is less than the Excess
Proceeds, the Company and its Restricted Subsidiaries may use the portion of the
Excess Proceeds remaining after payment of such purchase price for general
corporate purposes.
Each Excess Proceeds Offer shall remain open for a period of 20 Busi-
ness Days and no longer, unless a longer period is required by law (the "EXCESS
PROCEEDS OFFER PERIOD"). Promptly after the termination of the Excess Proceeds
Offer Period (the "EXCESS PROCEEDS PAYMENT DATE"), the Company shall purchase
and mail or deliver payment for the Purchase Amount for the Notes or portions
thereof tendered, PRO RATA or by such other method as may be required by law,
or, if less than the Purchase Amount has been tendered, all Notes tendered
pursuant to the Excess Proceeds Offer. The principal amount of Notes to be
purchased pursuant to an Excess Proceeds Offer may be reduced by the principal
amount of Notes acquired by the Company through purchase or redemption (other
than pursuant to a Change of Control Offer) subsequent to the date of the Asset
Sale and surrendered to the Trustee for cancellation.
Each Excess Proceeds Offer shall be conducted in compliance with all
applicable laws, including without limitation, Regulation 14E of the Exchange
Act and all other applicable Federal and state securities laws. To the extent
that the provisions of any securities laws or regulations conflict with the
provisions of this Section 4.10, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under this Section 4.10 by virtue thereof. The Company shall not,
and shall not permit any of its Subsidiaries to, create or suffer to exist or
become effective any restriction that would impair the ability of the Company to
make an Excess Proceeds Offer upon an Asset Sale or, if such Excess Proceeds
Offer is made, to pay for the Notes tendered for purchase.
The Company shall, no later than 30 days following the expiration of
the 12-month period following the Asset Sale that produced Excess Proceeds,
commence the Excess Proceeds Offer by mailing to the Trustee and each Holder, at
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such Holder's last registered address, a notice, which shall govern the terms of
the Excess Proceeds Offer, and shall state:
(1) that the Excess Proceeds Offer is being made pursuant to
this Section 4.10, the principal amount of Notes which shall be accepted
for payment and that all Notes validly tendered shall be accepted for
payment on a PRO RATA basis;
(2) the purchase price and the date of purchase;
(3) that any Notes not tendered or accepted for payment pursuant
to the Excess Proceeds Offer shall continue to accrue interest;
(4) that, unless the Company defaults in the payment of the
purchase price with respect to any Notes tendered, Notes accepted for pay-
ment pursuant to the Excess Proceeds Offer shall cease to accrue interest
after the Excess Proceeds Payment Date;
(5) that Holders electing to have Notes purchased pursuant to an
Excess Proceeds Offer shall be required to surrender their Notes, with the
form entitled "Option of Holder to Elect Purchase" on the reverse of the
Note completed, to the Company prior to the close of business on the third
Business Day immediately preceding the Excess Proceeds Payment Date;
(6) that Holders shall be entitled to withdraw their election if
the Company receives, not later than the close of business on the second
Business Day preceding the Excess Proceeds Payment 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 and a statement
that such Holder is withdrawing his election to have such Notes purchased;
(7) that Holders whose Notes are purchased only in part shall be
issued Notes representing the unpurchased portion of the Notes surrendered;
PROVIDED that each Note purchased and each new Note issued shall be in
principal amount of $1,000 or whole multiples thereof; and
(8) the instructions that Holders must follow in order to tender
their Notes.
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On or before the Excess Proceeds Payment Date, the Company shall (i)
accept for payment on a PRO RATA basis the Notes or portions thereof tendered
pursuant to the Excess Proceeds Offer, (ii) deposit with the Paying Agent money
sufficient to pay the purchase price of all Notes or portions thereof so
accepted and (iii) deliver to the Trustee the Notes so accepted, together with
an Officers' Certificate stating that the Notes or portions thereof tendered to
the Company are accepted for payment. The Paying Agent shall promptly mail to
each Holder of Notes so accepted payment in an amount equal to the purchase
price of such Notes, and the Trustee shall promptly authenticate and mail to
such Holders new Notes equal in principal amount to any unpurchased portion of
the Note surrendered.
The Company shall make a public announcement of the results of the
Excess Proceeds Offer as soon as practicable after the Excess Proceeds Payment
Date. For the purposes of this Section 4.10, the Trustee shall act as the
Paying Agent.
SECTION 4.11. LIMITATION ON TRANSACTIONS WITH AFFILIATES.
The Company shall not, and shall not permit any of the Restricted
Subsidiaries to, directly or indirectly, sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into any contract, agreement, understanding, loan, advance
or guarantee with, or for the benefit of, any Affiliate (each of the foregoing,
an "AFFILIATE TRANSACTION"), except for (i) Affiliate Transactions, which
together with all Affiliate Transactions that are part of a common plan, have an
aggregate value of not more than $1.0 million; PROVIDED, that such transactions
are conducted in good faith and on terms that are no less favorable to the
Company or the relevant Restricted Subsidiary than those that would have been
obtained in a comparable transaction at such time on an arm's-length basis from
a Person that is not an Affiliate of the Company or such Restricted Subsidiary,
(ii) Affiliate Transactions, which together with all Affiliate Transactions that
are part of a common plan, have an aggregate value of not more than $2.0
million; PROVIDED, that a majority of the disinterested members of the Board of
Directors of the Company determine that such transactions are conducted in good
faith and on terms that are no less favorable to the Company or the relevant
Restricted Subsidiary than those that would have been obtained in a comparable
transaction at such time on an arm's-length basis from a Person that is not an
Affiliate of the Company or such Restricted Subsidiary and (iii) Affiliate
Transactions for which the Company delivers to the Trustee an opinion as to the
fairness to the Company or such Restricted Subsidiary from a financial point of
view, issued by an investment banking firm of national standing; PROVIDED,
HOWEVER, that the following will not be deemed to be Affiliate
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Transactions: (i) employment or consulting agreements entered into by the
Company or any Restricted Subsidiary in the ordinary course of business with
the approval of the disinterested members of the Company's Board of
Directors, (ii) transactions between or among the Company and/or its Wholly
Owned Subsidiaries or Guarantors, (iii) transactions permitted by the
provisions described in Section 4.7 hereof and (iv) reasonable and customary
directors' fees for disinterested members of the Board of Directors of the
Company.
SECTION 4.12. LIMITATION ON LIENS.
The Company shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, create, incur, assume or suffer to exist any Lien on
any asset (including, without limitation, all real, tangible or intangible
property) of the Company or any Restricted Subsidiary, whether now owned or
hereafter acquired, or on any income or profits therefrom, or assign or convey
any right to receive income therefrom, except (i) Liens on (x) accounts and
inventory and the proceeds thereof (and certain rights relating thereto) and (y)
real property of the Company not constituting Collateral securing Indebtedness
permitted to be incurred pursuant to clauses (i) and (ix) of Section 4.9(b)
hereof, or any Indebtedness used to Refinance such Indebtedness (ii) Purchase
Money Liens securing Indebtedness permitted to be incurred pursuant to clause
(iv) of Section 4.9(b) hereof, and (iii) Permitted Liens.
SECTION 4.13. CORPORATE EXISTENCE.
Subject to Article 5 of this Indenture, the Company shall do or cause
to be done all things necessary to preserve and keep in full force and effect
(i) its corporate existence, and the corporate, partnership or other existence
of each of its respective Restricted Subsidiaries, in accordance with their
respective organizational documents (as the same may be amended from time to
time) and (ii) its (and its Restricted Subsidiaries) rights (charter and statu-
tory), licenses and franchises; PROVIDED, that the Company shall not be required
to preserve any such right, license or franchise, or the corporate, partnership
or other existence of any Restricted Subsidiary, if the Board of Directors on
behalf of the Company shall determine in good faith that the preservation there-
of is no longer desirable in the conduct of the business of the Company and its
Subsidiaries taken as a whole and that the loss thereof is not adverse in any
material respect to the Holders.
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SECTION 4.14. REPURCHASE UPON A CHANGE OF CONTROL.
Upon the occurrence of a Change of Control, the Company shall notify
the Trustee in writing thereof and shall make an offer to purchase all of the
Notes then outstanding as described below (the "CHANGE OF CONTROL OFFER") at a
purchase price equal to 101% of the aggregate principal amount thereof plus
accrued and unpaid interest, if any, to the date of repurchase (the "CHANGE OF
CONTROL PAYMENT").
The Change of Control Offer shall be made in compliance with all
applicable laws, including without limitation, Regulation 14E of the Exchange
Act and all other applicable Federal and state securities laws. To the extent
that the provisions of any securities laws or regulations conflict with the
provisions of this Section 4.14, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under this Section 4.14 by virtue thereof.
Within 10 days following any Change of Control, the Company shall
commence the Change of Control Offer by mailing to the Trustee and each Holder a
notice, which shall govern the terms of the Change of Control Offer, and shall
state that:
(i) the Change of Control Offer is being made pursuant to this
Section 4.14 and that all Notes tendered will be accepted for payment,
(ii) the purchase price and the purchase date, which shall be a
Business Day no earlier than 30 days nor later than 40 days from the date
such notice is mailed (the "CHANGE OF CONTROL PAYMENT DATE"),
(iii) any Note not tendered for payment pursuant to the Change
of Control Offer shall continue to accrue interest,
(iv) unless the Company defaults in the payment of the Change of
Control Payment, all Notes accepted for payment pursuant to the Change of
Control Offer shall cease to accrue interest on the Change of Control
Payment Date,
(v) any Holder electing to have Notes purchased pursuant to a
Change of Control Offer shall be required to surrender such Notes, with the
form entitled "Option of Holder to Elect Purchase" on the reverse of the
Notes completed, to the Paying Agent at the address specified in the notice
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prior to the close of business on the third Business Day preceding the
Change of Control Payment Date,
(vi) any Holder shall be entitled to withdraw such election if
the Paying Agent receives, not later than the close of business on the
second Business Day preceding the Change of Control Payment Date, a
telegram, telex, facsimile transmission or letter setting forth the name of
the Holder, the principal amount of Notes such Holder delivered for pur-
chase, and a statement that such Holder is withdrawing his election to have
such Notes purchased,
(vii) a Holder whose Notes are being purchased only in part
shall be issued new Notes equal in principal amount to the unpurchased
portion of the Notes surrendered, which unpurchased portion must be equal
to $1,000 in principal amount or an integral multiple thereof,
(viii) the instructions that Holders must follow in order to
tender their Notes, and
(ix) the circumstances and relevant facts regarding such Change
of Control.
On the Change of Control Payment Date, the Company shall, to the
extent lawful, (i) accept for payment the Notes or portions thereof tendered
pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and not withdrawn, and (iii) deliver or cause to be
delivered to the Trustee the Notes so accepted together with an Officers'
Certificate stating that the Notes or portions thereof tendered to the Company
are accepted for payment. The Paying Agent shall promptly mail to each Holder
of Notes so accepted payment in an amount equal to the purchase price for such
Notes, and the Trustee shall authenticate and mail to each Holder a new Note
equal in principal amount to any unpurchased portion of the Notes surrendered,
if any, PROVIDED, that each such new Note will be in principal amount of $1,000
or an integral multiple thereof.
The Company shall make a public announcement of the results of the
Change of Control Offer on or as soon as practicable after the Change of Control
Payment Date. For the purposes of this Section 4.14, the Trustee shall act as
the Paying Agent.
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SECTION 4.15. MAINTENANCE OF PROPERTIES.
The Company shall, and shall cause each of its Restricted Subsidiaries
to, maintain their properties and assets in normal working order and condition
as on the date of this Indenture (reasonable wear and tear excepted) and make
all necessary repairs, renewals, replacements, additions, betterments and
improvements thereto, as shall be reasonably necessary for the proper conduct of
the business of the Company and its Restricted Subsidiaries taken as a whole;
PROVIDED, that nothing herein shall prevent the Company or any of its Subsidiar-
ies from discontinuing any maintenance of any such properties if such
discontinuance is desirable in the conduct of the business of the Company and
its Subsidiaries taken as a whole.
SECTION 4.16. MAINTENANCE OF INSURANCE.
The Company shall, and shall cause each of its Subsidiaries to,
maintain liability, casualty and other insurance (including self-insurance
consistent with prior practice) with responsible insurance companies in such
amounts and against such risks as is in accordance with customary industry
practice in the general areas in which the Company and its Subsidiaries operate.
SECTION 4.17. RESTRICTIONS ON SALE AND ISSUANCE OF SUBSIDIARY STOCK.
The Company shall not sell, and shall not permit any of its Restricted
Subsidiaries to issue or sell, any shares of Capital Stock of any Restricted
Subsidiary to any Person other than the Company or a Wholly Owned Subsidiary;
PROVIDED, that the Company and its Restricted Subsidiaries may sell all of the
Capital Stock of a Restricted Subsidiary owned by the Company and its Restricted
Subsidiaries if the Net Proceeds from such Asset Sale are used in accordance
with the provisions of Section 4.10 of this Indenture.
SECTION 4.18. LINE OF BUSINESS.
The Company shall not, and shall not permit any Subsidiary to,
directly or indirectly, engage in any business other than (a) the business
conducted or proposed to be conducted by the Company and the Subsidiaries as de-
scribed in the Offering Circular, (b) the manufacture, distribution and
retailing of confectionery items and (c) any business that in the reasonable,
good faith judgment of the Board of Directors of the Company is directly related
to such business.
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ARTICLE 5
SUCCESSORS
SECTION 5.1. WHEN THE COMPANY MAY MERGE, ETC.
The Company shall not consolidate or merge with or into (whether or
not the Company is the surviving corporation), or transfer all or substantially
all of its properties or assets (determined on a consolidated basis for the
Company and its Restricted Subsidiaries) in one or more related transactions to,
any other Person unless:
(i) the Company is the surviving Person or the Person formed by
or surviving any such consolidation or merger (if other than the Company)
or to which such transfer has been made is a corporation organized and
existing under the laws of the United States, any state thereof or the
District of Columbia,
(ii) the Person formed by or surviving any such consolidation or
merger (if other than the Company) or the Person to which such transfer has
been made assumes all the Obligations of the Company, pursuant to a supple-
mental indenture and Security Documents in a form reasonably satisfactory
to the Trustee, under the Notes, this Indenture, the Security Documents and
the Registration Rights Agreement,
(iii) immediately before, and after giving effect on a PRO FORMA
basis to, such transaction, no Default or Event of Default exists or would
occur, and
(iv) the Company, or any Person formed by or surviving any such
consolidation or merger, or to which such transfer has been made, (A) has a
Consolidated Net Worth (immediately after the transaction but prior to any
purchase accounting adjustments resulting from the transaction) equal to or
greater than the Consolidated Net Worth of the Company immediately preced-
ing the transaction and (B) is permitted, at the time of such transaction
and after giving PRO FORMA effect thereto as if such transaction had oc-
curred at the beginning of the applicable four-quarter period, to incur at
least $1.00 of additional Indebtedness pursuant to Section 4.9(a) hereof.
The Company shall deliver to the Trustee prior to the consummation of
any proposed transaction an Officers' Certificate and an Opinion of Counsel,
each
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stating all conditions precedent to the proposed transaction provided for
in this Indenture have been complied with, and a written statement from a firm
of independent public accountants of established national reputation reasonably
satisfactory to the Trustee stating that the proposed transaction complies with
clause (iv).
For purposes of this Section 5.1, the transfer of all or substantially
all of the properties and assets of one or more Subsidiaries of the Company,
which properties and assets, if held by the Company instead of such Subsidiar-
ies, would constitute all or substantially all of the properties and assets of
the Company on a consolidated basis, shall be deemed to be the transfer of all
or substantially all of the properties and assets of the Company.
SECTION 5.2. SUCCESSOR SUBSTITUTED.
In the event of any transaction (other than a lease) contemplated by
Section 5.1 hereof in which the Company is not the surviving Person, the succes-
sor formed by such consolidation or into or with which the Company is merged or
to which such transfer is made, or formed by such reorganization, as the case
may be, 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 Obliga-
tions under this Indenture, the Notes, the Security Documents and the Registra-
tion Rights Agreement with the same effect as if such successor Person had been
named as the Company herein or therein.
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.1. EVENTS OF DEFAULT.
An "EVENT OF DEFAULT" occurs if:
(1) the Company defaults in the payment of interest on any Note
when the same becomes due and payable and the Default continues for a
period of 30 days;
(2) the Company defaults in the payment of the principal (or
premium, if any) on any Note when the same becomes due and payable at
maturity, upon redemption, by acceleration or otherwise;
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(3) the Company defaults in the performance of or breaches the
provisions of Section 4.14 or Article 5 hereof;
(4) the Company or any Guarantor fails to comply with any of its
other agreements or covenants in, or provisions of, the Notes, this Inden-
ture or the Security Documents and the Default 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, such notice to state that
it is a "Notice of Default;"
(5) a default occurs under (after giving effect to any waivers,
amendments, applicable grace periods or any extension of any maturity date)
any mortgage, indenture or instrument under which there may be issued or by
which there may be secured or evidenced any Indebtedness for money borrowed
by the Company or any Guarantor (or the payment of which is guaranteed by
the Company or any Guarantor), whether such Indebtedness or guarantee now
exists or is created after the date of this Indenture, if (a) either (i)
such default results from the failure to pay principal on such Indebtedness
or (ii) as a result of such default the maturity of such Indebtedness has
been accelerated, and (b) the principal amount of such Indebtedness,
together with the principal amount of any other such Indebtedness with
respect to which such a payment default (after the expiration of any
applicable grace period or any extension of the maturity date) has oc-
curred, or the maturity of which has been so accelerated, exceeds $5.0
million in the aggregate;
(6) a final non-appealable judgment or judgments for the payment
of money (other than judgments as to which a reputable insurance company
has accepted full liability) is or are entered by a court or courts of
competent jurisdiction against the Company or any Guarantor and such judg-
ment or judgments remain undischarged, unbonded or unstayed for a period of
60 days after entry, PROVIDED that the aggregate of all such judgments
exceeds $7.5 million;
(7) breach by the Company or any Guarantor of any material
representation or warranty set forth in the Security Documents, which
breach is not cured by the Company or such Guarantor or waived within 30
days after notice to comply with such breach of a material representation
or warranty;
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(8) written assertion by the Company or any of the Guarantors of
the unenforceability of their obligations under the Indenture, the Notes,
the Security Documents, or the Guarantees or the Company or any of the
Guarantors takes any action that causes, or asserts, or fails to take any
action that it knows, or has been notified by the Trustee, is necessary to
prevent, the unenforceability of the Indenture, the Notes, the Security
Documents or the Guarantees against the Company or any Guarantor or is
necessary to maintain the priority and perfection of the Liens of the
Security Documents;
(9) the Company or any Material Subsidiary pursuant to or within
the meaning of any Bankruptcy Law:
(a) commences a voluntary case,
(b) consents to the entry of an order for relief against it
in an involuntary case,
(c) consents to the appointment of a Custodian of it or for
all or substantially all of its property,
(d) makes a general assignment for the benefit of its
creditors,
(e) admits in writing its inability to pay debts as the
same become due; or
(10) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(a) is for relief against the Company or any Material Sub-
sidiary in an involuntary case,
(b) appoints a Custodian of the Company or any Material
Subsidiary or for all or substantially all of their property,
(c) orders the liquidation of the Company, or any Material
Subsidiary, and in any of the cases described in clauses (a), (b)
or (c) the order or decree remains unstayed and in effect for 60
days.
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The Company shall, upon becoming aware that a Default or Event of
Default has occurred, deliver to the Trustee a statement specifying such Default
or Event of Default and what action the Company is taking or proposes to take
with respect thereto.
SECTION 6.2. ACCELERATION.
If an Event of Default (other than an Event of Default specified in
clauses (9) and (10) of Section 6.1) occurs and is continuing, the Trustee by
written notice to the Company, or the Holders of at least 25% in principal
amount of the then outstanding Notes by written notice to the Company and the
Trustee, may declare the unpaid principal of and any accrued interest on all the
Notes to be due and payable. Upon such declaration the principal and interest
shall be due and payable immediately. If an Event of Default specified in
clause (9) or (10) of Section 6.1 with respect to the Company occurs, all
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.
At any time after a declaration of acceleration, but before a judgment or decree
for payment of the money due has been obtained by the Trustee, the Holders of a
majority in aggregate principal amount of the Notes outstanding, by written
notice to the Company and the Trustee, may rescind and annul such declaration
and its consequences if (a) the Company has paid or deposited with the Trustee a
sum sufficient to pay (i) all sums paid or advanced by the Trustee and the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel, (ii) all overdue interest (including any interest
accrued subsequent to an Event of Default specified in clauses (9) and (10) of
Section 6.1) on all Notes, (iii) the principal of and premium, if any, on any
Notes that have become due otherwise than by such declaration or occurrence of
acceleration and interest thereon at the rate borne by the Notes and (iv) to the
extent that payment of such interest is lawful, interest upon overdue interest
at the rate borne by the Notes; (b) all Events of Default, other than the
nonpayment of principal of and interest on the Notes that have become due solely
by such declaration or occurrence of acceleration, have been cured or waived;
and (c) the rescission would not conflict with any judgment, order or decree of
any court of competent jurisdiction.
SECTION 6.3. OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy (under this Indenture or otherwise) to collect the
payment of principal or interest on the Notes to enforce the performance of any
provision of the Notes, this Indenture or the Security Documents.
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The Trustee may maintain a proceeding even if it does not possess any
of the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder in exercising any right or remedy accruing
upon an Event of Default shall not impair the right or remedy or constitute a
waiver of or acquiescence in the Event of Default. All remedies are cumulative
to the extent permitted by law.
SECTION 6.4. WAIVER OF PAST DEFAULTS.
Holders of a majority of the aggregate principal amount of the then
outstanding Notes by written notice to the Company and the Trustee may on behalf
of the Holders of all of the Notes waive any existing Default or Event of
Default and its consequences under this Indenture except a continuing Default or
Event of Default in the payment of the principal of, or interest on, any Note or
a Default or an Event of Default with respect to any covenant or provision which
cannot be modified or amended without the consent of the Holder of each out-
standing 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 impair any right consequent thereon.
SECTION 6.5. CONTROL BY MAJORITY.
The Holders of a majority in principal amount of the then outstanding
Notes may direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee or exercising any trust or power conferred on
it. However, the Trustee may refuse to follow any direction that conflicts with
law or this Indenture, that the Trustee determines may be unduly prejudicial to
the rights of other Holders, or that may involve the Trustee in personal
liability.
SECTION 6.6. LIMITATION ON SUITS.
A Holder may pursue a remedy with respect to this Indenture or the
Notes only if:
(a) the Holder gives to the Trustee written notice of a continuing
Event of Default;
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(b) the Holders of at least 25% in principal amount of the then
outstanding Notes make a written request to the Trustee to pursue the
remedy;
(c) such Holder or Holders offer and, if requested, provide to the
Trustee indemnity satisfactory to the Trustee against any loss, liability
or expense;
(d) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer and, if requested, the provision of
indemnity; and
(e) during such 60-day period the Holders of a majority in principal
amount of the then outstanding Notes do not give the Trustee a direction
inconsistent with the request.
A Holder may not use this Indenture to prejudice the rights of another Holder or
to obtain a preference or priority over another Holder.
SECTION 6.7. RIGHTS OF HOLDERS TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the right of
any Holder of a Note to receive payment of principal and interest on the Note,
on or after the respective due dates expressed in the Note, or to bring suit for
the enforcement of any such payment on or after such respective dates, shall not
be impaired or affected without the consent of the Holder.
SECTION 6.8. COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 6.1(1) or (2) occurs and
is continuing, the Trustee is authorized to recover judgment in its own name and
as trustee of an express trust against the Company for the whole amount of
principal and interest remaining unpaid on the Notes and interest on overdue
principal (and premium, if any) and, to the extent lawful, interest and 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.
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SECTION 6.9. TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee is authorized to file such proofs of claim and other
papers or documents as may be necessary or advisable in order to have the claims
of the Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders allowed in any judicial proceedings relative to the Company (or any
other obligor under the Notes), their creditors or their property and shall be
entitled and empowered to collect, receive and distribute any money or other
property payable or deliverable on any such claims and any custodian in any such
judicial proceeding is hereby authorized by each Holder to make such payments to
the Trustee, and in the event that the Trustee shall consent to the making of
such payments directly to the Holders, to pay to the Trustee any amount due to
it for the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.7 hereof. To the extent that the payment of any such compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, and
any other amounts due the Trustee under Section 7.7 hereof out of the estate in
any such proceeding, shall be denied for any reason, payment of the same shall
be secured by a Lien on, and shall be paid out of, any and all distributions,
dividends, money, securities and other properties that the Holders of the Notes
may be entitled to receive in such proceeding whether in liquidation or under
any plan of reorganization or arrangement or otherwise. Nothing herein con-
tained 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 6.10. PRIORITIES.
If the Trustee collects any money pursuant to this Article, it shall
pay out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts due under
Section 7.7, including payment of all compensation, expense and liabilities in-
curred, and all advances made, by the Trustee and the costs and expenses of
collection;
Second: to Holders for amounts due and unpaid on the Notes for
principal and interest, ratably, without preference or priority of any kind,
according to the amounts due and payable on the Notes for principal and
interest, respectively;
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Third: without duplication, to Holders for any other Obligations
owing to the Holders under the Notes or this Indenture; and
Fourth: to the Company or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to
Holders.
SECTION 6.11. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable attor-
neys' fees, against any party litigant in the suit, having due regard to the
merits and good faith of the claims or defenses made by the party litigant.
This Section does not apply to a suit by the Trustee, a suit by a Holder
pursuant to Section 6.6, or a suit by Holders of more than 10% in principal
amount of the then outstanding Notes.
ARTICLE 7
TRUSTEE
SECTION 7.1. DUTIES OF TRUSTEE.
(1) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture and the Security Documents and use the same degree of care and skill
in its exercise as a prudent person would exercise or use under the circumstanc-
es in the conduct of his or her own affairs.
(2) Except during the continuance of an Event of Default:
(a) The duties of the Trustee shall be determined
solely by the express provisions of this Indenture, and the
Trustee need perform only those duties that are specifically set forth
in this Indenture and the Security Documents, and no others, and no
implied covenants or obligations shall be read into this Indenture
against the Trustee.
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(b) 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 opin-
ions furnished to the Trustee and conforming to the requirements of this
Indenture and the Security Documents. However, the Trustee shall examine
the certificates and opinions to determine whether or not they conform to
the requirements of this Indenture and the Security Documents.
(3) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful miscon-
duct, except that:
(a) This paragraph does not limit the effect of paragraph
(2) of this Section.
(b) The Trustee shall not be liable for any error of judg-
ment made in good faith by a Responsible Officer, unless it is proved that
the Trustee was negligent in ascertaining the pertinent facts.
(c) The Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.5.
(d) The Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance with
the direction of the Holders of a majority in principal amount of the
outstanding Notes, determined as provided in Sections 2.8 and 2.9, relating
to the time, method and place of conducting any proceeding for any remedy
available to the Trustee, or exercising any trust or power conferred upon
the Trustee, under this Indenture with respect to the Notes.
(4) Whether or not therein expressly so provided, every
provision of this Indenture that in any way relates to the Trustee is subject to
paragraphs (1), (2) and (3) of this Section.
(5) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or incur any liability. The Trustee may refuse to
perform any duty or exercise any right or power unless it receives indemnity
satisfactory to it against any loss, liability or expense.
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(6) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
SECTION 7.2. RIGHTS OF TRUSTEE.
(1) The Trustee may conclusively rely upon any document believed
by it to be genuine and to have been signed or presented by the proper Person.
The Trustee need not investigate any fact or matter stated in the document.
(2) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel or both. The Trustee
shall not be liable for any action it takes or omits to take in good faith in
reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may
consult with counsel and the advice of such counsel or any Opinion of Counsel
shall be full and complete authorization and protection from liability in
respect of any action taken, suffered or omitted by it hereunder in good faith
and in reliance thereon.
(3) The Trustee may act through agents and shall not be re-
sponsible for the misconduct or negligence of any agent appointed with due care.
(4) The Trustee shall not be liable for any action it takes or
omits to take in good faith which it believes to be authorized or within its
rights or powers conferred upon it by this Indenture or the Security Documents.
(5) Unless otherwise specifically provided in this Indenture or
the Security Documents, any demand, request, direction or notice from the Compa-
ny shall be sufficient if signed by an Officer of the Company, on behalf of the
Company.
(6) Except with respect to Section 4.1, the Trustee shall have
no duty to inquire as to the performance of the Company's covenants in Article 4
hereof.
(7) Any request or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Order.
(8) The Trustee may consult with counsel of its selection, as
well as other experts and consultants, and the advice of such counsel, any
Opinion of Counsel or advice of such experts or consultants shall be full and
complete authoriza-
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tion and protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon.
(9) The Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture or the Security Documents at
the request or direction of any of the Holders pursuant to this Indenture or the
Security Documents, unless such Holders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
which might be incurred by it in compliance with such request or direction.
(10) The Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other paper or document, but
the Trustee, in its discretion, may make such further inquiry or investigation
into such facts or matters as it may see fit, and, if the Trustee shall
determine to make such further inquiry or investigation, it shall be entitled to
examine the books, records and premises of the Company, personally or by agent
or attorney at the sole cost of the Company and shall incur no liability or
additional liability of any kind by reason of such inquiry or investigation.
(11) The Trustee shall not be deemed to have notice of any
Default or Event of Default unless a Responsible Officer of the Trustee has
actual knowledge thereof or unless written notice of any event which is in fact
such a default is received by the Trustee at the Corporate Trust Office of the
Trustee, and such notice references the Notes and this Indenture.
(12) The powers and duties conferred upon the Trustee by this
Article 7 are solely to protect the lien of the Security Documents and shall not
impose any duty upon the Trustee to exercise any such powers and duties, except
as expressly provided in the Indenture.
SECTION 7.3. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Notes and may otherwise deal with the Company or an Affil-
iate of the Company with the same rights it would have if it were not Trustee.
Any Agent may do the same with like rights. However, the Trustee is subject to
Sections 7.10 and 7.11.
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SECTION 7.4. TRUSTEE'S DISCLAIMER.
The Trustee shall not be responsible for and makes no representation
as to the validity or adequacy of this Indenture or the Notes, it shall not be
accountable for the Company's use of the proceeds from the Notes or any money
paid to the Company or upon the Company's direction under any provision hereof,
it shall not be responsible for the use or application of any money received by
any Paying Agent other than the Trustee and it shall not be responsible for any
statement or recital herein or any statement in the Notes or any other document
in connection with the sale of the Notes or pursuant to this Indenture other
than its certificate of authentication.
SECTION 7.5. NOTICE OF DEFAULTS.
If a Default or Event of Default occurs and is continuing and if the
Trustee has knowledge thereof (within the meaning of Section 7.2(b)), the
Trustee shall mail to the Holders a notice of the Default or Event of Default
within 90 days after it occurs.
SECTION 7.6. REPORTS BY TRUSTEE TO HOLDERS.
Within 60 days after each May 15 beginning with the May 15 following
the date of this Indenture, the Trustee shall mail to the Holders a brief report
dated as of such reporting date that complies with TIA Section 313(a) (but if no
event described in TIA Section 313(a) has occurred within the twelve months
preceding the reporting date, no report need be transmitted). The Trustee also
shall comply with TIA Section 313(b). The Trustee shall also transmit by mail
all reports as required by TIA Section 313(c).
Commencing at the time this Indenture is qualified under the TIA, a
copy of each report at the time of its mailing to the Holders shall be filed
with the Commission and each stock exchange on which the Notes are listed. The
Company shall promptly notify the Trustee when the Notes are listed on any stock
exchange.
SECTION 7.7. COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee from time to time such
compensation for its acceptance of this Indenture and services hereunder as the
parties shall agree from time to time. The Trustee's compensation shall not be
limited by any law on compensation of a trustee of an express trust. The
Company shall reimburse the
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Trustee promptly upon request for all reasonable disbursements, advances and
expenses incurred or made by it in addition to the compensation for its
services. Such expenses shall include the reasonable compensation,
disbursements and expenses of the Trustee's agents and any counsel, expert or
consultant except such disbursements, advances and expenses as may be
attributable to its negligence or bad faith.
The Company shall indemnify the Trustee against any and all losses,
liabilities or expenses incurred by it without negligence or bad faith on its
part arising out of or in connection with the acceptance or administration of
its duties under this Indenture and the Security Documents, except as set forth
below. The Trustee shall notify the Company promptly of any claim for which it
may seek indemnity. Failure by the Trustee to so notify the Company shall not
relieve the Company of its obligations hereunder. The Company shall defend the
claim and the Trustee shall cooperate in the defense. In the event that a
conflict of interest or conflicting defenses would arise in connection with the
representation of the Company and the Trustee by the same counsel, the Trustee
may have separate counsel and the Company shall pay the reasonable fees and
expenses of such counsel. The Company need not pay for any settlement made
without its consent, which consent shall not be unreasonably withheld.
The obligations of the Company under this Section 7.7 shall survive
the satisfaction and discharge of this Indenture.
The Company need not reimburse any expense or indemnify against any
loss or liability incurred by the Trustee through its own negligence or bad
faith.
To secure the Company's payment obligations in this Section, the
Trustee shall have a Lien prior to the Notes on all money or property held or
collected by the Trustee, except that held in trust to pay principal of (and
premium, if any) and interest on particular Notes. Such Lien shall survive the
satisfaction and discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.1(9) or (10) occurs, the expenses and the compen-
sation for the services are intended to constitute expenses of administration
under any Bankruptcy Law.
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SECTION 7.8. REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section.
The Trustee may resign at any time and be discharged from the trust
hereby created by so notifying the Company. The Holders of a majority in
principal amount of the then outstanding Notes may remove the Trustee by so
notifying the Trustee and the Company. The Company may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order
for relief is entered with respect to the Trustee under any Bankruptcy Law;
(c) a Custodian or public officer takes charge of the Trustee or its
property;
(d) a conflict of interest arises concerning the Trustee and contin-
ues for 90 days; or
(e) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding Notes may appoint a
successor Trustee to replace the successor Trustee appointed by the Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of at least 10% in principal amount of the then outstanding Notes may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
If the Trustee after written request by any Holder who has been a
Holder for at least six months fails to comply with Section 7.10, such Holder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
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A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the resigna-
tion or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its succes-
sion to the Holders. The retiring Trustee shall promptly transfer all property
held by it as Trustee to the successor Trustee, PROVIDED that all sums owing to
the Trustee hereunder have been paid and subject to the Lien provided for in
Section 7.7. Notwithstanding replacement of the Trustee pursuant to this
Section 7.8, the Company's obligations under Section 7.7 hereof shall continue
for the benefit of the retiring Trustee, and the Company shall pay to any such
replaced or removed Trustee all amounts owed under Section 7.7 upon such
replacement or removal.
SECTION 7.9. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates, merges or converts into, or transfers all
or substantially all of its corporate trust business to, another corporation,
the successor corporation without any further act shall be the successor
Trustee.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.
There shall at all times be a Trustee hereunder that shall (a) be a
corporation organized and doing business under the laws of the United States of
America or of any state thereof or of the District of Columbia authorized under
such laws to exercise corporate trustee power, (b) be subject to supervision or
examination by Federal or state or the District of Columbia authority, and (c)
have a combined capital and surplus of at least $100,000,000 as set forth in its
most recent published annual report of condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA Sections 310(a)(1), 310(a)(2) and 310(a)(5). The Trustee is
subject to TIA Section 310(b); PROVIDED, HOWEVER, that there shall be excluded
from the operations of TIA Section 310(b)(1) any indenture or indentures under
which other securities, or certificates of interest or participation in other
securities, of the Company are outstanding, if the requirements for such
exclusion set forth in TIA Section 310(b)(1) are met.
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SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee is subject to TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Section 311(a) to the extent indicated therein.
The provisions of TIA Section 311 shall apply to the Company, as obligor on the
Notes.
ARTICLE 8
DISCHARGE OF INDENTURE
SECTION 8.1. TERMINATION OF COMPANY'S OBLIGATIONS.
This Indenture shall cease to be of further effect (except that
Section 7.7, 8.3 and 8.4 shall survive) when all outstanding Notes theretofore
authenticated and issued have been delivered (other than (i) destroyed, lost or
stolen Notes that have been replaced or paid and (ii) Notes for whose payment
money has theretofore been deposited in trust and thereafter repaid to the
Company pursuant to Section 8.3(b) hereof) to the Trustee for cancellation and
all sums payable by the Company hereunder have been paid. In addition, the
Company may (A) if applicable, be discharged from any and all Obligations in re-
spect of the Notes, other than the obligation to duly and punctually pay the
principal of, and premium, if any, and interest on the Notes, in accordance
herewith, or (B) if applicable, omit to comply with restrictive covenants, and
such omission will not be deemed to be an Event of Default if:
(1) with respect to clauses (A) and (B), the Company irrevocably
deposits in trust with the Trustee or at the option of the Trustee, with a
trustee reasonably satisfactory to the Trustee and the Company under the
terms of an irrevocable trust agreement in form and substance satisfactory
to the Trustee, money or U.S. Government Obligations sufficient (as
certified by a nationally recognized accounting firm designated by the Com-
pany) to pay principal and interest and premium, if any, on the Notes to
maturity or redemption and each installment of interest, if any, on the due
dates thereof on the Notes, as the case may be, and to pay all other sums
payable by it hereunder, and with respect to clause (B) the Obligations
under this Indenture other than with respect to such covenants and Events
of Default which will remain in full force and effect, PROVIDED that (i)
the trustee of the irrevocable trust shall have been irrevocably instructed
to pay such money or the proceeds of such U.S. Government Obligations to
the Trustee and (ii) the Trustee shall have been irrevocably instructed to
apply such money or the proceeds of such
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U.S. Government Obligations to the payment of said principal, premium,
if any, and interest with respect to the Notes;
(2) with respect to clause (A), the Company has received from, or
there has been published by, the U.S. Internal Revenue Service a ruling or
there has been a change in laws which in the opinion of independent
counsel, which the Company shall deliver to the Trustee, provides that
holders of the Notes will not recognize income, gain or loss for Federal
income tax purposes as a result of such deposit, defeasance and discharge
and will be subject to Federal income tax on the same amount, in the same
manner and at the same times as would have been the case if such deposit,
defeasance and discharge had not occurred and the Notes were otherwise paid
or redeemed in accordance with the provisions of this Indenture;
(3) with respect to clause (A) and (B), the Company has delivered to
the Trustee an opinion of independent counsel to the effect that the
holders of the Notes will not recognize income, gain or loss for Federal
income tax purposes as a result of such deposit, defeasance and discharge
and will be subject to Federal income tax on the same amount, in the same
manner and at the same times as would have been the case if such deposit,
defeasance and discharge had not occurred and the Notes were otherwise paid
or redeemed in accordance with the provisions of this Indenture;
(4) with respect to clause (A) and (B), no Default or Event of
Default shall have occurred or be continuing; and
(5) with respect to clause (A) and (B) the Company delivers to the
Trustee an Officers' Certificate stating that all conditions precedent to
satisfaction and discharge of this Indenture have been complied with, and
an Opinion of Counsel to the same effect.
The Trustee, on demand of the Company, shall execute proper instruments
acknowledging confirmation of and discharge under this Indenture and the release
of the Liens created under the Collateral Documents. However, the Company's
Obligations in Sections 2.3, 2.4, 2.5, 2.6, 2.7, 4.1, 4.6, 7.7, 7.8, 8.3 and
8.4, the Guarantors' Obligations, and the Trustee's and Paying Agent's obli-
gations in Section 8.3 shall survive until the Notes are no longer outstanding.
Thereafter, only the Company's obligations in Section 7.7 and 8.4 and the
Company's, Trustee's and Paying Agent's obligations in Section 8.3 shall
survive.
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After such irrevocable deposit has been made pursuant to this Section
8.1 and satisfaction of the other conditions set forth herein, the Trustee upon
request shall acknowledge in writing the discharge of the Company's obligations
under this Indenture except for those surviving obligations specified above.
In order to have money available on a payment date to pay principal,
premium, if any, or interest on the Notes, the U.S. Government Obligations shall
be payable as to principal, premium, if any, or interest at least one Business
Day before such payment date in such amounts as shall provide the necessary
money. U.S. Government Obligations shall not be callable at the issuer's
option.
SECTION 8.2. APPLICATION OF TRUST MONEY.
The Trustee, or a trustee satisfactory to the Trustee and the Company,
shall hold in trust, money or U.S. Government Obligations deposited with it
pursuant to Section 8.1. It shall apply the deposited money and the money from
U.S. Government Obligations through the Paying Agent and in accordance with this
Indenture to the payment of principal, premium, if any, and interest on the
Notes.
SECTION 8.3. REPAYMENT TO THE COMPANY.
(a) The Trustee and the Paying Agent shall promptly pay to the
Company upon written request any excess money or securities (as certified by an
independent public accountant reasonably acceptable to the Trustee) held by them
at any time.
(b) The Trustee and the Paying Agent shall pay to the Company upon
written request any money held by them for the payment of principal, premium, if
any, or interest that remains unclaimed for two years after the date upon which
such payment shall have become due; PROVIDED that the Company shall have either
caused notice of such payment to be mailed to each Holder entitled thereto no
less than 30 days prior to such repayment or within such period shall have pub-
lished such notice in a financial newspaper of widespread circulation published
in the City of New York, including, without limitation, THE WALL STREET JOURNAL.
After payment to the Company, Holders entitled to the money must look to the
Company for payment as general creditor unless an applicable abandoned property
law designates another Person, and all liability of the Trustee and such Paying
Agent with respect to such money shall cease.
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SECTION 8.4. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any money or U.S.
Government Obligations in accordance with Section 8.2 by reason of any legal
proceeding or by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, the
Obligations of the Company and the Guarantors under this Indenture and the Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 8.1 until such time as the Trustee or Paying Agent is permitted to apply
all such money or U.S. Government Obligations in accordance with Section 8.2;
PROVIDED that if the Company has made any payment of interest on or principal of
any Notes because of the reinstatement of its Obligations, the Company shall be
subrogated to the rights of the Holders of such Notes to receive such payment
from the money or U.S. Government Obligations held by the Trustee or Paying
Agent.
ARTICLE 9
AMENDMENTS
SECTION 9.1. WITHOUT CONSENT OF HOLDERS.
The Company, the Guarantors and the Trustee may amend or supplement
this Indenture and the Notes without the consent of any Holder:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated Notes in addition to or in
place of certificated Notes;
(3) to comply with Article 5 and Section 10.7 hereof;
(4) to make any change that would provide any additional rights
or benefits to the Holders of the Notes or that does not adversely affect
the legal rights hereunder or thereunder of any Holder;
(5) to comply with requirements of the Commission in order to
effect or maintain the qualification of this Indenture under the TIA; or
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(6) to release any Guarantee of the Notes permitted to be
released under Section 10.11 hereof or add any Guarantor under Section 10.7
hereof.
Upon the request of the Company, accompanied by a resolution of the
Board of Directors of the Company authorizing the execution of any such sup-
plemental indenture or amendment, and upon receipt by the Trustee of the docu-
ments described in Section 9.6 hereof required or requested by the Trustee, the
Trustee shall join with the Company in the execution of any supplemental inden-
ture or amendment authorized or permitted by the terms of this Indenture and
shall make any further appropriate agreements and stipulations which may be
therein contained, but the Trustee shall not be obligated to enter into such
supplemental indenture or amendment that affects its own rights, duties or
immunities under this Indenture or otherwise.
SECTION 9.2. WITH CONSENT OF HOLDERS.
Subject to Sections 6.4 and 6.7 hereof, the Company and the Trustee,
as applicable, may amend, or waive any provision of, this Indenture or the Notes
or the Security Documents, with the written consent of the Holders of at least a
majority of the principal amount of the then outstanding Notes (including
consents obtained in connection with a tender offer or exchange offer for
Notes).
Upon the request of the Company, accompanied by a resolution of the
Board of Directors of the Company authorizing the execution of any such sup-
plemental indenture or amendment, and upon filing with the Trustee of evidence
satisfactory to the Trustee of the consent of the Holders as aforesaid, and upon
receipt by the Trustee of the documents described in Section 9.6 hereof, the
Trustee shall join with the Company in the execution of such supplemental
indenture or amendment unless such supplemental indenture or amendment affects
the Trustee's own rights, duties or immunities under this Indenture or other-
wise, in which case the Trustee may in its discretion, but shall not be
obligated to, enter into such supplemental indenture.
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed supplemental indenture or
amendment, but it shall be sufficient if such consent approves the substance
thereof.
After a supplemental indenture or amendment under this Section becomes
effective, the Company shall mail to the Holders of each Note affected there-
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by a notice briefly describing the amendment or waiver. Any failure of the
Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such supplemental indenture,
amendment or waiver.
Notwithstanding any other provision hereof, without the consent of
each Holder affected, an amendment or waiver under this Section may not (with
respect to any Notes held by a non-consenting Holder):
(1) reduce the principal amount of Notes whose Holders must
consent to an amendment, supplement or waiver;
(2) reduce the principal of, or the premium on, or change the
fixed maturity of any Note or alter Article 3 hereof or numbered paragraphs
5 or 6 of Exhibit A to this Indenture or the price at which the Company
shall offer to purchase such Notes pursuant to Sections 4.10 or 4.14 here-
of;
(3) reduce the rate of or change the time for payment of
interest, including default interest, on any Note;
(4) waive a Default or Event of Default in the payment of prin-
cipal of or premium, if any, or interest on, or redemption payment with
respect to, any Note (other than a Default in the payment of an amount due
as a result of an acceleration if the Holder rescinds such acceleration
pursuant to Section 6.2);
(5) make any Note payable in money other than that stated in the
Notes;
(6) make any change in Section 6.4 or 6.7 hereof or in this
Section 9.2;
(7) waive a redemption payment with respect to any Note;
(8) make any change in provisions of any of the Guarantees that
adversely affects the rights of any holder of Notes;
(9) make any change adversely affecting the contractual ranking
of the Obligations; or
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(10) make any change in the foregoing amendment and waiver
provisions.
SECTION 9.3. COMPLIANCE WITH TRUST INDENTURE ACT.
If, at the time of an amendment to this Indenture or the Notes, this
Indenture shall be qualified under the TIA, every amendment to this Indenture or
the Notes shall be set forth in a supplemental indenture that complies with the
TIA as then in effect.
SECTION 9.4. REVOCATION AND EFFECT OF CONSENTS.
Until a supplemental indenture, an amendment or waiver becomes
effective, a consent to it by a Holder of a Note is a continuing consent by the
Holder and every subsequent Holder of a Note or portion of a Note that evidences
the same debt as the consenting Holder's Note, even if notation of the consent
is not made on any Note. A supplemental indenture, amendment or waiver becomes
effective in accordance with its terms and thereafter binds every Holder.
The Company may fix a record date for determining which Holders must
consent to such supplemental indenture, amendment or waiver. If the Company
fixes a record date, the record date shall be fixed at (i) the later of 30 days
prior to the first solicitation of such consent or the date of the most recent
list of Holders furnished to the Trustee prior to such solicitation pursuant to
Section 2.5, or (ii) such other date as the Company shall designate.
SECTION 9.5. NOTATION ON OR EXCHANGE OF NOTES.
The Trustee may place an appropriate notation about a supplemental
indenture, amendment or waiver on any Note thereafter authenticated. The
Company in exchange for all Notes may issue and the Trustee shall authenticate
new Notes that reflect the amendment or waiver.
Failure to make the appropriate notation or issue a new Note shall not
affect the validity and effect of such amendment or waiver.
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SECTION 9.6. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amendment or supplemental indenture
authorized pursuant to this Article 9 if the amendment 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 or supplemental indenture, the Trustee shall be entitled to receive,
if requested, an indemnity reasonably satisfactory to it and to receive and,
subject to Section 7.1, shall be fully protected in relying upon, an Officers'
Certificate and an Opinion of Counsel as conclusive evidence that such amendment
or supplemental indenture is authorized or permitted by this Indenture, that it
is not inconsistent herewith, and that it shall be valid and binding upon the
Company in accordance with its terms. The Company may not sign an amendment or
supplemental indenture until the Board of Directors of the Company approves it.
SECTION 9.7. PAYMENTS FOR CONSENT.
Neither the Company nor any of its Subsidiaries shall, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any holder of any Notes for or as an inducement
to any consent, waiver or amendment of any of the terms or provisions of this
Indenture or the Notes unless such consideration is offered to be paid or agreed
to be paid to all holders of the Notes that consent, waive or agree to amend in
the time frame set forth in the solicitation documents relating to such consent,
waiver or agreement, which solicitation documents must be mailed to all Holders
of the Notes a reasonable length of time prior to the expiration of the
solicitation.
ARTICLE 10
COLLATERAL AND SECURITY AND GUARANTY
SECTION 10.1. COLLATERAL DOCUMENTS.
The due and punctual payment of the principal and premium, if any, of,
and interest on, the Notes when and as the same shall be due and payable,
whether on an interest payment date, at maturity, by acceleration, repurchase,
redemption or otherwise, interest on the overdue principal of and interest (to
the extent permitted by law), if any, on the Notes and Guarantees and perfor-
mance of all other Obligations, shall be secured as provided in the Security
Documents.
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The Company shall, and shall cause each of its Restricted Subsidiaries
to, do or cause to be done all such acts and things as may be necessary or
proper, or as may be required by the provisions of the Security Documents, to
assure and confirm to the Trustee the security interest in the Collateral
contemplated hereby and by the Security Documents, as from time to time consti-
tuted, so as to render the same available for the security and benefit of this
Indenture and of the Notes secured hereby, according to the intent and purposes
herein and therein expressed. The Company shall, and shall cause each of its
Restricted Subsidiaries to, take, upon request of the Trustee, any and all
actions required to cause the Security Documents to create and maintain, as
security for the Obligations, valid and enforceable, perfected (except as
expressly provided herein or therein), Liens in and on all the Collateral, in
favor of the Trustee, superior to and prior to the rights of all third Persons,
and subject to no other Liens, other than as provided herein and therein.
SECTION 10.2. OPINIONS.
The Company shall furnish to the Trustee within three months after
each anniversary of the Closing Date, an Opinion of Counsel, dated as of such
date, stating either that (i) in the opinion of such counsel, all action has
been taken with respect to the recording, registering, filing, re-recording, re-
registering and refiling of all supplemental indentures, financing statements,
continuation statements or other instruments of further assurance as is
necessary to maintain the Liens of the Security Documents and reciting the
details of such action or (ii) in the opinion of such Counsel, no such action is
necessary to maintain such Liens, which Opinion of Counsel also shall state what
actions it then believes are necessary to maintain the effectiveness of such
liens during the next two years.
SECTION 10.3. RELEASE OF COLLATERAL.
(a) Collateral shall be released from the Liens created by the
Security Documents from time to time at the sole cost and expense of the
Company:
(i) upon payment in full of the Notes and all other Obligations then
due and owing, or
(ii) unless a Default or Event of Default shall have occurred and be
continuing, upon the sale or other disposition of such Collateral pursuant
to an Asset Sale made in accordance with Section 4.10 hereof;
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PROVIDED, that the Trustee shall not release any Lien on any Collateral unless
and until it shall have received an Officers' Certificate certifying that all
conditions precedent hereunder have been met and such other documents required
by Section 10.5 hereof. Upon compliance with the above provisions, the Trustee
shall execute, deliver or acknowledge any necessary or proper instruments of
termination, satisfaction or release to evidence the release of any Collateral
permitted to be released pursuant to this Indenture or the Security Documents.
(b) The release of any Collateral from the terms of the Security
Documents shall not be deemed to impair the security under this Indenture in
contravention of the provisions hereof and of the Security Documents if and to
the extent the Collateral is released pursuant to the terms of this Indenture
and the Security Documents.
SECTION 10.4. CERTIFICATES OF THE COMPANY.
The Company shall furnish to the Trustee prior to each proposed
release of Collateral other than by reason of transactions referred to in
Section 10.3, all documents required by TIA Section 314(d). The Trustee may, to
the extent permitted by Sections 7.1 and 7.2 hereof, accept as conclusive
evidence of compliance with the foregoing provisions the appropriate statements
contained in such instruments. Any certificate or opinion required by TIA
Section 314(d) may be made by an Officer of the Company except in cases where
TIA Section 314(d) requires that such certificate or opinion be made by an
independent engineer, appraiser or other expert within the meaning of TIA
Section 314(d).
SECTION 10.5. AUTHORIZATION OF ACTIONS TO BE TAKEN BY THE TRUSTEE UNDER THE
SECURITY DOCUMENTS.
The Trustee may, in its sole discretion and without the consent of the
Holders, on behalf of the Holders, take all actions it deems necessary or
appropriate in order to (a) enforce any of the terms of the Security Documents
and (b) collect and receive any and all amounts payable in respect of the
Obligations of the Company and the Guarantors, if any, hereunder. The Trustee
shall have the power to institute and to maintain such suits and proceedings as
it may deem expedient to prevent any impairment of the Collateral by any acts
that may be unlawful or in violation of the Security Documents or this
Indenture, and such suits and proceedings as the Trustee may deem expedient to
preserve or protect its interest and the interests of the Holders in the
Collateral (including power to institute and maintain suits or proceedings to
restrain the enforcement of or compliance with any legislative or other
governmental
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enactment, rule or order that may be unconstitutional or otherwise invalid if
the enforcement of, or compliance with, such enactment, rule or order would
impair the security interest hereunder or be prejudicial to the interests of
the Holders or the Trustee).
In connection with acting as mortgagee under either of the Mortgages,
the Trustee may appoint a co-trustee in any jurisdiction where realty of the
Company subject to the Mortgages is located, if required by applicable law.
Such co-trustee shall be appointed solely to act as mortgagee, and the trustee
shall not be responsible for the acts or omissions of any co-trustee provided
such co-trustee was selected with due care. The co-trustee may be an affiliate
of the trustee.
SECTION 10.6. AUTHORIZATION OF RECEIPT OF FUNDS BY THE TRUSTEE UNDER THE
SECURITY DOCUMENTS.
The Trustee is authorized to receive any funds for the benefit of the
Holders distributed under the Security Documents, and to make further distribu-
tions of such funds to the Holders according to the provisions of this Indenture
and the Security Documents.
SECTION 10.7. GUARANTY.
The Company shall cause each Restricted Subsidiary that is formed or
acquired after the date hereof, in each case concurrently therewith, subject to
Section 10.8 hereof, to, jointly and severally, unconditionally guarantee (such
guarantee, together with further guarantees granted from time to time pursuant
to this Section 10.7, being the "GUARANTY") to each Holder and the Trustee,
irrespective of the validity or enforceability of this Indenture, the Notes, the
Security Documents or the Obligations hereunder or thereunder: (i) the due and
punctual payment of the principal and premium, if any, of, and interest on, the
Notes (including, without limitation, interest after the filing of a petition
initiating any proceedings referred to in clause (9) or (10) of Section 6.1
hereof), whether at maturity or on an interest payment date, by acceleration,
call for redemption or otherwise; (ii) the due and punctual payment of interest
on the overdue principal and premium, if any, of, and interest on, the Notes, if
lawful; (iii) the due and punctual payment and performance of all other Obliga-
tions, all in accordance with the terms set forth herein and in the Notes and
the Security Documents; and (iv) in case of any extension of time of payment or
renewal of any Notes or any of such other Obligations, the due and punctual
payment or performance thereof in accordance with the terms of the extension or
renewal, whether at stated maturity, by acceleration or otherwise.
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Failing payment when due by the Company of any amount so guaranteed
for whatever reason, the Guarantors shall be jointly and severally obligated to
pay the same immediately.
The Company shall cause each Restricted Subsidiary that is formed or
acquired after the date hereof or that otherwise becomes a Restricted Subsidiary
after the date hereof, in each case concurrently therewith, to (i) execute and
deliver to the Trustee a Guaranty in the form of Exhibit C attached hereto and a
supplemental indenture in form reasonably satisfactory to the Trustee pursuant
to which such Restricted Subsidiary shall unconditionally guarantee all of the
Company's Obligations as set forth in this Section 10.7 of this Indenture; and
(ii) execute a Security Agreement (substantially in the form of the Security
Agreement entered into on the Closing Date) and other Security Documents
necessary or reasonably requested by the Trustee to grant the Trustee a valid,
enforceable, perfected Lien on the Collateral described therein, subject only to
Liens permitted under Section 4.12; and (iii) cause such Restricted Subsidiary
to deliver to the Trustee an Opinion of Counsel, in form reasonably satisfactory
to the Trustee, that (A) such Security Agreement, supplemental indenture and
Guaranty have been duly authorized, executed and delivered by such Restricted
Subsidiary and (B) such Security Agreement, this Indenture and such Guaranty
constitute a legal, valid, binding and enforceable obligation of such Restricted
Subsidiary, subject to customary exceptions for bankruptcy, fraudulent transfer
and equitable principles.
Each Note issued after the date of execution by any Guarantor of a
Guaranty shall be endorsed with a form of Guaranty that has been executed by
such Guarantor. However, the failure of any Note to have endorsed thereon a
Guaranty executed by such Guarantor shall not affect the validity or enforce-
ability of such Guaranty against such Guarantor.
Pursuant to the supplemental indenture, each Guarantor shall agree
that (i) its obligations hereunder shall be unconditional, irrespective of the
validity, regularity or enforceability of the Notes, this Indenture, the
Security Documents or the Obligations hereunder or thereunder, the absence of
any action to enforce the same, any waiver or consent by any Holder with respect
to any provisions hereof or thereof, any releases of Collateral, any amendment
of the Indenture, the Notes or Security Documents, any delays in obtaining or
realizing upon or failures to obtain or realize upon Collateral, the recovery of
any judgment against the Company or any of its Subsidiaries, any action to
enforce the same, or any other circumstance that might otherwise constitute a
legal or equitable discharge or defense of a guarantor and (ii)
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the Guaranty will not be discharged except by complete performance of the
Obligations.
Pursuant to the supplemental indenture, each Guarantor shall agree
that it shall not be entitled to and irrevocably waives (i) diligence, present-
ment, demand of payment, filing of claim with a court in the event of insolvency
or bankruptcy of the Company, any Guarantor, any other Subsidiary of the Company
or any other obligor under the Notes, any right to require a proceeding first
against the Company, any Guarantor, any other Subsidiary of the Company or any
other obligor under this Indenture, the Notes or the Security Documents,
protest, notice and all demands whatsoever, (ii) any right of subrogation, reim-
bursement, exoneration, contribution or indemnification in respect of any
Obligations guaranteed hereby and (iii) any claim or other rights that it may
now or hereafter acquire against the Company or any of its Subsidiaries that
arise from the existence or performance of its Obligations under the Guaranty,
including, without limitation, any right to participate in any claim or remedy
of a Holder against the Company or any of its Subsidiaries or any Collateral
that a Holder now has or hereafter acquires, whether or not such claim, remedy
or right arises in equity or under contract, statute or common law, by any
payment made hereunder or otherwise, and including, without limitation, the
right to take or receive from the Company or any of its Subsidiaries, directly
or indirectly, in cash or other property, by setoff or in any other manner,
payment or security on account of such claim or other rights.
If any Holder or the Trustee is required by any court or otherwise to
return to the Company, any Guarantor, any other Subsidiary of the Company or any
other obligor under this Indenture, the Notes or the Security Documents,
trustee, liquidator, or other similar official, any amount paid by the Company,
any Guarantor, any other Subsidiary of the Company or any other obligor under
this Indenture, the Notes or the Security Documents to the Trustee or such
Holder, the Guaranty, to the extent theretofore discharged, shall be reinstated
in full force and effect.
Pursuant to the supplemental indenture, each Guarantor shall agree
that, as between the Guarantors, on the one hand, and the Holders and the
Trustee, on the other hand, (i) the maturity of the Obligations guaranteed
hereby may be accelerated as provided in Section 6.2 for the purposes of the
Guaranty, notwithstanding any stay, injunction or other prohibition preventing
such acceleration as to the Company of the Obligations guaranteed hereby and
(ii) in the event of any declaration of acceleration of those Obligations as
provided in Section 6.2, those Obligations (whether or not due and payable) will
forthwith become due and payable by each of the Guarantors for the purpose of
the Guaranty.
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SECTION 10.8. LIMITATION ON GUARANTOR'S LIABILITY.
Each Guarantor shall, by supplemental indenture, confirm, and by its
acceptance hereof each Holder hereby confirms, that it is the intention of all
such parties that the guarantee by such Guarantor pursuant to its Guaranty not
constitute a fraudulent transfer or conveyance for purposes of any Federal or
state law. To effectuate the foregoing intention, the Holders and the
Guarantors shall irrevocably agree that the obligations of each Guarantor under
its Guaranty shall be limited to the maximum amount as will, after giving effect
to all other contingent and fixed liabilities of such Guarantor and to any
collections from or payments made by or on behalf of any other Guarantor in
respect of the obligations of such other Guarantor under its Guaranty, result in
the Obligations of such Guarantor under the Guaranty not constituting a
fraudulent conveyance or fraudulent transfer under Federal or state law.
SECTION 10.9. RIGHTS UNDER THE GUARANTY.
(a) No payment by any Guarantor pursuant to the provisions hereof
shall entitle such Guarantor to any payment out of any Collateral or give rise
to any claim of the Guarantors against the Trustee or any Holder.
(b) Each Guarantor waives notice of the issuance, sale and purchase
of the Notes and notice from the Trustee or the Holders from time to time of any
of the Notes of their acceptance and reliance on the Guaranty.
(c) No set-off, counterclaim, reduction or diminution of any
obligation or any defense of any kind or nature (other than performance by the
Guarantors of their obligations hereunder) that any Guarantor may have or assert
against the Trustee or any Holder shall be available hereunder to such
Guarantor.
(d) Each Guarantor shall pay all costs, expenses and fees, including
all reasonable attorneys' fees, that may be incurred by the Trustee in enforcing
or attempting to enforce the Guaranty or protecting the rights of the Trustee or
the Holder, if any, in accordance with this Indenture.
SECTION 10.10. PRIMARY OBLIGATIONS.
The Obligations of each Guarantor under its supplemental indenture
shall constitute a guaranty of payment and not of collection. Each Guarantor
shall agree that it is directly liable to each Holder hereunder, that the
Obligations of such
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Guarantor hereunder are independent of the Obligations of the Company or any
other Guarantor, and that a separate action may be brought against such
Guarantor, whether such action is brought against the Company or any other
Guarantor or whether the Company or any other Guarantor is joined in such
action. Each Guarantor shall agree that its liability hereunder shall be
immediate and shall not be contingent upon the exercise or enforcement by the
Trustee or the Holders of whatever remedies they may have against the Company
or any other Guarantor, or the enforcement of any lien or realization upon
any security Trustee may at any time possess. Each Guarantor shall agree
that any release that may be given by the Trustee or the Holders to the
Company or any other Guarantor shall not release such Guarantor.
SECTION 10.11. RELEASE OF GUARANTORS.
If all of the Capital Stock of any Guarantor is sold to a Person
(other than the Company or any of its Restricted Subsidiaries) and the Net
Proceeds from such Asset Sale are used in accordance with Section 4.10, then
such Guarantor will be released and discharged from all of its obligations under
its Guaranty of the Notes and this Indenture.
ARTICLE 11
MISCELLANEOUS
SECTION 11.1. TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies or conflicts with
the duties imposed by TIA Section 318(c), the imposed duties shall control.
SECTION 11.2. NOTICES.
Any notice or communication by the Company or the Trustee to the
others is duly given if in writing and delivered in Person or mailed by first-
class mail (registered or certified, return receipt requested), telex,
telecopier or overnight air courier guaranteeing next day delivery, to the
others' addresses:
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If to the Company:
Archibald Candy Corporation
1137 W. Jackson Boulevard
Chicago, Illinois 60607
Attention: President
Telecopier No.: (312) 243-3992
If to the Trustee:
THE BANK OF NEW YORK
101 Barclay Street - 21W
New York, NY 10286
Attention: Treasurer
Telecopier No.: (212) 815-5915
The Company or the Trustee by notice to the others may designate
additional or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders)
shall be deemed to have been duly given: at the time delivered by hand, if per-
sonally delivered; upon receipt, if deposited in the mail, postage prepaid; when
answered back, if telexed; when receipt acknowledged, if telecopied; and the
next Business Day after timely delivery to the courier, if sent by overnight air
courier guaranteeing next day delivery. All notices and communications to the
Trustee shall be deemed to have been duly given only if actually received by the
Trustee.
Any notice or communication to a Holder shall be mailed by first-class
mail, certified or registered, return receipt requested, to his address shown on
the register kept by the Registrar. Failure to mail a notice or communication
to a Holder or any defect in it shall not affect its sufficiency with respect to
other Holders.
If a notice communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to Holders, it shall
mail a copy to the Trustee and each Agent at the same time.
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SECTION 11.3. COMMUNICATION BY HOLDERS WITH OTHER HOLDERS.
Holders may communicate pursuant to TIA Section 312(b) with other
Holders with respect to their rights under this Indenture or the Notes. The
Company, the Trustee, the Registrar and any other Person shall have the protec-
tion of TIA Section 312(c).
SECTION 11.4. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
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 (which shall include the statements set forth
in Section 11.5) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been complied with; and
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in Section 11.5) stating that, in the opinion of such counsel, all such
conditions precedent and covenants have been complied with.
SECTION 11.5. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA Section 314(a)(4)) shall include:
(a) a statement that the Person making such certificate or opinion
has read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he 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
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(d) a statement as to whether or not, in the opinion of such Person,
such condition or covenant has been complied with,
PROVIDED that with respect to matters of fact, an Opinion of Counsel may rely
upon an Officers' Certificate or a certificate of a public official.
SECTION 11.6. RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
SECTION 11.7. LEGAL HOLIDAYS.
If a payment date is a Legal Holiday at a place of payment, payment
may be made at that place on the next succeeding day that is not a Legal
Holiday, and no interest shall accrue for the intervening period.
SECTION 11.8. NO RECOURSE AGAINST OTHERS.
No director, officer, employee, incorporator, shareholder or control-
ling person of the Company or any Guarantor as such, shall have any liability
for any obligations of the Company under the Notes, this Indenture, the Security
Documents, any Guaranty or the Registration Rights Agreement or for any claim
based on, in respect of, or by reason of such obligations or their creation.
Each Holder by accepting a Note waives and releases all such liability. The
waiver and release shall be part of the consideration for the issuance of the
Notes. Notwithstanding the foregoing, nothing in this provision shall be con-
strued as a waiver or release of any claims under the Federal securities laws.
SECTION 11.9. GOVERNING LAW.
THIS AGREEMENT SHALL BE CONSTRUED, INTERPRETED AND THE RIGHTS OF THE
PARTIES DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS
APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW. THE COMPANY HEREBY IRREVOCABLY
SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE COURT SITTING IN THE BOROUGH
OF MANHATTAN IN THE CITY OF NEW YORK OR ANY FEDERAL COURT SITTING IN THE
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BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN RESPECT OF ANY SUIT, ACTION
OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND IRREVOCABLY
ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, JURISDICTION OF THE AFORESAID COURTS. THE COMPANY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER
APPLICABLE LAW, TRIAL BY JURY AND ANY OBJECTION THAT IT MAY NOW OR HEREAFTER
HAVE TO THE LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING
BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT
FORUM. THE COMPANY IRREVOCABLY CONSENTS, TO THE FULLEST EXTENT IT MAY
EFFECTIVELY DO SO UNDER APPLICABLE LAW, TO THE SERVICE OF PROCESS OF ANY OF
THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF
COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE
COMPANY AT ITS ADDRESS SET FORTH HEREIN, SUCH SERVICE TO BECOME EFFECTIVE 30
DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE
TRUSTEE OR ANY HOLDER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW
OR TO COM-MENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE COMPANY IN
ANY OTHER JURISDICTION.
SECTION 11.10. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company or any of its Subsidiaries. Any such indenture,
loan or debt agreement may not be used to interpret this Indenture.
SECTION 11.11. SUCCESSORS.
All agreements of the Company and any Guarantors in this Indenture and
the Notes shall bind their respective successors. All agreements of the Trustee
in this Indenture shall bind its successor.
SECTION 11.12. SEVERABILITY.
In case any provision in this Indenture or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
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SECTION 11.13. COUNTERPART ORIGINALS.
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
SECTION 11.14. TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part hereof and shall in no way
modify or restrict any of the terms or provisions hereof.
[Signature page follows]
85
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SIGNATURES
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Indenture as of the date first written above.
ARCHIBALD CANDY CORPORATION
Attest: By: /s/ Ted A. Shepherd
------------------------------------
Name: Ted A. Shepherd
Title: President and Chief Operating
Officer
/s/ Donna M. Snopek
- -----------------------------
Name: Donna M. Snopek
Title: Vice President -- Finance and
Accounting
THE BANK OF NEW YORK, as Trustee
Attest: By: /s/ Stephen J. Giurlando
------------------------------------
Name: Stephen J. Giurlando
Title: Assistant Vice President
/s/ Denise Leonard
- -----------------------------
Name: Denise Leonard
Title: Assistant Treasurer
86
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EXHIBIT A
[Face of Security]
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE
FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY TRUST
COMPANY (THE "DEPOSITORY") TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE
DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY OR BY THE
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 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 MAY BE REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DEPOSITORY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR
SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
DEPOSITORY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY
OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE &
CO., HAS AN INTEREST HEREIN.1
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS. NEITHER THIS NOTE NOR ANY
INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION
OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF AGREES NOT TO OFFER, SELL OR
OTHERWISE TRANSFER SUCH NOTE, PRIOR TO THE DATE WHICH IS TWO YEARS (OR SUCH
SHORTER PERIOD THAT MAY HEREAFTER BE PROVIDED UNDER RULE 144(K) AS PERMITTING
RESALES BY NON-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 NOTE (OR ANY
PREDECESSOR OF SUCH NOTE) EXCEPT (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRA-
TION 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 IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) 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 FOREIGN PERSONS THAT OCCUR IN OFFSHORE TRANSACTIONS AND
WITHOUT DIRECTED SELLING EFFORTS WITHIN THE MEANINGS OF SUCH TERMS AS DEFINED IN
REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED
INVESTOR" WITHIN THE MEANING OF RULE 501(A)(1), (2), (3) OR (7) UNDER THE
SECURITIES ACT THAT IS PURCHASING THE NOTE FOR ITS OWN ACCOUNT, OR FOR THE AC-
COUNT 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,
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, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH
OF THEM, AND IN EACH OF THE FOREGOING CASES, A CERTIFICATE OF TRANSFER IN THE
FORM APPEARING ON THIS NOTE IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE
TRUSTEE.
- -------------------
(1) This paragraph should be included only if the Note is issued in global
form.
1
<PAGE>
ARCHIBALD CANDY CORPORATION
10-1/4% SENIOR SECURED NOTE
DUE 2004
NO. $
CUSIP NO.
Archibald Candy Corporation, an Illinois corporation (the "Company"),
as obligor, for value received promises to pay to ______________ or registered
assigns, the principal sum of [ ] Dollars on July 1, 2004. Inter-
est Payment Dates: January 1 and July 1 and on the maturity date. Record
Dates: December 15 and June 15 (whether or not a Business Day).
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
IN WITNESS WHEREOF, the Company has caused this Note to be signed
manually or by facsimile by its duly authorized officers.
Dated:
ARCHIBALD CANDY CORPORATION
By:
-------------------------------------------------
Name:
Title:
By:
------------------------------------------------
Name:
Title:
Trustee's Certificate of Authentication:
This is one of the Notes referred to
in the within-mentioned Indenture:
THE BANK OF NEW YORK, as Trustee
By:______________________________
Authorized Signature
2
<PAGE>
(Back of Security)
10-1/4% SENIOR SECURED NOTE
DUE 2004
1. INTEREST. Archibald Candy Corporation, an Illinois corporation
(the "Company"), as obligor, promises to pay interest on the principal amount of
this Note at the rate and in the manner specified below.
The Company shall pay, in cash, interest on the principal amount of
this Note, at the rate of 10-1/4% per annum. The Company shall pay interest
semi-annually on January 1 and July 1 of each year, and on the maturity date,
commencing on January 1, 1998, or if any such day is not a Business Day, on the
next succeeding Business Day (each an "Interest Payment Date").
Interest shall be computed on the basis of a 360-day year consisting
of twelve 30-day months. Interest shall accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from July 2,
1997. To the extent lawful, the Company shall pay interest on overdue install-
ments of interest (without regard to any applicable grace periods) at the same
rate.
2. METHOD OF PAYMENT. The Company shall pay interest on the Notes
(except defaulted interest) to the Persons who are registered Holders of Notes
at the close of business on the record date next preceding the Interest Payment
Date, even if such Notes are cancelled after such record date and on or before
such Interest Payment Date. The Holder must surrender this Note to a Paying
Agent to collect principal payments. The Company shall pay principal and
interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts. The Company may pay principal
and interest by check to a Holder's registered address, PROVIDED, that all
payments with respect to Global Notes, and certificated notes the Holders of
which have given wire transfer instructions to the Company and the paying agent,
will be required to be made by wire transfer of immediately available funds to
the accounts specified by the Holders thereof.
3. PAYING AGENT AND REGISTRAR. Initially, the Trustee shall act as
Paying Agent and Registrar. The Company may change any Paying Agent, Registrar
or co-registrar without notice to any Holder. Subject to certain exceptions,
the Company or any of its Subsidiaries may act in any such capacity.
4. INDENTURE. The Company issued the Notes under an Indenture dated
as of July 2, 1997 (the "Indenture") among the Company and The Bank of New York,
as the Trustee. The terms of the Notes include those stated in the Indenture
and those made part of the Indenture by reference to the Trust Indenture Act of
1939 (the "TIA") (15 U.S. Code Sections 77aaa-77bbbb) as in effect on the date
of the Indenture until such time as the Indenture is qualified under the TIA and
thereafter as in effect on the date the Indenture is so qualified. The Notes
are subject to all such terms, and Holders are referred to the Indenture and
such act for a statement of such terms. The terms of the Indenture shall govern
any inconsistencies between the Indenture and the Notes. Terms not otherwise
defined herein shall have the meanings assigned in the Indenture. The Notes are
limited to $100,000,000 in aggregate principal amount.
5. OPTIONAL REDEMPTION. The Notes are not redeemable at the
Company's option prior to July 1, 2001. Thereafter, the Notes will be subject
to redemption 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 thereon, if any, to the applicable redemption
date, if redeemed during the 12-month period beginning on July 1 of the years
indicated below:
3
<PAGE>
YEAR PERCENTAGE
---- ----------
2001 . . . . . . . . . 105.125%
2002 . . . . . . . . . 102.563
2003 and thereafter. . 100.000
Notwithstanding the foregoing, at any time or from time to time prior
to July 1, 2000, the Company may, at its option, redeem up to $33.0 million of
the original principal amount of the Notes, at a redemption price of 110.250% of
the principal amount thereof, plus accrued and unpaid interest, if any, to the
applicable redemption date, with the net cash proceeds of one or more Public
Equity Offerings; PROVIDED, that (a) such redemption shall occur within 90 days
of the date of closing of such public offering and (b) at least $67.0 million
aggregate principal amount of Notes remains outstanding immediately after giving
effect to each such redemption.
6. MANDATORY REDEMPTION. There shall be no mandatory redemption of
the Notes.
7. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered
form without coupons in denominations of $1,000 and integral multiples of
$1,000. The transfer of Notes may be registered and Notes may be exchanged as
provided in the Indenture. The Registrar and the Trustee may require a Holder,
among other things, to furnish appropriate endorsements and transfer documents
and the Company may require a Holder to pay any taxes and fees required by law
or permitted by the Indenture. The Registrar and the Company need not exchange
or register the transfer (i) of any Note or portion of a Note selected for re-
demption or (ii) of any Notes for a period of 15 days before a selection of
Notes to be redeemed or during the period between a record date and the corre-
sponding Interest Payment Date.
8. PERSONS DEEMED OWNERS. The registered Holder of a Note may be
treated as its owner for all purposes, subject to the provisions of the
Indenture with respect to the record dates for the payment of interest.
9. AMENDMENTS AND WAIVERS. Subject to certain exceptions, the
Indenture or the Notes may be amended with the written consent of the Holders of
at least a majority in principal amount of the then outstanding Notes (including
consents obtained in connection with a tender offer or exchange offer for
Notes), and any existing Default or Event of Default (except certain payment de-
faults) or compliance with any provision of the Indenture, the Notes or the
Security Documents 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 any Holders, the Indenture and the Notes may be amended or supple-
mented to cure any ambiguity, defect or inconsistency, to provide for assumption
of the Company's obligations to the Holders in the case of a merger or
consolidation, to provide for uncertificated Notes in addition to or in place of
certificated Notes, to make any change that would provide any additional rights
or benefits to the Holders of the Notes, or that does not adversely affect the
legal rights under the Indenture of any Holder, to release any Guarantee of the
Notes permitted to be released under the terms of the Indenture or to comply
with requirements of the Commission in order to effect or maintain the quali-
fication of the Indenture under the TIA.
10. DEFAULTS AND REMEDIES. If an Event of Default occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount of
the then outstanding Notes may declare by written notice to the Company and
the Trustee all the Notes to be due and payable immediately, except that in
the case of an Event of Default arising from certain events of bankruptcy or
insolvency, all outstanding Notes become due and payable immediately without
further action or notice. Holders may not enforce the Indenture or the Notes
except as provided in the Indenture. The Trustee may require indemnity
satisfactory to it before it enforces the Indenture or the Notes. 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 Company must furnish an annual compliance certificate to the
Trustee.
4
<PAGE>
11. TRUSTEE DEALINGS WITH COMPANY. The Trustee under the
Indenture, in its individual or any other capacity, may make loans to, accept
deposits from, and perform services for the Company or its Affiliates, and
may otherwise deal with the Company or its Affiliates, as if it were not
Trustee.
12. NO RECOURSE AGAINST OTHERS. No director, officer, employee,
incorporator, shareholder or controlling person of the Company or Guarantor,
as such, shall have any liability for any obligations of the Company or any
Guarantor under the Notes, the Indenture or the Registration Rights Agreement
or for any claim based on, in respect of, or by reason of such obligations or
their creation. Each Holder by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for the
issuance of the Notes and the Guarantees. Notwithstanding the foregoing,
nothing in this provision shall be construed as a waiver or release of any
claims under the Federal securities laws.
13. AUTHENTICATION. This Note shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating
agent.
14. ABBREVIATIONS. Customary abbreviations may be used in the name
of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT
(= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A
(= Uniform Gifts to Minors Act).
15. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has
caused CUSIP numbers to be printed on the Notes and has directed the Trustee
to use CUSIP numbers in notices of redemption as a convenience to Holders.
No representation is made as to the accuracy of such numbers either as
printed on the Notes or as contained in any notice of redemption and reliance
may be placed only on the other identification numbers placed thereon.
16. HOLDERS' COMPLIANCE WITH REGISTRATION RIGHTS AGREEMENT. Each
Holder of a Note, by his acceptance thereof, acknowledges and agrees to the
provisions of the Registration Rights Agreement, dated as of July 2, 1997,
among the Company and the parties named on the signature page thereof (the
"Registration Rights Agreement"), including but not limited to the
obligations of the Holders with respect to a registration and the
indemnification of the Company and the Purchasers (as defined therein) to the
extent provided therein.
The Company shall furnish to any Holder upon written request and
without charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to: Archibald Candy Corporation, 1137 West Jackson
Boulevard, Chicago, Illinois 60607, Attention: Secretary.
5
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and
transfer this Note to
- ------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint______________________________ agent to transfer this
Note on the books of the Company. The agent may substitute another to act for
him.
______________________________________________________________________________
Date:____________________
Your Signature:_________________________________
(Sign exactly as your name appears
on the face of this Note)
Signature Guarantee*
________________
* NOTICE: The signature must be guaranteed by an institution which is a
member of one of the following recognized signature guarantee
programs:
(1) The Securities Transfer Agent Medallian Program (STAMP);
(2) The New York Stock Exchange Medallian Program (MSP);
(3) The Stock Exchange Medallian Program (SEMP).
6
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have all or any part of this Note purchased by the
Company pursuant to Section 4.10 or Section 4.14 of the Indenture, as the case
may be, state the amount you elect to have purchased (if all, write "ALL"):
$______________
Date:__________________________
Your Signature:_________________________
(Sign exactly as your name appears
on the face of this Note)
Signature Guarantee*
______________
* NOTICE: The signature must be guaranteed by an institution which is a
member of one of the following recognized signature guarantee
programs:
(1) The Securities Transfer Agent Medallian Program (STAMP);
(2) The New York Stock Exchange Medallian Program (MSP);
(3) The Stock Exchange Medallian Program (SEMP).
7
<PAGE>
SCHEDULE OF EXCHANGES OF DEFINITIVE NOTES(2)
The following exchanges of a part of this Global Note for
Definitive Notes have been made:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF THIS
AMOUNT OF DECREASE IN AMOUNT OF INCREASE IN GLOBAL NOTE FOLLOWING
PRINCIPAL AMOUNT OF THIS PRINCIPAL AMOUNT OF THIS SUCH DECREASE (OR IN- SIGNATURE OF AUTHO-
DATE OF EXCHANGE GLOBAL NOTE GLOBAL NOTE CREASE) RIZED OFFICER OF TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
</TABLE>
- -------------------
(2) This paragraph should be included only if the Note is issued in global
form.
8
<PAGE>
EXHIBIT B
CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER
OF NOTES
Re: [Series A] [Series B] 10-1/4% Senior Notes due 2004 (the
"Notes") of Archibald Candy Corporation
This Certificate relates to $______ principal amount of Notes held in
* / / book-entry or * / / definitive form by _______________________ (the
"Transferor").
The Transferor, by written order, has requested the Trustee:
/ / to deliver in exchange for its beneficial interest in the Global
Note held by the depository, a Note or Notes in definitive,
registered form of authorized denominations and an aggregate
principal amount equal to its beneficial interest in such Global
Note (or the portion thereof indicated above); or
/ / to exchange or register the transfer of a Note or Notes. In
connection with such request and in respect of each such Note,
the Transferor does hereby certify that Transferor is familiar
with the Indenture relating to the above captioned Notes and, the
transfer of this Note does not require registration under the
Securities Act of 1933, as amended (the "Securities Act") because
such Note:
/ / is being acquired for the Transferor's own account, without
transfer;
/ / is being transferred pursuant to an effective registration state-
ment;
/ / is being transferred to a "qualified institutional buyer" (as
defined in Rule 144A under the Securities Act), in reliance on
such Rule 144A;
/ / is being transferred to an institutional "accredited investor" as
defined in Rule 501(a)(1), (2), (3) or (7) under the Securities
Act.**
/ / is being transferred pursuant to an exemption from registration
in accordance with Rule 904 under the Securities Act;***
/ / is being transferred pursuant to Rule 144 under the Securities
Act;*** or
/ / is being transferred pursuant to another exemption from the
registration requirements of the Securities Act (explain:
_______________________________________________________________).***
__________________________________
[INSERT NAME OF TRANSFEROR]
By:_______________________________
Date:_____________________
* Check applicable box.
** If this box is checked, this certificate must be accompanied
by a transferee letter of representations.
*** If this box is checked, this certificate must be accompanied
by an opinion of counsel to the effect that such transfer is
in compliance with the Securities Act.
B-1
<PAGE>
EXHIBIT C
[FORM OF GUARANTY]
GUARANTY
For good and valuable consideration received from the Company by
the undersigned (hereinafter referred to as the "Guarantors," which term
includes any successor or additional Guarantors), the receipt and sufficiency
of which is hereby acknowledged, subject to Section 10.8 of the Indenture,
each Guarantor, jointly and severally, hereby unconditionally guarantees,
irrespective of the validity or enforceability of the Indenture, the Notes,
the Security Documents or the Obligations, (a) the due and punctual payment
of the principal and premium, if any, of and interest on the Notes
(including, without limitation, interest after the filing of a petition
initiating any proceedings referred to in Sections 6.1(9) or (10) of the
Indenture), whether at maturity or on an interest payment date, by
acceleration, call for redemption or otherwise, (b) the due and punctual
payment of interest on the overdue principal and premium, if any, of and
interest, if any, on the Notes, if lawful, (c) the due and punctual payment
and performance of all other Obligations, all in accordance with the terms
set forth in the Indenture, the Notes and the Security Documents, and (d) in
case of any extension of time of payment or renewal of any Notes or any of
such other Obligations, the due and punctual payment or performance thereof
in accordance with the terms of the extension or renewal, whether at stated
maturity, by acceleration or otherwise.
No director, officer, employee, incorporator, stockholder or
controlling person of the Guarantor, as such, shall have any liability under
this Guaranty for any obligations of the Guarantor under the Notes, the
Indenture or the Registration Rights Agreement or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each Holder
of the Notes by accepting a Note waives and releases all such liability.
C-1
<PAGE>
CROSS-REFERENCE TABLE*
Trust Indenture
Act Section Indenture Section
- --------------- -----------------
310(a)(1). . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(2). . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(3). . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(4). . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(5). . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.8; 7.10
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
311(a) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
312(a) . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . 11.3
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . 11.3
313(a) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6
(b)(1). . . . . . . . . . . . . . . . . . . . . . . . . 7.6
(b)(2). . . . . . . . . . . . . . . . . . . . . . . . . 7.6
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6
314(a) . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3; 4.4
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . N.A
(c)(1). . . . . . . . . . . . . . . . . . . . . . . . . 11.4
(c)(2). . . . . . . . . . . . . . . . . . . . . . . . . 11.4
(c)(3). . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . 11.5
(f) . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
315(a) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1(2)
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.5
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1(1)
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1(3)
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . 6.11
316(a)(last sentence). . . . . . . . . . . . . . . . . . . 2.9
(a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . 6.5
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . 6.4
(a)(2). . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . 9.2
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . 9.4
317(a)(1). . . . . . . . . . . . . . . . . . . . . . . . . 6.8
(a)(2). . . . . . . . . . . . . . . . . . . . . . . . . 6.9
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4
318(a) . . . . . . . . . . . . . . . . . . . . . . . . . . 11.1
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . 11.1
N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture.
<PAGE>
TABLE OF CONTENTS
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
Page
----
Section 1.1. Definitions. . . . . . . . . . . . . 1
Section 1.2. Other Definitions. . . . . . . . . . 17
Section 1.3. Incorporation by Reference of Trust
Indenture Act. . . . . . . . . . . . .18
Section 1.4. Rules of Construction. . . . . . . . 18
ARTICLE 2
THE NOTES
Section 2.1. Form and Dating. . . . . . . . . . . 19
Section 2.2. Execution and Authentication . . . . 20
Section 2.3. Registrar, Paying Agent and
Depository . . . . . . . . . . . . . 20
Section 2.4. Paying Agent to Hold Money in Trust. 21
Section 2.5. Holder Lists . . . . . . . . . . . . 22
Section 2.6. Transfer and Exchange. . . . . . . . 22
Section 2.7. Replacement Notes. . . . . . . . . . 27
Section 2.8. Outstanding Notes. . . . . . . . . . 27
Section 2.9. Treasury Notes . . . . . . . . . . . 28
Section 2.10. Temporary Notes. . . . . . . . . . . 28
Section 2.11. Cancellation . . . . . . . . . . . . 29
Section 2.12. Defaulted Interest . . . . . . . . . 29
Section 2.13. Legends. . . . . . . . . . . . . . . 29
ARTICLE 3
REDEMPTION
Section 3.1. Notices to Trustee . . . . . . . . . 30
Section 3.2. Selection of Notes to Be Redeemed. . 31
Section 3.3. Notice of Redemption . . . . . . . . 31
Section 3.4. Effect of Notice of Redemption . . . 32
Section 3.5. Deposit of Redemption Price. . . . . 32
Section 3.6. Notes Redeemed in Part . . . . . . . 33
Section 3.7. Optional Redemption. . . . . . . . . 33
i
<PAGE>
ARTICLE 4
COVENANTS
Section 4.1. Payment of Notes . . . . . . . . . . 34
Section 4.2. Maintenance of Office or Agency. . . 34
Section 4.3. Reports. . . . . . . . . . . . . . . 35
Section 4.4. Compliance Certificate . . . . . . . 36
Section 4.5. Taxes. . . . . . . . . . . . . . . . 37
Section 4.6. Stay, Extension and Usury Laws . . . 37
Section 4.7. Limitation on Restricted Payments. . 37
Section 4.8. Limitation on Restrictions on
Subsidiary Dividends . . . . . . . . 40
Section 4.9. Limitation on Incurrence of
Indebtedness . . . . . . . . . . . . 41
Section 4.10. Limitation on Asset Sales. . . . . . 43
Section 4.11. Limitation on Transactions with
Affiliates . . . . . . . . . . . . . 46
Section 4.12. Limitation on Liens. . . . . . . . . 47
Section 4.13. Corporate Existence. . . . . . . . . 47
Section 4.14. Repurchase Upon a Change of Control. 48
Section 4.15. Maintenance of Properties. . . . . . 50
Section 4.16. Maintenance of Insurance . . . . . . 50
Section 4.17. Restrictions on Sale and Issuance of
Subsidiary Stock . . . . . . . . . . 50
Section 4.18. Line of Business . . . . . . . . . . 50
ARTICLE 5
SUCCESSORS
Section 5.1. When the Company May Merge, etc. . . 51
Section 5.2. Successor Substituted. . . . . . . . 52
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.1. Events of Default. . . . . . . . . . 53
Section 6.2. Acceleration . . . . . . . . . . . . 55
Section 6.3. Other Remedies . . . . . . . . . . . 56
Section 6.4. Waiver of Past Defaults. . . . . . . 56
Section 6.5. Control by Majority. . . . . . . . . 57
Section 6.6. Limitation on Suits. . . . . . . . . 57
Section 6.7. Rights of Holders to Receive Payment 58
Section 6.8. Collection Suit by Trustee . . . . . 58
Section 6.9. Trustee May File Proofs of Claim . . 58
Section 6.10. Priorities . . . . . . . . . . . . . 59
Section 6.11. Undertaking for Costs. . . . . . . . 59
ii
<PAGE>
ARTICLE 7
TRUSTEE
Section 7.1. Duties of Trustee. . . . . . . . . . 60
Section 7.2. Rights of Trustee. . . . . . . . . . 61
Section 7.3. Individual Rights of Trustee . . . . 63
Section 7.4. Trustee's Disclaimer . . . . . . . . 63
Section 7.5. Notice of Defaults . . . . . . . . . 64
Section 7.6. Reports by Trustee to Holders. . . . 64
Section 7.7. Compensation and Indemnity . . . . . 64
Section 7.8. Replacement of Trustee . . . . . . . 65
Section 7.9. Successor Trustee by Merger, etc.. . 67
Section 7.10. Eligibility; Disqualification. . . . 67
Section 7.11. Preferential Collection of Claims
Against Company. . . . . . . . . . . 67
ARTICLE 8
DISCHARGE OF INDENTURE
Section 8.1. Termination of Company's Obligations 68
Section 8.2. Application of Trust Money . . . . . 70
Section 8.3. Repayment to the Company . . . . . . 70
Section 8.4. Reinstatement. . . . . . . . . . . . 70
ARTICLE 9
AMENDMENTS
Section 9.1. Without Consent of Holders . . . . . 71
Section 9.2. With Consent of Holders. . . . . . . 72
Section 9.3. Compliance with Trust Indenture Act. 74
Section 9.4. Revocation and Effect of Consents. . 74
Section 9.5. Notation on or Exchange of Notes . . 74
Section 9.6. Trustee to Sign Amendments, etc. . . 75
Section 9.7. Payments for Consent . . . . . . . . 75
ARTICLE 10
COLLATERAL AND SECURITY AND GUARANTY
Section 10.1. Collateral Documents . . . . . . . . 75
Section 10.2. Opinions . . . . . . . . . . . . . . 76
Section 10.3. Release of Collateral. . . . . . . . 76
Section 10.4. Certificates of the Company. . . . . 77
iii
<PAGE>
Section 10.5. Authorization of Actions to be Taken by
the Trustee under the
Security Documents. . . . . . . . . . 77
Section 10.6. Authorization of Receipt of Funds by
the Trustee under the
Security Documents. . . . . . . . . . 78
Section 10.7. Guaranty . . . . . . . . . . . . . . 78
Section 10.8. Limitation on Guarantor's Liability. 81
Section 10.9. Rights under the Guaranty. . . . . . 81
Section 10.10. Primary Obligations. . . . . . . . . 82
Section 10.11. Release of Guarantors. . . . . . . . 82
ARTICLE 11
MISCELLANEOUS
Section 11.1. Trust Indenture Act Controls . . . . 82
Section 11.2. Notices. . . . . . . . . . . . . . . 82
Section 11.3. Communication by Holders with Other
Holders. . . . . . . . . . . . . . . 84
Section 11.4. Certificate and Opinion as to Conditions
Precedent. . . . . . . . . . . . . . 84
Section 11.5. Statements Required in Certificate or
Opinion. . . . . . . . . . . . . . . 84
Section 11.6. Rules by Trustee and Agents. . . . . 85
Section 11.7. Legal Holidays . . . . . . . . . . . 85
Section 11.8. No Recourse Against Others . . . . . 85
Section 11.9. Governing Law. . . . . . . . . . . . 85
Section 11.10. No Adverse Interpretation of Other
Agreements . . . . . . . . . . . . . 86
Section 11.11. Successors . . . . . . . . . . . . . 86
Section 11.12. Severability . . . . . . . . . . . . 87
Section 11.13. Counterpart Originals. . . . . . . . 87
Section 11.14. Table of Contents, Headings, etc.. . 87
SIGNATURES
EXHIBIT A - FORM OF NOTE. . . . . . . . . . . . . . . A-1
EXHIBIT B - CERTIFICATE OF TRANSFEROR . . . . . . . . B-1
EXHIBIT C - FORM OF GUARANTY. . . . . . . . . . . . . C-1
iv
<PAGE>
ARCHIBALD CANDY CORPORATION
$100,000,000 10-1/4% Senior Secured Notes due 2004
REGISTRATION RIGHTS AGREEMENT
July 2, 1997
JEFFERIES & COMPANY, INC.
FIRST CHICAGO CAPITAL MARKETS, INC.
c/o JEFFERIES & COMPANY, INC.
11100 Santa Monica Boulevard
10th Floor
Los Angeles, California 90025
Ladies and Gentlemen:
ARCHIBALD CANDY CORPORATION, an Illinois corporation (the
"Company"), is issuing and selling to Jefferies & Company, Inc. and First
Chicago Capital Markets, Inc. (the "Purchasers"), upon the terms set forth in
a purchase agreement, dated as of June 27, 1997 (the "Purchase Agreement"),
$100,000,000 aggregate principal amount of its 10-1/4% Senior Secured Notes due
2004 (the "Notes"). As an inducement to the Purchasers to enter into the
Purchase Agreement, the Company agrees with the Purchasers, for the benefit
of the holders of the Securities (defined below) (including, without
limitation, the Purchasers), as follows:
1. DEFINITIONS
Capitalized terms used herein without definition shall have their
respective meanings set forth in the Purchase Agreement. As used in this
Agreement, the following terms shall have the following meanings:
ADVICE: See Section 6(s).
<PAGE>
AGREEMENT: This Registration Rights Agreement, as amended or
supplemented from time to time in accordance with the terms hereof.
APPLICABLE PERIOD: See Section 2.
BUSINESS DAYS: Any day other than (i) Saturday or Sunday, or (ii)
a day on which banking institutions in the State of New York are authorized
or obligated by law or executive order to be closed.
CLOSING DATE: July 2, 1997.
EFFECTIVENESS DATE: The 120th day following the Closing Date.
EFFECTIVENESS PERIOD: See Section 3(a).
EVENT DATE: See Section 4(a).
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended, and
the rules and regulations of the SEC promulgated thereunder.
EXCHANGE OFFER: See Section 2(a).
EXCHANGE OFFER REGISTRATION STATEMENT: See Section 2(a).
EXCHANGE SECURITIES: 10-1/4% Senior Secured Notes due 2004, Series B,
of the Company identical in all respects to the Notes, except for references
to series and restrictive legends.
FILING DATE: The 60th day following the Closing Date.
HOLDER: Each holder of Registrable Securities.
INDENTURE: The Indenture, dated the date hereof, between the
Company and The Bank of New York, as trustee, pursuant to which the Notes are
being issued, as amended or supplemented from time to time in accordance with
the terms thereof.
INITIAL SHELF REGISTRATION: See Section 3(a).
LOSSES: See Section 8(a).
2
<PAGE>
NASD: The National Association of Securities Dealers, Inc.
PARTICIPATING BROKER-DEALER: See Section 2(f).
PERSON: An individual, trustee, corporation, limited liability
company, partnership, joint stock company, joint venture, trust,
unincorporated organization or government or any agency or political
subdivision thereof, union, business association, firm or other entity.
PRIVATE EXCHANGE: See Section 2(g).
PRIVATE EXCHANGE SECURITIES: See Section 2(g).
PROSPECTUS: The prospectus included in any Registration Statement
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement,
with respect to the terms of the offering of any portion of the Securities
covered by such Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference
in such Prospectus.
REGISTRABLE SECURITIES: (i) Notes, (ii) Private Exchange
Securities and (iii) Exchange Securities received in the Exchange Offer that
may not be sold without restriction under federal or state securities law.
REGISTRATION STATEMENT: Any registration statement of the Company
that covers any of the Securities pursuant to the provisions of this
Agreement, including the Prospectus, amendments and supplements to such
registration statement, including post-effective amendments, all exhibits,
and all material incorporated by reference or deemed to be incorporated by
reference in such registration statement.
RULE 144: Rule 144 under the Securities Act, as such Rule may be
amended from time to time, or any similar rule (other than Rule 144A) or
regulation hereafter adopted by the SEC.
RULE 144A: Rule 144A under the Securities Act, as such Rule may be
amended from time to time, or any similar rule (other than Rule 144) or
regulation hereafter adopted by the SEC.
3
<PAGE>
RULE 415: Rule 415 under the Securities Act, as such Rule may be
amended from time to time, or any similar rule or regulation hereafter
adopted by the SEC.
SEC: The Securities and Exchange Commission.
SECURITIES: The Notes, the Private Exchange Securities and the
Exchange Securities, collectively.
SECURITIES ACT: The Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
SHELF NOTICE: See Section 2(i).
SHELF REGISTRATION: The Initial Shelf Registration and any
Subsequent Shelf Registration.
SPECIAL COUNSEL: Counsel chosen by the holders of a majority in
aggregate principal amount of Securities.
SUBSEQUENT SHELF REGISTRATION: See Section 3(b).
TIA: The Trust Indenture Act of 1939, as amended.
TRUSTEE: The trustee under the Indenture and, if any, the trustee
under any indenture governing the Exchange Securities or the Private Exchange
Securities.
UNDERWRITTEN REGISTRATION OR UNDERWRITTEN OFFERING: A
registration in which securities of the Company are sold to an underwriter
for reoffering to the public.
WEEKLY LIQUIDATED DAMAGES AMOUNT: See Section 4(a).
2. EXCHANGE OFFER
(a) The Company shall (i) prepare and file with the SEC promptly
after the date hereof, but in no event later than the Filing Date, a
registration statement (the "Exchange Offer Registration Statement") on an
appropriate form under the Securities Act with respect to a proposed offer
(the "Exchange Offer") to the Holders to issue and deliver to such Holders,
in exchange for the Notes, a like aggregate
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principal amount of Exchange Securities, (ii) use its best efforts to cause
the Exchange Offer Registration Statement to become effective as promptly as
practicable after the filing thereof, but in no event later than the
Effectiveness Date, (iii) keep the Exchange Offer Registration Statement
effective until the consummation of the Exchange Offer pursuant to its terms,
and (iv) unless the Exchange Offer would not be permitted by a policy of the
SEC, commence the Exchange Offer and use its best efforts to issue, on or
prior to 45 days after the date on which the Exchange Offer Registration
Statement is declared effective, Exchange Securities in exchange for all
Notes tendered prior thereto in 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.
(b) The Exchange Securities shall be issued under, and entitled to
the benefits of, the Indenture or a trust indenture that is identical to the
Indenture (other than such changes as are necessary to comply with any
requirements of the SEC to effect or maintain the qualification thereof under
the TIA).
(c) 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 that is an exhibit to the Exchange Offer Registration
Statement and related documents;
(ii) keep the Exchange Offer open for not less than 30 days
after the date notice thereof is mailed to the Holders (or longer if required
by applicable law);
(iii) utilize the services of a depository for the Exchange
Offer with an address in the Borough of Manhattan, The City of New York;
(iv) permit Holders to withdraw tendered Notes at any time
prior to the close of business, New York time, on the last Business Day on
which the Exchange Offer shall remain open; and
(v) otherwise comply with all laws applicable to the
Exchange Offer.
(d) As soon as practicable after the close of the Exchange Offer, the
Company shall:
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(i) accept for exchange all Notes validly tendered and not
validly withdrawn pursuant to the Exchange Offer;
(ii) deliver to the Trustee for cancellation all Notes so
accepted for exchange; and
(iii) cause the Trustee promptly to authenticate and deliver
to each Holder of Notes, Exchange Securities equal in aggregate principal
amount to the Notes of such Holder so accepted for exchange.
(e) Interest on each Exchange Security and Private Exchange
Security will accrue from the last interest payment date on which interest
was paid on the Notes surrendered in exchange therefor or, if no interest has
been paid on the Notes, from the date of original issue of the Notes. Each
Exchange Security and Private Exchange Security shall bear interest at the
rate set forth thereon; PROVIDED, that interest with respect to the period
prior to the issuance thereof shall accrue at the rate or rates borne by the
Notes from time to time during such period.
(f) The Company shall include within the Prospectus contained in
the Exchange Offer Registration Statement a section entitled "Plan of
Distribution," containing a summary statement of the positions taken or
policies made by the Staff of the SEC with respect to the potential
"underwriter" status of any broker-dealer that is the beneficial owner (as
defined in Rule 13d-3 under the Exchange Act) of Exchange Securities received
by such broker-dealer in the Exchange Offer (a "Participating
Broker-Dealer"). Such "Plan of Distribution" section shall also allow the
use of the Prospectus by all Persons subject to the prospectus delivery
requirements of the Securities Act, including (without limitation) all
Participating Brokers-Dealers, and include a statement describing the means
by which Participating Broker-Dealers may resell the Exchange Securities. If
required because of the existence of Participating Broker-Dealers, the
Company shall use its best efforts to keep the Exchange Offer Registration
Statement effective and to amend and supplement the Prospectus to be lawfully
delivered by all Persons subject to the prospectus delivery requirement of
the Securities Act for such period of time as such Persons must comply with
such requirements in order to resell the Exchange Securities; PROVIDED that
such period shall not exceed 180 days after consummation of the Exchange
Offer (as such period may be extended pursuant to the last paragraph of
Section 6 hereof (the "Applicable Period")).
(g) If, prior to consummation of the Exchange Offer, either Purchaser
holds any Notes acquired by it and having the status as an unsold allotment in
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the initial distribution, the Company shall, upon the request of such
Purchaser, simultaneously with the delivery of the Exchange Securities in the
Exchange fOfer, issue (pursuant to the same indenture as the Exchange
Securities) and deliver to such Purchaser, in exchange for the Notes held by
such Purchaser (the "Private Exchange"), a like principal amount of debt
securities of the Company that are identical to the Exchange Securities (the
"Private Exchange Securities"). The Private Exchange Securities shall bear
the same CUSIP number as the Exchange Securities.
(h) The Company may require each Holder participating in the
Exchange Offer to represent to the Company that at the time of the
consummation of the Exchange Offer (i) any Exchange Securities received by
such Holder in the Exchange Offer will be acquired in the ordinary course of
its business, (ii) such Holder will have no arrangement or understanding with
any Person to participate in the distribution of the Exchange Securities
within the meaning of the Securities Act or resale of the Exchange Securities
in violation of the Securities Act, (iii) if such Holder is not a
broker-dealer, that it is not engaged in and does not intend to engage in,
the distribution of the Exchange Securities, (iv) if such Holder is a
broker-dealer that will receive Exchange Securities for its own account in
exchange for Notes that were acquired as a result of market-making or other
trading activities, that it will deliver a prospectus, as required by law, in
connection with any resale of such Exchange Securities, and (v) if such
Holder is an affiliate of the Company, that it will comply with the
registration and prospectus delivery requirements of the Securities Act
applicable to it.
(i) If (i) prior to the consummation of the Exchange Offer, either
the Company or the Holders of a majority in aggregate principal amount of
Registrable Securities determines in its or their reasonable judgment that
(A) the Exchange Securities would not, upon receipt, be tradeable by the
Holders thereof without restriction under the Securities Act and the Exchange
Act and without material restrictions under applicable Blue Sky or state
securities laws, or (B) the interests of the Holders under this Agreement,
taken as a whole, would be materially adversely affected by the consummation
of the Exchange Offer, (ii) applicable interpretations of the Staff of the
SEC would not permit the consummation of the Exchange Offer prior to the
Effectiveness Date, (iii) subsequent to the consummation of the Private
Exchange but within one year of the Closing Date, the Purchasers so request,
(iv) the Exchange Offer is not consummated within 165 days of the Closing
Date for any reason or (v) in the case of any Holder not permitted to
participate in the Exchange Offer or of any Holder participating in the
Exchange Offer that receives Exchange Securities that may not be sold without
restriction under state and federal securities laws (other than due solely to
the status of such Holder as an affiliate of the Company
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<PAGE>
within the meaning of the Securities Act) and, in either case contemplated by
this clause (v), such Holder notifies the Company within six months of
consummation of the Exchange Offer, then the Company shall promptly deliver
to the Holders (or in the case of any occurrence of the event described in
clause (v) hereof, to any such Holder) and the Trustee notice thereof (the
"Shelf Notice") and shall as promptly as possible thereafter file an Initial
Shelf Registration pursuant to Section 3.
3. SHELF REGISTRATION
If a Shelf Notice is required to be delivered pursuant to Section
2(i)(i), (ii), (iii) or (iv), then this Section 3 shall apply to all
Registrable Securities. Otherwise, upon consummation of the Exchange Offer
in accordance with Section 2, the provisions of this Section 3 shall apply
solely with respect to (i) Notes held by any Holder thereof not permitted to
participate in the Exchange Offer and (ii) Exchange Securities that are not
freely tradeable as contemplated by Section 2(i)(v) hereof.
(a) INITIAL SHELF REGISTRATION. The Company shall prepare and
file with the SEC a Registration Statement for an offering to be made on a
continuous basis pursuant to Rule 415 covering all of the Registrable
Securities (the "Initial Shelf Registration"). If the Company has not yet
filed an Exchange Offer, the Company shall file with the SEC the Initial
Shelf Registration on or prior to the later of the Filing Date or 30 days
after the Shelf Notice. Otherwise, the Company shall use its best efforts to
file the Initial Shelf Registration within 20 days of the delivery of the
Shelf Notice or as promptly as possible following the request of the
Purchasers. The Initial Shelf Registration shall be on Form S-1 or another
appropriate form permitting registration of such Registrable Securities for
resale by such holders in the manner or manners designated by them
(including, without limitation, one or more underwritten offerings). The
Company shall (i) not permit any securities other than the Registrable
Securities to be included in any Shelf Registration, and (ii) use its best
efforts to cause the Initial Shelf Registration to be declared effective
under the Securities Act as promptly as practicable after the filing thereof
and to keep the Initial Shelf Registration continuously effective under the
Securities Act until the date that is 24 months from the Effectiveness Date
(subject to extension pursuant to the last paragraph of Section 6 hereof)
(the "Effectiveness Period"), or such shorter period ending when (i) all
Registrable Securities covered by the Initial Shelf Registration have been
sold or (ii) a Subsequent Shelf Registration covering all of the Registrable
Securities has been declared effective under the Securities Act.
(b) SUBSEQUENT SHELF REGISTRATIONS. If any Shelf Registration
ceases to be effective for any reason at any time during the Effectiveness
Period
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(other than because of the sale of all of the Registrable Securities
registered thereunder), the Company shall use its best efforts to obtain the
prompt withdrawal of any order suspending the effectiveness thereof, and in
any event shall within 30 days of such cessation of effectiveness amend the
Shelf Registration in a manner reasonably expected to obtain the withdrawal
of the order suspending the effectiveness thereof, or file an additional
"shelf" Registration Statement pursuant to Rule 415 covering all of the
Registrable Securities (a "Subsequent Shelf Registration"). If a Subsequent
Shelf Registration is filed, the Company shall use its best efforts to cause
the Subsequent Shelf Registration to be declared effective as soon as
practicable after such filing and to keep such Subsequent Shelf Registration
continuously effective for a period equal to the number of days in the
Effectiveness Period less the aggregate number of days during which the
Initial Shelf Registration, and any Subsequent Shelf Registration, was
previously effective.
4. LIQUIDATED DAMAGES.
(a) The Company acknowledges and agrees that the holders of
Registrable Securities will suffer damages, and that it would not be feasible
to ascertain the extent of such damages with precision, if the Company fails
to fulfill its obligations hereunder. Accordingly, in the event of such
failure, the Company agrees to pay liquidated damages to each Holder under
the circumstances and to the extent set forth below:
(i) if neither the Exchange Offer Registration Statement nor the
Initial Shelf Registration has been filed with the SEC on or prior to the
Filing Date; or
(ii) if neither the Exchange Offer Registration Statement nor the
Initial Shelf Registration is declared effective by the SEC on or prior to
the Effectiveness Date; or
(iii) if the Company has not exchanged Exchange Securities for
all Notes validly tendered in accordance with the terms of the Exchange Offer
within 45 days after the date on which an Exchange Offer Registration
Statement is declared effective by the SEC; or
(iv) if a Shelf Registration is filed and declared effective by the
SEC but thereafter ceases to be effective without being succeeded within 30
days by a Subsequent Shelf Registration filed and declared effective;
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<PAGE>
(each of the foregoing a "Registration Default," and the date on which the Event
occurs being referred to herein as an "Event Date").
Upon the occurrence of any Registration Default, the Company shall
pay, or cause to be paid, in addition to amounts otherwise due under the
Indenture and the Registrable Securities, as liquidated damages, and not as a
penalty, to each holder of a Registrable Security, an additional amount (the
"Weekly Liquidated Damages Amount") equal to (A) for each weekly period
beginning on the Event Date for the first 90-day period immediately following
such Event Date, $.05 per week per $1,000 principal amount of Registrable
Securities held by such holder, and (B) for each weekly period beginning with
the first full week after the 90-day period set forth in the foregoing clause
(A), each week an additional $0.05 increase per week per $1,000 principal
amount of Registrable Securities held by such holder up to a maximum of $.40
per week per $1,000 principal amount of Registrable Securities held by such
holder; PROVIDED that such liquidated damages will, in each case, cease to
accrue (subject to the occurrence of another Registration Default) on the
date on which all Registration Defaults have been cured. A Registration
Default under clause (i) above shall be cured on the date that either the
Exchange Offer Registration Statement or the Initial Shelf Registration is
filed with the SEC; a Registration Default under clause (ii) above shall be
cured on the date that either the Exchange Offer Registration Statement or
the Initial Shelf Registration is declared effective by the SEC; a
Registration Default under clause (iii) above shall be cured on the earlier
of the date (A) the Exchange Offer is consummated with respect to all Notes
validly tendered or (B) the Company delivers a Shelf Notice to the Holders;
and a Registration Default under clause (iv) above shall be cured on the
earlier of (A) the date on which the applicable Shelf Registration is no
longer subject to an order suspending the effectiveness thereof or
proceedings relating thereto or (B) a Subsequent Shelf Registration is
declared effective.
(b) The Company shall notify the Trustee within five Business Days
after each Event Date. The Company shall pay the liquidated damages due on
the Registrable Securities by depositing with the Trustee, in trust, for the
benefit of the Holders thereof, by 12:00 noon, New York City time, on or
before the applicable semi-annual interest payment date for the Registrable
Securities, immediately available funds in sums sufficient to pay the
liquidated damages then due. The liquidated damages amount due shall be
payable on each interest payment date to the record holder of Registrable
Securities entitled to receive the interest payment to be made on such date
as set forth in the Indenture.
5. HOLD-BACK AGREEMENTS
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The Company agrees (i) without the prior written consent of the
Holders of a majority of the aggregate principal amount of the then
outstanding Securities, not to effect any public or private sale or
distribution (including a sale pursuant to Regulation D under the Securities
Act) of any securities the same as or similar to those covered by a
Registration Statement filed pursuant to Section 2 or 3 hereof, or any
securities convertible into or exchangeable or exercisable for such
securities, during the 10 days prior to, and during the 90-day period
beginning on, (A) the effective date of any Registration Statement filed
pursuant to Sections 2 and 3 hereof unless the Holders of a majority in
aggregate principal amount of Registrable Securities to be included in such
Registration Statement consent or (B) the commencement of an underwritten
public distribution of Registrable Securities, where the managing underwriter
so requests; and (ii) to cause each holder of such securities that are the
same as or similar to Registrable Securities issued at any time after the
date of this Agreement (other than securities purchased in a registered
public offering) to agree not to effect any public sale or distribution of
any such securities during such periods, including a sale pursuant to Rule
144 or Rule 144A.
6. REGISTRATION PROCEDURES
In connection with the registration of any Securities pursuant to
Sections 2 or 3 hereof, the Company shall effect such registrations to permit
the sale of such Securities in accordance with the intended method or methods
of disposition thereof, and pursuant thereto the Company shall:
(a) Prepare and file with the SEC, as soon as practicable after
the date hereof but in any event on or prior to the Filing Date or, if later,
30 days after the Shelf Notice, a Registration Statement or Registration
Statements as prescribed by Section 2 or 3, and use its best efforts to cause
each such Registration Statement to become effective and remain effective as
provided herein; PROVIDED, that, if (i) such filing is pursuant to Section 3
or (ii) a Prospectus contained in an Exchange Offer Registration Statement
filed pursuant to Section 2 is required to be delivered under the Securities
Act by any Participating Broker-Dealer who seeks to sell Exchange Securities
during the Applicable Period, before filing any Registration Statement or
Prospectus or any amendments or supplements thereto, the Company shall, if
requested, furnish to and afford the Holders of the Registrable Securities
covered by such Registration Statement, their Special Counsel, each
Participating Broker-Dealer, the managing underwriters, if any, and their
counsel a reasonable opportunity to review and make available for inspection
by such Persons copies of all such documents (including copies of any
documents to be incorporated by reference therein and all exhibits thereto)
proposed to be filed, such financial and other information and books
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and records of the Company, and cause the officers, directors and
employees of the Company, Company counsel and independent certified public
accountants of the Company, to respond to such inquiries, as shall be
necessary, in the opinion of respective counsel to such holders,
Participating Broker-Dealer and underwriters, to conduct a reasonable
investigation within the meaning of the Securities Act. The Company may
require each Holder to agree to keep confidential any non-public information
relating to the Company received by such Holder and not disclose such
information (other than to an Affiliate or prospective purchaser who agrees
to respect the confidentiality provisions of this Section 6(a)) until such
information has been made generally available to the public unless the
release of such information is required by law or necessary to respond to
inquiries of regulatory authorities (including the National Association of
Insurance Commissioners, or similar organizations or their successors). 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 Holders of a majority in aggregate principal amount of the Registrable
Securities covered by such Registration Statement, their Special Counsel, any
Participating Broker-Dealer or the managing underwriters, if any, or their
counsel shall reasonably object.
(b) Provide an indenture trustee for the Registrable Securities or
the Exchange Securities, as the case may be, and cause the Indenture (or other
indenture relating to the Registrable Securities) to be qualified under the TIA
not later than the effective date of the first Registration Statement; and in
connection therewith, to effect such changes to such indenture as may be
required for such indenture to be so qualified in accordance with the terms of
the TIA; and execute, and use its best efforts to cause such trustee to execute,
all documents as may be required to effect such changes, and all other forms and
documents required to be filed with the SEC to enable such indenture to be so
qualified in a timely manner.
(c) Prepare and file with the SEC such amendments and post-effective
amendments to the Registration Statement as may be necessary to keep such
Registration Statement continuously effective for the time periods required
hereby; cause the related Prospectus to be supplemented by any Prospectus
supplement required by applicable law, and as so supplemented to be filed
pursuant to Rule 424 (or any similar provisions then in force) under the
Securities Act; and comply in all material respects with the provisions of the
Securities Act and the Exchange Act applicable thereto with respect to the
disposition of all securities covered by such Registration Statement, as so
amended, or in such Prospectus, as so supplemented, in accordance with the
intended methods of distribution set forth in such Registration Statement or
Prospectus as so amended.
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(d) Furnish to such selling Holders and Participating
Broker-Dealers who so request (i) upon the Company's receipt, a copy of the
order of the SEC declaring such Registration Statement and any post-effective
amendment thereto effective and (ii) such reasonable number of copies of such
Registration Statement and of each amendment and supplement thereto (in each
case including any documents incorporated therein by reference and all
exhibits), (iii) such reasonable number of copies of the Prospectus included
in such Registration Statement (including each preliminary Prospectus), and
such reasonable number of copies of the final Prospectus as filed by the
Company pursuant to Rule 424(b) under the Securities Act, in conformity with
the requirements of the Securities Act, and (iv) such other documents
(including any amendments required to be filed pursuant to clause (c) of this
Section), as any such Person may reasonably request. The Company hereby
consents to the use of the Prospectus by each of the selling Holders of
Registrable Securities or each such Participating Broker-Dealer, as the case
may be, and the underwriters or agents, if any, and dealers (if any), in
connection with the offering and sale of the Registrable Securities covered
by, or the sale by Participating Broker-Dealers of the Exchange Securities
pursuant to, such Prospectus and any amendment thereto.
(e) If (A) a Shelf Registration is filed pursuant to Section 3 or
(B) a Prospectus contained in an Exchange Offer Registration Statement filed
pursuant to Section 2 is required to be delivered under the Securities Act by
any Participating Broker-Dealer who seeks to sell Exchange Securities during
the Applicable Period, notify the selling Holders of Registrable Securities,
their Special Counsel, each Participating Broker-Dealer and the managing
underwriters, if any, promptly (but in any event within two Business Days),
and confirm such notice in writing, (i) when a Prospectus has been filed,
and, with respect to a Registration Statement or any post-effective
amendment, when the same has become effective under the Securities Act, (ii)
of the issuance by the SEC of any stop order suspending the effectiveness of
a Registration Statement or of any order preventing or suspending the use of
any Prospectus or the initiation of any proceedings for that purpose, (iii)
if, at any time when a Prospectus is required by the Securities Act to be
delivered in connection with sales of the Registrable Securities, the
representations and warranties of the Company contained in any agreement
(including any underwriting agreement) contemplated by Section 6(n) below
cease to be true and correct in any material respect, (iv) of the receipt by
the Company of any notification with respect to the suspension of the
qualification or exemption from qualification of a Registration Statement or
any of the Registrable Securities or the Exchange Securities to be sold by
any Participating Broker-Dealer for offer or sale in any jurisdiction, or the
contemplation, initiation or threatening of any proceeding for such purpose,
(v) of the happening of any event that makes any statement made in such
Registration Statement or related Prospectus or
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any document incorporated or deemed to be incorporated therein by reference
untrue in any material respect or that requires the making of any changes in
such Registration Statement, Prospectus or documents so that it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and (vi) of the Company's reasonable determination that a
post-effective amendment to a Registration Statement would be appropriate.
(f) Use its best efforts to register or qualify, and, if
applicable, to cooperate with the selling Holders of Registrable Securities,
the underwriters, if any, and their respective counsel in connection with the
registration or qualification (or exemption from such registration or
qualification) of, Securities to be included in a Registration Statement for
offer and sale under the securities or Blue Sky laws of such jurisdictions
within the United States as any selling Holder, Participating Broker-Dealer
or the managing underwriters reasonably request in writing; and, if
Securities are offered other than through an Underwritten Offering, the
Company shall cause its counsel to perform Blue Sky investigations and file
registrations and qualifications required to be filed pursuant to this
Section 6(f) at the expense of the Company; keep each such registration or
qualification (or exemption therefrom) effective during the period such
Registration Statement is required to be kept effective and do any and all
other acts or things necessary or advisable to enable the disposition in such
jurisdictions of the Securities covered by the applicable Registration
Statement, PROVIDED, HOWEVER, that the Company shall not be required to (i)
qualify generally to do business in any jurisdiction where it is not then so
qualified, (ii) to take action that would subject it to general service of
process in any jurisdiction where it is not so subject or (iii) subject it to
taxation in excess of a nominal dollar amount in any such jurisdiction where
it is not then subject.
(g) Use its best efforts to prevent the issuance of any order
suspending the effectiveness of a Registration Statement or of any order
preventing or suspending the use of a Prospectus or suspending the
qualification (or exemption from qualification) of any of the Securities for
sale in any jurisdiction, and, if any such order is issued, to use its best
efforts to obtain the withdrawal of any such order at the earliest possible
time.
(h) If (A) a Shelf Registration is filed pursuant to Section 3 or
(B) a Prospectus contained in an Exchange Offer Registration Statement filed
pursuant to Section 2 is required to be delivered under the Securities Act by
any Participating Broker-Dealer who seeks to sell Exchange Securities during
the Applicable Period, and if requested by the managing underwriters, if any,
or the Holders of a majority in
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aggregate principal amount of the Registrable Securities, (i) promptly
incorporate in a Prospectus or post-effective amendment such information as
the managing underwriters, if any, or such Holders reasonably request to be
included therein required to comply with any applicable law and (ii) make all
required filings of such Prospectus or such post-effective amendment as soon
as practicable after the Company has received notification of such matters
required by Applicable Law to be incorporated in such Prospectus or
post-effective amendment.
(i) If (A) a Shelf Registration is filed pursuant to Section 3 or
(B) a Prospectus contained in an Exchange Offer Registration Statement filed
pursuant to Section 2 is required to be delivered under the Securities Act by
any Participating Broker-Dealer who seeks to sell Exchange Securities during
the Applicable Period, cooperate with the selling Holders and the managing
underwriters, if any, to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold, which
certificates shall not bear any restrictive legends and shall be in a form
eligible for deposit with The Depository Trust Company ("DTC"); and enable
such Registrable Securities to be in such denominations and registered in
such names as the managing underwriters, if any, or Holders may reasonably
request.
(j) If (i) a Shelf Registration is filed pursuant to Section 3 or
(ii) a Prospectus contained in an Exchange Offer Registration Statement filed
pursuant to Section 2 is required to be delivered under the Securities Act by
any Participating Broker-Dealer who seeks to sell Exchange Securities during
the Applicable Period, upon the occurrence of any event contemplated by
paragraph 6(e)(v) or 6(e)(vi) above, as promptly as practicable prepare a
supplement or post-effective amendment to the Registration Statement or a
supplement to the related Prospectus or any document incorporated or deemed
to be incorporated therein by reference, or file any other required document
so that, as thereafter delivered to the purchasers of the Registrable
Securities being sold thereunder or to the purchasers of the Exchange
Securities to whom such Prospectus will be delivered by a Participating
Broker-Dealer, such Registration Statement or Prospectus will not contain an
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(k) Use its best efforts to cause the Securities covered by a
Registration Statement to be rated with the appropriate rating agencies, if
appropriate, if so requested by the Holders of a majority in aggregate
principal amount of Securities covered by such Registration Statement or the
managing underwriters, if any.
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(l) Prior to the effective date of the first Registration
Statement relating to the Securities, (i) provide the applicable trustee with
printed certificates for the Securities in a form eligible for deposit with
DTC and (ii) provide a CUSIP number for each of the Securities.
(m) Use its best efforts to cause all Securities covered by such
Registration Statement to be listed on each securities exchange, if any, on
which similar debt securities issued by the Company are then listed.
(n) If a Shelf Registration is filed pursuant to Section 3, enter
into such agreements (including an underwriting agreement in form, scope and
substance as is customary in Underwritten Offerings) and take all such other
actions in connection therewith (including those reasonably requested by the
managing underwriters, if any, or the Holders of a majority in aggregate
principal amount of the Registrable Securities being sold) 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, (i) make such representations and warranties to
the Holders and the underwriters, if any, with respect to the business of the
Company and its subsidiaries, and the Registration Statement, Prospectus and
documents, if any, incorporated or deemed to be incorporated by reference
therein, in each case, in form, substance and scope 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 counsel and opinions (in form, scope and
substance) shall be reasonably satisfactory to the managing underwriters, if
any, and the Holders of a majority in principal amount of the Registrable
Securities being sold), addressed to each selling Holder and each of the
underwriters, if any, covering the matters customarily covered in opinions
requested in Underwritten Offerings; (iii) obtain "cold comfort" letters and
updates thereof (which letters and updates (in form, scope and substance)
shall be 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 and each
selling Holder, 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
underwriters; and (iv) deliver such documents and certificates as may be
reasonably requested by the Holders of a majority in principal amount of the
Registrable Securities being sold and the managing
16
<PAGE>
underwriters, if any, to evidence the continued validity of the
representations and warranties of the Company and its subsidiaries made
pursuant to clause (i) above and to evidence compliance with any conditions
contained in the underwriting agreement or other similar agreement entered
into by the Company.
(o) Comply with all applicable rules and regulations of the SEC
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 on
the first day of the fiscal quarter following each 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 Private Exchange,
obtain an opinion of counsel to the Company (in form, scope and substance
reasonably satisfactory to the Purchaser), addressed to all Holders
participating in the Exchange Offer or Private Exchange, as the case may be,
to the effect that (i) the Company has duly authorized, executed and
delivered the Exchange Securities or the Private Exchange Securities, as the
case may be, and the Indenture, (ii) the Exchange Securities or the Private
Exchange Securities, as the case may be, and the Indenture constitute legal,
valid and binding obligations of the Company, enforceable against the Company
in accordance with their respective terms, except as such enforcement may be
subject to (x) applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting creditors' rights and remedies generally and (y)
general principles of equity (regardless of whether such enforcement is
sought in a proceeding in equity or at law), and (iii) all obligations of the
Company under the Exchange Securities or the Private Exchange Securities, as
the case may be, and the Indenture are secured by Liens on the assets
securing the obligations of the Company under the Notes.
(q) If an Exchange Offer or Private Exchange is to be consummated,
upon delivery of the Registrable Securities by such 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 caused to be marked, on such Registrable
Securities that such Registrable Securities are being cancelled in exchange
for the Exchange Securities or the Private
17
<PAGE>
Exchange Securities, as the case may be; in no event shall such
Registrable Securities be marked as paid or otherwise satisfied.
(r) Cooperate 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) Use its best efforts to take all other steps necessary to
effect the registration of the Registrable Securities covered by a
Registration Statement contemplated hereby.
The Company may require each seller of Registrable Securities or
Participating Broker-Dealer as to which any registration is being effected to
furnish to the Company such information regarding such seller or
Participating Broker-Dealer and the distribution of such Registrable
Securities or Exchange 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 or Exchange Securities of any
Participating Broker-Dealer who unreasonably fails to furnish such
information.
Each Holder and each Participating Broker-Dealer agrees by
acquisition of such Registrable Securities or Exchange Securities of any
Participating Broker-Dealer that, upon receipt of written notice from the
Company of the happening of any event of the kind described in Section
6(e)(ii), 6(e)(iv), 6(e)(v) or 6(e)(vi), such Holder will forthwith
discontinue disposition (in the jurisdictions specified in a notice of a
6(e)(iv) event, and elsewhere in a notice of a 6(e)(ii), 6(e)(v) or 6(e)(vi)
event) of such Securities covered by such Registration Statement or
Prospectus until such Holder's receipt of the copies of the supplemented or
amended Prospectus contemplated by Section 6(j), or until it is advised in
writing (the "Advice") by the Company that offers or sales in a particular
jurisdiction may be resumed or that the use of the applicable Prospectus may
be resumed, as the case may be, and has received copies of any amendments or
supplements thereto. If the Company shall give such notice, each of the
Effectiveness Period and the Applicable Period shall be extended by the
number of days during such periods from and including the date of the giving
of such notice to and including the date when each seller of such Securities
covered by such Registration Statement shall have received (x) the copies of
the supplemented or amended Prospectus contemplated by Section 6(j) or (y)
the Advice.
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<PAGE>
7. REGISTRATION EXPENSES
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Company shall be borne by the Company
whether or not the Exchange Offer or a Shelf Registration is filed or becomes
effective, including, without limitation:
(i) all registration and filing fees (including, without
limitation, (A) fees with respect to filings required to be made with the
NASD and (B) fees and expenses of compliance with state securities or Blue
Sky laws (including, without limitation, reasonable fees and disbursements
of counsel in connection with Blue Sky qualifications of the Registrable
Securities or Exchange Securities and determination of the eligibility of
the Registrable Securities or Exchange Securities for investment under the
laws of such jurisdictions (x) where the Holders are located, in the case
of the Exchange Securities, or (y) as provided in Section 6(f), in the case
of Registrable Securities or Exchange Securities to be sold by a
Participating Broker-Dealer during the Applicable Period);
(ii) printing expenses (including, without limitation,
expenses of printing certificates for Registrable Securities or Exchange
Securities in a form eligible for deposit with DTC and of printing
Prospectuses if the printing of Prospectuses is requested by the managing
underwriters, if any, or, in respect of Registrable Securities or Exchange
Securities to be sold by a Participating Broker-Dealer during the
Applicable Period, by the Holders of a majority in aggregate principal
amount of the Registrable Securities included in any Registration Statement
or of such Exchange Securities, as the case may be);
(iii) messenger, telephone, duplication, word processing
and delivery expenses incurred by the Company in the performance of its
obligations hereunder;
(iv) fees and disbursements of counsel for the Company;
(v) fees and disbursements of all independent certified
public accountants referred to in Section 6(n)(iii) (including, without
limita-
19
<PAGE>
tion, the expenses of any special audit and "cold comfort" letters
required by or incident to such performance);
(vi) fees and expenses of any "qualified independent
underwriter" or other independent appraiser participating in an offering
pursuant to Section 3 of Schedule E to the By-laws of the NASD, but only
where the need for such a "qualified independent underwriter" arises due to
a relationship with the Company;
(vii) Securities Act liability insurance, if the Company so
desires such insurance;
(viii) fees and expenses of all other Persons retained by
the Company; internal expenses of the Company (including, without
limitation, all salaries and expenses of officers and employees of the
Company performing legal or accounting duties); and the expense of any
annual audit; and
(ix) rating agency fees and the fees and expenses incurred
in connection with the listing of the Securities to be registered on any
securities exchange.
(b) The Company shall reimburse the Holders for the reasonable fees
and disbursements of not more than one counsel (in addition to appropriate local
counsel) chosen by the Holders of a majority in aggregate principal amount of
the Registrable Securities to be included in any Shelf Registration Statement
and other reasonable and necessary out-of-pocket expenses of the Holders
incurred in connection with the registration of the Registrable Securities. The
Company shall pay all documentary, stamp, transfer or other transactional taxes
attributable to the issuance or delivery of the Exchange Securities or Private
Exchange Securities in exchange for the Notes; provided that the Company shall
not be required to pay taxes payable in respect of any transfer involved in the
issuance or delivery of any Exchange Security or Private Exchange Security in a
name other than that of the holder of the Note in respect of which such Exchange
Security or Private Exchange Security is being issued.
8. INDEMNIFICATION
(a) INDEMNIFICATION BY THE COMPANY. The Company shall, without
limitation as to time, indemnify and hold harmless each Holder and each
Participating
20
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Broker-Dealer selling Exchange Securities during the Applicable Period, each
Person who controls each such Holder (within the meaning of Section 15 of the
Securities Act or Section 20(a) of the Exchange Act) and the officers,
directors, partners, employees, representatives and agents of each such
Holder, Participating Broker-Dealer and controlling person, to the fullest
extent lawful, from and against any and all losses, claims, damages,
liabilities, costs (including, without limitation, reasonable costs of
preparation and reasonable attorneys' fees) and expenses (including, without
limitation, reasonable costs and expenses incurred in connection with
investigating, preparing, pursuing or defending against any of the foregoing)
(collectively, "Losses"), as incurred, directly or indirectly caused by,
related to, based upon, arising out of or in connection with any untrue or
alleged untrue statement of a material fact contained in any Registration
Statement, Prospectus or form of prospectus, or in any amendment or
supplement thereto, or in any preliminary prospectus, or any omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except insofar as
such Losses are based upon information relating to such Holder or
Participating Broker-Dealer and furnished in writing to the Company (or
reviewed and approved in writing) by such Holder or Participating
Broker-Dealer expressly for use therein; PROVIDED, HOWEVER, that the Company
shall not be liable to any indemnified party to the extent that any such
losses arise solely out of an untrue statement or alleged untrue statement or
omission or alleged omission made in any preliminary prospectus if (i) such
indemnified party or related Holder of a Registrable Security failed to send
or deliver a copy of the Prospectus with or prior to the delivery of written
confirmation of the sale by such indemnified party or the related Holder of a
Registrable Security to the person asserting the claim from which such Losses
arise, (ii) the Prospectus would have corrected such untrue statement or
alleged untrue statement or omission or alleged omission, and (iii) the
Company has complied with their obligations under Section 6(e) hereof. The
Company shall also indemnify underwriters, selling brokers, dealer managers
and similar securities industry professionals participating in the
distribution, their officers, directors, agents and employees and each Person
who controls such Persons (within the meaning of Section 15 of the Securities
Act or Section 20(a) of the Exchange Act) to the same extent as provided
above with respect to the indemnification of the Holders or the Participating
Broker-Dealer.
(b) INDEMNIFICATION BY HOLDER OF REGISTRABLE SECURITIES. In
connection with any Registration Statement, Prospectus or form of prospectus,
any amendment or supplement thereto, or any preliminary prospectus in which a
Holder in which a Holder is participating, such Holder shall furnish to the
Company in writing such information as the Company reasonably requests for use
in connection with any
21
<PAGE>
Registration Statement, Prospectus or form of prospectus,
any amendment or supplement thereto, or any preliminary prospectus and shall,
without limitation as to time, indemnify and hold harmless the Company, its
directors, officers, agents and employees, each Person, if any, who controls the
Company (within the meaning of Section 15 of the Securities Act and Section
20(a) of the Exchange Act), and the directors, officers, agents or employees of
such controlling persons, to the fullest extent lawful, from and against all
Losses arising out of or based upon any untrue or alleged untrue statement of a
material fact contained in any Registration Statement, Prospectus or form of
prospectus or in any amendment or supplement thereto or in any preliminary
prospectus, or any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement of a material fact or omission or alleged omission of a material fact
is contained in any information so furnished in writing by such holder to the
Company expressly for use therein. In no event shall the liability of any
selling Holder be greater in amount than the dollar amount of the proceeds (net
of payment of all expenses) received by such Holder upon the sale of the
Registrable Securities giving rise to such indemnification obligation.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. If any proceeding
shall be brought or asserted against any Person entitled to indemnity
hereunder (an "indemnified party"), such indemnified party shall promptly
notify the party or parties from which such indemnity is sought (the
"indemnifying parties") in writing; PROVIDED, that the failure to so notify
the indemnifying parties shall not relieve the indemnifying parties from any
obligation or liability except to the extent (but only to the extent) that it
shall be finally determined by a court of competent jurisdiction (which
determination is not subject to appeal) that the indemnifying parties have
been prejudiced materially by such failure.
The indemnifying party shall have the right, exercisable by giving
written notice to an indemnified party, within 20 business days after receipt
of written notice from such indemnified party of such proceeding, to assume,
at its expense, the defense of any such proceeding, PROVIDED, that an
indemnified party shall have the right to employ separate counsel in any such
proceeding and to participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such indemnified party or
parties unless: (1) the indemnifying party has agreed to pay such fees and
expenses; or (2) the indemnifying party shall have failed promptly to assume
the defense of such proceeding or shall have failed to employ counsel
reasonably satisfactory to such indemnified party; or (3) the named parties
to any such pro-
22
<PAGE>
ceeding (including any impleaded parties) include both such
indemnified party and the indemnifying party or any of its affiliates or
controlling persons, and such indemnified party shall have been advised by
counsel that there may be one or more defenses available to such indemnified
party that are in addition to, or in conflict with, those defenses available
to the indemnifying party or such affiliate or controlling person (in which
case, if such indemnified party notifies the indemnifying parties in writing
that it elects to employ separate counsel at the expense of the indemnifying
parties, the indemnifying parties shall not have the right to assume the
defense thereof and the reasonable fees and expenses of such counsel shall be
at the expense of the indemnifying party; it being understood, however, that,
the indemnifying party shall not, in connection with any one such proceeding
or separate but substantially similar or related proceedings in the same
jurisdiction, arising out of the same general allegations or circumstances,
be liable for the fees and expenses of more than one separate firm of
attorneys (together with appropriate local counsel) at any time for such
indemnified party).
No indemnifying party shall be liable for any settlement of any such
proceeding effected without its written consent, but if settled with its written
consent, or if there be a final judgment for the plaintiff in any such
proceeding, each indemnifying party jointly and severally agrees, subject to the
exceptions and limitations set forth above, to indemnify and hold harmless each
indemnified party from and against any and all Losses by reason of such
settlement or judgment. The indemnifying party shall not consent to the entry
of any judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by the claimant or plaintiff to each
indemnified party of a release, in form and substance reasonably satisfactory to
the indemnified party, from all liability in respect of such proceeding for
which such indemnified party would be entitled to indemnification hereunder
(whether or not any indemnified party is a party thereto).
(d) CONTRIBUTION. If the indemnification provided for in this
Section 8 is unavailable to an indemnified party or is insufficient to hold such
indemnified party harmless for any Losses in respect of which this Section 8
would otherwise apply by its terms (other than by reason of exceptions provided
in this Section 8), then each applicable indemnifying party, in lieu of
indemnifying such indemnified party, shall have a joint and several obligation
to contribute to the amount paid or payable by such indemnified party as a
result of such Losses, in such proportion as is appropriate to reflect the
relative fault of the indemnifying party, on the one hand, and such indemnified
party, on the other hand, in connection with the actions, statements or
omissions that resulted in such Losses as well as any other relevant equitable
considerations. The relative fault of such indemnifying party, on the one hand,
and
23
<PAGE>
indemnified party, on the other hand, shall be determined by reference to,
among other things, whether any untrue or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact relates to
information supplied by such indemnifying party or indemnified party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent any such statement or omission. The amount paid or payable
by an indemnified party as a result of any Losses shall be deemed to include any
legal or other fees or expenses incurred by such party in connection with any
Proceeding, to the extent such party would have been indemnified for such fees
or expenses if the indemnification provided for in Section 8(a) or 8(b) was
available to such party.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 8(d) were determined by PRO RATA
allocation or by any other method of allocation that does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 8(d), an indemnifying party that
is a selling Holder shall not be required to contribute, in the aggregate, any
amount in excess of such Holder's Maximum Contribution Amount. A selling
Holder's "Maximum Contribution Amount" shall equal the excess of (i) the
aggregate proceeds received by such Holder pursuant to the sale of such
Registrable Securities over (ii) the aggregate amount of damages that such
Holder 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
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in this Section 8
are in addition to any liability that the indemnifying parties may have to the
indemnified parties.
9. RULE 144 AND RULE 144A
The Company covenants that it shall (a) file the reports required to
be filed by it (if so required) under the Securities Act and the Exchange Act in
a timely manner and, if at any time any such Person is not required to file such
reports, it will, upon the request of any Holder, make publicly available other
information necessary to permit sales pursuant to Rule 144 and Rule 144A and (b)
take such further action as any Holder may reasonably request, all to the extent
required from time to time to enable such Holder to sell Registrable Securities
without registration under the Securities Act pursuant to the exemptions
provided by Rule 144 and Rule 144A.
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<PAGE>
Upon the request of any Holder, the Company shall deliver to such holder a
written statement as to whether they have complied with such information and
requirements.
10. UNDERWRITTEN REGISTRATIONS
If any of the Registrable Securities covered by any Shelf Registration
are to be sold in an Underwritten Offering, the investment banker or investment
bankers and manager or managers that will manage the offering will be selected
by the Holders of a majority in aggregate principal amount of such Registrable
Securities included in such offering.
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 questionnaires, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements.
11. MISCELLANEOUS
(a) REMEDIES. In the event of a breach by the Company of any of its
obligations under this Agreement, each Holder, in addition to being entitled to
exercise all rights provided herein, in the Indenture or, in the case of the
Purchasers, in the Purchase Agreement, or granted by law, including recovery of
damages, will be entitled to specific performance of its rights under this
Agreement. The Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of any of the
provisions of this Agreement and hereby further agrees that, in the event of any
action for specific performance in respect of such breach, it shall waive the
defense that a remedy at law would be adequate.
(b) NO INCONSISTENT AGREEMENTS. The Company has not entered into, as
of the date hereof, and shall not enter into, after the date of this Agreement,
any agreement with respect to any of its securities that is inconsistent with
the rights granted to the holders of Registrable Securities in this Agreement or
otherwise conflicts with the provisions hereof.
(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
25
<PAGE>
given, unless the Company has obtained the written consent of Holders of at
least a majority of the then outstanding aggregate principal amount of
Registrable Securities; PROVIDED, that Sections 4, 6(a) and 8 shall not be
amended, modified or supplemented, and waivers or consents to departures from
this proviso may not be given, unless the Company has obtained the written
consent of each Holder. Notwithstanding the foregoing, a waiver or consent
to depart from the provisions hereof with respect to a matter that relates
exclusively to the rights of Holders whose securities are being sold pursuant
to a Registration Statement and that does not directly or indirectly affect
the rights of other Holders may be given by Holders of at least a majority in
aggregate principal amount of the Registrable Securities being sold by such
Holders pursuant to such Registration Statement, PROVIDED that the provisions
of this sentence may not be amended, modified or supplemented except in
accordance with the provisions of the immediately preceding sentence.
(d) NOTICES. All notices and other communications (including,
without limitation, any notices or other communications to the Trustee)
provided for or permitted hereunder shall be made in writing by
hand-delivery, certified first-class mail, return receipt requested, next-day
air courier or facsimile:
(i) if to a Holder, at the most current address given by
such holder to the Company in accordance with the provisions of this
Section 11(d), which address initially is, with respect to each holder, the
address of such holder maintained by the Registrar under the Indenture,
with a copy to Skadden, Arps, Slate, Meagher & Flom (Illinois), 333 West
Wacker Drive, Chicago, Illinois 60606, telecopy number (312) 407-0411,
Attention: Gary P. Cullen, Esq.; and
(ii) if to the Company, initially at 1137 W. Jackson
Boulevard, Chicago, Illinois 60607, telecopy number (312) 243-5053,
Attention: Donna Snopek, with a copy to Winston & Strawn, 35 West Wacker
Drive, Chicago, Illinois 60601, telecopy number (312) 558-5700, Attention:
Joseph A. Walsh, Jr., Esq. and thereafter at such other address, notice of
which is given in accordance with the provisions of this Section 11(d).
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; five business days after
being deposited in the mail, postage prepaid, if mailed; one business day after
being timely delivered to a next-day air courier; and when receipt is
acknowledged by the addressee, if telecopied.
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<PAGE>
Copies of all such notices, demands or other communications shall
be concurrently delivered by the Person giving the same to the Trustee under
the Indenture at the address specified in such Indenture.
(e) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including, without limitation and without the need for an express
assignment, subsequent Holders.
(f) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(h) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE COMPANY AND EACH GUARANTOR HEREBY
IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE COURT SITTING IN
THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK OR ANY FEDERAL COURT SITTING IN
THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN RESPECT OF ANY SUIT, ACTION
OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND IRREVOCABLY
ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, JURISDICTION OF THE AFORESAID COURTS. EACH OF THE COMPANY AND
EACH GUARANTOR IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO
SO UNDER APPLICABLE LAW, TRIAL BY JURY AND ANY OBJECTION THAT IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING
BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING
BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH OF
THE COMPANY AND EACH GUARANTOR IRREVOCABLY CONSENTS, TO THE FULLEST EXTENT IT
MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, TO THE SERVICE OF PROCESS OF ANY OF
THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE
27
<PAGE>
MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID,
TO THE COMPANY AT ITS SAID ADDRESS, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS
AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY HOLDER TO
SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL
PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE COMPANY OR ANY GUARANTOR IN ANY
OTHER JURISDICTION.
(i) SEVERABILITY. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the
parties hereto shall use their best efforts to find and employ an alternative
means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that they would
have executed the remaining terms, provisions, covenants and restrictions
without including any of such that may be hereafter declared invalid,
illegal, void or unenforceable.
(j) ENTIRE AGREEMENT. This Agreement is intended by the parties
as a final expression of their agreement, and is intended to be a complete
and exclusive statement of the agreement and understanding of the parties
hereto in respect of the subject matter contained herein. There are no
restrictions, promises, warranties or undertakings, other than those set
forth or referred to herein, with respect to the registration rights granted
by the Company in respect of securities sold pursuant to the Purchase
Agreement. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
(k) ATTORNEYS' FEES. In any Proceeding brought to enforce any
provision of this Agreement, or where any provision hereof is validly
asserted as a defense, the prevailing party, as determined by the courts,
shall be entitled to recover reasonable attorneys' fees in addition to its
costs and expenses and any other available remedy.
(l) 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) (other than Holders deemed to be such affiliates solely by reason of
their holdings of such Registrable
28
<PAGE>
Securities) shall not be counted in determining whether such consent or
approval was given by the holders of such required percentage.
[signature page follows]
29
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
ARCHIBALD CANDY CORPORATION
By: /s/ Ted A. Shepherd
------------------------------------
Name: Ted A. Shepherd
----------------------------------
Title: President and Chief
Operating Officer
---------------------------------
ACCEPTED AND AGREED TO:
JEFFERIES & COMPANY, INC.
By: /s/ Andrew R. Whittaker
-------------------------------
Name: Andrew R. Whittaker
Title: Executive Vice President
FIRST CHICAGO CAPITAL MARKETS, INC.
By: /s/ Brad A. Bernstein
-------------------------------
Name: Brad A. Bernstein
Title: Managing Director
30
<PAGE>
PLEDGE AND SECURITY AGREEMENT
between
ARCHIBALD CANDY CORPORATION,
as Pledgor and Debtor
and
THE BANK OF NEW YORK,
as trustee for the ratable benefit of the Holders
under that certain Indenture, dated as of July 2, 1997,
as Pledgee and Secured Party
<PAGE>
PLEDGE AND SECURITY AGREEMENT
This PLEDGE AND SECURITY AGREEMENT (together with any amendments,
modifications, waivers and supplements hereafter entered into, the "AGREEMENT"),
dated as of July 2, 1997 between Archibald Candy Corporation, an Illinois
corporation (the "DEBTOR" or the "PLEDGOR"), and The Bank of New York, as
Trustee for the ratable benefit of the Holders (as hereinafter defined), under
the Indenture (as hereinafter defined) (the "TRUSTEE" or the "PLEDGEE").
W I T N E S S E T H:
WHEREAS, pursuant to the Indenture, the Pledgor shall issue and sell to
the Holders, $100,000,000 in aggregate principal amount of its 10 1/4% Senior
Secured Notes due 2004 (the "NOTES");
WHEREAS, the Pledgor is the legal and beneficial owner of the issued and
outstanding shares of capital stock of the companies (the "PLEDGED
SUBSIDIARIES"), if any, listed on SCHEDULE A hereto (as same may from time to
time be amended, modified, waived or supplemented, "SCHEDULE A") and the other
property interests and assets to be secured hereunder; and
WHEREAS, in order to secure the payment and performance in full of the
Obligations (as defined below), the parties hereto desire to set forth their
mutual understanding and certain agreements regarding the terms and conditions
of the pledge of and security interest in the Collateral (as defined below) made
by the Pledgor to the Pledgee;
NOW, THEREFORE, in consideration of the premises and other benefits to the
Pledgor, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
Section 1. PLEDGE. As collateral security for the payment and
performance in full of all obligations of the Pledgor now or hereafter existing
or arising under, or in connection with, the Indenture, the Notes, the
Intellectual Property Security Agreement (as hereinafter defined), and this
Agreement, as each may be amended, modified, waived or supplemented from time to
time (collectively, the "OBLIGATIONS"), the Pledgor hereby pledges, assigns,
transfers, sets over and delivers unto the Pledgee, for the ratable benefit of
the Holders, and hereby grants to the Pledgee, for the ratable benefit of the
Holders, a continuing security interest in all of the right, title and interest
of such Pledgor in, to and under any and all of
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the following described property, rights and interests, whether now owned or
hereafter acquired (collectively, the "COLLATERAL"):
(a) all of the issued and outstanding shares of capital stock of
the Pledged Subsidiaries owned by the Pledgor (the "PLEDGED SECURITIES") and
the certificate(s) representing such capital stock;
(b) all proceeds and products of the Pledged Securities and such
other additional property, including without limitation, dividends,
distributions, cash, instruments and other property or securities, now or
hereafter at any time or from time to time received or receivable or otherwise
distributed or distributable in respect of or in exchange for any or all of the
Pledged Securities and such other additional property;
(c) all Equipment, Fixtures, General Intangibles, and all
Insurance Policies, Contracts and Collateral Records to the extent relating to
any of the foregoing, in each case and from time to time located at either of
the addresses set forth on SCHEDULE B hereto.
TO HAVE AND TO HOLD the Collateral, together with all rights, titles, interests,
powers, privileges and preferences pertaining or incidental thereto, unto the
Pledgee, for the ratable benefit of the Holders, and their respective successors
and assigns, PROVIDED, however, that there is expressly excluded from the grant
of a security interest hereunder (i) all Receivables and (ii) all Inventory,
including all Inventory located at either such address, all Receivables
arising from the sale of such Inventory, and all Contracts, Accounts, Chattel
Paper, Collateral Records, Documents, General Intangibles, Instruments,
Receivables Records, Insurance Policies and money arising from or relating to
such Inventory or Receivables, or the sale thereof.
Section 2. DEFINED TERMS. As used herein, all capitalized terms
not otherwise defined shall have the meanings set forth in that certain
Indenture (as amended, modified, waived or supplemented from time to time, the
"INDENTURE"), dated as of July 2, 1997, between the Pledgor and the Pledgee.
The following terms shall have the following meanings:
"Account Debtor" shall mean the Person who is obligated on a
Receivable.
"Accounts" shall mean "accounts" as such term is defined in Section
9-106 of the UCC.
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"Agreement" has the meaning ascribed thereto in the introductory
paragraph hereof.
"Business Day" shall have the meaning set forth in the Indenture.
"Chattel Paper" shall mean "chattel paper" as such term is defined in
Section 9-105(b) of the UCC.
"Collateral" shall have the meaning assigned to it in Section 1
hereof.
"Collateral Records" shall mean books, records, computer software,
computer printouts, customer lists, blueprints, technical specifications,
manuals, and similar items which relate to any Collateral other than such
items obtained under license or franchise agreements which prohibit
assignment or disclosure of such items.
"Contracts" shall mean written contracts, agreements, leases and
arrangements in which the Debtor has an interest or to which Debtor is a
party as any of the same may from time to time be amended, supplemented or
otherwise modified.
"Default" shall have the meaning set forth in the Indenture.
"Documents" shall mean "documents" as such term is defined in Section
9-105(f) of the UCC.
"Equipment" shall mean "equipment" as such term is defined in Section
9-109(2) of the UCC, including, without limitation, machinery,
manufacturing equipment, data processing equipment, computers, office
equipment, furniture, appliances, tools, and other similar property.
"Event of Default" shall have the meaning set forth in the Indenture.
"Financing Documents" shall mean the Indenture, the Notes, the
Intellectual Property Security Agreement and this Agreement.
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"Fixtures" shall mean "fixtures" as such term is defined in Section
9-313 of the UCC.
"General Intangibles" shall mean "general intangibles" as such term is
defined in Section 9-106 of the UCC, including, without limitation, rights
to the payment of money (other than Accounts and Receivables), trademarks,
copyrights, patents, and contracts, licenses and franchises (except in the
case of licenses and franchises in respect of which the Assignor is the
licensee or franchisee if the agreement in respect of such license or
franchise prohibits by its terms any assignment or grant of a security
interest, limited and general partnership interests and joint venture
interests, federal income tax refunds (subject to the terms of the Tax
Sharing Agreement (as defined in the Indenture)), trade names, to the
extent classified as a "general intangible" under any applicable law),
distributions on certificated securities (as defined in Section
8-102(1)(a) of the UCC) and uncertificated securities (as defined in
Section 8-102(1)(b) of the UCC), computer programs and other computer
software, inventions, designs, trade secrets, goodwill, proprietary rights,
customer lists, supplier contracts, sale orders, correspondence,
advertising materials, payments due in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of any property,
reversionary interests in pension and profit-sharing plans and
reversionary, beneficial and residual interests in trusts, credits with and
other claims against any Person, together with any collateral for any of
the foregoing and the rights under any security agreement granting a
security interest in such collateral.
"Instruments" shall mean "instruments" as such term is defined in
Section 9-105(1)(i) of the UCC.
"Insurance Policies" shall mean any and all insurance policies from
time to time maintained by the Debtor (other than third-party liability
policies), to the extent covering the Collateral..
"Intellectual Property Security Agreement" shall mean that certain
Intellectual Property Security Agreement, dated as of the date hereof, between
the Debtor, as assignor, and the Trustee as assignee, for the ratable benefit of
the Holders, as same may from time to time be amended, modified, waived or
supplemented.
"Inventory" shall mean "inventory" as such term is defined in Section
9-109(4) of the UCC, including without limitation, all goods (whether such
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goods are in the possession of the Debtor or of a bailee or other Person
for sale, lease, storage, transit, processing, use or otherwise and whether
consisting of whole goods, spare parts, components, supplies, materials or
consigned or returned or repossessed goods), including without limitation,
all such goods which are held for sale or lease or are to be furnished (or
which have been furnished) under any contract of service or which are raw
materials, work in progress or finished goods..
"Lien" shall have the meaning set forth in the Indenture.
"Material Adverse Effect" shall mean a material adverse effect upon
(i) the business, operations, properties, assets, or condition (financial
or otherwise) of the Debtor (after giving effect to the transactions
contemplated by this Security Agreement and the other Financing Documents),
or (ii) the ability of the Debtor to perform (to the extent that it is
liable thereon) or of the Trustee to enforce, any of the Obligations.
"Permitted Liens" shall have the meaning given to it in the Indenture.
"Person" shall mean and include any individual, partnership, joint
venture, firm, corporation, association, trust or other enterprise or any
government or political subdivision or agency, department or instrumentality
thereof.
"Pledged Securities" shall have the meaning specified in Section 1(a).
"Pledged Subsidiaries" shall have the meaning specified in the second
Whereas clause.
"Possessory Collateral" shall mean, collectively, certificates
representing the Pledged Securities, and all such Instruments, Documents,
Chattel Paper and other tangible property of the Debtor which is subject to
the grant of the security interest therein contained perfection of which
may be obtained by the Pledgee's taking possession thereof.
"Proceeds" shall mean "proceeds" as such term is defined in Section
9-306(1) of the UCC.
"Receivables" shall mean all rights to payment for Inventory sold,
whether or not earned by performance and all rights in respect of the
Account Debtor, including without limitation, all such rights in which the
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Debtor has any right, title or interest by reason of the purchase thereof
by the Account Debtor, and including, without limitation, all such rights
constituting or evidenced by any Account, Chattel Paper, Instrument,
General Intangible, note, contract, invoice, purchase order, draft,
acceptance, book debt, intercompany account, security agreement, or other
evidence of indebtedness or security, and assigned, hypothecated or held
to secure any of the foregoing and the rights under any security agreement
granting a security interest in such Inventory or Receivables, and all
goods, the sale of which gave rise to any of the foregoing, including,
without limitation, all rights in any returned or repossessed goods and
unpaid seller's rights.
"Receivables Records" shall mean (a) all original copies of all
documents, instruments or other writings evidencing the Receivables, (b)
all books, correspondence, credit or other files, records, ledger sheets or
cards, invoices, and other papers relating to Receivables, including
without limitation all tapes, cards, computer tapes, computer discs,
computer runs, record keeping systems and other papers and documents
relating to the Receivables, whether in the possession or under the control
of the Debtor or any computer bureau or agent from time to time acting for
the Debtor or otherwise, (c) all evidences of the filing of financing
statements and the registration of other instruments in connection
therewith and amendments, supplements or other modifications thereto,
notices to other creditors or secured parties, and certificates,
acknowledgements, or other writings, including without limitation lien
search reports, from filing or other registration officers, (d) all credit
information, reports and memoranda relating thereto, and (e) all other
written or non-written forms of information related in any way to the
foregoing or any Receivable.
"UCC" shall mean the Uniform Commercial Code as in effect from time to
time in the State of New York, or Illinois, as applicable.
Section 3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
PLEDGOR. The Pledgor hereby represents and warrants (as of the date of
execution hereof as to the Collateral existing on such date and as of the date
of acquisition as to the Collateral acquired subsequently), covenants and agrees
that:
(a) The Pledgor is the legal and beneficial owner of the
Collateral, holds the Collateral free and clear of all Liens, except for the
Lien and security interest granted hereunder and Permitted Liens, and has not
made and will not make or permit any other pledge, assignment, mortgage,
hypothecation or
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transfer of the Collateral except for Permitted Liens. The Pledged Securities
are not subject to any put, call, option or other right in favor of any other
Person whatsoever.
(b) The Pledged Securities, if any, have (i) been duly
authorized and validly issued and are fully paid and non-assessable and
constitute such percentage of all of the issued and outstanding shares of
capital stock of the Pledged Subsidiaries as set forth on SCHEDULE A hereto.
(c) Upon the execution and delivery of this Agreement, the
delivery of the Possessory Collateral to the Pledgee, the filing of the
financing statements in the jurisdictions set forth in Schedule B hereto, and
the filing of the Intellectual Property Security Agreement with the U.S. Patent
and Trademark Office and the U.S. Copyright Office, to the extent required by
applicable law, the Pledgee, for the ratable benefit of the Holders, will have a
valid, perfected, first priority security interest until all of the Obligations
have been indefeasibly paid and performed in full in the Collateral, securing
the indefeasible payment and performance in full of the Obligations.
(d) The Pledgor has the requisite corporate authority to pledge
and grant a security interest in the Collateral pursuant to this Agreement and
will defend its title thereto against the claims of all persons whomsoever, and
shall maintain and preserve the Lien and security interest granted hereunder
with respect to the Collateral until all of the Obligations have been
indefeasibly paid and performed in full, as long as this Agreement remains in
full force and effect.
(e) Neither the execution, delivery or performance of this
Agreement, nor the transactions herein contemplated will (i) violate any
provision of the charter or bylaws of the Debtor or any of the Pledged
Subsidiaries, (ii) violate or cause a breach under the terms of any agreement,
indenture, mortgage, deed of trust, equipment lease, instrument or other
document to which the Pledgor or any Pledged Subsidiary is a party, (iii)
violate any law, order, rule or regulation or (iv) result in, or require the
creation or imposition of, any Lien (other than the Lien and security interest
contemplated hereby) upon or with respect to any of the property now owned or
hereafter acquired by the Debtor or any of its Pledged Subsidiaries, which
violations or conflicts would, singly or in the aggregate, have a Material
Adverse Effect.
(f) The Pledged Securities constitute the issued and outstanding
shares of capital stock of the Pledged Subsidiaries owned by the Debtor
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and there are no outstanding options, warrants or other rights to subscribe for
or purchase any property described in Section 1(a) or any notes, bonds,
debentures or other evidences of indebtedness that (i) are at any time
convertible into capital stock of any of the Pledged Subsidiaries or (ii) have,
or at any time could by their terms have, voting rights with respect to any
matters affecting the Debtor or any of the Pledged Subsidiaries.
(g) No consent or approval which has not been obtained prior to
the date hereof of any Person and no authorization, approval or other action
(other than delivery of the Possessory Collateral to the Trustee, the filing of
UCC-1 financing statements in the jurisdictions listed on SCHEDULE B hereto and
the filing of the Intellectual Property Security Agreement with the U.S. Patent
and Trademark Office, and the U.S. Copyright Office, to the extent required by
applicable law) by, and no notice to or filing with any Person was or is
necessary as a condition to the validity of the pledge and security interest
granted hereby, and such pledge and security interest is effective to vest in
the Pledgee the rights of the Pledgee in the Collateral as set forth herein.
(h) The Pledgor shall deliver to the Pledgee concurrently with
the execution of this Agreement or, to the extent acquired subsequent to the
date of execution hereof, immediately upon such Pledgor's acquisition thereof:
all certificates and instruments representing the Pledged Securities and each
other item of Possessory Collateral. Any and all Pledged Securities delivered
to the Pledgee shall be accompanied by undated, duly executed stock powers in
blank and by such other instruments of transfer or documents as the Pledgee may
request. The Pledgee shall hold the certificates representing the Pledged
Securities delivered to it in custody.
(i) The Pledgee shall at all times have full and free access
during normal business hours to all of the books, correspondence and records of
the Pledgor relating to the Collateral and the Pledgee and its representatives
may examine the same, make abstracts therefrom and make photocopies thereof, and
each Pledgor agrees to render to the Pledgee and its representatives, at such
Pledgor's cost and expense, such clerical and other assistance as may be
reasonably requested by any of them with regard thereto.
(j) The Debtor shall not permit the Pledged Subsidiaries to
issue any securities other than the Pledged Securities.
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(k) If, while this Agreement is in effect, any stock dividend,
stock split, reclassification, readjustment, reorganization, merger,
consolidation, exchange offer, tender offer or other change in the capital
structure, including the creation of any subscription or other rights relating
to the Pledged Securities, is declared or made by the Pledged Subsidiaries, all
substituted and additional securities or interests issued with respect to the
Collateral and evidenced by certificates shall be endorsed in blank by the
Pledgor promptly upon receipt thereof or otherwise appropriately transferred to
the Pledgee in negotiable form, and all certificates or instruments evidencing
such securities shall be delivered to the Pledgee to be held under the terms of
this Agreement in the same manner as, and as a part of, the Collateral. All
Pledged Securities shall be evidenced by one or more certificates. Any
securities that may be issued upon exercise of any subscription or other rights
relating to the Pledged Securities shall be endorsed in blank and delivered to
the Pledgee with any necessary stock or other powers.
(l) The Pledgor shall pay and discharge all taxes, assessments
and governmental charges or levies against any Collateral prior to delinquency
thereof and shall keep all Collateral free of all unpaid charges whatsoever.
(m) The Pledgor shall promptly notify the Pledgee (i) of any
material adverse changes in any fact or circumstance represented or warranted by
such Pledgor with respect to any portion of the Collateral (other than a de
minimis portion of the Collateral), (ii) of any actual or imminent material
impairment of any portion of the Collateral (other than a de minimis portion of
the Collateral) and (iii) of any claim, action or proceeding materially
adversely affecting title to all or any portion of the Collateral (other than a
de minimis portion of the Collateral).
(n) The chief executive office and principal place of business
of the Debtor is located at 1137 West Jackson Boulevard, Chicago, Illinois
60607. The Debtor shall not change its name or the name under which it does
business or relocate its principal place of business or chief executive office
unless the Debtor gives 30 days' prior written notice to the Pledgee, which
notice shall specify such new name and/or address.
(o) The Debtor shall pledge to the Trustee, for the ratable
benefit of the Holders, all of the capital stock of each company that becomes a
Subsidiary (as defined in the Indenture) after the date hereof, and in
furtherance thereof, will execute and deliver an amendment to this Agreement, or
a new pledge and security agreement, in substantially the form of this
agreement,with such changes therein as the Trustee shall request, and such other
documents, instruments,
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agreements, certificates and financing statements as may be necessary or
desirable in the discretion of the Trustee.
Section 4. RELEASE OF COLLATERAL. The Collateral shall not be
released from the Lien and security interest created hereunder and no property
shall be substituted for any of the Collateral except in accordance with the
provisions of the Indenture or Section 17 hereof. None of the tangible
Collateral shall be moved from the respective locations set forth in Schedule B
hereto where such Collateral is located on the date hereof if such move could
affect the attachment, validity or perfection of the Pledgee's security interest
therein, unless the Pledgor shall have given the Pledgee at least 30 days' prior
notice in writing, and Pledgor shall have taken all actions required or
reasonably requested by the Pledgee to preserve or protect its security interest
therein. The Pledgee shall return the physical certificates and related stock
powers and other Possessory Collateral in its possession only when expressly
required by this Agreement or the Indenture.
Section 5. VOTING RIGHTS, DIVIDENDS, ETC.
(a) Unless and until an Event of Default shall have occurred and
be continuing:
(i) The Pledgor shall be entitled to exercise any and all voting
or consensual rights and powers, including subscription rights, accruing to
an owner of the Collateral or any part thereof for any purpose not
inconsistent with the terms of this Agreement or any of the other Financing
Documents; and
(ii) except as otherwise provided in this Agreement, the Pledgor
shall be entitled to retain and use any and all dividends, distributions or
other payments paid on or with respect to the Pledged Securities that are
permitted by the Indenture (other than securities, which shall constitute
additional Collateral subject to this Agreement).
(b) Upon the occurrence and during the continuance of an Event
of Default, all rights of the Pledgor to exercise the voting or consensual
rights and powers which the Pledgor would otherwise be entitled to exercise
pursuant to Section 5(a)(i) shall automatically cease, and all such rights shall
thereupon become vested in the Pledgee, and the Pledgee for the ratable benefit
of the Holders, shall then have the sole and exclusive right and authority to
exercise, in its sole discretion, all such voting and consensual rights and
powers.
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(c) Unless and until an Event of Default shall have occurred and
be continuing, the Pledgor shall have the right and authority to receive and
retain as Collateral all dividends, distributions and other payments paid on or
with respect to the Pledged Securities. Upon the occurrence and during the
continuance of an Event of Default, the Pledgee shall have the sole and
exclusive right and authority to receive and retain as Collateral all dividends,
distributions and other payments paid on or with respect to the Pledged
Securities. Any and all money and other property paid over to or received by
the Pledgee pursuant to this Section 5(c) shall be retained by the Pledgee as
additional Collateral hereunder and shall be administered and applied in
accordance with the provisions of this Agreement. All dividends and interest
payments that are received by the Pledgor contrary to the provisions of this
Section 5(c) shall be received in trust for the benefit of the Pledgee, shall be
segregated from other funds of the Pledgor, and shall be forthwith paid over to
the Pledgee as Collateral in the same form as so received (with any necessary
endorsement).
Section 6. DEFAULT; REMEDIES.
(a) EXERCISE OF REMEDIES UNDER THE AGREEMENT. If an Event of
Default shall have occurred and be continuing, the Pledgee may, and within 3
Business Days of instructions from the Holders of a majority in principal amount
of the Notes outstanding, shall, commence the taking of such actions (or refrain
from taking actions) toward collection or enforcement of this Agreement and the
Collateral (or any portion thereof), including without limitation action toward
foreclosure upon any Collateral. If any Event of Default that was the basis for
the commencement of such action shall have been cured or waived, and, in the
case where there has been an acceleration, rescission of such acceleration shall
have occurred, any direction to the Pledgee to take any action shall be deemed
rescinded upon notification by the Holders of a majority in outstanding
principal amount of the Notes with respect to such Event of Default.
(b) REMEDIES GENERALLY. If an Event of Default shall have
occurred and be continuing, then the Pledgee may:
(i) exercise any or all of its rights and remedies hereunder and
under any other instrument or agreement securing, evidencing or relating to
the Obligations or under applicable laws (including all of the rights and
remedies of a secured creditor under the UCC);
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(ii) retain possession of the Collateral; or
(iii) sell, assign, transfer, or dispose of, in whole or in
part, the Collateral at public or private sale or sales, at any exchange,
brokers board or any of Pledgee's offices or elsewhere, for cash, credit or
other property, for immediate or future delivery, and, to the extent
permitted by applicable law, for such price or prices and on such other
terms as the Pledgee may deem commercially reasonable. Upon consummation
of any such sale, the Pledgee shall have the right to assign, transfer,
endorse and deliver to the purchaser or purchasers thereof the Collateral
so sold. Each such purchaser at any such sale shall hold such property
sold free from any claim or right on the part of the Pledgor, and the
Pledgor hereby waives (to the fullest extent permitted by law) all rights
of redemption, stay or appraisal that such Pledgor now has or may at any
time in the future have under any rule of law or statute now existing or
hereafter enacted. The Pledgee shall give the Pledgor five (5) Business
Days' written notice (which the Pledgor agrees shall be deemed to be
reasonable notification within the meaning of the applicable provisions of
the UCC) of the Pledgee's intention to make any such public or private
sale. Any such sale shall be held at such time or times and at such place
or places as the Pledgee may fix. At any such sale, the Collateral or any
portion thereof, to be sold, may be sold as an entirety or in separate
portions, as the Pledgee may, in its sole discretion, determine. The
Pledgee shall not be obligated to make any sale of the Collateral if it
shall determine not to do so, regardless of the fact that notice of such
sale may have been given. The Pledgee may, without notice or publication,
adjourn any public or private sale or cause the same to be adjourned from
time to time by announcement at the time and place fixed for sale, and such
sale may, without further notice, be made at the time and place to which
the same was so adjourned. In case the sale of all or any part of the
Collateral is made on credit for future delivery, the Collateral so sold
may be retained by the Pledgee until the sale price is paid by the
purchaser or purchasers thereof, but the Pledgee shall not incur any
liability in case any such purchaser or purchasers shall fail to take up
and pay for the Collateral so sold and, in case of any such failure, such
Collateral may be sold again upon like notice. As an alternative to
exercising the power of sale herein conferred upon it, the Pledgee may
proceed by suit or suits at law or in equity to exercise its
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remedies regarding the Collateral and sell the Collateral or any portion
thereof pursuant to judgment or decree of a court or courts having
competent jurisdiction. If the Pledgee shall be required by law to dispose
of the Collateral within a period of time that does not permit the giving
of notice to the Pledgor as herein provided, the Pledgee need give the
Pledgor only such notice of disposition as shall be reasonably practicable
in view of such law.
(c) REMEDIES; OBTAINING THE COLLATERAL UPON DEFAULT. The
Pledgor agrees that if any Event of Default shall have occurred and be
continuing, then, in every such case and in addition to the rights and remedies
available to a secured party under any applicable provision of the UCC or any
other applicable law, the Pledgee may:
(i) personally, or by agents or attorneys, immediately take
possession of the Collateral or any part thereof from the Pledgor or, to
the extent permitted by applicable law, any other Person who then has
possession of any part thereof, with or without notice or process of law,
and for that purpose may, to the extent permitted by law, enter upon
Pledgor's premises where any of the Collateral is located and remove the
same and use in connection with such removal any and all services,
supplies, aids and other facilities of Pledgor;
(ii) instruct the obligor or obligors on any agreement,
instrument or other obligation constituting Collateral to make any payment
or render any performance required by the terms of such agreement,
instrument or obligation directly to the Pledgee or its designees; and
(iii) take possession of the Collateral or any part thereof by
directing the Pledgor to deliver the same to the Pledgee at any place or
places designated by the Pledgee which is reasonably convenient to the
parties, in which event the Pledgor shall, at its own expense, forthwith
cause the same to be so delivered, it being understood that the Pledgor's
obligation so to deliver the Collateral is of the essence of this Agreement
and that, accordingly, upon application to a court of equity having
jurisdiction, the Pledgee shall be entitled to a decree requiring specific
performance by the Pledgor of such obligation.
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(d) PREVENTING IMPAIRMENT OF THE COLLATERAL. Regardless of
whether or not there shall have occurred any Default or Event of Default, the
Pledgee may institute and maintain, or cause in the name of the Pledgor or the
Pledgee to be instituted and maintained, such suits and proceedings as the
Pledgee may be advised by counsel shall be necessary or expedient to prevent any
impairment of the Lien or security interest in, or perfection of, the Collateral
in contravention of the terms of this Agreement. The Pledgor agrees not to
knowingly take or permit to be taken any action that would impair the Collateral
or any of Pledgee's rights in the Collateral.
Section 7. PLEDGEE APPOINTED ATTORNEY-IN-FACT. The Pledgor hereby
constitutes and appoints Pledgee its attorney-in-fact for the purpose of
carrying out the provisions of this Agreement and taking any action and
executing any instrument, including without limitation any financing statement
or continuation statement, that the Pledgee deems necessary or advisable to
maintain the validity, perfection, priority and enforcement of the Lien and
security interest intended to be created hereunder or to accomplish the other
purposes hereof, which appointment is irrevocable and coupled with an interest;
PROVIDED, that nothing herein contained shall be construed as requiring or
obligating the Pledgee to take any such action with respect to the Collateral or
any part thereof or any property covered thereby, and no action taken or omitted
shall give rise to any defense, counterclaim or right of action against the
Pledgee unless Pledgee's actions are taken or omitted to be taken with gross
negligence or bad faith or constitute willful misconduct.
Section 8. PURCHASE OF COLLATERAL BY PLEDGEE. At any public sale
of the Collateral, whether pursuant to power of sale or otherwise hereunder, the
Pledgee or any Holder may, to the extent permitted by applicable law, bid for
and purchase, free from any right of redemption, stay or appraisal (all such
rights being hereby waived and released by the Pledgor to the extent permitted
by law), the Collateral or any part thereof or an interest therein and, upon
compliance with the terms of such sale, may hold, retain, exploit, resell or
otherwise dispose of such property without further accountability to the Pledgor
for the proceeds of such sale (except in the event that there is a surplus of
such proceeds in excess of the Obligations, in which case, the Pledgee shall
account to the Pledgor for such surplus). The Pledgor will execute and deliver
or cause to be executed and delivered such instruments, endorsements,
assignments, waivers, certificates and other documents and take such further
action as the Pledgee shall request in connection with any such sale.
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Section 9. DISPOSITION OF PROCEEDS. The proceeds of any sale of
the whole or any part of the Collateral, together with any other monies held by
the Pledgee under the provisions of this Agreement, shall be applied by the
Pledgee in accordance with the terms of Section 6.10 of the Indenture.
Section 10. WAIVER OF CLAIMS. Except as otherwise provided
in this Agreement, THE PLEDGOR HEREBY WAIVES, TO THE EXTENT PERMITTED BY
APPLICABLE LAW, NOTICE OF JUDICIAL HEARING IN CONNECTION WITH THE PLEDGEE'S
TAKING POSSESSION OF, OR THE PLEDGEE'S DISPOSITION OF, ANY OF THE
COLLATERAL, INCLUDING, WITHOUT LIMITATION, ANY AND ALL PRIOR NOTICES AND
HEARINGS FOR ANY PREJUDGMENT REMEDY OR REMEDIES AND ANY SUCH RIGHT THAT
PLEDGOR WOULD OTHERWISE HAVE UNDER THE CONSTITUTION OR ANY STATUTE OF THE
UNITED STATES OR OF ANY STATE, and, to the full extent permitted by
applicable law, the Pledgor hereby further waives:
(a) all damages occasioned by such taking of possession or
disposition except any damages which are the direct result of the Pledgee's
gross negligence or willful misconduct as finally determined by a court of
competent jurisdiction; and
(b) all rights of redemption, appraisement, valuation, stay,
marshalling of assets, extension or moratorium, now or hereafter existing at law
or in equity, respecting the enforcement of this Agreement or the sale or other
disposition of the Collateral or any portion thereof.
Any sale of, or the exercise of any option to purchase, or any other
realization upon, any Collateral shall operate to divest all right, title,
interest, claim and demand, at law or in equity, of the Pledgor therein and
thereto, and shall be a perpetual bar both at law and in equity against the
Pledgor and against any and all persons claiming or attempting to claim the
Collateral so sold, optioned or realized upon, or any part thereof, through and
under the Pledgor. The Pledgor shall remain liable for any deficiency if the
proceeds of any sale or other disposition of the Collateral are insufficient to
satisfy the Obligations in full.
Section 11. REMEDIES CUMULATIVE; NO WAIVER. Each right, power and
remedy of the Pledgee provided for herein, in any other agreement pursuant to
which a Lien is created in favor of the Pledgee or now or hereafter existing at
law or in equity shall be cumulative and concurrent and shall be in addition to
every
15
<PAGE>
other such right, power or remedy of the Pledgee. No failure on the part of the
Pledgee to exercise, and no delay in exercising, any such right, power or remedy
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy. No notice to or demand on
the Pledgor hereunder shall, of itself, entitle the Pledgor to any other or
further notice or demand in the same, similar or other circumstances.
Section 12. FURTHER ASSURANCES. The Pledgor agrees that it shall,
at its own expense, (a) promptly file or record such notices, financing
statements, continuation statements or other documents and take all further
action as the Pledgee may reasonably request to perfect, maintain and protect
the perfection of the security interests of the Pledgee hereunder or to enable
the Pledgee to exercise and enforce their respective rights and remedies
hereunder with respect to the Collateral, such instruments to be in form and
substance reasonably satisfactory to the Pledgee and (b) perform such further
acts and things and execute and deliver to the Pledgee such additional
conveyances, assignments, endorsements, agreements and instruments as the
Pledgee may at any time reasonably request in connection with the administration
and enforcement of this Agreement or relative to the Collateral or any part
thereof or in order to assure and confirm unto the Pledgee its rights, powers
and remedies hereunder.
Section 13. INDEMNIFICATION AND EXPENSES.
(a) The Pledgor agrees to indemnify the Pledgee and each Holder
from and against any and all claims, losses and liabilities growing out of or
resulting from an Event of Default (including, without limitation, enforcement
of this Agreement), except claims, losses or liabilities resulting from
Pledgee's or any such Holder's gross negligence, or willful misconduct, as
determined by a final judgment of a court of competent jurisdiction.
(b) The Pledgor will pay upon demand to the Pledgee the amount
of any and all reasonable out-of-pocket expenses, including the reasonable fees
and charges of its counsel and of any experts and agents, that the Pledgee may
incur in connection with (i) the negotiation, execution and enforcement of this
Agreement, (ii) the custody, preservation, use or operation of, or the sale of,
collection from or other realization upon, any of the Collateral, or (iii) the
exercise or enforcement of any of the rights of the Pledgee hereunder.
Section 14. REGISTRATION RIGHTS, ETC.
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<PAGE>
(a) If, upon or at any time after the occurrence of an Event of
Default, the Pledgee reasonably determines that the registration of any of the
Pledged Securities, or other compliance with, the Securities Act or any similar
Federal or state law is required with respect to the Pledged Securities, the
Pledgor will use its best efforts to cause such registration or compliance to be
effectively made, at no expense to the Pledgee, and to continue any such
registration effective for such time as may be reasonably necessary in the
opinion of the Pledgee. Pledgor will reimburse the Pledgee upon demand for any
expenses incurred by the Pledgee (including reasonable attorneys' fees) incurred
in connection therewith, which obligation to pay such expenses shall be secured
hereunder.
(b) If Pledgor is unable to effect a public sale of any or all
of the Pledged Securities or if the Pledgee determines that it is desirable to
sell the Pledged Securities in one or more private sales, the Pledgee may limit
such sales to a restricted group of purchasers who will be obliged to agree,
among other things, to acquire such securities for their own account for
investment and not with a view to distribution or resale. Pledgor acknowledges
and agrees that any such private sale may result in prices and other terms less
favorable to the seller than if such sale were a public sale and,
notwithstanding such circumstances, agrees that any such private sale shall be
deemed to have been made in a commercially reasonable manner. The Pledgee shall
be under no obligation to delay a sale of any of the Pledged Securities for the
period of time necessary to permit the issuer of such securities to register
such securities for public sale under the Securities Act or under applicable
state securities laws, even if such issuer would agree to do so.
(c) Pledgor further agrees to do, or use all reasonable efforts
to cause to be done, all other acts as may be necessary to make such sale or
sales of all or any part of the Collateral valid and binding and comply with any
and all applicable laws, rules and regulations and orders and decrees of any and
all courts having jurisdiction over such sales, all at such Pledgor's expense.
Pledgor further agrees that a breach of any of the covenants contained in this
Agreement will cause irreparable injury to the Pledgee, as secured parties, for
which the Pledgee would have no adequate remedy at law in respect of such breach
and, as a consequence, agrees that each and every covenant contained in this
Section 14 shall be specifically enforceable against Pledgor and, to the fullest
extent permitted by applicable law, Pledgor waives and agrees not to assert as a
defense against an action for specific performance of such covenants that (i)
Pledgor's failure to perform such covenants will not cause irreparable injury to
the Pledgee (ii) the Pledgee have an adequate remedy at law in respect of such
breach.
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Section 15. PLEDGOR'S OBLIGATIONS ABSOLUTE. The liability of
Pledgor under this Agreement shall remain in full force and effect without
regard to, and, unless otherwise expressly provided in any other Financing
Document, shall not be released, suspended, discharged, terminated or otherwise
affected by: (a) any change in the time, place or manner of payment of all or
any of the Obligations, or in any other term of any of the Financing Documents,
waiver, indulgence, renewal, extension, amendment or modification of or
addition, consent or supplement to or deletion from or any other action or
inaction under or in respect of the Financing Documents or any assignment or
transfer thereof; (b) any lack of validity or enforceability, in whole or in
part, of any of the Financing Documents; (c) any furnishing of any additional
security for the Obligations or any acceptance thereof or any release or
non-perfection of any security interest in property; (d) any limitation on any
party's liability or obligations under any of the Financing Documents; (e) any
bankruptcy, insolvency, reorganization, composition, adjustment, dissolution,
liquidation or other like proceeding relating to the Pledgor, any Pledged
Subsidiary or any other Person, or any action taken with respect to this
Agreement by any trustee or receiver, or by any court, in any such proceeding,
whether or not the Pledgor shall have notice or knowledge of any of the
foregoing; or (f) any exchange, release, amendment or waiver of, or consent to
departure from any other agreement pursuant to which a Lien is created in favor
of the Pledgee.
Section 16. WAIVER. To the extent permitted by applicable law, and
except as otherwise expressly provided for herein, Pledgor hereby waives
promptness, diligence, notice of acceptance and any other notice with respect to
the Obligations and any requirement that the Pledgee protect, secure, perfect or
insure any security interest or any property subject thereto or exhaust any
right or take any action against the Pledgor or any other Person; PROVIDED,
HOWEVER, that the Pledgee shall in any event take such care in the handling of
any Possessory Collateral in its possession as it takes with respect to its own
property of a similar nature in its possession.
Section 17. TERMINATION. Upon indefeasible payment and performance
in full and satisfaction of all of the Obligations, this Agreement shall
terminate and the Pledgee shall assign and redeliver to the Pledgor all of the
Collateral hereunder that has not been sold, disposed of, retained or applied by
the Pledgee in accordance with the terms hereof. Such reassignment and
redelivery shall be without warranty by or recourse to the Pledgee, and shall be
at the expense of the Pledgor. At such time, this Agreement shall no longer
constitute a Lien upon or a grant of any security interest in any of the
Collateral, and the Pledgee shall, at the Pledgor's expense deliver to the
Pledgor written acknowledgment thereof and of
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<PAGE>
cancellation of this Agreement in a form reasonably requested by the Pledgor;
PROVIDED, HOWEVER, that this Agreement shall continue to be effective or be
reinstated, as the case may be, if at any time any payment of any of the
Obligations is rescinded or must otherwise be returned upon the insolvency,
bankruptcy or reorganization of the Pledgor or the Pledged Subsidiaries or any
other Person, all as though such payment had not been made.
Section 18. NOTICES. Any notices or other communications required
or permitted hereunder shall be made as provided in Section 11.2 of the
Indenture.
Section 19. BINDING AGREEMENT; ASSIGNMENT. This Agreement shall be
binding upon and inure to the benefit of the Pledgee, the Pledgor and their
respective successors and permitted assigns. Neither this Agreement nor any
interest herein or in the Collateral, or any part thereof, may be assigned by
Pledgor without the prior written consent of the Pledgee, except as expressly
permitted herein. The Pledgee shall have the right to assign this Agreement
only in accordance with the provisions of the Indenture, and any such permitted
assignee shall have all rights and powers and obligations of the Pledgee
hereunder.
Section 20. GOVERNING LAW. This Agreement shall be construed in
accordance with, and be governed by, the laws of the State of New York.
Section 21. AMENDMENTS. This Agreement may not be amended or
modified except in writing signed by the Pledgor and Pledgee.
Section 22. SEVERABILITY. In the event that any provision
contained in this Agreement shall for any reason be held to be illegal or
invalid under the laws of any jurisdiction, such illegality or invalidity shall
in no way impair the effectiveness of any other provision hereof, or of such
provision under the laws of any other jurisdiction; PROVIDED, that in the
construction and enforcement of such provision under the laws of the
jurisdiction in which such holding of illegality or invalidity exists, and to
the extent only of such illegality or invalidity, this Agreement shall be
construed and enforced as though such illegal or invalid provision had not been
contained herein.
Section 23. HEADINGS. Section headings used herein are inserted
for convenience only and shall not in any way affect the meaning or construction
of any provision of this Agreement.
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Section 24. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which when so executed and delivered shall be an
original, and all of which shall together constitute but one and the same
instrument. A complete set of counterparts shall be lodged with Pledgor and
Pledgee.
Section 25. COOPERATION OF PLEDGED SUBSIDIARIES. The Pledgor shall
cause the Pledged Subsidiaries to take all actions necessary to facilitate the
Pledgor's compliance with the terms hereof.
Section 26. ACTIONS BY PLEDGEE. Whenever any provision of this
Agreement requires action, or waiver by or the consent of, the Pledgee, the
Trustee shall only be required to take or refrain from taking such action or
grant or withhold any waiver or consent when 25% in outstanding principal
amount of the Notes shall have instructed the Trustee in writing. References to
actions which may be taken by the Pledgee in its discretion or sole discretion
shall likewise be required when 25% in outstanding principal amount of the Notes
shall have instructed the Trustee in writing.
[signature pages follow]
20
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Pledge
and Security Agreement to be duly executed and delivered as of the date first
above written.
ARCHIBALD CANDY CORPORATION,
as debtor and pledgor
By: /s/ Ted A Shepherd
-----------------------------------------
Name: Ted A. Sheperd
---------------------------------------
Title: President and Chief Operating Officer
--------------------------------------
THE BANK OF NEW YORK, for
the ratable benefit of the Holders,
as secured party and pledgee
By: /s/ Denise Leonard
-----------------------------------------
Name: Denise Leonard
---------------------------------------
Title: Assistant Treasurer
--------------------------------------
<PAGE>
SCHEDULE A
PLEDGED SECURITIES OWNED BY ARCHIBALD CANDY CORPORATION
Percentage
Stock Number of
Stock Class of Certificate Par of Outstanding
Issuer Stock Number Value Shares Shares
-------- --------- ----------- ----- ------- -----------
NONE
====================================================================
<PAGE>
SCHEDULE B
Archibald Candy Corporation
1137 West Jackson Boulevard
Chicago, IL 60607
Archibald Candy Corporation
1123 West Jackson Boulevard
Chicago, IL 60607
Archibald Candy Corporation
1129 West Jackson Boulevard
Chicago, IL 60607
Archibald Candy Corporation
1128-1142 West Van Buren Boulevard
Chicago, IL 60607
Archibald Candy Corporation
1694 Winchester Road
Box 324
Bensalem, PA 19020
<PAGE>
INTELLECTUAL PROPERTY
SECURITY AGREEMENT
INTELLECTUAL PROPERTY SECURITY AGREEMENT dated as of July 2, 1997,
between ARCHIBALD CANDY CORPORATION, an Illinois corporation with offices at
1137 W. Jackson Boulevard, Chicago, Illinois 60607, as assignor and debtor
("Assignor"), and THE BANK OF NEW YORK, a New York banking corporation (the
"Trustee") with offices at 101 Barclay Street-21W, New York, NY, as trustee for
the ratable benefit of the Holders (as hereinafter defined) under that certain
Indenture (as hereinafter defined), as assignee and secured party ("Assignee").
W I T N E S S E T H:
WHEREAS, Assignor and Assignee have entered into an Indenture, dated
as of the date hereof (together with all supplements, modifications and
amendments thereto made from time to time in accordance with its terms, the
"Indenture");
WHEREAS, Assignor will issue and sell its 10 1/4% Senior Secured
Notes, due 2004 (as amended, modified or supplemented from time to time in
accordance with their terms, the "Notes") in accordance with the terms of the
Indenture;
WHEREAS, Assignor owns all right, title and interest in and to, among
other things, certain United States, state and foreign trademarks, service
marks, patents, copyrights, trade names, trade dress, trade secrets, know-how
and other proprietary information, and all registrations of and applications for
any of the foregoing, including, but not limited to, those set forth on Exhibit
1 hereto, which are used in the business of the Assignor, along with the
goodwill of the businesses symbolized thereby, any inventions disclosed therein
and the Licenses (as hereinafter defined) (all of the above, collectively, the
"Intellectual Property");
WHEREAS, in order to secure its Obligations (as defined in the
Indenture), Assignor has agreed to grant to Assignee, the ratable benefit of the
Holders (as such term is defined in the Indenture), a security interest in and
continuing lien upon the Intellectual Property and certain other assets relating
to
<PAGE>
or connected therewith, as further set forth herein, and Assignor has been
requested to enter into this Agreement to evidence such security interest;
NOW THEREFORE, KNOW ALL MEN BY THESE PRESENTS, that for valuable
consideration received and to be received, as security for the full payment and
performance of the Obligations, Assignor and Assignee hereby agree as follows:
1. GRANT OF SECURITY INTEREST. As collateral security for the due
and punctual payment and performance of the Obligations, Assignor hereby grants
to Assignee a security interest in and continuing lien on Assignor's right,
title and interest in, to and under the following property of Assignor:
(a) the Intellectual Property;
(b) all applications of and registrations for the Intellectual
Property in the United States, any state of the United States and
any foreign countries and localities;
(c) all United States, state and foreign trademarks, service marks,
patents, copyrights, trade names, trade dress, trade secrets,
know-how and other proprietary information, and all registrations
of, applications for and licenses relating to any of the
foregoing hereafter adopted or acquired and used by Assignor or
any Subsidiary in its business, including, but not limited to,
those which are based upon or derived from the Intellectual
Property or any variations thereof (the "Future Intellectual
Property");
(d) all extensions and renewals of all United States, state and
foreign trademarks, service marks, trade names and copyrights,
and any registrations thereof and applications therefor,
contained within the Intellectual Property and Future
Intellectual Property;
(e) all reissues, divisions, continuations, continuations-in-part,
extensions, renewals and re-examinations of any United States and
foreign patents, and any applications therefor, contained within
the Intellectual Property and Future Intellectual Property;
2
<PAGE>
(f) all rights to sue for past, present and future infringements of
the Intellectual Property and the Future Intellectual Property,
and all rights to sue under any licenses ("Licenses") relating to
trademarks, service marks, patents, copyrights, trade names,
trade dress, trade secrets, know-how and other proprietary
information used in the business of the Assignor (other than any
Licenses that, by their terms, are not assignable, and for which
consents cannot be obtained under Section 5 hereof);
(g) all of Assignor's logos and trade dress including, containing or
relating to the Intellectual Property, the Future Intellectual
Property, and the trademarks, service marks and trade names
covered by the Licenses, or a representation thereof, or any
variation thereof;
(h) all licenses and other agreements under which Assignor is
licensor or licensee (including without limitation, the Licenses
(other than any licenses or other agreements that, by their
terms, are not assignable, and for which consents cannot be
obtained under Section 5 hereof)), and all fees, rents,
royalties, proceeds or monies thereunder, relating to the
Intellectual Property, the Future Intellectual Property, or any
other intellectual property or related rights;
(i) all goodwill of Assignor's business connected with, symbolized by
or in any way related to any of the foregoing;
(j) all of Assignor's inventions disclosed in any of the foregoing;
(k) all of Assignor's books, records, computer software (to the
extent assignable, subject to Section 5 hereof), computer print-
outs, manuals and similar items which relate to any of the
foregoing; and
(l) all proceeds of any of the foregoing, including without
limitation, license royalties, income, payments, claims, damages,
insurance proceeds and proceeds of suit.
3
<PAGE>
All of the foregoing items set forth in clauses (a) through (l) are hereinafter
referred to collectively as the "Collateral".
2. DEFINED TERMS. As used herein, capitalized terms defined in the
Indenture and not otherwise defined herein are used herein as so defined. The
following terms shall have the meanings set forth below:
BANK LENDERS shall mean the lenders under the Bank Loan Documents.
BANK LOAN DOCUMENTS shall mean the Revolving Credit Facility.
EVENT OF DEFAULT shall have the meaning set forth in the Indenture.
FINANCING DOCUMENTS shall mean the Indenture, the Notes, the Security
Agreement, this Agreement, and the other documents and agreements referred to
herein or therein, or delivered in connection herewith or therewith, as same may
from time to time be amended, modified, waived or supplemented in accordance
with their respective terms.
FUTURE INTELLECTUAL PROPERTY shall have the meaning set forth in
Section 1(c) hereof.
INTELLECTUAL PROPERTY shall have the meaning set forth in the third
Whereas clause hereof.
LICENSES shall have the meaning set forth in Section 1(f) hereof.
SUBSIDIARY shall have the meaning set forth in the Indenture.
3. ASSIGNOR'S OBLIGATIONS. Assignor agrees that, notwithstanding
this Agreement, it will perform and discharge and remain liable for all its
covenants, duties, and obligations arising in connection with the Collateral.
Assignee shall have no obligation or liability in connection with the Collateral
by reason of this Agreement or any payment received by Assignee relating to the
Collateral and Assignee shall not be required to perform any covenant, duty or
obligation of Assignor arising in connection with the Collateral or any license
or agreement related thereto or to take any other action regarding the
Collateral, except and only to the extent that Assignee has acquired, for the
ratable benefit of
4
<PAGE>
the Holders, absolute ownership of the Collateral upon an exercise of
remedies under Section 6 hereof.
4. REPRESENTATIONS AND WARRANTIES. Assignor represents and warrants
to Assignee that: (a) Exhibit 1 hereto sets forth a complete and accurate list
of all of Assignor's United States and state registrations of and applications
for those trademarks, service marks, patents and copyrights material to the
conduct of Assignor's business, all Licenses material to the business of
Assignor, and all unregistered trademarks, service marks, trade names and
copyrights used by Assignor which are material to the business of Assignor; (b)
Assignor is the sole, exclusive, beneficial and record owner of all right, title
and interest in and to the Collateral material to the conduct of Assignor's
business, and no adverse claims have been made with respect to its title to or
the validity of such Collateral; (c) the Intellectual Property and the
trademarks, service marks, patents, copyrights, trade names, trade dress, trade
secrets, know-how and other proprietary information covered by the Licenses
constitute the only intellectual property, and registrations thereof and
applications therefor, in which Assignor has any right, title or interest; (d)
none of the Collateral is subject to any mortgage, pledge, lien, security
interest, lease, charge or encumbrance, other than as created hereby, (e) the
registrations of those trademarks, service marks, patents and copyrights
material to the conduct of Assignor's business are subsisting, and, to the best
of Assignor's knowledge, valid, and none of the Collateral has been adjudged
invalid or unenforceable, and Assignor has performed all acts and has paid all
renewal, maintenance and other fees and taxes required to maintain in full force
and effect each and every registration and application contained within the
Collateral to the extent material to the conduct of Assignor's business; (f) no
claims have been made that the use of any of the Collateral material to the
conduct of Assignor's business violates the asserted rights of any third party
and, to the best of Assignor's knowledge, the conduct of Assignor's business
does not infringe in any material respect upon any intellectual property rights
of any third party; (g) to the best of Assignor's knowledge, no third party is
infringing in any material respect upon any of the Collateral; (h) provided that
this Agreement is filed in and recorded by the United States Patent and
Trademark Office (the "PTO") within three (3) months of the date hereof and the
United States Copyright Office ("Copyright Office") within one (1) month of the
date hereof, and provided that UCC financing statements have been filed in the
jurisdictions listed on Exhibit 3 hereto, this Agreement will create a legal,
valid, perfected and continuing lien on and security interest in the Collateral
so filed and recorded in favor of Assignee, enforceable against Assignor and all
third parties, subject to no other mortgage, assignment, pledge, lien, charge,
encumbrance, or security or
5
<PAGE>
other interest except for a non-exclusive license granted to Bank Lenders in
connection with inventory sales after an event of default under the Bank Loan
Documents; and (i) none of Assignor's Subsidiaries owns any intellectual
property of any nature whatsoever, other than their respective trade names,
or conducts any business whatsoever.
5. COVENANTS. Assignor will maintain and renew all items of
Collateral, and any U.S. applications therefor and U.S. registrations thereof,
necessary or economically desirable for the conduct of its business and will
defend the Collateral against the claims of all persons. Assignor will,
promptly following the creation or acquisition of any copyrightable work which
is necessary or economically desirable for the conduct of its business, apply to
register the copyright in the Copyright Office. Assignor will maintain, and
will cause each licensee which uses any of the Collateral to maintain, the same
standards of quality for the goods and services in connection with which the
Collateral is used as Assignor maintained for such goods and services prior to
the date of this Agreement. Assignee shall have the right to enter upon
Assignor's premises at all reasonable times to monitor such quality standards.
Assignor shall promptly notify Assignee if it knows or has received written
notice that any of the Collateral material to the conduct of Assignor's business
may lapse, expire, become dedicated to the public, terminate, be abandoned, or
become subject to any adverse determination or development (including the
institution of proceedings) in any action or proceeding before the PTO, the
Copyright Office, any state registry, any foreign counterpart of the foregoing,
or any court. In the event that any material portion of the Collateral is
infringed or diluted by a third party, promptly after Assignor becomes aware of
such infringement or dilution, Assignor shall take all reasonable actions to
stop such infringement or dilution and protect its exclusive rights in such
Collateral. Without limiting the generality of the foregoing, Assignor shall
not permit the lapse, expiration, dedication to the public, termination or
abandonment of any Intellectual Property, Future Intellectual Property or
License material to the conduct of its business without the prior written
consent of Assignee. If, before the Obligations have been satisfied in full,
Assignor shall obtain rights to, become licensed to use, or become entitled to
the benefit of any new trademarks, service marks, patents, copyrights, trade
names, trade dress, trade secrets, know-how or other proprietary information (or
any applications therefor or registrations thereof) not identified on Exhibit 1
hereto, the provisions of this Agreement (including, without limitation, all
requirements for filings, recordings, registrations and the like) shall
automatically apply thereto, and same shall thereupon constitute part of the
Collateral. Assignor shall give Assignee prompt notice thereof in writing, and
shall take all actions
6
<PAGE>
necessary to create, perfect and preserve the Assignee's security interest
therein (to the extent capable of being created, perfected or preserved under
the laws of the United States or any state thereof) in connection therewith.
Except with the prior written consent of Assignee, or as permitted by the
Indenture, Assignor shall not sell, assign, transfer or dispose of (other
than in the ordinary course of Assignor's business), or create or allow to
exist any lien, claim or encumbrance upon or with respect to any of the
Collateral, except for the security interest and continuing lien created
hereunder and other Permitted Liens. If Assignor forms or acquires any
Subsidiary, or any Subsidiary existing as of the date hereof hereafter
engages in any business, then Assignor covenants and agrees that it shall
cause such Subsidiary to enter into a security agreement with Assignee, in
substantially the form of this Agreement, covering all such Subsidiary's
intellectual property and related rights. Assignor will use reasonable
commercial efforts to obtain any third-party consents required in connection
with the grant of a security interest in any Collateral.
6. REMEDIES UPON DEFAULT. Whenever any Event of Default shall occur
and be continuing, Assignee shall have all the rights and remedies granted to it
in such event by the Security Agreement and the other Financing Agreements,
which rights and remedies are specifically incorporated herein by reference and
made a part hereof, with the same force and effect as if set forth herein in
their entirety. Assignee in such event may collect directly any payments due to
Assignor in respect of the Collateral and, subject to any limitations imposed
under any license agreements constituting part of the Collateral, may sell,
license, lease, assign, or otherwise dispose of the Collateral in any manner set
forth in the Security Agreement. Assignor agrees that, in the event of any
disposition of the Collateral upon any such Event of Default, it will duly
execute, acknowledge, and deliver all documents necessary or advisable to record
title to the Collateral in any transferee or transferees thereof, including,
without limitation, valid, recordable assignments of the Intellectual Property,
the Future Intellectual Property, and the Licenses. Assignor hereby irrevocably
appoints Assignee as its attorney-in-fact, with power of substitution, to
execute, deliver, and record any such documents on Assignor's behalf.
Notwithstanding any provision hereof to the contrary, during the continuance of
an Event of Default, the Bank Lenders may have, under the Bank Loan Documents, a
non-exclusive license to sell inventory bearing any trademarks, service marks,
trade names and trade dress included within the Intellectual Property or the
Future Intellectual Property, or covered by the Licenses.
7
<PAGE>
7. POWER OF ATTORNEY. Concurrently with the execution and delivery
hereof, Assignor shall execute and delivery to the Assignee, in the form of
Exhibit 2 hereto, five (5) originals of a Special Power of Attorney for the
implementation of the assignment, sale, license, lease or other disposition of
the Intellectual Property, Future Intellectual Property, and Licenses pursuant
to Section 6. Assignor hereby fully and unconditionally releases Assignee from
any and all future claims, causes of action and demands at any time arising out
of or with respect to any actions taken or omitted to be taken by Assignee in
accordance with Section 6 under the powers of attorney granted therein, other
than actions taken or omitted to be taken through the bad faith, willful
misconduct or gross negligence of Assignee.
8. CUMULATIVE REMEDIES. The rights and remedies provided herein are
cumulative and not exclusive of any other rights or remedies provided by law.
The security interest granted hereby is granted in conjunction with the security
interest granted to Assignee under the Security Agreement. The rights and
remedies of Assignee with respect to the security interest granted hereby are in
addition to those set forth in the Security Agreement and those which are now or
hereafter available to Assignee as a matter of law or equity. The exercise by
Assignee of any one or more of the rights, powers or remedies provided for in
this Agreement or the Security Agreement, or now or hereafter existing at law or
in equity shall not preclude the simultaneous or later exercise by any person,
including Assignee, of any or all other rights, powers or remedies. The rights
and remedies provided herein are intended to be in addition to and not in
substitution of the rights and remedies provided by the Security Agreement.
9. AMENDMENTS AND WAIVERS. This Agreement may not be modified,
supplemented, or amended, or any of its provisions waived without the prior
written consent of Assignee and Assignor. Assignor hereby authorizes Assignee
to modify this Agreement by amending Exhibit 1 hereto to include any Future
Intellectual Property or additional licenses in which Assignor acquires rights.
10. ACTIONS BY TRUSTEE. Whenever any provision of this Agreement
requires action or waiver, by, or the consent of, the Assignee, Assignee shall
only be required to take or refrain from taking such action or grant or withhold
any waiver or consent when 25% in outstanding principal amount of the Notes
shall have instructed the Trustee in writing.
8
<PAGE>
11. WAIVER OF RIGHTS. No course of dealing between the parties to
this Agreement or any failure or delay on the part of any such party in
exercising any rights or remedies hereunder shall operate as a waiver of any
rights and remedies of such party or any other party, and no single or partial
exercise of any rights or remedies by one party hereunder shall operate as a
waiver or preclude the exercise of any other rights and remedies of such party
or any other party. No waiver by Assignee of any breach or default by Assignor
shall be deemed a waiver of any other previous breach or default or of any
breach or default occurring thereafter.
12. ASSIGNMENT. The provisions of this Agreement shall be binding
upon and inure to the benefit of the respective successors and assigns of the
parties hereto; PROVIDED, HOWEVER, that no right, obligation, duty or interest
herein or in or to the Collateral may be assigned, transferred or disposed of by
Assignor without the prior written consent of Assignee, except as permitted by
Section 5 hereof.
13. FURTHER ACTS. Assignor shall have the duty to prosecute
diligently any application for the Intellectual Property and Future Intellectual
Property material to the conduct of its or any Subsidiary's business pending as
of the date of this Agreement or thereafter, until the Obligations shall have
been paid in full, and to make applications on material unregistered but
registrable trademarks, service marks, copyrights and patents material to the
conduct of its or any Subsidiary's business in any location in the United States
where Assignor or such Subsidiary does business using such Intellectual Property
and to preserve and maintain all rights in and to the Collateral material to the
conduct of its or any Subsidiary's business. Any expenses incurred in
connection with such applications shall be borne by Assignor.
14. ENFORCEMENT. While an Event of Default shall be continuing,
Assignee shall have the right, if Assignor has failed to do so after Assignee's
demand, but shall in no way be obligated to, bring suit in its own name to
enforce any rights in and to the Collateral, in which event Assignor shall at
the request of Assignee do any and all lawful acts and execute any and all
proper documents that may be reasonably requested by Assignee in aid of such
enforcement including, but not limited to, joining as a plaintiff in any such
enforcement action and Assignor shall promptly, upon demand, reimburse and
indemnify Assignee for all reasonable costs and expenses incurred by Assignee in
the exercise of its rights under this Section 14.
9
<PAGE>
15. RELEASE AND RE-ASSIGNMENT. As provided for in the Indenture, or
at such time as all of the Obligations have been satisfied, and the Indenture
has been terminated, Assignee will execute and deliver to Assignor all deeds,
assignments and other instruments as may be necessary or proper to release
Assignee's lien in the Collateral and reassign to Assignor any and all rights of
Assignee therein which were granted to Assignee hereunder, subject to any
dispositions thereof which may have been made by Assignee pursuant hereto.
16. SEVERABILITY. If any clause or provision of this Agreement shall
be held invalid or unenforceable, in whole or in part, in any jurisdiction, such
invalidity or unenforceability shall attach only to such clause or provision, or
part thereof, in such jurisdiction, and shall not in any manner affect any other
clause or provision in any other jurisdiction.
17. NOTICES. All notices, requests and demands to or upon Assignor
or Assignee under this Agreement shall be given in the manner prescribed by the
Security Agreement.
18. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York.
[Signature page follows]
10
<PAGE>
IN WITNESS WHEREOF, the parties have entered into this Intellectual
Property Security Agreement as of the date first above written.
ARCHIBALD CANDY CORPORATION,
Assignor and Debtor
By: /s/ Ted A. Shepherd
-----------------------------------
Name: Ted A. Shepherd
Title: President and Chief
Operating Officer
The Bank of New York , as
-----------------------------------
Trustee,
Assignee and Secured Party
By: /s/ Denise Leonard
-----------------------------------
Name: Denise Leonard
Title: Assistant Treasurer
11
<PAGE>
STATE OF ILLINOIS )
) ss:
COUNTY OF COOK )
On the 2nd day of July 1997 before me personally came Ted A.
Shepherd, to me known, who being by me duly sworn, did depose and say that
he/she is the President of ARCHIBALD CANDY CORPORATION, the corporation
described in and which executed the foregoing instrument; and that he/she
signed his/her name thereto by order of the Board of Directors of said
corporation.
/s/ Nancy A. Hanzalik
----------------------------------------
Notary Public
STATE OF NEW YORK )
) ss:
COUNTY OF NEW YORK )
On the 2nd day of July 1997 before me personally came Denise
Leonard, to me known, who being by me duly sworn, did depose and say that
he/she is a Assistant Treasurer of THE BANK OF NEW YORK, a New York banking
corporation described in and which executed the foregoing instrument; and
that he/she signed his/her name thereto by order of the Board of Directors of
said banking corporation.
/s/ William J. Cassels
----------------------------------------
Notary Public
12
<PAGE>
EXHIBIT 1
UNITED STATES TRADEMARK AND SERVICE MARK REGISTRATIONS
Registration No. Registration Date
Mark (Serial No.) (Filing Date)
- ---- ---------------- -----------------
AMERICAN HOMESTEAD 2,040,233 2/25/97
COLLECTION BY FANNIE
FARMER
AN AMERICAN TRADITION 1,668,708 12/17/91
DEBUTANTES (stylized) 649,034 7/23/57
FANNY FARMER and Design 904,804 12/22/70
(Cameo Silhouette)
Design (Hopping Easter 1,483,724 4/5/88
Bunny)
FANNY FARMER 578,907 8/18/53
(Script Style)
FANNY FARMER 126,844 10/7/19
(Script Style)
FANNIE FARMER 1,770,031 5/11/93
FANNIE MAY KITCHEN 1,407,863 9/2/86
FRESH CANDIES
FANNIE MAY 1,601,202(1) 6/12/90
FANNY FARMER 1,393,461 5/13/86
(Script Style)
- --------------
(1) Abandoned but refiled as 75/231,420.
13
<PAGE>
FANNY FARMER 905,819 1/12/71
(Script Style)
FANNY FARMER 1,392,552 5/6/86
(Script Style)
and New Cameo Design
FANNY FARMER 1,375,189 12/10/85
FF (stylized) 998,022 11/12/74
I CAN'T MAKE ALL THE 1,397,036 6/10/86
CANDY IN THE WORLD, SO
I JUST MAKE THE BEST OF
IT! (stylized).
I LOVE MY HONEY BUT OH 1,468,535 12/8/87
YOU FANNIE MAY!
LAFAYETTE 211,768 4/20/26
MAVRAKOS CANDIES 1,652,532 7/30/91
(stylized)
PECAN DIXIES 1,758,566 3/16/93
PIXIES (stylized) 593,071 7/27/54
SWEET LOOK (stylized) 1,200,893 7/13/82
SWEET PERSUASION 1,816,447 1/11/94
TRINIDAD 1,607,576 7/24/90
TRINIDADS 1,400,579 7/8/86
14
<PAGE>
UNITED STATES TRADEMARK AND SERVICE MARK APPLICATIONS
Registration No. Registration Date
Mark (Serial No.) (Filing Date)
- ---- ---------------- -----------------
PIXIE (73/829,267) (9/29/89)
FANNIE MAY CANDIES (75-230,830) (1/24/97)
CELEBRATED COLLECTION(2)
FANNIE MAY (stylized) (75-231,420) (1/27/97)
FANNIE MAY CONFECTIONARY (75-209,950) (12/9/96)
FANNIE MAY CONFECTIONARY (75-209,975) (12/9/96)
MINIATURE CLASSICS FROM(3) (75-230,309) (1/23/97)
THE AMERICAN CHOCOLATIER
- --------------
(2) Intent to use applications.
15
<PAGE>
STATE TRADEMARK REGISTRATIONS
Registration No. Registration Date
Mark (Serial No.) (Filing Date)
- ---- ---------------- -----------------
ILLINOIS
PIXIES 29,397 8/29/52
MISSOURI
FANNIE MAY CANDIES 9,241 9/23/86
(stylized)
NEW YORK
FANNY FARMER R-134 11/15/54
FANNY FARMER (stylized) R-27,824 12/15/94
16
<PAGE>
UNITED STATES COPYRIGHT REGISTRATIONS
Registration No. Registration Date
Title (Renewal Number) (Renewal Date)
- ---- ---------------- -----------------
"The New Fannie Farmer A 58906 9/11/51
Boston Cooking School (RE 47-403) (12/28/79)
Cook Book" (1951
Edition)
"The Fannie Farmer A 310806 11/13/57
Junior Cook Book" (RE 269-246/7) (12/17/85)
(Revised Edition)
"The All New Fannie A 409841 10/6/59
Farmer Boston Cooking (RE 351-952) (10/22/87)
School Cook Book"
"The Fannie Farmer Cook A 785881 9/23/65
Book" (Eleventh Edition) (RE 47-403) (12/28/79)
"Candies" (Print or KK 232513 8/17/73
Label)
"Miss Dog's Christmas A 557906 9/9/73
Treat" (Book)
"The Fannie Farmer Cook TX 338-846 9/17/79
Book" (Twelfth Edition)
"The Fannie Farmer TX 1-547-681 2/22/85
Baking Book"
"The Fannie Farmer Cook TX 3-280-034 3/16/92
Book" (Thirteenth
Edition)
17
<PAGE>
"Fannie May Chocolate VA 226 329 5/12/86
Filled Bunnies" (Poster)
"Fannie May Candies VA 299 153 2/29/88
Easter Parade" (Poster)
(photograph and
lithograph reproduction)
"Fannie May Candies VA 258 898 3/26/87
Easter Parade"
(Catalogue 1987 edition)
"Fannie May Candies VA 295 869 2/29/88
Easter Parade"
(Catalogue 1988 edition)
Fannie May Candies VA 339 469 2/23/89
Easter Parade"
(Catalogue 1989 edition)
"Fannie May Kitchen VA 213 682 10/1/91
Fresh Candies" (Easter
1992 Gift Selection --
photographic catalogue)
"The Chocolate Idea TX 1,712,172 1/2/86
Book" - (Catalogue)
"The Chocolate Idea VA 248 077 12/5/86
Book" - (Catalogue 1986 -
1987 edition)
"Chocolate Delights"- VA 242 556 10/21/86
(Catalogue 1986-1987
edition)
"Fannie May Quantity VA 474 042 10/1/91
Order Discount Program
1991-1992" (photographic
catalogue)
18
<PAGE>
"Fannie May Mail Order and VA 278 699 9/14/87
Quantity Order Catalogue
1987-1988"
"Fannie May Mail Order and VA 321 549 9/12/88
Quantity Order Catalogue
1988-1989"
"Fannie May Kitchen VA 474 044 10/1/91
Fresh Candies 1991-1992
Mail Order Gift
Selections"
(photographic catalogue)
"Quantity Order Discount VA 474 043 10/1/91
Program Fannie May
Candies" (photographic brochure)
"Fannie May Quantity VA 474 042 10/1/91
Order Discount Program
1991-1992" (photographic
catalogue)
"The Victorian TX 1,851 807 2/18/86
Valentine" (design)
"Fannie May Kitchen VA 213 681 10/1/91
Fresh Candies
Valentine's 1992 Gift
Selection" (photographic
catalogue)
"Fannie May Valentine VA 253 083 1/22/87
Brochure - 1987 Edition"
"Fannie May Valentine VA 291 146 1/19/88
Brochure - 1988 Edition"
19
<PAGE>
"Fannie May Valentine VA 337 851 2/6/89
Brochure - 1989 Edition"
"Fannie May Candies VA 284 161 11/4/87
Happy Holidays Flyer
1987" (Catalogue)
"Fannie May Candies VA 327 611 11/7/88
Happy Holidays Flyer
1988" (Catalogue)
"Fannie May Kitchen VA 213 680 10/1/91
Fresh Candies Christmas
1991 Gift Selections"
(Photographic Catalogue)
"Chicago Skylines" VA 206 338 5/7/91
(packaging -- print
based upon original
painting)
"Water Tower/Horse and VA 228 669 11/1/91
Carriage" (print based
on original painting)
"Floral Heart" VA 815 722 10/22/96
"Christmas Personal VA 814 976 10/22/96
Consumption"
"Valentine's Day Personal VA 814 977 10/22/96
Consumption"
"Halloween Personal VA 814 978 10/22/96
Consumption"
"Easter Personal Consumption" VA 814 979 10/22/96
"'96 Halloween Pop" VA 814 980 10/22/96
20
<PAGE>
"Easter Bunny Crate" VA 814 981 10/22/96
"Easter Bunny Die Cut Box" VA 814 982 10/22/96
"Marshmallow Hearts" VA 814 983 10/22/96
"Carrot-Rabbit Boxes" VA 820 242 10/22/96
"Easter Cream Egg Boxes" VA 824 758 10/22/96
"97 Whimsical 2 oz. Heart" VA 824 762 10/22/96
"12 oz. Jelly Bird Egg" VA 824 763 10/22/96
"Christmas Tree Die Cut Box" VA 824 764 10/22/96
"1 oz. Santa Pop" VA 824 765 10/22/96
"Twelve Days of Christmas" VA 824 766 10/22/96
21
<PAGE>
UNITED STATES PATENTS
[None]
22
<PAGE>
LICENSES
1. Trademark Agreement dated as of May 15, 1987 with Alfred Knopf for use of
the "FANNIE FARMER" trademark in conjunction with publication rights to
"The Fannie Farmer Cookbook" (13th Edition).
2. Trademark Agreement dated as of March 17, 1983 with Alfred Knopf for use of
the "FANNIE FARMER" trademark in conjunction with publication rights to
"The Fannie Farmer Baking Book."
3. Non-exclusive licenses of "Fannie May", "Fannie Farmer", and "Fanny
Farmer", trademarks pursuant to distributorship agreements and agreements
for advertising and promotion, and merchandising of non-food products
(including, without limitation, non-exclusive licenses for the use of such
trademarks for publications for third parties) entered into in the ordinary
course of business and consistent with past practice.
23
<PAGE>
MATERIAL UNREGISTERED INTELLECTUAL PROPERTY
TRADE NAMES
- -----------
[Fannie May Candies]
[Fanny Farmer Candies]
24
<PAGE>
EXHIBIT 2
SPECIAL POWER OF ATTORNEY
STATE OF ILLINOIS )
) ss.
COUNTY OF COOK )
KNOW ALL MEN BY THESE PRESENTS, THAT ARCHIBALD CANDY CORPORATION, an
Illinois corporation with offices at 1137 W. Jackson Blvd., Chicago, Illinois
60607 (hereinafter called "Assignor"), hereby appoints and constitutes THE BANK
OF NEW YORK, for the ratable benefit of the Holders under that certain Indenture
dated as of July 2, 1997, a New York banking corporation, with offices at 101
Barclay Street - 21 W., New York, NY (hereinafter called "Assignee"), its true
and lawful attorney, with full power of substitution, and with full power and
authority to perform the following acts on behalf of Assignor:
1. For the purpose of assigning, selling, licensing or otherwise
disposing of all right, title and interest of Assignor in and to any United
States, state and foreign trademarks, service marks, copyrights, patents, trade
names, trade dress, trade secrets, know-how and other proprietary information,
and all applications, registrations, recordings, renewals, extensions, reissues,
divisions, continuations, continuations-in-part and re-examinations, and all
licenses relating thereto, and for the purpose of the recording, registering and
filing of, or accomplishing any other formality with respect to, the foregoing,
to execute and deliver any and all agreements, documents, instruments of
assignment or other papers necessary or advisable to effect such purpose; and
2. To execute any and all documents, statements, certificates or
other papers necessary or advisable in order to obtain the purposes described
above as Assignee may in its sole discretion determine.
This power of attorney is made pursuant to that certain Intellectual
Property Security Agreement dated as of July 2, 1997, between Assignor and
Assignee for the benefit of the Trustee and the ratable benefit of the Holders
(the
25
<PAGE>
"Intellectual Property Security Agreement") and takes effect solely for the
purposes of Section 6 thereof ("Remedies Upon Default") and is subject to the
conditions thereof and may not be revoked until the payment in full of all
Obligations (as defined by reference in the Intellectual Property Security
Agreement).
Dated: , 1997
------------------------
ARCHIBALD CANDY CORPORATION
By:
----------------------------------
Name:
Title:
26
<PAGE>
STATE OF ILLINOIS )
)ss:
COUNTY OF COOK )
On the ___ day of ______________, 1997, before me personally came
______________, to me known, who being by me duly sworn, did depose and say that
he/she is the ____________________ of ARCHIBALD CANDY CORPORATION, the
corporation described in and which executed the foregoing instrument; and that
he/she signed his/her name thereto by order of the Board of Directors of said
Corporation.
_________________________
Notary Public
<PAGE>
EXHIBIT 3
JURISDICTIONS FOR FILING UCC FINANCING STATEMENTS
Illinois Secretary of State
Cook County Recorder of Deeds
Pennsylvania Secretary of the Commonwealth
Bucks County Prothonotary
<PAGE>
Archibald Candy Corporation,
as Mortgagor
TO
The Bank of New York,
as Mortgagee
- --------------------------------------------------------------------------------
MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF LEASES AND
RENTS, FIXTURE FILING AND FINANCING STATEMENT
- --------------------------------------------------------------------------------
Dated: As of July 2, 1997
Location: Chicago, Illinois
Permanent Real Estate
Index Number(s): See Schedule A-1 Attached
---------------------------
This document prepared by and after recording should be returned to:
Skadden, Arps, Slate, Meagher & Flom
333 West Wacker Drive, Suite 2100
Chicago, Illinois 60606
Attention: Andrew M. Strasser
- --------------------------------------------------------------------------------
THIS MORTGAGE SECURES FUTURE ADVANCES AND FUTURE
OBLIGATIONS AT ANY TIME OUTSTANDING UP TO A MAXIMUM
PRINCIPAL AMOUNT OF $100,000,000
<PAGE>
TABLE OF CONTENTS
Page
----
CERTAIN DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
GRANTING CLAUSE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE I. REPRESENTATIONS AND COVENANTS
OF MORTGAGOR
SECTION 1.01. Covenant of Title. . . . . . . . . . . . . . . . . . . 7
SECTION 1.02. Further Assurances . . . . . . . . . . . . . . . . . . 7
SECTION 1.03. Payment of Indebtedness. . . . . . . . . . . . . . . . 8
SECTION 1.04. Mortgagor's Existence. . . . . . . . . . . . . . . . . 8
SECTION 1.05. Additional Property. . . . . . . . . . . . . . . . . . 9
SECTION 1.06. Payment of Impositions and
Insurance . . . . . . . . . . . . . . . . . . . . 9
SECTION 1.07. Insurance. . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 1.08. Damage or Destruction;
Insurance Proceeds. . . . . . . . . . . . . . . . 13
SECTION 1.09. Condemnation . . . . . . . . . . . . . . . . . . . . . 16
SECTION 1.10. Condition of Premises;
Compliance with Laws;
Restrictive Covenants . . . . . . . . . . . . . . 16
SECTION 1.11. Assignment of Leases,
Rents, Issues and Profits . . . . . . . . . . . . 19
SECTION 1.12. No Prior Sale. . . . . . . . . . . . . . . . . . . . . 19
SECTION 1.13. Hazardous Material . . . . . . . . . . . . . . . . . . 19
SECTION 1.14. Permitted Transfers. . . . . . . . . . . . . . . . . . 20
ARTICLE II. EVENTS OF DEFAULT; REMEDIES
SECTION 2.01. Events of Default. . . . . . . . . . . . . . . . . . . 20
SECTION 2.02. Mortgagee's Remedies . . . . . . . . . . . . . . . . . 21
SECTION 2.03. Proceeds . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 2.04. Payment of Mortgagor's
Expenses after Default. . . . . . . . . . . . . . 24
SECTION 2.05. Receivers. . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 2.06. Election of Remedies . . . . . . . . . . . . . . . . . 25
SECTION 2.07. Waiver by Mortgagor. . . . . . . . . . . . . . . . . . 26
SECTION 2.08. Fair Rental. . . . . . . . . . . . . . . . . . . . . . 26
SECTION 2.09. Modification of Collateral
Agreements. . . . . . . . . . . . . . . . . . . . 28
SECTION 2.10. Costs of Litigation and
Collection. . . . . . . . . . . . . . . . . . . . 27
SECTION 2.11. Security Agreement . . . . . . . . . . . . . . . . . . 28
<PAGE>
SECTION 2.12. Suits without Acceleration . . . . . . . . . . . . . . 28
SECTION 2.13. Report of Title. . . . . . . . . . . . . . . . . . . . 28
SECTION 2.14. Additional Rights of
Mortgagees. . . . . . . . . . . . . . . . . . . . 29
ARTICLE III. ADDITIONAL PROVISIONS
SECTION 3.01. Business Purpose . . . . . . . . . . . . . . . . . . . 29
SECTION 3.02. Tender of Payment. . . . . . . . . . . . . . . . . . . 29
SECTION 3.03. Books, Records, Accounts and
Reports . . . . . . . . . . . . . . . . . . . . . 29
SECTION 3.04. Inspection by Mortgagee. . . . . . . . . . . . . . . . 30
SECTION 3.05. Estoppel Certificates. . . . . . . . . . . . . . . . . 30
SECTION 3.06. No Waivers; Approvals. . . . . . . . . . . . . . . . . 31
SECTION 3.07. Indemnification. . . . . . . . . . . . . . . . . . . . 32
SECTION 3.08. Lien Unaffected by Modifica-
tions of Bonds . . . . . . . . . . . . . . . . . 32
SECTION 3.09. Authority. . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 3.10. Waiver of Notice . . . . . . . . . . . . . . . . . . . 33
SECTION 3.11. No Extensions of Time. . . . . . . . . . . . . . . . . 33
SECTION 3.12. Information. . . . . . . . . . . . . . . . . . . . . . 33
SECTION 3.13. Invalidity of Certain
Provisions. . . . . . . . . . . . . . . . . . . . 33
SECTION 3.14. Non-Usury. . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 3.15. Notices. . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 3.16. Construction . . . . . . . . . . . . . . . . . . . . . 36
SECTION 3.17. No Joint Venture . . . . . . . . . . . . . . . . . . . 36
SECTION 3.18. Miscellaneous Provisions . . . . . . . . . . . . . . . 36
SECTION 3.19. Successors and Assigns . . . . . . . . . . . . . . . . 37
SECTION 3.20. Release of Lien. . . . . . . . . . . . . . . . . . . . 37
SECTION 3.21. Negotiated Document. . . . . . . . . . . . . . . . . . 38
SECTION 3.22. No Recourse Against Others . . . . . . . . . . . . . . 38
NOTARIAL ACKNOWLEDGEMENTS
SCHEDULE A Description of Premises
SCHEDULE A-1 Permanent Index Numbers
SCHEDULE B Permitted Exceptions
<PAGE>
THIS MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF LEASES AND RENTS,
FIXTURE FILING AND FINANCING STATEMENT ("MORTGAGE"), made as of July 2, 1997,
between ARCHIBALD CANDY CORPORATION, ("MORTGAGOR"), and THE BANK OF NEW YORK, as
trustee for the benefit of the holders of the Notes (as hereinafter defined)
("MORTGAGEE").
WHEREAS, the Mortgagor and Mortgagee have entered into that certain
Indenture dated as of July 2, 1997 (as amended, restated, supplemented or
otherwise modified from time to time, the "INDENTURE") pursuant to which, among
other things, the Mortgagor has issued its 10 1/4% Senior Secured Notes due July
1, 2004 (the "Notes"); and
WHEREAS, execution of this Mortgage is a condition precedent to the
closing of the Indenture.
NOW, THEREFORE, in order to secure to Mortgagee (a) the repayment of
the indebtedness evidenced by the Notes with interest thereon and all other
obligations under the Indenture, together with all renewals, extensions and
modifications thereof; (b) the payment of all other sums with interest thereon
advanced in accordance herewith to protect the security of this Mortgage; and
(c) the performance of the covenants and agreements of Mortgagor herein
contained and contained in the Indenture, the Notes and the other Loan Documents
(collectively the "INDEBTEDNESS") Mortgagor agrees as follows:
CERTAIN DEFINITIONS
The following terms shall have the following meanings, such
definitions to be applicable equally to the singular and the plural forms of
such terms.
"BUSINESS DAY" has the meaning set forth in the Indenture.
"CHATTELS" means all fixtures, fittings, appliances, apparatus,
equipment, supplies, building materials and machinery (and additions thereto and
replacements thereof) now or hereafter owned by Mortgagor, or in which Mortgagor
has or shall have any interest, that are not Improvements (as hereinafter
defined) and that (i) are now or at any time hereafter affixed to or attached
to,
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the Premises (as hereinafter defined) for so long as so affixed or attached.
"DEFAULT RATE" means 10 1/4% per annum.
"ENTITY" means any individual, partnership, corporation, trust or
other entity.
"ENVIRONMENTAL LAWS" means any and all Requirements of Law (as
hereinafter defined) regulating, relating to or imposing liability or standards
of conduct concerning any Hazardous Material (as hereinafter defined), as may
now or at any time hereinafter be in effect.
"EVENT OF DEFAULT" means any of the events and circumstances described
as such in Section 2.01 hereof.
"GOVERNMENTAL AUTHORITY" means any court, governmental,
administrative, regulatory, adjudicatory, or arbitrational body, department,
commission, board, bureau, agency or instrumentality of any kind properly
exercising jurisdiction over the Mortgaged Property (as hereinafter defined), or
whose consent or approval is required as a prerequisite to the use, operation or
occupancy of the Mortgaged Property, or to the performance of any act or
obligation or the observance of any agreement, provision or condition of
whatsoever nature herein contained.
"HAZARDOUS MATERIAL" means (a) pollutants, contaminants, toxic or
hazardous wastes, or any other substances the removal of which is required, or
the manufacture, use, maintenance, storage, ownership or handling of which is
restricted, prohibited, regulated or penalized by any Requirement of Law now or
at any time hereunder in effect, including, without limitation, any waste,
substance or material that exhibits any of the characteristics enumerated in 40
C.F.R. Sections 261.20-261.24, inclusive, or any extremely hazardous substances
listed under Section 302 of the Superfund Amendment and Reauthorization Act of
1986 ("SARA") that are present in threshold planning or reportage quantities as
defined under SARA, or any toxic or hazardous chemical substances that are
present in quantities that exceed exposure standards as those terms are defined
under Sections 6 and 8 of the Occupational Safety and Health Act and 29 C.F.R.
Part 1910
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subpart 2, and (b) any asbestos or asbestos-containing substances in
quality or in quantity in violation of applicable Environmental Laws.
Notwithstanding the foregoing, the term "Hazardous Material" shall not include
chemicals routinely used in office areas or janitorial supplies, cleaning fluids
or chemicals necessary for the day-to-day operation or maintenance of the
Mortgaged Property; provided that such chemicals and cleaning fluids are used,
stored and disposed of in compliance with all Requirements of Law applicable to
the Mortgagor or the Mortgaged Property. All reference to statutes in this
definition shall be deemed to refer to such statutes as same may be amended from
time to time, and to include any statute superseding or supplementing any such
statute.
"IMPROVEMENTS" means all structures or buildings and replacements
thereof, now or hereafter erected or located at the Premises, including, without
limitation, all equipment, apparatus, machinery and fixtures of every kind and
nature whatsoever forming part of said structures or buildings.
"INSURANCE CERTIFICATES" means certificates of insurance confirming
that insurance policies meeting the requirements of this Mortgage are in effect,
which certificates shall (a) list the types and amounts of coverage evidenced
thereby, and (b) have all exclusions and exclusionary endorsements with respect
to the coverage evidenced thereby appended thereto.
"LOAN" means the indebtedness evidenced by the Notes.
"LOAN DOCUMENTS" means this Mortgage, the Indenture, the Notes, that
certain Mortgage, Security Agreement and Financing Statement dated of even date
herewith granted by Mortgagor in favor of Mortgagee encumbering that certain
warehouse facility owned by Mortgagor, and located in Bucks County, Pennsylvania
and any and all other security given by or on behalf of Mortgagor to Mortgagee
from time to time to evidence or secure the Indebtedness and any and all other
documents which may hereafter be given by Mortgagor to Mortgagee as further
security for, or in connection with, the Loan. References to the Loan Documents
or to any particular Loan Document shall be deemed references to such document
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as the same may be renewed, modified, consolidated, replaced and/or restated
from time to time in accordance with the provisions of the Loan Documents;
provided, however, that this sentence shall not be construed to permit any
renewal, modification, consolidation, replacement and/or restatement that is
prohibited by or inconsistent with the provisions of this Mortgage or any
other document to which Mortgagee is a party, unless consented to by
Mortgagee.
"MORTGAGE" means this Mortgage, Security Agreement and Financing
Statement.
"MORTGAGED PROPERTY" has the meaning ascribed to such term in the
Granting Clause hereof.
"MORTGAGEE" means The Bank of New York, as trustee under the
Indenture, and its successors and assigns, as said Indenture may be modified
and/or amended.
"NOTES" has the meaning ascribed to such term in the recitals hereof.
"PERMITTED EXCEPTIONS" has the meaning ascribed to such term in
Section 1.01 hereof.
"PERMITTED TRANSFER" has the meaning ascribed to such term in Section
1.14 hereof.
"REQUIREMENTS OF LAW" means as to any Entity, any law, treaty, rule or
regulation, or determination of a Governmental Authority, in each case
applicable to or binding upon such Entity or any of its property or to which
such Entity or any of its property is subject; and, as to the Mortgaged
Property, any applicable laws, statutes, codes, treaties, permits, decrees,
ordinances, orders, rules, regulations or requirements of any Governmental
Authority, including, without limitation, any applicable environmental,
ecological, zoning, landmark, subdivision, building, use and land use laws,
codes, statutes and regulations and any applicable covenants and restrictions.
"TRANSFER" means any (i) assignment, sale or other transfer of the
Mortgaged Property or any part thereof or any interest therein (including,
without
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limitation, any "air" or development rights but excluding any such
assignment, sale or other transfer in connection with a taking by eminent
domain or a transfer in lieu thereof) either voluntarily or involuntarily, by
operation of law or otherwise, or (ii) lease or sublease entered into by
Mortgagor of all or substantially all of the space in the Improvements, in a
single or successive transactions to any single lessee or related lessees.
GRANTING CLAUSE
In order to secure the payment of the Indebtedness and the performance
and observance of all of the provisions of this Mortgage, the Notes and the
other Loan Documents, Mortgagor does by these presents hereby mortgage, grant,
remise, release, alien, convey and assign unto Mortgagee, its successors and
assigns, all of Mortgagor's estate, right, title and interest in, to and under
the property described on Exhibit A hereto (the "Premises") and any and all of
the following described property (collectively, the "MORTGAGED PROPERTY")
whether now owned or held or hereafter acquired:
(a) all buildings, improvements, and tenements now or hereafter erected on
the Premises, and all heretofore or hereafter vacated alleys and streets
abutting the Premises; and
(b) all easements, rights of way, rights, appurtenances, rents, issues,
profits, royalties, mineral, oil and gas rights and profits, water, water
rights, and water stock appurtenant to the Premises; and
(c) all fixtures, machinery, equipment, engines, boilers, incinerators,
building materials and appliances of every nature whatsoever now or hereafter
located in, or on, or used, or intended to be used in connection with the
Premises, including, but not limited to, those for the purposes of supplying or
distributing heating, cooling, electricity, gas, water, air and light; and
(d) all elevators, and related machinery and equipment, fire prevention
and extinguishing apparatus, security and access control apparatus, plumbing,
bathtubs, water heaters, water closets, sinks, ranges, stoves, refrigerators,
dishwashers, disposals, washers, dryers, awnings, storm windows, storm doors,
screens, blinds,
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shades, curtains and curtain rods, mirrors, cabinets, paneling, rugs,
attached floor coverings, furniture, fixtures, equipment used in connection
with the Premises; and
(e) [Intentionally omitted.]
(f) all leasehold estates, right, title and interest of Mortgagor in and
to all ground leases, leases, subleases covering the Premises or any portion
thereof now or hereafter existing or entered into (herein "LEASES") and all
right, title and interest of Mortgagor thereunder, including without limitation
all guaranties thereof, all cash, security deposits, advance rentals, and all
deposits or payments of a similar nature relating to such Leases; and
(g) all right, title and interest of Mortgagor into and under all plans,
specifications, maps, surveys, studies, reports, permits, licenses or any other
governmental approval or payment, architectural, engineering and construction
contracts, books, accounts, insurance policies, title insurance policies and
other documents of whatever kind or character, relating to the use,
construction, occupancy, leasing, sale or operation of the Premises; and
(h) all interests, estates or other claims or demands, in law and in
equity which Mortgagor now has or may hereafter acquire, in the Premises and all
estate, interest, right, title, other claim or demand, both in law and in equity
including claims or demands with respect to proceeds of insurance relating
thereto, which Mortgagor now has or may hereafter acquire in the Premises, or
any other portion thereof or interest therein; and
(i) all awards made for the taking by eminent domain or by any proceeding
or purchase in lieu thereof of the whole or any part of the Premises, including
without limitation, any award resulting from a change of any streets (whether as
to grade accession otherwise) and any award for severance damages all of which,
including all appurtenances, replacements, betterments, renewals, substitutions
and additions thereto, shall be deemed to be and remain a part of the real
property covered by this Mortgage.
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TO HAVE AND TO HOLD the Mortgaged Property unto Mortgagee, its
successors and assigns (as are permitted in accordance with the terms of the
Notes) forever, for the purposes and uses herein set forth.
ARTICLE I
REPRESENTATIONS AND COVENANTS OF MORTGAGOR
Mortgagor represents and covenants to and for the benefit of Mortgagee
as follows:
SECTION 1.01. COVENANT OF TITLE. Mortgagor is the owner of fee
simple title to the Mortgaged Property, subject to no lien, charge or
encumbrance except for Permitted Liens (as defined in the Indenture) and as
listed on SCHEDULE B attached hereto and made a part hereof (the "PERMITTED
EXCEPTIONS"); and this Mortgage is and shall remain a valid first mortgage lien
on the Mortgaged Property subject only to the Permitted Exceptions. Mortgagor
has full corporate power and lawful authority to mortgage the Mortgaged Property
in the manner and form herein done, and to perform all of its obligations
hereunder. Mortgagor shall preserve such title, and shall forever defend such
title and the validity and priority of the lien hereof against the claims of all
persons and parties except as aforesaid.
SECTION 1.02. FURTHER ASSURANCES. (a) Mortgagor shall, at its sole
cost and expense, perform such further acts, and execute, acknowledge and/or
deliver all such further deeds, conveyances, mortgages, assignments, estoppel
certificates, financing statements, notices of assignment, subordinations,
transfers, assurances and other documents and instruments as Mortgagee shall
from time to time require for the better assuring, conveying, assigning,
transferring and confirming unto Mortgagee of any and all of the property and
rights hereby conveyed or assigned, or that Mortgagor may be bound to convey or
assign to Mortgagee, or for carrying out the intention or facilitating the
performance of the terms of this Mortgage, or for filing, registering or
recording this Mortgage. Upon demand from time to time, Mortgagor shall execute
and deliver, and hereby authorizes Mortgagee to execute and file in Mortgagor's
name, one or more financing statements, chattel mortgages or comparable security
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instruments, to evidence more effectively the lien of this Mortgage upon the
Chattels.
(b) From and after the execution and delivery of this Mortgage,
Mortgagor shall cooperate with Mortgagee in causing this Mortgage, all related
financing statements, and any other instrument creating a lien or evidencing the
lien of this Mortgage, to be filed, registered or recorded in such manner and in
such places as may be required by any present or future law in order to publish
notice of and fully perfect and protect the lien of this Mortgage upon, and the
interest of Mortgagee in, the Mortgaged Property.
(c) Mortgagor shall promptly pay, whenever imposed, all filing,
registration or recording fees, and all expenses incident to the execution and
delivery of this Mortgage, any security instrument with respect to the Mortgaged
Property, and any other instrument relating to the Indebtedness, and all
federal, state, county and municipal recording taxes, stamp taxes and similar
other taxes, duties, imposts, assessments and charges arising out of the
execution and delivery of the Notes, this Mortgage, any of the other Loan
Documents, any security instrument with respect to the Mortgaged Property or any
other instrument referred to in this Section 1.02 imposed on Mortgagee by reason
of its ownership of this Mortgage.
SECTION 1.03. PAYMENT OF INDEBTEDNESS. Mortgagor shall punctually
pay each and every component of the Indebtedness at the time (time being of the
essence) and place and in the manner specified hereunder, in the Notes and in
the other Loan Documents, all in immediately available lawful money of the
United States of America.
SECTION 1.04. MORTGAGOR'S EXISTENCE. Mortgagor shall, so long as it
holds legal title to the Mortgaged Property, and as long as any part of the
Indebtedness remains unpaid, do all things necessary to preserve and keep in
full force and effect its existence, franchises, rights and privileges as a
business or stock corporation, partnership, trust or other entity under the laws
of the state of its formation, and shall at all times during the term of this
Mortgage be and remain authorized to do business in the state in which the
Mortgaged Property is located.
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SECTION 1.05. ADDITIONAL PROPERTY. All right, title and interest of
Mortgagor in and to all extensions, improvements, betterments, renewals,
substitutes and replacements of, and all additions and appurtenances to, the
Mortgaged Property, hereafter acquired by or released to Mortgagor, or
constructed, assembled or placed on the Premises, and, subject to the provisions
of Sections 1.08 and 1.09, all conversions of the security constituted thereby,
immediately upon such acquisition, release, construction, assembly, placement or
conversion, as the case may be, and in each such case, without any further
mortgage, conveyance, assignment or other act by Mortgagor, shall become subject
to the lien of this Mortgage as fully and completely, and with the same effect,
as though now owned by Mortgagor and specifically described in the granting
clause hereof, but at any and all times Mortgagor shall promptly execute and
deliver to Mortgagee any and all such further assurances, mortgages, conveyances
or assignments thereof as Mortgagee may reasonably request for the purpose of
expressly and specifically subjecting the same to the lien of this Mortgage.
SECTION 1.06. PAYMENT OF IMPOSITIONS AND INSURANCE. (a) Except as
otherwise provided by any of the other Loan Documents and the provisions hereof,
Mortgagor, from time to time, shall pay and discharge prior to the date interest
or penalties attach, all taxes (whether real or personal) of every kind and
nature, all general and special assessments and levies, all permit, inspection
and license fees, all water and sewer rents and charges, and all other public
charges, whether of a like or different nature, imposed upon or assessed or
levied against the Mortgaged Property or any part thereof, or resulting from the
leasing, ownership, use or occupancy thereof (all of the foregoing items being
referred to herein as "IMPOSITIONS"). Upon written request from Mortgagee,
Mortgagor shall deliver to Mortgagee receipts or other reasonably satisfactory
documentation evidencing the timely payment of all Impositions. If, by law, any
Imposition is payable (or may at the option of the payor be paid) in
installments, Mortgagor may pay the same, together with any accrued interest on
the unpaid balance of such Imposition, in installments as the same become due
and before any fine, penalty, additional interest or cost may be added thereto
for the nonpayment of any such installment and/or interest.
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(b) From and after the occurrence of any Event of Default and until a
cure of such Event of Default, at the option of Mortgagee (to be exercised by
written notice to Mortgagor) and further to secure the Indebtedness and the
obligations of Mortgagor hereunder, including the payment of Impositions and the
premiums on the insurance required to be carried hereunder, Mortgagor shall
deposit with Mortgagee on the first day of each month, such amounts as, in the
reasonable estimation of Mortgagee, shall be necessary to pay such Impositions
as they become due; said deposits to be held by Mortgagee free of interest, and
free of any liens or claims on the part of creditors of Mortgagor and as part of
the security of Mortgagee. Subject to Subsection 1.06(c), payment from said
sums for current Impositions and insurance premiums on the Premises shall be
made by Mortgagee, and may be made even though such payments will benefit
subsequent owners of the Premises. Said deposits shall not be, nor deemed to
be, trust funds, but may be commingled with the general funds of Mortgagee;
provided, however, that such funds shall not be distributed by Mortgagee or
disbursed to pay any other sum. If Mortgagee shall reasonably determine that
said deposits are or will be insufficient to pay Impositions and insurance
premiums in full as the same become payable, Mortgagee shall increase the amount
of such monthly deposit by an amount necessary to insure that Mortgagee has on
deposit such sums as may be required in order to timely pay such Impositions and
insurance premiums in full. Upon the occurrence of any subsequent Event of
Default, and prior to any cure thereof, Mortgagee may, at its option, apply any
money in the fund resulting from said deposits to the payment of the
Indebtedness in such manner as it may elect, and shall give notice of such
application to Mortgagor. Under no circumstances shall Mortgagee be liable for
failure to make any payment on behalf of Mortgagor, including, without
limitation, payments of Impositions or insurance premiums.
(c) Notwithstanding anything to the contrary contained herein,
Mortgagor shall have the right to contest, at its own expense, the amount or
validity of any Impositions, interest or penalties thereon, or to seek a
reduction in the valuation of the Mortgaged Property (or any part thereof) as
assessed for real estate or personal property tax purposes, provided that the
foregoing shall not relieve Mortgagor of its obligation to
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timely pay all Impositions, interest and penalties thereon. Notwithstanding
the preceding sentence, Mortgagor may defer the payment of any contested
Impositions, interest or penalties provided that (i) such deferral of payment
is permitted by applicable law, and (ii) Mortgagor in good faith and at its
own expense diligently contests the amount of such Impositions, interest,
penalty or valuation (or the validity thereof) by appropriate legal
proceedings which shall operate to prevent the collection thereof or other
realization thereon and/or the sale or the forfeiture of the Mortgaged
Property or any part thereof. Mortgagor's obligation, if any, to make
deposits pursuant to Subsection 1.06(b) hereof shall not be affected by such
deferral or proceeding; provided that Mortgagee shall not apply any amounts
so deposited during any deferral period permitted hereunder. If at any time
the Mortgaged Property or any part thereof would, in Mortgagee's reasonable
judgment, by reason of such deferral or contest, be in imminent danger of
being forfeited or lost, Mortgagee may immediately apply the cash or security
theretofore deposited with it in payment of the amount so contested and
unpaid, together with all interest and penalties thereon and shall give
Mortgagor notice five (5) days prior to such application. If at any time
Mortgagee reasonably determines that the cash or security deposited with
Mortgagee is insufficient to pay all such amounts, Mortgagor shall, within
five (5) Business Days after demand, pay such additional amounts as are
necessary to cover such deficiency.
SECTION 1.07. INSURANCE. (a) Mortgagor, at its sole cost and
expense, shall keep the Improvements and Chattels insured at all times for the
mutual benefit of Mortgagee and Mortgagor, against such risks and in such
amounts as are generally maintained by prudent owners of premises in Chicago,
Illinois, that are comparable to the Premises.
(b) Simultaneously with the execution and delivery of this Mortgage,
Mortgagor shall deliver to Mortgagee (x) Insurance Certificates evidencing that
the insurance required hereunder is in effect, or (y) endorsements with respect
to all such policies, together with proof that all premiums due with respect to
such policies have been paid in full. Thereafter, at least five (5) days prior
to the cancellation date or expiration of any such policy during the term of
this Mortgage,
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Mortgagor shall deliver to Mortgagee an Insurance Certificate evidencing the
extension or renewal of such policy or renewal endorsement therefor, together
with proof that all premiums due in connection therewith have been paid in
full. All Insurance Certificates and endorsements relating to the insurance
required by this Section 1.07 shall be in form reasonably satisfactory to
Mortgagee, and shall be issued by companies authorized to do business in the
State of Illinois or qualified to write such policies in the State of
Illinois and reasonably satisfactory to Mortgagee. All policies of insurance
relating to the insurance provided for in Subsection 1.07(a) shall name
Mortgagee as a mortgagee pursuant to the standard non-contributory mortgagee
clause or its equivalent, and shall provide, subject to Subsection 1.07(c)
below, that all losses payable thereunder shall be payable to Mortgagee. For
purposes hereof, companies with a Best rating of "A-" or better (or the
equivalent rating at any applicable time) shall be deemed satisfactory to
Mortgagee.
(c) Mortgagor shall not agree to any adjustment of any claim with
respect to any property damage or casualty insurance relating to the Mortgaged
Property without the prior written consent of Mortgagee in each instance;
provided, however, that so long as no Event of Default has occurred and has not
been cured, Mortgagor shall have the right and the obligation to settle and
adjust any claim under such insurance policies without obtaining Mortgagee's
prior written consent if the amount of such claim is less than One Million
Dollars ($1,000,000.00).
(d) Each property policy providing coverage required hereunder shall
contain a provision, if available on commercially reasonable terms, that no act
or omission of Mortgagor or any other named insured shall affect or limit the
obligation of the insurance company to pay the amount of any loss sustained for
the benefit of Mortgagee and each liability and property insurance policy
providing coverage required hereunder shall contain, if available on
commercially reasonable terms, an agreement by the insurer that such policy
shall not be cancelled for any reason without at least thirty (30) days' prior
written notice to Mortgagee, and that the insurer will accept performance by
Mortgagee of Mortgagor's obligations under such policy as if performed by
Mortgagor.
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(e) Mortgagee shall not be limited, in the proof of any action or
claim which Mortgagee may take or make against Mortgagor arising out of or by
reason of Mortgagor's failure to provide and keep in force insurance as
aforesaid, to the amount of any insurance premium or premiums not paid by
Mortgagor and which would have been payable with respect to such insurance. In
addition to its other rights hereunder or otherwise, Mortgagee shall be entitled
to recover for any such failure to provide and keep the insurance required
hereunder in force all damages, costs and expenses suffered or incurred by
reason of Mortgagor's failure to provide insurance as aforesaid.
(f) If at any time Mortgagee is not in receipt of written evidence
that all insurance required hereunder is in force and effect, or if at any time
Mortgagor shall fail to deliver Insurance Certificates or endorsements
evidencing the renewal of insurance policies not later than five (5) days prior
to the expiration or cancellation date of each of the insurance policies,
Mortgagee shall have the right (but shall have no obligation) to take such
action as Mortgagee deems reasonably necessary to protect its interest in the
Mortgaged Property, and shall give written notice of such action to Mortgagor,
including, without limitation the obtaining of such insurance coverage as
Mortgagee in its reasonable discretion deems reasonably appropriate, and all
expenses incurred by Mortgagee in connection with such action or in obtaining
such insurance and keeping it in effect shall be paid by Mortgagor to Mortgagee
within five (5) Business Days after written demand is made therefor.
(g) [Intentionally omitted.]
(h) Mortgagor shall not have in force at any time insurance
concurrent in form or contributing in the event of loss with that required to be
maintained hereunder unless Mortgagee is included thereon as an additional
insured and loss payee, and is furnished with the applicable Insurance
Certificates, as required by this Section 1.07.
SECTION 1.08. DAMAGE OR DESTRUCTION; INSURANCE PROCEEDS. (a)
Mortgagor shall give to Mortgagee written notice of any damage to or destruction
of the Improvements or Chattels, or any part thereof, having a reason-
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ably estimated cost of repair or replacement in excess of One Million Dollars
($1,000,000.00). Such notice shall be given promptly after the occurrence of
such damage or destruction. Within a reasonable period of time after the
casualty, Mortgagor shall give Mortgagee a reasonable estimate of the cost of
repair or replacement, which shall be accompanied by reasonable documentation
supporting the basis for Mortgagor's estimate of the cost of repair or
replacement.
(b) So long as any portion of the Indebtedness is outstanding,
Mortgagor shall promptly commence and diligently complete the restoration of the
Mortgaged Property (i) as nearly as possible to substantially the same or better
physical condition as existed immediately prior to such loss or damage, and (ii)
within a reasonable time. Any restoration shall be performed in accordance with
the requirements set forth in this Section 1.08 and in Section 1.10(b) hereof.
(c) (i) In the event of damage to or destruction of the Improvements
or Chattels or any part thereof, the estimated cost of repair (as reasonably
estimated by Mortgagor) of which is equal to or less than One Million Dollars
($1,000,000.00), except as provided to the contrary below, any insurance
proceeds actually received by Mortgagee with respect thereto shall, so long as
no Event of Default has occurred that has not been cured, be immediately
released by Mortgagee to Mortgagor for application to the cost of restoration.
(ii) In the event of any damage to or destruction of the
Improvements or Chattels or any part thereof, the estimated cost of repair of
which exceeds One Million Dollars ($1,000,000.00), any insurance proceeds,
actually paid to Mortgagor or Mortgagee shall be promptly delivered to an escrow
agent or trustee experienced in administering construction loans, as reasonably
chosen by Mortgagor and Mortgagee ("ESCROWEE"), and any such insurance proceeds
received by Escrowee and deposited in an escrow with terms customarily found in
construction loan agreements between sophisticated parties, reasonably
acceptable to Mortgagor and Mortgagee ("ESCROW"), shall be applied by Escrowee
(1) first to reimburse Mortgagee for any expenses (including without limitation,
any reasonable attorneys' and consultants' fees, excluding, however, any
salaries paid to employees of
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Mortgagee) incurred by Mortgagee in connection with the collection of such
insurance proceeds, or the determination of the amount of the loss, and,
except as provided to the contrary below, then (2) to Mortgagor to pay the
cost of the restoration of the Improvements and Chattels pursuant to the
terms of the Escrow and (3) the balance, if any, shall be payable to
Mortgagor. Not more than once each month, Mortgagor shall submit to Escrowee
for payment a cost breakdown of work completed to date, together with a
requisition on Mortgagee's form which shall be certified by Mortgagor and its
architect and shall state that (x) such work has been completed substantially
in accordance with the plans and specifications reasonably approved by
Mortgagee, (y) the requested amount has been paid in full or has actually
been incurred and is payable, and (z) the then estimated cost of completing
the restoration does not exceed the amount that Escrowee will hold pursuant
to this Subsection 1.08(c) following the requested payment to Mortgagor.
Disbursements by Escrowee with respect to costs of restoration shall be
subject to retainages equal to the amount actually withheld or to be withheld
by Mortgagor with respect to any payment made or to be made to any
contractors, laborers, subcontractors, mechanics, materialmen, vendors or any
other Entities with respect to such restoration, which sum shall not, in any
event, be less than five percent (5%) of the total contract amount; shall be
conditioned upon receipt by Escrowee of such evidence of the absence of liens
as Mortgagee shall reasonably require; and may be conditioned upon such
independent inspections by Mortgagee or its agents as Mortgagee may
reasonably elect to make or cause to be made at Mortgagor's expense. Funds
deposited in the Escrow shall be invested at the direction of Mortgagor,
which direction shall be reasonably satisfactory to Mortgagee, and all
interest earned thereon shall be added to the sums deposited in the Escrow.
(d) Notwithstanding any damage or destruction to the Improvements or
the Chattels or any part thereof, and regardless of the sufficiency or
insufficiency of insurance proceeds made available to Mortgagor by reason
thereof, Mortgagor shall continue to pay the Indebtedness and any reduction in
the Indebtedness resulting from the application of any insurance proceeds to the
payment of the Indebtedness by Mortgagee shall be deemed to take
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effect only from and after the date paid by Mortgagee in accordance with the
Indenture.
SECTION 1.09. CONDEMNATION. Notwithstanding any taking by any public
or quasi-public authority through eminent domain or otherwise, Mortgagor shall
continue to pay the Indebtedness at the time and in the manner provided for its
payment in the Loan Documents and the Indebtedness shall not be reduced until
any award or payment therefor shall have been applied by Mortgagor in accordance
with Section 4.10 of the Indenture. Mortgagee shall not be obligated to see to
the proper application of any award or payment paid over to Mortgagor, and if
Mortgagee receives and retains such award or payment, it shall turn over such
funds to the Mortgagor for application pursuant to Section 4.10 of the
Indenture. If the Mortgaged Property is sold, through foreclosure or otherwise,
prior to the receipt by Mortgagor of such award or payment, Mortgagor shall
apply the proceeds from the sale in accordance with Section 4.10 of the
Indenture. Mortgagor shall file and prosecute its claim or claims for any such
award or payment in good faith and with due diligence and cause the same to be
collected and paid in accordance with Section 4.10 of the Indenture. Mortgagor
hereby irrevocably authorizes and empowers Mortgagee, in the name of Mortgagor
or otherwise, to collect and receive any such award or payment and to file and
prosecute such claim or claims.
SECTION 1.10. CONDITION OF PREMISES; COMPLIANCE WITH LAWS;
RESTRICTIVE COVENANTS. (a) Mortgagor (i) shall maintain the Mortgaged Property
and Chattels in all material respects in good condition, safe operating order
and good repair, subject to ordinary wear and tear; (ii) shall not commit or
suffer any intentional waste of any material portion thereof; (iii) shall
observe, perform or cause to be performed all obligations arising under
agreements or recorded instruments the default of which would materially
adversely affect the Premises or the operation thereof; (iv) shall comply or
cause to be complied with in all material respects all Requirements of Law now
or hereafter relating to the Mortgaged Property or any part thereof, including,
without limitation, all applicable covenants, conditions and restrictions
affecting the Mortgaged Property or Chattels, and shall not suffer or permit any
violation thereof by an affiliate of Mortgagor and shall from time to time
promptly take such
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actions and make all repairs, renewals, replacements, additions and
improvements in connection therewith that are necessary to comply with
Mortgagor's obligations hereunder and permitted hereunder; and (v) shall
comply in all material respects with all requirements of insurance policies
covering the Mortgaged Property, and with all applicable orders, rules and
regulations of the National Board of Fire Underwriters or any other body
hereafter exercising similar functions; provided, however, that Mortgagor
shall have, to the extent permitted by law, the right to contest any such
Requirement of Law or insurance requirement, and to defer compliance with
such Requirement of Law or insurance requirement pending the outcome of such
contest, provided that (1) Mortgager conducts such contest at its own expense
and in good faith and pursues such contest diligently and (2) such contest
operates so as to prevent (x) any adverse effect upon the lien or security
interest created hereby, (y) Mortgagee from being subject to any criminal
liability, and (z) any material impairment of the insurance coverage required
hereby.
(b) Mortgagor shall have the right from time to time during the term
of this Mortgage to make, at its sole cost and expense, changes and alterations
in or to the Improvements, whether or not in connection with any repair or
restoration required by this Mortgage, provided, however, that any such changes,
alterations or restoration having a reasonably estimated value of more than one
hundred and fifty thousand dollars ($150,000.00) shall be effected as follows:
(i) [Intentionally omitted.]
(ii) [Intentionally omitted.]
(iii) [Intentionally omitted.]
(iv) Any change, alteration or restoration made by or with the
approval of Mortgagor shall be performed promptly, in a good and
workmanlike manner, in compliance with all Requirements of Law and in
accordance with the applicable orders, rules and regulations of the
National Board of Fire Underwriters or any other body hereafter
exercising similar functions.
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(v) The Mortgaged Property shall at all times be free of liens
for labor and materials supplied or claimed to have been supplied to
the Premises; provided, however, that in the event any lien is filed
against the Premises, Mortgagor shall have thirty (30) days to satisfy
such lien or provide Mortgagee with evidence reasonably satisfactory
to Mortgagee that Mortgagor is diligently contesting in good faith
such lien by appropriate legal proceedings.
(vi) At all times when any change, alteration or restoration is
in progress, Mortgagor shall maintain or cause to be maintained, for
the mutual benefit of Mortgagor and Mortgagee, general liability
insurance, in addition to the coverage required by Section 1.08
hereof, as Mortgagee shall reasonably require in order to protect
Mortgagee against any potential liabilities arising out of such work
that shall not be covered by the insurance required by Section 1.07.
Insurance Certificates evidencing such insurance issued by the
respective insurers and evidencing the payment of premiums therefor
(or accompanied by other evidence satisfactory to Mortgagee of such
payment), shall be delivered to Mortgagee promptly upon its request.
(vii) [Intentionally omitted.]
(c) Mortgagor shall not remove, demolish or destroy, in whole or in
part, any material portion of the Improvements (other than any tenant
improvements) or Chattels unless the same is promptly replaced by Improvements
or Chattels substantially equal or greater in quality, value, and condition to
those removed, free from security interests (other than purchase money financing
or other Permitted Exceptions), licenses, claims or encumbrances, including any
reservations of title thereto; provided, however, if by reason of technological
or other developments in the operation and maintenance of buildings of the
general character of the Improvements, no replacement of Chattel(s) so removed
or disposed of is necessary and desirable for the proper operation or
maintenance of such Improvements, Mortgagor shall not be required to replace
same.
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SECTION 1.11. ASSIGNMENT OF LEASES, RENTS, ISSUES AND PROFITS. As
further security for payments of the indebtedness and performance of the
obligations secured hereby, Mortgagor hereby transfers, assigns and sets over
unto Mortgagee all leases, if any, now or hereafter entered into by Mortgagor
with respect to all or any part of the Mortgaged Property, and all renewals,
extensions, subleases or assignments thereof, and all other occupancy agreements
(written or oral), by concession, license or otherwise, together with all of the
rents, income, receipts, revenues, issues and profits arising therefrom, such
assignment of rents, income, receipts, revenues, issues and profits to be
absolute and not only collateral; provided, however, that permission is hereby
given to Mortgagor, so long as no Event of Default shall have occurred and be
continuing, to collect and use such rents, but not before, they become due and
payable, which permission shall be suspended immediately, without the necessity
of any action by Mortgagee, upon the occurrence and during the continuance of an
Event of Default.
SECTION 1.12. NO PRIOR SALE. Mortgagor has not sold, conveyed,
assigned or otherwise transferred, or agreed to sell, convey, assign or
otherwise transfer, to any Entity, any development, "air" or floor-area-ratio
rights of Mortgagor with respect to any of the Mortgaged Property, other than as
may be set forth in any of the Permitted Exceptions.
SECTION 1.13. HAZARDOUS MATERIAL. Mortgagor has not received
written notice of any violation of or noncompliance with any Environmental
Law and has no knowledge of any action or other proceeding having ever been
commenced or threatened against Mortgagor by any Governmental Authority
involving any claim of violation of or noncompliance with any such
Environmental Law with respect to the Mortgaged Property that is reasonably
likely to have a material adverse effect on the Premises. Mortgagor has
never caused or knowingly permitted or suffered any Hazardous Material to be
placed, held, located or disposed of on, under or at the Premises, or any
part thereof in any manner that could reasonably be expected to have a
material adverse impact on the Premises and the Premises has never been used
by Mortgagor as a dump or storage site for Hazardous Material in any manner
that could reasonably be expected to have a material adverse
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impact on the Premises. If Mortgagee purchases the Mortgaged Property at
foreclosure, takes a deed in lieu of foreclosure, operates or takes
possession of the Mortgaged Property or takes other action to realize on the
Mortgaged Property at any time before the Indebtedness has been repaid in
full, the representations and warranties in this Section 1.13 shall continue,
subject to the provisions of Section 3.22 hereof. Nothing herein shall be
construed as devolving control of the Mortgaged Property or imposing owner or
operator status upon Mortgagee prior to any purchase of the Mortgaged
Property by Mortgagee at foreclosure or the taking of a deed in lieu of
foreclosure.
SECTION 1.14. PERMITTED TRANSFERS. (a) Mortgagor acknowledges that
further encumbrance of the Mortgaged Property could significantly and materially
alter, impair and reduce Mortgagee's security for the Notes. Therefore,
Mortgagor hereby covenants that it shall not further mortgage, encumber or
pledge the Mortgaged Property or suffer the same to occur, other than a transfer
permitted hereunder or under the Indenture without the prior written consent of
Mortgagee.
ARTICLE II
EVENTS OF DEFAULT; REMEDIES
SECTION 2.01. EVENTS OF DEFAULT. The occurrence of any one or more
of the following events shall be an "EVENT OF DEFAULT":
(a) if Mortgagor shall fail to make any payment required by this
Mortgage within 30 days of date due; or
(b) [Intentionally omitted.]
(c) if title to the Mortgaged Property shall be subject to any lien,
charge or encumbrance other than Permitted Exceptions, and Mortgagor fails
within thirty (30) days after written request by Mortgagee to discharge by
bonding, title insurance or otherwise such lien, charge or encumbrance; or
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(d) if any representation or warranty contained herein shall be false
or incorrect in any material and adverse respect so as to have a material
adverse effect on the Mortgaged Property or an adverse effect on the security
granted to Mortgagee under any of the Loan Documents on the date as of which it
was or shall be made, except that an Event of Default shall be deemed to have
occurred only if within thirty (30) days after written notice from Mortgagee to
Mortgagor, such false or incorrect statement or the underlying cause thereof,
shall not have been corrected to the satisfaction of Mortgagee; or
(e) if an Event of Default under the Indenture shall have occurred
and be continuing; or
(f) if Mortgagor fails to keep, observe and/or perform any of the
other covenants, conditions, obligations or agreements contained in this
Mortgage, and such default continues for a period of thirty (30) days after
written notice to Mortgagor.
Notwithstanding anything in this Section 2.01 to the contrary, to the
extent any of Mortgagor's non-monetary obligations hereunder cannot be remedied
within the period of thirty (30) days after written notice thereof which has
been provided for, such time period shall be extended by such additional
reasonable time as may be necessary to remedy such default, provided that
Mortgagor promptly commences to cure such default and diligently continues such
cure and such default is in fact cured within 120 days after the original
written notice thereof.
SECTION 2.02. MORTGAGEE'S REMEDIES. At any time following the
occurrence of any Event of Default (but only during the continuance thereof),
Mortgagee may (but need not), as Mortgagee deems advisable to protect and
enforce its rights against Mortgagor and in and to the Mortgaged Property, and
without impairing or otherwise affecting the other rights and remedies of
Mortgagee, take any one or more of the following actions, at such times and in
such order as Mortgagee shall determine in its sole discretion:
(a) elect to accelerate the Indebtedness in accordance with the terms
of the Indenture; and/or
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(b) to the extent permitted by law, enter into and upon the Premises,
and each and every part thereof, and exclude Mortgagor and its agents wholly
therefrom, and having and holding the same, use, operate, manage and control the
Mortgaged Property and conduct the business thereof, either personally or by its
superintendents, managers, agents and attorneys; at the expense of Mortgagor,
maintain and restore the Premises, complete the renovation of any Improvements,
and in the course of such completion make such changes in any contemplated
improvements on and to the Premises as Mortgagee deems desirable; at the expense
of Mortgagor, make all necessary or proper repairs, renewals and replacements,
and such alterations, additions, betterments and improvements on and to the
Mortgaged Property as Mortgagee may deem advisable; and exercise all rights and
powers of Mortgagor with respect thereto, either in the name of Mortgagor, as
Mortgagor's attorney-in-fact, or otherwise as Mortgagee shall deem best; collect
and receive all rents with respect to the Mortgaged Property and every part
thereof, all of which shall for all purposes constitute property of Mortgagee,
and, after deducting the reasonable expenses of conducting the business thereof
and of all maintenance, repairs, renewals, replacements, alterations, additions,
betterments and improvements, and amounts, necessary to pay for Impositions,
insurance and other prior or proper charges upon the Mortgaged Property or any
part thereof, as well as reasonable compensation for the services of Mortgagee's
attorneys, consultants, contractors, and agents, apply the moneys arising as
aforesaid, to the payment of the delinquency in the payment of the Indebtedness;
and/or
(c) with or without entry, personally or by its agents or attorneys:
(i) sell to the fullest extent permitted and pursuant to the
procedures provided by law, the Mortgaged Property and all estate,
right, title and interest, claim and demand therein, and right of
redemption thereof, at one or more sales as an entirety or in parcels,
and at such time and place, upon such terms and after such notice
thereof as may be required or permitted by law; and/or
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(ii) institute proceedings for the complete or partial
foreclosure of this Mortgage; and/or
(iii) take such steps as Mortgagee shall elect to protect and
enforce its rights, whether by action, suit or proceeding in equity or
at law for the specific performance of any covenant, condition or
agreement in any of the Loan Documents, or in aid of the execution of
any power herein granted, or for any foreclosure hereunder or for the
enforcement of any other appropriate legal or equitable remedy now or
hereafter existing; and/or
(iv) perform or comply with any term, covenant or condition of
this Mortgage and any of the other Loan Documents that Mortgagor has
failed to timely perform or comply with, and all payments made or
costs or expenses incurred by Mortgagee in connection therewith shall
be immediately repaid by Mortgagor to Mortgagee with interest thereon
at the Default Rate upon demand by Mortgagee. The necessity for any
such actions and of the amounts to be paid shall be determined by
Mortgagee in its reasonable discretion. Mortgagee is hereby
irrevocably authorized and empowered to enter (and to authorize and
empower its designees to enter) upon the Premises or any part thereof
for the purpose of performing or observing any such term, covenant or
condition without thereby becoming liable to Mortgagor or any person
in possession holding under Mortgagor except for any loss or damage as
a result of Mortgagee's willful misconduct, gross negligence or bad
faith.
SECTION 2.03. PROCEEDS. Upon any sale made under or by virtue of
this Mortgage, whether made by virtue of judicial proceedings, or of a judgment
or decree of foreclosure and sale, Mortgagee may bid for and acquire the
Mortgaged Property or any part thereof, and in lieu of paying cash therefor may
make settlement for the purchase price by crediting against the Indebtedness the
net sales price after deducting therefrom the expenses of the sale and the costs
of the action and any other
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sums which Mortgagee is authorized to deduct under this Mortgage or pursuant
to applicable law. The proceeds available by virtue of this Mortgage shall
be applied following such sale as follows:
First: To the payment of the reasonable costs and expenses (including
the reasonable fees of Mortgagee's counsel and including those costs incurred
pursuant to Section 3.07 hereof) of or incidental to such sale or any judicial
proceedings wherein the same may be made, and of all expenses, liabilities,
Impositions, insurance premiums and other advances reasonably necessary to (i)
protect the security of this Mortgage or the Mortgaged Property, or (ii) cure
defaults of Mortgagor under this Mortgage, together with interest at the Default
Rate on all payments or advances made by Mortgagee on account of such expenses,
liabilities, taxes, insurance premiums and other advances.
Second: To the payment of the Indebtedness in accordance with the
terms of the Indenture.
Third: The payment of the surplus, if any, shall be distributed to
Mortgagor unless otherwise prohibited by law.
SECTION 2.04. PAYMENT OF MORTGAGOR'S EXPENSES AFTER DEFAULT. If an
Event of Default shall have occurred, then, upon written demand of Mortgagee,
Mortgagor shall pay to Mortgagee the reasonable costs and expenses of collection
and enforcement in respect of any payment and/or obligation of Mortgagor
hereunder, including reasonable compensation to Mortgagee's agents and counsel,
and any other reasonable expenses incurred by Mortgagee hereunder. If Mortgagor
shall fail to pay such amounts upon such demand, Mortgagee shall be entitled and
empowered to institute actions or proceedings at law or in equity for the
collection of the sums so due and unpaid, and may prosecute any such action or
proceedings to judgment or final decree, and may collect, in any manner provided
by law, moneys adjudged or decreed to be payable, provided it is done in
accordance with the provisions herein. Following the occurrence of any Event of
Default and immediately upon the commencement of any action, suit or other legal
proceedings by Mortgagee of any nature in aid of the enforcement of the Notes or
of this Mortgage or any other Loan Document, Mortgagor shall
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enter its voluntary appearance in such action, suit or proceeding. Mortgagee
shall be entitled to recover judgment before, after or during the pendency of
any proceedings for the enforcement of the provisions of this Mortgage.
SECTION 2.05. RECEIVERS. To the extent permitted by law, at any time
after the occurrence of an Event of Default that has not yet been cured,
Mortgagee shall be entitled, if it shall so elect, without the giving of notice
and without regard to the adequacy or inadequacy of any security held by
Mortgagee with respect to the Indebtedness, to the appointment of a receiver or
receivers in respect of the Mortgaged Property. Any such receiver shall have a
right to possession of the Mortgaged Property from and after his or her
appointment, it being the intention of the parties hereto that this Mortgage
permit such receiver to have every right and power with respect to the Mortgaged
Property that is permitted by applicable law.
SECTION 2.06. ELECTION OF REMEDIES. (a) If the Indebtedness is now
or hereafter further secured by chattel mortgages, pledges, contracts,
guaranties, assignments of leases, or other security, Mortgagee may at its
option exercise any or all of its remedies thereunder and/or its remedies
hereunder either concurrently or independently, and in such order as it may
determine.
(b) Each of the rights of Mortgagee granted and/or arising under this
Mortgage shall be separate, distinct and cumulative of all other rights that
Mortgagee may have at law, in equity or otherwise, and none of them shall be in
exclusion of the others, and all of them are cumulative to the remedies for
collection of indebtedness, enforcement of rights under mortgages, and
preservation of security as provided at law. No act of Mortgagee shall be
construed as an election to proceed under any one or more provisions hereof or
under the Note or any other Loan Document to the exclusion of any other
provision, or an election of remedies to the bar of any other remedy allowed at
law or in equity.
SECTION 2.07. WAIVER BY MORTGAGOR. Mortgagor shall not at any time
insist upon, or plead, or in any manner whatever claim or take any benefit or
advantage of any stay or extension or moratorium of law, any exemption
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from execution or sale of the Mortgaged Property or any part thereof, whether
now or at any time hereafter in force, which may affect the covenants and
terms of performance of this Mortgage. Mortgagor shall not claim, take or
insist upon any benefit or advantage of any law now or hereafter in force
providing for the valuation or appraisal of the Mortgaged Property or any
part thereof prior to any sale or sales thereof that may be made pursuant to
any provision hereof or pursuant to the decree, judgment or order of any
court of competent jurisdiction, and after any such sale or sales, Mortgagor
shall not claim or exercise any right under any statute or other law
heretofore or hereafter enacted to redeem the property so sold or any part
thereof. To the extent permitted by law, Mortgagor hereby expressly waives
all benefit or advantage of any such law or laws, and covenants not to
hinder, delay or impede the execution of any power herein granted or
delegated to Mortgagee, but to suffer and permit the execution of every power
as though no such law or laws had been made or enacted. Mortgagor, for
itself and all who may claim under it, hereby waives, to the fullest extent
that it lawfully may, all right to have the Mortgaged Property marshalled
upon any foreclosure hereof, and any and all rights of redemption from sale
under any order or decree of foreclosure of this Mortgage on its behalf and
on behalf of each and every person.
SECTION 2.08. FAIR RENTAL. Following the occurrence and continuance
of any Event of Default and prior to the exclusion of Mortgagor from all or any
part of the Premises, Mortgagor agrees to pay to Mortgagee the fair rental value
(as such shall be determined by Mortgagee) for the use and occupancy of any
portion of the Mortgaged Property that is being occupied by Mortgagor or any
affiliate for such period, and, upon default of any such payment, shall vacate
and surrender possession thereof to Mortgagee or to a receiver, if any, and in
default thereof may be evicted by any summary action or proceeding for the
recovery of possession of the Mortgaged Property for nonpayment of rent, however
designated; provided, however, that any funds shall be returned to Mortgagor
after such Event of Default is cured or waived.
SECTION 2.09. MODIFICATION OF COLLATERAL AGREEMENTS. Without
affecting the liability of Mortgagor
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or any other Entity for payment of the Indebtedness or for performance of any
obligation contained herein, and without affecting the rights of Mortgagee
with respect to any security not expressly released in writing, Mortgagee
may, at any time and from time to time, either before or after the maturity
of the Notes and without notice or consent:
(a) make any agreement with Mortgagor extending the time or otherwise
altering the terms of payment of or any part of the Indebtedness, or modifying
or waiving any such obligation, or subordinating, modifying, or otherwise
dealing with the lien or charge hereof;
(b) exercise, or refrain from exercising, or waive any right
Mortgagee may have;
(c) accept additional security of any kind; or
(d) release or otherwise deal with any property, real or personal,
securing the Indebtedness, including all or any part of the Mortgaged Property.
SECTION 2.10. COSTS OF LITIGATION AND COLLECTION. If, following an
Event of Default, this Mortgage is put into the hands of an attorney for
collection, suit, action or foreclosure and Mortgagee prevails in such suit,
action or foreclosure, or if any action or proceeding shall be commenced to
which Mortgagee is made a party or in which it becomes necessary, in the opinion
of Mortgagee's counsel, to defend or uphold the lien of this Mortgage, all sums
expended by Mortgagee, including reasonable counsel fees and disbursements,
shall be paid by Mortgagor, together with interest thereon at the Default Rate
from and after the rendition to Mortgagor of bills therefor through the date of
payment, and, in any action or proceedings to foreclose this Mortgage, or to
recover or collect the Indebtedness, the provisions of law respecting the
recovery of costs, disbursements and allowances shall prevail unaffected by this
covenant.
SECTION 2.11. SECURITY AGREEMENT. This Mortgage is and is hereby
deemed to be a Security Agreement under the Uniform Commercial Code (the "CODE")
with respect to any and all of the Mortgaged Property that is not real property,
for the purpose of creating hereby a security interest in such property, which
security inter-
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est is hereby granted to Mortgagee as "Secured Party" (as said term is
defined in the Code), securing the Indebtedness and the obligations of
Mortgagor hereunder and, upon recording or registration in the real property
records of the County of [Cook], State of [Illinois], shall constitute a
"fixture filing" within the meaning of Sections 9-313 and 9-402 of the Code
creating a perfected security interest in all fixtures now or hereafter
located at the Premises. At any time following any acceleration of the
Indebtedness pursuant to the provisions hereof, Mortgagee may at its
discretion require Mortgagor to assemble the collateral and make it available
to Mortgagee at the Premises. Mortgagee shall give Mortgagor written notice
of the time and place of any public sale of any of the collateral or of the
time after which any private sale or other intended disposition thereof is to
be made by sending notice to Mortgagor at least twenty (20) Business Days
before the time of the sale or other disposition, which provisions for notice
Mortgagor hereby agrees to be reasonable.
SECTION 2.12. SUITS WITHOUT ACCELERATION. During the continuation of
any Event of Default, Mortgagee shall have the right from time to time to sue
for any sums, whether interest (or any installment thereof), Impositions,
penalties, or any other sums required to be paid under the terms of this
Mortgage, as (or at any time after) the same become due, without regard to
whether or not all of the Indebtedness shall be due on demand, and without
prejudice to the right of Mortgagee thereafter to enforce any appropriate remedy
against Mortgagor, including sale under this Mortgage, or any other action, for
an Event of Default by Mortgagor existing before, at or after the time such
earlier action was commenced, unless Mortgagee shall have expressly and
specifically accepted performance of such Event of Default by Mortgagor and
shall have acknowledged such acceptance as a limitation of Mortgagee's rights
under this Section 2.12.
SECTION 2.13. REPORT OF TITLE. Mortgagee, following the occurrence
of any Event of Default, may order a report of title to the Premises, and if the
cost of the same shall not be paid by Mortgagor within ten (10) days following
the date of demand therefor and presentation of bills with respect thereto,
Mortgagee may, but shall be under no obligation to, pay the same, and Mortgagor
shall reimburse Mortgagee for the cost
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thereof within ten (10) days after demand therefor with interest thereon from
the date of demand through the date of payment at the Default Rate.
SECTION 2.14. ADDITIONAL RIGHTS OF MORTGAGEE. (a) If there be
commenced any action or proceeding that would, if decided against Mortgagor,
have a material adverse effect upon the Premises or Chattels, or the title
thereto or the lien of this Mortgage thereon, Mortgagee may, at its option,
appear in any such action or proceeding and retain counsel therein, and take any
action therein as Mortgagee deems advisable in its reasonable discretion.
(b) Any provision of this Mortgage to the contrary notwithstanding,
in cases where Mortgagee reasonably determines that an emergency exists,
Mortgagee (acting through its agents or designees or otherwise) may, without
prior notice, enter upon the Premises and take such action as Mortgagee deems
necessary in its reasonable discretion to preserve the Mortgaged Property or
Chattels or any parts thereof.
ARTICLE III
ADDITIONAL PROVISIONS
SECTION 3.01. BUSINESS PURPOSE. It is specifically understood and
agreed that the Indebtedness is incurred solely for a business purpose and not a
personal, family, household or agricultural purpose.
SECTION 3.02. TENDER OF PAYMENT. To the extent that Mortgagee
receives any funds hereunder, Mortgagee shall be entitled to apply such funds
first to satisfy any obligation of Mortgagor under Section 3.07 hereof.
SECTION 3.03. BOOKS, RECORDS, ACCOUNTS AND REPORTS. Mortgagor shall
keep and maintain or shall cause to be kept and maintained, at Mortgagor's cost
and expense and in accordance with sound accounting practices and principles
consistently applied, proper and accurate books, records and accounts of all
items of cost in connection with the construction of any improvements which are
now or hereafter a portion of the Premises, and
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Mortgagee and any persons authorized by Mortgagee shall have the right at all
reasonable times and upon reasonable notice to inspect such books, records
and accounts and to make copies thereof.
SECTION 3.04. INSPECTION BY MORTGAGEE. Mortgagor shall permit
Mortgagee and any agent or representative of Mortgagee to enter upon the
Premises and inspect the Mortgaged Property and all books, contracts and records
of Mortgagor relating to the Mortgaged Property at reasonable times and upon
reasonable notice, until such time as the Indebtedness is repaid in full.
Mortgagee shall not have any duty to make any such inspection and shall not
incur any liability or obligation as a result of making or not making any such
inspection, except as a result of the intentional misconduct, gross negligence
or bad faith when making such an inspection of Mortgagee or its agents.
SECTION 3.05. ESTOPPEL CERTIFICATES. Within ten (10) Business Days
following the written request of either Mortgagor or Mortgagee (which may be
made from time to time), Mortgagor or Mortgagee, as the case may be, shall
certify to the requesting party or to any Entity designated thereby, by a duly
acknowledged writing, the amount of principal and interest then owing under the
Notes and secured by this Mortgage, and, if the Estoppel Certificate is
requested by Mortgagee, whether any offsets or defenses exist against the
Indebtedness and, if the Estoppel Certificate is requested by Mortgagor, whether
any notice of default has been given by Mortgagee or, to Mortgagee's knowledge
or, in the case of Mortgagor, to Mortgagor's knowledge (without any duty on the
part of Mortgagee or Mortgagor to make or undertake any investigation) whether
there exists any basis for such a notice. If in connection with such request
the requesting party provides a statement of the amount of principal and
interest then owing under the Notes and secured by this Mortgage, Mortgagor or
Mortgagee, as the case may be, shall confirm such statement or dispute it in
reasonable detail in the certificate to be delivered hereunder.
SECTION 3.06. NO WAIVERS; APPROVALS. (a) Any failure by Mortgagee to
insist, or election by Mortgagee not to insist, upon the strict performance of
any of the terms and provisions of this Mortgage or any of the other
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Loan Documents, shall not be deemed to be a waiver of any of the terms and
provisions hereof, and Mortgagee, notwithstanding any such failure(s), shall
have the right thereafter to insist upon the strict performance by Mortgagor
of any and all of the terms and provisions of this Mortgage to be performed
by Mortgagor. Mortgagor hereby specifically agrees that no provision of this
Mortgage can be waived by course of conduct or orally.
(b) Except as otherwise provided herein, whenever, pursuant to this
Mortgage, Mortgagee exercises any right given to it to approve or disapprove, or
any document, arrangement or term is to be satisfactory to Mortgagee, the
decision of Mortgagee to approve or disapprove or to decide that the document,
arrangement or terms are satisfactory or not satisfactory shall be in the sole
discretion of Mortgagee and shall be final and conclusive. Mortgagee shall have
a reasonable period of time, unless otherwise specified, to evaluate any
requests for its approval referred to herein. If Mortgagee does not approve or
disapprove any matter for which consent is required hereunder within fifteen
(15) Business Days of the date such request was received by Mortgagee, Mortgagee
shall be deemed to have approved such a request. As to any matter set forth
herein for which Mortgagee's consent is required, Mortgagee's evaluation shall
be based upon (i) whether the requested matter could materially adversely affect
(x) the operation of the Premises, or (y) the security for the Loan, or (ii)
whether the matter would increase the obligations of the Mortgagor without
offering a corresponding increase in benefit to Mortgagor.
(c) If, pursuant to the terms of this Mortgage, any consent or
approval by Mortgagee is not to be unreasonably withheld or is subject to a
specified standard, and it is held by a court of competent jurisdiction that the
consent or approval was unreasonably withheld or delayed or that such specified
standard was met so that the consent or approval should have been granted, the
consent or approval shall be deemed granted, and except to the extent that there
has been a final judicial determination that such consent or approval was
withheld in bad faith (in which case the limitations on damages set forth in
this sentence shall not apply), such granting of the consent or approval shall
be the exclusive remedy of
31
<PAGE>
Mortgagor, and Mortgagee shall not in any event be liable for damages by
reason thereof.
SECTION 3.07. INDEMNIFICATION. Except for any loss or claim suffered
by Mortgagee after Mortgagee or its agents takes possession of or title to the
Premises and for any of the acts of Mortgagee or its agents which Mortgagee does
while Mortgagee or its agents is either in possession of or takes title to the
Premises, Mortgagor shall indemnify Mortgagee and hold Mortgagee harmless from
and against any and all claims, damages, losses, liabilities, penalties and
causes of action of any kind whatsoever, which Mortgagee may sustain or incur
(or which may be claimed against Mortgagee) by reason of, or in connection with
(a) Mortgagee's interest in the Mortgaged Property or receipt of any rent or
other sum therefrom, except to the extent that the foregoing may be sustained or
incurred by reason of any sale by Mortgagee of any interest in the Loan; (b) any
accident, injury to or death of persons or loss of or damage to property
occurring on or about the Premises or the adjoining sidewalks, streets or ways,
curbs, vaults and vault space, if any; (c) any use, non-use or condition of the
Premises or the adjoining sidewalks, streets or ways, curbs, vaults and vault
space, if any; (d) any failure on the part of Mortgagor to perform or comply
with any of the terms, covenants or provisions of this Mortgage; (e) the filing
of any mechanics' lien encumbering the Mortgaged Property; or (f) the inaccuracy
of any representation made by Mortgagor herein. Any amounts payable to
Mortgagor or Mortgagee under this Section 3.07 shall bear interest through the
date of payment at the Default Rate. This Section 3.07 is in addition to and
shall in no event limit any of the other indemnification provisions contained in
this Mortgage.
SECTION 3.08. LIEN UNAFFECTED BY MODIFICATIONS OF NOTES. Except as
otherwise expressly provided by the Indenture, the lien of this Mortgage shall
not be affected by any concession, forbearance, moratorium or release granted by
Mortgagee, including, but not limited to any renewal, extension, modification,
coordination, consolidation or restatement which Mortgagee may grant with
respect to the Notes and/or the Indebtedness, or any surrender, compromise,
release, renewal, extension, exchange or substitution which Mortgagor may grant
in respect of
32
<PAGE>
the Mortgaged Property, or any part thereof or interest therein.
SECTION 3.09. AUTHORITY. Mortgagor has full corporate power,
authority and legal right to execute this Mortgage and to mortgage and assign
the Mortgaged Property pursuant to the terms hereof and to keep and observe all
of the terms of this Mortgage on Mortgagor's part to be performed, and upon the
execution and delivery hereof, this Mortgage shall be binding on Mortgagor in
accordance with its terms.
SECTION 3.10. WAIVER OF NOTICE. Mortgagor shall not be entitled to
any notices of any nature whatsoever from Mortgagee, except to the extent
required by law or except to the extent that this Mortgage specifically and
expressly provides for the giving of notice by Mortgagee to Mortgagor.
SECTION 3.11. NO EXTENSIONS OF TIME. No extension of time for the
payment of the Indebtedness or any installment thereof made by agreement with
any Entity now or hereafter liable for payment of the Indebtedness shall operate
to release, discharge, modify, change or affect the original liability of
Mortgagor under this Mortgage or under any other Loan Document, either in whole
or in part. Mortgagor shall not be entitled to any extension of the time by
which Mortgagor's performance under this Mortgage or any other Loan Document is
required hereunder or thereunder, subject, however, to the applicable grace
periods, if any, set forth herein or therein.
SECTION 3.12. INFORMATION. Mortgagor shall deliver to Mortgagee,
promptly upon request, all such information with respect to the contracts
relating to the improvement, maintenance, management and operation of the
Mortgaged Property or any part thereof as Mortgagee from time to time may
reasonably request.
SECTION 3.13. INVALIDITY OF CERTAIN PROVISIONS. All rights, powers
and remedies provided herein may be exercised only to the extent that the
exercise thereof does not violate any applicable law, and are intended to be
limited to the extent necessary so that they will not render this Mortgage
invalid, unenforceable or not entitled to be recorded, registered or filed under
33
<PAGE>
any applicable law. If any term of this Mortgage or the application thereof
to any Entity or circumstances shall, to any extent, be held to be invalid or
unenforceable, the remainder of this Mortgage, and the application of such
term or provision to Entities or circumstances other than those as to which
it is held invalid or unenforceable, shall not be affected thereby, and each
term and provision of this Mortgage shall be valid and enforceable to the
fullest extent permitted by law.
SECTION 3.14 Intentionally Deleted.
SECTION 3.15. NOTICES. (a) Mortgagor shall give notice to Mortgagee
within ten (10) Business Days after Mortgagor becomes aware of the occurrence of
any of the following:
(i) Any material litigation, investigation or proceeding at any
time to which Mortgagor is a party and that could reasonably be
expected to have a materially adverse effect on the Mortgaged
Property;
(ii) Any litigation or proceeding affecting the Mortgaged
Property or any part thereof in which the amount involved is Two
Million Dollars ($2,000,000.00) or more and not fully covered by
insurance excluding any deductible, or in which injunctive or similar
relief is sought;
(iii) A materially adverse change in the Mortgaged Property;
(iv) Any notice given to Mortgagor that alleges any material
violation of or noncompliance with any Requirement of Law with respect
to the Mortgaged Property (including, without limitation, any notice
that alleges violation of or noncompliance with any Environmental
Laws) that could be reasonably be expected to have a material adverse
effect on the Mortgaged Property; or
(v) Any lien relating to a claim in excess of One Million
Dollars ($1,000,000.00) filed or otherwise asserted against the
Mort-
34
<PAGE>
gaged Property, other than a lien created by any Loan Document.
Each notice pursuant to this Section 3.15 shall be accompanied by a
statement of Mortgagor setting forth details of the occurrence referred to
therein and describing the action Mortgagor proposes to take with respect
thereto. All notices shall be in writing and sent in the manner provided in
Section 3.15(b) hereof.
(b) Any communications, requests or notices required or appropriate
to be given under this Mortgage shall be in writing and either personally
delivered, delivered by overnight courier, or mailed by certified, registered,
or express mail, return receipt requested, deposited in the United States mail
postage pre-paid, addressed to the party for whom the notice is intended as
follows:
To Mortgagor: Archibald Candy Corporation
1137 West Jackson Boulevard
Chicago, Illinois 60607
To Mortgagee: The Bank of New York
101 Barclay Street - 21-West
New York, New York 10286
These addresses may be changed by notice as provided herein.
Notwithstanding anything to the contrary contained above, notices of default
hereunder shall be given only by personal delivery or by overnight courier,
addressed in the manner provided above. All notices shall be deemed to have
been received on the earlier of actual receipt, or, if given by mail, four (4)
Business Days following the postmark date thereof unless sent by overnight mail
in which event they shall be deemed to have been received one (1) Business Day
following the postmark date thereof. Any indicated copies of any notices are
courtesy copies only, and failure to deliver any such copy shall not be deemed
to be a failure to deliver notice to Mortgagor or Mortgagee, as the case may be.
Mortgagee's attorney(s) and Mortgagor's attorney(s)
35
<PAGE>
are hereby authorized on behalf of their respective clients to serve any
notice under this Mortgage.
SECTION 3.16. CONSTRUCTION. In this Mortgage, unless the context
otherwise requires, the terms "hereby," "hereof," "hereto," "herein,"
"hereunder," and any similar terms refer to this Mortgage as an entirety and not
solely to the particular portion in which such word is used. Whenever reference
is made herein to the "Premises" or "Mortgaged Property," such reference shall
be deemed to be to "the Premises or any part thereof" or "the Mortgaged Property
or any part thereof" (as the case may be), unless the context clearly requires a
contrary meaning.
SECTION 3.17. NO JOINT VENTURE. Mortgagor and Mortgagee intend that
the relationship created under the Notes and under this Mortgage be solely that
of debtor and creditor or mortgagor and mortgagee, as the case may be. Nothing
herein or in any of the Loan Documents is intended to create a joint venture,
partnership, tenancy-in-common, or joint tenancy relationship between Mortgagor
and Mortgagee, nor to grant Mortgagee any interest in the Mortgaged Property or
the Mortgagor itself other than that of creditor or mortgagee.
SECTION 3.18. MISCELLANEOUS PROVISIONS.
(a) Neither this Mortgage nor any provision hereof may be waived,
modified, amended, discharged or terminated except by an instrument signed by
the party against whom the enforcement of such waiver, modification amendment,
discharge or termination is sought, and then only to the extent set forth in
such instrument.
(b) This Mortgage and the rights and duties of the parties hereto
shall be governed by the laws of the State of Illinois. Any claim, action or
proceeding arising out of or relating to this Mortgage may be maintained against
either of the parties hereto in the courts of the State of Illinois or in any
federal court in the Illinois. The parties hereto (i) irrevocably submit to the
personal jurisdiction of the courts of the State of Illinois or of any federal
court in the State of Illinois in any claim, action or proceeding to be brought
against them, or any of them, for the enforcement of any of their duties or
obligations under this Mortgage and (ii) waive
36
<PAGE>
any and all rights under the law of the State of Illinois or any other
jurisdiction to object to the jurisdiction of the courts of the State of
Illinois or the federal courts in the State of Illinois, as hereinabove set
forth.
(c) The Table of Contents and captions in this Mortgage are inserted
for convenience of reference only, and in no way define, describe or limit the
scope or intent of this Mortgage or any of the provisions hereof.
(d) As used in this Mortgage, the masculine shall include the
feminine and neuter, the singular shall include the plural and the plural shall
include the singular, as the context may require.
SECTION 3.19. SUCCESSORS AND ASSIGNS. All covenants and agreements
herein shall bind the respective successors and assigns of Mortgagor and
Mortgagee, whether so expressed or not (but this provision is not intended nor
shall it be construed to permit Mortgagor or Mortgagee to transfer or assign its
rights and obligations hereunder or under any of the other Loan Documents except
as permitted by the provisions of this Mortgage, the Notes or the other Loan
Documents), and all such covenants shall inure to the benefit of Mortgagee and
Mortgagor and their respective nominees, successors and assigns, whether so
expressed or not.
SECTION 3.20. RELEASE OF LIEN. If Mortgagor shall prepay or
otherwise satisfy the Indebtedness in accordance with the terms of the
Indenture, then and in that event all rights and obligations hereunder (except
for the rights and obligations hereunder which, by their terms, shall survive)
shall terminate (except that Mortgagor's obligations hereunder (if any) that are
not secured by this Mortgage shall survive and be enforceable by Mortgagee at
law and in equity provided Mortgagee shall have notified Mortgagor in writing at
or before the time of Mortgagor's payment of any obligations of Mortgagor which
Mortgagee claims are outstanding and shall survive the satisfaction of this
Mortgage if not paid or performed prior thereto), and the Mortgaged Property
shall become wholly released and cleared of the liens, security interests,
conveyances and assignments evidenced hereby. In such event Mortgagee shall, at
the request of Mortgagor, deliver to Mortgagor, in recordable form, all
37
<PAGE>
such documents as shall be necessary to release the Mortgaged Property from
the liens, security interests, conveyances and assignments created or
evidenced hereby or, at the request of Mortgagor, an assignment of this
Mortgage to such person as Mortgagor shall designate in writing, provided
that any such assignment shall be without recourse to Mortgagee and without
any representation or warranty (express or implied) whatsoever by Mortgagee.
SECTION 3.21. NEGOTIATED DOCUMENT. Mortgagor and Mortgagee
acknowledge that the provisions and the language of this Mortgage have been
negotiated and are reasonable in light of all circumstances attendant to the
execution of this Mortgage, and agree that no provision of this Mortgage shall
be construed against either Mortgagor or Mortgagee by reason of either Mortgagor
or Mortgagee having drafted such provision or this Mortgage.
SECTION 3.22. NO RECOURSE AGAINST OTHERS. No director, officer,
employee, incorporator, shareholder, or controlling person of Mortgagor as such,
shall have any liability for any obligations of Mortgagor under the Mortgage or
for any claim based on, in respect of, or by reason of such Mortgage.
38
<PAGE>
IN WITNESS WHEREOF, Mortgagor has caused this instrument to be duly
executed as of the day and year first above written.
ARCHIBALD CANDY CORPORATION
ARCHIBALD CANDY CORPORATION
By: /s/ Ted A. Shepherd
-----------------------------------
Attest: Its: President and Chief
Operating Officer
/s/ Donna M. Snopek
- -------------------------------
Its: Vice President - Finance
and Accounting
39
<PAGE>
NOTARIAL ACKNOWLEDGEMENTS
STATE OF ILLINOIS )
)
COUNTY OF COOK )
I, /s/ Nancy A. Hanzalik, a Notary Public in and for the said County
and State aforesaid, DO HEREBY CERTIFY, that Ted A. Shepherd and Donna M.
Snopek, the the President and COO and V.P. Finance and Accounting
respectively of Archibald Candy Corporation, an Illinois corporation,
personally known to me to be the same persons whose names are subscribed to
the foregoing instrument as such President and COO and V.P. Finance and
Accounting appeared before me this day in person and acknowledged that they
signed and delivered the said instrument as their own free and voluntary act
and as of the free and voluntary act of said corporation, for the uses and
purposes therein set forth.
Given under my hand and notarial seal this 2nd day of July, 1997.
/s/ Nancy A. Hanzalik
---------------------------------------
Notary Public
THIS INSTRUMENT WAS PREPARED BY AND RECORDED COUNTERPARTS SHOULD BE RETURNED TO:
ANDREW STRASSER, SKADDEN, ARPS, 333 WEST WACKER DRIVE, 21ST FLOOR, CHICAGO,
ILLINOIS 60606.
<PAGE>
SCHEDULE A
DESCRIPTION OF PREMISES
PARCEL 1:
LOTS 17 TO 26 INCLUSIVE IN WRIGHTS SUBDIVISION OF THE WEST 1/2 OF BLOCK 24 IN
CANAL TRUSTEES SUBDIVISION OF THE WEST 1/2 AND THE WEST 1/2 OF THE NORTHEAST 1/4
OF SECTION 17, TOWNSHIP 39 NORTH, RANGE 14, EAST OF THE THIRD PRINCIPAL
MERIDIAN;
PARCEL 2:
THAT PART OF VACATED GARDEN STREET LYING SOUTH OF AND ADJOINING LOTS 17 TO 21
INCLUSIVE AND NORTH OF AND ADJOINING LOTS 22 TO 26 INCLUSIVE IN WRIGHTS
SUBDIVISION OF THE WEST 1/2 OF BLOCK 24 IN CANAL TRUSTEES SUBDIVISION OF THE
WEST 1/2 AND THE WEST 1/2 OF THE NORTH EAST 1/4 OF SECTION 17, TOWNSHIP 39
NORTH, RANGE 14, EAST OF THE THIRD PRINCIPAL MERIDIAN;
PARCEL 3:
LOTS 7 TO 26 INCLUSIVE IN THE SUBDIVISION OF THE EAST 1/2 OF BLOCK 24 IN CANAL
TRUSTEES SUBDIVISION OF THE WEST 1/2 AND THE WEST 1/2 OF THE NORTHEAST 1/4 OF
SECTION 17, TOWNSHIP 39 NORTH, RANGE 14, EAST OF THE THIRD PRINCIPAL MERIDIAN;
PARCEL 4:
THAT PART OF VACATED GARDEN STREET LYING SOUTH OF AND ADJOINING LOTS 17 TO 21
INCLUSIVE AND NORTH OF AND ADJOINING LOTS 22 TO 26 INCLUSIVE IN SUBDIVISION OF
THE EAST 1/2 OF BLOCK 24 IN CANAL TRUSTEES SUBDIVISION OF THE WEST 1/2 AND THE
WEST 1/2 OF THE NORTHEAST 1/4 OF SECTION 17, TOWNSHIP 39 NORTH, RANGE 14, EAST
OF THE THIRD PRINCIPAL MERIDIAN;
<PAGE>
SCHEDULE A (CONT'D)
PARCEL 5:
ALL OF THE HERETOFORE VACATED NORTH-SOUTH 20 FOOT ALLEY LYING WEST OF THE WEST
LINE OF LOTS 1 TO 16, BOTH INCLUSIVE, LYING EAST OF THE EAST LINE OF LOTS 17 AND
22, LYING EAST OF THE EAST LINE OF THE 40 FOOT PUBLIC ALLEY VACATED BY DOCUMENT
NUMBER 20386525, BEING A LINE DRAWN FROM THE SOUTHEAST CORNER OF LOTS 17 TO THE
NORTHEAST CORNER OF LOT 22, LYING SOUTH OF A LINE DRAWN FROM THE NORTHWEST
CORNER OF LOT 1 TO THE NORTHEAST CORNER OF LOT 17, AND LYING NORTH OF A LINE
DRAWN FROM THE SOUTHWEST CORNER OF LOT 16 TO THE SOUTHEAST CORNER OF LOT 22 ALL
IN SUBDIVISION OF THE WEST 1/2 OF BLOCK 24 IN CANAL TRUSTEE'S SUBDIVISION OF THE
WEST 1/2 AND THE WEST 1/2 OF THE NORTHEAST 1/4 OF SECTION 17, TOWNSHIP 39 NORTH,
RANGE 14, EAST OF THE THIRD PRINCIPAL MERIDIAN, IN COOK COUNTY, ILLINOIS.
<PAGE>
SCHEDULE A-1
PERMANENT INDEX NUMBERS
17-17-223-010-0000 (1 of 17)
17-17-223-011-0000 (2 of 17)
17-17-223-012-0000 (3 of 17)
17-17-223-013-0000 (4 of 17)
17-17-223-014-0000 (5 of 17)
17-17-223-015-0000 (6 of 17)
17-17-223-016-0000 (7 of 17)
17-17-223-017-0000 (8 of 17)
17-17-223-018-0000 (9 of 17)
17-17-223-019-0000 (10 of 17)
17-17-223-020-0000 (11 of 17)
17-17-223-021-0000 (12 of 17)
17-17-223-022-0000 (13 of 17)
17-17-223-023-0000 (14 of 17)
17-17-223-024-0000 (15 of 17)
17-17-223-025-0000 (16 of 17)
17-17-223-026-0000 (17 of 17)
<PAGE>
SCHEDULE B
Permitted Exceptions
Those certain exceptions as shown on Chicago Title Insurance Company Policy
No. 1401 007669978
<PAGE>
Archibald Candy Corporation,
as Mortgagor
TO
The Bank of New York,
as Mortgagee
- --------------------------------------------------------------------------------
OPEN-END MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF LEASES AND
RENTS, FIXTURE FILING AND FINANCING STATEMENT
- --------------------------------------------------------------------------------
Dated: As of July 2, 1997
This document prepared by and after recording should be returned to:
Skadden, Arps, Slate, Meagher & Flom
333 West Wacker Drive, Suite 2100
Chicago, Illinois 60606
Attention: Andrew M. Strasser
- --------------------------------------------------------------------------------
THIS MORTGAGE SECURES FUTURE ADVANCES AND FUTURE
OBLIGATIONS AT ANY TIME OUTSTANDING UP TO A MAXIMUM
<PAGE>
PRINCIPAL AMOUNT OF $100,000,000
<PAGE>
TABLE OF CONTENTS
Page
----
CERTAIN DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
GRANTING CLAUSE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE I. REPRESENTATIONS AND COVENANTS
OF MORTGAGOR
SECTION 1.01. Covenant of Title. . . . . . . . . . . . . . . . . . . 7
SECTION 1.02. Further Assurances . . . . . . . . . . . . . . . . . . 7
SECTION 1.03. Payment of Indebtedness. . . . . . . . . . . . . . . . 8
SECTION 1.04. Mortgagor's Existence. . . . . . . . . . . . . . . . . 8
SECTION 1.05. Additional Property. . . . . . . . . . . . . . . . . . 9
SECTION 1.06. Payment of Impositions and
Insurance . . . . . . . . . . . . . . . . . . . . 9
SECTION 1.07. Insurance. . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 1.08. Damage or Destruction;
Insurance Proceeds. . . . . . . . . . . . . . . . 13
SECTION 1.09. Condemnation . . . . . . . . . . . . . . . . . . . . . 16
SECTION 1.10. Condition of Premises;
Compliance with Laws;
Restrictive Covenants . . . . . . . . . . . . . . 16
SECTION 1.11. Assignment of Leases,
Rents, Issues and Profits . . . . . . . . . . . . 19
SECTION 1.12. No Prior Sale. . . . . . . . . . . . . . . . . . . . . 19
SECTION 1.13. Hazardous Material . . . . . . . . . . . . . . . . . . 19
SECTION 1.14. Permitted Transfers. . . . . . . . . . . . . . . . . . 20
ARTICLE II. EVENTS OF DEFAULT; REMEDIES
SECTION 2.01. Events of Default. . . . . . . . . . . . . . . . . . . 20
SECTION 2.02. Mortgagee's Remedies . . . . . . . . . . . . . . . . . 21
SECTION 2.03. Proceeds . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 2.04. Payment of Mortgagor'
Expenses after Default. . . . . . . . . . . . . . 24
SECTION 2.05. Receivers. . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 2.06. Election of Remedies . . . . . . . . . . . . . . . . . 25
SECTION 2.07. Waiver by Mortgagor. . . . . . . . . . . . . . . . . . 26
SECTION 2.08. Fair Rental. . . . . . . . . . . . . . . . . . . . . . 26
SECTION 2.09. Modification of Collateral
Agreements. . . . . . . . . . . . . . . . . . . . 28
SECTION 2.10. Costs of Litigation and
Collection. . . . . . . . . . . . . . . . . . . . 27
SECTION 2.11. Security Agreement . . . . . . . . . . . . . . . . . . 28
<PAGE>
Page
----
SECTION 2.12. Suits without Acceleration . . . . . . . . . . . . . . 28
SECTION 2.13. Report of Title. . . . . . . . . . . . . . . . . . . . 28
SECTION 2.14. Additional Rights of
Mortgagees. . . . . . . . . . . . . . . . . . . . 29
ARTICLE III. ADDITIONAL PROVISIONS
SECTION 3.01. Business Purpose . . . . . . . . . . . . . . . . . . . 29
SECTION 3.02. Tender of Payment. . . . . . . . . . . . . . . . . . . 29
SECTION 3.03. Books, Records, Accounts and
Reports . . . . . . . . . . . . . . . . . . . . . 29
SECTION 3.04. Inspection by Mortgagee. . . . . . . . . . . . . . . . 30
SECTION 3.05. Estoppel Certificates. . . . . . . . . . . . . . . . . 30
SECTION 3.06. No Waivers; Approvals. . . . . . . . . . . . . . . . . 31
SECTION 3.07. Indemnification. . . . . . . . . . . . . . . . . . . . 32
SECTION 3.08. Lien Unaffected by Modifica-
tions of Bonds . . . . . . . . . . . . . . . . . 32
SECTION 3.09. Authority. . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 3.10. Waiver of Notice . . . . . . . . . . . . . . . . . . . 33
SECTION 3.11. No Extensions of Time. . . . . . . . . . . . . . . . . 33
SECTION 3.12. Information. . . . . . . . . . . . . . . . . . . . . . 33
SECTION 3.13. Invalidity of Certain
Provisions. . . . . . . . . . . . . . . . . . . . 33
SECTION 3.14. Non-Usury. . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 3.15. Notices. . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 3.16. Construction . . . . . . . . . . . . . . . . . . . . . 36
SECTION 3.17. No Joint Venture . . . . . . . . . . . . . . . . . . . 36
SECTION 3.18. Miscellaneous Provisions . . . . . . . . . . . . . . . 36
SECTION 3.19. Successors and Assigns . . . . . . . . . . . . . . . . 37
SECTION 3.20. Release of Lien. . . . . . . . . . . . . . . . . . . . 37
SECTION 3.21. Negotiated Document. . . . . . . . . . . . . . . . . . 38
SECTION 3.22. No Recourse Against Others . . . . . . . . . . . . . . 38
SECTION 3.23. Open-End Mortgage Provisions . . . . . . . . . . . . . 38
NOTARIAL ACKNOWLEDGEMENTS
SCHEDULE A Description of Premises
SCHEDULE B Permitted Exceptions
<PAGE>
THIS OPEN-END MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF LEASES AND
RENTS, FIXTURE FILING AND FINANCING STATEMENT ("MORTGAGE"), made as of July 2,
1997, between ARCHIBALD CANDY CORPORATION, ("MORTGAGOR"), and THE BANK OF NEW
YORK, as trustee for the benefit of the holders of the Notes (as hereinafter
defined) ("MORTGAGEE").
WHEREAS, the Mortgagor and Mortgagee have entered into that certain
Indenture dated as of July 2, 1997 (as amended, restated, supplemented or
otherwise modified from time to time, the "INDENTURE") pursuant to which, among
other things, the Mortgagor has issued its 10 1/4% Senior Secured Notes due July
1, 2004 (the "Notes"); and
WHEREAS, execution of this Mortgage is a condition precedent to the
closing of the Indenture.
NOW, THEREFORE, in order to secure to Mortgagee (a) the repayment of
the indebtedness evidenced by the Notes with interest thereon and all other
obligations under the Indenture, together with all renewals, extensions and
modifications thereof; (b) the payment of all other sums with interest thereon
advanced in accordance herewith to protect the security of this Mortgage; and
(c) the performance of the covenants and agreements of Mortgagor herein
contained and contained in the Indenture, the Notes and the other Loan Documents
(collectively the "INDEBTEDNESS") Mortgagor agrees as follows:
CERTAIN DEFINITIONS
The following terms shall have the following meanings, such
definitions to be applicable equally to the singular and the plural forms of
such terms.
"BUSINESS DAY" has the meaning set forth in the Indenture.
"CHATTELS" means all fixtures, fittings, appliances, apparatus,
equipment, supplies, building materials and machinery (and additions thereto and
replacements thereof) now or hereafter owned by Mortgagor, or in which Mortgagor
has or shall have any interest, that are not Improvements (as hereinafter
defined) and that (i) are now or at any time hereafter affixed to or attached
to,
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the Premises (as hereinafter defined) for so long as so affixed or attached.
"DEFAULT RATE" means 10 1/4% per annum.
"ENTITY" means any individual, partnership, corporation, trust or
other entity.
"ENVIRONMENTAL LAWS" means any and all Requirements of Law (as
hereinafter defined) regulating, relating to or imposing liability or standards
of conduct concerning any Hazardous Material (as hereinafter defined), as may
now or at any time hereinafter be in effect.
"EVENT OF DEFAULT" means any of the events and circumstances described
as such in Section 2.01 hereof.
"GOVERNMENTAL AUTHORITY" means any court, governmental,
administrative, regulatory, adjudicatory, or arbitrational body, department,
commission, board, bureau, agency or instrumentality of any kind properly
exercising jurisdiction over the Mortgaged Property (as hereinafter defined), or
whose consent or approval is required as a prerequisite to the use, operation or
occupancy of the Mortgaged Property, or to the performance of any act or
obligation or the observance of any agreement, provision or condition of
whatsoever nature herein contained.
"HAZARDOUS MATERIAL" means (a) pollutants, contaminants, toxic or
hazardous wastes, or any other substances the removal of which is required, or
the manufacture, use, maintenance, storage, ownership or handling of which is
restricted, prohibited, regulated or penalized by any Requirement of Law now or
at any time hereunder in effect, including, without limitation, any waste,
substance or material that exhibits any of the characteristics enumerated in 40
C.F.R. Sections 261.20-261.24, inclusive, or any extremely hazardous substances
listed under Section 302 of the Superfund Amendment and Reauthorization Act of
1986 ("SARA") that are present in threshold planning or reportage quantities as
defined under SARA, or any toxic or hazardous chemical substances that are
present in quantities that exceed exposure standards as those terms are defined
under Sections 6 and 8 of the Occupational Safety and Health Act and 29 C.F.R.
Part 1910
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subpart 2, and (b) any asbestos or asbestos-containing substances in quality
or in quantity in violation of applicable Environmental Laws. Notwithstanding
the foregoing, the term "Hazardous Material" shall not include chemicals
routinely used in office areas or janitorial supplies, cleaning fluids or
chemicals necessary for the day-to-day operation or maintenance of the
Mortgaged Property; provided that such chemicals and cleaning fluids are
used, stored and disposed of in compliance with all Requirements of Law
applicable to the Mortgagor or the Mortgaged Property. All reference to
statutes in this definition shall be deemed to refer to such statutes as same
may be amended from time to time, and to include any statute superseding or
supplementing any such statute.
"IMPROVEMENTS" means all structures or buildings and replacements
thereof, now or hereafter erected or located at the Premises, including, without
limitation, all equipment, apparatus, machinery and fixtures of every kind and
nature whatsoever forming part of said structures or buildings.
"INSURANCE CERTIFICATES" means certificates of insurance confirming
that insurance policies meeting the requirements of this Mortgage are in effect,
which certificates shall (a) list the types and amounts of coverage evidenced
thereby, and (b) have all exclusions and exclusionary endorsements with respect
to the coverage evidenced thereby appended thereto.
"LOAN" means the indebtedness evidenced by the Notes.
"LOAN DOCUMENTS" means this Mortgage, the Indenture, the Notes, that
certain Mortgage, Security Agreement and Financing Statement dated of even date
herewith granted by Mortgagor in favor of Mortgagee encumbering that certain
warehouse facility owned by Mortgagor, and located in Bucks County, Pennsylvania
and any and all other security given by or on behalf of Mortgagor to Mortgagee
from time to time to evidence or secure the Indebtedness and any and all other
documents which may hereafter be given by Mortgagor to Mortgagee as further
security for, or in connection with, the Loan. References to the Loan Documents
or to any particular Loan Document shall be deemed references to such document
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as the same may be renewed, modified, consolidated, replaced and/or restated
from time to time in accordance with the provisions of the Loan Documents;
provided, however, that this sentence shall not be construed to permit any
renewal, modification, consolidation, replacement and/or restatement that is
prohibited by or inconsistent with the provisions of this Mortgage or any
other document to which Mortgagee is a party, unless consented to by
Mortgagee.
"MORTGAGE" means this Mortgage, Security Agreement and Financing
Statement.
"MORTGAGED PROPERTY" has the meaning ascribed to such term in the
Granting Clause hereof.
"MORTGAGEE" means The Bank of New York, as trustee under the
Indenture, and its successors and assigns, as said Indenture may be modified
and/or amended.
"NOTES" has the meaning ascribed to such term in the recitals hereof.
"PERMITTED EXCEPTIONS" has the meaning ascribed to such term in
Section 1.01 hereof.
"PERMITTED TRANSFER" has the meaning ascribed to such term in Section
1.14 hereof.
"REQUIREMENTS OF LAW" means as to any Entity, any law, treaty, rule or
regulation, or determination of a Governmental Authority, in each case
applicable to or binding upon such Entity or any of its property or to which
such Entity or any of its property is subject; and, as to the Mortgaged
Property, any applicable laws, statutes, codes, treaties, permits, decrees,
ordinances, orders, rules, regulations or requirements of any Governmental
Authority, including, without limitation, any applicable environmental,
ecological, zoning, landmark, subdivision, building, use and land use laws,
codes, statutes and regulations and any applicable covenants and restrictions.
"TRANSFER" means any (i) assignment, sale or other transfer of the
Mortgaged Property or any part thereof or any interest therein (including,
without
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limitation, any "air" or development rights but excluding any such
assignment, sale or other transfer in connection with a taking by eminent
domain or a transfer in lieu thereof) either voluntarily or involuntarily, by
operation of law or otherwise, or (ii) lease or sublease entered into by
Mortgagor of all or substantially all of the space in the Improvements, in a
single or successive transactions to any single lessee or related lessees.
GRANTING CLAUSE
In order to secure the payment of the Indebtedness and the performance
and observance of all of the provisions of this Mortgage, the Notes and the
other Loan Documents, Mortgagor does by these presents hereby mortgage, grant,
remise, release, alien, convey and assign unto Mortgagee, its successors and
assigns, all of Mortgagor's estate, right, title and interest in, to and under
the property described on Exhibit A hereto (the "Premises") and any and all of
the following described property (collectively, the "MORTGAGED PROPERTY")
whether now owned or held or hereafter acquired:
(a) all buildings, improvements, and tenements now or hereafter erected on
the Premises, and all heretofore or hereafter vacated alleys and streets
abutting the Premises; and
(b) all easements, rights of way, rights, appurtenances, rents, issues,
profits, royalties, mineral, oil and gas rights and profits, water, water
rights, and water stock appurtenant to the Premises; and
(c) all fixtures, machinery, equipment, engines, boilers, incinerators,
building materials and appliances of every nature whatsoever now or hereafter
located in, or on, or used, or intended to be used in connection with the
Premises, including, but not limited to, those for the purposes of supplying or
distributing heating, cooling, electricity, gas, water, air and light; and
(d) all elevators, and related machinery and equipment, fire prevention
and extinguishing apparatus, security and access control apparatus, plumbing,
bathtubs, water heaters, water closets, sinks, ranges, stoves, refrigerators,
dishwashers, disposals, washers, dryers, awnings, storm windows, storm doors,
screens, blinds,
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shades, curtains and curtain rods, mirrors, cabinets, paneling, rugs,
attached floor coverings, furniture, fixtures, equipment used in connection
with the Premises; and
(e) [Intentionally omitted.]
(f) all leasehold estates, right, title and interest of Mortgagor in and
to all ground leases, leases, subleases covering the Premises or any portion
thereof now or hereafter existing or entered into (herein "LEASES") and all
right, title and interest of Mortgagor thereunder, including without limitation
all guaranties thereof, all cash, security deposits, advance rentals, and all
deposits or payments of a similar nature relating to such Leases; and
(g) all right, title and interest of Mortgagor into and under all plans,
specifications, maps, surveys, studies, reports, permits, licenses or any other
governmental approval or payment, architectural, engineering and construction
contracts, books, accounts, insurance policies, title insurance policies and
other documents of whatever kind or character, relating to the use,
construction, occupancy, leasing, sale or operation of the Premises; and
(h) all interests, estates or other claims or demands, in law and in
equity which Mortgagor now has or may hereafter acquire, in the Premises and all
estate, interest, right, title, other claim or demand, both in law and in equity
including claims or demands with respect to proceeds of insurance relating
thereto, which Mortgagor now has or may hereafter acquire in the Premises, or
any other portion thereof or interest therein; and
(i) all awards made for the taking by eminent domain or by any proceeding
or purchase in lieu thereof of the whole or any part of the Premises, including
without limitation, any award resulting from a change of any streets (whether as
to grade accession otherwise) and any award for severance damages all of which,
including all appurtenances, replacements, betterments, renewals, substitutions
and additions thereto, shall be deemed to be and remain a part of the real
property covered by this Mortgage.
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TO HAVE AND TO HOLD the Mortgaged Property unto Mortgagee, its
successors and assigns (as are permitted in accordance with the terms of the
Notes) forever, for the purposes and uses herein set forth.
ARTICLE I
REPRESENTATIONS AND COVENANTS OF MORTGAGOR
Mortgagor represents and covenants to and for the benefit of Mortgagee
as follows:
SECTION 1.01. COVENANT OF TITLE. Mortgagor is the owner of fee
simple title to the Mortgaged Property, subject to no lien, charge or
encumbrance except for Permitted Liens (as defined in the Indenture) and as
listed on SCHEDULE B attached hereto and made a part hereof (the "PERMITTED
EXCEPTIONS"); and this Mortgage is and shall remain a valid first mortgage lien
on the Mortgaged Property subject only to the Permitted Exceptions. Mortgagor
has full corporate power and lawful authority to mortgage the Mortgaged Property
in the manner and form herein done, and to perform all of its obligations
hereunder. Mortgagor shall preserve such title, and shall forever defend such
title and the validity and priority of the lien hereof against the claims of all
persons and parties except as aforesaid.
SECTION 1.02. FURTHER ASSURANCES. (a) Mortgagor shall, at its sole
cost and expense, perform such further acts, and execute, acknowledge and/or
deliver all such further deeds, conveyances, mortgages, assignments, estoppel
certificates, financing statements, notices of assignment, subordinations,
transfers, assurances and other documents and instruments as Mortgagee shall
from time to time require for the better assuring, conveying, assigning,
transferring and confirming unto Mortgagee of any and all of the property and
rights hereby conveyed or assigned, or that Mortgagor may be bound to convey or
assign to Mortgagee, or for carrying out the intention or facilitating the
performance of the terms of this Mortgage, or for filing, registering or
recording this Mortgage. Upon demand from time to time, Mortgagor shall execute
and deliver, and hereby authorizes Mortgagee to execute and file in Mortgagor's
name, one or more financing statements, chattel mortgages or comparable security
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instruments, to evidence more effectively the lien of this Mortgage upon the
Chattels.
(b) From and after the execution and delivery of this Mortgage,
Mortgagor shall cooperate with Mortgagee in causing this Mortgage, all related
financing statements, and any other instrument creating a lien or evidencing the
lien of this Mortgage, to be filed, registered or recorded in such manner and in
such places as may be required by any present or future law in order to publish
notice of and fully perfect and protect the lien of this Mortgage upon, and the
interest of Mortgagee in, the Mortgaged Property.
(c) Mortgagor shall promptly pay, whenever imposed, all filing,
registration or recording fees, and all expenses incident to the execution and
delivery of this Mortgage, any security instrument with respect to the Mortgaged
Property, and any other instrument relating to the Indebtedness, and all
federal, state, county and municipal recording taxes, stamp taxes and similar
other taxes, duties, imposts, assessments and charges arising out of the
execution and delivery of the Notes, this Mortgage, any of the other Loan
Documents, any security instrument with respect to the Mortgaged Property or any
other instrument referred to in this Section 1.02 imposed on Mortgagee by reason
of its ownership of this Mortgage.
SECTION 1.03. PAYMENT OF INDEBTEDNESS. Mortgagor shall punctually
pay each and every component of the Indebtedness at the time (time being of the
essence) and place and in the manner specified hereunder, in the Notes and in
the other Loan Documents, all in immediately available lawful money of the
United States of America.
SECTION 1.04. MORTGAGOR'S EXISTENCE. Mortgagor shall, so long as it
holds legal title to the Mortgaged Property, and as long as any part of the
Indebtedness remains unpaid, do all things necessary to preserve and keep in
full force and effect its existence, franchises, rights and privileges as a
business or stock corporation, partnership, trust or other entity under the laws
of the state of its formation, and shall at all times during the term of this
Mortgage be and remain authorized to do business in the state in which the
Mortgaged Property is located.
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SECTION 1.05. ADDITIONAL PROPERTY. All right, title and interest of
Mortgagor in and to all extensions, improvements, betterments, renewals,
substitutes and replacements of, and all additions and appurtenances to, the
Mortgaged Property, hereafter acquired by or released to Mortgagor, or
constructed, assembled or placed on the Premises, and, subject to the provisions
of Sections 1.08 and 1.09, all conversions of the security constituted thereby,
immediately upon such acquisition, release, construction, assembly, placement or
conversion, as the case may be, and in each such case, without any further
mortgage, conveyance, assignment or other act by Mortgagor, shall become subject
to the lien of this Mortgage as fully and completely, and with the same effect,
as though now owned by Mortgagor and specifically described in the granting
clause hereof, but at any and all times Mortgagor shall promptly execute and
deliver to Mortgagee any and all such further assurances, mortgages, conveyances
or assignments thereof as Mortgagee may reasonably request for the purpose of
expressly and specifically subjecting the same to the lien of this Mortgage.
SECTION 1.06. PAYMENT OF IMPOSITIONS AND INSURANCE. (a) Except as
otherwise provided by any of the other Loan Documents and the provisions hereof,
Mortgagor, from time to time, shall pay and discharge prior to the date interest
or penalties attach, all taxes (whether real or personal) of every kind and
nature, all general and special assessments and levies, all permit, inspection
and license fees, all water and sewer rents and charges, and all other public
charges, whether of a like or different nature, imposed upon or assessed or
levied against the Mortgaged Property or any part thereof, or resulting from the
leasing, ownership, use or occupancy thereof (all of the foregoing items being
referred to herein as "IMPOSITIONS"). Upon written request from Mortgagee,
Mortgagor shall deliver to Mortgagee receipts or other reasonably satisfactory
documentation evidencing the timely payment of all Impositions. If, by law, any
Imposition is payable (or may at the option of the payor be paid) in
installments, Mortgagor may pay the same, together with any accrued interest on
the unpaid balance of such Imposition, in installments as the same become due
and before any fine, penalty, additional interest or cost may be added thereto
for the nonpayment of any such installment and/or interest.
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(b) From and after the occurrence of any Event of Default and until a
cure of such Event of Default, at the option of Mortgagee (to be exercised by
written notice to Mortgagor) and further to secure the Indebtedness and the
obligations of Mortgagor hereunder, including the payment of Impositions and the
premiums on the insurance required to be carried hereunder, Mortgagor shall
deposit with Mortgagee on the first day of each month, such amounts as, in the
reasonable estimation of Mortgagee, shall be necessary to pay such Impositions
as they become due; said deposits to be held by Mortgagee free of interest, and
free of any liens or claims on the part of creditors of Mortgagor and as part of
the security of Mortgagee. Subject to Subsection 1.06(c), payment from said
sums for current Impositions and insurance premiums on the Premises shall be
made by Mortgagee, and may be made even though such payments will benefit
subsequent owners of the Premises. Said deposits shall not be, nor deemed to
be, trust funds, but may be commingled with the general funds of Mortgagee;
provided, however, that such funds shall not be distributed by Mortgagee or
disbursed to pay any other sum. If Mortgagee shall reasonably determine that
said deposits are or will be insufficient to pay Impositions and insurance
premiums in full as the same become payable, Mortgagee shall increase the amount
of such monthly deposit by an amount necessary to insure that Mortgagee has on
deposit such sums as may be required in order to timely pay such Impositions and
insurance premiums in full. Upon the occurrence of any subsequent Event of
Default, and prior to any cure thereof, Mortgagee may, at its option, apply any
money in the fund resulting from said deposits to the payment of the
Indebtedness in such manner as it may elect, and shall give notice of such
application to Mortgagor. Under no circumstances shall Mortgagee be liable for
failure to make any payment on behalf of Mortgagor, including, without
limitation, payments of Impositions or insurance premiums.
(c) Notwithstanding anything to the contrary contained herein,
Mortgagor shall have the right to contest, at its own expense, the amount or
validity of any Impositions, interest or penalties thereon, or to seek a
reduction in the valuation of the Mortgaged Property (or any part thereof) as
assessed for real estate or personal property tax purposes, provided that the
foregoing shall not relieve Mortgagor of its obligation to
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timely pay all Impositions, interest and penalties thereon. Notwithstanding
the preceding sentence, Mortgagor may defer the payment of any contested
Impositions, interest or penalties provided that (i) such deferral of payment
is permitted by applicable law, and (ii) Mortgagor in good faith and at its
own expense diligently contests the amount of such Impositions, interest,
penalty or valuation (or the validity thereof) by appropriate legal
proceedings which shall operate to prevent the collection thereof or other
realization thereon and/or the sale or the forfeiture of the Mortgaged
Property or any part thereof. Mortgagor's obligation, if any, to make
deposits pursuant to Subsection 1.06(b) hereof shall not be affected by such
deferral or proceeding; provided that Mortgagee shall not apply any amounts
so deposited during any deferral period permitted hereunder. If at any time
the Mortgaged Property or any part thereof would, in Mortgagee's reasonable
judgment, by reason of such deferral or contest, be in imminent danger of
being forfeited or lost, Mortgagee may immediately apply the cash or security
theretofore deposited with it in payment of the amount so contested and
unpaid, together with all interest and penalties thereon and shall give
Mortgagor notice five (5) days prior to such application. If at any time
Mortgagee reasonably determines that the cash or security deposited with
Mortgagee is insufficient to pay all such amounts, Mortgagor shall, within
five (5) Business Days after demand, pay such additional amounts as are
necessary to cover such deficiency.
SECTION 1.07. INSURANCE. (a) Mortgagor, at its sole cost and
expense, shall keep the Improvements and Chattels insured at all times for the
mutual benefit of Mortgagee and Mortgagor, against such risks and in such
amounts as are generally maintained by prudent owners of premises in Bucks
County, Pennsylvania, that are comparable to the Premises.
(b) Simultaneously with the execution and delivery of this Mortgage,
Mortgagor shall deliver to Mortgagee (x) Insurance Certificates evidencing that
the insurance required hereunder is in effect, or (y) endorsements with respect
to all such policies, together with proof that all premiums due with respect to
such policies have been paid in full. Thereafter, at least five (5) days prior
to the cancellation date or expiration of any such policy during the term of
this Mortgage,
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Mortgagor shall deliver to Mortgagee an Insurance Certificate evidencing the
extension or renewal of such policy or renewal endorsement therefor, together
with proof that all premiums due in connection therewith have been paid in
full. All Insurance Certificates and endorsements relating to the insurance
required by this Section 1.07 shall be in form reasonably satisfactory to
Mortgagee, and shall be issued by companies authorized to do business in the
State of Pennsylvania or qualified to write such policies in the State of
Pennsylvania and reasonably satisfactory to Mortgagee. All policies of
insurance relating to the insurance provided for in Subsection 1.07(a) shall
name Mortgagee as a mortgagee pursuant to the standard non-contributory
mortgagee clause or its equivalent, and shall provide, subject to Subsection
1.07(c) below, that all losses payable thereunder shall be payable to
Mortgagee. For purposes hereof, companies with a Best rating of "A-" or
better (or the equivalent rating at any applicable time) shall be deemed
satisfactory to Mortgagee.
(c) Mortgagor shall not agree to any adjustment of any claim with
respect to any property damage or casualty insurance relating to the Mortgaged
Property without the prior written consent of Mortgagee in each instance;
provided, however, that so long as no Event of Default has occurred and has not
been cured, Mortgagor shall have the right and the obligation to settle and
adjust any claim under such insurance policies without obtaining Mortgagee's
prior written consent if the amount of such claim is less than One Million
Dollars ($1,000,000.00).
(d) Each property policy providing coverage required hereunder shall
contain a provision, if available on commercially reasonable terms, that no act
or omission of Mortgagor or any other named insured shall affect or limit the
obligation of the insurance company to pay the amount of any loss sustained for
the benefit of Mortgagee and each liability and property insurance policy
providing coverage required hereunder shall contain, if available on
commercially reasonable terms, an agreement by the insurer that such policy
shall not be cancelled for any reason without at least thirty (30) days' prior
written notice to Mortgagee, and that the insurer will accept performance by
Mortgagee of Mort-
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gagor's obligations under such policy as if performed by Mortgagor.
(e) Mortgagee shall not be limited, in the proof of any action or
claim which Mortgagee may take or make against Mortgagor arising out of or by
reason of Mortgagor's failure to provide and keep in force insurance as
aforesaid, to the amount of any insurance premium or premiums not paid by
Mortgagor and which would have been payable with respect to such insurance. In
addition to its other rights hereunder or otherwise, Mortgagee shall be entitled
to recover for any such failure to provide and keep the insurance required
hereunder in force all damages, costs and expenses suffered or incurred by
reason of Mortgagor's failure to provide insurance as aforesaid.
(f) If at any time Mortgagee is not in receipt of written evidence
that all insurance required hereunder is in force and effect, or if at any time
Mortgagor shall fail to deliver Insurance Certificates or endorsements
evidencing the renewal of insurance policies not later than five (5) days prior
to the expiration or cancellation date of each of the insurance policies,
Mortgagee shall have the right (but shall have no obligation) to take such
action as Mortgagee deems reasonably necessary to protect its interest in the
Mortgaged Property, and shall give written notice of such action to Mortgagor,
including, without limitation the obtaining of such insurance coverage as
Mortgagee in its reasonable discretion deems reasonably appropriate, and all
expenses incurred by Mortgagee in connection with such action or in obtaining
such insurance and keeping it in effect shall be paid by Mortgagor to Mortgagee
within five (5) Business Days after written demand is made therefor.
(g) [Intentionally omitted.]
(h) Mortgagor shall not have in force at any time insurance
concurrent in form or contributing in the event of loss with that required to be
maintained hereunder unless Mortgagee is included thereon as an additional
insured and loss payee, and is furnished with the applicable Insurance
Certificates, as required by this Section 1.07.
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SECTION 1.08. DAMAGE OR DESTRUCTION; INSURANCE PROCEEDS. (a)
Mortgagor shall give to Mortgagee written notice of any damage to or destruction
of the Improvements or Chattels, or any part thereof, having a reasonably
estimated cost of repair or replacement in excess of One Million Dollars
($1,000,000.00). Such notice shall be given promptly after the occurrence of
such damage or destruction. Within a reasonable period of time after the
casualty, Mortgagor shall give Mortgagee a reasonable estimate of the cost of
repair or replacement, which shall be accompanied by reasonable documentation
supporting the basis for Mortgagor's estimate of the cost of repair or
replacement.
(b) So long as any portion of the Indebtedness is outstanding,
Mortgagor shall promptly commence and diligently complete the restoration of the
Mortgaged Property (i) as nearly as possible to substantially the same or better
physical condition as existed immediately prior to such loss or damage, and (ii)
within a reasonable time. Any restoration shall be performed in accordance with
the requirements set forth in this Section 1.08 and in Section 1.10(b) hereof.
(c) (i) In the event of damage to or destruction of the Improvements
or Chattels or any part thereof, the estimated cost of repair (as reasonably
estimated by Mortgagor) of which is equal to or less than One Million Dollars
($1,000,000.00), except as provided to the contrary below, any insurance
proceeds actually received by Mortgagee with respect thereto shall, so long as
no Event of Default has occurred that has not been cured, be immediately
released by Mortgagee to Mortgagor for application to the cost of restoration.
(ii) In the event of any damage to or destruction of the
Improvements or Chattels or any part thereof, the estimated cost of repair of
which exceeds One Million Dollars ($1,000,000.00), any insurance proceeds,
actually paid to Mortgagor or Mortgagee shall be promptly delivered to an escrow
agent or trustee experienced in administering construction loans, as reasonably
chosen by Mortgagor and Mortgagee ("ESCROWEE"), and any such insurance proceeds
received by Escrowee and deposited in an escrow with terms customarily found in
construction loan agreements between sophisticated parties, reasonably
acceptable to Mortgagor and Mortgagee ("ES-
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CROW"), shall be applied by Escrowee (1) first to reimburse Mortgagee for any
expenses (including without limitation, any reasonable attorneys' and
consultants' fees, excluding, however, any salaries paid to employees of
Mortgagee) incurred by Mortgagee in connection with the collection of such
insurance proceeds, or the determination of the amount of the loss, and,
except as provided to the contrary below, then (2) to Mortgagor to pay the
cost of the restoration of the Improvements and Chattels pursuant to the
terms of the Escrow and (3) the balance, if any, shall be payable to
Mortgagor. Not more than once each month, Mortgagor shall submit to Escrowee
for payment a cost breakdown of work completed to date, together with a
requisition on Mortgagee's form which shall be certified by Mortgagor and its
architect and shall state that (x) such work has been completed substantially
in accordance with the plans and specifications reasonably approved by
Mortgagee, (y) the requested amount has been paid in full or has actually
been incurred and is payable, and (z) the then estimated cost of completing
the restoration does not exceed the amount that Escrowee will hold pursuant
to this Subsection 1.08(c) following the requested payment to Mortgagor.
Disbursements by Escrowee with respect to costs of restoration shall be
subject to retainages equal to the amount actually withheld or to be withheld
by Mortgagor with respect to any payment made or to be made to any
contractors, laborers, subcontractors, mechanics, materialmen, vendors or any
other Entities with respect to such restoration, which sum shall not, in any
event, be less than five percent (5%) of the total contract amount; shall be
conditioned upon receipt by Escrowee of such evidence of the absence of liens
as Mortgagee shall reasonably require; and may be conditioned upon such
independent inspections by Mortgagee or its agents as Mortgagee may
reasonably elect to make or cause to be made at Mortgagor's expense. Funds
deposited in the Escrow shall be invested at the direction of Mortgagor,
which direction shall be reasonably satisfactory to Mortgagee, and all
interest earned thereon shall be added to the sums deposited in the Escrow.
(d) Notwithstanding any damage or destruction to the Improvements or
the Chattels or any part thereof, and regardless of the sufficiency or
insufficiency of insurance proceeds made available to Mortgagor by reason
thereof, Mortgagor shall continue to pay the Indebtedness
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and any reduction in the Indebtedness resulting from the application of any
insurance proceeds to the payment of the Indebtedness by Mortgagee shall be
deemed to take effect only from and after the date paid by Mortgagee in
accordance with the Indenture.
SECTION 1.09. CONDEMNATION. Notwithstanding any taking by any public
or quasi-public authority through eminent domain or otherwise, Mortgagor shall
continue to pay the Indebtedness at the time and in the manner provided for its
payment in the Loan Documents and the Indebtedness shall not be reduced until
any award or payment therefor shall have been applied by Mortgagor in accordance
with Section 4.10 of the Indenture. Mortgagee shall not be obligated to see to
the proper application of any award or payment paid over to Mortgagor, and if
Mortgagee receives and retains such award or payment, it shall turn over such
funds to the Mortgagor for application pursuant to Section 4.10 of the
Indenture. If the Mortgaged Property is sold, through foreclosure or otherwise,
prior to the receipt by Mortgagor of such award or payment, Mortgagor shall
apply the proceeds from the sale in accordance with Section 4.10 of the
Indenture. Mortgagor shall file and prosecute its claim or claims for any such
award or payment in good faith and with due diligence and cause the same to be
collected and paid in accordance with Section 4.10 of the Indenture. Mortgagor
hereby irrevocably authorizes and empowers Mortgagee, in the name of Mortgagor
or otherwise, to collect and receive any such award or payment and to file and
prosecute such claim or claims.
SECTION 1.10. CONDITION OF PREMISES; COMPLIANCE WITH LAWS;
RESTRICTIVE COVENANTS. (a) Mortgagor (i) shall maintain the Mortgaged Property
and Chattels in all material respects in good condition, safe operating order
and good repair, subject to ordinary wear and tear; (ii) shall not commit or
suffer any intentional waste of any material portion thereof; (iii) shall
observe, perform or cause to be performed all obligations arising under
agreements or recorded instruments the default of which would materially
adversely affect the Premises or the operation thereof; (iv) shall comply or
cause to be complied with in all material respects all Requirements of Law now
or hereafter relating to the Mortgaged Property or any part thereof, including,
without limitation, all applicable covenants, conditions and restrictions
affect-
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ing the Mortgaged Property or Chattels, and shall not suffer or permit any
violation thereof by an affiliate of Mortgagor and shall from time to time
promptly take such actions and make all repairs, renewals, replacements,
additions and improvements in connection therewith that are necessary to
comply with Mortgagor's obligations hereunder and permitted hereunder; and
(v) shall comply in all material respects with all requirements of insurance
policies covering the Mortgaged Property, and with all applicable orders,
rules and regulations of the National Board of Fire Underwriters or any other
body hereafter exercising similar functions; provided, however, that
Mortgagor shall have, to the extent permitted by law, the right to contest
any such Requirement of Law or insurance requirement, and to defer compliance
with such Requirement of Law or insurance requirement pending the outcome of
such contest, provided that (1) Mortgager conducts such contest at its own
expense and in good faith and pursues such contest diligently and (2) such
contest operates so as to prevent (x) any adverse effect upon the lien or
security interest created hereby, (y) Mortgagee from being subject to any
criminal liability, and (z) any material impairment of the insurance coverage
required hereby.
(b) Mortgagor shall have the right from time to time during the term
of this Mortgage to make, at its sole cost and expense, changes and alterations
in or to the Improvements, whether or not in connection with any repair or
restoration required by this Mortgage, provided, however, that any such changes,
alterations or restoration having a reasonably estimated value of more than one
hundred and fifty thousand dollars ($150,000.00) shall be effected as follows:
(i) [Intentionally omitted.]
(ii) [Intentionally omitted.]
(iii) [Intentionally omitted.]
(iv) Any change, alteration or restoration made by or with the
approval of Mortgagor shall be performed promptly, in a good and
workmanlike manner, in compliance with all Requirements of Law and in
accordance with the applicable orders, rules and regulations of the
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National Board of Fire Underwriters or any other body hereafter
exercising similar functions.
(v) The Mortgaged Property shall at all times be free of liens
for labor and materials supplied or claimed to have been supplied to
the Premises; provided, however, that in the event any lien is filed
against the Premises, Mortgagor shall have thirty (30) days to satisfy
such lien or provide Mortgagee with evidence reasonably satisfactory
to Mortgagee that Mortgagor is diligently contesting in good faith
such lien by appropriate legal proceedings.
(vi) At all times when any change, alteration or restoration is
in progress, Mortgagor shall maintain or cause to be maintained, for
the mutual benefit of Mortgagor and Mortgagee, general liability
insurance, in addition to the coverage required by Section 1.08
hereof, as Mortgagee shall reasonably require in order to protect
Mortgagee against any potential liabilities arising out of such work
that shall not be covered by the insurance required by Section 1.07.
Insurance Certificates evidencing such insurance issued by the
respective insurers and evidencing the payment of premiums therefor
(or accompanied by other evidence satisfactory to Mortgagee of such
payment), shall be delivered to Mortgagee promptly upon its request.
(vii) [Intentionally omitted.]
(c) Mortgagor shall not remove, demolish or destroy, in whole or in
part, any material portion of the Improvements (other than any tenant
improvements) or Chattels unless the same is promptly replaced by Improvements
or Chattels substantially equal or greater in quality, value, and condition to
those removed, free from security interests (other than purchase money financing
or other Permitted Exceptions), licenses, claims or encumbrances, including any
reservations of title thereto; provided, however, if by reason of technological
or other developments in the operation and maintenance of buildings of the
general character of the Improvements, no replacement of Chattel(s) so removed
or disposed of is
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necessary and desirable for the proper operation or maintenance of such
Improvements, Mortgagor shall not be required to replace same.
SECTION 1.11. ASSIGNMENT OF LEASES, RENTS, ISSUES AND PROFITS. As
further security for payments of the indebtedness and performance of the
obligations secured hereby, Mortgagor hereby transfers, assigns and sets over
unto Mortgagee all leases, if any, now or hereafter entered into by Mortgagor
with respect to all or any part of the Mortgaged Property, and all renewals,
extensions, subleases or assignments thereof, and all other occupancy agreements
(written or oral), by concession, license or otherwise, together with all of the
rents, income, receipts, revenues, issues and profits arising therefrom, such
assignment of rents, income, receipts, revenues, issues and profits to be
absolute and not only collateral; provided, however, that permission is hereby
given to Mortgagor, so long as no Event of Default shall have occurred and be
continuing, to collect and use such rents, but not before, they become due and
payable, which permission shall be suspended immediately, without the necessity
of any action by Mortgagee, upon the occurrence and during the continuance of an
Event of Default.
SECTION 1.12. NO PRIOR SALE. Mortgagor has not sold, conveyed,
assigned or otherwise transferred, or agreed to sell, convey, assign or
otherwise transfer, to any Entity, any development, "air" or floor-area-ratio
rights of Mortgagor with respect to any of the Mortgaged Property, other than as
may be set forth in any of the Permitted Exceptions.
SECTION 1.13. HAZARDOUS MATERIAL. Mortgagor has not received written
notice of any violation of or noncompliance with any Environmental Law and has
no knowledge of any action or other proceeding having ever been commenced or
threatened against Mortgagor by any Governmental Authority involving any claim
of violation of or noncompliance with any such Environmental Law with respect to
the Mortgaged Property that is reasonably likely to have a material adverse
effect on the Premises. Mortgagor has never caused or knowingly permitted or
suffered any Hazardous Material to be placed, held, located or disposed of on,
under or at the Premises, or any part thereof in any manner that could
reasonably be expected
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to have a material adverse impact on the Premises and the
Premises has never been used by Mortgagor as a dump or storage site for
Hazardous Material in any manner that could reasonably be expected to have a
material adverse impact on the Premises. If Mortgagee purchases the Mortgaged
Property at foreclosure, takes a deed in lieu of foreclosure, operates or takes
possession of the Mortgaged Property or takes other action to realize on the
Mortgaged Property at any time before the Indebtedness has been repaid in full,
the representations and warranties in this Section 1.13 shall continue, subject
to the provisions of Section 3.22 hereof. Nothing herein shall be construed as
devolving control of the Mortgaged Property or imposing owner or operator status
upon Mortgagee prior to any purchase of the Mortgaged Property by Mortgagee at
foreclosure or the taking of a deed in lieu of foreclosure.
SECTION 1.14. PERMITTED TRANSFERS. (a) Mortgagor acknowledges that
further encumbrance of the Mortgaged Property could significantly and materially
alter, impair and reduce Mortgagee's security for the Notes. Therefore,
Mortgagor hereby covenants that it shall not further mortgage, encumber or
pledge the Mortgaged Property or suffer the same to occur, other than a transfer
permitted hereunder or under the Indenture without the prior written consent of
Mortgagee.
ARTICLE II
EVENTS OF DEFAULT; REMEDIES
SECTION 2.01. EVENTS OF DEFAULT. The occurrence of any one or more
of the following events shall be an "EVENT OF DEFAULT":
(a) if Mortgagor shall fail to make any payment required by this
Mortgage within 30 days of date due; or
(b) [Intentionally omitted.]
(c) if title to the Mortgaged Property shall be subject to any lien,
charge or encumbrance other than Permitted Exceptions, and Mortgagor fails
within thirty (30) days after written request by Mortgagee to discharge
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by bonding, title insurance or otherwise such lien, charge or encumbrance; or
(d) if any representation or warranty contained herein shall be false
or incorrect in any material and adverse respect so as to have a material
adverse effect on the Mortgaged Property or an adverse effect on the security
granted to Mortgagee under any of the Loan Documents on the date as of which it
was or shall be made, except that an Event of Default shall be deemed to have
occurred only if within thirty (30) days after written notice from Mortgagee to
Mortgagor, such false or incorrect statement or the underlying cause thereof,
shall not have been corrected to the satisfaction of Mortgagee; or
(e) if an Event of Default under the Indenture shall have occurred
and be continuing; or
(f) if Mortgagor fails to keep, observe and/or perform any of the
other covenants, conditions, obligations or agreements contained in this
Mortgage, and such default continues for a period of thirty (30) days after
written notice to Mortgagor.
Notwithstanding anything in this Section 2.01 to the contrary, to the
extent any of Mortgagor's non-monetary obligations hereunder cannot be remedied
within the period of thirty (30) days after written notice thereof which has
been provided for, such time period shall be extended by such additional
reasonable time as may be necessary to remedy such default, provided that
Mortgagor promptly commences to cure such default and diligently continues such
cure and such default is in fact cured within 120 days after the original
written notice thereof.
SECTION 2.02. MORTGAGEE'S REMEDIES. At any time following the
occurrence of any Event of Default (but only during the continuance thereof),
Mortgagee may (but need not), as Mortgagee deems advisable to protect and
enforce its rights against Mortgagor and in and to the Mortgaged Property, and
without impairing or otherwise affecting the other rights and remedies of
Mortgagee, take any one or more of the following actions, at such times and in
such order as Mortgagee shall determine in its sole discretion:
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(a) elect to accelerate the Indebtedness in accordance with the terms
of the Indenture; and/or
(b) to the extent permitted by law, enter into and upon the Premises,
and each and every part thereof, and exclude Mortgagor and its agents wholly
therefrom, and having and holding the same, use, operate, manage and control the
Mortgaged Property and conduct the business thereof, either personally or by its
superintendents, managers, agents and attorneys; at the expense of Mortgagor,
maintain and restore the Premises, complete the renovation of any Improvements,
and in the course of such completion make such changes in any contemplated
improvements on and to the Premises as Mortgagee deems desirable; at the expense
of Mortgagor, make all necessary or proper repairs, renewals and replacements,
and such alterations, additions, betterments and improvements on and to the
Mortgaged Property as Mortgagee may deem advisable; and exercise all rights and
powers of Mortgagor with respect thereto, either in the name of Mortgagor, as
Mortgagor's attorney-in-fact, or otherwise as Mortgagee shall deem best; collect
and receive all rents with respect to the Mortgaged Property and every part
thereof, all of which shall for all purposes constitute property of Mortgagee,
and, after deducting the reasonable expenses of conducting the business thereof
and of all maintenance, repairs, renewals, replacements, alterations, additions,
betterments and improvements, and amounts, necessary to pay for Impositions,
insurance and other prior or proper charges upon the Mortgaged Property or any
part thereof, as well as reasonable compensation for the services of Mortgagee's
attorneys, consultants, contractors, and agents, apply the moneys arising as
aforesaid, to the payment of the delinquency in the payment of the Indebtedness;
and/or
(c) with or without entry, personally or by its agents or attorneys:
(i) sell to the fullest extent permitted and pursuant to the
procedures provided by law, the Mortgaged Property and all estate,
right, title and interest, claim and demand therein, and right of
redemption thereof, at one or more sales as an entirety or in parcels,
and at such time and place, upon such terms and after such
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notice thereof as may be required or permitted by law; and/or
(ii) institute proceedings for the complete or partial
foreclosure of this Mortgage; and/or
(iii) take such steps as Mortgagee shall elect to protect and
enforce its rights, whether by action, suit or proceeding in equity or
at law for the specific performance of any covenant, condition or
agreement in any of the Loan Documents, or in aid of the execution of
any power herein granted, or for any foreclosure hereunder or for the
enforcement of any other appropriate legal or equitable remedy now or
hereafter existing; and/or
(iv) perform or comply with any term, covenant or condition of
this Mortgage and any of the other Loan Documents that Mortgagor has
failed to timely perform or comply with, and all payments made or
costs or expenses incurred by Mortgagee in connection therewith shall
be immediately repaid by Mortgagor to Mortgagee with interest thereon
at the Default Rate upon demand by Mortgagee. The necessity for any
such actions and of the amounts to be paid shall be determined by
Mortgagee in its reasonable discretion. Mortgagee is hereby
irrevocably authorized and empowered to enter (and to authorize and
empower its designees to enter) upon the Premises or any part thereof
for the purpose of performing or observing any such term, covenant or
condition without thereby becoming liable to Mortgagor or any person
in possession holding under Mortgagor except for any loss or damage as
a result of Mortgagee's willful misconduct, gross negligence or bad
faith.
SECTION 2.03. PROCEEDS. Upon any sale made under or by virtue of
this Mortgage, whether made by virtue of judicial proceedings, or of a judgment
or decree of foreclosure and sale, Mortgagee may bid for and acquire the
Mortgaged Property or any part thereof, and in lieu of paying cash therefor may
make settlement for
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the purchase price by crediting against the Indebtedness the net sales price
after deducting therefrom the expenses of the sale and the costs of the
action and any other sums which Mortgagee is authorized to deduct under this
Mortgage or pursuant to applicable law. The proceeds available by virtue of
this Mortgage shall be applied following such sale as follows:
First: To the payment of the reasonable costs and expenses (including
the reasonable fees of Mortgagee's counsel and including those costs incurred
pursuant to Section 3.07 hereof) of or incidental to such sale or any judicial
proceedings wherein the same may be made, and of all expenses, liabilities,
Impositions, insurance premiums and other advances reasonably necessary to (i)
protect the security of this Mortgage or the Mortgaged Property, or (ii) cure
defaults of Mortgagor under this Mortgage, together with interest at the Default
Rate on all payments or advances made by Mortgagee on account of such expenses,
liabilities, taxes, insurance premiums and other advances.
Second: To the payment of the Indebtedness in accordance with the
terms of the Indenture.
Third: The payment of the surplus, if any, shall be distributed to
Mortgagor unless otherwise prohibited by law.
SECTION 2.04. PAYMENT OF MORTGAGOR'S EXPENSES AFTER DEFAULT. If an
Event of Default shall have occurred, then, upon written demand of Mortgagee,
Mortgagor shall pay to Mortgagee the reasonable costs and expenses of collection
and enforcement in respect of any payment and/or obligation of Mortgagor
hereunder, including reasonable compensation to Mortgagee's agents and counsel,
and any other reasonable expenses incurred by Mortgagee hereunder. If Mortgagor
shall fail to pay such amounts upon such demand, Mortgagee shall be entitled and
empowered to institute actions or proceedings at law or in equity for the
collection of the sums so due and unpaid, and may prosecute any such action or
proceedings to judgment or final decree, and may collect, in any manner provided
by law, moneys adjudged or decreed to be payable, provided it is done in
accordance with the provisions herein. Following the occurrence of any Event of
Default and immediately upon the commencement of any
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action, suit or other legal proceedings by Mortgagee of any nature in aid of
the enforcement of the Notes or of this Mortgage or any other Loan Document,
Mortgagor shall enter its voluntary appearance in such action, suit or
proceeding. Mortgagee shall be entitled to recover judgment before, after or
during the pendency of any proceedings for the enforcement of the provisions
of this Mortgage.
SECTION 2.05. RECEIVERS. To the extent permitted by law, at any time
after the occurrence of an Event of Default that has not yet been cured,
Mortgagee shall be entitled, if it shall so elect, without the giving of notice
and without regard to the adequacy or inadequacy of any security held by
Mortgagee with respect to the Indebtedness, to the appointment of a receiver or
receivers in respect of the Mortgaged Property. Any such receiver shall have a
right to possession of the Mortgaged Property from and after his or her
appointment, it being the intention of the parties hereto that this Mortgage
permit such receiver to have every right and power with respect to the Mortgaged
Property that is permitted by applicable law.
SECTION 2.06. ELECTION OF REMEDIES. (a) If the Indebtedness is now
or hereafter further secured by chattel mortgages, pledges, contracts,
guaranties, assignments of leases, or other security, Mortgagee may at its
option exercise any or all of its remedies thereunder and/or its remedies
hereunder either concurrently or independently, and in such order as it may
determine.
(b) Each of the rights of Mortgagee granted and/or arising under this
Mortgage shall be separate, distinct and cumulative of all other rights that
Mortgagee may have at law, in equity or otherwise, and none of them shall be in
exclusion of the others, and all of them are cumulative to the remedies for
collection of indebtedness, enforcement of rights under mortgages, and
preservation of security as provided at law. No act of Mortgagee shall be
construed as an election to proceed under any one or more provisions hereof or
under the Note or any other Loan Document to the exclusion of any other
provision, or an election of remedies to the bar of any other remedy allowed at
law or in equity.
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SECTION 2.07. WAIVER BY MORTGAGOR. Mortgagor shall not at any time
insist upon, or plead, or in any manner whatever claim or take any benefit or
advantage of any stay or extension or moratorium of law, any exemption from
execution or sale of the Mortgaged Property or any part thereof, whether now or
at any time hereafter in force, which may affect the covenants and terms of
performance of this Mortgage. Mortgagor shall not claim, take or insist upon
any benefit or advantage of any law now or hereafter in force providing for the
valuation or appraisal of the Mortgaged Property or any part thereof prior to
any sale or sales thereof that may be made pursuant to any provision hereof or
pursuant to the decree, judgment or order of any court of competent
jurisdiction, and after any such sale or sales, Mortgagor shall not claim or
exercise any right under any statute or other law heretofore or hereafter
enacted to redeem the property so sold or any part thereof. To the extent
permitted by law, Mortgagor hereby expressly waives all benefit or advantage of
any such law or laws, and covenants not to hinder, delay or impede the execution
of any power herein granted or delegated to Mortgagee, but to suffer and permit
the execution of every power as though no such law or laws had been made or
enacted. Mortgagor, for itself and all who may claim under it, hereby waives,
to the fullest extent that it lawfully may, all right to have the Mortgaged
Property marshalled upon any foreclosure hereof, and any and all rights of
redemption from sale under any order or decree of foreclosure of this Mortgage
on its behalf and on behalf of each and every person.
SECTION 2.08. FAIR RENTAL. Following the occurrence and continuance
of any Event of Default and prior to the exclusion of Mortgagor from all or any
part of the Premises, Mortgagor agrees to pay to Mortgagee the fair rental value
(as such shall be determined by Mortgagee) for the use and occupancy of any
portion of the Mortgaged Property that is being occupied by Mortgagor or any
affiliate for such period, and, upon default of any such payment, shall vacate
and surrender possession thereof to Mortgagee or to a receiver, if any, and in
default thereof may be evicted by any summary action or proceeding for the
recovery of possession of the Mortgaged Property for nonpayment of rent, however
designated; provided, however, that any funds shall be returned
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to Mortgagor after such Event of Default is cured or waived.
SECTION 2.09. MODIFICATION OF COLLATERAL AGREEMENTS. Without
affecting the liability of Mortgagor or any other Entity for payment of the
Indebtedness or for performance of any obligation contained herein, and without
affecting the rights of Mortgagee with respect to any security not expressly
released in writing, Mortgagee may, at any time and from time to time, either
before or after the maturity of the Notes and without notice or consent:
(a) make any agreement with Mortgagor extending the time or otherwise
altering the terms of payment of or any part of the Indebtedness, or modifying
or waiving any such obligation, or subordinating, modifying, or otherwise
dealing with the lien or charge hereof;
(b) exercise, or refrain from exercising, or waive any right
Mortgagee may have;
(c) accept additional security of any kind; or
(d) release or otherwise deal with any property, real or personal,
securing the Indebtedness, including all or any part of the Mortgaged Property.
SECTION 2.10. COSTS OF LITIGATION AND COLLECTION. If, following an
Event of Default, this Mortgage is put into the hands of an attorney for
collection, suit, action or foreclosure and Mortgagee prevails in such suit,
action or foreclosure, or if any action or proceeding shall be commenced to
which Mortgagee is made a party or in which it becomes necessary, in the opinion
of Mortgagee's counsel, to defend or uphold the lien of this Mortgage, all sums
expended by Mortgagee, including reasonable counsel fees and disbursements,
shall be paid by Mortgagor, together with interest thereon at the Default Rate
from and after the rendition to Mortgagor of bills therefor through the date of
payment, and, in any action or proceedings to foreclose this Mortgage, or to
recover or collect the Indebtedness, the provisions of law respecting the
recovery of costs, disbursements and allowances shall prevail unaffected by this
covenant.
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SECTION 2.11. SECURITY AGREEMENT. This Mortgage is and is hereby
deemed to be a Security Agreement under the Uniform Commercial Code (the "CODE")
with respect to any and all of the Mortgaged Property that is not real property,
for the purpose of creating hereby a security interest in such property, which
security interest is hereby granted to Mortgagee as "Secured Party" (as said
term is defined in the Code), securing the Indebtedness and the obligations of
Mortgagor hereunder and, upon recording or registration in the real property
records of the County of [Bucks], State of [Pennsylvania], shall constitute a
"fixture filing" within the meaning of Sections 9-313 and 9-402 of the Code
creating a perfected security interest in all fixtures now or hereafter located
at the Premises. At any time following any acceleration of the Indebtedness
pursuant to the provisions hereof, Mortgagee may at its discretion require
Mortgagor to assemble the collateral and make it available to Mortgagee at the
Premises. Mortgagee shall give Mortgagor written notice of the time and place
of any public sale of any of the collateral or of the time after which any
private sale or other intended disposition thereof is to be made by sending
notice to Mortgagor at least twenty (20) Business Days before the time of the
sale or other disposition, which provisions for notice Mortgagor hereby agrees
to be reasonable.
SECTION 2.12. SUITS WITHOUT ACCELERATION. During the continuation of
any Event of Default, Mortgagee shall have the right from time to time to sue
for any sums, whether interest (or any installment thereof), Impositions,
penalties, or any other sums required to be paid under the terms of this
Mortgage, as (or at any time after) the same become due, without regard to
whether or not all of the Indebtedness shall be due on demand, and without
prejudice to the right of Mortgagee thereafter to enforce any appropriate remedy
against Mortgagor, including sale under this Mortgage, or any other action, for
an Event of Default by Mortgagor existing before, at or after the time such
earlier action was commenced, unless Mortgagee shall have expressly and
specifically accepted performance of such Event of Default by Mortgagor and
shall have acknowledged such acceptance as a limitation of Mortgagee's rights
under this Section 2.12.
SECTION 2.13. REPORT OF TITLE. Mortgagee, following the occurrence
of any Event of Default, may
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order a report of title to the Premises, and if the cost of the same shall
not be paid by Mortgagor within ten (10) days following the date of demand
therefor and presentation of bills with respect thereto, Mortgagee may, but
shall be under no obligation to, pay the same, and Mortgagor shall reimburse
Mortgagee for the cost thereof within ten (10) days after demand therefor
with interest thereon from the date of demand through the date of payment at
the Default Rate.
SECTION 2.14. ADDITIONAL RIGHTS OF MORTGAGEE. (a) If there be
commenced any action or proceeding that would, if decided against Mortgagor,
have a material adverse effect upon the Premises or Chattels, or the title
thereto or the lien of this Mortgage thereon, Mortgagee may, at its option,
appear in any such action or proceeding and retain counsel therein, and take any
action therein as Mortgagee deems advisable in its reasonable discretion.
(b) Any provision of this Mortgage to the contrary notwithstanding,
in cases where Mortgagee reasonably determines that an emergency exists,
Mortgagee (acting through its agents or designees or otherwise) may, without
prior notice, enter upon the Premises and take such action as Mortgagee deems
necessary in its reasonable discretion to preserve the Mortgaged Property or
Chattels or any parts thereof.
ARTICLE III
ADDITIONAL PROVISIONS
SECTION 3.01. BUSINESS PURPOSE. It is specifically understood and
agreed that the Indebtedness is incurred solely for a business purpose and not a
personal, family, household or agricultural purpose.
SECTION 3.02. TENDER OF PAYMENT. To the extent that Mortgagee
receives any funds hereunder, Mortgagee shall be entitled to apply such funds
first to satisfy any obligation of Mortgagor under Section 3.07 hereof.
SECTION 3.03. BOOKS, RECORDS, ACCOUNTS AND REPORTS. Mortgagor shall
keep and maintain or shall
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cause to be kept and maintained, at Mortgagor's cost and expense and in
accordance with sound accounting practices and principles consistently
applied, proper and accurate books, records and accounts of all items of cost
in connection with the construction of any improvements which are now or
hereafter a portion of the Premises, and Mortgagee and any persons authorized
by Mortgagee shall have the right at all reasonable times and upon reasonable
notice to inspect such books, records and accounts and to make copies thereof.
SECTION 3.04. INSPECTION BY MORTGAGEE. Mortgagor shall permit
Mortgagee and any agent or representative of Mortgagee to enter upon the
Premises and inspect the Mortgaged Property and all books, contracts and records
of Mortgagor relating to the Mortgaged Property at reasonable times and upon
reasonable notice, until such time as the Indebtedness is repaid in full.
Mortgagee shall not have any duty to make any such inspection and shall not
incur any liability or obligation as a result of making or not making any such
inspection, except as a result of the intentional misconduct, gross negligence
or bad faith when making such an inspection of Mortgagee or its agents.
SECTION 3.05. ESTOPPEL CERTIFICATES. Within ten (10) Business Days
following the written request of either Mortgagor or Mortgagee (which may be
made from time to time), Mortgagor or Mortgagee, as the case may be, shall
certify to the requesting party or to any Entity designated thereby, by a duly
acknowledged writing, the amount of principal and interest then owing under the
Notes and secured by this Mortgage, and, if the Estoppel Certificate is
requested by Mortgagee, whether any offsets or defenses exist against the
Indebtedness and, if the Estoppel Certificate is requested by Mortgagor, whether
any notice of default has been given by Mortgagee or, to Mortgagee's knowledge
or, in the case of Mortgagor, to Mortgagor's knowledge (without any duty on the
part of Mortgagee or Mortgagor to make or undertake any investigation) whether
there exists any basis for such a notice. If in connection with such request
the requesting party provides a statement of the amount of principal and
interest then owing under the Notes and secured by this Mortgage, Mortgagor or
Mortgagee, as the case may be, shall confirm such statement or dispute it
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in reasonable detail in the certificate to be delivered hereunder.
SECTION 3.06. NO WAIVERS; APPROVALS. (a) Any failure by Mortgagee to
insist, or election by Mortgagee not to insist, upon the strict performance of
any of the terms and provisions of this Mortgage or any of the other Loan
Documents, shall not be deemed to be a waiver of any of the terms and provisions
hereof, and Mortgagee, notwithstanding any such failure(s), shall have the right
thereafter to insist upon the strict performance by Mortgagor of any and all of
the terms and provisions of this Mortgage to be performed by Mortgagor.
Mortgagor hereby specifically agrees that no provision of this Mortgage can be
waived by course of conduct or orally.
(b) Except as otherwise provided herein, whenever, pursuant to this
Mortgage, Mortgagee exercises any right given to it to approve or disapprove, or
any document, arrangement or term is to be satisfactory to Mortgagee, the
decision of Mortgagee to approve or disapprove or to decide that the document,
arrangement or terms are satisfactory or not satisfactory shall be in the sole
discretion of Mortgagee and shall be final and conclusive. Mortgagee shall have
a reasonable period of time, unless otherwise specified, to evaluate any
requests for its approval referred to herein. If Mortgagee does not approve or
disapprove any matter for which consent is required hereunder within fifteen
(15) Business Days of the date such request was received by Mortgagee, Mortgagee
shall be deemed to have approved such a request. As to any matter set forth
herein for which Mortgagee's consent is required, Mortgagee's evaluation shall
be based upon (i) whether the requested matter could materially adversely affect
(x) the operation of the Premises, or (y) the security for the Loan, or (ii)
whether the matter would increase the obligations of the Mortgagor without
offering a corresponding increase in benefit to Mortgagor.
(c) If, pursuant to the terms of this Mortgage, any consent or
approval by Mortgagee is not to be unreasonably withheld or is subject to a
specified standard, and it is held by a court of competent jurisdiction that the
consent or approval was unreasonably withheld or delayed or that such specified
standard was met so that the consent or approval should have been granted, the
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consent or approval shall be deemed granted, and except to the extent that
there has been a final judicial determination that such consent or approval
was withheld in bad faith (in which case the limitations on damages set forth
in this sentence shall not apply), such granting of the consent or approval
shall be the exclusive remedy of Mortgagor, and Mortgagee shall not in any
event be liable for damages by reason thereof.
SECTION 3.07. INDEMNIFICATION. Except for any loss or claim suffered
by Mortgagee after Mortgagee or its agents takes possession of or title to the
Premises and for any of the acts of Mortgagee or its agents which Mortgagee does
while Mortgagee or its agents is either in possession of or takes title to the
Premises, Mortgagor shall indemnify Mortgagee and hold Mortgagee harmless from
and against any and all claims, damages, losses, liabilities, penalties and
causes of action of any kind whatsoever, which Mortgagee may sustain or incur
(or which may be claimed against Mortgagee) by reason of, or in connection with
(a) Mortgagee's interest in the Mortgaged Property or receipt of any rent or
other sum therefrom, except to the extent that the foregoing may be sustained or
incurred by reason of any sale by Mortgagee of any interest in the Loan; (b) any
accident, injury to or death of persons or loss of or damage to property
occurring on or about the Premises or the adjoining sidewalks, streets or ways,
curbs, vaults and vault space, if any; (c) any use, non-use or condition of the
Premises or the adjoining sidewalks, streets or ways, curbs, vaults and vault
space, if any; (d) any failure on the part of Mortgagor to perform or comply
with any of the terms, covenants or provisions of this Mortgage; (e) the filing
of any mechanics' lien encumbering the Mortgaged Property; or (f) the inaccuracy
of any representation made by Mortgagor herein. Any amounts payable to
Mortgagor or Mortgagee under this Section 3.07 shall bear interest through the
date of payment at the Default Rate. This Section 3.07 is in addition to and
shall in no event limit any of the other indemnification provisions contained in
this Mortgage.
SECTION 3.08. LIEN UNAFFECTED BY MODIFICATIONS OF NOTES. Except as
otherwise expressly provided by the Indenture, the lien of this Mortgage shall
not be affected by any concession, forbearance, moratorium or release granted by
Mortgagee, including, but not limited to any
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renewal, extension, modification, coordination, consolidation or restatement
which Mortgagee may grant with respect to the Notes and/or the Indebtedness,
or any surrender, compromise, release, renewal, extension, exchange or
substitution which Mortgagor may grant in respect of the Mortgaged Property,
or any part thereof or interest therein.
SECTION 3.09. AUTHORITY. Mortgagor has full corporate power,
authority and legal right to execute this Mortgage and to mortgage and assign
the Mortgaged Property pursuant to the terms hereof and to keep and observe all
of the terms of this Mortgage on Mortgagor's part to be performed, and upon the
execution and delivery hereof, this Mortgage shall be binding on Mortgagor in
accordance with its terms.
SECTION 3.10. WAIVER OF NOTICE. Mortgagor shall not be entitled to
any notices of any nature whatsoever from Mortgagee, except to the extent
required by law or except to the extent that this Mortgage specifically and
expressly provides for the giving of notice by Mortgagee to Mortgagor.
SECTION 3.11. NO EXTENSIONS OF TIME. No extension of time for the
payment of the Indebtedness or any installment thereof made by agreement with
any Entity now or hereafter liable for payment of the Indebtedness shall operate
to release, discharge, modify, change or affect the original liability of
Mortgagor under this Mortgage or under any other Loan Document, either in whole
or in part. Mortgagor shall not be entitled to any extension of the time by
which Mortgagor's performance under this Mortgage or any other Loan Document is
required hereunder or thereunder, subject, however, to the applicable grace
periods, if any, set forth herein or therein.
SECTION 3.12. INFORMATION. Mortgagor shall deliver to Mortgagee,
promptly upon request, all such information with respect to the contracts
relating to the improvement, maintenance, management and operation of the
Mortgaged Property or any part thereof as Mortgagee from time to time may
reasonably request.
SECTION 3.13. INVALIDITY OF CERTAIN PROVISIONS. All rights, powers
and remedies provided herein
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may be exercised only to the extent that the exercise thereof does not
violate any applicable law, and are intended to be limited to the extent
necessary so that they will not render this Mortgage invalid, unenforceable
or not entitled to be recorded, registered or filed under any applicable law.
If any term of this Mortgage or the application thereof to any Entity or
circumstances shall, to any extent, be held to be invalid or unenforceable,
the remainder of this Mortgage, and the application of such term or provision
to Entities or circumstances other than those as to which it is held invalid
or unenforceable, shall not be affected thereby, and each term and provision
of this Mortgage shall be valid and enforceable to the fullest extent
permitted by law.
SECTION 3.14 Intentionally Deleted.
SECTION 3.15. NOTICES. (a) Mortgagor shall give notice to Mortgagee
within ten (10) Business Days after Mortgagor becomes aware of the occurrence of
any of the following:
(i) Any material litigation, investigation or proceeding at any
time to which Mortgagor is a party and that could reasonably be
expected to have a materially adverse effect on the Mortgaged
Property;
(ii) Any litigation or proceeding affecting the Mortgaged
Property or any part thereof in which the amount involved is Two
Million Dollars ($2,000,000.00) or more and not fully covered by
insurance excluding any deductible, or in which injunctive or similar
relief is sought;
(iii) A materially adverse change in the Mortgaged Property;
(iv) Any notice given to Mortgagor that alleges any material
violation of or noncompliance with any Requirement of Law with respect
to the Mortgaged Property (including, without limitation, any notice
that alleges violation of or noncompliance with any Environmental
Laws) that could be reasonably be expected to
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have a material adverse effect on the Mortgaged Property; or
(v) Any lien relating to a claim in excess of One Million
Dollars ($1,000,000.00) filed or otherwise asserted against the
Mortgaged Property, other than a lien created by any Loan Document.
Each notice pursuant to this Section 3.15 shall be accompanied by a
statement of Mortgagor setting forth details of the occurrence referred to
therein and describing the action Mortgagor proposes to take with respect
thereto. All notices shall be in writing and sent in the manner provided in
Section 3.15(b) hereof.
(b) Any communications, requests or notices required or appropriate
to be given under this Mortgage shall be in writing and either personally
delivered, delivered by overnight courier, or mailed by certified, registered,
or express mail, return receipt requested, deposited in the United States mail
postage pre-paid, addressed to the party for whom the notice is intended as
follows:
To Mortgagor: Archibald Candy Corporation
1137 West Jackson Boulevard
Chicago, Illinois 60607
To Mortgagee: The Bank of New York
101 Barclay Street - 21-West
New York, New York 10286
These addresses may be changed by notice as provided herein.
Notwithstanding anything to the contrary contained above, notices of default
hereunder shall be given only by personal delivery or by overnight courier,
addressed in the manner provided above. All notices shall be deemed to have
been received on the earlier of actual receipt, or, if given by mail, four (4)
Business Days following the postmark date thereof unless sent by overnight mail
in which event they shall be deemed to have been received one (1) Business Day
following the
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postmark date thereof. Any indicated copies of any notices are courtesy
copies only, and failure to deliver any such copy shall not be deemed to be a
failure to deliver notice to Mortgagor or Mortgagee, as the case may be.
Mortgagee's attorney(s) and Mortgagor's attorney(s) are hereby authorized on
behalf of their respective clients to serve any notice under this Mortgage.
SECTION 3.16. CONSTRUCTION. In this Mortgage, unless the context
otherwise requires, the terms "hereby," "hereof," "hereto," "herein,"
"hereunder," and any similar terms refer to this Mortgage as an entirety and not
solely to the particular portion in which such word is used. Whenever reference
is made herein to the "Premises" or "Mortgaged Property," such reference shall
be deemed to be to "the Premises or any part thereof" or "the Mortgaged Property
or any part thereof" (as the case may be), unless the context clearly requires a
contrary meaning.
SECTION 3.17. NO JOINT VENTURE. Mortgagor and Mortgagee intend that
the relationship created under the Notes and under this Mortgage be solely that
of debtor and creditor or mortgagor and mortgagee, as the case may be. Nothing
herein or in any of the Loan Documents is intended to create a joint venture,
partnership, tenancy-in-common, or joint tenancy relationship between Mortgagor
and Mortgagee, nor to grant Mortgagee any interest in the Mortgaged Property or
the Mortgagor itself other than that of creditor or mortgagee.
SECTION 3.18. MISCELLANEOUS PROVISIONS.
(a) Neither this Mortgage nor any provision hereof may be waived,
modified, amended, discharged or terminated except by an instrument signed by
the party against whom the enforcement of such waiver, modification amendment,
discharge or termination is sought, and then only to the extent set forth in
such instrument.
(b) This Mortgage and the rights and duties of the parties hereto
shall be governed by the laws of the State of Pennsylvania. Any claim, action
or proceeding arising out of or relating to this Mortgage may be maintained
against either of the parties hereto in the courts of the State of Pennsylvania
or in any federal court in Pennsylvania. The parties hereto (i) irrevocably
submit
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to the personal jurisdiction of the courts of the State of Pennsylvania or of
any federal court in the State of Pennsylvania in any claim, action or
proceeding to be brought against them, or any of them, for the enforcement of
any of their duties or obligations under this Mortgage and (ii) waive any and
all rights under the law of the State of Pennsylvania or any other
jurisdiction to object to the jurisdiction of the courts of the State of
Pennsylvania or the federal courts in the State of Pennsylvania, as
hereinabove set forth.
(c) The Table of Contents and captions in this Mortgage are inserted
for convenience of reference only, and in no way define, describe or limit the
scope or intent of this Mortgage or any of the provisions hereof.
(d) As used in this Mortgage, the masculine shall include the
feminine and neuter, the singular shall include the plural and the plural shall
include the singular, as the context may require.
SECTION 3.19. SUCCESSORS AND ASSIGNS. All covenants and agreements
herein shall bind the respective successors and assigns of Mortgagor and
Mortgagee, whether so expressed or not (but this provision is not intended nor
shall it be construed to permit Mortgagor or Mortgagee to transfer or assign its
rights and obligations hereunder or under any of the other Loan Documents except
as permitted by the provisions of this Mortgage, the Notes or the other Loan
Documents), and all such covenants shall inure to the benefit of Mortgagee and
Mortgagor and their respective nominees, successors and assigns, whether so
expressed or not.
SECTION 3.20. RELEASE OF LIEN. If Mortgagor shall prepay or
otherwise satisfy the Indebtedness in accordance with the terms of the
Indenture, then and in that event all rights and obligations hereunder (except
for the rights and obligations hereunder which, by their terms, shall survive)
shall terminate (except that Mortgagor's obligations hereunder (if any) that are
not secured by this Mortgage shall survive and be enforceable by Mortgagee at
law and in equity provided Mortgagee shall have notified Mortgagor in writing at
or before the time of Mortgagor's payment of any obligations of Mortgagor which
Mortgagee claims are outstanding and shall survive the satisfaction of this
Mortgage if not paid or
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performed prior thereto), and the Mortgaged Property shall become wholly
released and cleared of the liens, security interests, conveyances and
assignments evidenced hereby. In such event Mortgagee shall, at the request
of Mortgagor, deliver to Mortgagor, in recordable form, all such documents as
shall be necessary to release the Mortgaged Property from the liens, security
interests, conveyances and assignments created or evidenced hereby or, at the
request of Mortgagor, an assignment of this Mortgage to such person as
Mortgagor shall designate in writing, provided that any such assignment shall
be without recourse to Mortgagee and without any representation or warranty
(express or implied) whatsoever by Mortgagee.
SECTION 3.21. NEGOTIATED DOCUMENT. Mortgagor and Mortgagee
acknowledge that the provisions and the language of this Mortgage have been
negotiated and are reasonable in light of all circumstances attendant to the
execution of this Mortgage, and agree that no provision of this Mortgage shall
be construed against either Mortgagor or Mortgagee by reason of either Mortgagor
or Mortgagee having drafted such provision or this Mortgage.
SECTION 3.22. NO RECOURSE AGAINST OTHERS. No director, officer,
employee, incorporator, shareholder, or controlling person of Mortgagor as such,
shall have any liability for any obligations of Mortgagor under the Mortgage or
for any claim based on, in respect of, or by reason of such Mortgage.
SECTION 3.23. OPEN-END MORTGAGE PROVISIONS.
(a) Mortgagor agrees that maintenance charges and costs incurred to
protect the Mortgaged Property or the lien of this Mortgage shall include,
without limitation, expenses incurred and expenditures made by Mortgagee for any
one or more of the following: (i) premiums for casualty and liability insurance
paid by Mortgagee whether or not Mortgagee or a receiver is in possession, if
reasonably required, without regard to the amount or type of insurance in effect
at the time any receiver or mortgagee takes possession of the Mortgaged
Property; (ii) payments required or deemed by Mortgagee to be for the benefit of
the Mortgaged Property or required to be made by the owner of the Mortgaged
Property under any grant or declaration of easement, easement agreement,
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reciprocal easement agreement, agreement with any adjoining land owners or
other instruments creating covenants or restrictions for the benefit of or
affecting the Mortgaged Property; and (iii) operating deficits incurred by
Mortgagee in possession of the Mortgaged Property or reimbursed by Mortgagee
to any receiver.
(b) Mortgagor agrees that expenses incurred by Mortgagee by reason of
an Event of Default shall include, without limitation: (i) attorneys' fees and
other costs incurred in connection with the foreclosure of this Mortgage, or
execution upon the Notes or enforcement of the other remedies provided in this
Mortgage or the other Loan Documents and in connection with any other litigation
or administrative proceeding to which the Mortgagee may be, or threatened to be,
a party, including probate and bankruptcy proceedings, or in the preparation for
the commencement or defense of any such suit or proceeding, including filing
fees; (ii) appraisers' fees; (iii) outlays for documents and expert evidence,
witness fees, stenographer's charges, and publication costs; (iv) costs (which
may be estimated as to items to be expended after entry of judgment) for
procuring all such abstracts of title, title charges and examinations, title
insurance policies and similar data and assurances with respect to title and
value as Mortgagee may deem reasonably necessary either to prosecute or defend
such suit, or in case of foreclosure, to evidence to bidders at any sale which
may be had pursuant to the foreclosure judgment the true condition of the title
to or the value of the Mortgaged Property; and (v) fees and expenses or
professional consultants including preparation of environmental reports and
engineering reports with respect to the condition of the Mortgaged Property.
(c) Any agreement or contract entered into by Mortgagor after the
date hereof shall expressly provide that, (i) any party, person or entity
("Contractor") who has a direct agreement or contract with Mortgagor or,
(ii) any party, person or entity who enters into a direct agreement or contract
with Contractor, in either case, to perform work or provide materials to the
Mortgaged Property having a value in excess of Fifty Thousand and 00/100 Dollars
($50,000.00), irrevocably waives and relinquishes any rights which it may have
to send a written notice pursuant to 42 Pa. Cons. Stat. Ann. Section 8143(b)
and (d).
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(d) By delivery of this open-end mortgage, Mortgagee and Mortgagor
agree that the provisions of 42 Pa. Cons. Stat. Ann Section 8144 are not waived,
but rather, all benefits under said statute shall be applicable to this open-end
mortgage.
(e) Mortgagor waives and releases, to the fullest extent permitted by
law, any rights which it may have to send a written notice pursuant to 42 Pa.
Cons. Stat. Ann Section 8143(c).
(f) To the extent permitted by law, the holder of an encumbrance,
whether or not consented to by Mortgagee, expressly agrees by acceptance of such
encumbrance and without any further act or documentation being required, that it
waives and relinquishes any rights which it may have to file or send a notice
pursuant to 42 Pa. Cons. Stat. Ann. Section 8143(b) and (d).
(g) All notices given pursuant to 42 Pa. Cons. Stat. Ann. Section
8143(d) must be addressed to Mortgagee at the following address:
The Bank of New York
101 Barclay Street, 21-West
New York, New York 10286
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IN WITNESS WHEREOF, Mortgagor has caused this instrument to be duly
executed as of the day and year first above written.
ARCHIBALD CANDY CORPORATION
By: /s/ Ted A. Shepherd
-----------------------------------
Attest: Its: President and Chief
Operating Officer
/s/ Donna M. Snopek
- -------------------------------
Its: Vice President - Finance
and Accounting
I hereby certify that the address of the Mortgagee named herein is The Bank of
New York, 101 Barclay Street, 21-West, New York, New York 10286.
/s/ Denise Leonard
- -------------------------------
On behalf of the Mortgagee
<PAGE>
NOTARIAL ACKNOWLEDGEMENTS
STATE OF ILLINOIS )
)
COUNTY OF COOK )
I, /s/ Nancy A. Hanzalik, a Notary Public in and for the said
County and State aforesaid, DO HEREBY CERTIFY, that Ted A. Shepherd and Donna
M. Snopek, the President and COO and V.P. Finance and Accounting respectively
of Archibald Candy Corporation, an Illinois corporation, personally known to
me to be the same persons whose names are subscribed to the foregoing
instrument as such President and COO and V.P. Finance and Accounting appeared
before me this day in person and acknowledged that they signed and delivered
the said instrument as their own free and voluntary act and as of the free
and voluntary act of said corporation, for the uses and purposes therein set
forth.
Given under my hand and notarial seal this 2nd day of July, 1997.
/s/ Nancy A. Hanzalik
---------------------------------------
Notary Public
THIS INSTRUMENT WAS PREPARED BY AND RECORDED COUNTERPARTS SHOULD BE RETURNED TO:
ANDREW STRASSER, SKADDEN, ARPS, 333 WEST WACKER DRIVE, 21ST FLOOR, CHICAGO,
ILLINOIS 60606.
<PAGE>
SCHEDULE A
DESCRIPTION OF PREMISES
PREMISES "A"
ALL THAT CERTAIN LOT OR PARCEL OF LAND SITUATE IN THE TOWNSHIP OF BENSALEM,
COUNTY OF BUCKS AND COMMONWEALTH OF PENNSYLVANIA, BEING PART OF LOT 17 AS LAID
OUT ON A PLAN OF LOTS KNOWN AS BRIDGEWATER INDUSTRIAL PARK RECORDED IN AND FOR
THE SAID COUNTY OF BUCKS IN PLAN BOOK 75 PAGE 12 ON MARCH 30, 1970 AND REVISED
SEPTEMBER 9, 1971, BOUNDED AND DESCRIBED AS FOLLOWS, TO WIT:
BEGINNING AT A CORNER OF LOT 18 ON THE EASTERLY SIDE OF WINCHESTER ROAD (60 FEET
WIDE) SAID POINT BEING 678.47 FEET ALONG THE SAID SIDE OF WINCHESTER ROAD IN A
NORTHERLY DIRECTION FROM THE EASTERLY SIDE OF THE BRIDGEWATER ROAD; THENCE ALONG
THE SAID SIDE OF WINCHESTER ROAD, NORTH 6 DEGREES 36 MINUTES WEST, 75.83 FEET TO
A CORNER IN LINE OF LOT 17; THENCE PASSING THROUGH SAID LOT 17, NORTH 83 DEGREES
24 MINUTES EAST 270.0 FEET TO A CORNER IN LINE OF LANDS NOW OR LATE OF W.
GARVIN; THENCE ALONG SAID LANDS, SOUTH 6 DEGREES 36 MINUTES EAST, 75.83 FEET TO
A CORNER OF SAID LOT 18; THENCE ALONG LOT 18, SOUTH 83 DEGREES 24 MINUTES WEST,
270.0 FEET TO THE SAID EASTERLY SIDE OF WINCHESTER ROAD AND PLACE OF BEGINNING.
COUNTY TAX PARCEL NUMBER 2-73-170
PREMISES "B"
ALL THAT CERTAIN LOT OR PARCEL OF LAND SITUATE IN THE TOWNSHIP OF BENSALEM,
COUNTY OF BUCKS AND COMMONWEALTH OF PENNSYLVANIA, BEING PART OF LOT 17 AS LAID
OUT ON A PLAN OF LOTS KNOWN AS BRIDGEWATER INDUSTRIAL PARK RECORDED IN AND FOR
THE SAID COUNTY OF BUCKS IN PLAN BOOK 75 PAGE 12 ON THE 30TH DAY OF MARCH 1970
AND REVISED SEPTEMBER 9, 1973 BOUNDED AND DESCRIBED AS FOLLOWS, VIZ:
BEGINNING AT A CORNER IN LINE OF LOT 17 ON THE EASTERLY SIDE OF WINCHESTER ROAD
(50 FEET WIDE) SAID POINT BEING 754.30 FEET ALONG THE SAID SIDE OF WINCHESTER
ROAD IN A NORTHERLY DIRECTION FROM THE EASTERLY SIDE OF THE BRIDGEWATER ROAD;
THENCE ALONG THE SAID SIDE OF WINCHESTER ROAD NORTH 6 DEGREES 36 MINUTES WEST
119.17 FEET TO A CORNER OF LOT 16; THENCE ALONG LOT 16, NORTH 83
<PAGE>
SCHEDULE A (CONT'D)
DEGREES 24 MINUTES EAST 270 FEET TO A CORNER IN LINE OF LANDS NOW OR LATE OF W.
GARVIN, THENCE ALONG SAID LANDS SOUTH 6 DEGREES 36 MINUTES EAST 119.17 FEET TO A
CORNER IN LINE OF SAID LOT 17; THENCE PASSING THROUGH SAID LOT 17, SOUTH 83
DEGREES 24 MINUTES WEST 270 FEET TO THE SAID EASTERLY SIDE OF WINCHESTER ROAD
AND PLACE OF BEGINNING.
COUNTY TAX PARCEL NUMBER 2-73-170-1.
BEING AS TO PREMISES "A" THE SAME PREMISES WHICH JOSEPH DIEGIDIO AND PHYLLIS
DIEGIDIO, HIS WIFE, BY DEED DATED 3/22/1972 AND RECORDED 8/21/1972 IN THE COUNTY
OF BUCKS IN DEED BOOK 2033 PAGE 842 CONVEYED UNTO FANNIE MAY CANDY SHOPS, INC.,
A PENNSYLVANIA CORPORATION, IN FEE.
BEING AS TO PREMISES "B" THE SAME PREMISES WHICH JOSEPH DIEGIDIO AND PHYLLIS
DIEGIDIO, HIS WIFE, BY DEED DATED 12/9/1971 AND RECORDED IN THE COUNTY OF BUCKS
IN DEED BOOK 2021 PAGE 536 CONVEYED UNTO FANNIE MAY CANDY SHOPS, INC., A
PENNSYLVANIA CORPORATION, IN FEE.
AND THE SAID FANNIE MAY CANDY SHOPS, INC., A PENNSYLVANIA CORPORATION, ON THE
18TH DAY OF NOVEMBER A.D., 1991, MERGED WITH ARCHIBALD CANDY CORPORATION, AN
ILLINOIS CORPORATION, AND IS NOW KNOWN AS ARCHIBALD CANDY CORPORATION, AN
ILLINOIS CORPORATION.
44
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SCHEDULE B
Permitted Exceptions
Those certain exceptions as shown on Chicago Title Insurance Company Commitment
No. 9781-00511.
45
<PAGE>
EXECUTION COPY
AMENDED AND RESTATED
CREDIT AGREEMENT
DATED AS OF JULY 2, 1997
AMONG
ARCHIBALD CANDY CORPORATION,
AS BORROWER
THE INSTITUTIONS FROM TIME TO TIME
PARTY HERETO AS LENDERS
AND
THE FIRST NATIONAL BANK OF CHICAGO,
AS AGENT
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I: DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 CERTAIN DEFINED TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II: THE CREDITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.1. [Intentionally Omitted]. . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.2 REVOLVING LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.3 RATABLE LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.4 RATE OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.5 OPTIONAL PAYMENTS; MANDATORY PREPAYMENTS . . . . . . . . . . . . . . . . . . . 25
(A) OPTIONAL PAYMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(B) MANDATORY PREPAYMENTS. . . . . . . . . . . . . . . . . . . . . . . . . 25
(C) APPLICATION OF PREPAYMENTS . . . . . . . . . . . . . . . . . . . . . . 25
2.6 REDUCTION OF REVOLVING LOAN COMMITMENTS . . . . . . . . . . . . . . . . . . . 26
2.7 METHOD OF BORROWING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2.8 METHOD OF SELECTING TYPES AND INTEREST PERIODS FOR ADVANCES. . . . . . . . . . 26
2.9 MINIMUM AMOUNT OF EACH ADVANCE . . . . . . . . . . . . . . . . . . . . . . . . 26
2.10 METHOD OF SELECTING TYPES AND INTEREST PERIODS FOR CONVERSION AND
CONTINUATION OF ADVANCES . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(A) RIGHT TO CONVERT . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(B) AUTOMATIC CONVERSION AND CONTINUATION . . . . . . . . . . . . . . . . 27
(C) NO CONVERSION POST-DEFAULT . . . . . . . . . . . . . . . . . . . . . . 27
(D) CONVERSION/CONTINUATION NOTICE . . . . . . . . . . . . . . . . . . . . 27
2.11 DEFAULT RATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.12 METHOD OF PAYMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.13 NOTES, TELEPHONIC NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . 28
2.14 PROMISE TO PAY; INTEREST AND FEES; INTEREST PAYMENT DATES; INTEREST AND
FEE BASIS; TAXES; LOAN AND CONTROL ACCOUNTS. . . . . . . . . . . . . . . . . . 28
(A) PROMISE TO PAY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(B) INTEREST PAYMENT DATES . . . . . . . . . . . . . . . . . . . . . . . . 28
(C) FEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(D) INTEREST AND FEE BASIS . . . . . . . . . . . . . . . . . . . . . . . . 29
(E) TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(F) LOAN ACCOUNT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(G) CONTROL ACCOUNT. . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(H) ENTRIES BINDING. . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
2.15 NOTIFICATION OF ADVANCES, INTEREST RATES, PREPAYMENTS AND COMMITMENT
REDUCTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
2.16 LENDING INSTALLATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
2.17 NON-RECEIPT OF FUNDS BY THE AGENT. . . . . . . . . . . . . . . . . . . . . . . 34
2.18 TERMINATION DATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
2.19 REPLACEMENT OF CERTAIN LENDERS . . . . . . . . . . . . . . . . . . . . . . . . 34
2.20 LETTER OF CREDIT FACILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . 35
2.21 LETTER OF CREDIT PARTICIPATION . . . . . . . . . . . . . . . . . . . . . . . . 35
2.22 REIMBURSEMENT OBLIGATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
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<PAGE>
2.23 CASH COLLATERAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
2.24 LETTER OF CREDIT FEES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
2.25 INDEMNIFICATION; EXONERATION . . . . . . . . . . . . . . . . . . . . . . . . . 37
2.26 RELEASE OR ADDITION OF COLLATERAL. . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE III: CHANGE IN CIRCUMSTANCES. . . . . . . . . . . . . . . . . . . . . . . . . 38
3.1 YIELD PROTECTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
3.2 CHANGES IN CAPITAL ADEQUACY REGULATIONS. . . . . . . . . . . . . . . . . . . . 40
3.3 AVAILABILITY OF TYPES OF ADVANCES. . . . . . . . . . . . . . . . . . . . . . . 40
3.4 FUNDING INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
3.5 LENDER STATEMENTS; SURVIVAL OF INDEMNITY . . . . . . . . . . . . . . . . . . . 41
ARTICLE IV: CONDITIONS PRECEDENT. . . . . . . . . . . . . . . . . . . . . . . . . . . 41
4.1 INITIAL ADVANCES AND LETTERS OF CREDIT . . . . . . . . . . . . . . . . . . . . 41
4.2 EACH ADVANCE AND LETTER OF CREDIT. . . . . . . . . . . . . . . . . . . . . . . 42
ARTICLE V: REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . 43
5.1 ORGANIZATION; CORPORATE POWERS . . . . . . . . . . . . . . . . . . . . . . . . 43
5.2 AUTHORITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
5.3 NO CONFLICT; GOVERNMENTAL CONSENTS . . . . . . . . . . . . . . . . . . . . . . 44
5.4 FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
5.5 NO MATERIAL ADVERSE CHANGE . . . . . . . . . . . . . . . . . . . . . . . . . . 44
5.6 TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
(A) TAX EXAMINATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
(B) PAYMENT OF TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
5.7 LITIGATION; LOSS CONTINGENCIES AND VIOLATIONS. . . . . . . . . . . . . . . . . 45
5.8 SUBSIDIARIES; PARENT'S CONDUCT OF BUSINESS . . . . . . . . . . . . . . . . . . 45
5.9 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
5.10 ACCURACY OF INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
5.11 SECURITIES ACTIVITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
5.12 MATERIAL AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
5.13 COMPLIANCE WITH LAWS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
5.14 ASSETS AND PROPERTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
5.15 STATUTORY INDEBTEDNESS RESTRICTIONS. . . . . . . . . . . . . . . . . . . . . . 47
5.16 POST-RETIREMENT BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
5.17 INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
5.18 CONTINGENT OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
5.19 LABOR MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
5.20 SOLVENCY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
5.21 ENVIRONMENTAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
5.22 DISCLOSURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
ARTICLE VI: COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
6.1 REPORTING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
(A) FINANCIAL REPORTING. . . . . . . . . . . . . . . . . . . . . . . . . . 49
(B) NOTICE OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . . . 51
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<PAGE>
(C) LAWSUITS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
(D) INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
(E) ERISA NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
(F) LABOR MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
(G) OTHER INDEBTEDNESS. . . . . . . . . . . . . . . . . . . . . . . . . . . 53
(H) OTHER REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
(I) ENVIRONMENTAL NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . 54
(J) BORROWING BASE CERTIFICATE. . . . . . . . . . . . . . . . . . . . . . . 54
(K) OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
6.2 AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
(A) CORPORATE EXISTENCE, ETC. . . . . . . . . . . . . . . . . . . . . . . . 54
(B) CORPORATE POWERS; CONDUCT OF BUSINESS . . . . . . . . . . . . . . . . . 54
(C) FUTURE GUARANTORS AND SUBSIDIARIES. . . . . . . . . . . . . . . . . . . 54
(D) COMPLIANCE WITH LAWS, ETC.. . . . . . . . . . . . . . . . . . . . . . . 55
(E) PAYMENT OF TAXES; TAX CONSOLIDATION . . . . . . . . . . . . . . . . . . 55
(F) INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
(G) INSPECTION OF PROPERTY; BOOKS AND RECORDS; DISCUSSIONS. . . . . . . . . 55
(H) INSURANCE AND CONDEMNATION PROCEEDS . . . . . . . . . . . . . . . . . . 56
(I) ERISA COMPLIANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
(J) MAINTENANCE OF PROPERTY . . . . . . . . . . . . . . . . . . . . . . . . 56
(K) ENVIRONMENTAL COMPLIANCE. . . . . . . . . . . . . . . . . . . . . . . . 56
(L) USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
(M) MAINTENANCE OF CONCENTRATION ACCOUNT. . . . . . . . . . . . . . . . . . 56
(N) ISSUANCE OF SAR NOTES . . . . . . . . . . . . . . . . . . . . . . . . . 57
6.3 NEGATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
(A) INDEBTEDNESS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
(B) [Intentionally Omitted] . . . . . . . . . . . . . . . . . . . . . . . . 58
(C) LIENS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
(D) INVESTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
(E) [Intentionally omitted].. . . . . . . . . . . . . . . . . . . . . . . . 59
(F) RESTRICTED PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . 59
(G) BORROWER'S CONDUCT OF BUSINESS. . . . . . . . . . . . . . . . . . . . . 59
(H) TRANSACTIONS WITH AFFILIATES. . . . . . . . . . . . . . . . . . . . . . 59
(J) RESTRICTION ON FUNDAMENTAL CHANGES. . . . . . . . . . . . . . . . . . . 59
(K) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
MARGIN REGULATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
(L) ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
(M) AMENDMENT OF CERTAIN AGREEMENTS . . . . . . . . . . . . . . . . . . . . 60
(N) CORPORATE DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . 60
(O) OTHER INDEBTEDNESS. . . . . . . . . . . . . . . . . . . . . . . . . . . 60
(P) FISCAL YEAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
(Q) SUBSIDIARY COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . 60
(R) RATE HEDGING OBLIGATIONS. . . . . . . . . . . . . . . . . . . . . . . . 61
6.4. FINANCIAL COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
(A) DEFINED TERMS FOR FINANCIAL COVENANTS . . . . . . . . . . . . . . . . . 61
(B) FIXED CHARGE COVERAGE RATIO . . . . . . . . . . . . . . . . . . . . . . 63
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<PAGE>
(C) LEVERAGE RATIO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
(D) RENTALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
ARTICLE VII: DEFAULTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
7.1 DEFAULTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
ARTICLE VIII: ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES . . . . . . . . . . . . . 67
8.1 TERMINATION OF COMMITMENTS; ACCELERATION. . . . . . . . . . . . . . . . . . . . 67
8.2 DEFAULTING LENDER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
8.3 AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
8.4 PRESERVATION OF RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
8.5 RELEASE OF COLLATERAL.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
ARTICLE IX: GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
9.1 SURVIVAL OF REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 70
9.2 GOVERNMENTAL REGULATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
9.3 PERFORMANCE OF OBLIGATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 70
9.4 HEADINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
9.5 ENTIRE AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
9.6 SEVERAL OBLIGATIONS; BENEFITS OF THIS AGREEMENT . . . . . . . . . . . . . . . . 71
9.7 EXPENSES; INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
(A) EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
(B) INDEMNITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
(C) WAIVER OF CERTAIN CLAIMS. . . . . . . . . . . . . . . . . . . . . . . . 73
(D) SURVIVAL OF AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . 73
9.8 NUMBERS OF DOCUMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
9.9 ACCOUNTING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
9.10 SEVERABILITY OF PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 73
9.11 NONLIABILITY OF LENDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
9.12 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
9.13 CONSENT TO JURISDICTION; SERVICE OF PROCESS; JURY TRIAL . . . . . . . . . . . . 74
(A) EXCLUSIVE JURISDICTION. . . . . . . . . . . . . . . . . . . . . . . . . 74
(B) OTHER JURISDICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 74
(C) SERVICE OF PROCESS. . . . . . . . . . . . . . . . . . . . . . . . . . . 74
(D) WAIVER OF JURY TRIAL. . . . . . . . . . . . . . . . . . . . . . . . . . 74
(E) WAIVER OF BOND. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
(F) ADVICE OF COUNSEL . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
ARTICLE X: THE AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
10.1 APPOINTMENT; NATURE OF RELATIONSHIP . . . . . . . . . . . . . . . . . . . . . . 75
10.2 POWERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
10.3 GENERAL IMMUNITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
10.4 NO RESPONSIBILITY FOR LOANS, CREDITWORTHINESS, COLLATERAL, RECITALS, ETC. . . . 75
10.5 ACTION ON INSTRUCTIONS OF LENDERS . . . . . . . . . . . . . . . . . . . . . . . 76
10.6 EMPLOYMENT OF AGENTS AND COUNSEL. . . . . . . . . . . . . . . . . . . . . . . . 76
10.7 RELIANCE ON DOCUMENTS; COUNSEL. . . . . . . . . . . . . . . . . . . . . . . . . 76
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<PAGE>
10.8 AGENT'S REIMBURSEMENT AND INDEMNIFICATION . . . . . . . . . . . . . . . . . . . 76
10.9 RIGHTS AS A LENDER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
10.10 LENDER CREDIT DECISION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
10.11 SUCCESSOR AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
10.12 COLLATERAL DOCUMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
ARTICLE XI: SETOFF; RATABLE PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 78
11.1 SETOFF. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
11.2 RATABLE PAYMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
11.3 APPLICATION OF PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
11.4 RELATIONS AMONG LENDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
ARTICLE XII: BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS . . . . . . . . . . . . 79
12.1 SUCCESSORS AND ASSIGNS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
12.2 PARTICIPATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
(A) PERMITTED PARTICIPANTS; EFFECT. . . . . . . . . . . . . . . . . . . . . 80
(B) VOTING RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
(C) BENEFIT OF SETOFF . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
12.3 ASSIGNMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
(A) PERMITTED ASSIGNMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 81
(B) EFFECT; EFFECTIVE DATE. . . . . . . . . . . . . . . . . . . . . . . . . 81
(C) THE REGISTER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
12.4 DISSEMINATION OF INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . 82
ARTICLE XIII: NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
13.1 GIVING NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
13.2 CHANGE OF ADDRESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
ARTICLE XIV: CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
ARTICLE XV: COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
S-v
</TABLE>
<PAGE>
EXHIBITS
EXHIBIT A -- Loan Commitments
(Definitions)
EXHIBIT B -- Form of Revolving Note
(Definitions)
EXHIBIT C -- Form of Borrowing Base Certificate
(Definitions)
EXHIBIT D -- Form of Assignment Agreement
(Sections 2.19, 12.3)
EXHIBIT E -- Money Transfer Instructions (Section 4.1)
EXHIBIT F -- List of Closing Documents (Section 4.1)
EXHIBIT G -- Form of Officer's Certificate
(Sections 4.2, 6.1(A)(iv))
EXHIBIT H -- Form of Compliance Certificate
(Sections 4.2, 6.1(A)(iv))
S-vi
<PAGE>
SCHEDULES
SCHEDULE 1.1-A -- Inactive Subsidiaries
(Definitions)
SCHEDULE 1.1-B -- Jordans
(Definitions)
SCHEDULE 1.1-C -- SAR Agreements
(Definitions, Section 6.4(A))
SCHEDULE 1.1-D -- Approved Values of Real Estate
(Definitions)
SCHEDULE 5.3 -- Government Consents (Section 5.3)
SCHEDULE 5.7 -- Litigation (Section 5.7)
SCHEDULE 5.8 -- Corporate Structure (Section 5.8)
SCHEDULE 5.9 -- ERISA Matters (Sections 5.9, 6.3(A))
SCHEDULE 5.17 -- Insurance (Sections 5.17, 6.2(F))
SCHEDULE 5.18 -- Contingent Obligations
(Sections 5.7, 5.18)
SCHEDULE 5.19 -- Labor Matters (Section 5.19)
SCHEDULE 5.21 -- Environmental Matters (Section 5.21)
SCHEDULE 6.3(A) -- Indebtedness (Section 6.3(A))
SCHEDULE 6.3(C) -- Liens (Section 6.3(C))
SCHEDULE 6.3(D) -- Investments (Section 6.3(D))
S-vii
<PAGE>
AMENDED AND RESTATED
CREDIT AGREEMENT
This Amended and Restated Credit Agreement dated as of July 2, 1997 is
entered into among Archibald Candy Corporation, an Illinois corporation, the
institutions from time to time a party hereto as Lenders, whether by execution
of this Agreement or an assignment and acceptance pursuant to SECTION 12.3, and
The First National Bank of Chicago, in its capacity as Agent for itself and the
other Lenders. The parties hereto agree as follows:
ARTICLE I: DEFINITIONS
1.1 CERTAIN DEFINED TERMS. The following terms used in this Agreement
shall have the following meanings, applicable both to the singular and the
plural forms of the terms defined:
As used in this Agreement:
"ACCOUNT DEBTOR" means and includes the account debtor or obligor with
respect to any of the Receivables and/or the prospective purchaser with
respect to any contract right, and/or any party who enters into or proposes
to enter into any contract or other arrangement with the Borrower.
"ACQUISITION" means any transaction, or any series of related
transactions, consummated on or after the date of this Agreement, by which
the Borrower or any Subsidiary of the Borrower (i) acquires all or
substantially all of the assets of any firm, corporation or division thereof,
whether through purchase of assets, merger or otherwise or (ii) directly or
indirectly acquires (in one transaction or as the most recent transaction in
a series of transactions) at least a majority (in number of vote) of the
securities of a corporation which have ordinary voting power for the election
of directors (other than securities having such power only by reason of the
happening of a contingency) or a majority (by percentage of voting power) of
the outstanding partnership inter-ests of a partnership.
"ADVANCE" means a borrowing hereunder consisting of the aggregate amount
of the several Loans made by the Lenders to the Borrower of the same Type
and, in the case of Eurodollar Advances, for the same Interest Period.
"AFFECTED LENDER" is defined in SECTION 2.19 hereof.
"AFFILIATE" of any Person means any other Person directly or indirectly
controlling, controlled by or under common control with such Person. A Person
shall be deemed to control another Person if the controlling Person owns ten
percent (10%) or more of any class of voting securities (or other voting
interests) of the controlled Person or possesses, directly or indirectly, the
power to direct or cause the direction of the management or policies of the
controlled Person, whether through ownership of stock, by contract or otherwise.
Notwithstanding anything in this Agreement to the contrary, with respect to
references to "Affiliates" of any Lender, the ten percent (10%) threshold set
forth above shall instead be a reference to fifty percent (50%).
<PAGE>
"AGENT" means First Chicago in its capacity as the contractual
representa-tive for itself and the Lenders pursuant to ARTICLE X hereof and
any successor Agent appointed pursuant to ARTICLE X hereof.
"AGGREGATE REVOLVING LOAN COMMITMENT" means the aggregate of the
Revolving Loan Commitments of all the Lenders, as reduced from time to time
pursuant to the terms hereof. The initial Aggregate Revolving Loan
Commitment is $20,000,0-00.
"AGREEMENT" means this Credit Agreement, as it may be amended, restated
or otherwise modified and in effect from time to time.
"AGREEMENT ACCOUNTING PRINCIPLES" means generally accepted accounting
principles as in effect from time to time, applied in a manner consistent
with that used in preparing the financial statements referred to in SECTION
5.4(B) hereof.
"ALTERNATE BASE RATE" means, for any day, a fluctuating rate of interest
per annum equal to the higher of (i) the Corporate Base Rate for such day and
(ii) the sum of (a) the Federal Funds Effective Rate for such day and (b)
one-half of one percent (0.5%) per annum.
"APPLICABLE COMMITMENT FEE RATE" means, for any date, from the date
hereof through August 31, 1997, a per annum rate equal to one-half of one
percent (0.50%) and thereafter the applicable per annum rate set forth below
based on the Borrower's Leverage Ratio as of the last day of the Borrower's
most recently ended Fiscal Quarter:
Applicable
LEVERAGE RATIO COMMITMENT FEE RATE
------------------- -------------------
Greater than or
equal to 4.0 to 1 0.50%
Less than 4.0 to 1
but greater than or
equal to 3.0 to 1 0.50%
Less than 3.0 to 1
but greater than or
equal to 2.5 to 1 0.50%
Less than 2.5 to 1 0.375%
For any date after August 31, 1997, the Applicable Commitment Fee Rate shall
be adjusted effective on the fifth (5th) Business Day after the delivery of
the Borrower's quarterly financial statements pursuant to SECTION 6.1(A)(ii),
PROVIDED that if timely delivery of such quarterly financial statements is
not made, for purposes of determining such Applicable Commitment Fee Rate,
the Leverage Ratio shall be assumed to be greater than 4.0 to 1 until such
delivery is made.
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"APPLICABLE EURODOLLAR MARGIN" means, for any date, with respect to the
Loans comprising any Eurodollar Advance, from the date hereof through August
31, 1997, a per annum rate equal to two and one-half percent (2.50%) and
thereafter, the applicable per annum rate set forth below for such Loans
based on the Borrower's Leverage Ratio as of the last day of the Borrower's
most recently ended Fiscal Quarter:
Applicable
LEVERAGE RATIO EURODOLLAR MARGIN
------------------ ------------------
Greater than or
equal to 4.0 to 1 2.50%
Less than 4.0 to 1
but greater than or
equal to 3.0 to 1 2.25%
Less than 3.0 to 1
but greater than or
equal to 2.5 to 1 2.00%
Less than 2.5 to 1 1.75%
For any date after August 31, 1997, the Applicable Eurodollar Margin shall be
adjusted effective on the fifth (5th) Business Day after the delivery of the
Borrower's quarterly financial statements pursuant to SECTION 6.1(A)(ii),
PROVIDED that if timely delivery of such quarterly financial statements is
not made, for purposes of determining such Applicable Eurodollar Margin, the
Leverage Ratio shall be assumed to be greater than 4.0 to 1 until such
delivery is made.
"APPLICABLE FLOATING RATE MARGIN" means, for any date, with respect to
the Loans comprising any Floating Rate Advance, from the date hereof through
August 31, 1997, a per annum rate equal to one and one-quarter percent
(1.25%) and thereafter, the applicable per annum rate set forth below for
such Loans based on the Borrower's Leverage Ratio as of the last day of the
Borrower's most recently ended Fiscal Quarter:
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Applicable
LEVERAGE RATIO FLOATING RATE MARGIN
------------------- --------------------
Greater than or
equal to 4.0 to 1 1.25%
Less than 4.0 to 1
but greater than or
equal to 3.0 to 1 1.00%
Less than 3.0 to 1
but greater than or
equal to 2.5 to 1 0.75%
Less than 2.5 to 1 0.50%
For any date after August 31, 1997, the Applicable Floating Rate Margin shall
be adjusted effective on the fifth (5th) Business Day after the delivery of
the Borrower's quarterly financial statements pursuant to SECTION 6.1(A)(ii),
PROVIDED that if timely delivery of such quarterly financial statements is
not made, for purposes of determining such Applicable Floating Rate Margin,
the Leverage Ratio shall be assumed to be greater than 4.0 to 1 until such
delivery is made.
"APPLICABLE LETTER OF CREDIT FEE RATE" means, for any date, from the
date hereof through August 31, 1997, a per annum rate equal to two and
one-half percent (2.50%) and thereafter the applicable per annum rate set
forth below based on the Borrower's Leverage Ratio as of the last day of the
Borrower's most recently ended Fiscal Quarter:
Letter of Credit
LEVERAGE RATIO FEE RATE
-------------- ----------------
Greater than or
equal to 4.0 to 1 2.50%
Less than 4.0 to 1
but greater than or
equal to 3.0 to 1 2.25%
Less than 3.0 to 1
but greater than or
equal to 2.5 to 1 2.00%
Less than 2.5 to 1 1.75%
The Letter of Credit Fee Rate shall be adjusted effective on the fifth (5th)
Business Day after the delivery of the Borrower's quarterly financial
statements pursuant to SECTION 6.1(A)(ii), PROVIDED
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that if timely delivery of such quarterly financial statements is not made,
for purposes of determining the Letter of Credit Fee Rate, the Leverage Ratio
shall be assumed to be greater than 4.0 to 1 until such delivery is made.
"APPROVED VALUE" means as of any date the sum of the values most
recently approved by the Agent with respect to each of the parcels of real
estate owned by the Borrower and subject to Mortgages (or mortgages in
substantially the same form) as set forth on SCHEDULE 1.1-D. As of the
Closing Date, the aggregate of the Approved Values of real estate subject to
Collateral Documents acceptable to the Agent is $8,000,000.00. Subsequent to
the first anniversary of the Closing Date, but no more frequently than once
in any twelve month period, the Borrower may request that the Agent appraise
specified parcels at the Borrower's expense, including new parcels which the
Borrower wishes to add as Collateral. If the new appraisal results in a
value for a particular parcel that the Agent considers reasonable and
acceptable, the Approved Value will be set or reset at such appraised amount.
"ARRANGER" means First Chicago Capital Markets, Inc.
"AUTHORIZED OFFICER" means any of the Chairman, Chief Executive Officer,
Vice President-Chief Financial Officer, Secretary/Treasurer, or Assistant
Secretary of the Borrower, acting singly.
"BENEFIT PLAN" shall mean a defined benefit plan as defined in Section
3(35) of ERISA (other than a Multiemployer Plan) in respect of which the
Borrower or any other member of the Controlled Group is, or within the
immediately preceding six (6) years was, an "employer" as defined in Section
3(5) of ERISA.
"BORROWER" means Archibald Candy Corporation, an Illinois corporation,
and its successors and assigns, including a debtor-in-possession on behalf of
the Borrower.
"BORROWER SECURITY AGREEMENT" means that certain Amended and Restated
Security Agreement of even date herewith executed by the Borrower in favor of
the Agent for the benefit of the Holders of Secured Obligations, as amended,
restated or otherwise modified from time to time.
"BORROWING BASE" means, as of any date of calculation, an amount, as set
forth on the most current Borrowing Base Certificate delivered to the Agent,
equal to (i) 85% of the Gross Amount of Eligible Receivables; PLUS (ii) 50% of
the Gross Amount of Eligible Inventory consisting of finished goods; PLUS (iii)
60% of the Gross Amount of Eligible Inventory consisting of raw materials; PLUS
(iv) 70% of the Approved Value of real estate; PLUS (v) the Overadvance Amount,
MINUS (vi) such reserves as the Agent reasonably deems necessary and are
consistent with existing reserves, including without limitation, reserves (a) in
amounts equal to any Indebtedness secured by a Lien permitted by SECTION
6.3(C)(v) and (b) in amounts equal to up to two (2) months rent or other
applicable storage/processing fees at any location (other than the Borrower's
leased retail store locations) where the Borrower maintains Inventory on leased
premises or stores Inventory with any third party, for which the Agent has not
received, as applicable, a landlord, mortgagee, bailee and/or warehousemen's
access and lien waiver agreement
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<PAGE>
and related Uniform Commercial Code financing statements, in form and
substance reasonably acceptable to the Agent. The Agent shall give the
Borrower notice prior to establishing any reserve hereunder.
"BORROWING BASE CERTIFICATE" means a monthly certificate, in
substantially the form of EXHIBIT C attached hereto and made a part hereof,
setting forth the Borrowing Base and the component calculations thereof.
"BORROWING DATE" means a date on which an Advance is made hereunder.
"BORROWING NOTICE" is defined in SECTION 2.8 hereof.
"BUSINESS ACTIVITY REPORT" means a Notice of Business Activities Report
from the State of Minnesota, Department of Revenue, or any similar report
required by any other State relating to the ability of the Borrower or its
Subsidiaries to enforce their accounts receivable claims against account
debtors located in any such state.
"BUSINESS DAY" means (i) with respect to any borrowing, payment or rate
selection of Loans bearing interest at the Eurodollar Rate, a day (other than
a Saturday or Sunday) on which banks are open for business in Chicago and New
York and on which dealings in United States dollars are carried on in the
London interbank market and (ii) for all other purposes a day (other than a
Saturday or Sunday) on which banks are open for business in Chicago and New
York.
"CAPITAL EXPENDITURES" means, the aggregate of all expenditures by the
Borrower and its Subsidiaries which should be capitalized on the consolidated
balance sheet of the Borrower and its Subsidiaries in accordance with
Agreement Accounting Principles (including that portion of Capitalized Lease
Obligations which should be capitalized on a consolidated balance sheet of
the Parent in accordance with Agreement Accounting Principles) and which are
made in connection with the purchase, construction or improvement of items
properly classified on such balance sheet as property, plant, equipment or
other fixed assets.
"CAPITALIZED LEASE" of a Person means any lease of property by such Person
as lessee which would be capitalized on a balance sheet of such Person prepared
in accordance with Agreement Accounting Principles.
"CAPITALIZED LEASE OBLIGATIONS" of a Person means the amount of the
obligations of such Person under Capitalized Leases which would be
capitalized on a balance sheet of such Person prepared in accordance with
Agreement Accounting Principles.
"CASH EQUIVALENTS" means (i) marketable direct obligations issued or
unconditionally guaranteed by the United States government and backed by the
full faith and credit of the United States government; (ii) domestic and
Eurodollar certificates of deposit and time deposits, bankers' acceptances and
floating rate certificates of deposit issued by any commercial bank organized
under the laws of the United States, any state thereof, the District of
Columbia, any foreign bank, or its branches or agencies (fully protected against
currency fluctuations for any such deposits with a term of more than ten (10)
days); (iii) shares of money market, mutual or
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<PAGE>
similar funds having assets in excess of $100,000,000 and the investments of
which are limited to investment grade securities (i.e., securities rated at
least Baa by Moody's Investors Service, Inc. or at least BBB by Standard &
Poor's Corporation) and (iv) commercial paper of United States and foreign
banks and bank holding companies and their subsidiaries and United States and
foreign finance, commercial industrial or utility companies which, at the
time of acquisition, are rated A-2 (or better) by Standard & Poor's
Corporation or P-2 (or better) by Moody's Investors Services, Inc.; PROVIDED
that the maturities of such Cash Equivalents shall not exceed 365 days from
the date of acquisition thereof.
"CHANGE" is defined in SECTION 3.2 hereof.
"CHANGE OF BOARD" means any transaction or event as a result of which
any Person or group (as defined in Section 13(d)(3) of the Securities and
Exchange Act of 1934 and the regulations promulgated thereunder) other than
the holders of Class C Common Stock of the Parent shall be entitled, by
virtue of ownership of voting securities or by agreement or otherwise, to
nominate directors of the Parent having, in the aggregate, at least a
majority of the voting power at the time represented by all members of the
board of directors of the Parent.
"CHANGE OF CONTROL" means any transaction or event as a result of which
(i) Jordan and its Affiliates (which, for these purposes, shall be deemed to
include TCW Capital and its Affiliates but shall be deemed not to include
MCIT) shall cease to own of record and beneficially, in the aggregate, at
least twenty-five percent (25%) of the shares of the issued and outstanding
common stock of the Parent, (ii) David Zalaznick, Thomas H. Quinn, Adam E.
Max, Jonathan F. Boucher, John R. Lowden and John W. Jordan II, collectively,
shall cease to have the absolute and unconditional power to vote a majority
of the issued and outstanding shares of Class C Common Stock of the Parent,
or to have the right to designate at least three members of the Board of
Directors of Parent under the applicable provisions of the Stockholders
Agreement, in each case without having to obtain the consent of any other
holder of such shares, (iii) David Zalaznick, Thomas H. Quinn, Adam E. Max,
and John W. Jordan II, collectively, shall cease to have the absolute and
unconditional power to vote at least thirty-five percent (35%) of the issued
and outstanding shares of Class C Common Stock, without having to obtain the
consent of any other holder of such shares, (iv) a Change of Board shall have
occurred, (v) the Parent shall cease to own, of record and beneficially, with
sole voting and dispositive power, 100% of the outstanding shares of capital
stock of the Borrower or (vi) a "Change of Control" (as defined in the Senior
Note Indenture) shall have occurred; PROVIDED, HOWEVER, that notwithstanding
the foregoing, no Change in Control shall be deemed to have occurred as long
as Jordan and its Affiliates and TCW Capital and its Affiliates own at least
a sufficient amount of the capital stock of the Parent to have the power to
elect at least a majority of the Board of Directors.
"CLOSING DATE" means July 2, 1997.
"CODE" means the Internal Revenue Code of 1986, as amended, reformed or
otherwise modified from time to time.
"COLLATERAL" means all property and interests in property now owned or
hereafter acquired by the Parent, the Borrower or any of the Borrower's
Subsidiaries in or upon which a
7
<PAGE>
Lien is granted to the Agent, for the benefit of the Holders of Secured
Obligations, or to the Agent, for the benefit of the Lenders; PROVIDED that
any such property or interest in property with respect to which the Lien
created pursuant to any of the Loan Documents has been released in accordance
with the terms thereof shall not constitute Collateral.
"COLLATERAL DOCUMENTS" means the Borrower Security Agreement, the
Mortgages and all other instruments, documents and agreements now or
hereafter executed which create, or purport to create, a Lien in favor of the
Agent, for the benefit of the Holders of Secured Obligations, or in favor of
the Agent, for the benefit of the Lenders.
"COMMISSION" means the Securities and Exchange Commission and any Person
succeeding to the functions thereof.
"CONCENTRATION ACCOUNT" means the Borrower's concentration account,
maintained with First Chicago or any other Lender as permitted pursuant to
the terms hereof.
"CONSOLIDATED INTEREST EXPENSE" is defined in SECTION 6.4(A) hereof.
"CONSOLIDATED NET INCOME" is defined in SECTION 6.4(A) hereof.
"CONTINGENT OBLIGATION", as applied to any Person, means (i) any
Contractual Obligation, contingent or otherwise, of that Person with respect
to any Indebtedness or other obligation or liability of another, including,
without limitation, any such Indebtedness, obligation or liability of another
directly or indirectly guaranteed, endorsed (otherwise than for collection or
deposit in the ordinary course of business), co-made or discounted or sold
with recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable, including Contractual Obligations (contingent
or otherwise) arising through any agreement to purchase, repurchase, or
otherwise acquire such Indebtedness, obligation or liability or any security
therefor, or to provide funds for the payment or discharge thereof (whether
in the form of loans, advances, stock purchases, capital contributions or
otherwise), or to maintain solvency, assets, level of income, or other
financial condition, or to make payment other than for value received and
(ii) any other contingent obligation or liability of such Person, whether or
not reflected in financial statements of such Person as a liability; PROVIDED
that Contingent Obligations shall not include any obligations under operating
leases or the SAR Agreements.
"CONTRACTUAL OBLIGATION", as applied to any Person, means any provision
of any equity or debt securities issued by that Person or any indenture,
mortgage, deed of trust, security agreement, pledge agreement, guaranty,
contract, undertaking, agreement or instrument, in any case in writing, to
which that Person is a party or by which it or any of its properties is
bound, or to which it or any of its properties is subject.
"CONTROLLED GROUP" means the group consisting of (i) any corporation which
is a member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as the Borrower; (ii) a partnership or other trade
or business (whether or not incorporated) which is under common control (within
the meaning of Section 414(c) of the Code) with the Borrower; and (iii) a member
of the same affiliated service group (within the meaning of
8
<PAGE>
Section 414(m) of the Code) as the Borrower, any corporation described
in CLAUSE (i) above or any partnership or trade or business described in
CLAUSE (ii) above.
"CONVERSION/CONTINUATION NOTICE" is defined in SECTION 2.10(D) hereof.
"CORPORATE BASE RATE" means the corporate base rate of interest announced
by First Chicago from time to time, changing when and as said corporate base
rate of interest changes.
"CURE LOAN" is defined in SECTION 8.2(iii) hereof.
"CUSTOMARY PERMITTED LIENS" means:
(i) Liens (other than non-possessory Liens which pursuant to
applicable law are, or may be, entitled to take priority (in whole or in
part) over prior, perfected liens and security interests) with respect to
the payment of taxes, assessments or governmental charges in all cases
which are not yet due or which are being contested in good faith by
appropriate proceedings and with respect to which adequate reserves or
other appropriate provisions are being maintained in accordance with
Agreement Accounting Principles;
(ii) statutory Liens of landlords and Liens of suppliers, mechanics,
carriers, materialmen, warehousemen or workmen and other similar Liens
imposed by law created in the ordinary course of business for amounts not
yet due or which are being contested in good faith by appropriate
proceedings and with respect to which adequate reserves or other
appropriate provisions are being maintained in accordance with Agreement
Accounting Principles;
(iii) Liens (other than any Lien in favor of the IRS or the PBGC)
incurred or deposits made in the ordinary course of business in connection
with worker's compensation, unemployment insurance or other types of social
security benefits or to secure the performance of bids, tenders, sales,
contracts (other than for the repayment of borrowed money), surety, appeal
and performance bonds; PROVIDED that (A) all such Liens do not in the
aggregate materially detract from the value of the Borrower's or such
Subsidiary's assets or property taken as a whole or materially impair the
use thereof in the operation of the businesses taken as a whole, and
(B) all Liens securing bonds to stay judgments or in connection with
appeals do not secure at any time an aggregate amount exceeding $2,500,000;
(iv) Liens arising with respect to zoning restrictions, easements,
licenses, reservations, covenants, rights-of-way, utility easements,
building restrictions and other similar charges or encumbrances on the use
of real property which do not interfere in any material respect with the
ordinary conduct of the business of the Borrower or any of its
Subsidiaries;
(v) Liens arising from leases or subleases granted to others which do
not interfere in any material respect with the business of the Borrower or
any of its Subsidiaries; and
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<PAGE>
(vi) any interest or title of the lessor in the property subject to
any operating lease entered into by the Borrower or any of its Subsidiaries
in the ordinary course of business.
"DEFAULT" means an event described in ARTICLE VII hereof.
"DOL" means the United States Department of Labor and any Person succeeding
to the functions thereof.
"EBITDA" is defined in SECTION 6.4(A) hereof.
"ELIGIBLE INVENTORY" means Inventory of the Borrower which is held for sale
or lease or furnished under any contract of service by the Borrower, other than
the Inventory described in the next sentence. The following Inventory is not
Eligible Inventory:
(i) Inventory which is obsolete, not in good condition, not either
currently usable or currently saleable in the ordinary course of the
Borrower's business or does not meet all material standards imposed by any
Governmental Authority having regulatory authority over such item of
Inventory, its use or its sale;
(ii) Inventory consisting of packaging material (other than packaging
material constituting a part of finished goods), supplies, freezers, trade
name superstructures and work-in-process;
(iii) Inventory which (a) is consigned to a third party for sale
unless the Agent shall have received from such consignee a lien waiver
agreement, or such other documentation (including UCC-1 financing
statements naming such consignee as consignee and the Borrower as
consignor) reasonably deemed necessary by the Agent, so that the Agent has
a valid and perfected first-priority security interest in such consigned
Inventory, or (b) is on consignment from a third party to the Borrower for
sale;
(iv) Inventory which consists of goods in transit (other than
Inventory in transit on trucks of the Borrower);
(v) Inventory which is subject to a Lien in favor of any Person other
than the Agent, other than a Customary Permitted Lien or unperfected Liens
created pursuant to agreements existing on the Closing Date;
(vi) Inventory with respect to which the Agent does not have a valid
and perfected security interest subject only to non-consensual landlord's
and warehousemen's Liens arising by operation of law and Liens permitted
pursuant to SECTION 6.3(C)(v);
(vii) Inventory which is not located either (a) on the Borrower's
owned premises or at its leased retail stores in the United States located
in the jurisdictions listed on Schedule 2-B to the Security Agreement, on
the Borrower's trucks in transit, or on the premises of consignees of the
Borrower and such Inventory is not ineligible under CLAUSE (iii) above or
(b) in other owned or leased premises, warehouses or with bailees in the
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United States permitted to be established under the Security Agreement, in
each case in connection with which the Agent shall have received landlord,
mortgagee, bailee and/or warehousemen's access and lien waiver agreements,
as applicable, in each case in form and substance acceptable to the Agent,
unless the Agent shall have established reserves for such locations in
accordance with the definition of Borrowing Base, in which case such
Inventory shall remain Eligible Inventory;
(viii) Inventory which is evidenced by a Receivable; and
(ix) Inventory which is not in conformity with the representations and
warranties made by the Borrower to the Agent with respect thereto whether
contained in this Agreement or the Security Agreement.
"ELIGIBLE RECEIVABLES" means Receivables created by the Borrower in the
ordinary course of its business arising out of the sale of goods or rendition of
services by the Borrower, other than the Receivables described in the next
sentence. The following Receivables are not Eligible Receivables:
(i) Receivables which remain unpaid ninety (90) days after the date of
the original applicable invoice;
(ii) all Receivables owing by a single Account Debtor (including a
Receivable which remains unpaid fewer than ninety (90) days after the date
of the original applicable invoice) if ten percent (10%) of the balance
owing by such Account Debtor, calculated without taking into account any
credit balances of such Account Debtor, remains unpaid ninety (90) days
after the date of the original applicable invoice or has otherwise become,
or has been determined by the Agent to be ineligible;
(iii) Receivables from any single Account Debtor and its Affiliates
which otherwise constitute Eligible Receivables comprising more than
twenty-five percent (25%) of all Eligible Receivables;
(iv) Receivables with respect to which the Account Debtor is a
director, officer, employee, Subsidiary or Affiliate of the Borrower;
(v) Receivables with respect to which the Account Debtor is any
federal Governmental Authority, the United States of America, or, in each
case, any department, agency or instrumentality thereof, unless with
respect to any such Account, the Borrower has complied to the Agent's
satisfaction with the provisions of the Federal Assignment of Claims Act or
other applicable statutes, including, without limitation, executing and
delivering to Agent all statements of assignment and/or notification which
are in form and substance acceptable to Agent and which are deemed
necessary by Agent to effectuate the assignment to the Agent on behalf of
the Banks of such Accounts;
(vi) Receivables with respect to which the Account Debtor is any state
or municipal Governmental Authority or any agency or instrumentality
thereof;
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(vii) Receivables not denominated in U.S. Dollars or with respect to
which the Account Debtor is not a resident of the United States unless the
Account Debtor has supplied the Borrower with an irrevocable letter of
credit, issued by a financial institution, the deposits of which are (or
the senior debt securities of the holding company of such financial
institution are) rated A or better by Standard & Poor's Corporation or A1
or better by Moody's Investors Service, Inc., in an amount sufficient to
cover such Receivable, in form and substance reasonably satisfactory to the
Agent;
(viii) Receivables with respect to which the Account Debtor has (a)
asserted a counterclaim, (b) a right of setoff or (c) a receivable owing
from the Borrower but only to the extent of such counterclaim, setoff or
receivable;
(ix) Receivables for which the prospect of payment or performance by
the Account Debtor is materially impaired;
(x) Receivables with respect to which the Agent does not have a valid
and perfected first priority security interest;
(xi) Receivables with respect to which the Account Debtor is the
subject of a bankruptcy or similar insolvency proceeding or has made an
assignment for the benefit of creditors or whose assets have been conveyed
to a receiver or trustee;
(xii) Receivables with respect to which the Account Debtor's
obligation to pay the Receivable is conditional upon the Account Debtor's
approval or is otherwise subject to any repurchase obligation or return
right, as with sales made on a bill-and-hold, guaranteed sale, sale-and-
return, sale on approval (except with respect to Receivables in connection
with which Account Debtors are entitled to return Inventory on the basis of
the quality of such Inventory) or consignment basis, unless, in any such
case, such Receivables are created in the ordinary course of the Borrower's
business and in a manner consistent with its past practices;
(xiii) Receivables with respect to which the Account Debtor is
located in Minnesota (or any other jurisdiction which adopts a statute or
other requirement with respect to which any Person that obtains business
from within such jurisdiction or is otherwise subject to such
jurisdiction's tax law requiring such Person to file a Business Activity
Report or make any other required filings in a timely manner in order to
enforce its claims in such jurisdiction's courts or arising under such
jurisdiction's laws); PROVIDED, HOWEVER, such Receivables shall nonetheless
be eligible if the Borrower has filed a Business Activity Report (or other
applicable report) with the applicable state office or is qualified to do
business in such jurisdiction and, at the time the Receivable was created,
was qualified to do business in such jurisdiction or had on file with the
applicable state office a current Business Activity Report (or other
applicable report);
(xiv) Receivables with respect to which the Account Debtor's
obligation does not constitute its legal, valid and binding obligation,
enforceable against it in accordance with its terms;
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(xv) Receivables with respect to which the Borrower has not yet
shipped the applicable goods or performed the applicable service;
(xvi) any Receivable which is not in conformity with the
representations and warranties made by the Borrower to the Agent with
respect thereto whether contained in this Agreement or the Security
Agreement;
(xvii) Receivables in connection with which the Borrower has not
complied with all material requirements contained in the charter and by-
laws or other organizational or governing documents of the Borrower, and
any law, rule or regulation, or determination of an arbitrator or a court
or other Governmental Authority, in each case applicable to or binding upon
the Borrower or any of its property or to which the Borrower or any of its
property is subject, including, without limitation, all laws, rules,
regulations and orders of any Governmental Authority or judicial authority
relating to truth in lending, billing practices, fair credit reporting,
equal credit opportunity, debt collection practices and consumer debtor
protection, applicable to such Receivable (or any related contracts) or
affecting the collectability of such Receivables; and
(xviii) Receivables in connection with which the Borrower or any other
party to such Receivable, is in default in the performance or observance of
any of the terms thereof in any material respect.
"ENVIRONMENTAL, HEALTH OR SAFETY REQUIREMENTS OF LAW" means all
Requirements of Law derived from or relating to federal, state and local laws or
regulations relating to or addressing the environment, health or safety,
including but not limited to the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Sections 9601 ET SEQ., the
Occupational Safety and Health Act of 1970, 29 U.S.C. Sections 651 ET SEQ., and
the Resource Conservation and Recovery Act of 1976, 42 U.S.C. Sections 6901 ET
SEQ., in each case including any amendments thereto, any successor statutes, and
any regulations or guidance promulgated thereunder, and any state or local
equivalent thereof.
"ENVIRONMENTAL LIEN" means a lien in favor of any governmental entity for
(a) any liability under Environmental, Health or Safety Requirements of Law, or
(b) damages arising from, or costs incurred by such governmental entity in
response to, a release or threatened release of a contaminant into the
environment.
"ENVIRONMENTAL PROPERTY TRANSFER ACT" shall mean any applicable requirement
of law that conditions, restricts, prohibits or requires any notification or
disclosure triggered by the closure of any property or the transfer, sale or
lease of any property or deed or title for any property for environmental
reasons, including, but not limited to, any so-called "Environmental Cleanup
Responsibility Act" or "Responsible Property Transfer Act."
"EQUITY INTEREST" means capital stock, warrants, options or other rights to
acquire capital stock.
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"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time including (unless the context otherwise requires) any
rules or regulations promulgated thereunder.
"EURODOLLAR ADVANCE" means an Advance which bears interest at the
Eurodollar Rate.
"EURODOLLAR BASE RATE" means, with respect to a Eurodollar Loan for the
relevant Interest Period, the rate determined by the Agent to be the rate at
which deposits in U.S. Dollars are offered by First Chicago to first-class banks
in the London interbank market at approximately 11:00 a.m. (London time) two
Business Days prior to the first day of such Interest Period, in the approximate
amount of First Chicago's relevant Eurodollar Loan and having a maturity
approximately equal to such Interest Period, as adjusted for Reserves.
"EURODOLLAR LOAN" means a Loan, or portion thereof, which bears interest at
the Eurodollar Rate.
"EURODOLLAR RATE" means, with respect to a Eurodollar Loan for the relevant
Interest Period, the Eurodollar Base Rate applicable to such Interest Period
PLUS the Applicable Eurodollar Margin. The Eurodollar Rate shall be rounded to
the next higher multiple of 1/16 of 1% if the rate is not such a multiple.
"EXCLUDED TAXES" is defined in SECTION 2.14(E)(1) hereof.
"FEDERAL FUNDS EFFECTIVE RATE" means, for any day, an interest rate per
annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published for such day (or, if such day is not a
Business Day, for the immediately preceding Business Day) by the Federal Reserve
Bank of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations at approximately 10:00 a.m. (Chicago
time) on such day on such transactions received by the Agent from three Federal
funds brokers of recognized standing selected by the Agent in its sole
discretion.
"FIRST CHICAGO" means The First National Bank of Chicago, a national
banking association, in its individual capacity, and its successors.
"FISCAL QUARTER" or "fiscal quarter" shall mean the fiscal quarter of
Borrower which shall be each 13 (or 14) week period ending in August, November,
February and May or such other period as Borrower or Parent may designate and
the Required Lenders shall approve.
"FISCAL YEAR" or "fiscal year" shall mean the fiscal year of Borrower which
shall be each 52 (or 53) week period ending on the last Saturday of August of
each calendar year or such other period as Borrower or Parent shall designate
and the Required Lenders may approve in writing.
"FIXED CHARGE COVERAGE RATIO" is defined in SECTION 6.4(A) hereof.
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"FLOATING RATE" means, for any day, a rate per annum equal to (i) the
Alternate Base Rate for such day, changing when and as the Alternate Base Rate
changes, plus (ii) the Applicable Floating Rate Margin.
"FLOATING RATE ADVANCE" means an Advance which bears interest at the
Floating Rate.
"FLOATING RATE LOAN" means a Loan, or portion thereof, which bears interest
at the Floating Rate.
"GOVERNMENTAL ACTS" is defined in SECTION 2.25(A) hereof.
"GOVERNMENTAL AUTHORITY" means any nation or government, any federal,
state, local or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"GROSS AMOUNT OF ELIGIBLE INVENTORY" means Eligible Inventory valued at the
lower of cost determined on an average cost basis (determined in accordance with
Agreement Accounting Principles, consistently applied) or market value less
(without duplication) the value of reserves which have been recorded by the
Borrower with respect to obsolete, slow-moving or excess Inventory.
"GROSS AMOUNT OF ELIGIBLE RECEIVABLES" means the face amount outstanding
under the Eligible Receivables, determined in accordance with Agreement
Accounting Principles, consistently applied less all finance charges, late fees
and other fees that are unearned.
"GROSS NEGLIGENCE" means recklessness, the absence of the slightest care or
the complete disregard of consequences. Gross Negligence does not mean the
absence of ordinary care or diligence, or an inadvertent act or failure to act.
"HOLDERS OF SECURED OBLIGATIONS" has the meaning set forth in the Borrower
Security Agreement.
"INACTIVE SUBSIDIARIES" means those Subsidiaries of the Borrower listed on
SCHEDULE 1.1-A.
"INDEBTEDNESS" of any Person means (i) any indebtedness of such Person,
contingent or otherwise, in respect of borrowed money including all principal,
interest, fees and expenses with respect thereto (whether or not the recourse of
the lender is to the whole of the assets of such Person or only to a portion
thereof), or evidenced by bonds, notes, acceptances, debentures or other
instruments or letters of credit (or reimbursement obligations with respect
thereto, including, in the case of the Borrower, Reimbursement Obligations under
the Letters of Credit) or representing the balance deferred and unpaid of the
purchase price of any property (including pursuant to Capitalized Leases) or
services, if and to the extent any of the foregoing indebtedness would appear as
a liability upon a balance sheet of such Person prepared in accordance with
Agreement Accounting Principles (except that any such balance that constitutes a
trade payable and/or an accrued liability arising in the ordinary course of
business shall not be considered
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Indebtedness); (ii) to the extent not otherwise included, (a) interest
accruing after the commencement of any bankruptcy, insolvency, receivership
or similar proceedings and other interest that would have accrued but for the
commencement of such proceedings, (b) any Capitalized Lease Obligations, (c)
obligations, whether or not assumed, secured by Liens on, or payable out of
the proceeds or production from, property now or hereafter owned or acquired
by such Person, (d) Contingent Obligations (exclusive of whether such items
would appear upon such balance sheet) and (e) Rate Hedging Obligations. The
amount of Indebtedness of any Person at any date shall be without duplication
(i) the outstanding balance at such date of all uncondi-tional obligations as
described above and the maximum liability of any such Contingent Obligations
at such date and (ii) in the case of Indebtedness of others secured by a Lien
to which the property or assets owned or held by such Person is subject, the
lesser of the fair market value at such date of any asset subject to a Lien
securing the Indebtedness of others and the amount of the Indebtedness
secured.
"INDEMNIFIED MATTERS" is defined in SECTION 9.7(B) hereof.
"INDEMNITEES" is defined in SECTION 9.7(B) hereof.
"INTEREST PERIOD" means, with respect to a Eurodollar Loan, a period of one
(1), two (2), three (3) or, if available from each Lender, six (6) months,
commencing on a Business Day selected by the Borrower pursuant to this
Agreement. Such Interest Period shall end on (but exclude) the day which
corresponds numerically to such date one, two, three or six months thereafter;
PROVIDED, HOWEVER, that if there is no such numerically corresponding day in
such next, second, third or sixth succeeding month, such Interest Period shall
end on the last Business Day of such next, second, third or sixth succeeding
month. If an Interest Period would otherwise end on a day which is not a
Business Day, such Interest Period shall end on the next succeeding Business
Day, PROVIDED, HOWEVER, that if said next succeeding Business Day falls in a new
calendar month, such Interest Period shall end on the immediately preceding
Business Day.
"INTEREST RATE AGREEMENTS" is defined in SECTION 6.3(S) hereof.
"INVENTORY" shall mean any and all goods, including, without limitation,
goods in transit, wheresoever located, whether now owned or hereafter acquired
by the Borrower, which are held for sale or lease, furnished under any contract
of service or held as raw materials, work in process or supplies, and all
materials used or consumed in the Borrower's business, and shall include such
property the sale or other disposition of which has given rise to Receivables
and which has been returned to or repossessed or stopped in transit by the
Borrower.
"INVESTMENT" means, with respect to any Person, (i) any purchase or other
acquisition by that Person of stock, partnership interest, notes, debentures or
other securities, or of a beneficial interest in stock, partnership interest,
notes, debentures or other securities, issued by any other Person, (ii) any
purchase by that Person of all or substantially all of the assets of a business
conducted by another Person, and (iii) any loan, advance (other than deposits
with financial institutions available for withdrawal on demand, prepaid
expenses, accounts receivable, advances to employees and similar items made or
incurred in the ordinary course of business) or
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capital contribution by that Person to any other Person, including all
Indebtedness to such Person arising from a sale of property by such Person
other than in the ordinary course of its business.
"IRS" means the Internal Revenue Service and any Person succeeding to the
functions thereof.
"ISSUING LENDER" is defined in SECTION 2.20 hereof.
"JORDAN" means, collectively, The Jordan Company, a New York general
partnership, and the Persons listed on SCHEDULE 1.1-B attached hereto.
"L/C DRAFT" means a draft drawn on the Agent pursuant to a Letter of
Credit.
"L/C INTEREST" is defined in SECTION 2.21 hereof.
"L/C OBLIGATIONS" means, at any particular time, the sum of (a) the
aggregate undrawn amount of all Letters of Credit issued and outstanding at such
time and (b) the aggregate outstanding amount of Reimbursement Obligations at
such time.
"LENDERS" means the lending institutions listed on the signature pages of
this Agreement and their respective successors and permitted assigns.
"LENDING INSTALLATION" means, with respect to a Lender or the Agent, any
office, branch, subsidiary or affiliate of such Lender or the Agent.
"LETTERS OF CREDIT" means (a) the letters of credit to be issued by any
Issuing Lender pursuant to SECTION 2.20 hereof and (b) the letter of credit
described in the last sentence of SECTION 2.20 hereof.
"LIEN" means any lien (statutory or other), mortgage, pledge,
hypothecation, assignment, deposit arrangement which is intended as security,
encumbrance or preference, priority or the security agreement or preferential
arrangement of any kind or nature whatsoever (including, without limitation, the
interest of a vendor or lessor under any conditional sale, Capitalized Lease or
other title retention agreement).
"LOAN" means, with respect to a Lender, such Lender's portion of any
Advance made pursuant to SECTIONS 2.1 or 2.2 hereof and "LOANS" means,
collectively, the Loans of all of the Lenders.
"LOAN ACCOUNT" is defined in SECTION 2.14(F) hereof.
"LOAN DOCUMENTS" means all agreements, instruments and documents executed
in connection with this Agreement, including, without limitation this Agreement,
the Notes, the Guaranty, the Collateral Documents, and all other agreements,
instruments, documents, powers of attorney, notices, financing statements and
all other written matter whether heretofore, now, or hereafter executed by or on
behalf of the Parent, the Borrower or any Subsidiary of the
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Borrower and delivered to the Agent or any of the Lenders pursuant to or in
connection with this Agreement, together with all agreements and documents
referred to therein or contemplated thereby.
"MANAGEMENT FEES" means any amounts owing by the Borrower pursuant to the
Tax Sharing and Management Agreement in exchange for services related to
management, consulting, investment banking or other similar services but shall
not include reimbursement of expenses.
"MARGIN STOCK" shall have the meaning ascribed to such term in
Regulation U.
"MATERIAL ADVERSE EFFECT" means a material adverse effect upon (a) the
business, condition (financial or otherwise), operations, performance,
properties or prospects of the Borrower, or the Parent and its Subsidiaries,
taken as a whole, (b) the ability of the Parent, the Borrower or any Subsidiary
of the Borrower to perform their respective obligations under the Loan Documents
in any material respect, or (c) the Lenders' or the Agent's rights under this
Agreement or the Loan Documents or with respect to the Collateral.
"MATERIAL SUBSIDIARY" shall mean any Subsidiary of the Borrower that has
assets or annual sales equal to or greater than $1,000,000.00.
"MAXIMUM REVOLVING LOAN AMOUNT" means, at any particular time, the lesser
of (A) the Aggregate Revolving Loan Commitment at such time and (B) the
Borrowing Base at such time.
"MCIT" means Mezzanine Capital & Income Trust 2001, PLC.
"MORTGAGES" means those certain Credit Line Deeds of Trust/Mortgages,
Security Agreement, Assignment of Rents and Leases, Fixture Filing and Financing
Statement of even date herewith executed by the Borrower or any of its
Subsidiaries in favor of the Agent, for the benefit of the Holders of Secured
Obligations, as amended, restated or otherwise modified from time to time.
"MULTIEMPLOYER PLAN" means a Plan maintained pursuant to a collective
bargaining agreement or any other arrangement to which the Borrower or any
member of the Controlled Group is party to which more than one employer is
obligated to make contributions.
"NON PRO RATA LOAN" is defined in SECTION 8.2 hereof.
"NOTES" means the Revolving Notes.
"NOTICE OF ASSIGNMENT" is defined in SECTION 12.3(B) hereof.
"OBLIGATIONS" means all unpaid principal of and accrued and unpaid interest
on the Notes (whether or not allowed), all L/C Obligations, all accrued and
unpaid fees and all expenses,
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reimbursements, indemnities and other obligations of the Borrower to the
Lenders or to any Lender, the Agent or any indemnified party hereunder
arising under the Loan Documents.
"ORIGINAL CREDIT AGREEMENT" means that certain Credit Agreement dated as of
August 12, 1994 among the Borrower, the Parent, the lenders party thereto and
First Chicago, as agent for such lenders, as in effect immediately before the
effective date of this Agreement.
"OTHER TAXES" is defined in SECTION 2.14(E)(2) hereof.
"OVERADVANCE AMOUNT" means, at any time (i) between August 1, 1997 and
December 31, 1997, $2,000,000, (ii) between August 1, 1998 and December 31,
1998, $1,000,000 and (iii) at all other times, $0.
"PARENT" means Fannie May Holdings, Inc., a Delaware corporation, and its
successors and assigns, including a debtor in possession on behalf of the
Parent.
"PARTICIPANTS" is defined in SECTION 12.2(A) hereof.
"PAYMENT DATE" means the last Business Day of each quarter.
"PBGC" means the Pension Benefit Guaranty Corporation, or any successor
thereto.
"PERSON" means any natural person, corporation, firm, joint venture,
partnership, limited liability company, association, enterprise, trust or other
entity or organization, or any government or political subdivision or any
agency, department or instrumentality thereof.
"PLAN" means an employee pension benefit plan which is covered by Title IV
of ERISA or subject to the minimum funding standards under Section 412 of the
Code as to which the Borrower or any member of the Controlled Group may have any
liability.
"PRO RATA SHARE" means, with respect to any Lender, the percentage obtained
by dividing (A) the sum of such Lender's Revolving Loan Commitment at such time
(in each case, as adjusted from time to time in accordance with the provisions
of this Agreement) by (B) the Aggregate Revolving Loan Commitment at such time;
PROVIDED, HOWEVER, if the Revolving Loan Commitments are terminated pursuant to
the terms of this Agreement, then "PRO RATA SHARE" means the percentage obtained
by dividing (x) the outstanding principal balance of such Lender's Loans by
(y) the aggregate amount of all Loans.
"PURCHASERS" is defined in SECTION 12.3(A) hereof.
"RATE HEDGING OBLIGATIONS" of a Person means any and all obligations of
such Person, whether absolute or contingent and howsoever and whensoever
created, arising, evidenced or acquired (including all renewals, extensions and
modifications thereof and substitutions therefor), under (i) any and all
agreements, devices or arrangements designed to protect at least one of the
parties thereto from the fluctuations of interest rates, exchange rates or
forward rates applicable to such party's assets, liabilities or exchange
transactions, including, but not limited
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to, dollar-denominated or cross-currency interest rate exchange agreements,
forward currency exchange agreements, interest rate cap or collar protection
agreements, forward rate currency or interest rate options, puts and
warrants, and (ii) any and all cancellations, buy backs, reversals,
terminations or assignments of any of the foregoing.
"RATE OPTION" means the Eurodollar Rate or the Floating Rate.
"RECEIVABLE(S)" means and includes all of the Borrower's presently existing
and hereafter arising or acquired accounts, accounts receivable, and all present
and future rights of the Borrower to payment for goods sold or leased or for
services rendered (except those evidenced by instruments or chattel paper),
whether or not they have been earned by performance, and all rights in any
merchandise or goods which any of the same may represent, and all rights, title,
security and guaranties with respect to each of the foregoing, including,
without limitation, any right of stoppage in transit.
"REGISTER" is defined in SECTION 12.3(C) hereof.
"REGULATION D" means Regulation D of the Board of Governors of the Federal
Reserve System as from time to time in effect and any successor thereto or other
regulation or official interpretation of said Board of Governors relating to
reserve requirements applicable to member banks of the Federal Reserve System.
"REGULATION U" means Regulation U of the Board of Governors of the Federal
Reserve System as from time to time in effect and any successor or other
regulation or official interpretation of said Board of Governors relating to the
extension of credit by banks for the purpose of purchasing or carrying margin
stocks applicable to member banks of the Federal Reserve System.
"REIMBURSEMENT OBLIGATION" is defined in SECTION 2.22 hereof.
"REPLACEMENT LENDER" is defined in SECTION 2.19 hereof.
"REPORTABLE EVENT" means a reportable event as defined in Section 4043 of
ERISA and the regulations issued under such section, with respect to a Plan,
excluding, however, such events as to which the PBGC by regulation waived the
requirement of Section 4043(a) of ERISA that it be notified within thirty (30)
days of the occurrence of such event, PROVIDED, HOWEVER, that a failure to meet
the minimum funding standards of Section 412 of the Code and of Section 302 of
ERISA shall be a Reportable Event regardless of the issuance of any such waiver
of the notice requirement in accordance with either Section 4043(a) of ERISA or
Section 412(d) of the Code.
"REQUIRED LENDERS" means Lenders whose Pro Rata Shares, in the aggregate,
are greater than sixty-six and two-thirds percent (66-2/3%); PROVIDED, HOWEVER,
that if any Lender fails to fund its Pro Rata Share of any Loan requested by the
Borrower which such Lender is obligated to fund under the terms of this
Agreement and any such failure has not been cured, then as long as such failure
continues, "REQUIRED LENDERS" means Lenders (excluding all Lenders whose failure
to fund their respective Pro Rata Shares of such Loans have not been so cured)
whose Pro
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Rata Shares represent more than sixty-six and two-thirds percent (66-2/3%)
of the aggregate Pro Rata Shares of such Lenders; PROVIDED, FURTHER, HOWEVER,
that at any time when a Default exists, "REQUIRED LENDERS" means Lenders
(without regard to such Lenders' performance of their respective obligations
hereunder) whose aggregate ratable shares (stated as a percentage) of the
aggregate outstanding principal balance of all Loans are greater than
sixty-six and two-thirds percent (66-2/3%).
"REQUIREMENTS OF LAW" means, as to any Person, the charter and by-laws or
other organizational or governing documents of such Person, and any law, rule or
regulation, or determination of an arbitrator or a court or other Governmental
Authority, in each case applicable to or binding upon such Person or any of its
property or to which such Person or any of its property is subject including,
without limitation, the Securities Act, the Securities Exchange Act,
Regulations G, U and X, ERISA, the Fair Labor Standards Act and any certificate
of occupancy, zoning ordinance, building, environmental or land use requirement
or permit or environmental, labor, employment, occupational safety or health
law, rule or regulation, including Environmental, Health or Safety Requirements
of Law.
"RESERVES" shall mean the maximum reserve requirement, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) with respect
to "Eurocurrency liabilities" or in respect of any other category of liabilities
which includes deposits by reference to which the interest rate on Eurodollar
Loans is determined or category of extensions of credit or other assets which
includes loans by a non-United States office of any Lender to United States
residents.
"RESTRICTED INVESTMENTS" means any Investment other than an Investment
permitted by SECTION 6.3(D)(i)-(v) and (vii).
"RESTRICTED PAYMENTS" means (i) any dividend or other distribution, direct
or indirect, on account of any shares of any class of capital stock of the
Borrower now or hereafter outstanding, except a dividend payable solely in
shares of that class of stock or in any junior class of stock to the holders of
that class, (ii) any redemption, retirement, sinking fund or similar payment,
purchase or other acquisition for value, direct or indirect, of any shares of
any class of capital stock of the Borrower or any Subsidiary now or hereafter
outstanding, (iii) any payment or prepayment of principal on or with respect to,
and any redemption, purchase, retirement, defeasance, sinking fund or similar
payment and any claim for rescission with respect to any of the Senior Notes,
(iv) any payment made to redeem, purchase, repurchase or retire, or to obtain
the surrender of, any outstanding warrants, options or other rights to acquire
shares of any class of capital stock of the Borrower or any Subsidiary now or
hereafter outstanding, and (v) any Management Fees.
"REVOLVING LOAN" is defined in SECTION 2.2 hereof.
"REVOLVING LOAN AVAILABILITY" means, at any particular time, the amount by
which the Maximum Revolving Loan Amount at such time exceeds the Revolving Loan
Obligations at such time.
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"REVOLVING LOAN COMMITMENT" means, for each Lender, the obligation of such
Lender to make Revolving Loans and to purchase participations in Letters of
Credit not exceeding the amount set forth on EXHIBIT A to this Agreement
opposite its name thereon, as such amount may be modified from time to time
pursuant to the terms hereof.
"REVOLVING LOAN OBLIGATIONS" means, at any particular time, the sum of
(i) the aggregate outstanding principal amount of the Revolving Loans at such
time PLUS (ii) the L/C Obligations at such time.
"REVOLVING LOAN PERCENTAGE" means, with respect to any Lender, the amount
obtained by dividing such Lender's Revolving Loan Commitment by the Aggregate
Revolving Loan Commitment, expressed as a percentage.
"REVOLVING NOTE" means a promissory note, in substantially the form of
EXHIBIT B-1 hereto, duly executed by the Borrower and payable to the order of a
Lender in the amount of its Revolving Loan Commitment, including any amendment,
restatement, modification, renewal or replacement of such Note.
"RISK-BASED CAPITAL GUIDELINES" is defined in SECTION 3.2 hereof.
"SAR AGREEMENTS" means (i) the Stock Appreciation Rights Agreements listed
in SCHEDULE 1.1-C hereto, as heretofore amended, and as further amended in
accordance with the terms hereof, and (ii) any other stock appreciation rights
agreements entered into by the Parent in substantially the form of those
agreements listed on SCHEDULE 1.1-C hereto, but only to the extent that such
agreements do not provide stock appreciation rights, when aggregated with the
stock appreciation rights granted under all then-existing SAR Agreements, in
excess of 52.75.
"SECURED OBLIGATIONS" means, collectively, (i) the Obligations and (ii) all
Rate Hedging Obligations owing to one or more of the Lenders.
"SENIOR NOTES" means those certain notes issued pursuant to the Indenture,
in the aggregate principal amount of $100,000,000.00 with a maturity of July 1,
2004.
"SENIOR NOTE INDENTURE" means that certain Indenture by and between the
Borrower and The Bank of New York, as trustee, dated on or about July 2, 1997,
pursuant to which the Senior Notes are to be or have been issued.
"SENIOR PREFERRED STOCK" means the 5% Senior Preferred Stock, without par
value, of the Parent.
"SINGLE EMPLOYER PLAN" means a Plan maintained by the Borrower or any
member of the Controlled Group for employees of the Borrower or any member of
the Controlled Group.
"SOLVENT", when used with respect to any Person, means that at the time of
determination: (i) the fair market value (i.e., the value of the consideration
obtainable in a sale of assets in
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the open market, assuming a sale by a willing seller to a willing purchaser
dealing at arm's length and arranged in an orderly manner over a reasonable
period of time, each having reasonable knowledge of the nature and
characteristics of such assets, neither being under any compulsion to act,
determined in good faith) of its assets is in excess of the total amount of
its liabilities (including, without limitation, contingent liabilities); (ii)
the present fair saleable value of its assets is greater than its probable
liability on its existing debts as such debts become absolute and matured;
(iii) it is then able and expects to be able to pay its debts (including,
without limitation, contingent debts and other commitments) as they mature;
and (iv) it has capital sufficient to carry on its business as conducted and
as proposed to be conducted.
"STOCKHOLDERS AGREEMENT" means the Shareholders Agreement dated as of
October 30, 1991 among the Parent and its stockholders, as amended, restated,
supplemented or otherwise modified from time to time.
"STOCK OPTION PLAN" shall mean a stock option plan or plans providing
options to purchase shares of capital stock of the Parent not exceeding, in the
aggregate, 3% of the common stock of the Parent.
"SUBSIDIARY" of a Person means (i) any corporation more than 50% of the
outstanding securities having ordinary voting power of which shall at the time
be owned or controlled, directly or indirectly, by such Person or by one or more
of its Subsidiaries or by such Person and one or more of its Subsidiaries, or
(ii) any partnership, association, joint venture or similar business
organization more than 50% of the ownership interests having ordinary voting
power of which shall at the time be so owned or controlled. Unless otherwise
expressly provided, all references herein to a "Subsidiary" shall mean a
Subsidiary of the Borrower.
"TAX SHARING AND MANAGEMENT AGREEMENT" means the Tax Sharing and Management
Agreement dated as of July 2, 1997 by and between Parent and the Borrower, as
heretofore amended and as further amended in accordance with the terms hereof.
"TAXES" is defined in SECTION 2.14(E)(1) hereof.
"TERMINATION DATE" means the earlier of (a) July 1, 2000 and (b) the date
of termination of the Revolving Loan Commitments pursuant to SECTION 8.1.
"TERMINATION EVENT" means (i) a Reportable Event with respect to any
Benefit Plan; (ii) the withdrawal of the Parent, the Borrower or any member of
the Controlled Group from a Benefit Plan during a plan year in which the Parent,
the Borrower or such Controlled Group member was a "substantial employer" as
defined in Section 4001(a)(2) of ERISA or the cessation of operations which
results in the termination of employment of twenty percent (20%) of Benefit Plan
participants who are employees of the Parent, the Borrower or any member of the
Controlled Group; (iii) the imposition of an obligation on the Parent, the
Borrower or any member of the Controlled Group under Section 4041 of ERISA to
provide affected parties written notice of intent to terminate a Benefit Plan in
a distress termination described in Section 4041(c) of ERISA; (iv) the
institution by the PBGC of proceedings to terminate a Benefit Plan; (v) any
event or condition which could reasonably be expected to result in the
termination of, or
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the appointment of a trustee to administer, any Benefit Plan under Section
4042 of ERISA; or (vi) the partial or complete withdrawal of the Parent, the
Borrower or any member of the Controlled Group from a Multiemployer Plan.
"TJC MANAGEMENT CORP." means TJC Management Corp., a Delaware corporation,
and its successors and assigns, including a debtor-in-possession on behalf of
TJC Management Corp.
"TRANSACTION COSTS" means the fees, costs and expenses payable by the
Borrower in connection with the execution, delivery and performance of the Loan
Documents.
"TRANSFEREE" is defined in SECTION 12.4 hereof.
"TYPE" means, with respect to any Loan, its nature as a Floating Rate Loan
or a Eurodollar Loan.
"UNMATURED DEFAULT" means an event which, but for the lapse of time or the
giving of notice, or both, would constitute a Default.
The foregoing definitions shall be equally applicable to both the singular
and plural forms of the defined terms. Any accounting terms used in this
Agreement which are not specifically defined herein shall have the meanings
customarily given them in accordance with generally accepted accounting
principles in existence as of the date hereof. Any references to Subsidiaries
of the Borrower set forth herein shall not be deemed a consent by the Lenders to
the formation of any Subsidiaries by the Borrower.
ARTICLE II: THE CREDITS
2.1. [Intentionally Omitted].
2.2 REVOLVING LOANS. Upon the satisfaction of the conditions precedent
set forth in SECTIONS 4.1 and 4.2 hereof, from and including the date of this
Agreement and prior to the Termination Date, each Lender severally agrees, on
the terms and conditions set forth in this Agreement, to make loans to the
Borrower (each individually a "REVOLVING LOAN" and collectively the "REVOLVING
LOANS") from time to time, on a revolving credit basis, in amounts not to exceed
such Lender's Pro Rata Share of Revolving Loan Availability at such time;
PROVIDED, HOWEVER, at no time shall the Revolving Loan Obligations exceed the
Maximum Revolving Loan Amount. Subject to the terms of this Agreement, the
Borrower may borrow, repay and reborrow at any time prior to the Termination
Date. The Revolving Loans made on the Closing Date shall be Floating Rate Loans
and thereafter may be continued as Floating Rate Loans or converted into
Eurodollar Loans in the manner provided in SECTION 2.10 and subject to the other
conditions and limitations set forth therein and in this ARTICLE II. On the
Termination Date, the Borrower shall repay in full the outstanding principal
balance of the Revolving Loans.
2.3 RATABLE LOANS. Each Advance under SECTION 2.2 shall consist of
Revolving Loans made by each Lender ratably in proportion to such Lender's
respective Pro Rata Share.
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2.4 RATE OPTIONS. The Advances may be Floating Rate Advances or
Eurodollar Advances, or a combination thereof, selected by the Borrower in
accordance with SECTION 2.8. The Borrower may select, in accordance with
SECTION 2.8, Rate Options and Interest Periods applicable to portions of the
Loans; PROVIDED that there shall be no more than six Interest Periods in effect
with respect to the Loans at any time.
2.5 OPTIONAL PAYMENTS; MANDATORY PREPAYMENTS.
(A) OPTIONAL PAYMENTS. On prior notice to the Agent, the Borrower may
from time to time repay, without penalty or premium, all or any part of the
outstanding Floating Rate Advances, PROVIDED that any such repayment in part
shall equal $250,000 or an integral multiple of $100,000 in excess thereof.
Subject to the payment by the Borrower of breakage costs pursuant to SECTION
3.4, a Eurodollar Advance may be voluntarily repaid in whole, or in part, prior
to the last day of the applicable Interest Period.
(B) MANDATORY PREPAYMENTS. If, at any time and for any reason, the
aggregate outstanding principal balance of the Revolving Loans shall exceed the
Maximum Revolving Loan Amount MINUS the L/C Obligations, then the Borrower shall
promptly pay such excess to the Agent, for the ratable account of the Lenders.
(C) APPLICATION OF PREPAYMENTS. All prepayments made under SECTION 2.5(A)
or SECTION 2.5(B) shall be applied to the Obligations as specified in Borrower's
written notice to the Agent delivered pursuant to such Section.
2.6 REDUCTION OF REVOLVING LOAN COMMITMENTS. The Borrower may permanently
reduce the Aggregate Revolving Loan Commitment in whole, or in part ratably
among the Lenders, in a minimum amount of $1,000,000 or in integral multiples of
$500,000 in excess thereof, upon at least two (2) Business Days' written notice
to the Agent, which notice shall specify the amount of any such reduction;
PROVIDED, HOWEVER, that the Aggregate Revolving Loan Commitment may not be
reduced below the aggregate outstanding principal amount of the Revolving Loans
and L/C Obligations. All accrued commitment fees relating to the terminated
portion of the Aggregate Revolving Loan Commitment shall be payable on the
effective date of such termination.
2.7 METHOD OF BORROWING. Not later than 2:00 p.m. (Chicago time) on each
Borrowing Date, each Lender shall make available its Revolving Loan in funds
immediately available to the Agent in Chicago at its address specified pursuant
to ARTICLE XIII hereof. The Agent will promptly make any funds so received from
the Lenders available to the Borrower at the Agent's aforesaid address.
2.8 METHOD OF SELECTING TYPES AND INTEREST PERIODS FOR ADVANCES. The
Borrower shall select the Type of Advance and, in the case of each Eurodollar
Advance, the Interest Period applicable to each Advance from time to time. The
Borrower shall give the Agent irrevocable notice (a "BORROWING NOTICE") not
later than 11:00 a.m. (Chicago time) on the Borrowing Date of each Floating Rate
Advance and three (3) Business Days before the Borrowing Date for each
Eurodollar Advance, specifying: (i) the Borrowing Date (which shall be a
Business Day) of such
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Advance; (ii) the aggregate amount of such Advance; (iii) the Type of Advance
selected; and (iv) in the case of each Eurodollar Advance, the Interest
Period applicable thereto. Each Floating Rate Advance shall bear interest
from and including the date of the making of such Advance to (but not
including) the date of repayment thereof at the Floating Rate, changing when
and as such Floating Rate changes. The Agent shall promptly notify each
Lender upon the delivery of a Borrowing Notice. Changes in the rate of
interest on that portion of any Advance maintained as a Floating Rate Loan
will take effect simultaneously with each change in the Alternate Base Rate.
Each Eurodollar Advance shall bear interest from and including the first day
of the Interest Period applicable thereto to (but not including) the last day
of such Interest Period at the interest rate determined as applicable to such
Eurodollar Advance.
2.9 MINIMUM AMOUNT OF EACH ADVANCE. Each Eurodollar Advance shall be in
the minimum amount of $1,000,000 or in multiples of $500,000 in excess thereof,
and each Floating Rate Advance shall be in the minimum amount of $500,000 or in
multiples of $100,000 in excess thereof; PROVIDED, HOWEVER, that any Floating
Rate Advance consisting of Revolving Loans may be in the amount of the Revolving
Loan Availability.
2.10 METHOD OF SELECTING TYPES AND INTEREST PERIODS FOR CONVERSION AND
CONTINUATION OF ADVANCES.
(A) RIGHT TO CONVERT. The Borrower may elect from time to time, subject
to the provisions of SECTION 2.4, SECTION 2.9 and this SECTION 2.10, to convert
all or any part of a Loan of any Type into any other Type or Types of Loans;
PROVIDED that any conversion of any Eurodollar Advance to another tenor of
Eurodollar Advance shall only be made on the last day of the Interest Period
applicable thereto.
(B) AUTOMATIC CONVERSION AND CONTINUATION. Floating Rate Loans shall
continue as Floating Rate Loans unless and until such Floating Rate Loans are
converted into Eurodollar Loans. Eurodollar Loans shall continue as Eurodollar
Loans until the end of then applicable Interest Period therefor, at which time
such Eurodollar Loans shall be automatically converted into Floating Rate Loans
unless the Borrower shall have given the Agent notice in accordance with SECTION
2.10(D) requesting that, at the end of such Interest Period, such Eurodollar
Loans continue as Eurodollar Loans.
(C) NO CONVERSION POST-DEFAULT. Notwithstanding anything to the contrary
contained in SECTION 2.10(A) or 2.10(B), no Loan may be converted into or
continued beyond the end of the applicable Interest Period as a Eurodollar Loan
(absent the consent of the Required Lenders) when any Default has occurred and
is continuing.
(D) CONVERSION/CONTINUATION NOTICE. The Borrower shall give the Agent
irrevocable notice (a "CONVERSION/CONTINUATION NOTICE") of each conversion of a
Floating Rate Loan into a Eurodollar Loan or continuation of a Eurodollar Loan
not later than 11:00 a.m. (Chicago time) three (3) Business Days prior to the
date of the requested conversion or continuation, specifying: (1) the requested
date (which shall be a Business Day) of such conversion or continuation; (2) the
amount and Type of the Loan to be converted or continued; and (3) the amount of
Eurodollar
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Loan(s) into which such Loan is to be converted or continued and the
duration of the Interest Period applicable thereto.
2.11 DEFAULT RATE. After the occurrence and during the continuance of a
Default, at the direction of the Required Lenders, upon prior written notice to
the Borrower the interest rates applicable to the Obligations shall be increased
by two percent (2.0%) per annum above the Floating Rate or Eurodollar Rate, as
applicable.
2.12 METHOD OF PAYMENT. All payments of principal, interest, fees and
other amounts hereunder shall be made, without setoff, deduction or
counterclaim, in immediately available funds to the Agent at the Agent's address
specified pursuant to ARTICLE XIII, or at any other Lending Installation of the
Agent specified in writing by the Agent to the Borrower, by noon (local time) on
the date when due and shall be applied by the Agent ratably among the Lenders
(unless such amount is not to be shared ratably in accordance with the terms
hereof). Each payment delivered to the Agent for the account of any Lender
shall be delivered promptly, but in any event within the same Business Day, by
the Agent to such Lender in the same type of funds which the Agent received at
such Lender's address specified pursuant to ARTICLE XIII or at any Lending
Installation specified in a notice received by the Agent from such Lender. The
Agent is authorized to charge the Concentration Account, to the extent the
Concentration Account is maintained with the Agent, for each such payment of
principal, interest, fees or any other amount owing hereunder as it becomes due
and payable.
2.13 NOTES, TELEPHONIC NOTICES. Each Lender is authorized to record
the principal amount of each of its Loans and each repayment with respect to
its Loans on the schedule attached to its Notes; PROVIDED, HOWEVER, that the
failure to so record shall not affect the Borrower's obligations under such
Notes. The Borrower authorizes the Lenders and the Agent to extend Advances,
effect selections of Types of Advances and to transfer funds based on
telephonic notices made by any person or persons the Agent or any Lender in
good faith believes to be an Authorized Officer. The Borrower agrees to
deliver promptly to the Agent a written confirmation signed by an Authorized
Officer, if such confirmation is requested by the Agent or any Lender, of
each telephonic notice. If the written confirmation differs in any material
respect from the action taken by the Agent and the Lenders, (i) the
telephonic notice shall govern absent manifest error and (ii) the Agent or
the Lender, as applicable, shall promptly notify the Borrower of such
difference.
2.14 PROMISE TO PAY; INTEREST AND FEES; INTEREST PAYMENT DATES; INTEREST
AND FEE BASIS; TAXES; LOAN AND CONTROL ACCOUNTS.
(A) PROMISE TO PAY. The Borrower unconditionally promises to pay when due
the principal amount of each Loan made hereunder, and to pay all unpaid interest
accrued thereon, in accordance with the terms of this Agreement and Notes.
(B) INTEREST PAYMENT DATES. Interest accrued on each Floating Rate Loan
shall be payable in arrears and without duplication (i) on each Payment Date,
commencing with the first such date to occur after the date hereof, (ii) on any
date on which such Floating Rate Loan is prepaid, whether due to acceleration or
otherwise, and (iii) at maturity (whether by acceleration or
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otherwise). Interest accrued on each Eurodollar Loan shall be payable in
arrears and without duplication (i) on the last day of its applicable
Interest Period, (ii) on any date on which the Eurodollar Loan is prepaid, or
converted, whether by accelerationor otherwise, and (iii) at maturity.
Interest accrued on each Eurodollar Loan having an Interest Period longer
than three months shall also be payable in arrears on the last day of each
three-month interval during such Interest Period. Interest accrued on the
principal balance of all other Obligations shall be payable in arrears
without duplication (i) on the last day of each calendar month, commencing on
the first such day following the incurrence of such Obligation, (ii) upon
repayment thereof in full or in part, and (iii) if not theretofore paid in
full, at the time such other Obligation becomes due and payable (whether by
acceleration or otherwise).
(C) FEES.
(1) The Borrower shall pay to the Agent, for the account of the
Lenders, in accordance with their Pro Rata Shares, a commitment fee
accruing at the Applicable Commitment Fee Rate from and after the Closing
Date until the Termination Date on the amount by which (A) the Aggregate
Revolving Loan Commitment in effect from time to time exceeds (B) the
Revolving Loan Obligations in effect from time to time. Subject to the
last sentence of SECTION 2.6 hereof, such commitment fee shall be payable
quarterly in arrears on the last calendar day of each February, May, August
and November occurring after the Closing Date and on the Termination Date.
(2) The Borrower agrees to pay to the Agent for the account of the
Agent (and to the extent otherwise agreed between the Agent and any Lender,
for the account of such Lender) the fees set forth in the letter agreement
between the Agent and the Borrower dated June 18, 1997, payable at the
times set forth therein and, without duplication, on the Termination Date
and in the amounts set forth therein; PROVIDED, HOWEVER, that any such fees
shall no longer accrue from and after the date that First Chicago ceases to
act as Agent hereunder.
(3) The Borrower shall pay to the Agent, for the account of the
Lenders, in accordance with their Pro Rata Shares, an Overadvance Fee equal
to 0.25% per annum on the average daily principal balance of the Revolving
Loan Obligations to the extent of any excess on any day of the outstanding
principal balance of the Revolving Loan Obligations over the amount of the
Borrowing Base (excluding from the Borrowing Base for the purposes of
calculating such fee, the Overadvance Amount) payable quarterly on each
Payment Date in arrears from the Closing Date until December 31, 1998.
(D) INTEREST AND FEE BASIS. Interest and fees shall be calculated for
actual days elapsed on the basis of a 360-day year (or, with respect to Floating
Rate Loans, on the basis of a year of 365 or 366 days, as applicable, for actual
days elapsed). Interest shall be payable for the day a Loan is made but not for
the day of any payment on the amount paid if payment is received prior to noon
(local time) at the place of payment. If any payment of principal of or
interest on a Loan shall become due on a day which is not a Business Day, such
payment shall be made on the next succeeding Business Day and, in the case of a
principal payment, such extension of time shall be included in computing
interest in connection with such payment.
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(E) TAXES.
(1) All payments by the Borrower hereunder shall be made free and
clear of and without deduction for any and all present or future taxes,
levies, imposts, deductions, charges or (subject to compliance by each
Lender with its obligations under SECTION 2.14(E)(6)) withholdings, and all
liabilities with respect thereto including those arising after the date
hereof as a result of the adoption of or any change in any law, treaty,
rule, regulation, guideline or determination of a Governmental Authority or
any change in the interpretation or application thereof by a Governmental
Authority but excluding, in the case of each Lender and the Agent, (i) such
taxes (including income taxes, franchise taxes, branch profit taxes, gross
receipt taxes, minimum taxes and taxes computed under alternate methods, at
least one of which is computed on net income) as are imposed on or measured
by such Lender's or the Agent's, as the case may be, income by the United
States of America or any Governmental Authority of the jurisdiction under
the laws of which such Lender or Agent, as the case may be, is organized,
or maintains a Lending Installation, (ii) any taxes that would not have
been imposed but for the failure by such Lender to provide and to keep
current any certificate or other documentation required to qualify for an
exemption from or reduced rate of any tax and (iii) any taxes in excess of
those previously imposed on a Lender, incurred as a result of such Lender
moving its applicable Lending Installation (all such excluded taxes being
hereinafter referred to as "EXCLUDED TAXES" and all such non-excluded
taxes, levies, imposts, deductions, charges, withholdings and liabilities
which the Agent or a Lender determines to be applicable to this Agreement,
the other Loan Documents, the Revolving Loan Commitments, the Loans or the
Letters of Credit being hereinafter referred to as "TAXES"). If the
Borrower shall be required by law to deduct any Taxes from or in respect of
any sum payable hereunder or under the other Loan Documents to any Lender
or the Agent, (i) the sum payable shall be increased as may be necessary so
that after making all required deductions (including deductions applicable
to additional sums payable under this SECTION 2.14(E)) such Lender or the
Agent (as the case may be) receives an amount equal to the sum it would
have received had no such deductions been made, (ii) the Borrower shall
make such deductions, and (iii) the Borrower shall pay the full amount
deducted to the relevant taxation authority or other authority in
accordance with applicable law. If a withholding tax of the United States
of America or any other Governmental Authority shall be or become
applicable (y) after the date of this Agreement, to such payments by the
Borrower made to the Lending Installation or any other office that a Lender
may claim as its Lending Installation, or (z) after such Lender's selection
and designation of any other Lending Installation, to such payments made to
such other Lending Installation, such Lender shall use reasonable efforts
to make, fund and maintain its Loans through another Lending Installation
of such Lender in another jurisdiction so as to reduce the Borrower's
liability hereunder, if the making, funding or maintenance of such Loans
through such other Lending Installation of such Lender does not, in the
judgment of such Lender, otherwise adversely affect such Loans, or its
obligations under its Revolving Loan Commitment.
(2) In addition, the Borrower agrees to pay any present or future
stamp or documentary taxes or any other excise or property taxes, charges,
or similar levies which
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arise from any payment made hereunder, from the issuance of Letters of
Credit hereunder, or from the execution, delivery or registration of, or
otherwise with respect to, this Agreement, the other Loan Documents, the
Revolving Loan Commitments, the Loans or the Letters of Credit, in each
case other than taxes or other charges excluded pursuant to SECTION
2.14(E)(1) (hereinafter referred to as "OTHER TAXES").
(3) The Borrower will indemnify each Lender and the Agent for the
full amount of Taxes and Other Taxes (including, without limitation, any
Taxes or Other Taxes imposed by any Governmental Authority on amounts
payable under this SECTION 2.14(E)) paid by such Lender or the Agent (as
the case may be) and any liability (including penalties, interest, and
expenses) arising therefrom or with respect thereto, whether or not such
Taxes or Other Taxes were correctly or legally asserted. This
indemnification shall be made within thirty (30) days after the date such
Lender or the Agent (as the case may be) makes written demand therefor. A
certificate as to any additional amount payable to any Lender or the Agent
under this SECTION 2.14(E) submitted to the Borrower and the Agent (if a
Lender is so submitting) by such Lender or the Agent shall show in
reasonable detail the amount payable and the calculations used to determine
such amount and shall, absent manifest error, be final, conclusive and
binding upon all parties hereto. With respect to such deduction or
withholding for or on account of any Taxes and to confirm that all such
Taxes have been paid to the appropriate Governmental Authorities, the
Borrower shall promptly (and in any event not later than thirty (30) days
after receipt) furnish to each Lender and the Agent such certificates,
receipts and other documents as may be required (in the judgment of such
Lender or the Agent) to establish any tax credit to which such Lender or
the Agent may be entitled.
(4) Within thirty (30) days (or as soon thereafter as available)
after the date of any payment of Taxes or Other Taxes by the Borrower, the
Borrower will furnish to the Agent the original or a certified copy of a
receipt evidencing payment thereof.
(5) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower
contained in this SECTION 2.14(E) shall survive the payment in full of all
Obligations, the termination of the Letters of Credit and the termination
of this Agreement.
(6) Each Lender that is not created or organized under the laws of
the United States of America or a political subdivision thereof shall
deliver to the Borrower and the Agent on or before the Closing Date, or, if
later, the date on which such Lender becomes a Lender pursuant to
SECTION 12.3 hereof, (i) a true and accurate certificate executed in
duplicate by a duly authorized officer of such Lender, in a form
satisfactory to the Borrower and the Agent, to the effect that such Lender
is entitled under the provisions of an applicable tax treaty concluded by
the United States of America (in which case the certificate shall be
accompanied by two executed copies of Form 1001 of the IRS or applicable
successor forms) or under Section 1442 of the Code (in which case the
certificate shall be accompanied by two copies of Form 4224 of the IRS or
applicable successor forms) to receive payments of interest hereunder
without deduction or withholding of United States federal income tax and
(ii) Form W-8 or W-9 of the IRS (or
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applicable successor forms). Each such Lender further agrees to deliver
to the Borrower and the Agent from time to time a true and accurate
certificate executed in duplicate by a duly authorized officer of such
Lender substantially in a form satisfactory to the Borrower and the
Agent, before or promptly upon the occurrence of any event (including,
without limitation, an assignment under SECTION 12.3 hereof) requiring a
change in the most recent certificate previously delivered by it to the
Borrower and the Agent pursuant to this SECTION 2.14(E)(6). Further,
each Lender which delivers a certificate accompanied by Form 1001
covenants and agrees to deliver to the Borrower and the Agent within
fifteen (15) days prior to January 1, 1998, and every third (3rd)
anniversary of such date thereafter, on which this Agreement is still in
effect, another such certificate and two accurate and complete original
signed copies of Form 1001 (or any successor form or forms required
under the Code or the applicable regulations promulgated thereunder),
and each Lender that delivers a certificate accompanied by Form 4224
covenants and agrees to deliver to the Borrower and the Agent within
fifteen (15) days prior to the beginning of each subsequent taxable year
of such Lender during which this Agreement is still in effect, another
such certificate and two accurate and complete original signed copies of
Form 4224 (or any successor form or forms required under the Code or the
applicable regulations promulgated thereunder). Each such certificate
shall certify as to one of the following:
(a) that such Lender is capable of receiving payments of
interest hereunder without deduction or withholding of United
States federal income tax;
(b) that such Lender is not capable of receiving payments
of interest hereunder without deduction or withholding of United
States of America federal income tax as specified therein but is
capable of recovering the full amount of any such deduction or
withholding from a source other than the Borrower and will not
seek any such recovery from the Borrower; or
(c) that, as a result of the adoption of or any change in
any law, treaty, rule, regulation, guideline or determination of
a Governmental Authority or any change in the interpretation or
application thereof by a Governmental Authority after the date
such Lender became a party hereto, such Lender is not capable of
receiving payments of interest hereunder without deduction or
withholding of United States of America federal income tax as
specified therein and that it is not capable of recovering the
full amount of the same from a source other than the Borrower.
Each Lender shall promptly furnish to the Borrower and the Agent such
additional documents as may be reasonably required by the Borrower or the
Agent to establish any exemption from or reduction of any Taxes or Other
Taxes required to be deducted or withheld and which may be obtained without
undue expense to such Lender.
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Each Lender certifies, represents and warrants that as of the Closing
Date (or, in the case of any party becoming a Lender by execution of an
assignment and acceptance pursuant to SECTION 12.3, as of the date of such
agreement) (x) it is entitled to receive payments under this Agreement
without deduction or withholding of any United States federal income taxes
and (y) it is entitled to an exemption from United States backup
withholding tax.
Notwithstanding any provision contained herein, if (i) a Lender
breaches any representation and warranty contained in this SECTION
2.14(E)(6) or (ii) a Lender that is not created or organized under the laws
of the United States of America or a political subdivision thereof shall
fail to deliver the certificate required pursuant to this Section, such
Lender shall not be entitled to payments pursuant to this SECTION 2.14(E)
or SECTION 3.1 and the Borrower shall be entitled to withhold Taxes at the
applicable statutory rate (or applicable reduced rate of withholding in the
event that such Lender provides a Form 1001 to the Borrower certifying its
entitlement to such reduced rate of withholding), or cause such withholding
with respect to such Lender and the Borrower shall not be required to pay
any additional amounts as a result of such withholding; PROVIDED, HOWEVER,
that in the case of a Lender failing to deliver the required certificate,
all such withholding shall cease upon delivery by such Lender of the above-
referenced certificate.
(7) If any Lender or the Agent shall receive a refund of Tax under
this SECTION 2.14 and such Lender or the Agent determines that such refund
arose because the Borrower paid additional amounts to such Lender or the
Agent pursuant to the terms of this Section, such Lender or the Agent shall
promptly notify the Borrower of the receipt of such refund and, within
thirty (30) days after receipt of such refund, repay such refund to the
Borrower (together with any interest received).
(F) LOAN ACCOUNT. Each Lender shall maintain in accordance with its usual
practice an account or accounts (a "LOAN ACCOUNT") evidencing the Obligations of
the Borrower to such Lender resulting from each Loan owing to such Lender from
time to time, including the amount of principal and interest payable and paid to
such Lender from time to time hereunder and under the Notes.
(G) CONTROL ACCOUNT. The Register maintained by the Agent pursuant to
SECTION 12.3 shall include a control account, and a subsidiary account for each
Lender, in which accounts (taken together) shall be recorded (i) the date and
amount of each Borrowing made hereunder, the type of Loan comprising such
Borrowing and any Interest Period applicable thereto, (ii) the effective date
and amount of each assignment and acceptance delivered to and accepted by it and
the parties thereto pursuant to SECTION 12.3, (iii) the amount of any principal
or interest due and payable or to become due and payable from the Borrower to
each Lender hereunder or under the Notes, (iv) the amount of any sum received by
the Agent from the Borrower hereunder and each Lender's share thereof, and (v)
all other appropriate debits and credits as provided in this Agreement,
including, without limitation, all fees, charges, expenses and interest.
(H) ENTRIES BINDING. The entries made in the Register and each Loan
Account shall be conclusive and binding for all purposes, absent manifest error,
unless the Borrower objects to
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information contained in the Register and each Loan Account within
thirty (30) days of the Borrower's receipt of such information.
2.15 NOTIFICATION OF ADVANCES, INTEREST RATES, PREPAYMENTS AND COMMITMENT
REDUCTIONS. Promptly after receipt thereof, the Agent will notify each Lender
of the contents of each Aggregate Revolving Loan Commitment reduction notice,
Borrowing Notice, Continuation/Conversion Notice and repayment notice received
by it hereunder. The Agent will notify each Lender of the interest rate
applicable to each Eurodollar Loan promptly upon determining such interest rate
and will give each Lender prompt notice of each change in the Alternate Base
Rate and any adjustment in the Applicable Commitment Fee Rate, Applicable
Eurodollar Margin, Applicable Floating Rate Margin and Applicable Letter of
Credit Fee Rate.
2.16 LENDING INSTALLATIONS. Subject to the last sentence of SECTION
2.14(E)(1), each Lender may book its Loans at any Lending Installation selected
by such Lender and may change its Lending Installation from time to time. All
terms of this Agreement shall apply to any such Lending Installation and the
Notes shall be deemed held by each Lender for the benefit of such Lending
Installation. Each Lender may, by written or facsimile notice to the Agent and
the Borrower, designate a Lending Installation through which Loans will be made
by it and for whose account Loan payments are to be made.
2.17 NON-RECEIPT OF FUNDS BY THE AGENT. Unless the Borrower or a Lender,
as the case may be, notifies the Agent prior to the date on which it is
scheduled to make payment to the Agent of (i) in the case of a Lender, the
proceeds of a Loan or (ii) in the case of the Borrower, a payment of principal,
interest or fees to the Agent for the account of the Lenders, that it does not
intend to make such payment, the Agent may assume that such payment has been
made on the date due. The Agent may, but shall not be obligated to, make the
amount of such payment available to the intended recipient on the due date in
reliance upon such assumption. If such Lender or the Borrower, as the case may
be, has not in fact made such payment to the Agent, the recipient of such
payment shall, on demand by the Agent, repay to the Agent the amount so made
available together with interest thereon in respect of each day during the
period commencing on the date such amount was so made available by the Agent
until the date the Agent recovers such amount at a rate per annum equal to (i)
in the case of payment by a Lender, the Federal Funds Effective Rate for such
day or (ii) in the case of payment by the Borrower, the interest rate applicable
to the relevant Loan.
2.18 TERMINATION DATE. This Agreement shall be effective until the
earlier of (i) the Termination Date or (ii) the date on which all the
Obligations hereunder have been satisfied in full and the Revolving Loan
Commitments have been terminated. Notwithstanding the termination of this
Agreement on the Termination Date, until all of the Obligations (other than
contingent indemnity obligations) shall have been fully and indefeasibly paid
and satisfied, all financing arrangements evidenced by the Loan Documents shall
have been terminated (other than under Interest Rate Agreements or other
agreements with respect to Rate Hedging Obligations) and all of the Letters of
Credit shall have expired, been canceled or terminated, all of the rights and
remedies under this Agreement and the other Loan Documents shall survive and the
Agent shall be entitled to retain its security interest in and to all existing
and future Collateral for the benefit of itself and the Holders of Secured
Obligations.
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2.19 REPLACEMENT OF CERTAIN LENDERS. If a Lender ("AFFECTED LENDER")
shall have: (i) failed to fund its Pro Rata Share of any Advance requested by
the Borrower which such Lender is obligated to fund under the terms of this
Agreement and which failure has not been cured, (ii) has requested compensation
from the Borrower under SECTIONS 2.14(E), 3.1 or 3.2 to recover Taxes, Other
Taxes or other additional costs incurred by such Lender which are not being
incurred generally by the other Lenders, (iii) delivered a notice pursuant to
SECTION 3.3 claiming that such Lender is unable to extend Eurodollar Loans to
the Borrower for reasons not generally applicable to the other Lenders or (iv)
has invoked SECTION 9.2, then, in any such case, the Borrower or the Agent may
make written demand on such Affected Lender (with a copy to the Agent in the
case of a demand by the Borrower and a copy to the Borrower in the case of a
demand by the Agent) for the Affected Lender to assign, and such Affected Lender
shall assign pursuant to one or more duly executed assignment and acceptance
agreements in substantially the form of EXHIBIT D five (5) Business Days after
the date of such demand, to one or more financial institutions which complies
with the provisions of SECTION 12.3(A) (and, if selected by the Borrower is
reasonably acceptable to the Agent) which the Borrower or the Agent, as the case
may be, shall have engaged for such purpose ("REPLACEMENT LENDER"), all of such
Affected Lender's rights and obligations under this Agreement and the other Loan
Documents (including, without limitation, its Revolving Loan Commitment, all
Loans owing to it, all of its participation interests in existing Letters of
Credit, and its obligation to participate in additional Letters of Credit
hereunder) in accordance with SECTION 12.3. The Agent is hereby authorized to
execute one or more of such assignment agreements as attorney-in-fact for any
Affected Lender failing to execute and deliver the same within five (5) Business
Days after the date of such demand. Further, with respect to such assignment
the Affected Lender shall have concurrently received, in cash, all amounts due
and owing to the Affected Lender hereunder or under any other Loan Document,
including, without limitation, the aggregate outstanding principal amount of the
Loans owed to such Lender, together with accrued interest thereon to (but not
including) the date of such assignment and amounts payable under
SECTIONS 2.14(E), 3.1, and 3.2 with respect to such Affected Lender; provided,
upon such Affected Lender's replacement, such Affected Lender shall cease to be
a party hereto but shall continue to be entitled to the benefits of SECTIONS
2.14(E), 3.1, 3.2, 3.4, and 9.7, as well as to any fees accrued for its account
hereunder and not yet paid and shall continue to be obligated under SECTION
10.8. Upon the replacement of any Affected Lender pursuant to this SECTION
2.19, the provisions of SECTION 8.2 shall continue to apply with respect to
Borrowings which are then outstanding with respect to which the Affected Lender
failed to fund its Pro Rata Share and which failure has not been cured.
2.20 LETTER OF CREDIT FACILITY. Upon three (3) days notice and receipt of
duly executed applications therefor, and such other documents, instructions and
agreements as such Lender may require, and subject to the provisions of ARTICLE
IV, First Chicago shall or any other Lender, in its sole discretion, may, issue
Letters of Credit for the account of the Borrower (First Chicago or such other
Lender in such capacity being hereinafter referred to as an "ISSUING LENDER"),
on terms satisfactory to such Issuing Lender; PROVIDED, HOWEVER, that no Letter
of Credit shall be issued if on the date of issuance, before and after giving
effect to such issuance, (i) the Revolving Loan Obligations equal or exceed the
Maximum Revolving Loan Amount or (ii) the aggregate outstanding amount of the
L/C Obligations exceeds $2,000,000. Notwithstanding anything to the contrary
set forth above, no Letter of Credit shall be issued which has an expiration
date later than the date which is five (5) Business Days before the Termination
Date. If the
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Borrower applies for a Letter of Credit from any Lender other than First
Chicago, the Borrower shall simultaneously notify the Agent of the
proposed amount and expiration date of such Letter of Credit. The Agent
shall promptly notify each Lender and the Borrower whether the issuance
of such Letter of Credit would comply with the terms of this SECTION
2.20. Each of the parties hereto agrees that on the Closing Date, those
certain letters of credit No. 315771 in the face amount of $500,000 and
No. 373183 in the face amount of $75,000 issued by First Chicago for the
account of the Borrower, shall be deemed issued pursuant to the terms
hereof and shall for all purposes be considered Letters of Credit.
2.21 LETTER OF CREDIT PARTICIPATION. Immediately upon the issuance of
each Letter of Credit hereunder, each Lender shall be deemed to have
automatically, irrevocably and unconditionally purchased and received from the
applicable Issuing Lender an undivided interest and participation in and to such
Letter of Credit, the obligations of the Borrower in respect thereof, and the
liability of the Issuing Lender thereunder (collectively, an "L/C INTEREST") in
an amount equal to such Lender's Pro Rata Share of the aggregate amount
available to be drawn under such Letter of Credit. The Agent will notify each
Lender (or in the case of an Issuing Lender other than First Chicago, such
Issuing Lender shall notify the Agent who in turn will notify each Lender)
promptly upon presentation to it of any draw under a Letter of Credit. On or
before the Business Day on which the Issuing Lender makes payment of each such
draft, each Lender shall upon the Agent's request, make payment to the Agent, in
immediately available funds in an amount equal to such Lender's Pro Rata Share
of the amount of such payment or draw. Any Issuing Lender may direct the Agent
to make such a request with respect to Letters of Credit issued by such Issuing
Lender. Upon the Agent's receipt of funds as a result of an Issuing Lender's
payment of a draw on a Letter of Credit issued by such Issuing Lender, the Agent
shall promptly pay such funds to the Issuing Lender. If an Issuing Bank has not
directed the Agent to make such a request and the Borrower fails to repay the
amount of any draft in accordance with SECTION 2.22, then, upon direction from
the Issuing Bank, the Agent shall notify each Lender of such failure, and each
Lender shall promptly make payment to the Agent, in immediately available funds
in an amount equal to such Lender's Pro Rata Share of the amount of such payment
or draw. Each Lender's obligation to reimburse the Agent under this SECTION
2.21 shall be unconditional, continuing, irrevocable and absolute. If any
Lender fails to make payment to the Agent of any amount due under this
SECTION 2.21, the Agent shall be entitled to receive, retain and apply against
such obligation the principal and interest otherwise payable to such Lender
hereunder until the Agent receives such payment from such Lender or such
obligation is otherwise fully satisfied; PROVIDED, HOWEVER, that nothing
contained in this sentence shall relieve such Lender of its obligation to
reimburse the Agent for such amount in accordance with this SECTION 2.21.
2.22 REIMBURSEMENT OBLIGATION. The Borrower agrees unconditionally,
irrevocably and absolutely to pay to the Agent, for the account of the
applicable Issuing Lender or the account of the Lenders, as the case may be, the
amount of each advance which may be drawn under or pursuant to a Letter of
Credit (such obligation of the Borrower to reimburse the Issuing Lender or the
Agent for an advance made under a Letter of Credit, with respect to drawn
amounts thereunder, except to the extent funded or deemed to be funded by a
Revolving Loan, being hereinafter referred to as a "REIMBURSEMENT OBLIGATION"
with respect to such Letter of Credit). Such payment shall be made on the date
such advance is made. If the Borrower at any time fails
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to repay a Reimbursement Obligation pursuant to this SECTION 2.22, the
Borrower shall be deemed to have elected to borrow from the Lenders,
automatically, without notice and without any requirement to satisfy the
conditions precedent otherwise applicable to an Advance of Revolving Loans,
as of the date of the advance giving rise to the Reimbursement Obligation, a
Floating Rate Advance of Revolving Loans equal in amount to the amount of the
unpaid Reimbursement Obligation, the proceeds of which Advance shall be used
to repay such Reimbursement Obligation. If, for any reason, the Borrower
fails to repay a Reimbursement Obligation on the day such Reimbursement
Obligation arises and, for any reason, the Lenders are unable to make or have
no obligation to make a Revolving Loan, then such Reimbursement Obligation
shall bear interest from and after such day, until paid in full, at the
interest rate applicable to a Floating Rate Advance.
2.23 CASH COLLATERAL. Notwithstanding anything to the contrary herein or
in any application for a Letter of Credit, after the occurrence and during the
continuance of Default, the Borrower shall, upon the Agent's demand, deliver to
the Agent for the benefit of the Lenders, cash, or other collateral of a type
satisfactory to the Required Lenders, having a value (if other than cash), as
determined by such Lenders, equal to the aggregate outstanding L/C Obligations.
In addition, to the extent the Maximum Revolving Loan Amount is at any time less
than the amount of L/C Obligations at any time, the Borrower shall deposit cash
collateral with the Agent in an amount equal to the amount by which such L/C
Obligations exceed such Maximum Revolving Loan Amount; PROVIDED that if the
Maximum Revolving Loan Amount thereafter exceeds the L/C Obligations then
outstanding and no Default shall have occurred and be continuing, such cash
collateral shall be returned to the Borrower by the Agent (after deduction of
the Agent's expenses incurred in connection with such cash collateral account).
Any such collateral shall be held by the Agent in a separate account
appropriately designated as a cash collateral account in relation to this
Agreement and the Letters of Credit and retained by the Agent for the benefit of
the Lenders as collateral security for the Borrower's obligations in respect of
this Agreement and each of the Letters of Credit. Such amounts shall be applied
to reimburse the Agent or each Issuing Lender, as the case may be, for drawings
or payments under or pursuant to Letters of Credit, or if no such reimbursement
is required, to payment of such of the other Obligations as the Agent shall
determine. If no Default shall be continuing, amounts remaining in any cash
collateral account established pursuant to this SECTION 2.23 which are not to be
applied to reimburse the Agent for amounts actually paid by the Agent in respect
of a Letter of Credit, shall be returned to the Borrower (after deduction of the
Agent's expenses incurred in connection with such cash collateral account).
2.24 LETTER OF CREDIT FEES. The Borrower agrees to pay (i) quarterly in
arrears on each Payment Date occurring after the Closing Date and on the
Termination Date to the Agent for the ratable benefit of the Lenders (except as
set forth in SECTION 8.2), a letter of credit fee equal to (a) the Applicable
Letter of Credit Fee Rate multiplied by (b) the aggregate amount available for
drawing under all outstanding standby Letters of Credit and (ii) to each Issuing
Lender for the benefit of such Issuing Lender all customary fees and other
issuance, amendment, negotiation and presentment expenses and related charges in
connection with the issuance, amendment, and presentation of Letters of Credit
issued by such Issuing Lender (and L/C Drafts related thereto) and the like,
customarily charged by such Issuing Lender with respect to standby and
commercial Letters of Credit, payable at the time of invoice of such amounts.
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2.25 INDEMNIFICATION; EXONERATION. (A) In addition to amounts payable as
elsewhere provided in this Agreement, the Borrower hereby agrees to protect,
indemnify, pay and save harmless the Agent and each Lender from and against any
and all liabilities and costs which the Agent or such Lender may incur or be
subject to as a consequence, direct or indirect, of (i) the issuance of any
Letter of Credit other than, in the case of the issuer thereof, as a result of
its bad faith, Gross Negligence or willful misconduct, as determined by the
final judgment of a court of competent jurisdiction or (ii) the failure of the
issuer of such Letter of Credit to honor a drawing under such Letter of Credit
as a result of any act or omission, whether rightful or wrongful, of any present
or future de jure or de facto Governmental Authority (all such acts or omissions
herein called "GOVERNMENTAL ACTS").
(B) As among the Borrower, the Lenders and the Agent, the Borrower
assumes all risks of the acts and omissions of, or misuse of such Letter of
Credit by, the beneficiary of any Letter of Credit. In furtherance and not in
limitation of the foregoing, subject to the provisions of the Letter of Credit
applications and Letter of Credit reimbursement agreements executed by the
Borrower at the time of request for any Letter of Credit, the issuer of the
Letter of Credit, the Agent and the Lenders shall not be responsible (in the
absence of bad faith, Gross Negligence or willful misconduct in connection
therewith, as determined by the final judgment of a court of competent
jurisdiction): (i) for the form, validity, sufficiency, accuracy, genuineness
or legal effect of any document submitted by any party in connection with the
application for and issuance of the Letters of Credit, even if it should in fact
prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent
or forged; (ii) for the validity or sufficiency of any instrument transferring
or assigning or purporting to transfer or assign a Letter of Credit or the
rights or benefits thereunder or proceeds thereof, in whole or in part, which
may prove to be invalid or ineffective for any reason; (iii) for failure of the
beneficiary of a Letter of Credit to comply duly with conditions required in
order to draw upon such Letter of Credit; (iv) for errors, omissions,
interruptions or delays in transmission or delivery of any messages, by mail,
cable, telegraph, telex, or other similar form of teletransmission or otherwise;
(v) for errors in interpretation of technical trade terms; (vi) for any loss or
delay in the transmission or otherwise of any document required in order to make
a drawing under any Letter of Credit or of the proceeds thereof; (vii) for the
misapplication by the beneficiary of a Letter of Credit of the proceeds of any
drawing under such Letter of Credit; and (viii) for any consequences arising
from causes beyond the control of the Agent, the issuer of the Letter of Credit
and the Lenders including, without limitation, any Governmental Acts. None of
the above shall affect, impair, or prevent the vesting of any of the Agent's
rights or powers, as Letter of Credit issuer, under this SECTION 2.25.
(C) In furtherance and extension and not in limitation of the
specific provisions hereinabove set forth, any action taken or omitted by the
Agent, as Letter of Credit issuer, under or in connection with Letters of Credit
issued on behalf of the Borrower or any related certificates shall not, in the
absence of bad faith, Gross Negligence or willful misconduct, as determined by
the final judgment of a court of competent jurisdiction, put the Agent or any
Lender under any resulting liability to the Borrower or relieve the Borrower of
any of its obligations hereunder to any such Person.
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(D) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
this SECTION 2.25 shall survive the payment in full of all Obligations, the
termination of the Letters of Credit and the termination of this Agreement.
2.26 RELEASE OR ADDITION OF COLLATERAL. Upon the Borrower's written
request, the Agent will release from the Lien created pursuant to the Mortgages
any parcels of real estate identified on SCHEDULE 1.1-D and now subject to such
Lien provided that after such release the Revolving Loan Obligations do not
exceed the Borrowing Base after taking into account the immediate reduction of
the Borrowing Base by the amount of the Approved Value of the parcel being
released. The Borrower may also add parcels of real estate to the Borrowing
Base. Once any such parcel has been encumbered by a Mortgage and accorded an
Approved Value as prescribed in this Agreement, it will be added to the
Borrowing Base.
ARTICLE III: CHANGE IN CIRCUMSTANCES
3.1 YIELD PROTECTION. If any law or any governmental or quasi-
governmental rule, regulation, policy, guideline or directive (whether or not
having the force of law), adopted after the date of this Agreement and having
general applicability to all banks within the jurisdiction in which such Lender
operates (excluding, for the avoidance of doubt, the effect of and phasing in of
capital requirements or other regulations or guidelines passed prior to the date
of this Agreement), or any interpretation or application thereof by any
governmental authority charged with the interpretation or application thereof,
or the compliance of any Lender therewith,
(i) subjects any Lender or any applicable Lending Installation to any
tax, duty, charge or withholding on or from payments due from the Borrower
(excluding Taxes and Excluded Taxes), or changes the basis of taxation of
payments to any Lender in respect of its Loans, its L/C Interests, the
Letters of Credit or other amounts due it hereunder (other than a change in
the rate of tax on the overall income of the Lender), or
(ii) imposes or increases or deems applicable any reserve,
assessment, insurance charge, special deposit or similar requirement
against assets of, deposits with or for the account of, or credit extended
by, any Lender or any applicable Lending Installation (other than reserves
and assessments taken into account in determining the interest rate
applicable to Eurodollar Loans) with respect to its Loans, L/C Interests or
the Letters of Credit, or
(iii) imposes any other condition the result of which is to increase
the cost to any Lender or any applicable Lending Installation of making,
funding or maintaining the Loans, the L/C Interests or the Letters of
Credit or reduces any amount received by any Lender or any applicable
Lending Installation in connection with Loans or Letters of Credit, or
requires any Lender or any applicable Lending Installation to make any
payment calculated by reference to the amount of Loans or L/C Interests
held or interest received by it or by reference to the Letters of Credit,
by an amount deemed material by such Lender;
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and the result of any of the foregoing is to increase the cost to that Lender of
making, renewing or maintaining its Loans, L/C Interests or Letters of Credit or
to reduce any amount received under this Agreement, then, within fifteen (15)
days after receipt by the Borrower of written demand by such Lender pursuant to
SECTION 3.5, the Borrower shall pay such Lender that portion of such increased
expense incurred or reduction in an amount received which such Lender determines
is attributable to making, funding and maintaining its Loans, L/C Interests,
Letters of Credit and its Revolving Loan Commitment; PROVIDED that the Borrower
shall not be obligated to pay any such expense unless such Lender is also
generally asserting its rights to such increased expenses against other
similarly situated borrowers; and PROVIDED, FURTHER, that the Borrower shall not
be liable for any portion of such increased expense incurred or reduction in
such amount received by the Agent or any Lender unless in the case of
withholding taxes, the Agent or such Lender complies with SECTION 2.14(E)(6), if
applicable. If any Lender or the Agent, as applicable, receives a refund
(whether by way of a direct payment or by offset) of any tax for which a payment
has been made pursuant to this SECTION 3.1 by the Borrower, which refund in the
judgment of such Lender or the Agent, as the case may be, is allocable to such
payment made hereunder, the amount of such refund shall be paid to the Borrower
to the extent payment has been made in full by the Borrower pursuant to this
SECTION 3.1. The Borrower shall not be obligated to pay any Purchaser or
Participant any amount pursuant to this SECTION 3.1 in excess of any such
amounts that would have been payable by the Borrower to the Lender from which
such Purchaser or Participant acquired its interest.
3.2 CHANGES IN CAPITAL ADEQUACY REGULATIONS. If a Lender determines (i)
the amount of capital required or expected to be maintained by such Lender, any
Lending Installation of such Lender or any corporation controlling such Lender
is increased as a result of a "Change" (as defined below), and (ii) such
increase in capital will result in an increase in the cost to such Lender of
maintaining its Loans, L/C Interests, the Letters of Credit or its Revolving
Loan Commitment hereunder, then, within fifteen (15) days after receipt by the
Borrower of written demand by such Lender pursuant to SECTION 3.5, the Borrower
shall pay such Lender the amount necessary to compensate for any shortfall in
the rate of return on the portion of such increased capital which such Lender
determines is attributable to this Agreement, its Loans, its L/C Interests, the
Letters of Credit or its Revolving Loan Commitment (after taking into account
such Lender's policies as to capital adequacy); PROVIDED that the Borrower shall
not be obligated to pay any such shortfall unless such Lender is also generally
asserting its rights to such shortfalls against other similarly situated
borrowers. "CHANGE" means (i) any change after the date of this Agreement in
the "Risk-Based Capital Guidelines" (as defined below) excluding, for the
avoidance of doubt, the effect of any phasing in of such Risk Based-Capital
Guidelines or any other capital requirements passed prior to the date hereof, or
(ii) any adoption of or change in any other law, governmental or quasi-
governmental rule, regulation, policy, guideline, interpretation, or directive
(whether or not having the force of law) after the date of this Agreement and
having general applicability to all banks and financial institutions within the
jurisdiction in which such Lender operates which affects the amount of capital
required or expected to be maintained by any Lender or any Lending Installation
or any corporation controlling any Lender. "RISK-BASED CAPITAL GUIDELINES"
means (i) the risk-based capital guidelines in effect in the United States on
the date of this Agreement, including transition rules, and (ii) the
corresponding capital regulations promulgated by regulatory authorities outside
the United States implementing the July 1988 report of the Basle Committee on
Banking Regulation and Supervisory Practices
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Entitled "International Convergence of Capital Measurements and Capital
Standards," including transition rules, and any amendments to such
regulations adopted prior to the date of this Agreement.
3.3 AVAILABILITY OF TYPES OF ADVANCES. If (i) any Lender determines that
maintenance of its Eurodollar Loans at a suitable Lending Installation would
violate any applicable law, rule, regulation or directive, whether or not having
the force of law, or (ii) the Required Lenders determine that (x) deposits of a
type and maturity appropriate to match-fund Eurodollar Advances are not
available or (y) the interest rate applicable to a Type of Advance does not
accurately reflect the cost of making or maintaining such an Advance, then the
Agent shall suspend the availability of the affected Type of Advance and, in the
case of any occurrence set forth in clause (i) require any Advances of the
affected Type to be repaid.
3.4 FUNDING INDEMNIFICATION. If any payment of a Eurodollar Advance
occurs on a date which is not the last day of the applicable Interest Period,
whether because of acceleration, prepayment, or otherwise, or a Eurodollar
Advance is not made on the date specified by the Borrower for any reason other
than default by the Agent or the Lenders, the Borrower will indemnify each
Lender for any loss or cost incurred by it resulting therefrom, including,
without limitation, any loss or cost in liquidating or employing deposits
acquired to fund or maintain the Eurodollar Advance.
3.5 LENDER STATEMENTS; SURVIVAL OF INDEMNITY. To the extent reasonably
possible, each Lender shall designate an alternate Lending Installation with
respect to its Eurodollar Loans to reduce any liability of the Borrower to such
Lender under SECTIONS 3.1 and 3.2 or to avoid the unavailability of a Type of
Advance under SECTION 3.3, so long as such designation is not disadvantageous to
such Lender. Each Lender requiring compensation pursuant to SECTION 2.14(E) or
to this ARTICLE III shall use its best efforts to notify the Borrower and the
Agent in writing of any Change, law, policy, rule, guideline or directive giving
rise to such demand for compensation not later than sixty (60) days following
the date upon which the responsible account officer of such Lender knows of such
Change, law, policy, rule, guideline or directive. Any demand for compensation
pursuant to this ARTICLE III shall be in writing and shall state the amount due,
if any, under SECTION 3.1, 3.2 or 3.4 and shall set forth in reasonable detail
the calculations upon which such Lender determined such amount. Such written
demand shall be rebuttably presumed correct for all purposes. Notwithstanding
anything in this Agreement to the contrary, the Borrower shall not be obligated
to pay any amount or amounts under SECTION 2.14(E) or this ARTICLE III resulting
from (i) a Change, law, policy, rule, guideline or directive which amount or
amounts accrued more than ninety (90) days prior to the date of delivery of the
notice described above, (ii) a Change, law, policy, rule or directive taking
effect prior to the date any Lender becomes a Lender pursuant to the terms
hereof, or (iii) such Lender's change of its Lending Installation (unless such
Lender's change in its Lending Installation is made pursuant to the first
sentence of this SECTION 3.5). Determination of amounts payable under such
Sections in connection with a Eurodollar Loan shall be calculated as though each
Lender funded its Eurodollar Loan through the purchase of a deposit of the type
and maturity corresponding to the deposit used as a reference in determining the
Eurodollar Rate applicable to such Loan, whether in fact that is the case or
not. The obligations of the Borrower under SECTIONS 3.1, 3.2 and 3.4 shall
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survive payment of the Obligations, termination of the Letters of Credit and
termination of this Agreement.
ARTICLE IV: CONDITIONS PRECEDENT
4.1 INITIAL ADVANCES AND LETTERS OF CREDIT. The Lenders shall not be
required to make the initial Revolving Loans or issue any Letters of Credit on
the Closing Date unless (i) all of the conditions precedent set forth in that
certain commitment letter dated June 18, 1997 between First Chicago and the
Borrower shall have been met to the satisfaction of the Agent and each of the
Lenders; and (ii) the Borrower has furnished to the Agent each of the following,
with sufficient copies for the Lenders:
(i) Copies of the Articles of Incorporation of the Borrower, together
with all amendments, and a certificate of good standing, both certified by
the appropriate governmental officer in its jurisdiction of incorporation;
(ii) Copies, certified by the Secretary or Assistant Secretary of the
Borrower of the applicable corporation's By-Laws and of its Board of
Directors' resolutions authorizing the execution of the Loan Documents;
(iii) Incumbency certificates, executed by the Secretary or Assistant
Secretary of the Borrower which shall identify by name and title and bear
the signature of the officers of the Borrower, respectively, authorized to
sign the Loan Documents and, in the case of the Borrower, to make
borrowings hereunder, upon which certificates the Lenders shall be entitled
to rely until informed of any change in writing by the Borrower;
(iv) A certificate, signed by the chief financial officer of the
Borrower, stating that on the Closing Date no Default or Unmatured Default
has occurred and is continuing;
(v) A written opinion of Winston & Strawn, counsel to the Borrower,
addressed to the Lenders in form and substance satisfactory to the Agent
and the Lenders;
(vi) A Revolving Note payable to the order of each of the Lenders;
(vii) Written money transfer instructions, in substantially the form
of EXHIBIT E hereto, addressed to the Agent and signed by an Authorized
Officer, together with such other related money transfer authorizations as
the Agent may have reasonably requested; and
(viii) The Borrower Security Agreement, the extension of Mortgages
and such other documents as any Lender or its counsel may have reasonably
requested, including, without limitation all of the documents (except those
marked with a "*" or identified as post-closing items) set forth on the
List of Closing Documents attached as EXHIBIT F to this Agreement.
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4.2 EACH ADVANCE AND LETTER OF CREDIT. The Lenders shall not be required
to make any Advance or issue any Letter of Credit, unless on the applicable
Borrowing Date, or in the case of a Letter of Credit, the date on which the
Letter of Credit is to be issued:
(i) There exists no Default or Unmatured Default;
(ii) The representations and warranties contained in ARTICLE V are
true and correct as of such Borrowing Date except for changes permitted by
this Agreement; and
(iii) No event shall have occurred which could reasonably be expected
to have a Material Adverse Effect.
Each Borrowing Notice with respect to each such Advance and the letter of
credit application with respect to a Letter of Credit shall constitute a
representation and warranty by the Borrower that the conditions contained in
SECTIONS 4.2(i), (ii) and (iii) have been satisfied. Any Lender may require a
duly completed officer's certificate in substantially the form of EXHIBIT G
hereto and/or a duly completed compliance certificate in substantially the form
of EXHIBIT H hereto as a condition to making an Advance.
ARTICLE V: REPRESENTATIONS AND WARRANTIES
In order to induce the Agent and the Lenders to enter into this Agreement
and to make the Loans and the other financial accommodations to the Borrower and
to issue the Letters of Credit described herein, the Borrower hereby represents
and warrants as follows to each Lender and the Agent as of the Closing Date and
thereafter on each date as required by SECTION 4.2:
5.1 ORGANIZATION; CORPORATE POWERS. The Borrower and each of its
Subsidiaries (i) is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization, (ii) is duly
qualified to do business as a foreign corporation and is in good standing under
the laws of each jurisdiction in which failure to be so qualified and in good
standing will have a Material Adverse Effect, (iii) has filed and maintained
effective (unless exempt from the requirements for filing) a current Business
Activity Report with the appropriate Governmental Authority in the states in
which it is required to do so and in which case the failure to do so could
reasonably be expected to have a Material Adverse Effect, and (v) has all
requisite corporate power and authority to own, operate and encumber its
property and to conduct its business as presently conducted and as proposed to
be conducted in connection with and following the consummation of the
transactions contemplated by this Agreement.
5.2 AUTHORITY.
(A) The Borrower and each of its Subsidiaries has the requisite corporate
power and authority (i) to execute, deliver and perform each of the Loan
Documents which are to be executed by it in connection with this Agreement or
which have been executed by it as required by this Agreement on or prior to the
Closing Date and (ii) to file the Loan Documents which
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must be filed by it in connection with this Agreement or which have been
filed by it as required by this Agreement on or prior to the Closing Date
with any Governmental Authority.
(B) The execution, delivery, performance and filing, as the case may be, of
each of the Loan Documents which must be executed or filed by the Borrower or
any Subsidiary of the Borrower or which have been executed or filed as required
by this Agreement on or prior to the Closing Date and to which the Borrower or
any Subsidiary of the Borrower is a party, and the consummation of the
transactions contemplated thereby, have been duly approved by the respective
boards of directors and, if necessary, the shareholders of the Borrower and the
Subsidiaries of the Borrower, and such approvals have not been rescinded. No
other corporate action or proceedings on the part of the Borrower or its
Subsidiaries are necessary to consummate such transactions.
5.3 NO CONFLICT; GOVERNMENTAL CONSENTS. The execution, delivery and
performance of each of the Loan Documents to which the Borrower or any
Subsidiary of the Borrower is a party do not and will not (i) conflict with the
articles of incorporation (or other organizational documents) or by-laws of the
Borrower or any such Subsidiary, (ii) in any manner which could reasonably be
expected to result in a Material Adverse Effect, (A) constitute a tortious
interference by the Borrower or any such Subsidiary with any Contractual
Obligation of any Person or (B) conflict with, result in a breach of or
constitute (with or without notice or lapse of time or both) a default under any
Requirement of Law (including, without limitation, any Environmental Property
Transfer Act) or Contractual Obligation of the Borrower or any such Subsidiary,
or require termination of any Contractual Obligation of the Parent, the Borrower
or any such Subsidiary, (iii) result in or require the creation or imposition of
any Lien whatsoever upon any of the property or assets of the Borrower or any
such Subsidiary, other than Liens permitted by the Loan Documents, or
(iv) require any approval of the Borrower's or any such Subsidiary's
shareholders except such as have been obtained. Except as set forth on
SCHEDULE 5.3 hereto, the execution, delivery and performance of each of the Loan
Documents to which the Borrower or any Subsidiary of the Borrower is a party do
not and will not require any registration with, consent or approval of, or
notice to, or other action to, with or by any Governmental Authority (including
under any Environmental Property Transfer Act) such that failure to do so is
reasonably likely to result in a Material Adverse Effect, except (i) filings,
consents or notices which have been made, obtained or given, and (ii) filings
necessary to create or perfect security interests in the Collateral.
5.4 FINANCIAL STATEMENTS. Complete and accurate copies of the following
financial statements and the following related information have been delivered
to the Agent: (i) the audited consolidated balance sheets of the Parent and its
Subsidiaries as of August 31, 1996; (ii) the audited consolidated statements of
operations of the Parent and its Subsidiaries for the twelve-month period ending
August 31, 1996; (iii) the audited consolidated statements of cash flows for the
Parent and its Subsidiaries for the twelve-month period ending August 31, 1996;
(iv) the audited consolidated statements of stockholders' equity of the Parent
and its Subsidiaries for the Fiscal Year ended August 31, 1996; and (v) the
notes to the consolidated financial statements set forth in clauses (i) through
(iv) above.
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5.5 NO MATERIAL ADVERSE CHANGE. Since August 31, 1996; there has occurred
no change in the business, properties, condition (financial or otherwise) or
results of operations of the Borrower or any of their respective Subsidiaries or
any other event which has had or is reasonably likely to have a Material Adverse
Effect.
5.6 TAXES.
(A) TAX EXAMINATIONS. All deficiencies which have been asserted against
the Parent, the Borrower or any of their respective Subsidiaries as a result of
any federal, state, local or foreign tax examination for each taxable year in
respect of which an examination has been conducted have been fully paid or
finally settled or are being contested in good faith, and as of the Closing Date
no issue has been raised by any taxing authority in any such examination which,
by application of similar principles, reasonably can be expected to result in
assertion by such taxing authority of a material deficiency for any other year
not so examined which has not been reserved for in the Parent's or the
consolidated financial statements to the extent, if any, required by Agreement
Accounting Principles. Except as disclosed to the Lenders prior to the Closing
Date and except as otherwise permitted pursuant to SECTION 6.2(E), none of the
Parent, the Borrower nor any of their respective Subsidiaries anticipates any
further material tax liability with respect to the years which have not been
closed pursuant to applicable law.
(B) PAYMENT OF TAXES. All tax returns and reports of the Parent, the
Borrower and each of their respective Subsidiaries required to be filed have
been timely filed, and all taxes, assessments, fees and other governmental
charges thereupon and upon their respective Property, assets, income and
franchises which are shown in such returns or reports to be due and payable have
been paid except those items which are being contested in good faith and for
which reserves have been established to the extent necessary to comply with
Agreement Accounting Principles. Neither the Parent nor the Borrower has any
knowledge of any proposed tax assessment against the Parent, the Borrower or any
of their respective Subsidiaries that will have or is reasonably likely to have
a Material Adverse Effect.
5.7 LITIGATION; LOSS CONTINGENCIES AND VIOLATIONS. Except as set forth in
SCHEDULES 5.7 and 5.18 hereto, there is no action, suit, proceeding or
investigation known to the Parent or the Borrower or arbitration before or by
any Governmental Authority or private arbitrator pending or, to the knowledge of
the Parent, the Borrower or any of their respective Subsidiaries, threatened
against the Parent, the Borrower or any of their respective Subsidiaries or any
property of any of them (i) challenging the validity or the enforceability of
any material provision of any of the Loan Documents or (ii) which will have or
is reasonably likely to have a Material Adverse Effect. There is no material
loss contingency within the meaning of Agreement Accounting Principles which has
not been reflected in the consolidated financial statements of the Parent
prepared and delivered pursuant to SECTIONS 5.4 and 6.1(A)(i) for the fiscal
period during which such material loss contingency was incurred. None of the
Parent, the Borrower nor any of their respective Subsidiaries is (A) in
violation of any applicable Requirements of Law which violation will have or is
reasonably likely to have a Material Adverse Effect, or (B) subject to or in
default with respect to any final judgment, writ, injunction, restraining order
or order of any nature, decree, rule or regulation of any court or Governmental
Authority which will have or is reasonably likely to have a Material Adverse
Effect.
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5.8 SUBSIDIARIES; PARENT'S CONDUCT OF BUSINESS. As of the Closing Date,
SCHEDULE 5.8 (i) contains a description of the corporate structure of the
Parent, the Borrower and their respective Subsidiaries and any other Person in
which the Borrower or any of its Subsidiaries holds an Equity Interest; and
(ii) accurately sets forth (A) the correct legal name, the jurisdiction of
incorporation and the jurisdictions in which each of the Parent, the Borrower
and their direct and indirect Subsidiaries are qualified to transact business as
a foreign corporation, (B) the authorized, issued and outstanding shares of each
class of capital stock of the Parent, the Borrower and each of their respective
Subsidiaries and, in the case of such Subsidiaries, the owners of such shares,
and (C) a summary of the direct and indirect partnership, joint venture, or
other equity interests, if any, of the Parent, the Borrower and each of their
respective Subsidiaries in any Person that is not a corporation. None of the
issued and outstanding capital stock of the Parent, the Borrower or any of their
respective Subsidiaries is subject to any vesting, redemption, or repurchase
agreement (other than the SAR Agreements), and there are no warrants or options
outstanding with respect to such capital stock. The outstanding capital stock
of the Parent, the Borrower and each of their respective Subsidiaries is duly
authorized, validly issued, fully paid and nonassessable and is not Margin
Stock. As of the Closing Date, the Borrower has no Material Subsidiaries. As
of the Closing Date, the Parent has no direct Subsidiaries other than the
Borrower and has not engaged in any business other than the ownership of capital
stock of the Borrower and activities which are related or incidental thereto
since its date of incorporation. As of the Closing Date, the Inactive
Subsidiaries do not conduct any business or own any material assets, nor have
the Inactive Subsidiaries conducted any business or owned any material assets
since October 30, 1991.
5.9 ERISA. Except as set forth on SCHEDULE 5.9 hereto, none of the
Parent, the Borrower nor any other member of the Controlled Group (i) is now
maintaining or contributing to or has ever maintained or contributed to any
Benefit Plan or (ii) is now contributing to or has ever contributed to or been
obligated to contribute to any Multiemployer Plan. Except as set forth on
SCHEDULE 5.9, none of the Parent, the Borrower nor any of their respective
Subsidiaries maintains or contributes to any employee welfare benefit plan
within the meaning of Section 3(1) of ERISA which provides benefits to employees
after termination of employment other than as required by Section 601 of ERISA.
Each Plan which is intended to be qualified under Section 401(a) of the Code as
currently in effect is so qualified, and each trust related to any such Plan is
exempt from federal income tax under Section 501(a) of the Code as currently in
effect. Neither the Borrower nor any member of the Controlled Group has taken
or failed to take any action which would constitute or result in a Termination
Event. None of the Parent, the Borrower nor any of their respective
Subsidiaries has, by reason of the transactions contemplated hereby, any
obligation to make any payment to any employee pursuant to any Plan or existing
contract or arrangement. Except to the extent that the below-described actions
or failures to act or comply could reasonably be expected, in the aggregate, to
subject the Parent, the Borrower, any of their respective Subsidiaries or any
member of the Controlled Group collectively to liability of less than
$1,000,000, (i) the Parent, the Borrower and all of their respective
Subsidiaries are in compliance in all respects with the responsibilities,
obligations and duties imposed on them by ERISA and the Code with respect to all
Plans, (ii) none of the Parent, the Borrower nor any other member of the
Controlled Group nor, to the knowledge of the Parent, the Borrower or any member
of the Controlled Group, any fiduciary of any Plan, has engaged in a nonexempt
prohibited transaction described in Sections 406 of ERISA or 4975 of the Code,
and (iii) none of
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the Parent, the Borrower nor any member of the Controlled Group is subject
to any liability under Sections 4063, 4064, 4069, 4204 or 4212(c) of ERISA.
5.10 ACCURACY OF INFORMATION. The information, exhibits and reports
furnished by the Parent, the Borrower or any of their respective Subsidiaries to
the Agent or to any Lender in connection with the negotiation of, or compliance
with, the Loan Documents, the representations and warranties of the Borrower and
their respective Subsidiaries contained in the Loan Documents, all certificates
and documents delivered by the Parent, the Borrower or any of their respective
Subsidiaries to the Agent and the Lenders pursuant to the terms thereof, do not
contain as of the date thereof any untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements contained
herein or therein, in light of the circumstances under which they were made, not
misleading.
5.11 SECURITIES ACTIVITIES. None of the Parent, the Borrower nor any of
their respective Subsidiaries is engaged in the business of extending credit for
the purpose of purchasing or carrying Margin Stock.
5.12 MATERIAL AGREEMENTS. None of the Parent, the Borrower nor any of
their respective Subsidiaries is a party to any agreement or instrument or
subject to any charter or other corporate restriction which will have or is
reasonably likely to have a Material Adverse Effect. None of the Parent, the
Borrower nor any of their respective Subsidiaries has received notice or has
actual knowledge that (i) it is in default in the performance, observance or
fulfillment of any of the obligations, covenants or conditions contained in any
Contractual Obligation applicable to it, or (ii) any condition exists which,
with the giving of notice or the lapse of time or both, would constitute a
default with respect to any such Contractual Obligation, in each case, except
where such default or defaults, if any, will not have or are not reasonably
likely to have a Material Adverse Effect.
5.13 COMPLIANCE WITH LAWS. The Parent, the Borrower and their respective
Subsidiaries are in compliance with all Requirements of Law applicable to them
and their respective businesses, except, in each case, where the failure to so
comply individually or in the aggregate will not have or could not reasonably be
expected to have a Material Adverse Effect.
5.14 ASSETS AND PROPERTIES. The Parent, the Borrower and each of their
respective Subsidiaries has good and marketable title to all of its assets and
properties (tangible and intangible, real or personal) owned by it or a valid
leasehold interest in all of its leased assets (except, in either case, (i)
where the failure to have such title or interest could not, individually or in
the aggregate, be reasonably expected to result in a Material Adverse Effect and
(ii) insofar as marketability may be limited by any laws or regulations of any
Governmental Authority affecting such assets), and all such assets and Property
are free and clear of all Liens, except Liens securing the Obligations and Liens
permitted under SECTION 6.3(C). Substantially all of the assets and properties
owned by, leased to or used by the Borrower and/or each such Subsidiary are in
adequate operating condition and repair, ordinary wear and tear excepted.
Except for Liens granted to the Agent for the benefit of the Agent and the
Lenders and Liens permitted under SECTION 6.3(C), neither this Agreement nor any
other Loan Document, nor any transaction contemplated under any such agreement,
will affect any right, title or interest of the Parent, the
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Borrower or such Subsidiary in and to any of such assets in a manner that
would have or is reasonably likely to have a Material Adverse Effect.
5.15 STATUTORY INDEBTEDNESS RESTRICTIONS. None of the Parent, the
Borrower, or any of their respective Subsidiaries is subject to regulation under
the Public Utility Holding Company Act of 1935, the Federal Power Act or the
Investment Company Act of 1940, or any other federal or state statute or
regulation which limits its ability to incur indebtedness or its ability to
consummate the transactions contemplated hereby including, without limitation,
the application of the proceeds thereof.
5.16 POST-RETIREMENT BENEFITS. As of the Closing Date, none of the
Parent, the Borrower or any of their respective Subsidiaries have any post-
retirement medical or insurance benefits payable to any of their respective
employees or former employees, other than as required by Section 601 of ERISA.
5.17 INSURANCE. SCHEDULE 5.17 accurately sets forth as of the Closing
Date all insurance policies and programs currently in effect with respect to the
respective properties and assets and business of the Parent, the Borrower and
their respective Subsidiaries, specifying for each such policy and program,
(i) the amount thereof, (ii) the risks insured against thereby, (iii) the name
of the insurer and each insured party thereunder, (iv) the policy or other
identification number thereof, (v) the expiration date thereof, (vi) the annual
premium with respect thereto and (vii) describes any reserves, relating to any
self-insurance program that is in effect. Such insurance policies and programs
reflect coverage that is reasonably consistent with prudent industry practice.
5.18 CONTINGENT OBLIGATIONS. As of the Closing Date, except as set forth
on SCHEDULE 5.18, none of the Parent, the Borrower nor any of their respective
Subsidiaries has any Contingent Obligation, contingent liability, long-term
lease or commitment, not prescribed in the Senior Note Indenture, or reflected
or disclosed in its audited financial statements delivered to the Agent on or
prior to the Closing Date or otherwise disclosed to the Agent and the Lenders in
the other Schedules hereto, which will have or is reasonably likely to have a
Material Adverse Effect.
5.19 LABOR MATTERS.
(A) Except as listed on SCHEDULE 5.19, there are on the Closing Date no
collective bargaining agreements or other labor agreements covering any of the
employees of the Parent, the Borrower or any of their respective Subsidiaries
(other than Benefit Plans and Multiemployer Plans). As of the Closing Date, no
attempt to organize the employees of the Borrower, and no labor disputes (other
than employee grievances in the ordinary course of business), strikes or
walkouts affecting the operations of the Parent, the Borrower or any of their
respective Subsidiaries, is pending, or, to the Borrower's knowledge,
threatened, planned or contemplated.
(B) Set forth in SCHEDULE 5.19 is a list, as of the Closing Date, of all
material consulting agreements, executive compensation plans, deferred
compensation agreements, employee pension plans or retirement plans, employee
profit sharing plans, employee stock purchase and
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stock option plans, severance plans, group life insurance, hospitalization
insurance or other plans or arrangements of the Parent, the Borrower and any
of their respective Subsidiaries providing for benefits for employees of the
Parent, the Borrower and any of their respective Subsidiaries (other than
Benefit Plans and Multiemployer Plans).
5.20 SOLVENCY. After giving effect to the (i) Loans to be made on the
Closing Date, and (ii) the disbursement of the proceeds of such Loans pursuant
to the Borrower's instructions, the Parent, the Borrower and each of their
respective Subsidiaries are Solvent on the Closing Date.
5.21 ENVIRONMENTAL MATTERS. Except as disclosed on SCHEDULE 5.21, the
operations of the Parent, the Borrower and their respective Subsidiaries comply
in all respects with Environmental, Health or Safety Requirements of Law where
failure to so comply could reasonably be expected to subject the Parent, the
Borrower or any such Subsidiary to liability in excess of $1,000,000 in the
aggregate during any Fiscal Year of the Borrower and none of the Parent, the
Borrower, any of their respective Subsidiaries nor any of their respective
present property or operations, or, to the best of the Borrower's or any of its
Subsidiary's knowledge, any of their respective, past property or operations,
are subject to or the subject of, any investigation known to the Parent, the
Borrower or any such Subsidiary, judicial or administrative proceeding, order,
judgment, decree, settlement or other agreement respecting (a) any material
violation of Environmental, Health or Safety Requirements of Law, (b) any
remedial action or (c) any claims or liabilities arising from the release or
threatened release of a contaminant into the environment, which could, in the
case of clause (a), (b) or (c) above, reasonably be expected to subject any of
the Parent, the Borrower or any such Subsidiary to liability in excess of
$1,000,000 in the aggregate during any Fiscal Year of the Borrower. None of the
Parent, the Borrower nor any of their respective Subsidiaries has any Contingent
Obligation in connection with any release or, to its knowledge, threatened
release of a contaminant into the environment which could reasonably be expect
to subject any of the Parent, the Borrower or any such Subsidiary to liability
in excess of $1,000,000 in the aggregate during any Fiscal Year of the Borrower.
5.22 DISCLOSURES. Any disclosure made by the Borrower in any Schedule
hereto or in any provision of this Agreement shall constitute a disclosure for
all relevant items required to be disclosed in any Schedule hereto and by all
relevant provisions hereof.
ARTICLE VI: COVENANTS
The Borrower covenants and agrees that so long as any Revolving Loan
Commitments are outstanding and thereafter until payment in full of all of the
Obligations (other than contingent indemnification obligations) and termination
of all outstanding Letters of Credit, unless the Required Lenders shall
otherwise consent in writing:
6.1 REPORTING. The Borrower shall:
(A) FINANCIAL REPORTING. Furnish to the Lenders:
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(i) MONTHLY REPORTS. As soon as practicable, and in any event within
thirty (30) days after the end of each fiscal month in each Fiscal Year
(other than each month constituting the end of a Fiscal Quarter or a Fiscal
Year), the consolidated balance sheet of the Borrower and its Subsidiaries
as at the end of such period and the related consolidated statement of
income (including income analysis for each of the Borrower's operating
divisions) and consolidated statement of cash flow of the Borrower and its
Subsidiaries for such calendar month, certified by the chief financial
officer of the Borrower on behalf of the Borrower as fairly presenting the
consolidated financial position of the Borrower and its Subsidiaries as at
the dates indicated and the results of their operations and cash flow for
the calendar months indicated in accordance with Agreement Accounting
Principles, subject to normal year-end adjustments.
(ii) QUARTERLY REPORTS. As soon as practicable, and in any event
within forty-five (45) days after the end of each Fiscal Quarter in each
Fiscal Year, the consolidated balance sheet of the Borrower and its
Subsidiaries as at the end of such period and the related consolidated
statement of income (including income analysis for each of the Borrower's
operating divisions) and consolidated statement of cash flow of the
Borrower and its Subsidiaries for such Fiscal Quarter and for the period
from the beginning of the then current Fiscal Year to the end of such
Fiscal Quarter, certified by the chief financial officer of the Borrower on
behalf of the Borrower as fairly presenting the consolidated financial
position of the Borrower and its Subsidiaries as at the dates indicated and
the results of their operations and cash flow for the periods indicated in
accordance with Agreement Accounting Principles, subject to normal year-end
adjustments, along with schedules in form and substance sufficient to
calculate the financial covenants set forth in SECTION 6.4 and a comparison
of the statement of income and cash flow to the budget.
(iii) ANNUAL REPORTS. As soon as practicable, and in any event
within ninety (90) days after the end of each Fiscal Year, (a) the
consolidated and consolidating balance sheets of the Borrower and its
Subsidiaries as at the end of such Fiscal Year and the related consolidated
statement of income, stockholders' equity and cash flow of the Borrower and
its Subsidiaries for such Fiscal Year, and in comparative form the corre-
sponding figures for the previous Fiscal Year along with schedules in form
and substance sufficient to calculate the financial covenants set forth in
SECTION 6.4, (b) income analysis for each of the Borrower's operating
divisions, (c) a schedule from the Borrower setting forth for each item in
CLAUSE (a) hereof, the corresponding figures from the consolidated
financial budget for the applicable Fiscal Year delivered pursuant to
SECTION 6.1(A)(v), and (d) a report on the consolidated financial
statements listed in CLAUSE (U) hereof of Ernst & Young or other
independent certified public accountants of recognized national standing,
which report shall be unqualified and shall state that such consolidated
financial statements fairly present the consolidated financial position of
the Borrower and its Subsidiaries as at the dates indicated and the results
of their operations and cash flow for the periods indicated in conformity
with Agreement Accounting Principles and that the examination by such
accountants in connection with such consolidated financial statements has
been made in accordance with generally accepted auditing standards. In
addition, the Borrower, concurrently with delivery to the Lenders of the
foregoing, shall deliver to the Lenders corresponding audited financial
statements for the Parent. The
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deliveries made pursuant to this CLAUSE (iii) shall be accompanied
by (x) any management letter prepared by the above-referenced
accountants, (y) a certificate of such accountants that, in the course
of their examination necessary for their certification of the foregoing,
they have obtained no knowledge of any Default or Unmatured Default, or
if, in the opinion of such accountants, any Default or Unmatured Default
shall exist, stating the nature and status thereof and (z) a letter from
said accountants addressed to the Agent and the Lenders acknowledging
that the Agent and the Lenders are extending credit in primary reliance
on such financial statements and authorizing such reliance; PROVIDED,
HOWEVER, that should certified public accountants of national standing
generally refuse to provide such a certificate or such a letter then the
Borrower shall have no obligation to deliver such certificate or such
letter, as applicable.
(iv) OFFICER'S CERTIFICATE. Together with each delivery of any
financial statement (a) pursuant to CLAUSES (i), (ii) and (iii) of this
SECTION 6.1(A), an Officer's Certificate of the Borrower, substantially in
the form of EXHIBIT G attached hereto and made a part hereof, stating that
no Default or Unmatured Default exists, or if any Default or Unmatured
Default exists, stating the nature and status thereof and (b) pursuant to
CLAUSES (ii) and (iii) of this SECTION 6.1(A), a Compliance Certificate,
substantially in the form of EXHIBIT H attached hereto and made a part
hereof, signed by the Borrower's chief financial officer or treasurer,
setting forth calculations which demonstrate compliance, when applicable,
with the provisions of SECTION 6.4.
(v) BUDGETS; BUSINESS PLANS; FINANCIAL PROJECTIONS. As soon as
practicable and in any event not later than the beginning of each Fiscal
Year, a copy of the budget (including a projected balance sheet, income
statement, including projected income analysis for each of the Borrower's
operating divisions, and cash flow statement) of the Parent and its
Subsidiaries for such Fiscal Year prepared in such detail as shall be
reasonably satisfactory to the Agent.
(B) NOTICE OF DEFAULT. Within five (5) Business Days after any of the
chief executive officer, chief operating officer or chief financial officer of
the Borrower obtains knowledge (i) of any condition or event which constitutes a
Default or Unmatured Default, or becoming aware that any Lender has given any
written notice with respect to a claimed Default or Unmatured Default under this
Agreement, (ii) that any Person has given any written notice to the Parent, the
Borrower or its Subsidiaries or taken any other action with respect to a claimed
default or event or condition of the type referred to in SECTION 7.1(e), or
(iii) of any condition or event which has or is reasonably likely to have a
Material Adverse Effect or affect the value of, or the Agent's interest in, the
Collateral in any material respect, deliver to the Agent and the Lenders an
Officer's Certificate specifying (A) the nature and period of existence of any
such claimed default, Default, Unmatured Default, condition or event, (B) the
notice given or action taken by such Person in connection therewith, and
(C) what action the Borrower has taken, is taking and proposes to take with
respect thereto.
(C) LAWSUITS. (i) Promptly after the Borrower obtains knowledge of the
institution of, or written threat of, any action, suit, proceeding, governmental
investigation or arbitration against or affecting the Parent, the Borrower or
any of their respective Subsidiaries or any
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property of the Parent, the Borrower or any of their respective Subsidiaries
not previously disclosed pursuant to SECTIONS 5.7 or 5.18, which action,
suit, proceeding, governmental investigation or arbitration exposes, or in
the case of multiple actions, suits, proceedings, governmental investigations
or arbitrations arising out of the same general allegations or circumstances
which expose, in the Borrower's reasonable judgment, the Parent, the Borrower
or any of their respective Subsidiaries to liability in an amount aggregating
$1,000,000 or more (exclusive of claims covered by insurance policies of the
Parent, the Borrower or any of their respective Subsidiaries unless the
insurers of such claims have disclaimed coverage or reserved the right to
disclaim coverage on such claims and exclusive of claims covered by the
indemnity of a financially responsible indemnitor in favor of the Parent),
the Borrower or any of their respective Subsidiaries (unless the indemnitor
has disclaimed or reserved the right to disclaim coverage thereof), give
written notice thereof to the Agent and the Lenders and provide such other
information as may be reasonably available to enable each Lender and the
Agent and its counsel to evaluate such matters; and (ii) in addition to the
requirements set forth in CLAUSE (i) of this SECTION 6.1(C), upon request of
the Agent or the Required Lenders, promptly give written notice of the status
of any action, suit, proceeding, governmental investigation or arbitration
covered by a report delivered pursuant to CLAUSE (i) above and provide such
other information as may be reasonably available to it that would not violate
any attorney-client privilege by disclosure to the Lenders to enable each
Lender and the Agent and its counsel to evaluate such matters.
(D) INSURANCE. As soon as practicable and in any event within ninety (90)
days of the end of each Fiscal Year, deliver to the Agent and the Lenders (i) a
report in form and substance reasonably satisfactory to the Agent and the
Lenders outlining all material insurance coverage maintained as of the date of
such report by the Borrower and its Subsidiaries and the duration of such
coverage and (ii) an insurance broker's statement that all premiums with respect
to such coverage have been paid when due.
(E) ERISA NOTICES. Deliver or cause to be delivered to the Agent and the
Lenders, at the Borrower's expense, the following information and notices as
soon as reasonably possible, and in any event:
(i) within ten (10) Business Days after the Parent, the Borrower or
any member of the Controlled Group knows or has reason to know that a
Termination Event has occurred, a written statement of the chief financial
officer of the Borrower describing such Termination Event and the action,
if any, which the Borrower or any member of the Controlled Group has taken,
is taking or proposes to take with respect thereto, and when known, any
action taken or threatened by the IRS, DOL or PBGC with respect thereto;
(ii) within ten (10) Business Days after the Parent, the Borrower or
any of their respective Subsidiaries knows or has reason to know that an
assessment of a prohibited transaction excise tax under Section 4975 of the
Code in an amount in excess of $50,000 has occurred, a statement of the
chief financial officer of the Borrower describing such transaction and the
action which the Parent, the Borrower or any member of the Controlled Group
has taken, is taking or proposes to take with respect thereto;
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(iii) within ten (10) Business Days after the establishment of any
Benefit Plan or the commencement of, or obligation to commence,
contributions to any Benefit Plan or Multiemployer Plan to which the
Parent, the Borrower or any member of the Controlled Group was not
previously contributing, notification of such establishment, commencement
or obligation to commence and the amount of such contributions;
(iv) within ten (10) Business Days after the Parent, the Borrower or
any of their respective Subsidiaries receives notice of any unfavorable
determination letter from the IRS regarding the qualification of a Plan
under Section 401(a) of the Code, copies of each such letter; and
(v) within ten (10) Business Days after the establishment of any
foreign employee benefit plan or the commencement of, or obligation to
commence, contributions to any foreign employee benefit plan to which the
Parent, the Borrower, any of their respective Subsidiaries or members of
the Controlled Group was not previously contributing, notification of such
establishment, commencement or obligation to commence and the amount of
such contributions.
For purposes of this SECTION 6.1(E), the Parent, the Borrower and any member of
the Controlled Group shall be deemed to know all facts known by the
Administrator of any Single Employer Plan of which the Parent, the Borrower or
any member of the Controlled Group is the plan sponsor.
(F) LABOR MATTERS. Notify the Agent and the Lenders in writing, promptly
upon the Parent's or the Borrower's learning thereof, of (i) any labor dispute
to which the Parent, the Borrower or any of their respective Subsidiaries may
become a party (including, without limitation, any strikes, lockouts or other
disputes relating to such Persons' plants and other facilities), which has or
could reasonably be expected to have a Material Adverse Effect and (ii) any
Worker Adjustment and Retraining Notification Act liability incurred with
respect to the closing of any plant or other facility of the Parent, the
Borrower or any of their respective Subsidiaries which has or could reasonably
be expected to have a Material Adverse Effect.
(G) OTHER INDEBTEDNESS. Deliver to the Agent (i) a copy of each regular
report or notice regarding potential or actual defaults (including any
accompanying officers' certificate) delivered by or on behalf of the Parent or
the Borrower to the holders the Senior Notes or any other funded Indebtedness
(in an outstanding principal amount in excess of $1,000,000) pursuant to the
terms of the other agreements governing such Senior Notes or other funded
Indebtedness, such delivery to be made at the same time and by the same means as
such report or notice is delivered to such holders, and (ii) a copy of each
notice received by the Parent or the Borrower from the holders of the Senior
Notes or any other funded Indebtedness (in an outstanding principal amount in
excess of $1,000,000) pursuant to the terms of such Indebtedness, such delivery
to be made promptly after such notice is received by the Parent or the Borrower.
(H) OTHER REPORTS. Deliver or cause to be delivered to the Agent and the
Lenders copies of all financial statements, reports and notices, if any, (in the
event that any equity or debt securities of the Parent or the Borrower are
publicly traded) sent or made available generally by
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the Parent or the Borrower to its securities holders or filed with the
Commission by the Parent or the Borrower, all press releases made available
generally by the Parent or the Borrower or any of their respective
Subsidiaries to the public concerning material developments in the business
of the Parent or the Borrower or any such Subsidiary and all notifications
received from the Commission by the Parent or the Borrower or their
respective Subsidiaries pursuant to the Securities Exchange Act and the rules
promulgated thereunder.
(I) ENVIRONMENTAL NOTICES. As soon as possible and in any event within ten
(10) Business Days after receipt by the Parent or the Borrower, deliver to the
Agent and the Lenders a copy of (i) any notice or claim to the effect that the
Parent, the Borrower or any of their respective Subsidiaries is or may be liable
for an amount in excess of $1,000,000 to any Person as a result of the release
by the Parent, the Borrower, any of their respective Subsidiaries, or any other
Person of any contaminant into the environment, and (ii) any notice alleging any
material violation of any Environmental, Health or Safety Requirements of Law by
the Parent, the Borrower or any of their respective Subsidiaries.
(J) BORROWING BASE CERTIFICATE. As soon as practicable, and in any event
within twenty-five (25) days after the close of each calendar month, the Agent
and the Lenders with a Borrowing Base Certificate, together with such supporting
documents as the Agent deems desirable, all certified as being true and correct
by the chief financial officer or treasurer of the Borrower.
(K) OTHER INFORMATION. Promptly upon receiving a request therefor from
the Agent, prepare and deliver to the Agent and the Lenders such other
information with respect to the Parent, Borrower, any of their respective
Subsidiaries, or the Collateral, including, without limitation, schedules
identifying and describing the Collateral and any dispositions thereof or any
Asset Sale (and the use of the Net Cash Proceeds thereof), as from time to time
may be reasonably requested by the Agent.
6.2 AFFIRMATIVE COVENANTS.
(A) CORPORATE EXISTENCE, ETC. The Borrower shall, and shall cause each of
its Subsidiaries to, at all times maintain its corporate existence and preserve
and keep, or cause to be preserved and kept, in full force and effect its rights
and franchises material to its businesses.
(B) CORPORATE POWERS; CONDUCT OF BUSINESS. The Borrower shall, and shall
cause each of its Subsidiaries, to qualify and remain qualified to do business
in each jurisdiction in which the nature of its business requires it to be so
qualified and where the failure to be so qualified will have or is reasonably
likely to have a Material Adverse Effect. The Parent and the Borrower will, and
will cause each of their respective Subsidiaries to, carry on and conduct its
business in substantially the same manner and in substantially the same fields
of enterprise as it is presently conducted.
(C) FUTURE GUARANTORS AND SUBSIDIARIES. Promptly upon any Person becoming
a Material Subsidiary of the Borrower, such Material Subsidiary shall execute
and deliver to the Agent a guaranty in a form acceptable to the Agent, a
security agreement substantially in the form of the Borrower Security Agreement,
mortgages or deeds of trust for any real property
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owned by such Material Subsidiary in a form substantially similar to the
Mortgages, and such financing statements, fixture filings and other documents
as shall in the sole discretion of the Agent or the Required Lenders be
necessary or advisable, PROVIDED, HOWEVER, that nothing contained in this
SECTION 6.2(C) shall be construed to permit any Acquisition or any Investment
in a Subsidiary, not otherwise permitted under the terms hereof.
(D) COMPLIANCE WITH LAWS, ETC. The Borrower shall, and shall cause each
of its Subsidiaries to comply with all Requirements of Law and Contractual
Obligations binding on such Person or the business, properties, assets or
operations of such Person, where the failure to do so would result, or could
reasonably be expected to result, in a Material Adverse Effect.
(E) PAYMENT OF TAXES; TAX CONSOLIDATION. Each of the Parent and the
Borrower shall, and shall cause each of their respective Subsidiaries to, pay in
accordance with the Tax Sharing and Management Agreement all taxes, assessments
and other governmental charges imposed upon it or on any of its properties or
assets or in respect of any of its franchises, business, income or property
before any penalty or interest accrues thereon; PROVIDED, HOWEVER, that no such
taxes, assessments and governmental charges referred to above (and interest,
penalties or fines relating thereto) need be paid if being contested in good
faith by appropriate proceedings diligently instituted and conducted and if such
reserve or other appropriate provision has been established to the extent
necessary to comply with Agreement Accounting Principles. Neither the Parent
nor the Borrower shall, or permit any of their respective Subsidiaries to, file
or consent to the filing of any consolidated income tax return with any Person
(other than each other).
(F) INSURANCE. The Borrower shall, and shall cause each of its
Subsidiaries to maintain in full force and effect the insurance policies and
programs listed on SCHEDULE 5.17 or substantially similar policies and programs
or other policies and programs as reflect coverage that is reasonably consistent
with prudent industry practice. Each certificate and policy relating to
coverages other than the foregoing shall, if required by the Agent, contain an
endorsement naming the Agent as an additional insured under such policy with
respect to the Collateral. If the Borrower or any of its Subsidiaries, at any
time or times hereafter, shall fail to obtain or maintain any of the policies or
insurance required herein or to pay any premium in whole or in part relating
thereto, then the Agent, without waiving or releasing any obligations or
resulting Default hereunder, may at any time or times thereafter (but shall be
under no obligation to do so) obtain and maintain such policies of insurance and
pay such premiums and take any other action with respect thereto which the Agent
deems advisable. All sums so disbursed by the Agent shall constitute part of
the Obligations, payable as provided in this Agreement.
(G) INSPECTION OF PROPERTY; BOOKS AND RECORDS; DISCUSSIONS. (1) Each of
the Parent and the Borrower shall permit, and cause each of their respective
Subsidiaries to permit, any authorized representative(s) designated by either
the Agent or any Lender to visit and inspect any of the properties of the
Parent, the Borrower or any of their respective Subsidiaries, to examine, audit,
check and make copies of their respective financial and accounting records,
books, journals, orders, receipts and any correspondence and other data relating
to their respective businesses or the transactions contemplated hereby
(including, without limitation, in connection with environmental compliance,
hazard or liability), and to discuss their affairs, finances and accounts with
their officers and independent certified public accountants, all upon
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reasonable notice and at such reasonable times during normal business hours,
as often as may be reasonably requested. If a Default has occurred and is
continuing, the Parent or the Borrower, upon the Agent's request, shall give
the Agent or its representatives such access to any books and records of the
Parent, the Borrower or the Borrower's Subsidiaries as the Agent may request.
(2) Each of the Parent and the Borrower shall keep and maintain, and cause
their respective Subsidiaries to keep and maintain, at all times, in all
material respects proper books of record and account in which entries in
conformity with Agreement Accounting Principles shall be made of all dealings
and transactions in relation to their respective businesses and activities,
including, without limitation, transactions and other dealings with respect to
the Collateral.
(H) INSURANCE AND CONDEMNATION PROCEEDS. The Borrower shall direct (and,
if applicable, shall cause its Subsidiaries to direct) all insurers under
policies of property damage, boiler and machinery and business interruption
insurance and payors of any condemnation claim or award relating to the
Collateral to pay all proceeds in excess of $250,000 payable under such policies
or with respect to such claim or award for any loss with respect to the
Collateral incurred after the occurrence and during the continuance of a Default
directly to the Agent, for the benefit of the Agent and the Lenders to be
applied as a mandatory prepayment of the Loans pursuant to SECTION 2.5(B)(2).
(I) ERISA COMPLIANCE. Each of the Parent and the Borrower shall, and
shall cause each of their respective Subsidiaries and members of its Controlled
Group to, establish, maintain and operate all Plans to comply in all material
respects with the provisions of ERISA, the Code, all other applicable laws, and
the regulations and interpretations thereunder and the respective requirements
of the governing documents for such Plans.
(J) MAINTENANCE OF PROPERTY. Each of the Parent and the Borrower shall
cause all property necessary to the conduct of its business or the business of
any of their respective Subsidiaries to be maintained and kept in good
condition, repair and working order; PROVIDED, HOWEVER, that nothing in this
Section shall prevent the Parent or the Borrower, as applicable, from
discontinuing the operation or maintenance of any of such property if such
discontinuance is, in the judgment of the Parent or the Borrower, as applicable,
desirable in the conduct of its business or the business of any of their
respective Subsidiaries and not disadvantageous in any material respect to the
Agent or the Lenders.
(K) ENVIRONMENTAL COMPLIANCE. Each of the Parent, the Borrower and their
respective Subsidiaries shall comply with all Environmental, Health or Safety
Requirements of Law, except where noncompliance will not have or is not
reasonably likely to have a Material Adverse Effect.
(L) USE OF PROCEEDS. The Borrower will use the proceeds of the Loans to
provide funds for the working capital needs of the Borrower and other general
corporate purposes and reasonable costs and expenses directly related thereto.
(M) MAINTENANCE OF CONCENTRATION ACCOUNT. The Borrower shall at all times
maintain the Concentration Account with the Agent or a Lender, and upon changing
such institution with
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which the Concentration Account is maintained shall promptly provide the
Agent with written notice of such change.
(N) ISSUANCE OF SAR NOTES. To the extent allowed under any SAR Agreement,
the Parent shall issue notes in accordance with the terms of such SAR Agreement
rather than making cash payments thereunder, should any event requiring such
action on the part of the Parent occur.
6.3 NEGATIVE COVENANTS.
(A) INDEBTEDNESS. Neither the Borrower nor any of its Subsidiaries shall
directly or indirectly create, incur, assume or otherwise become or remain
directly or indirectly liable with respect to any Indebtedness, except:
(i) the Obligations;
(ii) Indebtedness existing on the date hereof and described on
SCHEDULE 6.3(A);
(iii) the Indebtedness evidenced by the Senior Notes and any
extension of the maturity thereof;
(iv) Indebtedness in respect of taxes, assessments, governmental
charges and claims for labor, materials or supplies, to the extent that
payment thereof is not required pursuant to SECTION 6.2(E);
(v) Indebtedness constituting Contingent Obligations permitted by
SECTION 6.3(E);
(vi) Indebtedness arising from intercompany loans from any Subsidiary
of the Borrower to the Borrower or from any Subsidiary of the Borrower to
another Subsidiary of the Borrower, PROVIDED that any such loans shall be
evidenced by such lending Subsidiary's books and records and not by an
instrument;
(vii) Indebtedness in respect of profit sharing plans disclosed on
SCHEDULE 5.9 hereto, without giving effect to any subsequent amendments
(other than amendments thereto required by applicable law) to any such
plans;
(viii) Indebtedness in respect of Interest Rate Agreements and
foreign exchange contracts permitted hereby;
(ix) Secured purchase money Indebtedness (including Capitalized
Leases) incurred by the Borrower after the Closing Date to finance the
acquisition of fixed assets, if (1) at the time of such incurrence, no
Default has occurred and is continuing or would result from such
incurrence, (2) such Indebtedness has a scheduled maturity and is not due
on demand, (3) such Indebtedness does not exceed $3,000,000 in the
aggregate
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outstanding at any time, and (4) any Lien securing such
Indebtedness is permitted under SECTION 6.3(C);
(x) Indebtedness for payment obligations arising under the SAR
Agreements in accordance with their terms;
(xi) Indebtedness under the Tax Sharing and Management Agreement; and
(xii) other Indebtedness provided the incurrence of such Indebtedness
would not result in a breach of SECTION 6.4(C) of this Agreement and would
not be prohibited by the Senior Notes or the Senior Note Indenture.
(B) [Intentionally Omitted].
(C) LIENS. Neither the Borrower nor any of its Subsidiaries shall
directly or indirectly create, incur, assume or permit to exist any Lien on or
with respect to any of their respective property or assets except:
(i) Liens existing on the date hereof and described on SCHEDULE
6.3(C);
(ii) Customary Permitted Liens;
(iii) Liens which pursuant to applicable law are or may be entitled
to take priority (in whole or in part) over prior, perfected liens on and
security interests in the Collateral; PROVIDED that such Liens shall not
secure Indebtedness in excess of $1,500,000; and
(iv) Liens on assets other than Collateral to secure Indebtedness
permitted pursuant to SECTION 6.3(A).
(D) INVESTMENTS. Neither the Borrower nor any of its Subsidiaries shall
directly or indirectly make or own any Investment except:
(i) Investments in Cash Equivalents;
(ii) Investments existing on the date hereof and described on
SCHEDULE 6.3(D), in an amount not greater than the amount thereof on the
Closing Date;
(iii) Investments received in connection with the bankruptcy or
reorganization of suppliers and customers and in settlement of delinquent
obligations of, and other disputes with, customers and suppliers arising in
the ordinary course of business;
(iv) Investments constituting intercompany loans permitted by SECTION
6.3(A)(vi);
(v) Investments in the Borrower's wholly owned Subsidiaries,
including any Person that becomes a wholly owned Subsidiary or is merged,
consolidated or
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amalgamated with or into or transfers or conveys substantially all of
its assets to, or is liquidated into a wholly owned Subsidiary as the
result of such Investment;
(vi) Restricted Investments permitted by SECTION 6.3(F); and
(vii) other Investments provided the aggregate amount of such
Investments does not exceed $7,500,000.
(E) ACQUISITIONS. Neither the Borrower nor any of its Subsidiaries shall
make any Acquisition involving an Investment equal to or greater than $1,000,000
unless:
(i) no Default or Unmatured Default shall have occurred and be
continuing or would result from such transaction or transactions or the
incurrence of any Indebtedness in connection therewith; and
(ii) prior to effecting such Acquisition, the Borrower shall deliver
to the Agent and the Lenders a certificate from one of the Borrower's
Authorized Officers demonstrating to the satisfaction of the Agent that
after giving effect to such Acquisition and the incurrence of any
Indebtedness permitted by SECTION 6.3(A) in connection therewith on a pro
forma basis the Borrower will be in compliance with all provisions of
SECTION 6.4 from the date of such Acquisition through the Termination Date.
(F) RESTRICTED PAYMENTS. The Borrower shall not declare or make any
Restricted Payment or any Restricted Investment if either a Default or Unmatured
Default shall have occurred and be continuing at the date of declaration,
payment or making thereof or would result therefrom or if declaring or making
such Restricted Payment or Restricted Investment is prohibited by the Senior
Notes or the Senior Note Indenture except that, unless a Default under SECTION
7.1(a) has occurred and is continuing, the Borrower may make distributions to
the Parent from funds legally available for such purpose to fund the Parent's
payment of tax obligations pursuant to the Tax Sharing and Management Agreement
in any Fiscal Year in an amount not to exceed the amount of the tax liability of
the Borrower and the Borrower's Subsidiaries if they were not consolidated with
the Parent.
(G) BORROWER'S CONDUCT OF BUSINESS. Neither the Borrower nor any of its
Subsidiaries shall engage in any business other than the businesses engaged in
by the Borrower on the date hereof and any business or activities which are
substantially similar, related or incidental thereto.
(H) TRANSACTIONS WITH AFFILIATES. The Borrower will not, and will not
permit any of its Subsidiaries to, directly or indirectly, sell, lease, transfer
or otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into any contract, agreement, understanding,
loan, advance or guarantee with, or for the benefit of, any Affiliate (each of
the foregoing, an "Affiliate Transaction"), except for (i) Affiliate
Transactions, which together with all related Affiliate Transactions have an
aggregate value of not more than $1,000,000; PROVIDED, that such transactions
are conducted in good faith and on terms that are no less favorable to the
Borrower or the relevant Subsidiary than those that would have been obtained in
a comparable transaction at such time on an arm's-length basis with a Person
that is
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not an Affiliate of the Borrower or such Subsidiary, (ii) Affiliate
Transactions, which together with all related Affiliate Transactions have an
aggregate value of not more than $2,000,000; PROVIDED, that a majority of the
disinterested members of the Board of Directors of the Borrower determine
that such transactions are conducted in good faith and on terms that are no
less favorable to the Borrower or the relevant Subsidiary than those that
would have been obtained in a comparable transaction at such time on an
arm's-length basis from a Person that is not an Affiliate of the Borrower or
such Subsidiary, and (iii) Affiliate Transactions for which the Borrower
delivers to the Agent an opinion as to the fairness to the Borrower or such
Subsidiary from a financial point of view issued by an investment banking
firm of national standing; PROVIDED, HOWEVER, that the following will not be
deemed to be Affiliate Transactions: (i) employment agreements entered into
by the Borrower or any Subsidiary in the ordinary course of business with the
approval of the independent members of the Borrower's Board of Directors,
(ii) transactions between or among the Borrower and/or its wholly owned
Subsidiaries, (iii) transactions permitted by SECTION 6.3(F), and (iv)
reasonable and customary directors' fees for members of the Board of
Directors of the Borrower.
(J) RESTRICTION ON FUNDAMENTAL CHANGES. None of the Borrower or any of
its Subsidiaries shall enter into any merger or consolidation, or liquidate,
wind-up or dissolve (or suffer any liquidation or dissolution), or convey,
lease, sell, transfer or otherwise dispose of, in one transaction or series of
transactions, all or substantially all of the Borrower's or any such
Subsidiary's business or property, whether now or hereafter acquired; PROVIDED,
HOWEVER, that the Borrower may (i) merge with any of its Subsidiaries, PROVIDED
that the Borrower is the surviving entity in any such merger and (ii) dissolve
any of its Subsidiaries other than Material Subsidiaries.
(K) MARGIN REGULATIONS. None of the Borrower or any of its Subsidiaries,
shall use all or any portion of the proceeds of any credit extended under this
Agreement to purchase or carry Margin Stock.
(L) ERISA. Neither the Borrower nor any of its Subsidiaries shall engage,
in any prohibited transaction described in Sections 406 of ERISA or 4975 of the
Code for which a statutory or class exemption is not available or a private
exemption has not been previously obtained from the DOL, in any case, that could
reasonably be expected to result in a liability to the Borrower or such
Subsidiary in excess of $1,000,000.
(M) AMENDMENT OF CERTAIN AGREEMENTS. None of the Parent, the Borrower or
any of their respective Subsidiaries shall amend, supplement or otherwise modify
any of (i) the Senior Preferred Stock, (ii) the Tax Sharing and Management
Agreement, or (iii) the SAR Agreements in any manner adverse to the Lenders
(including, without limitation, amendments that would increase amounts payable
pursuant to such agreements); PROVIDED, HOWEVER, that the Parent may amend any
SAR Agreement to reflect the terms and conditions of those SAR Agreements
entered into most recently prior to the Closing Date.
(N) CORPORATE DOCUMENTS. None of the Parent, the Borrower nor any of
their respective Subsidiaries shall amend, modify or otherwise change any of the
terms or provisions in any of their respective corporate documents (other than
by-laws and, in the case of by-laws, any of the
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material terms or provisions thereof) as in effect on the date hereof in any
manner materially adverse to the interests of the Lenders without the prior
written consent of the Required Lenders.
(O) OTHER INDEBTEDNESS. Neither the Borrower nor any of its Subsidiaries
shall amend, supplement or otherwise modify the Senior Notes or the Senior Note
Indenture in any way that would be materially less advantageous, taken as a
whole, to the Parent, the Borrower or such Subsidiary or materially adverse in
any respect to the Lenders, including, without limitation, with respect to
amount, maturity, amortization, interest rate, premiums, fees, covenants, events
of default and remedies. Neither the Borrower nor any of its Subsidiaries shall
purchase, redeem, prepay or repay any principal in respect of the Senior Notes
or any other Indebtedness permitted under SECTION 6.3(A) except for regularly
scheduled interest payments.
(P) FISCAL YEAR. Neither the Borrower nor any of its consolidated
Subsidiaries shall change its Fiscal Year for accounting or tax purposes from a
period consisting of the twelve-month period ending in August of each calendar
year; PROVIDED that any such Person may change its Fiscal Year to the twelve-
month period ending on the Saturday closest to August 31.
(Q) SUBSIDIARY COVENANTS. Except as otherwise provided in this Agreement
or in the Senior Note Indenture as in effect on the date hereof, neither the
Parent nor the Borrower will, nor will either permit any of their respective
Subsidiaries to, create or otherwise become effective any consensual encumbrance
or restriction of any kind on the ability of any of their Subsidiaries to pay
dividends or make any other distribution on its stock, or make any other
Restricted Payment, pay any Indebtedness or other Obligation owed to the
Borrower or any other Subsidiary of the Parent or the Borrower, as applicable,
make loans or advances to, or other Investments in, the Parent, the Borrower or
any other of their respective Subsidiaries, as applicable, or sell, transfer or
otherwise convey any of its property to the Parent or the Borrower or any other
Subsidiary of the Parent or the Borrower, as applicable.
(R) RATE HEDGING OBLIGATIONS. The Borrower shall not, and shall not
permit any of its Subsidiaries to enter into any interest rate, commodity or
foreign currency exchange, swap, collar, cap or similar agreements other than
interest rate, foreign currency or commodity exchange, swap, collar, cap or
similar agreements entered into by the Borrower pursuant to which the Borrower
has hedged its interest rate, foreign currency or commodity exposure (such
hedging agreements are sometimes referred to herein as "INTEREST RATE
AGREEMENTS").
6.4. FINANCIAL COVENANTS. The Borrower covenants and agrees that so long
as any Revolving Loan Commitments are outstanding and thereafter until payment
in full of all of the Obligations (other than contingent indemnification
obligations):
(A) DEFINED TERMS FOR FINANCIAL COVENANTS. The following terms used in
this Agreement shall have the following meanings (such meanings to be
applicable, except to the extent otherwise indicated in a definition of a
particular term, both to the singular and the plural forms of the terms
defined):
"CONSOLIDATED INTEREST EXPENSE" means, for any period, total interest
expense (including, without limitation, that portion of any Capitalized Lease
Obligations attributable to interest
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expense in conformity with Agreement Accounting Principles) paid or accrued
with respect to all outstanding Indebtedness for borrowed money of the
Borrower and its Subsidiaries MINUS total interest income received by the
Borrower and its Subsidiaries (including, in the case of any Person that
becomes a Subsidiary or is merged into or consolidated with the Borrower or
any of its Subsidiaries during such period, the interest expense of such
Person calculated on a PRO FORMA basis acceptable to the Agent using
historical audited and reviewed unaudited financial statements), PLUS net
payments made (or MINUS net payments received) under Interest Rate
Agreements, and EXCLUDING all commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers acceptance
financing and prepayment charges, agency fees, administrative fees,
commitment fees, and capitalized transaction costs allocated to interest
expense, all as determined for the Borrower and its Subsidiaries on a
consolidated basis for such period in accordance with Agreement Accounting
Principles.
"CONSOLIDATED NET INCOME" means, for any period, the net income (or loss)
of the Borrower and its Subsidiaries (including the net income or loss for the
entirety of such period calculated on a PRO FORMA basis acceptable to the Agent
using historical audited and reviewed unaudited financial statements of any
Person that becomes a Subsidiary or is merged into or consolidated with the
Borrower or any of its Subsidiaries during such period) on a consolidated basis
for such period taken as a single accounting period, determined in accordance
with Agreement Accounting Principles (but in any event without deduction of
dividends paid or payable in respect of any capital stock of the Borrower, and
including an appropriate reduction for, unless otherwise already accounted for,
the accrual of any Management Fees by the Borrower or any of its Subsidiaries);
PROVIDED that in determining Consolidated Net Income there shall be excluded (i)
the income (or loss) of any Person (other than a Subsidiary of the Borrower) in
which any Person other than the Borrower or any of its Subsidiaries has a joint
interest or partnership interest, except to the extent of the amount of
dividends or other distributions actually paid to the Borrower or any of its
Subsidiaries by such Person during such period, (ii) the proceeds of any life
insurance policy, (iii) gains (or losses) from the sale, exchange, transfer or
other disposition of property or assets not in the ordinary course of business
of the Borrower and its Subsidiaries, (iv) any other extraordinary gains (but
not losses) of the Borrower or its Subsidiaries, and (v) the approximately
$3,100,000 of losses (extraordinary or otherwise) of the Borrower resulting from
the early retirement of debt resulting from the transactions contemplated by
this Agreement and any other expenses in connection with this Agreement.
"EBITDA" means, for any period, Consolidated Net Income for such period (a)
PLUS all amounts deducted in determining such Consolidated Net Income on account
of (i) Consolidated Interest Expense, (ii) taxes based on or measured by income,
(iii) depreciation expense, (iv) amortization expense (including, without
limitation, amortization expense related to the write-up in the book value of
any assets due to goodwill or unallocated purchase price and other amortization
or depreciation arising out of the transactions related to the Parent's
acquisition of the Borrower, to the extent such adjustments are made pursuant to
APB Nos. 16 and 17 and are deducted in determining Consolidated Net Income for
such period), (v) all Management Fees accrued during such period, and (vi) the
non-cash portion of expenses under the SAR Agreements and any Stock Option Plan,
and (vii) charges taken by the Borrower in connection with the Borrower's
program to close stores on an accelerated basis, provided such charges do not
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exceed (A) $500,000 during any period of four consecutive Fiscal Quarters
beginning with the period of four consecutive Fiscal Quarters ending June 29,
1996 or (B) $2,000,000 in the aggregate, MINUS (b) all Management Fees (such
deduction for Management Fees being limited to an amount not to exceed $468,000
for any period of four consecutive Fiscal Quarters through the four Fiscal
Quarter period ending May 31, 1998, with such deduction being unlimited
thereafter) paid or, to the extent all covenants restricting the payment of
Management Fees will be satisfied, to be paid with respect to such period, all
as determined for the Borrower and its Subsidiaries on a consolidated basis in
accordance with Agreement Accounting Principles.
"FIXED CHARGE COVERAGE RATIO" means, for any Fiscal Quarter, the ratio of
(i) the sum of (a) EBITDA during such period MINUS (b) Capital Expenditures
(other than Capital Expenditures financed by third parties) incurred during such
period to (ii) Fixed Charges during such period, in each case determined as of
the last day of each Fiscal Quarter for the four Fiscal Quarter period ending on
such day.
"FIXED CHARGES" means, for any period, without duplication, Consolidated
Interest Expense for such period as determined for the Borrower and its
Subsidiaries on a consolidated basis in accordance with Agreement Accounting
Principles.
"LEVERAGE RATIO" means, on a consolidated basis, with respect to the
Borrower and its consolidated Subsidiaries, for any Fiscal Quarter, the ratio of
(i) the sum of (a) the principal amount of Indebtedness for borrowed money (it
being agreed that for purposes hereof undrawn amounts under the Letters of
Credit do not constitute Indebtedness for borrowed money) plus (b) Capitalized
Lease Obligations minus (c) the amount of the Borrower's cash and Cash
Equivalents in excess of $500,000 on the last day of such Fiscal Quarter to (ii)
EBITDA, in each case determined as of the last day of such Fiscal Quarter based
upon (A) for Capitalized Lease Obligations and for Indebtedness for borrowed
money other than the Obligations, such Indebtedness as of the last day of such
Fiscal Quarter, (B) for the principal amount of Indebtedness for borrowed money
comprised of Obligations, the average outstanding principal balance of such
Obligations on the last Business Day of each month during the four Fiscal
Quarter period ending on such day and (C) for EBITDA, EBITDA for the four Fiscal
Quarter period ending on such day.
"RENTALS" means, for any period, the aggregate fixed amounts payable as
base rent by the Borrower or any of its Subsidiaries under any lease of real or
personal property (excluding percentage rents, common area rents, taxes and
related charges) but does not include any accounts payable under Capitalized
Leases.
(B) FIXED CHARGE COVERAGE RATIO. The Borrower shall maintain a Fixed
Charge Coverage Ratio of not less than the following for each four Fiscal
Quarter period ending on the last day of each Fiscal Quarter during the
following periods:
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MINIMUM
FISCAL QUARTER ENDING IN FIXED CHARGE COVERAGE RATIO
------------------------ ---------------------------
August, 1997 through
November, 1997 1.15 to 1.00
February, 1998 through
November, 1998 1.20 to 1.00
February, 1999 and
thereafter 1.30 to 1.00
(C) LEVERAGE RATIO. The Borrower shall not permit its Leverage Ratio to
be greater than the ratio set forth below at the end of the Fiscal Quarter
ending on the last day of each Fiscal Quarter during the following periods:
FISCAL QUARTER ENDING IN MAXIMUM LEVERAGE RATIO
------------------------ ----------------------
August, 1997 through
November, 1998 6.00 to 1.00
February, 1999 and
thereafter 5.50 to 1.00
(D) RENTALS. The Borrower will not, nor will it permit any of its
Subsidiaries to incur obligations for Rentals in excess of $12,500,000.00 during
any four consecutive Fiscal Quarter period on a non-cumulative basis, in the
aggregate, for the Borrower and all of its Subsidiaries.
ARTICLE VII: DEFAULTS
7.1 DEFAULTS. Each of the following occurrences shall constitute a
Default under this Agreement:
(a) FAILURE TO MAKE PAYMENTS WHEN DUE. (i) The Borrower shall fail to pay
when due any of the Obligations consisting of principal or interest with respect
to the Loans or commitment fees payable pursuant to SECTION 2.14(C)(1); or (ii)
the Borrower or any of the Borrower's Subsidiaries shall fail to pay within
fifteen (15) Business Days of the date of its receipt of request for payment,
any of the other Obligations owed by such Person under this Agreement or the
other Loan Documents.
(b) BREACH OF CERTAIN COVENANTS. The Borrower shall fail duly and
punctually to perform or observe any agreement, covenant or obligation binding
on the Borrower under:
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(i) SECTIONS 6.1(C), 6.1(E), 6.1(F), 6.1(G), 6.1(H), 6.1(I), 6.1(K),
6.2(B), 6.2(G)(2), 6.2(M), or 6.2(N) and such failure shall continue
unremedied for twenty (20) days;
(ii) SECTION 6.1(D) and such failure shall continue unremedied for
fifteen (15) days after the Agent notifies the Borrower that the Borrower
has failed to comply with such Section;
(iii) SECTIONS 6.1(A), 6.2(G)(1) or 6.1(J), and such failure shall
continue unremedied for five (5) Business Days; or
(iv) Sections 6.1(B), 6.3, 6.4(B), 6.4(C), or 6.4(D).
(c) BREACH OF REPRESENTATION OR WARRANTY. Any representation or warranty
made, or deemed made pursuant to SECTION 4.2, by the Borrower to the Agent or
any Lender herein or the Borrower or any of its Subsidiaries in any of the other
Loan Documents or in any statement or certificate at any time given by any such
Person pursuant to any of the Loan Documents shall be false or misleading in any
material respect on the date as of which made (or deemed made pursuant to
SECTION 4.2).
(d) OTHER DEFAULTS. The Borrower shall default in the performance of or
compliance with any term contained in this Agreement (other than as covered by
PARAGRAPHS (a), (b) or (c) of this SECTION 7.1), or the Borrower or any of its
Subsidiaries shall default in the performance of or compliance with any term
contained in any of the other Loan Documents, and such default shall continue
until the earlier of (i) fifteen (15) days after the Agent notifies the
Borrower that such a default exists or (ii) twenty (20) Business Days after the
date on which the Borrower knew, or should have known, that such a default
existed.
(e) DEFAULT AS TO OTHER INDEBTEDNESS; OPERATING LEASES. The Borrower or
any of its Subsidiaries shall fail to make any payment when due (whether by
scheduled maturity, required prepayment, acceleration, demand or otherwise) with
respect to any Indebtedness (other than the Obligations) in which the
outstanding principal exceeds $1,000,000; or any breach, default or event of
default shall occur, or any other condition shall exist under any instrument,
agreement or indenture pertaining to any Indebtedness in which the outstanding
principal exceeds $1,000,000, if the effect thereof is to cause an acceleration,
mandatory redemption, a requirement that the Borrower offer to purchase such
Indebtedness or other required repurchase of such Indebtedness, or permit the
holder(s) of such Indebtedness to accelerate the maturity of any such
Indebtedness or require a redemption or other repurchase of such Indebtedness;
or any Indebtedness in which the outstanding principal exceeds $1,000,000 shall
be otherwise declared to be due and payable (by acceleration or otherwise) or
required to be prepaid, redeemed or otherwise repurchased by the Borrower or any
of its Subsidiaries (other than by a regularly-scheduled required prepayment)
prior to the stated maturity thereof.
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(f) INVOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC.
(i) An involuntary case shall be commenced against the Parent, the
Borrower or any of their respective Subsidiaries and the petition shall not
be dismissed, stayed, bonded or discharged within sixty (60) days after
commencement of the case; or a court having jurisdiction in the premises
shall enter a decree or order for relief in respect of the Parent, the
Borrower or any of their respective Subsidiaries in an involuntary case,
under any applicable bankruptcy, insolvency or other similar law now or
hereinafter in effect.
(ii) A decree or order of a court having jurisdiction in the premises
for the appointment of a receiver, liquidator, sequestrator, trustee,
custodian or other officer having similar powers over the Parent, the
Borrower or any of their respective Subsidiaries or over all or a
substantial part of the property of the Parent, the Borrower or any of
their respective Subsidiaries shall be entered; or an interim receiver,
trustee or other custodian of the Parent, the Borrower or any of their
respective Subsidiaries or of all or a substantial part of the property of
the Parent, the Borrower or any of their respective Subsidiaries shall be
appointed or a warrant of attachment, execution or similar process against
any substantial part of the property of the Parent, the Borrower or any of
their respective Subsidiaries shall be issued and any such event shall not
be stayed, dismissed, bonded or discharged within sixty (60) days after
entry, appointment or issuance.
(g) VOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC. The Parent, the
Borrower or any of their respective Subsidiaries shall (i) commence a voluntary
case under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, (ii) consent to the entry of an order for relief in an
involuntary case, or to the conversion of an involuntary case to a voluntary
case, under any such law, (iii) consent to the appointment of or taking
possession by a receiver, trustee or other custodian for all or a substantial
part of its property, (iv) make any assignment for the benefit of creditors or
(v) take any corporate action to authorize any of the foregoing.
(h) JUDGMENTS AND ATTACHMENTS. Any money judgment(s) (other than a money
judgment covered by insurance as to which the insurance company has not
disclaimed or reserved the right to disclaim coverage), writ or warrant of
attachment, or similar process against the Borrower or any of its Subsidiaries
or any of their respective assets involving in any single case or in the
aggregate an amount in excess of $1,000,000 is (are) entered and shall remain
undischarged, unvacated, unbonded or unstayed for a period of sixty (60) days
or in any event later than five (5) days prior to the date of any proposed sale
thereunder; PROVIDED, HOWEVER, if any such judgment, writ or warrant of
attachment or similar process is in excess of $2,500,000, the entry thereof
shall immediately constitute a Default hereunder.
(i) DISSOLUTION. Any order, judgment or decree shall be entered against
the Parent, the Borrower or any of their respective Subsidiaries decreeing its
involuntary dissolution or split up and such order shall remain undischarged and
unstayed for a period in excess of sixty (60) days; or the Parent, the Borrower
or any of their respective Subsidiaries shall otherwise dissolve or cease to
exist except as specifically permitted by this Agreement.
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(j) LOAN DOCUMENTS; FAILURE OF SECURITY. At any time, for any reason,
other than the sole action or inaction of the Agent or any of the Lenders, (i)
any Loan Document as a whole that materially affects the ability of the Agent or
any of the Lenders to enforce the Obligations or enforce their rights against
the Collateral ceases to be in full force and effect, or the Borrower or any of
its Subsidiaries party thereto seeks to repudiate its obligations thereunder, or
the Borrower or any such Subsidiary seeks to render such Liens, invalid and
unperfected, or (ii) Liens on Collateral with a fair market value in excess of
$1,000,000 in favor of the Agent contemplated by the Loan Documents shall, at
any time, for any reason other than the sole action or inaction of the Agent or
any of the Lenders, be invalidated or otherwise cease to be in full force and
effect, or such Liens shall not have the priority contemplated by this Agreement
or the Loan Documents.
(k) TERMINATION EVENT. Any Termination Event occurs which could
reasonably be expected to subject the Borrower or any member of the Controlled
Group to liability in excess of $1,000,000.
(l) WAIVER APPLICATION. The plan administrator of any Benefit Plan
applies under Section 412(d) of the Code for a waiver of the minimum funding
standards of Section 412(a) of the Code and the substantial business hardship
upon which the application for the waiver is based could reasonably be expected
to subject either the Borrower or any member of the Controlled Group to
liability in excess of $1,000,000.
(m) CHANGE OF CONTROL. A Change of Control shall occur.
(n) INTEREST RATE AGREEMENTS. The Borrower shall (i) fail to pay any
obligation under any Interest Rate Agreement entered into with any Lender or
(ii) breach in any material respect any term, provision or condition contained
in any such Interest Rate Agreement, and, in the case of (i) and (ii) above, all
applicable notice and cure periods shall have expired.
(o) MATERIAL ADVERSE CHANGE. An event shall occur which has or is
reasonably likely to have a Material Adverse Effect.
(p) ENVIRONMENTAL MATTERS. The Parent, the Borrower or any of their
respective Subsidiaries shall be the subject of any proceeding or investigation
pertaining to (i) the release by the Parent, the Borrower or any of their
respective Subsidiaries of any contaminant into the environment, (ii) the
liability of the Parent, the Borrower or any of their respective Subsidiaries
arising from the release by any other Person of any contaminant into the
environment, or (iii) any violation of any Environmental, Health or Safety
Requirements of Law by the Parent, the Borrower or any of their respective
Subsidiaries, which, in any case, has or could reasonably be expected to have a
Material Adverse Effect.
(q) GUARANTOR REVOCATION. Any guarantor of the Obligations shall
terminate or revoke any of its obligations under the applicable guarantee
agreement.
(r) SENIOR NOTES. Any "Event of Default", as defined in the Senior Note
Indenture, shall occur.
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A Default shall be deemed "continuing" until cured or until waived in
writing in accordance with SECTION 8.3.
ARTICLE VIII: ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES
8.1 TERMINATION OF COMMITMENTS; ACCELERATION. If any Default described in
SECTION 7.1(f) or 7.1(g) occurs with respect to the Parent or the Borrower, the
obligations of the Lenders to make Loans hereunder and the obligation of the
Agent to issue Letters of Credit hereunder shall automatically terminate in the
case of any such Default occurring with respect to the Borrower and the
Obligations shall immediately become due and payable without any election or
action on the part of the Agent or any Lender. If any other Default occurs, the
Required Lenders may terminate or suspend the obligations of the Lenders to make
Loans hereunder and the obligation of the Agent to issue Letters of Credit
hereunder, or declare the Obligations to be due and payable, or both, whereupon
the Obligations shall become immediately due and payable, without presentment,
demand, protest or notice of any kind, all of which the Borrower hereby
expressly waives.
8.2 DEFAULTING LENDER. If any Lender fails to fund its Pro Rata Share of
any Advance requested or deemed requested by the Borrower which such Lender is
obligated to fund under the terms of this Agreement (the funded portion of such
Advance being hereinafter referred to as a "NON PRO RATA LOAN"), until the
earlier of such Lender's cure of such failure and the termination of the
Revolving Loan Commitments, the proceeds of all amounts thereafter repaid to the
Agent by the Borrower and otherwise required to be applied to such Lender's
share of all other Obligations pursuant to the terms of this Agreement shall be
advanced to the Borrower by the Agent on behalf of such Lender to cure, in full
or in part, such failure by such Lender, but shall nevertheless be deemed to
have been paid to such Lender in satisfaction of such other Obligations.
Notwithstanding anything in this Agreement to the contrary:
(i) the foregoing provisions of this SECTION 8.2 shall apply
only with respect to the proceeds of payments of the Obligations and
shall not affect the conversion or continuation of Loans pursuant to
SECTION 2.10;
(ii) any such Lender shall be deemed to have cured its failure
to fund its Pro Rata Share of any Advance at such time as an amount
equal to such Lender's original Pro Rata Share of the requested
principal portion of such Advance is fully funded to the Borrower,
whether made by such Lender itself or by operation of the terms of
this SECTION 8.2, and whether or not the Non Pro Rata Loan with
respect thereto has been repaid, converted or continued;
(iii) amounts advanced to the Borrower to cure, in full or in
part, any such Lender's failure to fund its Pro Rata Share of any
Advance ("CURE LOANS") shall bear interest at the rate applicable to
Floating Rate Loans in effect from time to time, and for all other
purposes of this Agreement shall be treated as if they were Floating
Rate Loans;
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(iv) regardless of whether or not a Default has occurred or is
continuing, and notwithstanding the instructions of the Borrower as to
its desired application, all repayments of principal which, in
accordance with the other terms of this Agreement, would be applied to
the outstanding Floating Rate Loans shall be applied FIRST, ratably to
all Floating Rate Loans constituting Non Pro Rata Loans, SECOND,
ratably to Floating Rate Loans other than those constituting Non Pro
Rata Loans or Cure Loans and, THIRD, ratably to Floating Rate Loans
constituting Cure Loans;
(v) for so long as and until any such Lender's failure to fund
its Pro Rata Share of any Advance is cured in accordance with SECTION
8.2(ii), (A) such Lender shall not be entitled to any commitment fees
with respect to its Revolving Loan Commitment and (B) such Lender
shall not be entitled to any letter of credit fees, which letter of
credit fees shall accrue in favor of the Lenders which have funded
their respective Pro Rata Share of such requested Advance and shall be
allocated among such performing Lenders ratably based upon their
relative Revolving Loan Commitments.
8.3 AMENDMENTS. Subject to the provisions of this ARTICLE VIII, the
Required Lenders (or the Agent with the consent in writing of the Required
Lenders) and the Borrower may enter into agreements supplemental hereto for the
purpose of adding or modifying any provisions to the Loan Documents or changing
in any manner the rights of the Lenders, the Parent, or the Borrower hereunder
or waiving any Default hereunder; PROVIDED, HOWEVER, that no such supplemental
agreement shall, without the consent of each Lender affected thereby:
(i) Extend the maturity of any installment or payment on any Loan or
Note or reduce the principal amount thereof, or reduce the rate or extend
the time of payment of interest or fees thereon (except with respect to (a)
any modifications of the provisions relating to prepayments of Loans and
other Obligations and (b) a waiver of the application of the default rate
of interest pursuant to SECTION 2.11 hereof);
(ii) Reduce the percentage specified in the definition of Required
Lenders;
(iii) Extend the Termination Date;
(iv) Increase the amount of the Revolving Loan Commitment of any
Lender hereunder (it being understood that an increase in the amount, or
other modification to the terms or components, of the Borrowing Base shall
not be deemed an increase in any Lender's Revolving Loan Commitment);
(v) Permit the Borrower to assign its rights under this Agreement;
(vi) Amend this SECTION 8.3; or
(vii) Release any guarantor of the Obligations or all or
substantially all of the Collateral.
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No amendment of any provision of this Agreement relating to the Agent shall be
effective without the written consent of the Agent. The Agent may waive payment
of the fee required under SECTION 12.3(B) or any other fee payable to it
individually hereunder without obtaining the consent of any of the Lenders.
8.4 PRESERVATION OF RIGHTS. No delay or omission of the Lenders or the
Agent to exercise any right under the Loan Documents shall impair such right or
be construed to be a waiver of any Default or an acquiescence therein, and the
making of a Loan or the issuance of a Letter of Credit notwithstanding the
existence of a Default or the inability of the Borrower to satisfy the
conditions precedent to such Loan or issuance of such Letter of Credit shall not
constitute any waiver or acquiescence. Any single or partial exercise of any
such right shall not preclude other or further exercise thereof or the exercise
of any other right, and no waiver, amendment or other variation of the terms,
conditions or provisions of the Loan Documents whatsoever shall be valid unless
in writing signed by the Lenders (or, to the extent permitted hereunder, by the
Agent, without any Lenders) required pursuant to SECTION 8.3, and then only to
the extent in such writing specifically set forth. All remedies contained in
the Loan Documents or afforded by law shall be cumulative and all shall be
available to the Agent and the Lenders until the Obligations have been paid in
full, PROVIDED that the remedies contained in the Collateral Documents shall not
be available if the Obligations (other than contingent indemnification
obligations) have been paid in full.
8.5 RELEASE OF COLLATERAL. In connection with any Asset Sale or any
other sale of assets by the Borrower or any of its Subsidiaries permitted
pursuant to the terms of this Agreement, the Agent and the Lenders shall, at the
Borrower's expense and upon written request delivered by the Borrower to the
Agent, take all actions reasonably requested by the Borrower to release their
liens and security interests in the Collateral subject to such Asset Sale.
ARTICLE IX: GENERAL PROVISIONS
9.1 SURVIVAL OF REPRESENTATIONS. All representations and warranties of
the Borrower contained in this Agreement shall survive delivery of the Notes and
the making of the Loans until satisfaction in full of all of the Obligations
(other than contingent indemnification obligations).
9.2 GOVERNMENTAL REGULATION. Anything contained in this Agreement to the
contrary notwithstanding, no Lender shall be obligated to extend credit to the
Borrower in violation of any limitation or prohibition provided by any
applicable statute or regulation.
9.3 PERFORMANCE OF OBLIGATIONS. The Borrower agrees that the Agent may,
after the occurrence and during the continuance of a Default, but shall have no
obligation to (i) pay or discharge taxes, liens (other than Customary Permitted
Liens), security interests or other encumbrances levied or placed on or
threatened against any Collateral and (ii) make any other payment or perform any
act required of the Borrower under any Loan Document or take any other action
which the Agent in its discretion deems necessary or desirable to protect or
preserve the Collateral, including, without limitation, any action to (y) effect
any repairs or obtain any insur-
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ance called for by the terms of any of the Loan Documents and to pay all or
any part of the premiums therefor and the costs thereof and (z) pay any rents
payable by the Borrower which are more than thirty (30) days past due, or as
to which the landlord has given notice of termination, under any lease. The
Agent shall use its best efforts to give the Borrower notice of any action
taken under this SECTION 9.3 prior to the taking of such action or promptly
thereafter provided the failure to give such notice shall not affect the
Borrower's obligations in respect thereof. The Borrower agrees to pay the
Agent, upon demand, the principal amount of all funds advanced by the Agent
under this SECTION 9.3, together with interest thereon at the rate from time
to time applicable to Floating Rate Loans from the date of such advance until
the outstanding principal balance thereof is paid in full. If the Borrower
fails to make payment in respect of any such advance under this SECTION 9.3
within one (1) Business Day after the date the Borrower receives written
demand therefor from the Agent, the Agent shall promptly notify each Lender
and each Lender agrees that it shall thereupon make available to the Agent,
in immediately available funds, the amount equal to such Lender's Pro Rata
Share of such advance. If such funds are not made available to the Agent by
such Lender within one (1) Business Day after the Agent's demand therefor,
the Agent will be entitled to recover any such amount from such Lender
together with interest thereon at the Federal Funds Effective Rate for each
day during the period commencing on the date of such demand and ending on the
date such amount is received. The failure of any Lender to make available to
the Agent its Pro Rata Share of any such unreimbursed advance under this
SECTION 9.3 shall neither relieve any other Lender of its obligation
hereunder to make available to the Agent such other Lender's Pro Rata Share
of such advance on the date such payment is to be made nor increase the
obligation of any other Lender to make such payment to the Agent. All
outstanding principal of, and interest on, advances made under this SECTION
9.3 shall constitute Obligations secured by the Collateral until paid in full
by the Borrower.
9.4 HEADINGS. Section headings in the Loan Documents are for convenience
of reference only, and shall not govern the interpretation of any of the
provisions of the Loan Documents.
9.5 ENTIRE AGREEMENT. The Loan Documents embody the entire agreement and
understanding among the Borrower, the Agent and the Lenders and supersede all
prior agreements and understandings among the Borrower, the Agent and the
Lenders relating to the subject matter thereof.
9.6 SEVERAL OBLIGATIONS; BENEFITS OF THIS AGREEMENT. The respective
obligations of the Lenders hereunder are several and not joint and no Lender
shall be the partner or agent of any other (except to the extent to which the
Agent is authorized to act as such). The failure of any Lender to perform any
of its obligations hereunder shall not relieve any other Lender from any of its
obligations hereunder. This Agreement shall not be construed so as to confer
any right or benefit upon any Person other than the parties to this Agreement
and their respective successors and assigns.
9.7 EXPENSES; INDEMNIFICATION.
(A) EXPENSES. The Borrower agrees to reimburse the Agent and the
Arranger for any reasonable costs, internal charges and out-of-pocket
expenses (including attorneys' and
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paralegals' fees and time charges of attorneys and paralegals for
the Agent, which attorneys and paralegals may be employees of the Agent) paid or
incurred by the Agent or the Arranger in connection with the preparation,
negotiation, execution, delivery, review, amendment, modification, and
administration of the Loan Documents. The Borrower also agrees to reimburse the
Agent and the Lenders for any costs, internal charges and out-of-pocket expenses
(including attorneys' and paralegals' fees and time charges of attorneys and
paralegals for the Agent and the Lenders, which attorneys and paralegals may be
employees of the Agent or the Lenders) paid or incurred by the Agent or any
Lender in connection with any restructuring or "workout" relating to this
Agreement and the Obligations, the collection of the Obligations and the
enforcement of the Loan Documents. In addition to expenses set forth above, the
Borrower agrees to reimburse the Agent, promptly after the Agent's request
therefor, for each audit, collateral analysis or other business analysis
performed by or for the benefit of the Lenders in connection with this Agreement
or the other Loan Documents in an amount equal to the Agent's then customary
charges for each person employed to perform such audit or analysis, plus all
costs and expenses (including without limitation, travel expenses) incurred by
the Agent in the performance of such audit or analysis; PROVIDED that, unless a
Default shall have occurred during the relevant Fiscal Year, in no event shall
the Borrower be obligated to reimburse the Agent or the Lenders for such
charges, costs and expenses in excess of $25,000 in the aggregate per Fiscal
Year. The Agent shall provide the Borrower with a detailed statement of all
reimbursements requested under this SECTION 9.7. Notwithstanding the foregoing,
the Borrower shall not have any obligation for the cost or expense of obtaining
any appraisal of any parcel of real property or interest in real property
described in the Mortgages, required by the provisions of Title XI of the
Financial Institutions Reform, Recovery and Enforcement Act of 1989, as amended,
reformed or otherwise modified from time to time, and any rules promulgated to
implement such provisions.
(B) INDEMNITY. The Borrower further agrees to defend, protect, indemnify,
and hold harmless the Agent, the Arranger and each and all of the Lenders and
each of their respective Affiliates, and each of such Agent's, Arranger's,
Lender's, or Affiliate's respective officers, directors, employees, attorneys
and agents (including, without limitation, those retained in connection with the
satisfaction or attempted satisfaction of any of the conditions set forth in
ARTICLE IV) (collectively, the "INDEMNITEES") from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
claims, costs, expenses of any kind or nature whatsoever (including, without
limitation, the fees and disbursements of counsel for such Indemnitees in
connection with any investigative, administrative or judicial proceeding,
whether or not such Indemnitees shall be designated a party thereto), imposed
on, incurred by, or asserted against such Indemnitees in any manner relating to
or arising out of:
(i) this Agreement, the other Loan Documents or any act, event or
transaction related or attendant thereto or to the making of the Loans and
the issuance of and participation in Letters of Credit hereunder, the
management of such Loans or Letters of Credit, the use or intended use of
the proceeds of the Loans or Letters of Credit hereunder, or any of the
other transactions contemplated by the Loan Documents; or
(ii) any liabilities, obligations, responsibilities, losses, damages,
personal injury, death, punitive damages, economic damages, consequential
damages, treble damages, intentional, willful or wanton injury, damage or
threat to the environment, natural
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resources or public health or welfare, costs and expenses (including,
without limitation, attorney, expert and consulting fees and costs of
investigation, feasibility or remedial action studies), fines, penalties
and monetary sanctions, interest, direct or indirect, known or unknown,
absolute or contingent, past, present or future relating to violation of
any Environmental, Health or Safety Requirements of Law arising from or
in connection with the past, present or future operations of the
Borrower, its Subsidiaries or any of their respective predecessors in
interest, or, the past, present or future environmental, health or
safety condition of any respective property of the Borrower or its
Subsidiaries, the presence of asbestos-containing materials at any
respective property of the Borrower or its Subsidiaries or the release
or threatened release of any contaminant into the environment
(collectively, the "INDEMNIFIED MATTERS");
PROVIDED, HOWEVER, the Borrower shall have no obligation to an Indemnitee
hereunder with respect to Indemnified Matters to the extent caused by or
resulting from (y) a dispute among the Lenders or a dispute between any Lender
and the Agent, or (z) the bad faith, Gross Negligence or willful misconduct of
such Indemnitee or breach of contract by such Indemnitee with respect to the
Loan Documents, in each case, as determined by the final non-appealed judgment
of a court of competent jurisdiction. To the extent that the undertaking to
indemnify, pay and hold harmless set forth in the preceding sentence may be
unenforceable because it violates any law or public policy, the Borrower shall
contribute the maximum portion which it is permitted to pay and satisfy under
applicable law, to the payment and satisfaction of all Indemnified Matters
incurred by the Indemnitees.
(C) WAIVER OF CERTAIN CLAIMS. The Borrower further agrees to assert no
claim against any of the Indemnitees on any theory of liability for
consequential, punitive or exemplary damages.
(D) SURVIVAL OF AGREEMENTS. The obligations and agreements of the
Borrower under this SECTION 9.7 shall survive the termination of this Agreement.
9.8 NUMBERS OF DOCUMENTS. All statements, notices, closing documents, and
requests hereunder shall be furnished to the Agent with sufficient counterparts
so that the Agent may furnish one to each of the Lenders.
9.9 ACCOUNTING. Except as provided to the contrary herein, all accounting
terms used herein shall be interpreted and all accounting determinations
hereunder shall be made in accordance with Agreement Accounting Principles.
9.10 SEVERABILITY OF PROVISIONS. Any provision in any Loan Document that
is held to be inoperative, unenforceable, or invalid in any jurisdiction shall,
as to that jurisdiction, be inoperative, unenforceable, or invalid without
affecting the remaining provisions in that jurisdiction or the operation,
enforceability, or validity of that provision in any other jurisdiction, and to
this end the provisions of all Loan Documents are declared to be severable.
9.11 NONLIABILITY OF LENDERS. The relationship between the Borrower and
the Lenders and the Agent shall be solely that of borrower and lender. Neither
the Agent nor any Lender
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shall have any fiduciary responsibilities to the Borrower. Neither the Agent
nor any Lender undertakes any responsibility to the Borrower to review or
inform the Borrower of any matter in connection with any phase of the
Borrower's business or operations.
9.12 GOVERNING LAW. The Agent hereby accepts this Agreement, on behalf of
itself and the Lenders, at Chicago, Illinois by executing and agreeing to it
there. Any dispute between the Borrower and the Agent, any Lender, or any other
Holder of Secured Obligations arising out of, connected with, related to, or
incidental to the relationship established between them in connection with, this
Agreement or any of the other Loan Documents, and whether arising in contract,
tort, equity, or otherwise, shall be resolved in accordance with the internal
laws (and not the choice of law principles) of the State of Illinois.
9.13 CONSENT TO JURISDICTION; SERVICE OF PROCESS; JURY TRIAL.
(A) EXCLUSIVE JURISDICTION. Except as provided in SUBSECTION (B), each of
the parties hereto agrees that all disputes among them arising out of, connected
with, related to, or incidental to the relationship established among them in
connection with, this Agreement or any of the other Loan Documents, whether
arising in contract, tort, equity, or otherwise, shall be resolved exclusively
by state or federal courts located in Chicago, Illinois, but the parties hereto
acknowledge that any appeals from those courts may have to be heard by a court
located outside of Chicago, Illinois. Each of the parties hereto waives in all
disputes brought pursuant to this subsection any objection that it may have to
the location of the court considering the dispute.
(B) OTHER JURISDICTIONS. The Borrower agrees that the Agent, any Lender
or any Holder of Secured Obligations shall have the right to proceed against the
Borrower or its property in a court in any location to enable such Person to (1)
obtain personal jurisdiction over the Borrower or (2) realize on the Collateral
or any other security for the Obligations or to enforce a judgment or other
court order entered in favor of such Person. The Borrower agrees that it will
not assert any permissive counterclaims in any proceeding brought by such Person
to realize on the Collateral or any other security for the Obligations or to
enforce a judgment or other court order in favor of such Person. The Borrower
waives any objection that it may have to the location of the court in which such
Person has commenced a proceeding described in this subsection.
(C) SERVICE OF PROCESS. The Borrower waives personal service of any
process upon it. The Borrower irrevocably waives any objection (including,
without limitation, any objection of the laying of venue or based on the grounds
of FORUM NON CONVENIENS) which it may now or hereafter have to the bringing of
any such action or proceeding with respect to this Agreement or any other
instrument, document or agreement executed or delivered in connection herewith
in any jurisdiction set forth above.
(D) WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES
ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING
IN CONTRACT, TORT OR OTHERWISE, ARISING OUT OF, CONNECTED WITH, RELATED TO OR
INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT. EACH OF THE PARTIES HERETO AGREES THAT
ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY BENCH
TRIAL WITHOUT A JURY AND THAT ANY PARTY HERETO MAY FILE AN
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ORIGINAL COUNTERPART OR A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO
TRIAL BY JURY.
(E) WAIVER OF BOND. The Borrower waives the posting of any bond otherwise
required of any party hereto in connection with any judicial process or
proceeding to realize on the Collateral (including, without limitation, the real
property Collateral) or any other security for the Obligations or to enforce any
judgment or other court order entered in favor of such party, or to enforce by
specific performance, temporary restraining order, preliminary or permanent
injunction, this Agreement or any other Loan Document.
(F) ADVICE OF COUNSEL. Each of the parties represents to each other party
hereto that it has discussed this Agreement and, specifically, the provisions of
this SECTION 9.13, with its counsel.
ARTICLE X: THE AGENT
10.1 APPOINTMENT; NATURE OF RELATIONSHIP. First Chicago is hereby
appointed by the Lenders as the Agent hereunder and under each other Loan
Document, and each of the Lenders irrevocably authorizes the Agent to act as the
contractual representative of such Lender with the rights and duties expressly
set forth herein and in the other Loan Documents. The Agent agrees to act as
such contractual representative upon the express conditions contained in this
ARTICLE X. Notwithstanding the use of the defined term "Agent," it is expressly
understood and agreed that the Agent shall not have any fiduciary
responsibilities to any Lender by reason of this Agreement and that the Agent is
merely acting as the representative of the Lenders with only those duties as are
expressly set forth in this Agreement and the other Loan Documents. In its
capacity as the Lenders' contractual representative, the Agent (i) does not
hereby assume any fiduciary duties to any of the Lenders, (ii) is a
"representative" of the Lenders within the meaning of Section 9-105 of the
Uniform Commercial Code and (iii) is acting as an independent contractor, the
rights and duties of which are limited to those expressly set forth in this
Agreement and the other Loan Documents. Each of the Lenders hereby agrees to
assert no claim against the Agent on any agency theory or any other theory of
liability for breach of fiduciary duty, all of which claims each Lender hereby
waives.
10.2 POWERS. The Agent shall have and may exercise such powers under the
Loan Documents as are specifically delegated to the Agent by the terms of each
thereof, together with such powers as are reasonably incidental thereto. The
Agent shall have no implied duties to the Lenders, or any obligation to the
Lenders to take any action thereunder except any action specifically provided by
the Loan Documents to be taken by the Agent.
10.3 GENERAL IMMUNITY. Neither the Agent nor any of its directors,
officers, agents or employees shall be liable to the Parent, the Borrower, the
Lenders or any Lender for any action taken or omitted to be taken by it or them
hereunder or under any other Loan Document or in connection herewith or
therewith except to the extent such action or inaction is found in a final
judgment by a court of competent jurisdiction to have arisen from (i) the bad
faith, Gross
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Negligence or willful misconduct of such Person or (ii) breach of
contract by such Person with respect to the Loan Documents.
10.4 NO RESPONSIBILITY FOR LOANS, CREDITWORTHINESS, COLLATERAL, RECITALS,
ETC. Neither the Agent nor any of its directors, officers, agents or employees
shall be responsible for or have any duty to ascertain, inquire into, or verify
(i) any statement, warranty or representation made in connection with any Loan
Document or any borrowing hereunder; (ii) the performance or observance of any
of the covenants or agreements of any obligor under any Loan Document; (iii) the
satisfaction of any condition specified in ARTICLE IV, except receipt of items
required to be delivered solely to the Agent; (iv) the existence or possible
existence of any Default; or (v) the validity, effectiveness or genuineness of
any Loan Document or any other instrument or writing furnished in connection
therewith. The Agent shall not be responsible to any Lender for any recitals,
statements, representations or warranties herein, for the perfection or priority
of any of the Liens on any of the Collateral, or for the execution,
effectiveness, genuineness, validity, legality, enforceability, collectibility,
or sufficiency of this Agreement or any of the other Loan Documents or the
transactions contemplated thereby, or for the financial condition of any
guarantor of any or all of the Obligations, the Parent, the Borrower or any of
their respective Subsidiaries.
10.5 ACTION ON INSTRUCTIONS OF LENDERS. The Agent shall in all cases be
fully protected in acting, or in refraining from acting, hereunder and under any
other Loan Document in accordance with written instructions signed by the
Required Lenders (or all the Lenders to the extent required by SECTION 8.3), and
such instructions and any action taken or failure to act pursuant thereto shall
be binding on all of the Lenders and on all holders of Notes. The Agent shall
be fully justified in failing or refusing to take any action hereunder and under
any other Loan Document unless it shall first be indemnified to its satisfaction
by the Lenders pro rata against any and all liability, cost and expense that it
may incur by reason of taking or continuing to take any such action.
10.6 EMPLOYMENT OF AGENTS AND COUNSEL. The Agent may execute any of its
duties as Agent hereunder and under any other Loan Document by or through
employees, agents, and attorney-in-fact and shall not be answerable to the
Lenders, except as to money or securities received by it or its authorized
agents, for the default or misconduct of any such agents or attorneys-in-fact
selected by it with reasonable care. The Agent shall be entitled to advice of
counsel concerning the contractual arrangement between the Agent and the Lenders
and all matters pertaining to the Agent's duties hereunder and under any other
Loan Document.
10.7 RELIANCE ON DOCUMENTS; COUNSEL. The Agent shall be entitled to rely
upon any Note, notice, consent, certificate, affidavit, letter, telegram,
statement, paper or document believed by it to be genuine and correct and to
have been signed or sent by the proper person or persons, and, in respect to
legal matters, upon the opinion of counsel selected by the Agent, which counsel
may be employees of the Agent.
10.8 AGENT'S REIMBURSEMENT AND INDEMNIFICATION. The Lenders agree to
reimburse and indemnify the Agent ratably in proportion to their respective Pro
Rata Shares (i) for any amounts not reimbursed by the Borrower for which the
Agent is entitled to reimbursement by the
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Borrower under the Loan Documents, (ii) for any other expenses incurred by
the Agent on behalf of the Lenders, in connection with the preparation,
execution, delivery, administration and enforcement of the Loan Documents and
(iii) for any liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind and nature
whatsoever which may be imposed on, incurred by or asserted against the Agent
in any way relating to or arising out of the Loan Documents or any other
document delivered in connection therewith or the transactions contemplated
thereby, or the enforcement of any of the terms thereof or of any such other
documents, PROVIDED that no Lender shall be liable for any of the foregoing
to the extent any of the foregoing is found in a final non-appealable
judgment by a court of competent jurisdiction to have arisen solely from the
Gross Negligence or willful misconduct of the Agent.
10.9 RIGHTS AS A LENDER. With respect to its Revolving Loan Commitment,
Loans made by it and the Notes issued to it, the Agent shall have the same
rights and powers hereunder and under any other Loan Document as any Lender and
may exercise the same as through it were not the Agent, and the term "Lender" or
"Lenders" shall, unless the context otherwise indicates, include the Agent in
its individual capacity. The Agent may accept deposits from, lend money to, and
generally engage in any kind of trust, debt, equity or other transaction, in
addition to those contemplated by this Agreement or any other Loan Document,
with the Parent, the Borrower or any Subsidiaries in which the Parent, Borrower
or such Subsidiary is not restricted hereby from engaging with any other Person.
10.10 LENDER CREDIT DECISION. Each Lender acknowledges that it has,
independently and without reliance upon the Agent or any other Lender and
based on the financial statements prepared by the Parent and the Borrower and
such other documents and information as it has deemed appropriate, made its
own credit analysis and decision to enter into this Agreement and the other
Loan Documents. Each Lender also acknowledges that it will, independently
and without reliance upon the Agent or any other Lender and based on such
documents and information as it shall deem appropriate at the time, continue
to make its own credit decisions in taking or not taking action under this
Agreement and the other Loan Documents.
10.11 SUCCESSOR AGENT. The Agent may resign at any time by giving
written notice thereof to the Lenders and the Borrower, and the Agent may be
removed at any time with or without cause by written notice received by the
Agent from the Required Lenders. Upon any such resignation or removal, the
Required Lenders shall have the right to appoint, on behalf of the Borrower
and the Lenders, a successor Agent. If no successor Agent shall have been so
appointed by the Required Lenders and shall have accepted such appointment
within thirty (30) days after the retiring Agent's giving notice of
resignation, then the retiring Agent may appoint, on behalf of the Borrower
and the Lenders, a successor Agent. Such successor Agent shall be a
commercial bank having capital and retained earnings of at least $50,000,000.
Upon the acceptance of any appointment as Agent hereunder by a successor
Agent, such successor Agent shall thereupon succeed to and become vested with
all the rights, powers, privileges and duties of the retiring Agent, and the
retiring Agent shall be discharged from its duties and obligations hereunder
and under the other Loan Documents. If requested by the Borrower, the
retiring Agent shall, upon such acceptance of appointment by a successor
Agent and at the Borrower's expense, deliver to such successor Agent (with a
copy to the Borrower) an instrument
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transferring to such successor Agent, in its capacity as Agent hereunder, all
properties, rights, powers, duties and monies held by such retiring Agent, in
its capacity as Agent hereunder. After any retiring Agent's resignation
hereunder as Agent, the provisions of this ARTICLE X shall continue in effect
for its benefit in respect of any actions taken or omitted to be taken by it
while it was acting as the Agent hereunder and under the other Loan Documents.
10.12 COLLATERAL DOCUMENTS. Each Lender hereby authorizes the Agent to
enter into each of the Collateral Documents to which the Agent is a party and
to take all action contemplated by such documents. Each Lender agrees that
no Lender shall have the right individually to seek to realize upon the
security granted by any Collateral Document, it being understood and agreed
that such rights and remedies may be exercised solely by the Agent for the
benefit of the Holders of Secured Obligations upon the terms of the
Collateral Documents.
ARTICLE XI: SETOFF; RATABLE PAYMENTS
11.1 SETOFF. In addition to, and without limitation of, any rights of
the Lenders under applicable law, if any Default occurs and is continuing,
any indebtedness from any Lender to the Borrower (including all account
balances, whether provisional or final and whether or not collected or
available) may be offset and applied toward the payment of the Obligations
owing to such Lender, whether or not the Obligations, or any part hereof,
shall then be due.
11.2 RATABLE PAYMENTS. If any Lender, whether by setoff or otherwise,
has payment made to it upon its Loans (other than payments received pursuant
to SECTIONS 3.1, 3.2 or 3.4) in a greater proportion than that received by
any other Lender, such Lender agrees, promptly upon demand, to purchase a
portion of the Loans and L/C Obligations held by the other Lenders so that
after such purchase each Lender will hold its ratable proportion of Loans and
L/C Obligations. If any Lender, whether in connection with setoff or amounts
which might be subject to setoff or otherwise, receives collateral or other
protection for its Obligations or such amounts which may be subject to
setoff, such Lender agrees, promptly upon demand, to take such action
necessary such that all Lenders share in the benefits of such collateral
ratably in proportion to the Obligations owing to them. In case any such
payment is disturbed by legal process, or otherwise, appropriate further
adjustments shall be made.
11.3 APPLICATION OF PAYMENTS. Subject to the provisions of SECTION
8.2, the Agent shall, unless otherwise specified at the direction of the
Required Lenders, which direction shall be consistent with the last sentence
of this SECTION 11.3, apply all payments and prepayments in respect of any
Obligations and all proceeds of Collateral in the following order:
(A) first, to pay interest on and then principal of any portion of
the Loans which the Agent may have advanced on behalf of any Lender for
which the Agent has not then been reimbursed by such Lender or the
Borrower;
(B) second, to pay interest on and then principal of any advance made
under SECTION 9.3 for which the Agent has not then been paid by the
Borrower or reimbursed by the Lenders;
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(C) third, to pay Obligations in respect of any fees, expense
reimbursements or indemnities then due to the Agent;
(D) fourth, to pay Obligations in respect of any fees, expenses,
reimbursements or indemnities then due to the Lenders;
(E) fifth, to pay interest due in respect of Loans and L/C
Obligations;
(F) sixth, to the ratable payment or prepayment of principal
outstanding on Loans, L/C Obligations and Rate Hedging Obligations in such
order of maturity as the Agent may determine in its sole discretion;
(G) seventh, to provide required cash collateral, if any, pursuant to
SECTION 2.23;
(H) eighth, to the ratable payment of all other Obligations; and
(I) ninth, to pay any remaining amounts to the Borrower or whoever
may be lawfully entitled thereto.
The order of priority set forth in this SECTION 11.3 and the related provisions
of this Agreement are set forth solely to determine the rights and priorities of
the Agent, the Lenders, and other Holders of Secured Obligations as among
themselves. The order of priority set forth in CLAUSES (D) through (H) of this
SECTION 11.3 may at any time and from time to time be changed by the Required
Lenders without necessity of notice to or consent of or approval by the Parent,
the Borrower, or any other Person. The order of priority set forth in CLAUSES
(A) through (C) of this SECTION 11.3 may be changed only with the prior written
consent of the Agent.
11.4 RELATIONS AMONG LENDERS.
(a) Except with respect to the exercise of set-off rights of any
Lender in accordance with SECTION 11.1, the proceeds of which are applied in
accordance with this Agreement, and except as set forth in the following
sentence, each Lender agrees that it will not take any action, or institute any
actions or proceedings, against the Borrower or any other obligor hereunder or
with respect to any Collateral or Loan Document, without the prior written
consent of the Required Lenders or, as may be provided in this Agreement or the
other Loan Documents, at the direction of the Agent.
(b) The Lenders are not partners or co-venturers, and no Lender shall
be liable for the acts or omissions of, or (except as otherwise set forth herein
in case of the Agent) authorized to act for, any other Lender. Notwithstanding
the foregoing, and subject to SECTION 11.2, any Lender shall have the right to
enforce on an unsecured basis the payment of the principal of and interest on
any Loan made by it after the date such principal or interest has become due and
payable pursuant to the terms of this Agreement.
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ARTICLE XII: BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS
12.1 SUCCESSORS AND ASSIGNS. The terms and provisions of the Loan
Documents shall be binding upon and inure to the benefit of the Borrower and
the Lenders and their respective successors and assigns, except that (i) the
Borrower shall not have the right to assign its rights or obligations under the
Loan Documents and (ii) any assignment by any Lender must be made in compliance
with SECTION 12.3 hereof. Notwithstanding CLAUSE (ii) of this SECTION 12.1, any
Lender may at any time, without the consent of the Borrower or the Agent, assign
all or any portion of its rights under this Agreement and its Notes to a Federal
Reserve Bank; PROVIDED, HOWEVER, that no such assignment shall release the
transferor Lender from its obligations hereunder. The Agent may treat the payee
of any Note as the owner thereof for all purposes hereof unless and until such
payee complies with SECTION 12.3 hereof in the case of an assignment thereof or,
in the case of any other transfer, a written notice of the transfer is filed
with the Agent. Any assignee or transferee of a Note agrees by acceptance
thereof to be bound by all the terms and provisions of the Loan Documents. Any
request, authority or consent of any Person, who at the time of making such
request or giving such authority or consent is the holder of any Note, shall be
conclusive and binding on any subsequent holder, transferee or assignee of such
Note or of any Note or Notes issued in exchange therefor.
12.2 PARTICIPATIONS.
(A) PERMITTED PARTICIPANTS; EFFECT. Any Lender may, in the ordinary
course of its business and in accordance with applicable law, at any time sell
to one or more banks or other entities ("PARTICIPANTS") participating interests
in any Loan owing to such Lender, any Note held by such Lender, any Revolving
Loan Commitment of such Lender, any L/C Interest of such Lender or any other
interest of such Lender under the Loan Documents on a pro-rata basis; PROVIDED
that the amount of such participation shall not be for less than $5,000,000. If
a Lender makes any such sale of participating interests to a Participant, such
Lender's obligations under the Loan Documents shall remain unchanged, such
Lender shall remain solely responsible to the other parties hereto for the
performance of such obligations, such Lender shall remain the holder of any such
Note for all purposes under the Loan Documents, all amounts payable by the
Borrower under this Agreement shall be determined as if such Lender had not sold
such participating interests, and the Borrower and the Agent shall continue to
deal solely and directly with such Lender in connection with such Lender's
rights and obligations under the Loan Documents except that, for purposes of
ARTICLE III hereof, the Participants shall be entitled to the same rights as if
they were Lenders; PROVIDED, HOWEVER, that a Participant shall not be entitled
to payments pursuant to ARTICLE III in excess of those which would have been
paid to the Lender from which such Participant acquired its interest.
(B) VOTING RIGHTS. Each Lender shall retain the sole right to approve,
without the consent of any Participant, any amendment, modification or waiver of
any provision of the Loan Documents other than any amendment, modification or
waiver with respect to any Loan or Revolving Loan Commitment in which such
Participant has an interest which forgives principal, interest or fees or
reduces the interest rate or the rate at which any fee hereunder is calculated
pursuant to the terms of this Agreement with respect to any such Loan or
Revolving Loan Commitment, postpones any date fixed for any regularly-scheduled
payment of principal of, or
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interest or fees on, any such Loan or Revolving Loan Commitment, releases any
guarantor of any such Loan or releases all or substantially all of the
Collateral, if any, securing any such Loan.
(C) BENEFIT OF SETOFF. The Borrower agrees that each Participant shall be
deemed to have the right of setoff provided in SECTION 11.1 hereof in respect to
its participating interest in amounts owing under the Loan Documents to the same
extent as if the amount of its participating interest were owing directly to it
as a Lender under the Loan Documents, PROVIDED that each Lender shall retain the
right of setoff provided in SECTION 11.1 hereof with respect to the amount of
participating interests sold to each Participant except to the extent such
Participant exercises its right of set-off. The Lenders agree to share with
each Participant, and each Participant, by exercising the right of setoff
provided in SECTION 11.1 hereof, agrees to share with each Lender, any amount
received pursuant to the exercise of its right of setoff, such amounts to be
shared in accordance with SECTION 11.2 as if each Participant were a Lender.
12.3 ASSIGNMENTS.
(A) PERMITTED ASSIGNMENTS. Any Lender may, in the ordinary course of its
business and in accordance with applicable law, at any time assign to one or
more banks or other commercial lending institutions, or, if a Default has
occurred and is continuing, other entities ("PURCHASERS") all or any part of its
rights and obligations under the Loan Documents on a pro-rata basis. Such
assignment shall be substantially in the form of EXHIBIT D hereto and shall not
be permitted hereunder unless such assignment is either for all of such Lender's
rights and obligations under the Loan Documents or involves loans and
commitments in an aggregate amount of at least $5,000,000. The consent of the
Agent and, unless a Default shall have occurred and be continuing, the Borrower
(which consent shall not be unreasonably withheld) shall be required prior to an
assignment becoming effective with respect to a Purchaser which is not a Lender
or an Affiliate thereof. Such consent shall be substantially in the form
attached as APPENDIX II to EXHIBIT D hereto.
(B) EFFECT; EFFECTIVE DATE. Upon (i) delivery to the Agent of a notice of
assignment, substantially in the form attached as APPENDIX I to EXHIBIT D hereto
(a "NOTICE OF ASSIGNMENT"), together with any consents required by SECTION
12.3(A) hereof, and (ii) payment of a $5,000 fee to the Agent for processing
such assignment, such assignment shall become effective on the effective date
specified in such Notice of Assignment. On and after the effective date of such
assignment, such Purchaser shall for all purposes be a Lender party to this
Agreement and any other Loan Documents executed by the Lenders and shall have
all the rights and obligations of a Lender under the Loan Documents, to the same
extent as if it were an original party hereto, and no further consent or action
by the Parent, the Borrower, the Lenders or the Agent shall be required to
release the transferor Lender with respect to the percentage of the transferor
Lender's Revolving Loan Commitment and Loans assigned to such Purchaser. Upon
the consummation of any assignment to a Purchaser pursuant to this SECTION
12.3(B), (a) the transferor Lender, the Agent and the Borrower shall make
appropriate arrangements so that replacement Notes are issued to such transferor
Lender and new Notes or, as appropriate, replacement Notes, are issued to such
Purchaser, in each case in principal amounts reflecting their Revolving Loan
Commitment, as adjusted pursuant to such assignment and (b) the transferor
Lender shall deliver any
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Notes for which replacement Notes are issued to the Borrower at such time,
marked "Superseded".
(C) THE REGISTER. The Agent shall maintain at its address referred to in
SECTION 13.1 a copy of each assignment delivered to and accepted by it pursuant
to this SECTION 12.3 and a register (the "REGISTER") for the recordation of the
names and addresses of the Lenders and the Revolving Loan Commitment of and
principal amount of the Loans owing to, each Lender from time to time and
whether such Lender is an original Lender or the assignee of another Lender
pursuant to an assignment under this SECTION 12.3. The entries in the Register
shall be conclusive and binding for all purposes, absent manifest error, and the
Parent, the Borrower and each of their respective Subsidiaries, the Agent and
the Lenders may treat each Person whose name is recorded in the Register as a
Lender hereunder for all purposes of this Agreement. The Register shall be
available for inspection by the Borrower or any Lender at any reasonable time
and from time to time upon reasonable prior notice.
12.4 DISSEMINATION OF INFORMATION. Subject to the provisions of ARTICLE
XIV, each of the Parent and the Borrower authorizes each Lender to disclose to
any Participant, Purchaser or any other Person acquiring an interest in the Loan
Documents by operation of law (each a "TRANSFEREE") and any prospective
Transferee any and all information in such Lender's possession concerning the
Parent, the Borrower and its Subsidiaries and the Collateral.
ARTICLE XIII: NOTICES
13.1 GIVING NOTICE. Except as otherwise permitted by SECTION 2.13 with
respect to Borrowing Notices, all notices and other communications provided to
any party hereto under this Agreement or any other Loan Documents shall be in
writing or by telex or by facsimile and addressed or delivered to such party at
its address set forth below its signature hereto or at such other address as may
be designated by such party in a notice to the other parties. Any notice, if
mailed, or sent by overnight courier, and properly addressed with postage
prepaid, shall be deemed given when received; any notice, if transmitted by
telex or facsimile, shall be deemed given when transmitted (answerback confirmed
in the case of telexes).
13.2 CHANGE OF ADDRESS. The Borrower, the Agent and any Lender may each
change the address for service of notice upon it by a notice in writing to the
other parties hereto.
ARTICLE XIV: CONFIDENTIALITY
The Agent and each Lender agrees to hold any confidential nonpublic
information which it may receive from the Parent, the Borrower or any of their
respective Subsidiaries pursuant to this Agreement or any other Loan Document in
confidence, except for disclosure (i) to other Lenders, (ii) to their respective
Affiliates, (iii) to their respective legal counsel and accountants, (iv) to
other professional advisors of the Agent or such Lender who shall be instructed
that the information is to be treated as confidential, (v) as requested pursuant
to or as required by law, regulation or legal process, (vi) in connection with
any legal proceeding to which the Agent or
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such Lender is a party, or (vii) in connection with any proposed
participation or assignment pursuant to SECTIONS 12.2 or 12.3, respectively;
PROVIDED that the Agent or such Lender shall require that each offeree,
Transferee, Participant, Purchaser or Affiliate agree to comply (and require
any of its offerees, Transferees, Participants, Purchasers or Affiliates to
agree to comply) with the provisions of this ARTICLE XIV.
ARTICLE XV: COUNTERPARTS
This Agreement may be executed in any number of counterparts, all of which
taken together shall constitute one agreement, and any of the parties hereto may
execute this Agreement by signing any such counterpart. This Agreement shall be
effective when it has been executed by the Borrower, the Agent and each of the
Lenders.
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IN WITNESS WHEREOF, the Borrower, the Lenders and the Agent have executed
this Agreement as of the date first above written.
ARCHIBALD CANDY CORPORATION
By: /s/ Donna M. Snopek
------------------------------------
Donna M. Snopek,
Vice President of Finance
and Accounting
Address:
1137 West Jackson Blvd.
Chicago, Illinois 60607
Attention: Vice President of Finance
and Accounting
Telephone No. (312) 243-2700
Facsimile No. (312) 243-5053
THE FIRST NATIONAL BANK OF
CHICAGO, Individually and as Agent
By: /s/ Julia A. Bristow
------------------------------------
Julia A. Bristow, Managing Director
Address:
One First National Plaza
Suite 0088
Chicago, Illinois 60670-0088
Attention: Julia A. Bristow
Telephone No. (312) 732-5927
Facsimile No. (312) 732-1117
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Execution Copy
AMENDED AND RESTATED
SECURITY AGREEMENT
DATED AS OF JULY 2, 1997
BETWEEN
ARCHIBALD CANDY CORPORATION
AND
THE FIRST NATIONAL BANK OF CHICAGO,
AS AGENT
<PAGE>
TABLE OF CONTENTS
SECTION 1. DEFINED TERMS................................................... 1
SECTION 2. GRANT OF SECURITY............................................... 2
SECTION 3. AUTHORIZATION................................................... 5
SECTION 4. GRANTOR REMAINS LIABLE.......................................... 5
SECTION 5. REPRESENTATIONS AND WARRANTIES.................................. 6
SECTION 6. PERFECTION AND MAINTENANCE OF SECURITY INTEREST AND LIEN........ 7
SECTION 7. FINANCING STATEMENTS............................................ 8
SECTION 8. FILING COSTS.................................................... 8
SECTION 9. SCHEDULE OF COLLATERAL.......................................... 8
SECTION 10. EQUIPMENT AND INVENTORY......................................... 8
SECTION 11. ACCOUNTS........................................................ 9
SECTION 12. LEASED REAL PROPERTY............................................ 10
SECTION 13. GENERAL COVENANTS............................................... 10
SECTION 14. AGENT APPOINTED ATTORNEY-IN-FACT................................ 11
SECTION 15. AGENT MAY PERFORM............................................... 11
SECTION 16. AGENT'S DUTIES.................................................. 12
SECTION 17. REMEDIES........................................................ 12
SECTION 18. EXERCISE OF REMEDIES............................................ 13
SECTION 19. LICENSE......................................................... 13
SECTION 20. INJUNCTIVE RELIEF............................................... 14
SECTION 21. INTERPRETATION AND INCONSISTENCIES.............................. 14
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SECTION 22. EXPENSES........................................................ 14
SECTION 23. AMENDMENTS, ETC................................................. 14
SECTION 24. NOTICES......................................................... 14
SECTION 25. CONTINUING SECURITY INTEREST; TERMINATION....................... 14
SECTION 26. SEVERABILITY.................................................... 15
SECTION 27. GOVERNING LAW................................................... 15
SECTION 28. CONSENT TO JURISDICTION; SERVICE OF PROCESS; JURY TRIAL......... 15
(A) EXCLUSIVE JURISDICTION........................................ 15
(B) OTHER JURISDICTIONS........................................... 16
(C) SERVICE OF PROCESS............................................ 16
(D) WAIVER OF JURY TRIAL.......................................... 16
(E) WAIVER OF BOND................................................ 16
(F) ADVICE OF COUNSEL............................................. 17
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<PAGE>
AMENDED AND RESTATED SECURITY AGREEMENT
This AMENDED AND RESTATED SECURITY AGREEMENT ("AGREEMENT"), dated as
of July 2, 1997 is made by ARCHIBALD CANDY CORPORATION, an Illinois corporation
("GRANTOR"), in favor of THE FIRST NATIONAL BANK OF CHICAGO, as "Agent" for its
benefit and for the benefit of the "Holders of Secured Obligations" (as defined
below) who are, or may hereafter become, parties to the Credit Agreement
referred to below.
PRELIMINARY STATEMENT
Grantor entered into that certain Credit Agreement dated as of August
12, 1994 among Grantor, Fannie May Holdings, Inc., a Delaware corporation, the
institutions from time to time party thereto as lenders and the Agent (as the
same has been amended, restated, supplemented or otherwise modified prior to the
date hereof, the "ORIGINAL CREDIT AGREEMENT")
Grantor has entered into an Amended and Restated Credit Agreement
dated as of the date hereof among Grantor, the institutions from time to time
party thereto as lenders (the "Lenders") and the Agent (as the same may be
amended, restated, supplemented or otherwise modified from time to time, the
"Credit Agreement"), providing for the making of loans, advances and other
financial accommodations (including, without limitation issuing letters of
credit) (all such loans, advances and other financial accommodations being
hereinafter referred to collectively as the "LOANS") to or for the benefit of
Grantor.
Grantor and the Agent are parties to that certain Security Agreement
dated as of August 12, 1994 (as the same has been amended, supplemented or
modified prior to the date hereof, the "Original Security Agreement") pursuant
to which the Borrower granted a security interest in certain of its assets to
the Agent for the benefit of itself, and those lenders party to the Original
Credit Agreement as security for the Borrower's obligations thereunder.
It is a condition precedent to the making of the Loans under the
Credit Agreement that Grantor shall have granted the security interest
contemplated by this Agreement.
NOW, THEREFORE, in consideration of the premises set forth herein and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
SECTION 1. DEFINED TERMS. Unless otherwise defined herein, terms
defined in the Credit Agreement are used herein as therein defined, and the
following terms shall have the following meanings (such meanings being equally
applicable to both the singular and the plural forms of the terms defined):
"AGREEMENT" shall mean this Security Agreement, as the same may from
time to time be amended, restated, modified or supplemented, and shall refer to
this Agreement as the same may be in effect at the time such reference becomes
operative.
<PAGE>
"COLLATERAL" shall mean all property and rights in property now owned
or hereafter at any time acquired by Grantor in or upon which a Lien is granted
or purported to be granted in favor of the Agent by Grantor under this
Agreement, including, without limitation, the property described in SECTION 2.
"HOLDERS OF SECURED OBLIGATIONS" shall mean the holders of the Secured
Obligations from time to time and shall include their respective successors,
transferees and assigns.
"UCC" shall mean the Uniform Commercial Code as the same may, from
time to time, be in effect in the State of Illinois; PROVIDED, HOWEVER, if, by
reason of mandatory provisions of law, any or all of the attachment, perfection
or priority of the Agent's and the Holders of Secured Obligations' security
interest in any Collateral is governed by the Uniform Commercial Code as in
effect in a jurisdiction other than the State of Illinois, the term "UCC" shall
mean the Uniform Commercial Code as in effect in such other jurisdiction for
purposes of the provisions hereof relating to such attachment, perfection or
priority and for purposes of definitions related to such provisions.
SECTION 2. GRANT OF SECURITY. To secure the prompt and complete
payment, observance and performance of the Secured Obligations, Grantor hereby
assigns and pledges to the Agent, for the benefit of the Agent and the Holders
of Secured Obligations, and hereby grants to the Agent, for the benefit of the
Agent and the Holders of Secured Obligations, a security interest in all of
Grantor's right, title and interest in and to the following, subject to the last
paragraph of this SECTION 2, whether now owned or existing or hereafter arising
or acquired and wheresoever located:
ACCOUNTS: All "accounts" as such term is defined in Section 9-106 of
the UCC, whether now owned or hereafter acquired or arising, and shall include,
without limitation, all present and future accounts, accounts receivable and
other rights of Grantor to payment for goods sold or leased or for services
rendered (except those evidenced by instruments or chattel paper), whether now
existing or hereafter arising and wherever arising, and whether or not they have
been earned by performance (collectively, "ACCOUNTS"); and
INVENTORY: All "inventory" as defined in Section 9-109(4) of the UCC,
whether now owned or hereafter acquired or arising, and shall include, without
limitation, all goods now owned or hereafter acquired by Grantor (wherever
located, whether in the possession of Grantor or of a bailee or other person for
sale, storage, transit, processing, use or otherwise and whether consisting of
whole goods, spare parts, components, supplies, materials, or consigned,
returned or repossessed goods) which are held for sale or lease (including
without limitation, freezers and trade name superstructures), which are to be
furnished (or have been furnished) under any contract of service or which are
raw materials, work in process or materials used or consumed in Grantor's
business (collectively, "INVENTORY").
SECTION 3. AUTHORIZATION. Grantor hereby authorizes the Agent to
retain and each Holder of Secured Obligations, and each Affiliate of the Agent
and of each Holder of Secured Obligations, to pay or deliver to the Agent, for
the benefit of the Holders of Secured
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Obligations, without any necessity on any Holder of Secured Obligation's part to
resort to other security or sources of reimbursement for the Secured
Obligations, at any time following the occurrence and during the continuance of
any Default, without prior notice to Grantor (such notice being expressly
waived), any of the deposits referred to in SECTION 2 (whether general or
special, time or demand, provisional or final) or other sums or property held by
such Person, for application against any portion of the Secured Obligations,
irrespective of whether any demand has been made or whether such portion of the
Secured Obligations is mature. The Agent will promptly notify Grantor of the
Agent's receipt of such funds or other property for application against the
Secured Obligations, but failure to do so will not affect the validity or
enforceability thereof. The Agent may give notice of the above grant of
security interest and assignment of the aforesaid deposits and other sums, and
authorization, to, and make any suitable arrangements with, any such Holder of
Secured Obligations for effectuation thereof, and Grantor hereby irrevocably
appoints the Agent as its attorney-in-fact to collect, following the occurrence
and during the continuance of a Default, any and all such deposits or other sums
to the extent any such payment is not made to the Agent by such Holder of
Secured Obligation or Affiliate thereof.
SECTION 4. GRANTOR REMAINS LIABLE. Anything herein to the contrary
notwithstanding, (a) Grantor shall remain solely liable under the contracts and
agreements included in the Collateral to the extent set forth therein to perform
all of its duties and obligations thereunder to the same extent as if this
Agreement had not been executed, (b) the exercise by the Agent of any of its
rights hereunder shall not release Grantor from any of its duties or obligations
under the contracts and agreements included in the Collateral, and (c) neither
the Agent nor the Holders of Secured Obligations shall have any responsibility,
obligation or liability under the contracts and agreements included in the
Collateral by reason of this Agreement, nor shall the Agent or the Holders of
Secured Obligations be required or obligated, in any manner, to (i) perform or
fulfill any of the obligations or duties of Grantor thereunder, (ii) make any
payment, or make any inquiry as to the nature or sufficiency of any payment
received by Grantor or the sufficiency of any performance by any party under any
such contract or agreement or (iii) present or file any claim, or take any
action to collect or enforce any claim for payment assigned hereunder.
SECTION 5. REPRESENTATIONS AND WARRANTIES. Grantor represents and
warrants, as of the date of this Agreement and as of each date the
representations and warranties contained in Article V of the Credit Agreement
are deemed made pursuant to Section 4.2 thereof (except for changes permitted or
contemplated by this Agreement):
(a) Grantor's correct corporate name is set forth in the first
paragraph of this Agreement. The jurisdictions listed on SCHEDULE 2-B
constitute all the jurisdictions in which Inventory is located and Grantor has
exclusive possession and control of such Inventory, except for such Inventory
which is (i) temporarily in transit between such locations, or (ii) temporarily
stored with third parties or held by third parties on consignment or for
processing, engineering, evaluation or repairs, the proper corporate names of
which third parties, the location of such Inventory and the nature of the
relationship between Grantor and such third parties are set forth in SCHEDULE
2-A or have been disclosed to the Agent in a writing making specific reference
to this SECTION 5(a). Grantor's chief place of business and chief executive
office are located at
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the address of Grantor set forth below Grantor's signature on the Credit
Agreement and all records concerning any Accounts are located at such address
and none of the Accounts is evidenced by a promissory note or other instrument
except for such notes and other instruments delivered to the Agent;
(b) Grantor currently conducts business under the name Archibald
Candy Corporation and, in certain areas and for certain operations, the trade
names listed on SCHEDULE 3;
(c) This Agreement creates in favor of the Agent a legal, valid and
enforceable security interest in the Collateral. When financing statements have
been filed in the appropriate offices against Grantor in the jurisdictions
listed on SCHEDULE 2-B, the Agent will have a perfected first priority lien on,
and security interest in, the Collateral in which a security interest may be
perfected by such filing, subject only to Liens permitted by Section 6.3(C) of
the Credit Agreement; and
(d) No authorization, approval or other action by, and no notice to
or filing with, any Governmental Authority that has not already been taken or
made and which is in full force and effect or which is to be taken or made in
connection with the transactions contemplated to occur under the Loan Documents
on the Closing Date, is required (i) for the grant by Grantor of the security
interest in the Collateral granted hereby or (ii) for the exercise by the Agent
of any of its rights or remedies hereunder.
SECTION 6. PERFECTION AND MAINTENANCE OF SECURITY INTEREST AND LIEN.
Grantor agrees that until all of the Obligations (other than contingent
indemnity Obligations) have been fully satisfied and the Credit Agreement has
been terminated, the Agent's security interests in and Liens on and against the
Collateral and all proceeds and products thereof, shall continue in full force
and effect. Grantor shall perform any and all steps reasonably requested by the
Agent to perfect, maintain and protect the Agent's security interests in and
Liens on and against the Collateral granted or purported to be granted hereby or
to enable the Agent to exercise its rights and remedies hereunder with respect
to any Collateral, including, without limitation, (i) executing and filing
financing or continuation statements, or amendments thereof, in form and
substance reasonably satisfactory to the Agent, (ii) delivering to the Agent
warehouse receipts covering that portion of the Collateral, if any, located in
warehouses and for which warehouse receipts are issued, (iii) after the
occurrence and during the continuance of a Default, transferring Inventory to
warehouses designated by the Agent or taking such other steps as are deemed
necessary by the Agent to maintain the Agent's control of the Inventory, (iv)
using all reasonable efforts to obtain waivers of Liens and access agreements in
substantially the form of EXHIBIT A hereto (or such other form as may be agreed
to by the Agent) from landlords and mortgagees with respect to Grantor's leased
premises (excluding Grantor's leased retail store locations), (v) using all
reasonable efforts to obtain waivers of Liens and access agreements in
substantially the form of EXHIBIT B hereto (or such other form as may be agreed
to by the Agent) from bailees with respect to any of Grantor's Inventory held by
such bailees, and (vi) executing and delivering all further instruments and
documents, and taking all further action, as the Agent may reasonably request.
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SECTION 7. FINANCING STATEMENTS. To the extent permitted by
applicable law, Grantor hereby authorizes the Agent to file one or more
financing or continuation statements and amendments thereto, disclosing the
security interest granted to the Agent under this Agreement, without Grantor's
signature appearing thereon. The Agent agrees to notify Grantor when any such
filing has been made. Grantor agrees that a carbon, photographic, photostatic,
or other reproduction of this Agreement or of a financing statement is
sufficient as a financing statement. If any Inventory is in the possession or
control of any warehouseman or Grantor's agents or processors, Grantor shall,
upon the Agent's request, notify such warehouseman, agent or processor of the
Agent's security interest in such Inventory and, upon the Agent's request,
instruct them to hold all such Inventory for the Agent's account and subject to
the Agent's instructions.
SECTION 8. FILING COSTS. Grantor shall pay the costs of, or
incidental to, all recordings or filings of all financing statements, including,
without limitation, any filing expenses incurred by the Agent pursuant to
SECTION 7.
SECTION 9. SCHEDULE OF COLLATERAL. Grantor shall furnish to the
Agent from time to time statements and schedules further identifying and
describing the Collateral and such other reports in connection with the
Collateral as the Agent may reasonably request, all in reasonable detail.
SECTION 10. INVENTORY. Grantor covenants and agrees with the Agent
that from the date of this Agreement and until termination of this Agreement
pursuant to SECTION 25, Grantor shall:
(a) Keep the Inventory (other than Inventory sold or disposed of in
accordance with the terms of this Agreement or the Credit Agreement) in the
jurisdictions specified in SCHEDULE 2-B, except for Inventory described in
clauses (i) and (ii) of SECTION 5(a). All such Inventory held at third party
locations listed on SCHEDULE 2-A shall be covered by a financing statement filed
in one of the jurisdictions listed on SCHEDULE 2-B.
(b) Deliver written notice to the Agent at least five (5) Business
Days prior to moving/delivering any Inventory (i) to any jurisdiction not
previously disclosed on SCHEDULE 2-B or (ii) to a third party not previously
disclosed on SCHEDULE 2-A, such written notice to provide information such that
the Agent may determine whether such movement/delivery requires further action
on the part of Grantor to perfect the security interests granted herein or on
the part of a third party to fully comply with the terms of this Agreement, such
written notice properly delivered to the Agent pursuant to this clause (b) shall
be deemed to add all locations or third parties disclosed therein to SCHEDULE
2-A and/or SCHEDULE 2-B, as applicable; and
(c) Comply with the terms of the Credit Agreement with respect to
such Inventory, including, without limitation, the maintenance and insurance
provisions set forth in Sections 6.2(F) and 6.2(J) of the Credit Agreement.
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SECTION 11. ACCOUNTS. Grantor covenants and agrees with the Agent
that from and after the date of this Agreement and until termination of this
Agreement pursuant to SECTION 25, Grantor shall:
(a) Keep its chief place of business and chief executive office and
the office where it keeps its records concerning the Accounts at its address set
forth below its signature on the Credit Agreement at the locations therefor
specified in SECTION 5(a) or, upon thirty (30) days prior written notice to the
Agent, at such other locations within the United States in a jurisdiction where
all actions required by SECTION 6 shall have been taken with respect to the
Accounts. Grantor will hold and preserve such records (in accordance with
Grantor's usual document retention practices) and will permit representatives of
the Agent at any time during normal business hours to inspect and make abstracts
from such records; and
(b) In any suit, proceeding or action brought by the Agent under any
Account comprising part of the Collateral, Grantor will save, indemnify and keep
each of the Holders of Secured Obligations harmless from and against all
expenses, loss or damage suffered by reason of any defense, setoff,
counterclaim, recoupment or reduction of liability whatsoever of the obligor
thereunder, arising out of a breach by Grantor of any obligation or arising out
of any other agreement, indebtedness or liability at any time owing to or in
favor of such Holder of Secured Obligations from Grantor, and all such
obligations of Grantor shall be and shall remain enforceable against and only
against Grantor and shall not be enforceable against any of the Holders of
Secured Obligations.
(c) Upon the occurrence and during the continuance of a Default and
upon notice from the Agent, when Grantor or any of its Subsidiaries (or any
Affiliates, shareholders, directors, officers, employees, agents or those
Persons acting for or in concert with Grantor or a Subsidiary of Grantor) shall
receive or come into the possession or control of any monies, checks, notes,
drafts or any other payment relating to, or proceeds of, Grantor's Accounts or
other property constituting Collateral hereunder (individually, a "PAYMENT
ITEM", and, collectively, "PAYMENT ITEMS"), then, except as otherwise permitted
in a writing signed by the Agent, Grantor shall, or shall cause such Subsidiary
or such other Person to, deposit the same, in kind in precisely the form in
which such Payment Item was received (with all Payment Items endorsed if
necessary for collection), into an account as directed by the Agent from time to
time.
SECTION 12. LEASED REAL PROPERTY. Grantor covenants and agrees with
the Agent that from and after the date of this Agreement and until termination
of this Agreement pursuant to SECTION 25, that:
(a) Promptly following, but not later than ninety (90) days after,
the close of each fiscal year Grantor will furnish to the Agent a report
certified to be true and correct by Grantor containing a list of each of
Grantor's leased premises; the name or names of all owners; rentals being paid;
and whether Grantor has obtained waivers of Liens and access agreements from
landlords and mortgagees with respect to such premises in accordance with
SECTION 6, where such waivers or access agreements are required; and
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(b) Grantor agrees that, from and after the occurrence of a Default
(but only for so long as such Default is continuing), the Agent may, but need
not, make any payment or perform any act hereinbefore required of Grantor with
respect to Grantor's leased premises in any form and manner deemed expedient.
All money paid for any of the purposes herein authorized and all other moneys
advanced by the Agent to protect the lien hereof shall be additional Secured
Obligations secured hereby and shall become immediately due and payable without
notice and shall bear interest thereon at the default interest rate as provided
in Section 2.11 of the Credit Agreement until paid to the Agent in full.
SECTION 13. GENERAL COVENANTS. Grantor covenants and agrees with the
Agent that from and after the date of this Agreement and until termination of
this Agreement pursuant to SECTION 25, Grantor shall:
(a) Keep and maintain at Grantor's own cost and expense satisfactory
and complete records of Grantor's Collateral in a manner consistent with
Grantor's current business practice; and
(b) Grantor will not create, permit or suffer to exist, and will
defend the Collateral against, and take such other action as is necessary to
remove, any Lien on such Collateral other than Liens permitted under Section
6.3(C) of the Credit Agreement, and will defend the right, title and interest of
the Agent in and to Grantor's rights to such Collateral, including, without
limitation, the proceeds and products thereof, against the claims and demands of
all Persons whatsoever.
SECTION 14. AGENT APPOINTED ATTORNEY-IN-FACT. Grantor hereby
irrevocably appoints the Agent as Grantor's attorney-in-fact, with full
authority in the place and stead of Grantor and in the name of Grantor or
otherwise, from time to time after the occurrence and during the continuance of
a Default, in the Agent's discretion, to take any action and to execute any
instrument which the Agent may deem necessary or advisable to accomplish the
purposes of this Agreement, including, without limitation:
(i) obtain and adjust insurance required to be paid to the Agent or any
Holders of Secured Obligations pursuant to the Credit Agreement;
(ii) ask, demand, collect, sue for, recover, compromise, receive and give
acquittance and receipts for moneys due and to become due under or in respect of
any of the Collateral;
(iii) receive, endorse, and collect any drafts or other instruments,
documents and chattel paper, in connection with CLAUSE (I) or (II) above;
(iv) file any claims or take any action or institute any proceedings which
the Agent may deem necessary or desirable for the collection of any of the
Collateral, or otherwise to enforce the rights of the Agent with respect to any
of the Collateral;
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(v) obtain access to records maintained for Grantor by computer services
companies and other service companies or bureaus; and
(vi) send requests under Grantor's, the Agent's or a fictitious name to
Grantor's customers or account debtors for verification of Accounts provided
that the Agent gives Grantor notice prior to initiating any such verifications.
Grantor hereby ratifies all that such attorney-in-fact shall lawfully do or
cause to be done by virtue hereof. This power of attorney is coupled with an
interest and shall be irrevocable.
SECTION 15. AGENT MAY PERFORM. Subject to the terms of Section 9.3 of the
Credit Agreement, if Grantor fails to perform any agreement contained herein or
in the Credit Agreement, the Agent may, upon three (3) days prior notice to
Grantor, perform, or cause performance of, such agreement, and the expenses of
the Agent incurred in connection therewith shall be payable by Grantor under
SECTION 22.
SECTION 16. AGENT'S DUTIES. The powers conferred on the Agent hereunder
are solely to protect its interest in the Collateral and shall not impose any
duty upon it to exercise any such powers. Except for the safe custody of any
Collateral in its possession and the accounting for moneys actually received by
it hereunder, the Agent shall not have any duty as to any Collateral, PROVIDED,
HOWEVER, that nothing contained herein will excuse the Agent from it own bad
faith, Gross Negligence or willful misconduct with respect to such custody. The
Agent shall be deemed to have exercised reasonable care in the custody and
preservation of the Collateral in its possession if the Collateral is accorded
treatment substantially equal to that which the Agent accords its own property,
it being understood that the Agent shall be under no obligation to take any
necessary steps to preserve rights against prior parties or any other rights
pertaining to any Collateral, but may do so at its option, and all reasonable
expenses incurred in connection therewith shall be for the sole account of
Grantor and shall be added to the Secured Obligations.
SECTION 17. REMEDIES. (a) If any Default shall have occurred and be
continuing:
(i) The Agent shall have, in addition to other rights and remedies
provided for herein or otherwise available to it, all the rights and remedies of
a secured party upon default under the UCC (whether or not the UCC applies to
the affected Collateral) and further, the Agent may, without notice, demand or
legal process of any kind (except as may be required by law), all of which
Grantor waives, at any time or times, (x) enter Grantor's owned or leased
premises and take physical possession of the Collateral and maintain such
possession on Grantor's owned or leased premises, at no cost to the Agent or any
of the Holders of Secured Obligations, or remove the Collateral, or any part
thereof, to such other place(s) as the Agent may desire, (y) require Grantor to,
and Grantor hereby agrees that it will at its expense and upon request of the
Agent forthwith, assemble all or any part of the Collateral as directed by the
Agent and make it available to the Agent at a place to be designated by the
Agent which is reasonably convenient to the Agent and (z) without notice except
as specified below, sell, lease, assign, grant an option or options to purchase
or otherwise dispose of the Collateral or any part thereof
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at public or private sale, at any exchange, broker's board or at any of the
offices of the Agent or elsewhere, for cash, on credit or for future delivery,
and upon such other terms as the Agent may deem commercially reasonable.
Grantor agrees that, to the extent notice of sale shall be required by law, at
least ten (10) days' notice to Grantor of the time and place of any public sale
or the time after which any private sale is to be made shall constitute
reasonable notification; PROVIDED, HOWEVER, that the Agent may give any shorter
notice that is commercially reasonable under the circumstances. The Agent shall
not be obligated to make any sale of Collateral regardless of notice of sale
having been given. The Agent may adjourn any public or private sale from time
to time by announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was so
adjourned;
(ii) The Agent shall apply all cash proceeds received by the
Agent in respect of any sale of, collection from, or other realization upon all
or any part of the Collateral (after payment of any amounts payable to the Agent
pursuant to SECTION 22), for the benefit of the Holders of Secured Obligations,
against all or any part of the Secured Obligations in such order as may be
required by the Credit Agreement or, to the extent not specified therein, as is
determined by the Required Lenders. Any surplus of such cash or cash proceeds
held by the Agent and remaining after payment in full of all the Secured
Obligations shall be paid over to Grantor or to whomsoever may be lawfully
entitled to receive such surplus;
(b) Grantor waives all claims, damages and demands against the Agent
arising out of the repossession, retention or sale of any of the Collateral or
any part or parts thereof, except any such claims, damages and awards arising
out of the Agent's or any Holder of Secured Obligation's bad faith, Gross
Negligence, willful misconduct, as determined in a final non-appealed judgment
of a court of competent jurisdiction; and
(c) The rights and remedies provided under this Agreement are
cumulative and may be exercised singly or concurrently and are not exclusive of
any rights and remedies provided by law or equity.
SECTION 18. EXERCISE OF REMEDIES. In connection with the exercise
of its remedies pursuant to SECTION 17, the Agent may, (i) exchange, enforce,
waive or release any portion of the Collateral and any other security for the
Secured Obligations; (ii) apply such Collateral or security and direct the order
or manner of sale thereof as the Agent may, from time to time, determine; and
(iii) settle, compromise, collect or otherwise liquidate any such Collateral or
security in any manner following the occurrence and during the continuance of a
Default, without affecting or impairing the Agent's right to take any other
further action with respect to any Collateral or security or any part thereof.
SECTION 19. LICENSE. The Agent is hereby granted a license or other
right to use, following the occurrence and during the continuance of a Default,
without charge, (a) Grantor's labels, patents, copyrights, trade secrets, trade
names, trademarks, service marks, customer lists and advertising matter, or any
property of a similar nature, as it pertains to the Collateral, in completing
production of, advertising for sale, and selling any Collateral, provided that
the Agent uses quality standards at least substantially equivalent to those of
Grantor for the manufacture, advertising, sale and distribution of Grantor's
products and services and (b)
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<PAGE>
Grantor's rights under all licenses and all franchise agreements, if any, shall
inure to the Agent's benefit.
SECTION 20. INJUNCTIVE RELIEF. Grantor recognizes that in the event
Grantor fails to perform, observe or discharge any of its obligations or
liabilities under this Agreement, any remedy of law may prove to be inadequate
relief to the Holders of Secured Obligations; therefore, Grantor agrees that the
Holders of Secured Obligations, if the Agent so determines and requests, shall
be entitled to temporary and permanent injunctive relief in any such case
without the necessity of proving actual damages.
SECTION 21. INTERPRETATION AND INCONSISTENCIES. The rights and
duties created by this Agreement shall, in all cases, be interpreted
consistently with, and shall be in addition to (and not in lieu of), the rights
and duties created by the Credit Agreement and the other Loan Documents. In the
event that any provision of this Agreement shall be inconsistent with any
provision of any other Loan Document, such provision of the other Loan Document
shall govern.
SECTION 22. EXPENSES. Grantor will reimburse the Agent for its
expenses to the extent provided in Section 9.7 of the Credit Agreement.
SECTION 23. AMENDMENTS, ETC. No amendment or waiver of any provision
of this Agreement nor consent to any departure by Grantor herefrom shall in any
event be effective unless the same shall be in writing and signed by the Agent
and Grantor, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
SECTION 24. NOTICES. All notices and other communications provided
for hereunder shall be delivered in the manner set forth in Article XIII of the
Credit Agreement.
SECTION 25. CONTINUING SECURITY INTEREST; TERMINATION. (a) Except as
provided in SECTION 25(b), this Agreement shall create a continuing security
interest in the Collateral and shall (i) remain in full force and effect until
the later of the payment or satisfaction in full of the Obligations (other than
contingent indemnity obligations) and the termination of the Credit Agreement,
(ii) be binding upon Grantor, its successors and assigns and (iii) except to the
extent that the rights of any transferor, or assignor are limited by the terms
of the Credit Agreement, inure, together with the rights and remedies of the
Agent hereunder, to the benefit of the Agent and any of the Holders of Secured
Obligations. Nothing set forth herein or in any other Loan Document is intended
or shall be construed to give any other Person any right, remedy or claim under,
to or in respect of this Agreement or any other Loan Document or any Collateral.
Grantor's successors and assigns shall include, without limitation, a receiver,
trustee or debtor-in-possession thereof or therefor.
(b) Upon satisfaction in full of the Obligations (other than
contingent indemnity obligations) and the termination of the Credit Agreement,
this Agreement and the security interest granted hereby shall terminate and all
rights to the Collateral shall revert to Grantor. Upon any such termination of
security interest, Grantor shall be entitled to the return, upon its request and
at its expense, of such of the Collateral held by the Agent as shall not have
-10-
<PAGE>
been sold or otherwise applied pursuant to the terms hereof and the Agent will,
at Grantor's expense, execute and deliver to Grantor such other documents as
Grantor shall reasonably request to evidence such termination. In connection
with any sales of assets permitted under the Credit Agreement, the Agent will
release and terminate the liens and security interests granted under this
Agreement with respect to such assets.
SECTION 26. SEVERABILITY. It is the parties' intention that this
Agreement be interpreted in such a way that it is valid and effective under
applicable law. However, if one or more of the provisions of this Agreement
shall for any reason be found to be invalid or unenforceable, the remaining
provisions of this Agreement shall be unimpaired.
SECTION 27. GOVERNING LAW. THIS AGREEMENT HAS BEEN NEGOTIATED,
EXECUTED AND DELIVERED IN CHICAGO, ILLINOIS. THE AGENT HEREBY ACCEPTS THIS
AGREEMENT, ON BEHALF OF ITSELF AND THE LENDERS, AT CHICAGO, ILLINOIS BY
ACKNOWLEDGING AND AGREEING TO IT THERE. ANY DISPUTE BETWEEN GRANTOR AND THE
AGENT, ANY LENDER, OR ANY OTHER HOLDER OF SECURED OBLIGATIONS ARISING OUT OF,
CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED
BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT, AND WHETHER ARISING IN CONTRACT,
TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED IN ACCORDANCE WITH THE INTERNAL
LAWS (AND NOT THE CONFLICT OF LAWS PRINCIPLES) OF THE STATE OF ILLINOIS.
SECTION 28. CONSENT TO JURISDICTION; SERVICE OF PROCESS; JURY TRIAL.
(A) EXCLUSIVE JURISDICTION. Except as provided in SUBSECTION (B), each of
the parties hereto agrees that all disputes between them arising out of,
connected with, related to, or incidental to the relationship established
between them in connection with this Agreement, whether arising in contract,
tort, equity, or otherwise, shall be resolved exclusively by state or federal
courts located in Chicago, Illinois, but the parties hereto acknowledge that any
appeals from those courts may have to be heard by a court located outside of
Chicago, Illinois. Each of the parties hereto waives in all disputes brought
pursuant to this subsection any objection that it may have to the location of
the court considering the dispute.
(B) OTHER JURISDICTIONS. Grantor agrees that the Agent, any Lender or any
Holder of Secured Obligations shall have the right to proceed against Grantor or
its property in a court in any location to enable such Person to (1) obtain
personal jurisdiction over Grantor or (2) realize on the Collateral or any other
security for the Obligations or to enforce a judgment or other court order
entered in favor of such Person. Grantor agrees that it will not assert any
permissive counterclaims in any proceeding brought by such Person to realize on
the Collateral or any other security for the Obligations or to enforce a
judgment or other court order in favor of such Person. Grantor waives any
objection that it may have to the location of the court in which such Person has
commenced a proceeding described in this subsection.
(C) SERVICE OF PROCESS. Grantor waives personal service of any process
upon it. Grantor irrevocably waives any objection (including, without
limitation, any objection of the laying of
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<PAGE>
venue or based on the grounds of FORUM NON CONVENIENS) which it may now or
hereafter have to the bringing of any such action or proceeding with respect to
this Agreement or any other instrument, document or agreement executed or
delivered in connection herewith in any jurisdiction set forth above.
(D) WAIVER OF JURY TRIAL. EACH OF GRANTOR AND AGENT, FOR ITSELF AND THE
HOLDERS OF SECURED OBLIGATIONS, IRREVOCABLY WAIVES ANY RIGHT TO HAVE A JURY
PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR
OTHERWISE, ARISING OUT OF, CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT OR ANY
OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION
HEREWITH. EACH OF THE PARTIES HERETO AGREES AND CONSENTS THAT ANY SUCH CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY
AND THAT ANY PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS
AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES
HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
(E) WAIVER OF BOND. Grantor waives the posting of any bond otherwise
required of any party hereto in connection with any judicial process or
proceeding to realize on the collateral or any other security for the Secured
Obligations or to enforce any judgment or other court order entered in favor of
such party, or to enforce by specific performance, temporary restraining order,
preliminary or permanent injunction, this Agreement.
(F) ADVICE OF COUNSEL. Each of the parties represents to each other party
hereto that it has discussed this agreement and, specifically, the provisions of
this SECTION 28, with its counsel.
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<PAGE>
IN WITNESS WHEREOF, each of Grantor and the Agent has caused this
Agreement to be duly executed and delivered by its officer thereunto duly
authorized as of the date first above written.
ARCHIBALD CANDY CORPORATION
By: /s/ Donna M. Snopek
---------------------------
Name: Donna M. Snopek
Title: Vice President-Finance and
Accounting
THE FIRST NATIONAL BANK
OF CHICAGO, as Agent
By: /s/ Julia A. Bristow
---------------------------
Name: Julia A. Bristow
Title: Managing Director
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<PAGE>
EXHIBIT A
To
Amended and Restated Security Agreement
FORM OF LANDLORD/MORTGAGEE AGREEMENT:
Attached
<PAGE>
[Form of Landlord Agreement]
The First National Bank of Chicago,
as Agent
One First National Plaza
Suite 0173
Chicago, Illinois 60670-0173
Attention:
Ladies and Gentlemen:
Archibald Candy Corporation, an Illinois corporation ("Borrower"), is
the lessee under that certain lease ("Lease") dated between
Borrower, and the undersigned, covering certain premises located at
_________________ (the "Premises") more fully described in the lease attached
hereto as EXHIBIT A ("Lease"). The undersigned is the sole owner of the
Premises. Borrower has certain of its assets located on the Premises.
Borrower has entered into certain financing arrangements with a group
of lenders (the "Lenders") including The First National Bank of Chicago, both as
a Lender and in its separate capacity as the contractual representative of the
Lenders (the "Agent") and, as a condition to the loans and other financial
accommodations of the Lenders to Borrower, the Agent and the Lenders require,
among other things, that Borrower grant liens in favor of the Agent for the
benefit of itself and the Lenders on all of Borrower's property located on the
Premises ("Collateral").
To induce the Agent and the Lenders (together with their agents,
successors and assigns) to enter into said financing arrangements, and for other
good and valuable consideration, the undersigned hereby agrees that:
(i) the Lease represents the full and complete agreement between
Borrower and the undersigned concerning the Premises;
(ii) it will not assert against any of Borrower's assets any
statutory or possessory liens, including, without limitation, rights of
levy or distraint for rent, all of which it hereby waives;
(iii) none of the Collateral located on the Premises
shall be deemed to be fixtures;
(iv) it will notify the Agent if Borrower defaults on
its lease obligations to the undersigned and allow the Agent
thirty (30) days from the Agent's receipt of notice in which
to cure or cause Borrower to cure any such defaults;
(v) if, for any reason whatsoever, the undersigned
either deems itself entitled to redeem or to take possession
of the Premises during the term of
<PAGE>
Borrower's lease or intends to sell or otherwise transfer all
or any part of its interest in the Premises, the undersigned
will notify the Agent five (5) days before taking such
action;
(vi) if Borrower defaults on its obligations to the
Agent or any Lender and, as a result, the Agent undertakes to
enforce its security interest in the Collateral, the
undersigned will cooperate with the Agent in its efforts to
assemble all of the Collateral located on the Premises, will
permit the Agent to remain on the Premises for ninety (90)
days after the Agent declares the default, provided the Agent
pays the rental payments due under the Lease for the period
of time the Agent uses the Premises, or, at the Agent's
option, to remove the Collateral from the Premises within a
reasonable time, not to exceed ninety (90) days after the
Agent declares the default, provided the Agent pays the
rental payments due under the Lease for the period of time
the Agent uses the Premises, and will not hinder the Agent's
actions in enforcing its liens on the Collateral.
Any notice(s) required or desired to be given hereunder
shall be directed to the party to be notified at the address
stated herein.
The agreements contained herein shall continue in force
until all of Borrower's obligations and liabilities to the Agent
and the Lenders are paid and satisfied in full and all financing
arrangements among the Agent, the Lenders and Borrower have been
terminated.
The undersigned will notify all successor owners,
transferees, purchasers and mortgagees of the existence of this
waiver. The agreements contained herein may not be modified or
terminated orally and shall be binding upon the successors,
assigns and personal representatives of the undersigned, upon any
successor owner or transferee of the Premises, and upon any
purchasers, including any mortgagee, from the undersigned.
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<PAGE>
Executed and delivered this day of ,
199_, at .
[Name and Address of Lessor]
(By)
---------------------
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<PAGE>
EXHIBIT B
To
Amended and Restated Security Agreement
FORM OF BAILEE LETTER:
Attached
<PAGE>
[Form of Bailee Letter]
The First National Bank
of Chicago, as Agent
One First National Plaza
Suite 0173
Chicago, Illinois 60670-0173
Attention:
Ladies and Gentlemen:
Archibald Candy Corporation, an Illinois corporation
("Borrower"), now does or hereafter may store certain of its
merchandise, inventory, or other of its personal property at
premises (the "Premises") owned or leased by [Name of Bailee],
including, without limitation, such Premises described on EXHIBIT
A attached hereto.
Borrower has entered into certain financing arrangements
with certain financial institutions (the "Lenders") including The
First National Bank of Chicago, both as a Lender and in its
separate capacity as the contractual representative of the Lenders
(the "Agent") and, as a condition to the loans and other financial
accommodations of the Lenders to Borrower, the Agent and the
Lenders require, among other things, that Borrower grant liens in
favor of the Agent for the benefit of the Lenders on all of
Borrower's property located on the Premises ("Collateral").
To induce the Lenders (together with their respective
agents and assigns) to enter into said financing arrangements, and
for other good and valuable consideration, the undersigned hereby
agrees that:
(i) it will not assert against any of Borrower's assets
any statutory or possessory liens, including, without
limitation, rights of levy or distraint for rent, all of
which it hereby waives;
(ii) the Collateral shall be identifiable as being
owned by Borrower and kept reasonably separate and distinct
from other property in our possession;
(iii) none of the Collateral located on the Premises
shall be deemed to be fixtures;
(iv) if Borrower defaults on its obligations to the
Lenders or the Agent and, as a result, the Agent undertakes
to enforce its security interest in the Collateral, the
undersigned will cooperate with the Agent in its efforts to
assemble all of the Collateral located on the Premises and
will permit the Agent to either remain on the Premises for
ninety (90) days after the Agent declares
<PAGE>
the default, or, at the Agent's option, to remove the
Collateral from the Premises within a reasonable time, not to
exceed ninety (90) days after the Agent declares the default,
provided that the Agent leaves the Premises in the same
condition as existed immediately prior to such ninety (90)
day period, and the Agent shall indemnify the undersigned for
any damages arising out of its occupancy of the Premises, and
will not hinder the Agent's actions in enforcing its liens on
the Collateral.
Any notice(s) required or desired to be given hereunder
shall be directed to the party to be notified at the address
stated herein.
The agreements contained herein shall continue in force
until all of Borrower's obligations and liabilities to the Agent
and Lenders are paid and satisfied in full and all financing
arrangements among the Agent, the Lenders and Borrower have been
terminated.
The undersigned will notify all successor owners,
transferees, purchasers and mortgagees of the existence of this
agreement. The agreements contained herein may not be modified or
terminated orally and shall be binding upon the successors,
assigns and personal representatives of the undersigned, upon any
successor owner or transferee of any of the Premises, and upon any
purchasers, including any mortgagee, from the undersigned.
Executed and delivered this ____ day of __________,
199_, at _______________________.
[Name and Address of Bailee]
(By)
-----------------------
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<PAGE>
SCHEDULE I
TO
AMENDED AND RESTATED SECURITY AGREEMENT
[Reserved]
-3-
<PAGE>
SCHEDULE 2-A
TO
AMENDED AND RESTATED SECURITY AGREEMENT
THIRD PARTY LOCATIONS:
Corporate Name of Description
THIRD PARTY ADDRESS OF RELATIONSHIP
-4-
<PAGE>
SCHEDULE 2-B
TO
AMENDED AND RESTATED SECURITY AGREEMENT
JURISDICTIONS IN WHICH COLLATERAL IS LOCATED:
State of Arizona
State of Connecticut
State of Illinois
State of Indiana
Allen County
Bartholomew County
Hamilton County
Johnson County
Lake County
LaPorte County
Marion County
Monroe County
St. Joseph County
Tippecanoe County
Vigo County
State of Iowa
State of Kentucky
State of Maine
State of Maryland
Charles County
Montgomery County
State of Massachusetts
Town of Auburn
Town of Braintree
Town of Brockton
Town of Boston
Town of Burlington
Town of Cambridge
Town of Canton
Town of Chicopee
Town of Danvers
Town of Dedham
<PAGE>
Town of Framingham
Town of Hanover
Town of Medford
Town of Plymouth
Town of North Attleboro
Town of Watertown
State of Michigan
State of Minnesota
State of Missouri
St. Charles County
St. Louis County
St. Louis, Independent City
State of New Hampshire
Town of Bedford
Town of Manchester
Town of Nashua
Town of Newington
Town of North Conway
State of New Jersey
State of New York
Albany County
Broome County
Cayuga County
Chemung County
Erie County
Monroe County
New York County
Niagara County
Oneida County
Onondaga County
Ontario County
Queens County
Rockland County
Saratoga County
Schenectady County
Suffolk County
Warren County
State of North Dakota
- 2 -
<PAGE>
State of Ohio
Cuyahoga County
Erie County
Lake County
Lucas County
State of Pennsylvania
Allegheny County
Bucks County
Chester County
Delaware County
Montgomery County
Philadephia County
State of Rhode Island
State of South Dakota
State of Tennessee
State of Virginia
Fairfax County
Fairfax, Independent City
Waynesboro, Independent City
State of Wisconsin
- 3 -
<PAGE>
SCHEDULE 3
TO
AMENDED AND RESTATED SECURITY AGREEMENT
TRADE NAMES:
<PAGE>
SCHEDULE A
STOCK APPRECIATION RIGHTS AGREEMENT
This Stock Appreciation Rights Agreement is entered into as of
____________, 19___, by and between FANNIE MAY HOLDINGS, INC. (the "Company")
and __________________ ("Executive").
The Company desires to provide stock appreciation rights to Executive as an
incentive for Executive to participate in the management of the Company and its
subsidiaries.
In consideration of the mutual covenants and agreements herein set forth
and in consideration of Executive's service with the Company and its
subsidiaries, the parties hereto agree as follows:
1. DEFINITIONS.
"Board of Directors" means the Company's Board of Directors or any properly
constituted committee thereof.
"Cash-Out Event" means either (a) the sale by the Company's stockholders of
shares of Common Stock pursuant to a registration statement (other than a
registration statement on Form S-4 or S-8, or any successor form thereto) filed
and declared effective under the Securities Act of 1933, as amended ("Public
Offering"); (b) the closing of any merger, combination, consolidation or similar
business transaction involving the Company in which the holders of Common Stock
immediately prior to such closing are not the holders of a majority of the
ordinary voting securities of the surviving person in such transaction (a
"Business Combination"); (c) the closing of any sale by the Company of all or
substantially all of its assets to a person in which the holders of Common Stock
immediately prior to such closing are not the holders of a majority of the
ordinary voting securities immediately after such closing (an "Asset Sale"); or
(d) the closing of any sale by the holders of Common Stock of an amount of
Common Stock that equals or exceeds a majority of the shares of Common Stock
immediately prior to such closing to a person in which the holders of the Common
Stock immediately prior to such closing are not the holders of a majority of the
ordinary voting securities immediately after such closing (a "Stock Sale").
"Cause" shall mean material injury to the Company resulting from
Executive's gross negligence in the performance of, or Executive's willful
failure after written notice to perform, any of his duties as an employee of the
Company; Executives willful or intentional injury of the Company; and any act of
Executive involving moral turpitude which results in material injury to the name
or the goodwill of the Company.
"Common Stock" means the Company's common stock, par value $.01 per share,
of whatever class, whether voting or non-voting, issued and outstanding as of
the date hereof.
"Outstanding" means, with respect to the Common Stock, the issued and
outstanding Common Stock, shares of Common Stock issuable pursuant to options,
convertible securities or
<PAGE>
other rights, and stock appreciation rights in respect
of Common Stock pursuant to this Agreement or other agreements.
"Preferred Stock" means the Company's Preferred Stock, of whatever class,
whether voting or non-voting.
2. STOCKHOLDERS APPROVAL. The grant of stock appreciation rights,
including those granted herein, has been approved by the stockholders of the
Company holding at least 75% of the Common Stock.
3. GRANT. The Company hereby grants to Executive ____________ stock
appreciation rights in respect of the Common Stock. The Company represents and
warrants to Executive that, for purposes of computation of Executive's interest
in the Company, 52.75 rights equals 5% of the Outstanding Common Stock. All
outstanding rights pursuant to this Agreement and other agreements may be
amended with the Consent of Company and the holders of at least 66-2/3% of the
aggregate then outstanding rights.
4. CASH-OUT EVENTS. If a Cash-Out Event occurs, the Company will, within
fifteen days thereafter, give notice thereof to Executive and Executive shall,
within 60 days following the Cash-Out Event and in accordance with this
Agreement, exercise all or a portion of his stock appreciation rights granted
hereunder. When Executive so exercises his rights, the Company will pay to
Executive the amount determined in accordance with Sections 5 or 6, as
applicable. If the Company is restricted by law or any agreement or instrument
from paying Executive upon exercise of his stock appreciation rights hereunder,
the Company shall not be required to pay Executive upon exercise, but shall be
required to pay Executive the amount determined pursuant to Section 5, plus
simple interest accrued thereon from the notice of exercise at the rate of 8%
per annum, to be paid promptly after the Company is no longer so restricted from
so paying Executive. Executive agrees and acknowledges that all decisions
regarding a Cash-Out Event, including timing, terms and conditions and the
considerations relating thereto, are at the sole and absolute discretion of the
Company.
5. AMOUNT. Subject to the withholding of applicable payroll and other
taxes for the stock appreciation rights exercised by Executive, the Company
shall pay Executive (in cash, subject to Sections 4 and 6) an amount equal to
the product of: (a) the number of stock appreciation rights exercised by
Executive, multiplied by (b) an amount determined by reference to the type of
Cash-Out Event, as follows:
(A) (i) in the case of a Public Offering, an amount equal to the product
of the net public offering price (after reduction for underwriting
discounts, commissions and other offering expenses) received per share
of Common Stock sold by the stockholders multiplied by a fraction, the
numerator of which shall be the number of shares of Common Stock and
the denominator shall be the total number of shares of Common Stock
Outstanding; and
-2-
<PAGE>
(ii) provided, that, the number of rights which may be exercised as
provided in (a) above shall, in the event this clause (A) applies to
the Cash-Out Event, be the same percentage of the rights held by
Executive as the Common Stock sold by the Company's stockholders in
the Public Offering constitutes a percentage of the Common Stock; or
(B) in the case of a Business Combination, Asset Sale or Stock Sale, an
amount equal to the net consideration per share of Common Stock
Outstanding.
6. PAYMENT IN KIND. In the event that, in connection with any Cash-Out
Event, the holders of Common Stock receive consideration in a form other than
cash, then Executive, upon exercise of his stock appreciation rights, will
receive payment in kind, of the same type and in the same proportion, as paid in
respect of each share of Common Stock in connection with the Cash-Out Event,
subject in all events to the provisions of the last sentence of Section 4.
7. TERMINATION OF EMPLOYMENT.
(a) If Executive ceases to be employed by the Company or any of its
subsidiaries (i) at any time before the _________ anniversary of this Agreement,
for any reason (except death or disability) or no reason (whether with or
without Cause, voluntary or involuntary, or as a result of resignation); or (ii)
at any time after such anniversary due to termination for Cause, then
Executive's rights to the stock appreciation rights and any other rights and
interests hereunder shall automatically terminate.
(b) If Executive ceases to be employed by the Company or any of its
subsidiaries on account of death or disability or, at any time after the
______________ anniversary of this Agreement due to any reason other than
termination with Cause, then the Company shall have an option (the "Call
Option") exercisable upon 30 days notice given at any time within six months
after such termination (the "Option Period") to purchase from Executive all or
any portion of his stock appreciation rights at a purchase price per right equal
to the difference between: (i) the result obtained by taking the greater of:
(A) the Company's book value (as of the most recent quarterly financial
statement of the Company) at the time the Call Option is exercised; or
(B) four times the Company's earnings before interest and taxes for its
last completed fiscal year prior to the date of the exercise of the
Call Option less the amount of the Company's funded debt as of the end
of such fiscal year (in each case is determined from the most recent
annual financial statement of the Company);
divided, in either case, by the number of shares of Common Stock Outstanding as
at the end of such quarter or year, as the case may be; minus (ii) the quotient
of the sum of $17,700,000 plus any accrued and unpaid dividends on the shares of
the Company's Preferred and Common Stock as of the date of exercise divided by
the number of shares of Common Stock Outstanding. The Call
-3-
<PAGE>
Option shall be exercised by the Company by tendering to Executive the
purchase price for his stock appreciation rights, by certified or official
bank check, prior to the expiration of the Period of the notice provided
above. The Company at its option may instead deliver its note, payable in
three equal annual installments. The note shall be subordinated to all other
debt and creditors of the Company, and shall bear interest at 8% per annum
payable semiannually.
(c) All determinations under this Section 7 shall be made by the
Board of Directors, whose decision will be final and binding.
(d) Executive shall have a "put" option on same time and price
provisions as the "call".
8. TRANSFERS, ETC.
(a) Stock appreciation rights shall not be transferable by Executive
otherwise than by will or by the laws of descent and distribution or by gift to
members of Executive's immediate family or trustees for the benefit of such
members. During the lifetime of Executive a Stock Appreciation Right shall be
exercisable only by him or by his guardian or legal representative.
Notwithstanding this Section 8(a), the provisions of Section 7 with regard to
the termination of employment of Executive shall continue in full force and
effect and shall apply to the rights contained herein whether then held by
Executive or any transferee of Executive.
(b) Executive shall not have the rights of a stockholder on account
of these stock appreciation rights.
(c) For purposes of this Agreement, (i) a transfer of Executive from
the Company to a subsidiary or vice versa, or from one subsidiary or another,
shall not be deemed a termination of employment; and (ii) if Executive is
granted a leave of absence, he shall be deemed to have remained continuously in
the employ of the Company or a subsidiary during such leave of absence.
9. CHANGES IN CAPITAL STOCK. In the event of any change in the shares of
Common Stock Outstanding by reason of any stock dividend, split,
recapitalization, merger, consolidation, combination, exchange of shares or
other similar corporate change which does not constitute a Cash-Out Event, the
aggregate number of stock appreciation rights granted under this Agreement to
Executive, or the terms thereof, shall be adjusted by the Board of Directors, in
its reasonable discretion, to the extent necessary to preserve the benefits of
this Agreement to Executive and to the Company; provided if the date as of which
any computation hereunder is to be made (E.G., pursuant to Section 7(b)(i)(A) or
(B)) predates a change contemplated by this Section 9, such change shall be
disregarded in determining the number of stock appreciation rights held by or
the amount to be paid to Executive.
10. HEIRS, ETC. This Agreement shall be binding on Executive, his heirs
and personal representatives and on the Company and its successors and assigns.
-4-
<PAGE>
11. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, any one of which shall be deemed an original without reference to
the others.
12. EMPLOYMENT. This Agreement is not, and shall not be construed in any
way, as an employment agreement for the benefit of Executive.
13. NOTICES. Notice given hereunder shall be in writing, and delivered
either in person or by registered mail, return receipt requested or receipted
courier service, and shall be deemed given on the day of personal delivery or
delivery by courier service or on the second day after mailing, if mailed, as
the case may be. Notice shall be given at the address set forth on the
signature page hereto.
FANNIE MAY HOLDINGS, INC. Address for Notice:
By:____________________________ c/o Jordan Industries, Inc.
1751 Lake Cook Road, Suite 550
Its:____________________________ Deerfield, Illinois 60015
Attention: Thomas H. Quinn
_______________________________ Address for Notice:
______________________, Executive
______________________________
______________________________
______________________________
<PAGE>
LEASE
BY AND BETWEEN
CHICAGO MIDWAY JOINT VENTURE,
Landlord
AND
ARCHIBALD CANDY CORPORATION
Tenant
<PAGE>
TABLE OF CONTENTS
1. REFERENCE DATA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. DESCRIPTION OF DEMISED PREMISES . . . . . . . . . . . . . . . . . . . . . 1
2.1 Demised Premises . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.2 Appurtenant Rights . . . . . . . . . . . . . . . . . . . . . . . . . 1
3. TERM OF LEASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
4. CONDITION OF PREMISES . . . . . . . . . . . . . . . . . . . . . . . . . . 1
4.1 "As-Is" Condition. . . . . . . . . . . . . . . . . . . . . . . . . . 1
4.2 Tenant Payments of Construction Cost . . . . . . . . . . . . . . . . 1
5. USE OF PREMISES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
5.1 Permitted Use. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
5.2 Prohibited Uses. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
5.3 Licenses and Permits . . . . . . . . . . . . . . . . . . . . . . . . 2
6. RENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
6.1 Payment of Rent. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
6.2 Late Payment by Tenant . . . . . . . . . . . . . . . . . . . . . . . 3
7. SERVICES FURNISHED BY LANDLORD. . . . . . . . . . . . . . . . . . . . . . 3
7.1 Utilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
7.2 Common Areas . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
7.3 Repairs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
7.4 Interruption or Curtailment of Services. . . . . . . . . . . . . . . 4
8. ESCALATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
8.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
8.2 Tenant's Operating Expenses. . . . . . . . . . . . . . . . . . . . . 7
8.3 Tenant's Real Estate Taxes . . . . . . . . . . . . . . . . . . . . . 7
8.4 Part Years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
9. CHANGES OR ALTERATIONS BY LANDLORD. . . . . . . . . . . . . . . . . . . . 8
10. FIXTURES, EQUIPMENT AND IMPROVEMENTS--REMOVAL BY TENANT . . . . . . . . . 8
11. ALTERATIONS AND IMPROVEMENTS BY TENANT. . . . . . . . . . . . . . . . . . 9
12. TENANT'S CONTRACTORS--MECHANICS' AND OTHER LIENS--
STANDARD OF TENANT'S PERFORMANCE-COMPLIANCE WITH LAWS . . . . . . . . . .10
<PAGE>
13. REPAIRS BY TENANT . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
14. INSURANCE, INDEMNIFICATION, EXONERATION AND EXCULPATION . . . . . . . . .11
14.1 General Liability Insurance. . . . . . . . . . . . . . . . . . . . .11
14.2 Certificates of Insurance. . . . . . . . . . . . . . . . . . . . . .11
14.3 General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
14.4 Property of Tenant . . . . . . . . . . . . . . . . . . . . . . . . .12
14.5 Bursting of Pipes, etc . . . . . . . . . . . . . . . . . . . . . . .13
14.6 Repairs and Alterations-No Diminution of Rental Value. . . . . . . .13
15. ASSIGNMENT, MORTGAGING AND SUBLETTING . . . . . . . . . . . . . . . . . .13
15.1 Covenant Against Subleases and Assignment. . . . . . . . . . . . . .13
15.2 Assignment of Equity Interest in Tenant. . . . . . . . . . . . . . .13
15.3 Assignment by Merger . . . . . . . . . . . . . . . . . . . . . . . .14
15.4 Offerback. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
15.5 Tenant Partnerships. . . . . . . . . . . . . . . . . . . . . . . . .15
15.6 Miscellaneous Provisions . . . . . . . . . . . . . . . . . . . . . .16
16. MISCELLANEOUS COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . .17
16.1 Rules and Regulations. . . . . . . . . . . . . . . . . . . . . . . .17
16.2 Access to Premises-Shoring . . . . . . . . . . . . . . . . . . . . .17
16.3 Accidents to Sanitary and Other Systems. . . . . . . . . . . . . . .18
16.4 Signs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
16.5 Estoppel Certificate . . . . . . . . . . . . . . . . . . . . . . . .19
16.6 Odors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
16.7 Requirements of Law -- Fines and Penalties . . . . . . . . . . . . .19
16.8 Tenant's Acts -- Effect on Insurance . . . . . . . . . . . . . . . .19
16.9 Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . .20
17. DAMAGE BY FIRE, ETC.. . . . . . . . . . . . . . . . . . . . . . . . . . .20
18. WAIVER OF SUBROGATION . . . . . . . . . . . . . . . . . . . . . . . . . .21
19. CONDEMNATION - EMINENT DOMAIN . . . . . . . . . . . . . . . . . . . . . .22
20. DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
20.1 Conditions of Limitation - Re-entry - Termination. . . . . . . . . .23
20.2 Damages - Assignment for Benefit of Creditors. . . . . . . . . . . .24
20.3 Damages - Termination. . . . . . . . . . . . . . . . . . . . . . . .24
20.4 Fees and Expenses. . . . . . . . . . . . . . . . . . . . . . . . . .26
20.5 Waiver of Redemption . . . . . . . . . . . . . . . . . . . . . . . .26
20.6 Landlord's Remedies Not Exclusive. . . . . . . . . . . . . . . . . .26
20.7 Grace Period . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
ii
<PAGE>
21. END OF TERM - ABANDONED PROPERTY. . . . . . . . . . . . . . . . . . . . .27
22. SUBORINDATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
23. QUIET ENJOYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
24. ENTIRE AGREEMENT - WAIVER - SURRENDER . . . . . . . . . . . . . . . . . .30
24.1 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . .30
24.2 Waiver by Landlord . . . . . . . . . . . . . . . . . . . . . . . . .30
24.3 Surrender. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
25. INABILITY TO PERFORM - EXCULPATORY CLAUSE . . . . . . . . . . . . . . . .31
26. BILLS AND NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
27. PARTIES BOUND - SEIZEN OF TITLE . . . . . . . . . . . . . . . . . . . . .32
28. HAZARDOUS WASTE . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
29. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
29.1 Separability . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
29.2 Captions, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . .35
29.3 Broker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
29.4 Modifications. . . . . . . . . . . . . . . . . . . . . . . . . . . .36
29.5 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . .36
29.6 Assignment of Rents. . . . . . . . . . . . . . . . . . . . . . . . .36
29.7 Representation of Authority. . . . . . . . . . . . . . . . . . . . .36
29.8 Expenses Incurred by Landlord Upon Tenant Requests . . . . . . . . .36
29.9 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
EXHIBITS
Exhibit 1 Reference Data
Exhibit 2 Lease Plan
Exhibit 3 Legal Description
iii
<PAGE>
MAP
<PAGE>
EXHIBIT 1, SHEET 1
5555 South Archer Avenue
Chicago, Illinois
("the Building")
REFERENCE DATA
Execution Date: April 17, 1997
---------------
Tenant: Archibald Candy Corporation
----------------------------------------------------------------
(name)
an Illinois corporation
----------------------------------------------------------------
(description of business organization)
1137 West Jackson Boulevard, Chicago, IL 60607
----------------------------------------------------------------
(principal place of business-mailing address)
Landlord: CHICAGO MIDWAY JOINT VENTURE, an Illinois general partnership by
and between Beacon Midway, L.P., a Delaware limited partnership,
and Chicago Industrial RPF Limited Partnership, an Illinois
limited partnership.
Common Areas: The portion of the driveways, parking lot, sidewalks and
landscaped areas in the Complex, as the same may be changed by
Landlord, from time to time, which Landlord designates, from time
to time, for the use of all tenants in the Complex.
Complex: The buildings and land known as the Midway Business Center,
located at Cicero, South Archer and South Laramie Avenues,
Chicago, Illinois. The legal description of the land is attached
to the Lease as Exhibit 3.
Building: The building in the Complex known as and numbered 5555 South
Archer Avenue, Chicago, Illinois.
Art. 2.1 Premises: An area containing 112,222 square feet of Rentable Area
in the Building, substantially as shown on Lease Plan,
Exhibit 2
Art. 3.1 Term Commencement Date: July 1, 1997
Art. 3.1 Termination Date: June 30, 2000
Art. 5 Use of Premises: Storage and distribution of candy
products
<PAGE>
EXHIBIT 1, SHEET 2
5555 South Archer Avenue
Chicago, Illinois
("the Building")
Tenant: Archibald Candy Corporation
---------------------------
Execution Date: April 17, 1997
--------------
Art. 6 Yearly Rent:
Rental Period Yearly Rent Monthly Payment
------------- ----------- ---------------
July 1, 1997 - $0 $0
August 31, 1997
September 1, 1997 - $235,666.20 $19,638.85
June 30, 1998
July 1, 1998 - $241,277.28 $20,106.44
June 30, 1999
July 1, 1999 - $252,499.56 $21,041.63
June 30, 2000
Art. 8 Escalation:
Tenant's Proportionate Complex Share: 8.66%
Tenant's Proportionate Building Share: 10.40%
Art. 28(f) Hazardous Materials to be brought
into Premises by Tenant: None
Art. 29.3 Broker: None
2
<PAGE>
EXHIBIT 1, SHEET 3
5555 South Archer Avenue
Chicago, Illinois
("the Building")
Tenant: Archibald Candy Corporation
---------------------------
Execution Date: April 17, 1997
--------------
Exhibit Dates: Lease Plan, Exhibit 2, dated April 17, 1997
LANDLORD: TENANT:
CHICAGO MIDWAY JOINT VENTURE ARCHIBALD CANDY CORPORATION
By: Beacon Midway, L.P., Operating
Partner
By: Beacon Midway Corporation,
its General Partner
By:/s/ Edwin N. Sidman By: /s/ Alan W. Petrik
------------------------ ------------------------
Edwin N. Sidman Alan W. Petrik
Vice President Vice President
Hereunto Duly Authorized Hereunto Duly Authorized
Date Signed: May 6, 1997 Date Signed: April 22, 1997
------------------------- -----------------
Landlord's Notice Address: Tenant's Notice Address:
c/o The Beacon Companies Archibald Candy Corporation
Two Oliver Street 1137 West Jackson Boulevard
Boston, MA 02109 Chicago, Illinois 60607
Attn: General Partner
with a copy to:
Goulston & Storrs, P.C.
400 Atlantic Avenue
Boston, MA 02110
Attn: Raymond M. Kwasnick, Esq.
3
<PAGE>
THIS INDENTURE OF LEASE made and entered into on the Execution Date as
stated in Exhibit 1 and between the Landlord and the Tenant named in Exhibit
1.
Landlord does hereby demise and lease to Tenant, and Tenant does hereby hire
and take from Landlord, the premises hereinafter mentioned and described
(hereinafter referred to as "premises"), upon and subject to the covenants,
agreements, terms, provisions and conditions of this Lease for the term
hereinafter stated:
1. REFERENCE DATA
Each reference in this Lease to any of the terms and titles contained in
any Exhibit attached to this Lease shall be deemed and construed to
incorporate the data stated under that term or title in such Exhibit.
2. DESCRIPTION OF DEMISED PREMISES
2.1 DEMISED PREMISES. The premises are a portion of the Building,
substantially as shown hatched or outlined on the Lease Plan (Exhibit 2)
hereto attached and incorporated by reference as a part hereof. Landlord
reserves the right, at its own cost and expense, to require Tenant, upon not
less than thirty (30) days' notice, to relocate its premises elsewhere in the
Building or Complex of which the Building is a part, to an area of
substantially equivalent size, construction and finish as designated by
Landlord.
2.2 APPURTENANT RIGHTS. Tenant shall have, as appurtenant to the
premises, right to use the Common Areas, for the purposes for which they were
intended to be used in common, with others entitled thereto, subject to
reasonable rules from time to time made by Landlord of which Tenant is given
notice; and no other appurtenant rights or easements.
3. TERM OF LEASE
TO HAVE AND TO HOLD the premises for a term of years commencing on the
Term Commencement Date and ending on the Termination Date, both as stated in
Exhibit 1 or on such earlier date upon which said term may expire or be
terminated pursuant to any of the conditions of limitation or other
provisions of this Lease or pursuant to law (which date for the termination
of the terms hereof will hereafter be called "Termination Date").
4. CONDITION OF PREMISES
4.1 "AS-IS" CONDITION. Tenant acknowledges and agrees that it has had
an opportunity to inspect the premises and that it is taking the premises
"as-is", without any obligation on the part of Landlord to prepare or
construct the premises for Tenant's occupancy. Tenant further acknowledges
and agrees that Landlord has made no representation as to the condition of
the premises and that it is relying upon its own inspection of the premises
in entering into this Lease.
4.2 TENANT PAYMENTS OF CONSTRUCTION COST. Landlord shall have the same
rights and remedies which Landlord has upon the nonpayment of Yearly Rent and
other charges due under this
<PAGE>
Lease for nonpayment of any amounts which Tenant is required to pay to
Landlord or Landlord's contractor in connection with any construction in the
premises performed for Tenant by Landlord or Landlord's contractor, which
amounts shall be considered additional rent.
5. USE OF PREMISES
5.1 PERMITTED USE. Tenant shall continuously during the term hereof
occupy and use the premises only for the purposes as stated in Exhibit 1 and
for no other purposes.
5.2 PROHIBITED USES. Notwithstanding any other provision of this
Lease, Tenant shall not use or suffer or permit the use or occupancy of, or
suffer or permit anything to be done in or anything to be brought into or
kept in or about the premises or the Building or any part thereof (including,
without limitation, any materials used in the construction or other
preparation of the premises and furniture and carpeting): (i) which would
violate any of the covenants, agreements, terms, provisions and conditions of
this Lease or otherwise applicable to or binding upon the premises; (ii) for
any unlawful purposes or in any unlawful manner; (iii) which, in the
reasonable judgment of Landlord shall in any way (a) impair the appearance or
reputation of the Building or (b) impair or interfere with the use or
occupancy of any of the other areas of the Building, or occasion discomfort,
inconvenience or annoyance, or injury or damage to any occupants of the
premises or other tenants or occupants of the Building or (iv) which is
inconsistent with the maintenance of the Building as an industrial building.
Tenant shall not install or use any electrical or other equipment of any kind
which, in the reasonable judgment of Landlord, might overload the electrical
systems of the premises or the Building.
5.3 LICENSES AND PERMITS. If any governmental license or permit shall
be required for the proper and lawful conduct of Tenant's business, and if
the failure to secure such license or permit would in any way affect
Landlord, the premises, the Building or Tenant's ability to perform any of
its obligations under this Lease, Tenant, at Tenant's expense, shall duly
procure and thereafter maintain such license and submit the same to
inspection by Landlord. Tenant, at Tenant's expense, shall at all times
comply with the terms and conditions of each such license or permit. Tenant
shall furnish all data and information to Governmental authorities and
Landlord as required in accordance with legal, regulatory, licensing or other
similar requirements as they relate to Tenant's use or occupancy of the
premises or the Building.
6. RENT
6.1 PAYMENT OF RENT. During the term of this Lease the Yearly Rent and
other charges at the rate stated in Exhibit 1, shall be payable by Tenant to
Landlord by monthly payments, as stated in Exhibit 1, in advance and without
demand on the first day of each month for and in respect of such month. The
rent and other charges reserved and covenanted to be paid under this Lease
shall commence on the Term Commencement Date. Notwithstanding anything to
the contrary contained in this Lease, Tenant's obligation to pay Yearly Rent,
Tenant's Operating Expenses and Tenant's Real Estate Taxes shall not commence
to accrue until the date (the "Rent Commencement Date") which is two (2)
months after the Term Commencement Date (i.e., September 1, 1997).
2
<PAGE>
Notwithstanding the provisions of the next preceding sentence, Tenant shall
pay the first monthly installment of rent on the execution of this Lease.
If, by reason of any provisions of this Lease, the rent reserved hereunder
shall commence or terminate on any day other than the first day of a calendar
month, the rent for such calendar month shall be prorated. The rent shall be
payable to Landlord or, if Landlord shall so direct in writing, to Landlord's
agent or nominee, in lawful money of the United States which shall be legal
tender for payment of all debts and dues, public and private, at the time of
payment, at the office of the Landlord or such place as Landlord may
designate, and the rent and other charge in all circumstances shall be
payable without any setoff or deduction whatsoever.
6.2 LATE PAYMENT BY TENANT. Rental and any other sums due hereunder
not paid within fifteen (15) days after the date due shall bear interest for
each month or fraction thereof from the due date until paid computed at the
annual rate of two percentage points over the so-called Corporate base rate
then currently from time to time charged by The First National Bank of
Chicago, or at any applicable lesser maximum legally permissible rate for
debts of this nature. In addition, Tenant acknowledges that in the event of
late payments by Tenant, Landlord will be incurring administrative costs
which are difficult to ascertain. Therefore, in the event that rental or
other sums due hereunder are not paid within fifteen (15) days after the date
due, Tenant shall pay to Landlord, upon demand, as additional rent, an
administrative fee of five (5%) percent of such past due amount.
7. SERVICES FURNISHED BY LANDLORD
7.1 UTILITIES. Tenant shall pay for all water, gas, heat, light,
power, telephone, sewer, sprinkler system charges and other utilities and
services used on or from the premises, including without limitation, Tenant's
proportionate share as determined by Landlord for the use of any central
station signaling system installed in the premises or the Building together
with any taxes, penalties, and surcharges or the like pertaining thereto and
any maintenance charges for utilities. Without limiting the foregoing,
Tenant shall be responsible for bringing telephone lines from the Ameritech
feed connection located in Unit E of the Complex to the premises. Tenant
shall furnish all electric light bulbs, tubes and ballasts. If any such
services are not separately metered to Tenant, Tenant shall pay such
proportion of all charges jointly metered with other premises as determined
by Landlord, in its sole discretion, to be reasonable. Any such charges paid
by Landlord and assessed against Tenant shall be immediately payable to
Landlord on demand and shall be additional rent hereunder.
7.2 COMMON AREAS. Except as otherwise provided in Articles 17 and 19,
Landlord shall provide the following services to the Common Areas:
(a) Landlord shall maintain in good repair exterior lighting,
common sewerage lines, driveways and sidewalks;
(b) Landlord shall perform regular mowing of grass, trimming, weed
removal, and general landscape maintenance as reasonably necessary;
3
<PAGE>
(c) Landlord shall coordinate any repairs and other maintenance of
any railroad tracks serving the Building and if Tenant uses such rail tracks,
Tenant shall reimburse Landlord or the railroad company from time to time
upon demand, as additional rent, for its share of the costs of such repair
and maintenance and any other sums specified in any agreement to which
Landlord or Tenant is a party respecting such tracks, such costs to be borne
proportionately by all tenants in the Building using such rail tracks, based
upon the actual number of rail cars shipped and received by such tenant
during each calendar year during the term;
(d) Landlord shall clean and remove snow and ice from the
driveways and sidewalks, as reasonably necessary.
7.3 REPAIRS. Except as otherwise provided in Articles 17 and 19, and
subject to Tenant's obligations in Article 13, Landlord shall keep and
maintain the roof, exterior walls (excluding windows, glass or plate glass,
doors, and special store fronts or office entries), and the foundation of the
Building in good condition and repair, reasonable wear and tear excepted.
7.4 INTERRUPTION OR CURTAILMENT OF SERVICES. When necessary by reason
of accident or emergency, or for repairs, alterations, replacements or
improvements which in the reasonable judgment of Landlord are desirable or
necessary to be made, or of difficulty or inability in securing supplies or
labor, or by reason of strikes, or of any other cause beyond the reasonable
control of Landlord, whether such other cause be similar or dissimilar to
those hereinabove specifically mentioned until said cause has been removed,
Landlord reserves the right to interrupt, curtail, stop or suspend any
services which Landlord is required to provide hereunder, including, without
limitation, the operation of the plumbing and electric systems. Landlord
shall exercise reasonable diligence to eliminate the cause of any such
interruption, curtailment, stoppage or suspension, but, except as provided in
Articles 17 and 19, there shall be no diminution or abatement of rent or
other compensation due from Tenant to Landlord hereunder, nor shall this
Lease be affected or any of the Tenant's obligations hereunder reduced, and
Landlord shall have no responsibility or liability for any such interruption,
curtailment, stoppage, or suspension of services or systems.
8. ESCALATION
8.1 DEFINITIONS. As used in this Article 8, the words and terms which
follow mean and include the following:
(a) "Tax Year" shall mean any fiscal/tax year in which occurs any
part of the term of this Lease, except as provided in the next succeeding
sentence. The parties acknowledge that Real Estate Taxes are, as of the date
hereof, assessed on a calendar year basis and paid in arrears (e.g., Real
Estate Taxes for calendar year 1996 are paid in 1997); accordingly, provided
that Real Estate Taxes are assessed and paid in such manner, the first (1st)
Tax Year shall be the first full fiscal/tax year immediately preceding the
Term Commencement Date.
(b) "Operating Year" shall mean a calendar year in which occurs
any part of the term of this Lease.
4
<PAGE>
(c) "Tenant's Proportionate Complex Share" shall be the figure as
stated on Exhibit 1, which is determined by dividing the Rentable Area of the
premises by the Rentable Area of the Building and the building located at
5333 South Laramie Avenue, Chicago, Illinois.
(d) "Tenant's Proportionate Building Share" shall be the figure as
stated in Exhibit 1, which is determined by dividing the Rentable Area of the
premises by the Rentable Area of the Building.
(e) "Tax Parcel" shall be the land ("Land"), the buildings, and
all other improvements of the Complex, as defined in Exhibit 1.
(f) "Operating Costs" shall mean any and all expenses, cost and
disbursements (other than Real Estate Taxes) of any kind and nature
whatsoever incurred by Landlord in connection with the ownership, management,
repair, maintenance and operation of the Building and the Common Areas,
including, without limitation, the cost of paving and landscape maintenance
for the Common Areas, mowing of the grass, care of shrubs, general
landscaping, maintaining and repairing parking areas, driveways, alleys and
easements, cleaning services for the Common Areas, removing snow and ice,
Common Area utilities, maintaining, repairing and replacing light fixtures
and light bulbs for Common Areas, roof repairs and maintenance, exterior
painting, insurance premiums for all insurance policies and endorsements
deemed by Landlord to be reasonably necessary or desirable and management or
administration fees.
"Operating Costs" shall not include mortgage charges and brokerage
commissions. In addition, Operating Costs shall not include depreciation or
capital expenditures unless such capital expenditure ("Permitted Capital
Expenditure"): (i) is reasonably projected to reduce Operating Costs, or (ii) is
required under any governmental law, regulation or ordinance which was not
applicable to the Building as of the Term Commencement Date. With respect to
Permitted Capital Expenditures, there shall be included in Operating Costs for
each Operating Year in which and after such capital expenditure is made the
annual charge-off of such capital expenditure. (Annual charge-off shall be
determined by (i) dividing the original cost of the capital expenditure by the
number of years of useful life thereof [The useful life shall be reasonably
determined by Landlord in accordance with generally accepted accounting
principles and practices in effect at the time of acquisition of the capital
item.]; and (ii) adding to such quotient an interest factor computed on the
unamortized balance of such capital expenditure at an annual rate of either one
percentage point over the AA Bond rate [Standard & Poor's corporate composite
or, if unavailable, its equivalent] as reported in the financial press at the
time the capital expenditure is made or, if the capital item is acquired through
third-party financing, then the actual [including fluctuating] rate paid by
Landlord in financing the acquisition of such capital item.) Provided, further,
that if Landlord reasonably concludes on the basis of engineering estimates that
a particular capital expenditure will effect savings in Building operating
expenses including, without limitation, energy-related costs, and that such
annual projected savings will exceed the annual charge-off of capital
expenditures computed as aforesaid, then and in such events, the annual
charge-off shall be determined by dividing the amount of such capital
expenditures by the number of years over which the projected amount of such
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savings shall fully amortize the cost of such capital item or the amount of such
capital expenditure; and by adding the interest fact, as aforesaid.
In the event during all or any portion of any calendar year the
Building or the Complex is not fully rented and occupied, Landlord may elect
to make an appropriate adjustment in Operating Costs for such year, employing
sound accounting and management principles, to determine Operating Costs that
would have been paid or incurred by Landlord had the Building or the Complex
been fully rented and occupied and the amount so determined shall be deemed
to have been Operating Costs for such year.
For the purposes hereof Operating Costs shall be allocated into two
categories: "Building Operating Costs", i.e. those costs incurred by Landlord
with respect to the Building, and "Common Area Operating Costs", i.e. those
costs incurred by Landlord with respect to the Common Areas. Landlord shall
allocate Operating Costs into such categories on a fair and reasonable basis.
In connection with the foregoing, Building Operating Costs shall exclude any
costs incurred in connection with other Buildings in the Complex, and
Landlord shall allocate costs incurred with respect to more than one building
in the Complex on a fair and reasonable basis.
(g) "Real Estate Taxes" shall mean the Real Estate Taxes and other
taxes, levies and assessments (including, without limitation, special
assessments and any tax on the gross rents received by Landlord from the Tax
Parcel) imposed upon the Tax Parcel and upon any personal property of
Landlord used in the operation thereof or Landlord's interest in the Tax
Parcel or such personal property; charges, fees and assessments for transit,
housing, police, fire or other governmental services or purported benefits to
the Building; service or user payments in lieu of taxes, levies, betterments,
assessments and charges arising from the ownership, leasing, operating, use
or occupancy of the Building or based upon the rentals derived therefrom,
which are or shall be imposed by National, State, Municipal or other
authorities. As of the Execution Date, Real Estate Taxes shall not include
any franchise, rental, net income or profit tax, capital levy or excise,
provided, however, that any of the same and any other tax, excise, fee, levy,
charge or assessment, however described, that may in the future be levied or
assessed as a substitute for or an addition to, in whole or in part, any tax,
levy or assessment which would otherwise constitute Real Estate Taxes,
whether or not now customary or in the contemplation of the parties on the
Execution Date of this Lease, shall constitute Real Estate Taxes, but only to
the extent calculated as if the Tax Parcel is the only real estate owned by
Landlord. Real Estate Taxes shall also include expenses (including, without
limitation, attorneys' and consultants' fees) in attempting to reduce Real
Estate Taxes.
Appropriate credit against Real Estate Taxes shall be given for any
refund obtained by reason of a reduction in any Real Estate Taxes by the
assessors or the administrative, judicial or other governmental agency
responsible thereof. The original computations, as well as reimbursement or
payments of additional charges, if any, or allowances, if any, under the
provisions of Article 8.3 shall be based on the original assessed valuations
with adjustments to be made at a later date when the tax refund, if any,
shall be paid to Landlord by the taxing authorities. Expenditures for legal
fees and for other similar or dissimilar expenses incurred in seeking the tax
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refund may be charged against the tax refund before the adjustments are made
for an Operating Year.
8.2 TENANT'S OPERATING EXPENSES. Tenant shall pay to Landlord, as
additional rent, Tenant's Proportionate Building Share of Building Operating
Costs incurred by Landlord in respect of any Operating Year and Tenant's
Proportionate Complex Share of Common Area Operating Costs incurred by
Landlord in respect of any Operating Year, during the term of this Lease.
The amounts payable by Tenant pursuant to this Article 8.2 are collectively
referred to herein as "Tenant's Operating Expenses". Tenant's Operating
Expenses shall be due when billed by Landlord. In implementation and not in
limitation of the foregoing, Tenant shall, commencing as of the Rent
Commencement Date, remit to Landlord pro rata monthly installments on account
of projected Tenant's Operating Expenses, calculated by Landlord on the basis
of the most recent Operating Cost data or budget available. If the total of
such monthly remittances on account of any Operating Year is greater than the
actual Tenant's Operating Expenses for such Operating Year, Tenant may credit
the difference against the next installment of rent or other charges due to
Landlord hereunder. If the total of such remittances is less than actual
Tenant's Operating Expenses for such Operating Year, Tenant shall pay the
difference to Landlord when billed therefor.
8.3 TENANT'S REAL ESTATE TAXES. Tenant shall pay to Landlord, as
additional rent, Tenant's Proportionate Complex Share of Real Estate Taxes
incurred with respect to each Tax Year (referred to herein as "Tenant's Real
Estate Taxes"). Tenant's Real Estate Taxes shall be due when billed by
Landlord. In implementation and not in limitation of the foregoing, Tenant
shall, commencing as of the Rent Commencement Date, remit to Landlord pro
rata monthly installments on account of projected (as such projection may be
changed, from time to time by Landlord) Tenant's Real Estate Taxes for Real
Estate Taxes due in the succeeding Tax Year projected by Landlord on the
basis of the most recent data available, including notices of proposed
assessment. If the total of such monthly remittances on account of any Tax
Year is greater than the actual Tenant's Real Estate Taxes for such Tax Year,
Tenant may credit the difference against the next installment of rent or
other charges due to Landlord hereunder, except that if such difference is
determined after the end of the term of this Lease, Landlord shall refund
such difference to Tenant to the extent that such difference exceeds any
amounts then due from Tenant to Landlord. If the total of such remittances
is less than actual Tenant's Real Estate Taxes for such Tax Year, Tenant
shall pay the difference to Landlord when billed therefor.
8.4 PART YEARS. If the Term Commencement Date or the Termination Date
occurs in the middle of an Operating Year, Tenant shall be liable for only
that portion of Tenant's Operating Expenses in respect of such Operating
Year, represented by a fraction, the numerator of which is the number of days
of the herein term which falls within the Operating Year and the denominator
of which is three hundred sixty-five (365). If the Term Commencement Date or
the Termination Date occurs in the middle of a Tax Year, Tenant shall be
liable for only that portion of Tenant's Real Estate Taxes in respect of such
Tax Year, represented by a fraction, the numerator of which is the number of
days of the herein term within such Tax Year and the denominator of which is
three hundred sixty-five (365).
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9. CHANGES OR ALTERATIONS BY LANDLORD
Landlord reserves the right, exercisable by itself or its nominee, at
any time and from time to time without the same constituting an actual or
constructive eviction and without incurring any liability to Tenant therefor
or otherwise affecting Tenant's obligations under this Lease, to make such
changes, alterations, additions, improvements, repairs or replacements in or
to the Building (including the premises), the Common Areas, and the fixtures
and equipment thereof as it may deem necessary or desirable, and to change
the arrangement and/or location of entrances or passageways, doors and
doorways of the Building, provided, however, that there be no unreasonable
obstruction of the right of access to, or unreasonable interference with the
use of the premises by Tenant. Nothing contained in this Article 9 shall be
deemed to relieve Tenant of any duty, obligation or liability of Tenant with
respect to making any repair, replacement or improvement or complying with
any law, order or requirement of any governmental or other authority.
Landlord reserves the right to adopt and at any time and from time to time to
change the name or address of the Building. Neither this Lease nor any use
by Tenant shall give Tenant any right or easement for the use of the Common
Areas or of any door or any passage or any concourse connecting with any
other building or to any public convenience, and the use of the Common Areas
and such concourses and such conveniences may be regulated or discontinued at
any time and from time to time by Landlord without notice to Tenant and
without affecting the obligation of Tenant hereunder or incurring any
liability to Tenant therefor, provided, however, that there be no
unreasonable obstruction of the right of access to, or unreasonable
interference with the use of the premises by Tenant.
10. FIXTURES, EQUIPMENT AND IMPROVEMENTS--REMOVAL BY TENANT
All fixtures, equipment, improvements and appurtenances attached to or
built into the premises prior to or during the term, whether by Landlord at
its expense or at the expense of Tenant (either or both) or by Tenant shall
be and remain part of the premises and shall not be removed by Tenant during
or at the end of the term unless Landlord otherwise elects to require Tenant
to remove such fixtures, equipment, improvements and appurtenances, in
accordance with Article 11 and/or 21 of the Lease. All electric, telephone,
telegraph, communication, radio, plumbing, heating and sprinkling systems,
fixtures and outlets, vaults, paneling, molding, shelving, radiator
enclosures, cork, rubber, linoleum and composition floors, ventilating,
silencing, air conditioning and cooling equipment, shall be deemed to be
included in such fixtures, equipment, improvements and appurtenances, whether
or not attached to or built into the premises. Where not built into the
premises, all removable electric fixtures, carpets, drinking or tap water
facilities, furniture, or trade fixtures or business equipment or Tenant's
inventory or stock in trade shall not be deemed to be included in such
fixtures, equipment, improvements and appurtenances and may be, and upon the
request of Landlord, will be removed by Tenant upon the condition that such
removal shall not materially damage the premises or the Building and that the
cost of repairing any damage to the premises or the Building arising from
installation or such removal shall be paid by Tenant. Notwithstanding
anything to the contrary contained in this Lease, upon the expiration or
sooner termination of the term of this Lease, Tenant shall remove from the
premises Tenant's racking and storage systems, Tenant's package freezers, the
four (4) HVAC units installed by Tenant on the roof of the Building, and the
drywall partition installed by Tenant in the premises. Without limiting any
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of Tenant's other repair obligations under this Lease in connection with such
removal, the portion of the roof of the Building where said four (4) HVAC
units were installed shall be returned to Landlord upon such expiration or
sooner termination leak-free and sealed tight. If this Lease shall be
terminated by reason of Tenant's breach or default, then, notwithstanding
anything to the contrary in this Lease contained, Landlord shall have a lien
against all Tenant's property in the premises or elsewhere in the Building at
the time of such termination to secure Landlord's rights under Article 20
hereof. Tenant shall, within ten (10) days of Landlord's written request,
from time to time, execute and deliver to Landlord such documentation (e.g.,
UCC statements) as may be necessary to enable Landlord to perfect such lien.
11. ALTERATIONS AND IMPROVEMENTS BY TENANT
Tenant shall make no alterations, decorations, installations, removals,
additions or improvements in or to the premises without Landlord's prior
written consent and then only those made by contractors or mechanics approved
by Landlord. Without limiting the foregoing, Tenant shall have no right to
make any alteration affecting the roof of the Building without Landlord's
consent. No installations or work shall be undertaken or begun by Tenant
until: (i) Landlord has approved written plans and specifications and a time
schedule for such work; (ii) Tenant has made provision for either written
waivers of liens from all contractors, laborers and suppliers of materials
for such installations or work, the filing of lien bonds on behalf of such
contractors, laborers and suppliers, or other appropriate protective measures
approved by Landlord; (iii) Tenant has procured appropriate surety payment
and performance bonds which shall name Landlord as an additional obligee on
behalf of such contractors, laborers and suppliers; and (iv) Tenant has
reimbursed Landlord for Landlord's reasonable costs in reviewing Tenant's
plans and specifications. No amendments or additions to such plans and
specifications shall be made without the prior written consent of Landlord.
Landlord's approval is solely given for the benefit of Landlord and neither
Tenant nor any third party shall have the right to rely upon Landlord's
approval of Tenant's plans for any purpose whatsoever. Without limiting the
foregoing, Tenant shall be responsible for all elements of the design of
Tenant's plans (including, without limitation, compliance with law,
functionality of design, and the structural integrity of the design), and
Landlord's approval of Tenant's plans shall in no event relieve Tenant of the
responsibility for such design. Any such work, alterations, decorations,
installations, removals, additions and improvements shall be done at Tenant's
sole expense and at such times and in such manner as Landlord may from time
to time designate. If Tenant shall make any alterations, decorations,
installations, removals, additions or improvements then Landlord may elect to
require the Tenant at the expiration or sooner termination of the term of
this Lease to restore the premises to substantially the same condition as
existed at the Term Commencement Date. Tenant shall pay, as an additional
charge, the entire increase in real estate taxes on the Building and any
increase in Landlord's insurance premiums which shall, at any time prior to
or after the Term Commencement Date, result from or be attributable to any
alteration, addition or improvement to the premises made by or for the
account of Tenant.
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12. TENANT'S CONTRACTORS--MECHANICS' AND OTHER LIENS--STANDARD OF TENANT'S
PERFORMANCE-COMPLIANCE WITH LAWS
Whenever Tenant shall make any alterations, decorations, installations,
removals, additions or improvements in or to the premises--whether such work
be done prior to or after the Term Commencement Date--Tenant will strictly
observe the following covenants and agreements:
(a) Tenant agrees that it will not, either directly or indirectly, use
any contractors and/or materials if their use will create with difficulty,
whether in the nature of a labor dispute or otherwise, with other contractors
and/or labor engaged by Tenant or Landlord or others in the construction,
maintenance and/or operation of the Building or any part thereof.
(b) In no event shall any material or equipment be incorporated in or
added to the premises, so as to become a fixture or otherwise a part of the
Building, in connection with any such alteration, decoration, installation,
addition or improvement which is subject to any lien, charge, mortgage or
other encumbrance of any kind whatsoever or is subject to any security
interest or any form of title retention agreement. Any mechanics lien filed
against the premises or the Building for work claimed to have been done for,
or materials claimed to have been furnished to, Tenant shall be discharged by
Tenant within ten (10) days thereafter. If Tenant fails so to discharge any
lien, Landlord may do so at Tenant's expense and Tenant shall reimburse
Landlord for any expense or cost incurred by Landlord in so doing within
fifteen (15) days after rendition of a bill therefor.
(c) All installations or work done by Tenant shall be at its own
expense and shall at all times comply with (i) laws, rules, orders and
regulations of governmental authorities having jurisdiction thereof; (ii)
orders, rules and regulations of any Board of Fire Underwriters, or any other
body hereafter constituted exercising similar functions, and governing
insurance rating bureaus; (iii) Rules and Regulations of Landlord; and (iv)
plans and specifications prepared by and at the expense of Tenant theretofore
submitted to and approved by Landlord.
(d) Tenant shall procure all necessary permits before undertaking any
work in the premises; do all of such work in a good and workmanlike manner,
employing materials of good quality and complying with all governmental
requirements; and defend, save harmless, exonerate and indemnify Landlord and
Landlord's agents and employees from all injury, loss or damage to any person
or property occasioned by or growing out of such work. Tenant shall cause
contractors employed by Tenant to carry Worker's Compensation Insurance in
accordance with statutory requirements, Automobile Liability Insurance and
Commercial General Liability Insurance (which General Liability Insurance
shall name Landlord and Landlord's managing agent as additional insured
parties), covering such contractors on or about the premises in the amounts
stated in Article 14 hereof or in such other reasonable amounts as Landlord
shall require and to submit certificates evidencing such coverage to Landlord
prior to the commencement of such work.
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13. REPAIRS BY TENANT
(a) Tenant shall, at its own cost and expense, keep and maintain all
parts of the premises and such portion of the Building improvements within
the exclusive control of Tenant in good condition, promptly making all
necessary repairs and replacements, whether ordinary or extraordinary, with
materials and workmanship of the same character, kind and quality as the
original (including, without limitation, repair and replacement of all
fixtures installed by Tenant, water heaters within the premises, windows,
glass and plate glass, doors, skylights, any special office entries, interior
walls and finish work, floors and floor coverings, heating, ventilating,
plumbing, electrical and air conditioning systems serving the premises, dock
boards, truck doors, dock bumpers, electrical fixtures and systems, sprinkler
systems, and plumbing work and fixtures and performance of regular removal of
trash and debris). Tenant, as part of its obligations hereunder, shall keep
the premises in a clean and sanitary condition and Tenant shall periodically
clean the interior and exterior of all windows in the premises. Tenant will,
as far as possible, keep all such parts of the premises from deterioration
due to ordinary wear and from falling temporarily out of repair. Landlord
may elect, at the expense of Tenant, to make any such repairs or to repair
any damage or injury to the Building or the premises caused by moving
property of Tenant in or out of the Building, or by installation or removal
of furniture or other property, or by misuse by, or neglect, or improper
conduct of Tenant or Tenant's servants, employees. agents, contractors, or
licensees.
(b) Tenant shall not damage any demising wall or disturb the integrity
and support provided by any demising wall and shall at its sole cost and
expense promptly repair any damage or injury to any demising wall caused by
Tenant or its employees, agents or invitees.
(c) Tenant shall, at its own cost and expense, repair any damage
resulting from and/or caused in whole or in part by the negligence or
misconduct of Tenant, its agents, servants, employees, patrons, customers or
any other person entering upon the premises as a result of Tenant's business
activities or caused by Tenant's default hereunder.
14. INSURANCE, INDEMNIFICATION, EXONERATION AND EXCULPATION
14.1 GENERAL LIABILITY INSURANCE. Tenant shall procure, keep in force
and pay for Commercial General Liability Insurance insuring Tenant on an
occurrence basis against all claims and demands for personal injury liability
(including, without limitation, bodily injury, sickness, disease, and death)
or damage to property which may be claimed to have occurred from and after
the time Tenant and/or its contractors enter the premises in accordance with
Articles 11 and 12 of this Lease, of not less than Five Million ($5,000,000)
Dollars in the event of personal injury to any number of persons or damage to
property, arising out of any one occurrence, and from time to time thereafter
shall be not less than such higher amounts, if procurable, as may be
reasonably required by Landlord and are customarily carried by responsible
industrial tenants in the City of Chicago.
14.2 CERTIFICATES OF INSURANCE. Such insurance shall be effected with
insurers approved by Landlord, authorized to do business in Illinois under valid
and enforceable policies wherein
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Tenant names Landlord and Landlord's managing agent as additional insureds.
Such insurance shall provide that it shall not be cancelled or modified
without at least thirty (30) days' prior written notice to each insured named
therein. On or before the time Tenant and/or its contractors enter the
premises in accordance with Articles 4, 11, and 12 of this Lease and
thereafter not less than fifteen (15) days prior to the expiration date of
each expiring policy, original copies of the policies provided for in Article
14.1 issued by the respective insurers, or certificates of such policies
setting forth in full the provisions thereof and issued by such insurers
together with evidence satisfactory to Landlord of the payment of all
premiums for such policies, shall be delivered by Tenant to Landlord and
certificates as aforesaid of such policies shall upon request of Landlord, be
delivered by Tenant to the holder of any mortgage affecting the premises.
14.3 GENERAL. Tenant will save Landlord and Landlord's agents and
employees harmless, and will exonerate, defend and indemnify Landlord and
Landlord's agents and employees, from and against any and all claims,
liabilities or penalties asserted by or on behalf of any person, firm,
corporation or public authority arising from the Tenant's breach of the Lease
or:
(a) On account of or based upon any injury to person, or loss of
or damage to property, sustained or occurring on the premises on account of
or based upon the act, omission, fault, negligence or misconduct of any
person whomsoever (other than Landlord, or Landlord's agents, employees, or
contractors);
(b) On account of or based upon any injury to person, or loss of
or damage to property, sustained or occurring elsewhere (other than on the
premises) in or about the Building (and, in particular, without limiting the
generality of the foregoing, on or about the stairways, sidewalks.
concourses, arcades, malls, galleries, vehicular tunnels, approaches,
areaways, roof, Common Areas or other appurtenances and facilities used in
connection with the Building or premises) arising out of the use or occupancy
of the Building or premises by the Tenant, or by any person claiming by,
through or under Tenant, or on account of or based upon the act, omission,
fault, negligence or misconduct of Tenant, its agents, employees or
contractors; and
(c) On account of or based upon (including monies due on account
of) any work or thing whatsoever done (other than by Landlord or its
contractors, or agents or employees of either) on the premises during the
term of this Lease and during the period of time, if any, prior to the Term
Commencement Date that Tenant may have been given access to the premises.
Tenant's obligations under this Article 14.3 shall be insured either under
the Commercial General Liability Insurance required under Article 14. 1,
above, or by a contractual insurance rider or other coverage; and
certificates of insurance in respect thereof shall be provided by Tenant to
Landlord upon request.
14.4 PROPERTY OF TENANT. In addition to and not in limitation of the
foregoing, Tenant covenants and agrees that to the maximum extent permitted
by law, all merchandise, furniture, fixtures and property of every kind,
nature and description related or arising out of Tenant's leasehold estate
hereunder, which may be in or upon the premises or Building, in the Common
Areas
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or on the sidewalks, areaways and approaches adjacent thereto, shall be at
the sole risk and hazard of Tenant, and that if the whole or any part thereof
shall be damaged, destroyed, stolen or removed from any cause or reason
whatsoever no part of said damage or loss shall be charged to, or borne by,
Landlord.
14.5 BURSTING OF PIPES, ETC. Landlord shall not be liable for any
injury or damage to persons or property resulting from fire, explosion,
failing plaster, steam, gas, electricity, electrical or electronic emanations
or disturbance, water, rain or snow or leaks from any part of the Building or
from the pipes, appliances, equipment or plumbing works or from the roof,
street or sub-surface or from any other place or caused by dampness,
vandalism, malicious mischief or by any other cause of whatever nature,
unless caused by or due to the negligence of Landlord, its agents, servants
or employees, and then only after (i) notice to Landlord of the condition
claimed to constitute negligence and (ii) the expiration of a reasonable time
after such notice has been received by Landlord without Landlord having taken
all reasonable and practicable means to cure or correct such condition; and
pending such cure or correction by Landlord, Tenant shall take all reasonably
prudent temporary measures and safeguards to prevent any injury, loss or
damage to persons or property. In no event shall Landlord be liable for any
loss, the risk of which is covered by Tenant's insurance, or is required to
be so covered by this Lease; nor shall Landlord or its agents be liable for
any such damage caused by other tenants or persons in the Building or caused
by operations in construction of any private, public, or quasi-public work;
nor shall Landlord be liable for any latent defect in the premises or in the
Building.
14.6 REPAIRS AND ALTERATIONS-NO DIMINUTION OF RENTAL VALUE. Except as
otherwise provided in Article 17, there shall be no allowance to Tenant for
diminution of rental value and no liability on the part of Landlord by reason
of inconvenience, annoyance or injury to Tenant arising from any repairs,
alterations, additions, replacements or improvements made by Landlord, Tenant
or others in or to any portion of the Building or premises or any property
adjoining the Building, or in or to fixtures, appurtenances, or equipment
thereof or for failure of Landlord or others to make any repairs,
alterations, additions or improvements in or to any portion of the Building,
or of the premises, or in or to the fixtures, appurtenances or equipment
thereof.
15. ASSIGNMENT, MORTGAGING AND SUBLETTING
15.1 COVENANT AGAINST SUBLEASES AND ASSIGNMENT. Except as expressly
provided in this Article 15, Tenant covenants and agrees that neither this
Lease nor the term and estate hereby granted, nor any interest herein or
therein, will be assigned, mortgaged, pledged, encumbered or otherwise
transferred, voluntarily, by operation of law or otherwise, and that neither
the premises nor any part thereof will be encumbered in any manner by reason
of any act or omission on the part of Tenant, or used or occupied, or
permitted to be used or occupied, or utilized for desk space or for mailing
privileges, by anyone other than Tenant, or for any use or purpose other than
as stated in Exhibit 1, or be sublet, or offered or advertised for subletting.
15.2 ASSIGNMENT OF EQUITY INTEREST IN TENANT. The transfer of more than
fifty (50%) percent of the equity interest of the Tenant entity shall be deemed
to be an assignment for the
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purposes of this Article 15. The provisions of this Article 15.2 shall not
apply to a corporation whose shares of stock are publicly traded on a
recognized stock exchange.
15.3 ASSIGNMENT BY MERGER. Notwithstanding the foregoing, it is hereby
expressly understood and agreed, however, if Tenant is a corporation, that
the assignment or transfer of this Lease, and the term and estate hereby
granted, to any corporation into which Tenant is merged or with which Tenant
is consolidated, which corporation shall have a net worth at least equal to
that of Tenant immediately prior to such merger or consolidation (such
corporation being hereinafter called "Assignee"), shall not be deemed to be
prohibited hereby it and upon the express condition that Assignee and Tenant
shall promptly execute, acknowledge and deliver to Landlord an agreement
("Assumption Agreement") in form and substance satisfactory to Landlord
whereby Assignee shall agree to be independently bound by and upon all the
covenants, agreements, terms, provisions and conditions set forth in this
Lease on the part of Tenant to be performed, and whereby Assignee shall
expressly agree that the provisions of this Article 15 shall, notwithstanding
such assignment or transfer, continue to be binding upon it with respect to
all future assignments and transfers.
15.4 OFFERBACK.
(a) Notwithstanding anything to the contrary herein contained, in
the event that Tenant desires to sublet the premises, or any portion thereof
or assign this Lease, Tenant shall, prior to entering into any such sublease
or assignment give Landlord a written notice ("Tenant's Offer"). Tenant's
Offer shall set forth the following:
(i) The name of the proposed subtenant or assignee.
(ii) A copy of the proposed sublease or assignment agreement.
Such proposed sublease or assignment shall include, without limitation, the
following terms:
(1) The portion ("Sublet Portion") of the premises
proposed to be subleased (or shall state that Tenant's interest in the Lease
is proposed to be assigned);
(2) The term ("Proposed Term") of the proposed sublease
(or shall state that Tenant's interest in the Lease is proposed to be
assigned); and
(3) The date ("Effective Date") on which it is
estimated that the term of the proposed sublease will commence (or the date
on which is estimated that the term of the proposed assignment will become
effective).
(iii) Copies of financial reports and other relevant financial
information on the proposed subtenant or assignee.
(iv) An offer to Landlord to terminate the term of the Lease as
of the Effective Date in respect of the Sublet Portion (or, in the event of a
proposed sublease for less than
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the remainder of the term of the Lease, an offer to Landlord to suspend the
term of the Lease in respect of the Sublet Portion until the expiration or
prior termination of the Proposed Term).
(b) Landlord shall have twenty (20) days ("Offer Period") after
its receipt of Tenant's Offer to accept Tenant's Offer. If Landlord timely
accepts Tenant's Offer, the term of the Lease in respect of the Sublet
Portion shall be suspended or terminated, as the case may be, in accordance
with Tenant's Offer. If Landlord does not timely accept Tenant's Offer,
Landlord agrees not to unreasonably withhold its consent to the sublease or
assignment identified in Tenant's Offer ("Permitted Sublease") to a Permitted
Transferee, as hereinafter defined, subject however, to the provisions of
Articles 15.4, 15.5 and 15.6.
(c) A "Permitted Transferee" is a person, firm or corporation
which, in Landlord's reasonable opinion, (i) is financially responsible and
of good reputation, (ii) is engaged in a business, the functional aspects of
which, with respect to the premises, are substantially similar to the use of
other premises made by other tenants in the Building, (iii) is not then a
tenant or subtenant in the Building (or a related or controlled entity of
such tenant or subtenant) or with whom Landlord is already in negotiation as
evidenced by the issuance of a written proposal, (iv) will not be paying a
lower rental rate than the rate at which Landlord is then (i.e. at the time
that Landlord is asked to consent to such sublease) offering such space or
similar space in the Building, and (v) would not subject the premises to a
use which would (a) involve increased personnel or wear upon the Building,
(b) violate any exclusive right granted to another tenant in the Building or
(e) require any addition to or modification of the premises or the Building
in order to comply with building code or other governmental requirements.
(d) If Tenant is in default of its obligations under the Lease at
the time that it gives Landlord Tenant's Offer, such default shall be deemed
to constitute "reasonable" cause for Landlord withholding its consent to any
proposed subletting or assignment.
(e) If Tenant does not enter into a Permitted Sublease with a
Permitted Transferee approved by Landlord, as aforesaid, on or before the
date which is one hundred (100) days after the earlier of (x) the expiration
of the Offer Period, or (y) the date that Landlord notifies Tenant that
Landlord will not accept Tenant's offer to terminate or suspend the Lease,
then such failure to timely enter into a Permitted Sublease shall be deemed
to constitute "reasonable" reason to permit Landlord to withhold its consent
to any subletting or assignment proposed to be entered into by Tenant after
the expiration of said one hundred (100) day period unless Tenant again gives
Landlord a Tenant's Offer in respect of such Sublet Portion. If Tenant shall
make any subsequent Tenant's Offer in respect of such Sublet Portion, any
such subsequent Tenant's Offer shall be treated in all respects as if it is
Tenant's first Tenant's Offer.
15.5 TENANT PARTNERSHIPS. If Tenant is an individual who uses and/or
occupies the premises with partners, or if Tenant is a partnership, then:
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(i) Each present and future partner shall be personally bound by
and upon all of the covenants, agreements, terms, provisions and conditions
set forth in this Lease on the part of Tenant to be performed; and
(ii) In confirmation of the foregoing, Landlord may (but without
being required to do so) request (and Tenant shall duly comply) that Tenant
at the time that Tenant admits any new partner to its partnership, shall
require each such new partner to execute an agreement in form and substance
satisfactory to Landlord whereby such new partner shall agree to be
personally bound by and upon all of the covenants, agreements, terms,
provisions and conditions of this Lease on the part of Tenant to be
performed, without regard to the time when such new partner is admitted to
partnership or when any obligations under any such covenants, etc. accrue.
15.6 MISCELLANEOUS PROVISIONS. The following provisions shall apply to
any sublease or assignment under this Lease:
(i) Tenant shall remain fully liable under this Lease during
the unexpired term hereof, notwithstanding any sublease or assignment.
(ii) Tenant shall provide Landlord with evidence reasonably
satisfactory to Landlord respecting the relevant business experience and
financial responsibility and status of the third party concerned..
(iii) Tenant shall reimburse Landlord for Landlord's reasonable
attorneys' fees incurred in connection with the review, processing and
documentation of any request by Tenant to sublet or assign its interest in
the Lease.
(iv) If Tenant's transfer of rights or sharing of the premises
provides for the receipt by, on behalf or on account of Tenant of any
consideration of any kind whatsoever (including, but not by way of
limitation, a premium rental for a sublease or lump sum payment for an
assignment) in excess of the rental and other charges due Landlord under this
Lease, Tenant shall pay seventy-five (75%) percent of said excess, less
Tenant's reasonable costs (not to exceed five percent (5%) of said excess) to
Landlord. If said consideration consists of cash paid to Tenant, said
payment to Landlord shall be made upon receipt by Tenant of said cash payment.
(v) In the case of an assignment of this Lease, the assignee
shall execute and deliver to Landlord an Assumption Agreement.
(vi) Any transfer of Tenant's interest in the premises or the
Lease and consent thereto by Landlord shall be effected on forms approved by
Landlord as to form and substance.
(vii) Any consent by Landlord to a particular assignment or
subletting shall not in any way diminish the prohibition stated in the first
sentence of this Article 15 or the continuing liability of the Tenant named
on Exhibit 1 as the party Tenant under this Lease.
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(viii) No assignment or subletting or use of the premises by an
affiliate of Tenant shall affect the purpose for which the premises may be
used as stated in Exhibit 1.
(ix) If this Lease be assigned, or if the premises or any part
thereof be sublet or occupied by anybody other than Tenant, Landlord may, at
any time and from time to time, collect rent and other charges from the
assignee, subtenant or occupant, and apply the net amount collected to the
rent and other charges herein reserved then due and thereafter becoming due,
but no such assignment subletting, occupancy or collection shall be deemed a
waiver of this covenant, or the acceptance of the assignee, subtenant or
occupant as a tenant, or a release of Tenant from the further performance by
Tenant of covenants on the part of Tenant herein contained.
16. MISCELLANEOUS COVENANTS
Tenant covenants and agrees as follows:
16.1 RULES AND REGULATIONS. Tenant will faithfully observe and comply
with the Rules and Regulations, if any, annexed hereto and such other and
further reasonable Rules and Regulations as Landlord hereafter at any time or
from time to time may make and may communicate in writing to Tenant, which in
the reasonable judgment of Landlord shall be necessary for the reputation,
safety, care or appearance of the Building, or the preservation of good order
therein, or the operation or maintenance of the Building, or the equipment
thereof or the comfort of tenants or others in the Building, provided,
however, that in the case of any conflict between the provisions of this
Lease and any such regulations, the provisions of this Lease shall control,
and provided further that nothing contained in this Lease shall be construed
to impose upon Landlord any duty or obligation to enforce the Rules and
Regulations or the terms, covenants or conditions in any other lease as
against any other tenant and Landlord shall not be liable to Tenant for
violation of the same by any other tenant, its servants, employees, agents,
contractors, visitors, invitees or licensees.
16.2 ACCESS TO PREMISES-SHORING. Tenant shall: (i) permit Landlord to
erect, use and maintain pipes, ducts and conduits in and through the premises,
provided the same do not materially reduce the floor area or materially
adversely affect the appearance thereof, (ii) upon prior oral notice (except
that no notice shall be required in emergency situations), permit Landlord and
any mortgagee of the Building or the Building, and land or of the interest of
Landlord therein, and any lessor under any ground or underlying lease, and their
representatives, to have free and unrestricted access to and to enter upon the
premises at all reasonable hours for the purposes of inspection or of making
repairs, replacements or improvements in or to the premises or the Building or
equipment (including, without limitation, sanitary, electrical, heating, air
conditioning or other systems) or of complying with all laws, orders and
requirements of governmental or other authority or of exercising any right
reserved to Landlord by this Lease (including the right during the progress of
any such repairs, replacements or improvements or while performing work and
furnishing materials in connection with compliance with any such laws, orders or
requirements to take upon or through, or to keep and store within, the premises
all necessary materials, tools and equipment); and (iii) permit Landlord, at
reasonable times, to show the premises during ordinary business hours to any
existing or prospective mortgagee, ground lessor, space lessee, purchaser, or
assignee of any mortgage, of
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the Building or of the Building and the land or of the interest of Landlord
therein, and during the period of 12 months next preceding the Termination
Date to any person contemplating the leasing of the premises or any part
thereof. If during the last month of the term, Tenant shall have removed all
or substantially all of Tenant's property therefrom, Landlord may
immediately, enter and alter, renovate and redecorate the premises, without
elimination or abatement of rent, or incurring liability to Tenant for any
compensation, and such acts shall have no effect upon this Lease. If Tenant
shall not be personally present to open and permit an entry into the premises
at any time when for any reason an entry therein shall be necessary or
permissible, Landlord or Landlord's agents may enter the same by a master
key, or may forcibly enter the same, without rendering Landlord or such
agents liable therefor (if during an entry Landlord or Landlord's agents
shall accord reasonable care to Tenant's property), and without in any manner
affecting the obligations and covenants of this Lease. Provided that
Landlord shall incur no additional expense thereby, Landlord shall exercise
its rights of access to the premises permitted under any of the terms and
provisions of this Lease in such manner as to minimize to the extent
practicable interference with Tenant's use and occupation of the premises.
If an excavation shall be made upon land adjacent to the premises or shall be
authorized to be made, Tenant shall afford to the person causing or
authorized to cause such excavation, license to enter upon the premises for
the purpose of doing such work as said person shall deem necessary, to
preserve the Building from injury or damage and to support the same by proper
foundations without any claims for damages or indemnity against Landlord, or
diminution or abatement of rent.
16.3 ACCIDENTS TO SANITARY AND OTHER SYSTEMS. Tenant shall give to
Landlord prompt notice of any fire or accident in the premises or in the
Building and of any damage to, or defective condition in, and part or
appurtenance of the Building including, without limitation, sanitary,
electrical, heating and air conditioning or other systems located in, or
passing through, the premises. Except as otherwise provided in Articles 17
and 19, and subject to Tenant's obligations in Article 13, such damage or
defective condition shall be remedied by Landlord with reasonable diligence,
but if such damage or defective condition was caused by Tenant or by the
employees, licensees, contractors or invitees of Tenant, the cost to remedy
the same shall be paid by Tenant. Tenant shall not be entitled to claim any
eviction from the premises or any damages arising from any such damage or
defect unless the same (i) shall have been occasioned by the negligence of
the Landlord, its agents, servants or employees and (ii) shall not, after
notice to Landlord of the condition claimed to constitute negligence, have
been cured or corrected within a reasonable time after such notice has been
received by Landlord; and in case of a claim of eviction unless such notice
or defective condition shall have rendered the premises untenantable and they
shall not have been made tenantable by Landlord within a reasonable time.
16.4 SIGNS. Tenant shall put no signs in any part of the Building
without obtaining Landlord's prior written consent. Any approved signage
shall conform to Landlord's design criteria. Neither Landlord's name, nor
the name of the Building or the Complex of which the Building is a part, or
the name of any other structure erected therein, shall be used without
Landlord's consent in any advertising material (except on business stationery
or as an address in advertising matter), nor shall any such name, as
aforesaid, be used in any undignified, confusing, detrimental or misleading
manner.
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16.5 ESTOPPEL CERTIFICATE. Tenant shall at any time and from time to
time upon not less than ten (10) days' prior notice by Landlord to Tenant,
execute, acknowledge and deliver to Landlord a statement in writing
certifying that this Lease is unmodified and in full force and effect (or if
there have been modifications, that the same is in full force and effect as
modified and stating the modifications), and the dates to which the Yearly
Rent and other charges have been paid in advance, if any, stating whether or
not Landlord is in default in performance of any covenant, agreement, terms,
provision or condition contained in this Lease and, if so, specifying each
such default and such other facts as Landlord may reasonably request, it
being intended that any such statement delivered pursuant hereto may be
relied upon by any prospective purchaser of the Building or of the Building
and the land or of any interest of Landlord therein, any mortgagee or
prospective mortgagee thereof, any lessor or prospective lessor thereof, any
lessee or prospective lessee thereof or any prospective assignee of any
mortgage thereof. Time is of the essence in respect of any such requested
certificate, Tenant hereby acknowledging the importance of such certificates
in mortgage financing arrangements, prospective sale and the like. In the
event that Tenant fails to execute, acknowledge and deliver such statement
within ten (10) days after Landlord delivers to Tenant a proposed form of
such statement. Tenant shall be deemed to have conclusively acknowledged
that such form is accurate and true as to the facts stated therein.
16.6 ODORS. Tenant shall not cause nor permit any odors of cooking or
other processes, or any unusual or other objectionable odors to emanate from
or permeate the premises.
16.7 REQUIREMENTS OF LAW -- FINES AND PENALTIES. Tenant at its sole
expense shall comply with all laws, rules, orders and regulations, including,
without limitation, all energy-related requirements, of Federal, State,
County and Municipal Authorities and with any direction of any public officer
or officers, pursuant to law, which shall impose any duty upon Landlord or
Tenant with respect to or arising out of Tenant's use or occupancy of the
premises. Tenant shall reimburse and compensate Landlord for all expenditures
made by, or damages or fines sustained or incurred by, Landlord due to
nonperformance or noncompliance with or breach or failure to observe any
item, covenant, or condition of this Lease upon Tenant's part to be kept,
observed, performed or complied with. If Tenant receives notice of any
violation of law, ordinance, order or regulation applicable to the premises,
it shall give prompt notice thereof to Landlord.
16.8 TENANT'S ACTS -- EFFECT ON INSURANCE. Tenant shall not do or permit
to be done any act or thing upon the premises or elsewhere in the Building which
will invalidate or be in conflict with any insurance policies covering the
Building and the fixtures and property therein; and shall not do, or permit to
be done, any act or thing upon the premises which shall subject Landlord to any
liability or responsibility for injury to any person or persons or to property
by reason of any business or operation being carried on upon said premises or
for any other reason. Tenant at its own expense shall comply with all rules,
orders, regulations and requirements of the Board of Fire Underwriters, or any
other similar body having jurisdiction, and shall not (i) do, or permit anything
to be done, in or upon the premises, or bring or keep anything therein, except
as now or hereafter permitted by the Fire Department Board of Underwriters, Fire
Insurance Rating Organization, or other authority having jurisdiction, and then
only in such quantity and manner of storage as will not increase the rate for
any insurance applicable to the Building, or (ii) use the premises in a manner
which shall
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increase such insurance rates on the Building, or on property located
therein, over that applicable when Tenant first took occupancy of the
premises hereunder. If by reason of the failure of Tenant to comply with the
provisions hereof the insurance rate applicable to any policy of insurance
shall at any time thereafter be higher than it otherwise would be, the Tenant
shall reimburse Landlord for that part of any insurance premiums thereafter
paid by Landlord, which shall have been charged because of such failure by
Tenant.
16.9 MISCELLANEOUS. Tenant shall not suffer or permit the premises or
any fixtures, equipment or utilities therein or serving the same, to be
overloaded, damaged or defaced, nor permit any hole to be drilled or made in
any part thereof Tenant shall not suffer or permit any employee, contractor,
business invitee or visitor to violate any covenant, agreement or obligations
of the Tenant under this Lease.
17. DAMAGE BY FIRE, ETC.
During the entire term of this Lease, and adjusting insurance coverages
to reflect current values from time to time:--(i) Landlord shall keep the
Building insured against loss or damage caused by any peril covered under
fire, extended coverage and all risk insurance and covering such other perils
as Landlord deems appropriate in an amount equal to at least eighty percent
(80%) replacement cost value above foundation walls; and (ii) Tenant shall
keep its personal property in and about the premises insured against loss or
damage caused by any peril covered under fire, extended coverage and all risk
insurance in an amount equal to at least eighty percent (80%) replacement
cost value. Such Tenant's insurance shall insure the interests of both
Landlord and Tenant as their respective interests may appear from time to
time and shall name Landlord as an additional insured; and the proceeds
thereof shall be used only for the replacement or restoration of such
personal property.
If the premises shall be damaged by fire or other insured casualty,
Landlord shall proceed with diligence, subject to the then applicable statutes,
building codes, zoning ordinances, and regulations of any governmental
authority, and at the expense of Landlord (but only to the extent of insurance
proceeds made available to Landlord by any mortgagee and/or ground lessor of the
real property of which the premises are a part) to repair or cause to be
repaired such damage. If the premises or any part thereof shall have been
rendered unfit for use and occupation hereunder by reason of such damage the
Yearly Rent or a just and proportionate part thereof according to the nature and
extent to which the premises shall have been so rendered unfit, shall be
suspended or abated until the premises shall have been restored as nearly as
practicably may be to the condition in which they were immediately prior to such
fire or other casualty, provided, however, that if Landlord or any mortgagee of
the Building or of the Building and the land shall be unable to collect the
insurance proceeds (including rent insurance proceeds) applicable to such damage
because of some action or inaction on the part of Tenant, or the employees,
contractors, licensees or invitees of Tenant, the cost of repairing such damage
shall be paid by Tenant and there shall be no abatement of rent. Landlord shall
not be liable for delays in the making of any such repairs which are due to
government regulation, casualties and strikes, unavailability of labor and
materials, and other causes beyond the reasonable control of Landlord, nor shall
Landlord be liable for any inconvenience or
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annoyance to Tenant or injury to the business of Tenant resulting from delays
in repairing such damage. If (i) the premises are so damaged by fire or
other casualty (whether or not insured) at any time during the last thirty
months of the term hereof that the cost to repair such damage is reasonably
estimated to exceed one-third of the total Yearly Rent payable hereunder for
the period from the estimated date of restoration until the Termination Date,
or (ii) the Building (whether or not including any portion of the premises)
is so damaged by fire or other casualty (whether or not insured) that
substantial alteration or reconstruction or demolition of the Building shall
in Landlord's judgment be required, then and in either of such events, this
Lease and the term hereof may be terminated at the election of Landlord by a
notice in writing of its election so to terminate which shall be given by
Landlord to Tenant within sixty (60) days following such fire or other
casualty, the effective termination date of which shall be not less than
thirty (30) days after the day on which such termination notice is received
by Tenant. In the event of any termination, this Lease and the term hereof
shall expire as of such effective termination date as though that were the
Termination Date as stated in Exhibit 1 and the Yearly Rent shall be
apportioned as of such date; and if the premises or any part thereof shall
have been rendered unfit for use and occupation by reason of such damage the
Yearly Rent for the period from the date of the fire or other casualty to the
effective termination date, or a just and proportionate part thereof,
according to the nature and extent to which the premises shall have been so
rendered unfit, shall be abated.
18. WAIVER OF SUBROGATION
In any case in which Tenant shall be obligated to pay to Landlord any loss,
cost, damage, liability or expense suffered or incurred by Landlord, Landlord
shall allow to Tenant as an offset against the amount thereof the net proceeds
of any insurance collected by Landlord for or on account of such loss, cost,
damage, liability or expense, provided that the allowance of such offset does
not invalidate or prejudice the policy or policies under which such proceeds
were payable.
In any case in which Landlord or Landlord's managing agent shall be
obligated to pay to Tenant any loss, cost, damage, liability or expense suffered
or incurred by Tenant, Tenant shall allow to Landlord or Landlord's managing
agent, as the case may be, as an offset against the amount thereof the net
proceeds of any insurance collected by Tenant for or on account of such loss,
cost, damage, liability, or expense, provided that the allowance of such offset
does not invalidate the policy or policies under which such proceeds were
payable.
The parties hereto shall each procure an appropriate clause in, or
endorsement on, any property insurance policy covering the premises and the
Building and personal property, fixtures and equipment located thereon and
therein, pursuant to which the insurance companies waive subrogation or consent
to a waiver of right of recovery in favor of either party, or their respective
agents or employees. Having obtained such clauses and/or endorsements each
party hereby agrees that it will not make any claim against or seek to recover
from the other, or its agents or employees, for any loss or damage to its
property or the property of others resulting from fire or other perils covered
by such property insurance, to the extent of insurance proceeds recovered by
such party on account of such loss or damage.
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19. CONDEMNATION - EMINENT DOMAIN
In the event that the premises or any part thereof or the whole or any part
of the Building, shall be taken or appropriated by eminent domain or shall be
condemned for any public or quasi-public use, or (by virtue of any such taking,
appropriation or condemnation) shall suffer any damage (direct, indirect or
consequential) for which Landlord or Tenant shall be entitled to compensation,
then (and in any such event) this Lease and the term hereof may be terminated at
the election of Landlord by a notice in writing of its election so to terminate
which shall be given by Landlord to Tenant within sixty (60) days following the
date on which Landlord shall have received notice of such taking, appropriation
or condemnation. In the event that a substantial part of the premises or of the
means of access thereto shall be so taken, appropriated or condemned, then (and
in any such event) this Lease and the term hereof may be terminated at the
election of Tenant by a notice in writing of its election so to terminate which
shall be given by Tenant to Landlord within sixty (60) days following the date
on which Tenant shall have received notice of such taking, appropriation or
condemnation.
Upon the giving of any such notice of termination (either by Landlord or
Tenant) this Lease and the term hereof shall terminate on or retroactively as of
the date on which Tenant shall be required to vacate any part of the premises or
shall be deprived of a substantial part of the means of access thereto,
provided, however, that Landlord may in Landlord's notice elect to terminate
this Lease and the term hereof retroactively as of the date on which such
taking, appropriation or condemnation became legally effective. In the event of
any such termination, this Lease and the term hereof shall expire as of such
effective termination date as though that were the Termination Date as stated in
Exhibit 1, and the Yearly Rent shall be apportioned as of such date. If neither
party (having the right so to do) elects to terminate Landlord will, with
reasonable diligence and at Landlord's expense (but only to the extent of taking
proceeds made available to Landlord), restore the remainder of the premises, or
the remainder of the means of access, as nearly as practicably may be to the
same condition as obtained prior to such taking, appropriation or condemnation
in which event (i) a just proportion of the Yearly Rent, according to the nature
and extent of the taking, appropriation or condemnation and the resulting
permanent injury to the premises and the means of access thereto, shall be
permanently abated, and (ii) a just proportion of the remainder of the Yearly
Rent according to the nature and extent of the taking, appropriation or
condemnation and the resultant injury sustained by the premises and the means of
access thereto, shall be abated until what remains of the premises and the means
of access thereto shall have been restored as fully as may be for permanent use
and occupation by Tenant hereunder. Except for and award specifically
reimbursing Tenant for moving or relocation expenses, there are expressly
reserved to Landlord all rights to compensation and damages created, accrued or
accruing by reason of any such taking, appropriation or condemnation, in
implementation and in confirmation of which Tenant does hereby acknowledge that
Landlord shall be entitled to receive all such compensation and damages, grant
to Landlord all and whatever rights (if any) Tenant may have to such
compensation and damages, and agrees to execute and deliver all and whatever
further instruments of assignment as Landlord may from time to time request. In
the event of any taking of the premises or any part thereof for temporary use,
(i) this Lease shall be and remain unaffected thereby, and (ii) Tenant shall be
entitled to receive for itself and award made for such use, provided, that if
any taking is for a period
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extending beyond the term of this Lease, such award shall be apportioned
between Landlord and Tenant as of the Termination Date or earlier termination
of this Lease.
20. DEFAULT
20.1 CONDITIONS OF LIMITATION - RE-ENTRY - TERMINATION. This Lease and the
herein term and estate are, upon the condition that if (a) subject to the
provisions of Article 20.7, Tenant shall neglect or fail to perform or observe
any of the Tenant's covenants or agreements herein, including (without
limitation) the covenants or agreements with regard to the payment when due of
rent, additional charges, reimbursement for increase in Landlord's costs, or any
other charge payable by Tenant to Landlord (all of which shall be considered as
part of Yearly Rent for the purposes of invoking Landlord's statutory or other
rights and remedies in respect of payment defaults); or (b) Tenant shall desert
or abandon the premises or the same shall become, or shall appear to have
become, vacant (whether or not the keys shall have been surrendered or the rent
shall have been paid); or (c) Tenant shall be involved in financial difficulties
as evidenced by an admission in writing by Tenant of Tenant's inability to pay
its debts generally as they become due, or by the making or offering to make a
composition of its debts with its creditors; or (d) Tenant shall make an
assignment or trust mortgage, or other conveyance or transfer of like nature, of
all or a substantial part of its property for the benefit of its creditors, or
(e) an attachment or mesne process, on execution or otherwise, or other legal
process shall issue against Tenant or its property and a sale of any of its
assets shall be held thereunder; or (f) any judgment, final beyond appeal or any
lien, attachment or the like shall be entered, recorded or filed against Tenant
in any court, registry, etc. and Tenant shall fail to pay such judgment within
thirty (30) days after the judgment shall have become final beyond appeal or to
discharge or secure by surety bond such lien, attachment, etc. within thirty
(30) days of such entry, recording or filing, as the case may be; or (g) the
leasehold hereby created shall be taken on execution or by other process of law
and shall not be revested in Tenant within thirty (30) days thereafter, or (h) a
receiver, sequesterer, trustee or similar officer shall be appointed by a court
of competent jurisdiction to take charge of all or any part of Tenant's property
and such appointment shall not be vacated within thirty (30) days; or (i) any
proceeding shall be instituted by or against Tenant pursuant to any of the
provisions of any Act of Congress or State law relating to bankruptcy,
reorganizations, arrangements, compositions or other relief from creditors, and,
in the case of any proceeding instituted against it, if Tenant shall fail to
have such proceeding dismissed within thirty (30) days or if Tenant is adjudged
bankrupt or insolvent as a result of any such proceeding, or (j) any event shall
occur or any contingency shall arise whereby this Lease, or the term and estate
thereby created, would (by operation of law or otherwise) devolve upon or pass
to any person, firm or corporation other than Tenant, except as expressly
permitted under Article 15 hereof - then, and in any such event (except as
hereinafter in Article 20.2 otherwise provided) Landlord may, by notice to
Tenant, elect to terminate this Lease or Tenant's right to possession under this
Lease; and thereupon (and without prejudice to any remedies which might
otherwise be available for arrears of rent or other charges due hereunder or
preceding breach of covenant or agreement and without prejudice to Tenant's
liability for damages as hereinafter stated), upon the giving of such notice,
this Lease or Tenant's right to possession hereunder shall terminate as of the
date specified therein as though that were the Termination Date as stated in
Exhibit 1. Without being taken or deemed to be guilty of any manner of trespass
or conversion, and without
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being liable to indictment prosecution or damages therefor, Landlord may,
forcibly if necessary, enter into and upon the premises (or any part thereof
in the name of the whole); repossess the same as of its former estate; and
expel Tenant and those claiming under Tenant and to remove any and all
property therefrom without being deemed in any manner guilty of trespass;
eviction or forcible entry and detainer and without incurring any liability
for any damage resulting therefrom, Tenant hereby waiving any fight to claim
damage for such re-entry and expulsion and without relinquishing Landlord's
right to rent or any other right given to Landlord hereunder or by operation
of law. Wherever "Tenant" is used in subdivisions (c), (d), (e), (f), (g),
(h) and (i) of this Article 20.1, it shall be deemed to include any one of
(i) any corporation of which Tenant is a controlled subsidiary and (ii) any
guarantor of any of Tenant's obligations under this Lease.
20.2 DAMAGES - ASSIGNMENT FOR BENEFIT OF CREDITORS. For the more effectual
securing to Landlord of the rent and other charges and payments reserved
hereunder, it is agreed as a further condition of this Lease that if at any time
Tenant shall make any transfer similar to or in the nature of an assignment of
its property for the benefit of its creditors, the term and estate hereby
created shall terminate ipso facto, without entry or other action by Landlord;
and notwithstanding any other provisions of this Lease, Landlord shall forthwith
upon such termination, without prejudice to any remedies which might otherwise
be available for arrears of rent or other charges due hereunder or preceding
breach of this Lease, be ipso facto entitled to recover as liquidated damages
the sum of (a) the amount described in clause (x) of Article 20.3 and (b) (in
view of the uncertainty of prompt re-letting and the expense entailed in
re-letting the premises) an amount equal to the rent and other charges payable
for and in respect of the twelve-(12)-month period next preceding the date of
termination, as aforesaid.
20.3 DAMAGES - TERMINATION. Upon the termination of this Lease or the
right to possession under the provisions of this Article 20, then except as
hereinabove in Article 20.2 otherwise provided, Tenant shall pay to Landlord the
rent and other charges payable by Tenant to Landlord up to the time of such
termination, shall continue to be liable for any preceding breach of covenant,
and in addition, shall pay to Landlord as damages, at the election of Landlord
either:
(x) the amount by which, at the time of the termination of this Lease or
of Tenant's right to possession (or at any time thereafter if Landlord shall
have initially elected damages under subparagraph (y), below), (i) the aggregate
of the rent and other charges projected over the period commencing with such
termination and ending on the Termination Date as stated in Exhibit 1 exceeds
(ii) the aggregate projected rental value of the premises for such period.
or:
(y) amounts equal to the rent and other charges which would have been
payable by Tenant had this Lease or Tenant's right to possession not been so
terminated, payable upon the due dates therefor specified herein following such
termination and until the Termination Date as specified in Exhibit 1, provided,
however, if Landlord shall re-let the premises during such period,
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that Landlord shall credit Tenant with the net rents received by Landlord
from such re-letting, such net rents to be determined by first deducting from
the gross rents as and when received by Landlord from such re-letting the
expenses incurred or paid by Landlord in terminating this Lease, as well as
the expenses of re-letting, including altering and preparing the premises for
new tenants, brokers' commissions, and all other similar and dissimilar
expenses properly chargeable against the premises and the rental therefrom,
it being understood that any such re-letting may be for a period equal to or
shorter or longer than the remaining term of this Lease; and provided,
further, that (i) in no event shall Tenant be entitled to receive any excess
of such net rents over the sums payable by Tenant to Landlord hereunder and
(ii) in no event shall Tenant be entitled in any suit for the collection of
damages pursuant to this Subparagraph (y) to a credit in respect of any net
rents from a re-letting except to the extent that such net rents are actually
received by Landlord prior to the commencement of such suit. If the premises
or any part thereof should be re-let in combination with other space, then
proper apportionment on a square foot area basis shall be made of the rent
received from such re-letting and of the expenses of re-letting.
In calculating the rent and other charges under Subparagraph (x), above,
there shall be included, in addition to the Yearly Rent, Tenant's Real Estate
Taxes and Tenant's Operating Expenses and other considerations agreed to be paid
or performed by Tenant, on the assumption that all such amounts and
considerations would have remained constant (except as herein otherwise
provided) for the balance of the full term hereby granted.
Landlord may, but need not, relet the Premises or any part thereof for such
rent and upon such terms as Landlord, in its sole discretion, shall determine
(including the right to relet the Premises for a greater or lesser term than
that remaining under this Lease, the right to relet the Premises as part of a
larger area, and the right to change the character or use made of the Premises).
If Landlord decides to relet the Premises or a duty to relet is imposed upon
Landlord by law, Landlord and Tenant agree that the Landlord shall only be
required to use the same efforts Landlord then uses to lease other properties
Landlord owns or manages (or if the Premises are then managed for Landlord, then
Landlord will instruct such manager to use the same efforts such manager then
uses to lease other space or properties which it owns or manages); provided,
however, that Landlord (or its manager) shall not be required to give any
preference or priority to the showing or leasing of the Premises over any other
space that Landlord (or its manager) may be leasing or have available and may,
place a suitable prospective tenant in any such available space regardless of
when such alternative space becomes available; provided, further, that Landlord
shall not be required to observe any instruction given by Tenant about such
reletting or accept any tenant offered by Tenant unless such offered tenant has
a creditworthiness acceptable to Landlord, leases the entire Premises at the
same rent, for no more than the current Term and on the same other terms and
conditions as in this Lease without the expenditure by Landlord for tenant
improvements or broker's commission.
Suit or suits for the recovery of such damages, or any installments
thereof, may be brought by Landlord from time to time at its election, and
nothing contained herein shall be deemed to require Landlord to postpone suit
until the date when the term of this Lease would have expired if it had not been
terminated hereunder.
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Nothing herein contained shall be construed as limiting or precluding the
recovery by, Landlord against Tenant of any sums or damages to which, in
addition to the damages particularly provided above, Landlord may lawfully be
entitled by reason of any default hereunder on the part of Tenant.
20.4 FEES AND EXPENSES.
(a) If Tenant shall default in the performance of any covenant on
Tenant's part to be performed as in this Lease contained, Landlord may
immediately, or at any time thereafter, without notice, perform the same for the
account of Tenant. If Landlord at any time is compelled to pay or elects to pay
any sum of money, or do any act which will require the payment of any sum of
money, by reason of the failure of Tenant to comply with any provision hereof or
if Landlord is compelled to or does incur any expense, including reasonable
attorneys' fees, in instituting, prosecuting, and/or defending any action or
proceeding instituted by reason of any default of Tenant hereunder, Tenant shall
on demand pay to Landlord by way of reimbursement the sum or sums so paid by
Landlord with all costs and damages, plus interest computed as provided in
Article 6 hereof.
(b) Tenant shall pay Landlord's cost and expense, including
reasonable attorneys' fees, incurred (i) in enforcing any obligation of Tenant
under this Lease or (ii) as a result of Landlord, without its fault, being made
partly to any litigation pending by or against Tenant or any persons claiming
through or under Tenant.
20.5 WAIVER OF REDEMPTION. Tenant does hereby waive and surrender all
rights and privileges which it might have under or by reason of any present or
future law to redeem the premises or to have a continuance of this Lease for the
term hereby demised after being dispossessed or ejected therefrom by process of
law or under the terms of this Lease or after the termination of this Lease as
herein provided.
20.6 LANDLORD'S REMEDIES NOT EXCLUSIVE. The specified remedies to which
Landlord may resort hereunder are cumulative and are not intended to be
exclusive of any remedies or means of redress to which Landlord may at any time
be lawfully entitled, and Landlord may invoke any remedy (including the remedy
of specific performance) allowed at law or in equity as if specific remedies
were not herein provided for.
20.7 GRACE PERIOD. Notwithstanding anything to the contrary in clause (i)
of Article 20.1 contained, Landlord agrees not to take any action to terminate
this Lease (a) for default b\, Tenant in the payment when due of any sum of
money, if Tenant shall cure such default within five (5) days after written
notice thereof is given by Landlord to Tenant, provided, however, that no such
notice need be given and no such default in the payment of money shall be
curable if on two (2) prior occasions there had been a default in the payment of
money which had been cured after notice thereof had been given by Landlord to
Tenant as herein provided or (b) for default by Tenant in the performance of any
covenant other than a covenant to pay a sum of money, if Tenant shall cure such
default within a period of thirty (30) days after written notice thereof given
by Landlord to Tenant (except where the nature of the default is such that
remedial action should appropriately take place
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sooner, as indicated in such written notice), or within such additional
period as may, reasonably be required to cure such default if (because of
governmental restrictions or any other cause beyond the reasonable control of
Tenant) the default is of such a nature that it cannot be cured within such
thirty-(30)-day period, provided, however, (1) that there shall be no
extension of time beyond such thirty-(30)-day period for the curing of any
such default unless, not more than ten (10) days after the receipt of the
notice of default, Tenant in writing (i) shall specify the cause on account
of which the default cannot be cured during such period and shall advise
Landlord of its intention duly to institute all steps necessary to cure the
default and (ii) shall, as soon as reasonably practicable, duly institute and
thereafter diligently prosecute to completion all steps necessary to cure
such default and, (2) that no notice of the opportunity to cure a default
need be given, and no grace period whatsoever shall be allowed to Tenant, in
the event that the default is based upon a condition set forth in clauses
(b), (c), (d), (e), (f), (g), (h), (i), or (j) of Article 20.1 of this Lease,
or if the covenant or condition the breach of which gave rise to default had,
by reason of a breach on a prior occasion, been the subject of a notice
hereunder to cure such default.
Notwithstanding anything to the contrary in this Article 20.7 contained,
except to the extent prohibited by applicable law, any statutory notice and
grace periods provided to Tenant by law are hereby expressly waived by Tenant.
21. END OF TERM - ABANDONED PROPERTY
Upon the expiration or other termination of the term of this Lease, Tenant
shall peaceably quit and surrender to Landlord the premises and all alterations
and additions thereto, broom clean, in good order, repair and condition (except
as provided herein and in Articles 7.2, 7.3, 17 and 19) excepting only ordinary
wear and use and damage by fire or other casualty for which, under other
provisions of this Lease, Tenant has no responsibility of repair or restoration.
Tenant shall remove all of its property (including, without limitation, any
signage installed by Tenant) and, to the extent specified by Landlord, all
alterations and additions made by Tenant and all partitions wholly within the
premises, and shall repair any damages to the premises or the Building caused by
their installation or by such removal. Tenant's obligation to observe or
perform this covenant shall survive the expiration or other termination of the
term of this Lease.
Tenant will remove any personal property from the Building and the premises
upon or prior to the expiration or termination of this Lease and any such
property which shall remain in the Building or the premises thereafter shall be
conclusively deemed to have been abandoned, and may either be retained by
Landlord as its property or sold or otherwise disposed of in such manner as
Landlord may see fit. If any part thereof shall be sold, that Landlord may
receive and retain the proceeds of such sale and apply the same, at its option,
against the expenses of the sale, the cost of moving and storage, any arrears of
Yearly Rent, additional or other charges payable hereunder by Tenant to Landlord
and any damages to which Landlord may be entitled under Article 20 hereof or
pursuant to law.
If Tenant or anyone claiming under Tenant shall remain in possession of the
premises or any part thereof after the expiration or prior termination of the
term of this Lease without any agreement
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in writing between Landlord and Tenant with respect thereto, then,
notwithstanding Landlord's acceptance of any payments for rent or use and
occupancy, the person remaining in possession shall be deemed a
tenant-at-sufferance. Whereas the parties hereby acknowledge that Landlord
may need the premises after the expiration or prior termination of the term
of the Lease for other tenants and that the damages which Landlord may suffer
as the result of Tenant's holding-over cannot be determined as of the
Execution Date hereof in the event that Tenant so holds over, Tenant shall
pay to Landlord in addition to all rental and other charges due and accrued
under the Lease prior to the date of termination, charges (based upon the
fair market rental value of the Premises) for use and occupation of the
premises thereafter and, in addition to such sums and any and all other
rights and remedies which Landlord may have at law or in equity, an
additional use and occupancy charge in the amount of one hundred (100%)
percent of either the Yearly Rent and all other amounts payable under the
Lease calculated (on a daily basis) at the highest rate payable under the
terms of this Lease, but measured from the day on which Tenant's hold-over
commenced and terminating on the day on which Tenant vacates the premises or
the fair market rental value of the premises for such period, whichever is
greater. In addition, Tenant shall save Landlord, its agents and employees,
harmless and will exonerate, defend and indemnify Landlord, its agents and
employees, defend and indemnify Landlord, its agents and employees, from and
against any and all damages which Landlord may suffer on account of Tenant's
hold-over in the premises after the expiration or prior termination of the
term of the Lease.
22. SUBORDINATION
(a) Subject to any mortgagee's, or ground lessor's election, as
hereinafter provided for, this Lease is subject and subordinate in all respects
to all matters of record (including, without limitation, deeds and land
disposition agreements), ground leases and/or underlying leases, and all
mortgages, any of which may now or hereafter be placed on or affect such leases
and/or the real property of which the premises are a part, or any part of such
real property, and/or Landlord's interest or estate therein, and to each advance
made and/or hereafter to be made under any such mortgages, and to all renewals,
modifications, consolidations, replacements and extensions thereof and all
substitutions therefor. This Article 22 shall be self-operative and no further
instrument or subordination shall be required. In confirmation of such
subordination, Tenant shall execute, acknowledge and deliver promptly any
certificate or instrument that Landlord and/or any mortgagee and/or lessor under
any ground or underlying lease and/or their respective successors in interest
may request, subject to Landlord's mortgagees and ground lessor's right to do so
for, on behalf and in the name of Tenant under certain circumstances, as
hereinafter provided. Tenant acknowledges that, where applicable, any consent
or approval hereafter given by Landlord may be subject to the further consent or
approval of such mortgagee and/or ground lessor; and the failure or refusal of
such mortgagee and/or ground lessor to give such consent, or approval shall,
notwithstanding anything to the contrary in this Lease contained, constitute
reasonable justification for Landlord's withholding its consent or approval,
subject to Landlord's mortgagee's and ground lessor's right to do so for, on
behalf and in the name of Tenant under certain circumstances, as hereinafter
provided.
(b) Any such mortgagee or ground lessor may from time to time subordinate
or revoke any such subordination of the mortgage or ground lease held by it to
this Lease. Such subordination
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or revocation, as the case may be, shall be effected by written notice to
Tenant and by recording an instrument of subordination or of such revocation,
as the case may be, with the appropriate registry of deeds or land records
and to be effective without any further act or deed on the part of Tenant.
In confirmation of such subordination or of such revocation, as the case may
be, Tenant shall execute, acknowledge and promptly deliver any certificate or
instrument that Landlord, any mortgagee or ground lessor may request.
(c) Without limitation of any of the provisions of this Lease, if any
ground lessor or mortgagee shall succeed to the interest of Landlord by reason
of the exercise of its rights under such ground lease or mortgage (or the
acceptance of voluntary conveyance in lieu thereof) or any third party
(including, without limitation, any foreclosure purchaser or mortgage receiver)
shall succeed to such interest by reason of any, such exercise or the expiration
or sooner termination of such ground lease, however caused, then such successor
may, upon notice and request to Tenant (which, in the case of a ground lease,
shall be within thirty (30) days after such expiration or sooner termination),
succeed to the interest of Landlord under this Lease, provided, however, that
such successor shall not: (i) be liable for any previous act or omission of
Landlord under this Lease; (ii) be subject to any offset, defense, or
counterclaim which shall theretofore have accrued to Tenant against Landlord;
(iii) have any obligation with respect to any security deposit unless it shall
have been paid over or physically delivered to such successor; or (iv) be bound
by any previous modification of this Lease or by any previous payment of Yearly
Rent for a period greater than one (1) month, made without such ground lessor's
or mortgagee's consent where such consent is required by applicable ground lease
or mortgage documents. In the event of such succession to the interest of the
Landlord -- and notwithstanding that any such mortgage or ground lease may
antedate this Lease -- the Tenant shall attorn to such successor and shall ipso
facto be and become bound directly to such successor in interest to Landlord to
perform and observe all the Tenant's obligations under this Lease without the
necessity of the execution of any further instrument. Nevertheless, Tenant
agrees at any time and from time to time during the term hereof to execute a
suitable instrument in confirmation of Tenant's agreement to attorn, as
aforesaid.
(d) The term "mortgage(s)" as used in this Lease shall include any
mortgage or deed of trust. The term "mortgagee(s)" as used in this Lease shall
include any mortgagee or any trustee and beneficiary under a deed of trust or
receiver appointed under a mortgage or deed of trust. The term "mortgagor(s)"
as used in this Lease shall include any mortgagor or any grantor under a deed of
trust.
(e) Tenant hereby irrevocably constitutes and appoints Landlord or any
such mortgagee or ground lessor, and their respective successors in interest,
acting singly, Tenant's attorney-in-fact to execute and deliver any such
certificate or instrument for, on behalf and in the name of Tenant, but only if
Tenant fails to execute, acknowledge and deliver any such certificate or
instrument within ten (10) days after Landlord or such mortgagee or such ground
lessor has made written request therefor.
(f) In the event of any failure by Landlord to perform, fulfill or observe
any agreement by Landlord herein, in no event will Landlord be deemed to be in
default under this Lease until
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Tenant shall have given written notice of such failure to any mortgagee
(and/or ground lessor) of which Tenant shall have been advised in writing and
until a reasonable period of time shall have elapsed following the giving of
such notice, during which such mortgagee (and/or ground lessor) shall have
the right, but shall not be obligated, to remedy such failure.
23. QUIET ENJOYMENT
Landlord covenants that if, and so long as, Tenant keeps and performs each
and every covenant, agreement, term, provision and condition herein contained on
the part and on behalf of Tenant to be kept and performed, Tenant shall quietly
enjoy the premises from and against the claims of all persons claiming by,
through or wider Landlord subject, nevertheless, to the covenants, agreements,
terms, provisions and conditions of this Lease and to the mortgages, ground
leases and/or underlying leases to which this Lease is subject and subordinate,
as hereinabove set forth.
Without incurring any liability to Tenant, Landlord may permit access to
the premises and open the same, whether or not Tenant shall be present, upon any
demand of any receiver, trustee, assignee for the benefit of creditors, sheriff,
marshal or court officer entitled to, or reasonable purporting to be entitled
to, such access for the purpose of taking possession of, or removing, Tenant's
property or for any other lawful purpose (but this provision and any action by
Landlord hereunder shall not be deemed a recognition by Landlord that the person
or official making such demand has any right or interest in or to this Lease, or
in or to the premises), or upon demand of any representative of the fire,
police, building, sanitation or other department of the city, state or federal
governments.
24. ENTIRE AGREEMENT - WAIVER - SURRENDER
24.1 ENTIRE AGREEMENT. This Lease and the Exhibits made a part hereof
contain the entire and only agreement between the parties and any and all
statements and representations, written and oral, including previous
correspondence and agreements between the parties hereto, are merged herein.
Tenant acknowledges that all representations and statements upon which it relied
in executing this Lease are contained herein and that the Tenant in no way
relied upon any other statements or representations, written or oral. Any
executory agreement hereafter made shall be ineffective to change, modify,
discharge or effect an abandonment of this Lease in whole or in part unless such
executory agreement is in writing and signed by the party against whom
enforcement of the change, modification, discharge or abandonment is sought.
24.2 WAIVER BY LANDLORD. The failure of Landlord to seek redress for
violation, or to insist upon the strict performance, of any covenant or
condition of this Lease, or any of the Rules and Regulations promulgated
hereunder, shall not prevent a subsequent act, which would have originally
constituted a violation, from having all the force and effect of an original
violation. The receipt by Landlord of rent with knowledge of the breach of any
covenant of this Lease shall not be deemed a waiver of such breach. The failure
of Landlord to enforce any of such Rules and Regulations against Tenant and/or
any other tenant in the Building shall not be deemed a waiver of any such Rules
and Regulations. No provisions of this Lease shall be deemed to have been
waived
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by Landlord unless such waiver be in writing signed by Landlord. No payment
by Tenant or receipt by Landlord of a lesser amount than the monthly rent
herein stipulated shall be deemed to be other than on account of the
stipulated rent, nor shall any endorsement or statement on any check or any
letter accompanying any check or payment as rent be deemed an accord and
satisfaction, and Landlord may accept such check or payment without prejudice
to Landlord's right to recover the balance of such rent or pursue any other
remedy in this Lease provided.
24.3 SURRENDER. No act or thing done by Landlord during the term hereby
demised shall be deemed an acceptance of a surrender of the premises, and no
agreement to accept such surrender shall be valid, unless in writing signed by
Landlord. No employee of Landlord or of Landlord's agents shall have any power
to accept the keys of the premises prior to the termination of this Lease. The
delivery of keys to any employee of Landlord or of Landlord's agents shall not
operate as a termination of the Lease or a surrender of the premises. In the
event that Tenant at any time desires to have Landlord underlet the premises for
Tenant's account, Landlord or Landlord's agents are authorized to receive the
keys for such purposes without releasing Tenant from any of the obligations
under this Lease, and Tenant hereby relieves Landlord of any liability for loss
of or damage to any of Tenant's effects in connection with such underletting.
25. INABILITY TO PERFORM - EXCULPATORY CLAUSE
This Lease and the obligations of Tenant to pay rent hereunder and perform
all the other covenants, agreements, terms, provisions and conditions hereunder
on the part of Tenant to be performed shall in no way be affected, impaired or
excused because Landlord is unable to fulfill any of its obligations under this
Lease or is unable to supply or is delayed in supplying any service expressly or
impliedly to, be supplied or is unable to make or is delayed in making any
repairs, replacements, additions, alterations, improvements or decorations or is
unable to supply or is delayed in supplying any equipment or fixtures if
Landlord is prevented or delayed from so doing by reason of strikes or labor
troubles or any other similar or dissimilar cause whatsoever beyond Landlord's
reasonable control, including but not limited to, governmental preemption in
connection with a national emergency or by reason of any rule, order or
regulation of any department or subdivision thereof of any governmental agency
or by reason of the conditions of supply and demand which have been or are
affected by war, hostilities or other similar or dissimilar emergency. In each
such instance of inability of Landlord to perform, Landlord shall exercise
reasonable diligence to eliminate the cause of such inability to perform.
Tenant shall neither assert nor seek to enforce any, claim against
Landlord, or Landlord's agents or employees, or the assets of Landlord or of
Landlord's agents or employees, for breach of this Lease or otherwise, other
than against Landlord's interest in the Building of which the premises are a
part and in the uncollected rents, issues and profits thereof, and Tenant agrees
to look solely to such interest for the satisfaction of any liability of
Landlord under this Lease, it being specifically agreed that in no event shall
Landlord or Landlord's agents or employees (or any of the officers, trustees.
directors, partners, beneficiaries, joint venturers, members, stockholders or
other principals or representatives, and the like, disclosed or undisclosed,
thereof) ever be personally liable for any such liability. This paragraph shall
not limit any right that Tenant might otherwise have to obtain
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injunctive relief against Landlord or to take any other action which shall
not involve the personal liability of Landlord to respond in monetary damages
from Landlord's assets other than the Landlord's interest in said real
estate, as aforesaid. In no event shall Landlord or Landlord's agents or
employees (or any of the officers, trustees, directors, partners,
beneficiaries, joint venturers, members, stockholders or other principals or
representatives and the like, disclosed or undisclosed, thereof) ever be
liable for lost profits or consequential or incidental damages. If by reason
of Landlord's failure to complete construction of the Building or premises,
Landlord shall be held to be in breach of this Lease, Tenant's sole and
exclusive remedy shall be a right to terminate this Lease.
26. BILLS AND NOTICES
Any notice, consent, request, bill, demand or statement hereunder by either
party to the other party shall be in writing and, if received at Landlord's or
Tenant's address, shall be deemed to have been duly given when either delivered
or served personally or mailed in a postpaid envelope, deposited in the United
States mails addressed to Landlord at its address as stated in Exhibit 1 and to
Tenant at Tenant's address as stated in Exhibit 1, or if any address for notices
shall have been duly changed as hereinafter provided, if mailed as aforesaid to
the party at such changed address. Either party may at any time change the
address or specify an additional address for such notices, consents, requests,
bills, demands or statements by delivering or mailing, as aforesaid, to the
other party a notice stating the change and setting forth the changed or
additional address, provided such changed or additional address is within the
United States. If Tenant is a partnership, Tenant, for itself, and on behalf of
all of its partners, hereby appoints Tenant's Service Partner, as identified on
Exhibit 1, to accept service of any notice, consent, request bill, demand or
statement hereunder by Landlord and any service of process in any judicial
proceeding with respect to this Lease on behalf of Tenant and as agent and
attorney-in-fact for each partner of Tenant.
All bills and statements for reimbursement or other payments or charges due
from Tenant to Landlord hereunder shall be due and payable in full ten (10)
days, unless herein otherwise provided, after submission thereof by Landlord to
Tenant. Tenant's failure to make timely payment of any amounts indicated by
such bills and statements, whether for work done by Landlord at Tenant's
request, reimbursement provided for by this Lease or for any other sums properly
owing by Tenant to Landlord, shall be treated as a default in the payment of
rent in which event Landlord shall have all rights and remedies provided in this
Lease for the nonpayment of rent.
27. PARTIES BOUND - SEIZEN OF TITLE
The covenants, agreements, terms, provisions and conditions of this Lease
shall bind and benefit the successors and assigns of the parties hereto with the
same effect as if mentioned in each instance where a party hereto is named or
referred to, except that no violation of the provisions of Article 15 hereof
shall operate to vest any rights in any successor or assignee of Tenant and that
the provisions of this Article 27 shall not be construed as modifying the
conditions of limitation contained in Article 21 hereof.
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If, in connection with or as a consequence of the sale, transfer or other
disposition of the real estate (land, Building and/or Complex, any or all, as
the case may be) of which the premises are a part, any party who is Landlord
ceases to be the owner of the reversionary interest in the premises, Landlord
shall be entirely freed and relieved from the performance and observance
thereafter of all covenants and obligations hereunder on the part of Landlord to
be performed and observed, it being understood and agreed in such event (and it
shall be deemed and construed as a covenant running with the land) that the
person succeeding to Landlord's ownership of said reversionary interest shall
thereupon and thereafter assume, and perform and observe, any and all of such
covenants and obligations of Landlord.
28. HAZARDOUS WASTE
Landlord and Tenant agree as follows with respect to the existence or use
of "Hazardous Material" in the premises or otherwise in the Complex.
(a) Tenant, at its sole cost and expense, shall comply with all
laws, statutes, ordinances, rules and regulations of any governmental authority
having jurisdiction concerning environmental, health and safety matters,
including, but not limited to, any discharge into the air, surface, water,
sewers, soil or groundwater of any hazardous material (as defined in Article
28(e)), whether within or outside the premises or otherwise in the Complex.
(b) Tenant shall not cause or permit any Hazardous Material to be
brought upon, kept or used in or about the premises or otherwise in the Complex
by Tenant, its agents, employees. contractors or invitees, without the prior
written consent of Landlord (which consent Landlord shall not unreasonably
withhold as long as Tenant demonstrates to Landlord's reasonable satisfaction
that such Hazardous Material is necessary or useful to Tenant's business and
will be used, kept and stored in a manner that complies with all laws and
regulations relating to any such Hazardous Material so brought upon or used or
kept in or about the premises or otherwise in the Complex). Notwithstanding the
foregoing, in the event that Tenant is in breach of any of its obligations under
this Section 28, Landlord shall have the right to revoke any consent which
Landlord has granted to Tenant to allow bringing upon, keeping or using any
Hazardous Material in or about the premises or the Complex (including, without
limitation, the consent which Landlord has granted to the Hazardous Materials
listed on Exhibit 1). If Tenant breaches the obligations stated in the
preceding sentence, or if the presence of Hazardous Material in the premises or
otherwise in the Complex caused or permitted by Tenant results in contamination
of the premises or the Complex, then Tenant shall indemnify, defend and hold
Landlord harmless from any and all claims, judgments, damages, penalties, fines,
costs, liabilities or losses (including without limitation, diminution in value
of the premises or the Complex, damages for the loss or restriction on use of
rentable or usable space or of any amenity of the premises or the Complex,
damages arising from any adverse impact on marketing of space in the Complex,
and sums paid in settlement of claims, actual attorneys' fees, consultant fees
and expert fees) which arise during or after the Term as a result of such
contamination. This indemnification of Landlord by Tenant includes, without
limitation, costs incurred in connection with any investigation of site
conditions or any cleanup, remedial, removal or restoration work required by any
federal, state or local governmental agency or political
33
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subdivision because of Hazardous Material present in the soil or ground water
on or under the premises or otherwise in the Complex. The indemnification and
hold harmless obligations of Tenant under this Article 28 shall survive any
termination of this Lease. Without limiting the foregoing, if the presence of
any Hazardous Material in the premises or otherwise in the Complex caused or
permitted by Tenant results in any contamination of the premises or the
Complex, Tenant shall promptly take all actions at its sole expense as are
necessary to return the premises or the Complex to the condition existing
prior to the introduction of any such Hazardous Material to the premises or
the Complex; provided that Landlord's approval of such actions shall first be
obtained, which approval shall not be unreasonably withheld so long as such
actions, in Landlord's sole and absolute discretion, would not potentially
have any materially adverse long-term or short-term effect on the premises or
the Complex.
(c) Landlord and Tenant acknowledge that Landlord may become
legally liable for the costs of complying with laws and regulations relating to
Hazardous Material which are not the responsibility of Tenant pursuant to
Article 28(a), including, but not limited to, the following: (i) Hazardous
Material that migrates, flows, percolates, diffuses or in any way moves on to or
under the premises or the Complex after the commencement of the Term; (ii)
Hazardous Material present on or under the premises or the Complex as a result
of any discharge, dumping or spilling (whether accidental or otherwise), on the
premises or the Complex by other tenants of the Complex or their agents,
employees, contractors or invitees, or by others. Accordingly, Landlord and
Tenant agree that the cost of complying with laws and regulations relating to
Hazardous Material on the premises or the Complex for which Landlord is legally
liable and which are paid or incurred by Landlord shall be deemed Operating
Costs (as defined in Article 8.1) for which Tenant shall be responsible in
accordance with the terms and conditions of Article 8.1.
(d) It shall not be unreasonable for Landlord to withhold its
consent to any proposed assignment or sublease pursuant to Article 15 if (i) the
proposed assignee's or subtenant's anticipated use of the premises involves the
generation, storage, use, treatment or disposal of Hazardous Material, (ii) the
proposed assignee or subtenant has been required by any prior landlord, lender
or governmental authority to take remedial action in connection with Hazardous
Material contaminating a property if the contamination resulted from assignee's
or subtenant's actions or use of the property in question; or (iii) the proposed
assignee or subtenant is subject to an enforcement order issued by any
governmental authority in connection with the use, disposal or storage of a
Hazardous Material.
(e) As used herein, the term "Hazardous Materials" means any
hazardous or toxic substance, material or waste which is or becomes regulated by
any local governmental authority, the State of Illinois or the United States
Government. The term "Hazardous Material" includes, without limitation, any
material or substance which is (i) designated as a "hazardous substance"
pursuant to Section 1311 of the Federal Water Pollution Control Act (33 U.S.C.
Section 1317), (ii) defined as a "hazardous waste" pursuant to Section 1004 of
the Federal Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et
seq. (42 U.S.C. Section 6903), or (iii) defined as a "hazardous substance"
pursuant to Section 101 of the Comprehensive Environmental Response,
Compensation and Liability Act 42 U.S.C. Section 9601 et seq. (42 U.S.C. Section
9601)
34
<PAGE>
(f) Tenant acknowledges that it presently intends to use or
reasonably anticipates the use of the materials listed on Exhibit 1, which may
be "Hazardous Material" as defined in Article 28(e) of this Lease in its
business at the premises, but in doing so, Tenant acknowledges and agrees to
comply with the provisions of this Section 28 in connection with its use and
handling of such Hazardous Material. Landlord agrees that Tenant may use the
"Hazardous Material", listed on Exhibit 1, subject to the terms of this Lease
and this Article 28. Tenant shall immediately notify Landlord of any other
materials which may be used by Tenant or stored by Tenant on or about the
premises which may be hazardous, as defined in Article 28(e) or otherwise, and
shall obtain Landlord's written consent prior to such use or storage.
(g) Any increase in the premium for necessary insurance on the
premises or the Complex which arises from Tenant's use and/or storage of these
materials shall be solely at Tenant's expense. Tenant shall procure and
maintain at its sole expense such additional insurance as may be necessary to
comply with any requirement of any Federal, State or local government agency
with jurisdiction.
(h) Tenant hereby covenants and agrees to indemnify, defend and
hold Landlord harmless from any and all claims, judgments, damages, penalties,
fines, costs, liabilities or losses which Landlord may incur arising out of
contamination of real estate or other property not a part of the Complex which
contamination arises as a result of the presence of Hazardous Material in the
premises or in the Complex, the presence of which is caused or permitted by
Tenant. The indemnification and hold harmless provisions of this Article shall
survive any termination of the Lease and shall be coextensive with the
indemnification and hold harmless rights of Landlord with respect to the
premises and the Complex.
29. MISCELLANEOUS
29.1 SEPARABILITY. If any provision of this Lease or portion of such
provision or the application thereof to any person or circumstance is for any
reason held invalid or unenforceable, the remainder of the Lease (or the
remainder of such provision) and the application thereof to other persons or
circumstances shall not be affected thereby.
29.2 CAPTIONS, ETC. The captions are inserted only as a matter of
convenience and for reference, and in no way define, limit or describe the scope
of this Lease nor the intent of any provisions thereof. References to "State"
shall mean, where appropriate, the District of Columbia and other Federal
territories, possessions, as well as a state of the United States.
29.3 BROKER. Tenant represents and warrants that it has not directly or
indirectly dealt, with respect to the leasing of office space in the Building or
any, Center, Office Park, or other Complex of which it is a part (called
"Building, etc." in this Article 29.3) with any broker or had its attention
called to the premises or other space to let in the Building, etc. by anyone
other than the broker, person or firm, if any, designated in Exhibit 1. Tenant
agrees to defend, exonerate and save harmless and indemnify Landlord and anyone
claiming by, through or under Landlord against any claims for a commission
arising out of the execution and delivery of this Lease or out of negotiations
35
<PAGE>
between Landlord and Tenant with respect to the leasing of other space in the
Building, etc., provided that Landlord shall be solely responsible for the
payment of brokerage commissions to the broker, person or firm, if any,
designated in Exhibit 1.
29.4 MODIFICATIONS. If in connection with obtaining financing for the
Building, a bank, insurance company, pension trust or other institutional lender
shall request reasonable modifications in this Lease as a condition to such
financing. Tenant will not withhold, delay or condition its consent thereto,
provided that such modifications do not increase the obligations of Tenant
hereunder or materially adversely affect the rights of Tenant hereunder or the
leasehold interest hereby created.
29.5 GOVERNING LAW. This Lease is made pursuant to, and shall be governed
by, and construed in accordance with, the laws of the State of Illinois and any
applicable local municipal rules, regulations, bylaws, ordinances and the like.
29.6 ASSIGNMENT OF RENTS. With reference to any assignment by Landlord of
its interest in this Lease, or the rents payable hereunder, conditional in
nature or otherwise, which assignment is made to or held by a bank, trust
company, insurance company or other institutional lender holding a mortgage or
ground lease on the Building, Tenant agrees:
(a) that the execution thereof by Landlord and the acceptance
thereof by such mortgagee and/or ground lessor shall never be deemed an
assumption by such mortgagee and/or ground lessor of any of the obligations of
the Landlord thereunder, unless such mortgagee and/or ground lessor shall, by
written notice sent to the Tenant specifically otherwise elect; and
(b) that, except as aforesaid, such mortgagee and/or ground lessor
shall be treated as having assumed the Landlord's obligations thereunder only
upon foreclosure of such mortgagee's mortgage or termination of such ground
lessor's ground lease and the taking of possession of the demised premises after
having given notice of its exercise of the option stated in Article 22 hereof to
succeed to the interest of the Landlord under this Lease.
29.7 REPRESENTATION OF AUTHORITY. By his execution hereof each of the
signatories on behalf of the respective parties hereby warrants and represents
to the other that he is duly authorized to execute this Lease on behalf of such
party. If Tenant is a corporation, Tenant hereby appoints the signatory whose
name appears below on behalf of Tenant as Tenant's attorney-in-fact for the
purpose of executing this Lease for and on behalf of Tenant.
29.8 EXPENSES INCURRED BY LANDLORD UPON TENANT REQUESTS. Without limiting
any other provision of this Lease, Tenant shall, upon demand, reimburse Landlord
for all reasonable expenses, including, without limitation, legal fees, incurred
by Landlord in connection with all requests by Tenant for consents, approvals or
execution of collateral documentation related to this Lease, including, without
limitation, costs incurred by Landlord in the review and approval of Tenant's
plans and specifications in connection with proposed alterations to be made by
Tenant to the premises, requests by Tenant to sublet the premises or assign its
interest in the Lease,
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<PAGE>
the execution by Landlord of estoppel certificates requested by Tenant, and
requests by Tenant for Landlord to execute waivers of Landlord's interest in
Tenant's property in connection with third party financing by Tenant. Such
costs shall be deemed to be additional rent under the Lease.
29.9 SURVIVAL. Without limiting any other obligation of Tenant which may
survive the expiration or prior termination of the term of the Lease, all
obligations on the part of Tenant to indemnify, defend, or hold Landlord
harmless as set forth in this Lease (including, without limitation, Tenant's
obligations under Articles 12(d), 14.3 and 29.3) shall survive the expiration or
prior termination of the term of the Lease.
IN WITNESS WHEREOF the parties hereto have executed this Indenture of Lease
in multiple copies, each to be considered an original hereof, as a sealed
instrument on the day and year noted in Exhibit 1 as the Execution Date.
LANDLORD: TENANT:
CHICAGO MIDWAY JOINT VENTURE ARCHIBALD CANDY CORPORATION
By: Beacon Midway, L.P., Operating Partner
By: Beacon Midway Corporation,
its General Partner
By: /s/ Edwin N. Sidman By: /s/ Alan W. Petrik
------------------- -------------------
Edwin N. Sidman Alan W. Petrik
Vice President Vice President
Hereunto Duly Authorized Hereunto Duly Authorized
IF TENANT IS A CORPORATION A SECRETARY'S OR CLERK'S CERTIFICATE OF THE AUTHORITY
AND THE INCUMBENCY OF THE PERSON SIGNING ON BEHALF OF TENANT SHOULD BE ATTACHED.
37
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EXHIBIT 3
LEGAL DESCRIPTION
PARCEL A
That part of the Southeast 1/4 of Section 9, Township 38 North, Range 13 East of
the Third Principal Meridian, lying north of the Indiana Harbor Belt Railroad
Company and south of Archer Avenue, in Cook County, Illinois, described as
follows:
Commencing at the intersection of the southerly line of Archer Avenue and the
west line of Cicero Avenue (said west line ______ being 50 feet west of the east
line of said Section 9); thence southwesterly along the southerly line of Archer
Avenue, a distance of 321.31 feet (320.91 feet deed) to a point on a line 33
feet west of and parallel with the west line of the East One-Sixteenth of said
Section 9 (said line also being the east line of Condemnation Case No. 62 S
7992); thence south along said parallel east line a distance of 23.39 feet to
the point of beginning (said point being 23 feet southerly measured at right
angles to said southerly line of Archer Avenue; thence westerly along the
southerly Condemnation line parallel with and 23 feet southerly, measured at
right angles to the southerly line of Archer Avenue, a distance of 136.31 feet;
thence west along Condemnation line a distance of 94.57 feet to a point on a
line drawn parallel with the aforesaid west line of Cicero Avenue and 17.13 feet
south of the southerly line of Archer Avenue (said parallel line being drawn
555.19 feet (554.79 feet deed) westerly measured along the southerly line of
Archer Avenue); thence westerly along Condemnation line, a distance of 198.59
feet to a point on a line 4 feet south measured at right angles to said
southerly line of Archer Avenue; thence westerly along Condemnation line, a
distance of 146.73 feet to a point on the southerly line of Archer Avenue (said
point being 903.15 feet westerly of the west line of Cicero Avenue measured
along the southerly line of Archer Avenue); thence westerly along the southerly
line of Archer Avenue, a distance of 1720.97 feet to the east line of South
Laramie Avenue dedicated for a public street by Document 10387744 recorded June
3, 1929 (said east line being 33 feet east of and parallel with the west line of
the Southeast 1/4 of said Section 9); thence South along said east line, a
distance of 645.41 feet to the north line of the Indiana Harbor Belt Railroad
Company right-of-way; thence east along said north right-of-way line, a distance
of 2580.06 feet to the west line of Cicero Avenue; thence north along said west
line, a distance of 797.73 feet to a point 330.62 feet south of the southerly
line of Archer Avenue; thence west along a line parallel with the south line of
said Section 9, a distance of 315.97 feet to a point on a line 33 feet west of
and parallel with the west line of the East One-Sixteenth of said Section 9;
thence north along last described stance of 248.75 feet to the point of
beginning, excepting therefrom the West 632.00 feet of the above described
parcel.
Containing 1,740,505 square feet or 39.956 acres
<PAGE>
PARCEL B
The west 665.00 feet of that part of the Southeast Quarter of Section
9, Township 38 North, Range 13 East of the Third Principal Meridian,
lying North of the right of way of the Indiana Harbor Belt Railroad
Company and South of the center line of Archer Avenue, excepting
therefrom that part of the West 33 feet of the Southeast Quarter of
Section 9, aforesaid, dedicated for a public street (South Laramie
Avenue) by Document 10387744 recorded June 3, 1929, in Cook County,
Illinois.
Containing 445,269 square feet or 10.222 acres
<PAGE>
[Letterhead of Winston & Strawn]
August 15, 1997
Archibald Candy Corporation
1137 W. Jackson Boulevard
Chicago, Illinois 60607
Re: Registration Statement on Form S-1
of Archibald Candy Corporation
__________________________________
Gentlemen:
We have acted as special counsel to Archibald Candy Corporation, an
Illinois corporation (the "Company"), in connection with the preparation of the
Registration Statement on Form S-1 (the "Registration Statement") filed on
behalf of the Company with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act"), relating to the registration of $100,000,000 aggregate principal amount
of the Company's 10 1/4% Senior Secured Notes due 2004 (the "New Notes"), which
are to be offered in exchange for an equivalent principal amount of the
Company's currently outstanding 10 1/4% Senior Secured Notes due 2004 (the "Old
Notes"), all as more fully described in the Registration Statement. The New
Notes will be issued under the Company's Indenture dated as of July 2, 1997 (the
"Indenture") between the Company and The Bank of New York, as trustee.
Capitalized terms used herein and not otherwise defined shall have the meanings
given to such terms in the prospectus (the "Prospectus") contained in the
Registration Statement.
This opinion letter is delivered in accordance with the requirements
of Item 601(b)(5) of Regulation S-K under the Securities Act.
In connection with this opinion, we have examined and are familiar
with originals or copies, certified or otherwise identified to our satisfaction,
of (i) the Registration Statement, in the form filed with the Commission on the
date hereof; (ii) the Amended and Restated Articles of Incorporation of the
Company, as currently in effect; (iii) the By-laws of the Company, as currently
<PAGE>
August 15, 1997
Page 2
in effect; (iv) the Indenture; (v) the form of the New Notes; and (vi)
resolutions of the Board of Directors of the Company relating to, among other
things, the issuance and exchange of the New Notes for the Old Notes and the
filing of the Registration Statement. We also have examined such other
documents as we have deemed necessary or appropriate as a basis for the opinions
set forth below.
In our examination, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified or photostatic copies, and the
authenticity of the originals of such latter documents. As to certain facts
material to this opinion, we have relied without independent verification upon
oral or written statements and representations of officers and other
representatives of the Company and others.
Based upon and subject to the foregoing, we are of the opinion that:
1. The issuance and exchange of the New Notes for the Old Notes
pursuant to the terms and conditions of the Exchange Offer have been duly
authorized by requisite corporate action on the part of the Company.
2. When (i) the Registration Statement, as finally amended
(including all necessary post-effective amendments), shall have become effective
under the Securities Act, (ii) the New Notes are duly executed and authenticated
in accordance with the provisions of the Indenture and (iii) the New Notes shall
have been issued and delivered in exchange for the Old Notes pursuant to the
terms of the Exchange Offer set forth in the Prospectus, the New Notes will be
valid and binding obligations of the Company, entitled to the benefits of the
Indenture and enforceable against the Company in accordance with their terms,
except to the extent that the enforceability thereof may be limited by (A)
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or
other similar laws now or hereafter in effect relating to creditors' rights
generally and (B) general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity).
The foregoing opinions are limited to the laws of the United States,
the State of New York and the General Corporation Law of the State of Delaware.
We express no opinion as to the
<PAGE>
August 15, 1997
Page 3
application of the securities or blue sky laws
of the various states to the issuance or exchange of the New Notes.
We hereby consent to the reference to our firm under the heading
"Legal Matters" in the Prospectus and to the filing of this opinion with the
Commission as an exhibit to the Registration Statement. In giving such consent,
we do not concede that we are experts within the meaning of the Securities Act
or the rules and regulations thereunder or that this consent is required by
Section 7 of the Securities Act.
Very truly yours,
/S/ WINSTON & STRAWN
<PAGE>
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT, dated as of July 2, 1997 (this
"Agreement"), is by and between Archibald Candy Corporation, an Illinois
corporation (the "Company"), and Michael A. Perrino ("Indemnitee").
WITNESSETH
WHEREAS, highly competent persons are becoming more reluctant to
serve as directors, executive officers or in other capacities of corporations
that have publicly-held equity or debt unless they are provided with adequate
protection through insurance and indemnification against inordinate risks of
claims and actions against them arising out of their service to and
activities on behalf of the corporation; and
WHEREAS, the current difficulties or virtual impossibility of
obtaining adequate insurance and uncertainties relating to indemnification
have increased the difficulty of attracting and retaining such persons; and
WHEREAS, the Board of Directors of the Company has determined that
the inability to attract and retain such persons is detrimental to the best
interests of the Company's shareholders and that the Company should act to
assure such persons that there will be increased certainty of such protection
in the future; and
WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify such persons to the fullest
extent permitted by applicable law so that they will serve or continue to
serve the Company free from undue concern that they will not be so
indemnified; and
WHEREAS, the shareholders of the Company have adopted the Amended
and Restated By-laws of the Company (as amended, the "By-laws") providing for
the indemnification of the directors, officers, agents and employees of the
Company to the fullest extent permitted by the Illinois Business Corporation
Act (as amended, the "Act"). The By-laws and the Act specifically provide
that they are not exclusive, and thereby contemplate that contracts may be
entered into between the Company and the members of its Board of Directors
and its executive officers with respect to indemnification of such directors
and executive officers; and
WHEREAS, this Agreement is being entered into as part of
Indemnitee's total compensation for serving as a director and/or an executive
officer of the Company, as the case may be; and
<PAGE>
NOW THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
SECTION 1. Service by Indemnitee.
Indemnitee agrees to serve as director of the Company and/or
executive officer of the Company if so designated by the Company and
appointed by the Board of Directors, and agrees to the indemnification
provisions provided for herein. Indemnitee may at any time and for any
reason resign from such position (subject to any other contractual obligation
or other obligation imposed by operation of law), in which event the Company
shall have no obligation under this Agreement to continue Indemnitee in any
such position.
SECTION 2. Indemnification.
The Company shall indemnify Indemnitee to the fullest extent
permitted by applicable law in effect on the date hereof, notwithstanding
that such indemnification is not specifically authorized by this Agreement,
the Amended and Restated Articles of Incorporation of the Company (as
amended, the "Charter"), the Bylaws, the Act or otherwise. In the event of
any change, after the date of this Agreement, in any applicable law, statute
or rule regarding the right of an Illinois corporation to indemnify a member
of its board of directors or an officer, such changes, to the extent that
they would expand Indemnitee's rights hereunder, shall be within the scope of
Indemnitee's rights and the Company's obligations hereunder, and, to the
extent that they would narrow Indemnitee's rights hereunder, shall be
excluded from this Agreement; provided, however, that any change that is
required by applicable laws, statutes or rules to be applied to this
Agreement shall be so applied regardless of whether the effect of such change
is to narrow Indemnitee's rights hereunder. Without diminishing the scope of
the indemnification provided by this Section 2, the rights of indemnification
of Indemnitee provided hereunder shall include indemnification in respect of
(a) the proposed offering by the Company of $100,000,000 of its Senior
Secured Notes due 2004 (the "Notes") pursuant to an exemption from the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"), (b) the Company's subsequent filing with the Securities
and Exchange Commission (the "SEC") of a registration statement relating to
an exchange offer for the Notes under the Securities Act and (c) any other
public offerings of securities by the Company, and shall not be limited to
those rights set forth hereinafter, except to the extent expressly prohibited
by applicable law.
SECTION 3. Action or Proceeding Other Than an Action by or in
the Right of the Company.
Indemnitee shall be entitled to the indemnification rights provided
in this Section 3 if he is or was 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 in nature, other than an
action by or in the right of the Company, by reason of the fact that he is or
was a director, officer, employee, agent or fiduciary of the Company or is or
was serving at the request of the Company as a director, officer, employee,
agent, partner, trustee or fiduciary of any other entity (a "Related
Company") or by reason of anything done or not done by him in any such
capacity.
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<PAGE>
Pursuant to this Section 3, Indemnitee shall be indemnified against
reasonable costs and expenses (including, but not limited to, counsel fees,
costs, judgments, penalties, fines, ERISA excise taxes, and amounts paid in
settlement) (collectively, "Damages") actually and reasonably incurred by him
in connection with such action, suit or proceeding (including, but not
limited to, the investigation, defense, settlement or appeal thereof), if, in
the case of conduct in his official capacity with the corporation, he acted
in good faith and in the Company's best interests, and in all other cases, he
acted in good faith and was at least not opposed to the Company's best
interests, and with respect to any criminal action or proceeding had no
reasonable cause to believe his conduct was unlawful, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which Indemnitee shall have been finally adjudged to be liable for (a)
negligence or misconduct in the performance of his duty to the Company unless
and only to the extent that the court in which such action, suit or
proceeding was brought, or any other court of competent jurisdiction, shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, Indemnitee is fairly and
reasonably entitled to indemnity for such Damages as such court shall deem
proper or (b) a violation of Section 16(b) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), or any of the rules or regulations
promulgated thereunder. Notwithstanding the foregoing, the Company shall be
required to indemnify an officer or director in connection with an action,
suit or proceeding initiated by such person only if such action, suit or
proceeding was authorized or contemplated by the Board or a committee
thereof. No indemnity pursuant to this Agreement shall be provided by the
Company for Damages that have been paid directly to Indemnitee by an
insurance carrier under a policy of directors' and officers' liability
insurance maintained by the Company.
SECTION 4. Actions by or in the Right of the Company.
Indemnitee shall be entitled to the indemnification rights provided
in this Section 4 if he is or was made 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 brought by or in the
right of the Company to procure a judgment in its favor by reason of the fact
that he is or was a director, officer, employee, agent or fiduciary of the
Company or is or was serving at the request of the Company as a director,
officer, employee, agent, partner, trustee or fiduciary of any Related
Company by reason of anything done or not done by him in any such capacity.
Pursuant to this Section 4, Indemnitee shall be indemnified against Damages
actually and reasonably incurred by him in connection with such action or
suit (including, but not limited to, the investigation, defense, settlement
or appeal thereof) if, in the case of conduct in his official capacity with
the corporation, he acted in good faith and in the Company's best interests,
and in all other cases, he acted in good faith and was at least not opposed
to the Company's best interests, except that no indemnification shall be made
in respect of any claim, issue or matter as to which Indemnitee shall have
been finally adjudged to be liable for (a) negligence or misconduct in the
performance of his duty to the Company unless and only to the extent that the
court in which such action, suit or proceeding was brought, or any other
court of competent jurisdiction, shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, Indemnitee is fairly and reasonably entitled to indemnity for such
Damages as such court shall deem proper or (b) a violation of Section 16(b)
of the Exchange Act or any of the rules or regulations promulgated
thereunder. Notwithstanding the foregoing, the Company shall be required to
3
<PAGE>
indemnify an officer or director in connection with an action, suit or
proceeding initiated by such person only if such action, suit or proceeding
was authorized by the Board or a committee thereof. No indemnity pursuant to
this Agreement shall be provided by the Company for Damages that have been
paid directly to Indemnitee by an insurance carrier under a policy of
directors' and officers' liability insurance maintained by the Company.
SECTION 5. Indemnification for Costs, Charges and Expenses of
Successful Party.
Notwithstanding the other provisions of this Agreement, to the
extent that Indemnitee has served as a witness on behalf of the Company or
has been successful, on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, in defense of any
action, suit or proceeding referred to in Section 3 or 4, or in defense of
any claim, issue or matter therein, Indemnitee shall be indemnified against
all reasonable costs, charges, and expenses (including counsel fees) actually
and reasonably incurred by him or on his behalf in connection therewith.
SECTION 6. Partial Indemnification.
If Indemnitee is only partially successful in the defense,
investigation, settlement or appeal of any action, suit, investigation or
proceeding described in Section 3 or Section 4, and as a result is not
entitled under Section 5 to indemnification by the Company for the total
amount of reasonable Damages actually and reasonably incurred by him, the
Company shall nevertheless indemnify Indemnitee, as a matter of right
pursuant to Section 5, to the extent Indemnitee has been partially successful.
SECTION 7. Determination of Entitlement to Indemnification.
Upon written request by Indemnitee for indemnification pursuant to
Section 3 or Section 4 , the entitlement of Indemnitee to indemnification
pursuant to the terms of this Agreement shall be determined by the following
person or persons who shall be empowered to make such determination: (a) the
Board of Directors of the Company by a majority vote of a quorum consisting
of Disinterested Directors (as hereinafter defined); or (b) if such a quorum
is not obtainable or, even if obtainable, if the Board of Directors by the
majority vote of Disinterested Directors so directs, by Independent Counsel
(as hereinafter defined) in a written opinion to the Board of Directors, a
copy of which shall be delivered to Indemnitee; or (c) by the shareholders,
but shares owned by or voted under the control of directors, including the
Indemnitee, who are at the time parties to the proceeding may not be voted on
the determination. Such Independent Counsel shall be selected by the Board of
Directors and approved by Indemnitee. Upon failure of the Board of Directors
to so select such Independent Counsel or upon failure of Indemnitee to so
approve, such Independent Counsel shall be selected by an Illinois state
court judge of the Circuit Court of Cook County, Chancery Division, or such
other person as such judge shall designate to make such selection. Such
determination of entitlement to indemnification shall be made no later than
sixty (60) days after receipt by the Company of a written request for
indemnification. Such request shall include documentation or information
which is necessary for such determination and which is reasonably available
to Indemnitee. Any Damages incurred by Indemnitee in connection with his
request for
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indemnification hereunder shall be borne by the Company. The Company hereby
indemnifies and agrees to hold Indemnitee harmless therefrom irrespective of
the outcome of the determination of Indemnitee's entitlement to
indemnification. If the person making such determination shall determine
that Indemnitee is entitled to indemnification as to part (but not all) of
the application for indemnification, such person shall reasonably prorate
such partial indemnification among such claims, issues or matters.
SECTION 8. Presumptions and Effect of Certain Proceedings.
The Secretary of the Company shall, promptly upon receipt of
Indemnitee's request for indemnification, advise in writing the Board of
Directors or such other person or persons empowered to make the determination
as provided in Section 7 that Indemnitee has made such request for
indemnification. Indemnitee shall be presumed to be entitled to
indemnification hereunder and the Company shall have the burden of proof in
the making of any determination contrary to such presumption. If the person
or persons so empowered to make such determination shall have failed to make
the requested indemnification within 60 days after receipt by the Company of
such request, the requisite determination of entitlement to indemnification
shall be deemed to have been made and Indemnitee shall be absolutely entitled
to such indemnification, absent actual and material fraud in the request for
indemnification. The termination of any action, suit, investigation or
proceeding described in Section 3 or Section 4 by judgment, order, settlement
or conviction, or upon a plea of nolo contendere or its equivalent, shall
not, of itself (a) create a presumption that Indemnitee 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 Company, and, with respect to any criminal action
or proceeding, that Indemnitee had reasonable cause to believe that his
conduct was unlawful or (b) otherwise adversely affect the rights of
Indemnitee to indemnification except as may be provided herein.
SECTION 9. Advancement of Expenses and Costs.
All reasonable expenses and costs incurred by Indemnitee who is
party to a proceeding or investigation (including counsel fees, retainers and
advances of disbursements required of Indemnitee) (collectively, the "Expense
Advance") shall be paid by the Company in advance of the final disposition of
such action, suit, proceeding or investigation at the request of Indemnitee
within twenty (20) days after the receipt by the Company of a statement or
statements from Indemnitee requesting such advance or advances from time to
time. Such statement or statements shall reasonably evidence the expenses
and costs incurred by him in connection therewith. The Company's obligation
to provide an Expense Advance is subject to the following conditions: (a) if
the proceeding arose in connection with Indemnitee's service as a director
and/or executive officer of, or in any other capacity on behalf of, the
Company or any Related Company, then the Indemnitee or his representative
shall have executed and delivered to the Company an undertaking, which need
not be secured and shall be accepted without reference to Indemnitee's
financial ability to make repayment, by or on behalf of Indemnitee to repay
all Expense Advance if and to the extent that it shall ultimately be
determined by a final, unappealable decision rendered by a court having
jurisdiction over the parties and the question that Indemnitee is not
entitled to be indemnified for such Expense Advance under this Agreement or
otherwise; (b) Indemnitee shall give
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the Company such information and cooperation as it may reasonably request and
as shall be within Indemnitee's power; and (c) Indemnitee shall furnish, upon
request by the Company and if required under applicable law, a written
affirmation of Indemnitee's good faith belief that any applicable standards
of conduct have been met by Indemnitee. Indemnitee's entitlement to such
Expense Advance shall include those incurred in connection with any
proceeding by Indemnitee seeking an adjudication pursuant to this Agreement.
In the event that a claim for an Expense Advance is made hereunder and is not
paid in full within twenty (20) days after written notice of such claim is
delivered to the Company, Indemnitee may, but need not, at any time
thereafter bring suit against the Company to recover the unpaid amount of the
claim.
SECTION 10. Remedies of Indemnitee in Cases of Determination not
to Indemnify or to Advance Expenses.
In the event that a determination is made that Indemnitee is not
entitled to indemnification hereunder or if payment has not been timely made
following a determination of entitlement to indemnification pursuant to
Section 7 or 8, or if expenses are not advanced pursuant to Section 9,
Indemnitee shall be entitled to a final adjudication in an appropriate court
of the State of Illinois or any other court of competent jurisdiction of his
entitlement to such indemnification or advance. The Company shall not oppose
Indemnitee's right to seek any such adjudication or any other claim. Such
judicial proceeding shall be made de novo and Indemnitee shall not be
prejudiced by reason of a determination (if so made) that he is not entitled
to indemnification. If a determination is made or deemed to have been made
pursuant to the terms of Section 7 or 8 that Indemnitee is entitled to
indemnification, the Company shall be bound by such determination and is
precluded from asserting that such determination has not been made or that
the procedure by which such determination was made is not valid, binding and
enforceable. The Company further agrees to stipulate in any such court that
the Company is bound by all the provisions of this Agreement and is precluded
from making any assertion to the contrary. If the court shall determine that
Indemnitee is entitled to any indemnification hereunder, the Company shall
pay all reasonable Damages actually incurred by Indemnitee in connection with
such adjudication (including, but not limited to, any appellate proceedings).
SECTION 11. Other Rights to Indemnification.
The indemnification and advancement of expenses (including counsel
fees) and costs provided by this Agreement shall not be deemed exclusive of
any other rights to which Indemnitee may now or in the future be entitled
under any provision of the By-laws or the Charter, any vote of shareholders
or Disinterested Directors, any provision of law or otherwise.
SECTION 12. Counsel Fees and Other Expenses to Enforce Agreement.
In the event that Indemnitee is subject to or intervenes in any
proceeding in which the validity or enforceability of this Agreement is at
issue or seeks an adjudication or award in arbitration to enforce his rights
under, or to recover damages for breach of, this Agreement, Indemnitee, if he
prevails in whole or in part in such action, shall be entitled to recover
from the Company, and shall be indemnified by the Company against, any
reasonable expenses for counsel
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fees and disbursements actually and reasonably incurred by him. Indemnitee
shall be entitled to select his own counsel; provided, however, that the
Company may elect to hire a counsel to represent Indemnitee together with
other similarly situated individuals, but only if such joint representation
does not, in the reasonable discretion of Indemnitee, create any conflict of
interest.
SECTION 13. Duration of Agreement.
This Agreement shall continue until and terminate upon the later of
(a) 10 years after Indemnitee has ceased to occupy any of the positions or
have any of the relationships described in Sections 1, 3 or 4 or (b) the
final termination of all pending or threatened actions, suits, proceedings or
investigations with respect to Indemnitee. This Agreement shall be binding
upon the Company and its successors and assigns and shall inure to the
benefit of Indemnitee and his spouse, assigns, heirs, devisees, executors,
administrators or other legal representatives.
SECTION 14. Severability.
If any provision or provisions of this Agreement shall be held to
be invalid, illegal or unenforceable for any reason whatsoever (a) the
validity, legality and enforceability of the remaining provisions of this
Agreement (including without limitation, all portions of any paragraphs of
this Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable)
shall not in any way be affected or impaired thereby and (b) to the fullest
extent possible, the provisions of this Agreement (including, without
limitation, all portions of any paragraph of this Agreement containing any
such provision held to be invalid, illegal or unenforceable, that are not
themselves invalid, illegal or unenforceable) shall be construed so as to
give effect to the intent manifested by the provision held invalid, illegal
or unenforceable.
SECTION 15. Identical Counterparts.
This Agreement may be executed in one or more counterparts, each of
which shall for all purposes be deemed to be an original, but all of which
together shall constitute one and the same Agreement. Only one such
counterpart signed by the party against whom enforceability is sought needs
to be produced to evidence the existence of this Agreement.
SECTION 16. Headings; Section References.
The headings of the paragraphs of this Agreement are inserted for
convenience only and shall not be deemed to constitute part of this Agreement
or to affect the construction thereof. Unless otherwise specified herein,
each reference herein to a Section shall be deemed a reference to a Section
of this Agreement.
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SECTION 17. Definitions.
For purposes of this Agreement:
(a) "Disinterested Director" shall mean a director of the Company
who is not or was not a party to the action, suit, investigation or
proceeding in respect of which indemnification is being sought by Indemnitee.
(b) "Independent Counsel" shall mean a law firm or a member of a
law firm that neither is presently nor in the past five years has been
retained to represent (i) the Company or Indemnitee in any matter material to
either such party or (ii) any other party to the action, suit, investigation
or proceeding giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term "Independent Counsel" shall not
include any person who, under the applicable standards of professional
conduct then prevailing, would have a conflict of interest in representing
either the Company or Indemnitee in an action to determine Indemnitee's right
to indemnification under this Agreement.
SECTION 18. Modification and Waiver.
No supplement, modification or amendment of this Agreement shall be
binding unless executed in writing by both of the parties hereto. No waiver
of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver of any other provisions hereof (whether or not similar)
nor shall such waiver constitute a continuing waiver.
SECTION 19. Mutual Acknowledgment.
The Company and Indemnitee acknowledge that, in certain instances,
federal law or public policy may override applicable state law and prohibit
the Company from indemnifying Indemnitee under this Agreement or otherwise.
For example, the Company and Indemnitee acknowledge that the SEC has taken
the position that indemnification is not permissible for liabilities arising
under certain federal securities laws, and federal legislation prohibits
indemnification for certain ERISA violations. Furthermore, Indemnitee
understands and acknowledges that the Company has undertaken or may be
required in the future to undertake with the SEC to submit the question of
indemnification to a court in certain circumstances for a determination of
the Company's right under public policy to indemnify Indemnitee.
SECTION 20. Notice by Indemnitee.
Indemnitee agrees promptly to notify the Company in writing upon
being served with any summons, citation, subpoena, complaint, indictment,
information or other document relating to any matter which may be subject to
indemnification covered hereunder, either civil, criminal or investigative.
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SECTION 21. Notices.
All notices, requests, demands and other communications hereunder
shall be in writing and shall be deemed to have been duly given if
(a) delivered by hand and receipted for by the party to whom said notice or
other communication shall have been directed or (b) mailed by certified or
registered mail with postage prepaid on the third business day after the date
on which it is so mailed, to the following addresses:
(a) to Indemnitee:
Michael A. Perrino
Archibald Candy Corporation
1137 West Jackson Boulevard
Chicago, Illinois 60607
(b) to the Company:
Archibald Candy Corporation
1137 West Jackson Boulevard
Chicago, Illinois 60607
Attention: Secretary
or to such other address as may have been furnished to Indemnitee by the
Company or to the Company by Indemnitee, as the case may be.
SECTION 22. Other Agreements.
This Agreement restates and supersedes, but does not limit or
negate, any indemnification, rights or interests of Indemnitee under any
prior agreements between the Company and Indemnitee.
SECTION 23. Governing Law.
The parties agree that this Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of Illinois.
[signature page follows]
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IN WITNESS WHEREOF, the parties hereto have executed this
Indemnification Agreement as of the date first above written.
ARCHIBALD CANDY CORPORATION
By: /s/ Ted A. Shepherd
---------------------------------------------
Name: Ted A. Shepherd
-------------------------------------------
Title: President and Chief Operating Officer
------------------------------------------
INDEMNITEE:
By: /s/ Michael A. Perrino
---------------------------------------------
Name: Michael A. Perrino
-------------------------------------------
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INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT, dated as of July 2, 1997 (this
"Agreement"), is by and between Archibald Candy Corporation, an Illinois
corporation (the "Company"), and Alan W. Petrik ("Indemnitee").
WITNESSETH
WHEREAS, highly competent persons are becoming more reluctant to serve
as directors, executive officers or in other capacities of corporations that
have publicly-held equity or debt unless they are provided with adequate
protection through insurance and indemnification against inordinate risks of
claims and actions against them arising out of their service to and activities
on behalf of the corporation; and
WHEREAS, the current difficulties or virtual impossibility of
obtaining adequate insurance and uncertainties relating to indemnification have
increased the difficulty of attracting and retaining such persons; and
WHEREAS, the Board of Directors of the Company has determined that the
inability to attract and retain such persons is detrimental to the best
interests of the Company's shareholders and that the Company should act to
assure such persons that there will be increased certainty of such protection in
the future; and
WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify such persons to the fullest extent
permitted by applicable law so that they will serve or continue to serve the
Company free from undue concern that they will not be so indemnified; and
WHEREAS, the shareholders of the Company have adopted the Amended and
Restated By-laws of the Company (as amended, the "By-laws") providing for the
indemnification of the directors, officers, agents and employees of the Company
to the fullest extent permitted by the Illinois Business Corporation Act (as
amended, the "Act"). The By-laws and the Act specifically provide that they are
not exclusive, and thereby contemplate that contracts may be entered into
between the Company and the members of its Board of Directors and its executive
officers with respect to indemnification of such directors and executive
officers; and
WHEREAS, this Agreement is being entered into as part of Indemnitee's
total compensation for serving as a director and/or an executive officer of the
Company, as the case may be; and
<PAGE>
NOW THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
SECTION 1. Service by Indemnitee.
Indemnitee agrees to serve as director of the Company and/or executive
officer of the Company if so designated by the Company and appointed by the
Board of Directors, and agrees to the indemnification provisions provided for
herein. Indemnitee may at any time and for any reason resign from such position
(subject to any other contractual obligation or other obligation imposed by
operation of law), in which event the Company shall have no obligation under
this Agreement to continue Indemnitee in any such position.
SECTION 2. Indemnification.
The Company shall indemnify Indemnitee to the fullest extent permitted
by applicable law in effect on the date hereof, notwithstanding that such
indemnification is not specifically authorized by this Agreement, the Amended
and Restated Articles of Incorporation of the Company (as amended, the
"Charter"), the Bylaws, the Act or otherwise. In the event of any change, after
the date of this Agreement, in any applicable law, statute or rule regarding the
right of an Illinois corporation to indemnify a member of its board of directors
or an officer, such changes, to the extent that they would expand Indemnitee's
rights hereunder, shall be within the scope of Indemnitee's rights and the
Company's obligations hereunder, and, to the extent that they would narrow
Indemnitee's rights hereunder, shall be excluded from this Agreement; provided,
however, that any change that is required by applicable laws, statutes or rules
to be applied to this Agreement shall be so applied regardless of whether the
effect of such change is to narrow Indemnitee's rights hereunder. Without
diminishing the scope of the indemnification provided by this Section 2, the
rights of indemnification of Indemnitee provided hereunder shall include
indemnification in respect of (a) the proposed offering by the Company of
$100,000,000 of its Senior Secured Notes due 2004 (the "Notes") pursuant to an
exemption from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"), (b) the Company's subsequent filing with the
Securities and Exchange Commission (the "SEC") of a registration statement
relating to an exchange offer for the Notes under the Securities Act and (c) any
other public offerings of securities by the Company, and shall not be limited to
those rights set forth hereinafter, except to the extent expressly prohibited by
applicable law.
SECTION 3. Action or Proceeding Other Than an Action by or in the
Right of the Company.
Indemnitee shall be entitled to the indemnification rights provided in
this Section 3 if he is or was 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 in nature, other than an action by or
in the right of the Company, by reason of the fact that he is or was a director,
officer, employee, agent or fiduciary of the Company or is or was serving at the
request of the Company as a director, officer, employee, agent, partner, trustee
or fiduciary of any other entity (a "Related Company") or by reason of anything
done or not done by him in any such capacity. Pursuant to this
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Section 3, Indemnitee shall be indemnified against reasonable costs and
expenses (including, but not limited to, counsel fees, costs, judgments,
penalties, fines, ERISA excise taxes, and amounts paid in settlement)
(collectively, "Damages") actually and reasonably incurred by him in
connection with such action, suit or proceeding (including, but not limited
to, the investigation, defense, settlement or appeal thereof), if, in the
case of conduct in his official capacity with the corporation, he acted in
good faith and in the Company's best interests, and in all other cases, he
acted in good faith and was at least not opposed to the Company's best
interests, and with respect to any criminal action or proceeding had no
reasonable cause to believe his conduct was unlawful, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which Indemnitee shall have been finally adjudged to be liable for (a)
negligence or misconduct in the performance of his duty to the Company unless
and only to the extent that the court in which such action, suit or
proceeding was brought, or any other court of competent jurisdiction, shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, Indemnitee is fairly and
reasonably entitled to indemnity for such Damages as such court shall deem
proper or (b) a violation of Section 16(b) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), or any of the rules or regulations
promulgated thereunder. Notwithstanding the foregoing, the Company shall be
required to indemnify an officer or director in connection with an action,
suit or proceeding initiated by such person only if such action, suit or
proceeding was authorized or contemplated by the Board or a committee
thereof. No indemnity pursuant to this Agreement shall be provided by the
Company for Damages that have been paid directly to Indemnitee by an
insurance carrier under a policy of directors' and officers' liability
insurance maintained by the Company.
SECTION 4. Actions by or in the Right of the Company.
Indemnitee shall be entitled to the indemnification rights provided in
this Section 4 if he is or was made 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 brought by or in the right of
the Company to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee, agent or fiduciary of the Company or is or
was serving at the request of the Company as a director, officer, employee,
agent, partner, trustee or fiduciary of any Related Company by reason of
anything done or not done by him in any such capacity. Pursuant to this Section
4, Indemnitee shall be indemnified against Damages actually and reasonably
incurred by him in connection with such action or suit (including, but not
limited to, the investigation, defense, settlement or appeal thereof) if, in the
case of conduct in his official capacity with the corporation, he acted in good
faith and in the Company's best interests, and in all other cases, he acted in
good faith and was at least not opposed to the Company's best interests, except
that no indemnification shall be made in respect of any claim, issue or matter
as to which Indemnitee shall have been finally adjudged to be liable for (a)
negligence or misconduct in the performance of his duty to the Company unless
and only to the extent that the court in which such action, suit or proceeding
was brought, or any other court of competent jurisdiction, shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, Indemnitee is fairly and reasonably entitled to
indemnity for such Damages as such court shall deem proper or (b) a violation of
Section 16(b) of the Exchange Act or any of the rules or regulations promulgated
thereunder. Notwithstanding the foregoing, the Company shall be required to
indemnify an officer or director in
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<PAGE>
connection with an action, suit or proceeding initiated by such person only
if such action, suit or proceeding was authorized by the Board or a committee
thereof. No indemnity pursuant to this Agreement shall be provided by the
Company for Damages that have been paid directly to Indemnitee by an
insurance carrier under a policy of directors' and officers' liability
insurance maintained by the Company.
SECTION 5. Indemnification for Costs, Charges and Expenses of
Successful Party.
Notwithstanding the other provisions of this Agreement, to the extent
that Indemnitee has served as a witness on behalf of the Company or has been
successful, on the merits or otherwise, including, without limitation, the
dismissal of an action without prejudice, in defense of any action, suit or
proceeding referred to in Section 3 or 4, or in defense of any claim, issue or
matter therein, Indemnitee shall be indemnified against all reasonable costs,
charges, and expenses (including counsel fees) actually and reasonably incurred
by him or on his behalf in connection therewith.
SECTION 6. Partial Indemnification.
If Indemnitee is only partially successful in the defense,
investigation, settlement or appeal of any action, suit, investigation or
proceeding described in Section 3 or Section 4, and as a result is not entitled
under Section 5 to indemnification by the Company for the total amount of
reasonable Damages actually and reasonably incurred by him, the Company shall
nevertheless indemnify Indemnitee, as a matter of right pursuant to Section 5,
to the extent Indemnitee has been partially successful.
SECTION 7. Determination of Entitlement to Indemnification.
Upon written request by Indemnitee for indemnification pursuant to
Section 3 or Section 4 , the entitlement of Indemnitee to indemnification
pursuant to the terms of this Agreement shall be determined by the following
person or persons who shall be empowered to make such determination: (a) the
Board of Directors of the Company by a majority vote of a quorum consisting of
Disinterested Directors (as hereinafter defined); or (b) if such a quorum is not
obtainable or, even if obtainable, if the Board of Directors by the majority
vote of Disinterested Directors so directs, by Independent Counsel (as
hereinafter defined) in a written opinion to the Board of Directors, a copy of
which shall be delivered to Indemnitee; or (c) by the shareholders, but shares
owned by or voted under the control of directors, including the Indemnitee, who
are at the time parties to the proceeding may not be voted on the determination.
Such Independent Counsel shall be selected by the Board of Directors and
approved by Indemnitee. Upon failure of the Board of Directors to so select
such Independent Counsel or upon failure of Indemnitee to so approve, such
Independent Counsel shall be selected by an Illinois state court judge of the
Circuit Court of Cook County, Chancery Division, or such other person as such
judge shall designate to make such selection. Such determination of entitlement
to indemnification shall be made no later than sixty (60) days after receipt by
the Company of a written request for indemnification. Such request shall
include documentation or information which is necessary for such determination
and which is reasonably available to Indemnitee. Any Damages incurred by
Indemnitee in connection with his request for indemnification
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<PAGE>
hereunder shall be borne by the Company. The Company hereby indemnifies and
agrees to hold Indemnitee harmless therefrom irrespective of the outcome of
the determination of Indemnitee's entitlement to indemnification. If the
person making such determination shall determine that Indemnitee is entitled
to indemnification as to part (but not all) of the application for
indemnification, such person shall reasonably prorate such partial
indemnification among such claims, issues or matters.
SECTION 8. Presumptions and Effect of Certain Proceedings.
The Secretary of the Company shall, promptly upon receipt of
Indemnitee's request for indemnification, advise in writing the Board of
Directors or such other person or persons empowered to make the determination as
provided in Section 7 that Indemnitee has made such request for indemnification.
Indemnitee shall be presumed to be entitled to indemnification hereunder and the
Company shall have the burden of proof in the making of any determination
contrary to such presumption. If the person or persons so empowered to make
such determination shall have failed to make the requested indemnification
within 60 days after receipt by the Company of such request, the requisite
determination of entitlement to indemnification shall be deemed to have been
made and Indemnitee shall be absolutely entitled to such indemnification, absent
actual and material fraud in the request for indemnification. The termination
of any action, suit, investigation or proceeding described in Section 3 or
Section 4 by judgment, order, settlement or conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself (a) create a presumption that
Indemnitee 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 Company, and, with
respect to any criminal action or proceeding, that Indemnitee had reasonable
cause to believe that his conduct was unlawful or (b) otherwise adversely affect
the rights of Indemnitee to indemnification except as may be provided herein.
SECTION 9. Advancement of Expenses and Costs.
All reasonable expenses and costs incurred by Indemnitee who is party
to a proceeding or investigation (including counsel fees, retainers and advances
of disbursements required of Indemnitee) (collectively, the "Expense Advance")
shall be paid by the Company in advance of the final disposition of such action,
suit, proceeding or investigation at the request of Indemnitee within twenty
(20) days after the receipt by the Company of a statement or statements from
Indemnitee requesting such advance or advances from time to time. Such
statement or statements shall reasonably evidence the expenses and costs
incurred by him in connection therewith. The Company's obligation to provide an
Expense Advance is subject to the following conditions: (a) if the proceeding
arose in connection with Indemnitee's service as a director and/or executive
officer of, or in any other capacity on behalf of, the Company or any Related
Company, then the Indemnitee or his representative shall have executed and
delivered to the Company an undertaking, which need not be secured and shall be
accepted without reference to Indemnitee's financial ability to make repayment,
by or on behalf of Indemnitee to repay all Expense Advance if and to the extent
that it shall ultimately be determined by a final, unappealable decision
rendered by a court having jurisdiction over the parties and the question that
Indemnitee is not entitled to be indemnified for such Expense Advance under this
Agreement or otherwise; (b) Indemnitee shall give the Company such information
and
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cooperation as it may reasonably request and as shall be within Indemnitee's
power; and (c) Indemnitee shall furnish, upon request by the Company and if
required under applicable law, a written affirmation of Indemnitee's good faith
belief that any applicable standards of conduct have been met by Indemnitee.
Indemnitee's entitlement to such Expense Advance shall include those incurred in
connection with any proceeding by Indemnitee seeking an adjudication pursuant to
this Agreement. In the event that a claim for an Expense Advance is made
hereunder and is not paid in full within twenty (20) days after written notice
of such claim is delivered to the Company, Indemnitee may, but need not, at any
time thereafter bring suit against the Company to recover the unpaid amount of
the claim.
SECTION 10. Remedies of Indemnitee in Cases of Determination not to
Indemnify or to Advance Expenses.
In the event that a determination is made that Indemnitee is not
entitled to indemnification hereunder or if payment has not been timely made
following a determination of entitlement to indemnification pursuant to Section
7 or 8, or if expenses are not advanced pursuant to Section 9, Indemnitee shall
be entitled to a final adjudication in an appropriate court of the State of
Illinois or any other court of competent jurisdiction of his entitlement to such
indemnification or advance. The Company shall not oppose Indemnitee's right to
seek any such adjudication or any other claim. Such judicial proceeding shall
be made de novo and Indemnitee shall not be prejudiced by reason of a
determination (if so made) that he is not entitled to indemnification. If a
determination is made or deemed to have been made pursuant to the terms of
Section 7 or 8 that Indemnitee is entitled to indemnification, the Company shall
be bound by such determination and is precluded from asserting that such
determination has not been made or that the procedure by which such
determination was made is not valid, binding and enforceable. The Company
further agrees to stipulate in any such court that the Company is bound by all
the provisions of this Agreement and is precluded from making any assertion to
the contrary. If the court shall determine that Indemnitee is entitled to any
indemnification hereunder, the Company shall pay all reasonable Damages actually
incurred by Indemnitee in connection with such adjudication (including, but not
limited to, any appellate proceedings).
SECTION 11. Other Rights to Indemnification.
The indemnification and advancement of expenses (including counsel
fees) and costs provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may now or in the future be entitled under any
provision of the By-laws or the Charter, any vote of shareholders or
Disinterested Directors, any provision of law or otherwise.
SECTION 12. Counsel Fees and Other Expenses to Enforce Agreement.
In the event that Indemnitee is subject to or intervenes in any
proceeding in which the validity or enforceability of this Agreement is at issue
or seeks an adjudication or award in arbitration to enforce his rights under, or
to recover damages for breach of, this Agreement, Indemnitee, if he prevails in
whole or in part in such action, shall be entitled to recover from the Company,
and shall
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be indemnified by the Company against, any reasonable expenses for counsel
fees and disbursements actually and reasonably incurred by him. Indemnitee
shall be entitled to select his own counsel; provided, however, that the
Company may elect to hire a counsel to represent Indemnitee together with
other similarly situated individuals, but only if such joint representation
does not, in the reasonable discretion of Indemnitee, create any conflict of
interest.
SECTION 13. Duration of Agreement.
This Agreement shall continue until and terminate upon the later of
(a) 10 years after Indemnitee has ceased to occupy any of the positions or have
any of the relationships described in Sections 1, 3 or 4 or (b) the final
termination of all pending or threatened actions, suits, proceedings or
investigations with respect to Indemnitee. This Agreement shall be binding upon
the Company and its successors and assigns and shall inure to the benefit of
Indemnitee and his spouse, assigns, heirs, devisees, executors, administrators
or other legal representatives.
SECTION 14. Severability.
If any provision or provisions of this Agreement shall be held to be
invalid, illegal or unenforceable for any reason whatsoever (a) the validity,
legality and enforceability of the remaining provisions of this Agreement
(including without limitation, all portions of any paragraphs of this Agreement
containing any such provision held to be invalid, illegal or unenforceable, that
are not themselves invalid, illegal or unenforceable) shall not in any way be
affected or impaired thereby and (b) to the fullest extent possible, the
provisions of this Agreement (including, without limitation, all portions of any
paragraph of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that are not themselves invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable.
SECTION 15. Identical Counterparts.
This Agreement may be executed in one or more counterparts, each of
which shall for all purposes be deemed to be an original, but all of which
together shall constitute one and the same Agreement. Only one such counterpart
signed by the party against whom enforceability is sought needs to be produced
to evidence the existence of this Agreement.
SECTION 16. Headings; Section References.
The headings of the paragraphs of this Agreement are inserted for
convenience only and shall not be deemed to constitute part of this Agreement or
to affect the construction thereof. Unless otherwise specified herein, each
reference herein to a Section shall be deemed a reference to a Section of this
Agreement.
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SECTION 17. Definitions.
For purposes of this Agreement:
(a) "Disinterested Director" shall mean a director of the Company who
is not or was not a party to the action, suit, investigation or proceeding in
respect of which indemnification is being sought by Indemnitee.
(b) "Independent Counsel" shall mean a law firm or a member of a law
firm that neither is presently nor in the past five years has been retained to
represent (i) the Company or Indemnitee in any matter material to either such
party or (ii) any other party to the action, suit, investigation or proceeding
giving rise to a claim for indemnification hereunder. Notwithstanding the
foregoing, the term "Independent Counsel" shall not include any person who,
under the applicable standards of professional conduct then prevailing, would
have a conflict of interest in representing either the Company or Indemnitee in
an action to determine Indemnitee's right to indemnification under this
Agreement.
SECTION 18. Modification and Waiver.
No supplement, modification or amendment of this Agreement shall be
binding unless executed in writing by both of the parties hereto. No waiver of
any of the provisions of this Agreement shall be deemed or shall constitute a
waiver of any other provisions hereof (whether or not similar) nor shall such
waiver constitute a continuing waiver.
SECTION 19. Mutual Acknowledgment.
The Company and Indemnitee acknowledge that, in certain instances,
federal law or public policy may override applicable state law and prohibit the
Company from indemnifying Indemnitee under this Agreement or otherwise. For
example, the Company and Indemnitee acknowledge that the SEC has taken the
position that indemnification is not permissible for liabilities arising under
certain federal securities laws, and federal legislation prohibits
indemnification for certain ERISA violations. Furthermore, Indemnitee
understands and acknowledges that the Company has undertaken or may be required
in the future to undertake with the SEC to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee.
SECTION 20. Notice by Indemnitee.
Indemnitee agrees promptly to notify the Company in writing upon being
served with any summons, citation, subpoena, complaint, indictment, information
or other document relating to any matter which may be subject to indemnification
covered hereunder, either civil, criminal or investigative.
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SECTION 21. Notices.
All notices, requests, demands and other communications hereunder
shall be in writing and shall be deemed to have been duly given if (a) delivered
by hand and receipted for by the party to whom said notice or other
communication shall have been directed or (b) mailed by certified or registered
mail with postage prepaid on the third business day after the date on which it
is so mailed, to the following addresses:
(a) to Indemnitee:
Alan W. Petrik
Archibald Candy Corporation
1137 West Jackson Boulevard
Chicago, Illinois 60607
(b) to the Company:
Archibald Candy Corporation
1137 West Jackson Boulevard
Chicago, Illinois 60607
Attention: Secretary
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case may be.
SECTION 22. Other Agreements.
This Agreement restates and supersedes, but does not limit or negate,
any indemnification, rights or interests of Indemnitee under any prior
agreements between the Company and Indemnitee.
SECTION 23. Governing Law.
The parties agree that this Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of Illinois.
[signature page follows]
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IN WITNESS WHEREOF, the parties hereto have executed this
Indemnification Agreement as of the date first above written.
ARCHIBALD CANDY CORPORATION
By: /s/ Ted A. Shepherd
-------------------------------
Name: Ted A. Shepherd
-----------------------------
Title: President and Chief Operating
Officer
----------------------------
INDEMNITEE:
By: /s/ Alan W. Petrik
-------------------------------
Name: Alan W. Petrik
-----------------------------
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INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT, dated as of July 2, 1997 (this
"Agreement"), is by and between Archibald Candy Corporation, an Illinois
corporation (the "Company"), and Ricky L. Lelli ("Indemnitee").
WITNESSETH
WHEREAS, highly competent persons are becoming more reluctant to serve
as directors, executive officers or in other capacities of corporations that
have publicly-held equity or debt unless they are provided with adequate
protection through insurance and indemnification against inordinate risks of
claims and actions against them arising out of their service to and activities
on behalf of the corporation; and
WHEREAS, the current difficulties or virtual impossibility of
obtaining adequate insurance and uncertainties relating to indemnification have
increased the difficulty of attracting and retaining such persons; and
WHEREAS, the Board of Directors of the Company has determined that the
inability to attract and retain such persons is detrimental to the best
interests of the Company's shareholders and that the Company should act to
assure such persons that there will be increased certainty of such protection in
the future; and
WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify such persons to the fullest extent
permitted by applicable law so that they will serve or continue to serve the
Company free from undue concern that they will not be so indemnified; and
WHEREAS, the shareholders of the Company have adopted the Amended and
Restated By-laws of the Company (as amended, the "By-laws") providing for the
indemnification of the directors, officers, agents and employees of the Company
to the fullest extent permitted by the Illinois Business Corporation Act (as
amended, the "Act"). The By-laws and the Act specifically provide that they are
not exclusive, and thereby contemplate that contracts may be entered into
between the Company and the members of its Board of Directors and its executive
officers with respect to indemnification of such directors and executive
officers; and
WHEREAS, this Agreement is being entered into as part of Indemnitee's
total compensation for serving as a director and/or an executive officer of the
Company, as the case may be; and
<PAGE>
NOW THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
SECTION 1. Service by Indemnitee.
Indemnitee agrees to serve as director of the Company and/or executive
officer of the Company if so designated by the Company and appointed by the
Board of Directors, and agrees to the indemnification provisions provided for
herein. Indemnitee may at any time and for any reason resign from such position
(subject to any other contractual obligation or other obligation imposed by
operation of law), in which event the Company shall have no obligation under
this Agreement to continue Indemnitee in any such position.
SECTION 2. Indemnification.
The Company shall indemnify Indemnitee to the fullest extent permitted
by applicable law in effect on the date hereof, notwithstanding that such
indemnification is not specifically authorized by this Agreement, the Amended
and Restated Articles of Incorporation of the Company (as amended, the
"Charter"), the Bylaws, the Act or otherwise. In the event of any change, after
the date of this Agreement, in any applicable law, statute or rule regarding the
right of an Illinois corporation to indemnify a member of its board of directors
or an officer, such changes, to the extent that they would expand Indemnitee's
rights hereunder, shall be within the scope of Indemnitee's rights and the
Company's obligations hereunder, and, to the extent that they would narrow
Indemnitee's rights hereunder, shall be excluded from this Agreement; provided,
however, that any change that is required by applicable laws, statutes or rules
to be applied to this Agreement shall be so applied regardless of whether the
effect of such change is to narrow Indemnitee's rights hereunder. Without
diminishing the scope of the indemnification provided by this Section 2, the
rights of indemnification of Indemnitee provided hereunder shall include
indemnification in respect of (a) the proposed offering by the Company of
$100,000,000 of its Senior Secured Notes due 2004 (the "Notes") pursuant to an
exemption from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"), (b) the Company's subsequent filing with the
Securities and Exchange Commission (the "SEC") of a registration statement
relating to an exchange offer for the Notes under the Securities Act and (c) any
other public offerings of securities by the Company, and shall not be limited to
those rights set forth hereinafter, except to the extent expressly prohibited by
applicable law.
SECTION 3. Action or Proceeding Other Than an Action by or in the
Right of the Company.
Indemnitee shall be entitled to the indemnification rights provided in
this Section 3 if he is or was 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 in nature, other than an action by or
in the right of the Company, by reason of the fact that he is or was a director,
officer, employee, agent or fiduciary of the Company or is or was serving at the
request of the Company as a director, officer, employee, agent, partner, trustee
or fiduciary of any other entity (a "Related Company") or by reason of anything
done or not done by him in any such capacity. Pursuant to this
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Section 3, Indemnitee shall be indemnified against reasonable costs and expenses
(including, but not limited to, counsel fees, costs, judgments, penalties,
fines, ERISA excise taxes, and amounts paid in settlement) (collectively,
"Damages") actually and reasonably incurred by him in connection with such
action, suit or proceeding (including, but not limited to, the investigation,
defense, settlement or appeal thereof), if, in the case of conduct in his
official capacity with the corporation, he acted in good faith and in the
Company's best interests, and in all other cases, he acted in good faith and was
at least not opposed to the Company's best interests, and with respect to any
criminal action or proceeding had no reasonable cause to believe his conduct was
unlawful, except that no indemnification shall be made in respect of any claim,
issue or matter as to which Indemnitee shall have been finally adjudged to be
liable for (a) negligence or misconduct in the performance of his duty to the
Company unless and only to the extent that the court in which such action, suit
or proceeding was brought, or any other court of competent jurisdiction, shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, Indemnitee is fairly and reasonably
entitled to indemnity for such Damages as such court shall deem proper or (b) a
violation of Section 16(b) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), or any of the rules or regulations promulgated thereunder.
Notwithstanding the foregoing, the Company shall be required to indemnify an
officer or director in connection with an action, suit or proceeding initiated
by such person only if such action, suit or proceeding was authorized or
contemplated by the Board or a committee thereof. No indemnity pursuant to this
Agreement shall be provided by the Company for Damages that have been paid
directly to Indemnitee by an insurance carrier under a policy of directors' and
officers' liability insurance maintained by the Company.
SECTION 4. Actions by or in the Right of the Company.
Indemnitee shall be entitled to the indemnification rights provided in
this Section 4 if he is or was made 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 brought by or in the right of
the Company to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee, agent or fiduciary of the Company or is or
was serving at the request of the Company as a director, officer, employee,
agent, partner, trustee or fiduciary of any Related Company by reason of
anything done or not done by him in any such capacity. Pursuant to this Section
4, Indemnitee shall be indemnified against Damages actually and reasonably
incurred by him in connection with such action or suit (including, but not
limited to, the investigation, defense, settlement or appeal thereof) if, in the
case of conduct in his official capacity with the corporation, he acted in good
faith and in the Company's best interests, and in all other cases, he acted in
good faith and was at least not opposed to the Company's best interests, except
that no indemnification shall be made in respect of any claim, issue or matter
as to which Indemnitee shall have been finally adjudged to be liable for (a)
negligence or misconduct in the performance of his duty to the Company unless
and only to the extent that the court in which such action, suit or proceeding
was brought, or any other court of competent jurisdiction, shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, Indemnitee is fairly and reasonably entitled to
indemnity for such Damages as such court shall deem proper or (b) a violation of
Section 16(b) of the Exchange Act or any of the rules or regulations promulgated
thereunder. Notwithstanding the foregoing, the Company shall be required to
indemnify an officer or director in
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<PAGE>
connection with an action, suit or proceeding initiated by such person
only if such action, suit or proceeding was authorized by the Board or a
committee thereof. No indemnity pursuant to this Agreement shall be provided
by the Company for Damages that have been paid directly to Indemnitee by an
insurance carrier under a policy of directors' and officers' liability
insurance maintained by the Company.
SECTION 5. Indemnification for Costs, Charges and Expenses of
Successful Party.
Notwithstanding the other provisions of this Agreement, to the extent
that Indemnitee has served as a witness on behalf of the Company or has been
successful, on the merits or otherwise, including, without limitation, the
dismissal of an action without prejudice, in defense of any action, suit or
proceeding referred to in Section 3 or 4, or in defense of any claim, issue or
matter therein, Indemnitee shall be indemnified against all reasonable costs,
charges, and expenses (including counsel fees) actually and reasonably incurred
by him or on his behalf in connection therewith.
SECTION 6. Partial Indemnification.
If Indemnitee is only partially successful in the defense,
investigation, settlement or appeal of any action, suit, investigation or
proceeding described in Section 3 or Section 4, and as a result is not entitled
under Section 5 to indemnification by the Company for the total amount of
reasonable Damages actually and reasonably incurred by him, the Company shall
nevertheless indemnify Indemnitee, as a matter of right pursuant to Section 5,
to the extent Indemnitee has been partially successful.
SECTION 7. Determination of Entitlement to Indemnification.
Upon written request by Indemnitee for indemnification pursuant to
Section 3 or Section 4 , the entitlement of Indemnitee to indemnification
pursuant to the terms of this Agreement shall be determined by the following
person or persons who shall be empowered to make such determination: (a) the
Board of Directors of the Company by a majority vote of a quorum consisting of
Disinterested Directors (as hereinafter defined); or (b) if such a quorum is not
obtainable or, even if obtainable, if the Board of Directors by the majority
vote of Disinterested Directors so directs, by Independent Counsel (as
hereinafter defined) in a written opinion to the Board of Directors, a copy of
which shall be delivered to Indemnitee; or (c) by the shareholders, but shares
owned by or voted under the control of directors, including the Indemnitee, who
are at the time parties to the proceeding may not be voted on the determination.
Such Independent Counsel shall be selected by the Board of Directors and
approved by Indemnitee. Upon failure of the Board of Directors to so select
such Independent Counsel or upon failure of Indemnitee to so approve, such
Independent Counsel shall be selected by an Illinois state court judge of the
Circuit Court of Cook County, Chancery Division, or such other person as such
judge shall designate to make such selection. Such determination of entitlement
to indemnification shall be made no later than sixty (60) days after receipt by
the Company of a written request for indemnification. Such request shall
include documentation or information which is necessary for such determination
and which is reasonably available to Indemnitee. Any Damages incurred by
Indemnitee in connection with his request for indemnification
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<PAGE>
hereunder shall be
borne by the Company. The Company hereby indemnifies and agrees to hold
Indemnitee harmless therefrom irrespective of the outcome of the determination
of Indemnitee's entitlement to indemnification. If the person making such
determination shall determine that Indemnitee is entitled to indemnification as
to part (but not all) of the application for indemnification, such person shall
reasonably prorate such partial indemnification among such claims, issues or
matters.
SECTION 8. Presumptions and Effect of Certain Proceedings.
The Secretary of the Company shall, promptly upon receipt of
Indemnitee's request for indemnification, advise in writing the Board of
Directors or such other person or persons empowered to make the determination as
provided in Section 7 that Indemnitee has made such request for indemnification.
Indemnitee shall be presumed to be entitled to indemnification hereunder and the
Company shall have the burden of proof in the making of any determination
contrary to such presumption. If the person or persons so empowered to make
such determination shall have failed to make the requested indemnification
within 60 days after receipt by the Company of such request, the requisite
determination of entitlement to indemnification shall be deemed to have been
made and Indemnitee shall be absolutely entitled to such indemnification, absent
actual and material fraud in the request for indemnification. The termination
of any action, suit, investigation or proceeding described in Section 3 or
Section 4 by judgment, order, settlement or conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself (a) create a presumption that
Indemnitee 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 Company, and, with
respect to any criminal action or proceeding, that Indemnitee had reasonable
cause to believe that his conduct was unlawful or (b) otherwise adversely affect
the rights of Indemnitee to indemnification except as may be provided herein.
SECTION 9. Advancement of Expenses and Costs.
All reasonable expenses and costs incurred by Indemnitee who is party
to a proceeding or investigation (including counsel fees, retainers and advances
of disbursements required of Indemnitee) (collectively, the "Expense Advance")
shall be paid by the Company in advance of the final disposition of such action,
suit, proceeding or investigation at the request of Indemnitee within twenty
(20) days after the receipt by the Company of a statement or statements from
Indemnitee requesting such advance or advances from time to time. Such
statement or statements shall reasonably evidence the expenses and costs
incurred by him in connection therewith. The Company's obligation to provide an
Expense Advance is subject to the following conditions: (a) if the proceeding
arose in connection with Indemnitee's service as a director and/or executive
officer of, or in any other capacity on behalf of, the Company or any Related
Company, then the Indemnitee or his representative shall have executed and
delivered to the Company an undertaking, which need not be secured and shall be
accepted without reference to Indemnitee's financial ability to make repayment,
by or on behalf of Indemnitee to repay all Expense Advance if and to the extent
that it shall ultimately be determined by a final, unappealable decision
rendered by a court having jurisdiction over the parties and the question that
Indemnitee is not entitled to be indemnified for such Expense Advance under this
Agreement or otherwise; (b) Indemnitee shall give the Company such information
and
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cooperation as it may reasonably request and as shall be within Indemnitee's
power; and (c) Indemnitee shall furnish, upon request by the Company and if
required under applicable law, a written affirmation of Indemnitee's good faith
belief that any applicable standards of conduct have been met by Indemnitee.
Indemnitee's entitlement to such Expense Advance shall include those incurred in
connection with any proceeding by Indemnitee seeking an adjudication pursuant to
this Agreement. In the event that a claim for an Expense Advance is made
hereunder and is not paid in full within twenty (20) days after written notice
of such claim is delivered to the Company, Indemnitee may, but need not, at any
time thereafter bring suit against the Company to recover the unpaid amount of
the claim.
SECTION 10. Remedies of Indemnitee in Cases of Determination not to
Indemnify or to Advance Expenses.
In the event that a determination is made that Indemnitee is not
entitled to indemnification hereunder or if payment has not been timely made
following a determination of entitlement to indemnification pursuant to
Section 7 or 8, or if expenses are not advanced pursuant to Section 9,
Indemnitee shall be entitled to a final adjudication in an appropriate court
of the State of Illinois or any other court of competent jurisdiction of his
entitlement to such indemnification or advance. The Company shall not oppose
Indemnitee's right to seek any such adjudication or any other claim. Such
judicial proceeding shall be made de novo and Indemnitee shall not be
prejudiced by reason of a determination (if so made) that he is not entitled
to indemnification. If a determination is made or deemed to have been made
pursuant to the terms of Section 7 or 8 that Indemnitee is entitled to
indemnification, the Company shall be bound by such determination and is
precluded from asserting that such determination has not been made or that
the procedure by which such determination was made is not valid, binding and
enforceable. The Company further agrees to stipulate in any such court that
the Company is bound by all the provisions of this Agreement and is precluded
from making any assertion to the contrary. If the court shall determine that
Indemnitee is entitled to any indemnification hereunder, the Company shall
pay all reasonable Damages actually incurred by Indemnitee in connection with
such adjudication (including, but not limited to, any appellate proceedings).
SECTION 11. Other Rights to Indemnification.
The indemnification and advancement of expenses (including counsel
fees) and costs provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may now or in the future be entitled under any
provision of the By-laws or the Charter, any vote of shareholders or
Disinterested Directors, any provision of law or otherwise.
SECTION 12. Counsel Fees and Other Expenses to Enforce Agreement.
In the event that Indemnitee is subject to or intervenes in any
proceeding in which the validity or enforceability of this Agreement is at issue
or seeks an adjudication or award in arbitration to enforce his rights under, or
to recover damages for breach of, this Agreement, Indemnitee, if he prevails in
whole or in part in such action, shall be entitled to recover from the Company,
and shall
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<PAGE>
be indemnified by the Company against, any reasonable expenses for
counsel fees and disbursements actually and reasonably incurred by him.
Indemnitee shall be entitled to select his own counsel; provided, however, that
the Company may elect to hire a counsel to represent Indemnitee together with
other similarly situated individuals, but only if such joint representation does
not, in the reasonable discretion of Indemnitee, create any conflict of
interest.
SECTION 13. Duration of Agreement.
This Agreement shall continue until and terminate upon the later of
(a) 10 years after Indemnitee has ceased to occupy any of the positions or have
any of the relationships described in Sections 1, 3 or 4 or (b) the final
termination of all pending or threatened actions, suits, proceedings or
investigations with respect to Indemnitee. This Agreement shall be binding upon
the Company and its successors and assigns and shall inure to the benefit of
Indemnitee and his spouse, assigns, heirs, devisees, executors, administrators
or other legal representatives.
SECTION 14. Severability.
If any provision or provisions of this Agreement shall be held to be
invalid, illegal or unenforceable for any reason whatsoever (a) the validity,
legality and enforceability of the remaining provisions of this Agreement
(including without limitation, all portions of any paragraphs of this Agreement
containing any such provision held to be invalid, illegal or unenforceable, that
are not themselves invalid, illegal or unenforceable) shall not in any way be
affected or impaired thereby and (b) to the fullest extent possible, the
provisions of this Agreement (including, without limitation, all portions of any
paragraph of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that are not themselves invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable.
SECTION 15. Identical Counterparts.
This Agreement may be executed in one or more counterparts, each of
which shall for all purposes be deemed to be an original, but all of which
together shall constitute one and the same Agreement. Only one such counterpart
signed by the party against whom enforceability is sought needs to be produced
to evidence the existence of this Agreement.
SECTION 16. Headings; Section References.
The headings of the paragraphs of this Agreement are inserted for
convenience only and shall not be deemed to constitute part of this Agreement or
to affect the construction thereof. Unless otherwise specified herein, each
reference herein to a Section shall be deemed a reference to a Section of this
Agreement.
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SECTION 17. Definitions.
For purposes of this Agreement:
(a) "Disinterested Director" shall mean a director of the Company who
is not or was not a party to the action, suit, investigation or proceeding in
respect of which indemnification is being sought by Indemnitee.
(b) "Independent Counsel" shall mean a law firm or a member of a law
firm that neither is presently nor in the past five years has been retained to
represent (i) the Company or Indemnitee in any matter material to either such
party or (ii) any other party to the action, suit, investigation or proceeding
giving rise to a claim for indemnification hereunder. Notwithstanding the
foregoing, the term "Independent Counsel" shall not include any person who,
under the applicable standards of professional conduct then prevailing, would
have a conflict of interest in representing either the Company or Indemnitee in
an action to determine Indemnitee's right to indemnification under this
Agreement.
SECTION 18. Modification and Waiver.
No supplement, modification or amendment of this Agreement shall be
binding unless executed in writing by both of the parties hereto. No waiver of
any of the provisions of this Agreement shall be deemed or shall constitute a
waiver of any other provisions hereof (whether or not similar) nor shall such
waiver constitute a continuing waiver.
SECTION 19. Mutual Acknowledgment.
The Company and Indemnitee acknowledge that, in certain instances,
federal law or public policy may override applicable state law and prohibit the
Company from indemnifying Indemnitee under this Agreement or otherwise. For
example, the Company and Indemnitee acknowledge that the SEC has taken the
position that indemnification is not permissible for liabilities arising under
certain federal securities laws, and federal legislation prohibits
indemnification for certain ERISA violations. Furthermore, Indemnitee
understands and acknowledges that the Company has undertaken or may be required
in the future to undertake with the SEC to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee.
SECTION 20. Notice by Indemnitee.
Indemnitee agrees promptly to notify the Company in writing upon being
served with any summons, citation, subpoena, complaint, indictment, information
or other document relating to any matter which may be subject to indemnification
covered hereunder, either civil, criminal or investigative.
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SECTION 21. Notices.
All notices, requests, demands and other communications hereunder
shall be in writing and shall be deemed to have been duly given if (a) delivered
by hand and receipted for by the party to whom said notice or other
communication shall have been directed or (b) mailed by certified or registered
mail with postage prepaid on the third business day after the date on which it
is so mailed, to the following addresses:
(a) to Indemnitee:
Ricky L. Lelli
Archibald Candy Corporation
1137 West Jackson Boulevard
Chicago, Illinois 60607
(b) to the Company:
Archibald Candy Corporation
1137 West Jackson Boulevard
Chicago, Illinois 60607
Attention: Secretary
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case may be.
SECTION 22. Other Agreements.
This Agreement restates and supersedes, but does not limit or negate,
any indemnification, rights or interests of Indemnitee under any prior
agreements between the Company and Indemnitee.
SECTION 23. Governing Law.
The parties agree that this Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of Illinois.
[signature page follows]
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Indemnification Agreement as of the date first above written.
ARCHIBALD CANDY CORPORATION
By: /s/ Ted A. Shepherd
------------------------------------
Name: Ted A. Shepherd
----------------------------------
Title: President and Chief Operating
Officer
---------------------------------
INDEMNITEE:
By: /s/ Ricky L. Lelli
------------------------------------
Name: Ricky L. Lelli
10
<PAGE>
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT, dated as of July 2, 1997 (this
"Agreement"), is by and between Archibald Candy Corporation, an Illinois
corporation (the "Company"), and John W. Jordan II ("Indemnitee").
WITNESSETH
WHEREAS, highly competent persons are becoming more reluctant to serve
as directors, executive officers or in other capacities of corporations that
have publicly-held equity or debt unless they are provided with adequate
protection through insurance and indemnification against inordinate risks of
claims and actions against them arising out of their service to and activities
on behalf of the corporation; and
WHEREAS, the current difficulties or virtual impossibility of
obtaining adequate insurance and uncertainties relating to indemnification have
increased the difficulty of attracting and retaining such persons; and
WHEREAS, the Board of Directors of the Company has determined that the
inability to attract and retain such persons is detrimental to the best
interests of the Company's shareholders and that the Company should act to
assure such persons that there will be increased certainty of such protection in
the future; and
WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify such persons to the fullest extent
permitted by applicable law so that they will serve or continue to serve the
Company free from undue concern that they will not be so indemnified; and
WHEREAS, the shareholders of the Company have adopted the Amended and
Restated By-laws of the Company (as amended, the "By-laws") providing for the
indemnification of the directors, officers, agents and employees of the Company
to the fullest extent permitted by the Illinois Business Corporation Act (as
amended, the "Act"). The By-laws and the Act specifically provide that they are
not exclusive, and thereby contemplate that contracts may be entered into
between the Company and the members of its Board of Directors and its executive
officers with respect to indemnification of such directors and executive
officers; and
WHEREAS, this Agreement is being entered into as part of Indemnitee's
total compensation for serving as a director and/or an executive officer of the
Company, as the case may be; and
<PAGE>
NOW THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
SECTION 1. Service by Indemnitee.
Indemnitee agrees to serve as director of the Company and/or executive
officer of the Company if so designated by the Company and appointed by the
Board of Directors, and agrees to the indemnification provisions provided for
herein. Indemnitee may at any time and for any reason resign from such position
(subject to any other contractual obligation or other obligation imposed by
operation of law), in which event the Company shall have no obligation under
this Agreement to continue Indemnitee in any such position.
SECTION 2. Indemnification.
The Company shall indemnify Indemnitee to the fullest extent permitted
by applicable law in effect on the date hereof, notwithstanding that such
indemnification is not specifically authorized by this Agreement, the Amended
and Restated Articles of Incorporation of the Company (as amended, the
"Charter"), the Bylaws, the Act or otherwise. In the event of any change, after
the date of this Agreement, in any applicable law, statute or rule regarding the
right of an Illinois corporation to indemnify a member of its board of directors
or an officer, such changes, to the extent that they would expand Indemnitee's
rights hereunder, shall be within the scope of Indemnitee's rights and the
Company's obligations hereunder, and, to the extent that they would narrow
Indemnitee's rights hereunder, shall be excluded from this Agreement; provided,
however, that any change that is required by applicable laws, statutes or rules
to be applied to this Agreement shall be so applied regardless of whether the
effect of such change is to narrow Indemnitee's rights hereunder. Without
diminishing the scope of the indemnification provided by this Section 2, the
rights of indemnification of Indemnitee provided hereunder shall include
indemnification in respect of (a) the proposed offering by the Company of
$100,000,000 of its Senior Secured Notes due 2004 (the "Notes") pursuant to an
exemption from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"), (b) the Company's subsequent filing with the
Securities and Exchange Commission (the "SEC") of a registration statement
relating to an exchange offer for the Notes under the Securities Act and (c) any
other public offerings of securities by the Company, and shall not be limited to
those rights set forth hereinafter, except to the extent expressly prohibited by
applicable law.
SECTION 3. Action or Proceeding Other Than an Action by or in the
Right of the Company.
Indemnitee shall be entitled to the indemnification rights provided in
this Section 3 if he is or was 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 in nature, other than an action by or
in the right of the Company, by reason of the fact that he is or was a director,
officer, employee, agent or fiduciary of the Company or is or was serving at the
request of the Company as a director, officer, employee, agent, partner, trustee
or fiduciary of any other entity (a "Related Company") or by reason of anything
done or not done by him in any such capacity. Pursuant to this
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<PAGE>
Section 3, Indemnitee shall be indemnified against reasonable costs and
expenses (including, but not limited to, counsel fees, costs, judgments,
penalties, fines, ERISA excise taxes, and amounts paid in settlement)
(collectively, "Damages") actually and reasonably incurred by him in
connection with such action, suit or proceeding (including, but not limited
to, the investigation, defense, settlement or appeal thereof), if, in the
case of conduct in his official capacity with the corporation, he acted in
good faith and in the Company's best interests, and in all other cases, he
acted in good faith and was at least not opposed to the Company's best
interests, and with respect to any criminal action or proceeding had no
reasonable cause to believe his conduct was unlawful, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which Indemnitee shall have been finally adjudged to be liable for (a)
negligence or misconduct in the performance of his duty to the Company unless
and only to the extent that the court in which such action, suit or
proceeding was brought, or any other court of competent jurisdiction, shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, Indemnitee is fairly and
reasonably entitled to indemnity for such Damages as such court shall deem
proper or (b) a violation of Section 16(b) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), or any of the rules or regulations
promulgated thereunder. Notwithstanding the foregoing, the Company shall be
required to indemnify an officer or director in connection with an action,
suit or proceeding initiated by such person only if such action, suit or
proceeding was authorized or contemplated by the Board or a committee
thereof. No indemnity pursuant to this Agreement shall be provided by the
Company for Damages that have been paid directly to Indemnitee by an
insurance carrier under a policy of directors' and officers' liability
insurance maintained by the Company.
SECTION 4. Actions by or in the Right of the Company.
Indemnitee shall be entitled to the indemnification rights provided in
this Section 4 if he is or was made 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 brought by or in the right of
the Company to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee, agent or fiduciary of the Company or is or
was serving at the request of the Company as a director, officer, employee,
agent, partner, trustee or fiduciary of any Related Company by reason of
anything done or not done by him in any such capacity. Pursuant to this Section
4, Indemnitee shall be indemnified against Damages actually and reasonably
incurred by him in connection with such action or suit (including, but not
limited to, the investigation, defense, settlement or appeal thereof) if, in the
case of conduct in his official capacity with the corporation, he acted in good
faith and in the Company's best interests, and in all other cases, he acted in
good faith and was at least not opposed to the Company's best interests, except
that no indemnification shall be made in respect of any claim, issue or matter
as to which Indemnitee shall have been finally adjudged to be liable for (a)
negligence or misconduct in the performance of his duty to the Company unless
and only to the extent that the court in which such action, suit or proceeding
was brought, or any other court of competent jurisdiction, shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, Indemnitee is fairly and reasonably entitled to
indemnity for such Damages as such court shall deem proper or (b) a violation of
Section 16(b) of the Exchange Act or any of the rules or regulations promulgated
thereunder. Notwithstanding the foregoing, the Company shall be required to
indemnify an officer or director in
3
<PAGE>
connection with an action, suit or proceeding initiated by such person only
if such action, suit or proceeding was authorized by the Board or a committee
thereof. No indemnity pursuant to this Agreement shall be provided by the
Company for Damages that have been paid directly to Indemnitee by an
insurance carrier under a policy of directors' and officers' liability
insurance maintained by the Company.
SECTION 5. Indemnification for Costs, Charges and Expenses of
Successful Party.
Notwithstanding the other provisions of this Agreement, to the extent
that Indemnitee has served as a witness on behalf of the Company or has been
successful, on the merits or otherwise, including, without limitation, the
dismissal of an action without prejudice, in defense of any action, suit or
proceeding referred to in Section 3 or 4, or in defense of any claim, issue or
matter therein, Indemnitee shall be indemnified against all reasonable costs,
charges, and expenses (including counsel fees) actually and reasonably incurred
by him or on his behalf in connection therewith.
SECTION 6. Partial Indemnification.
If Indemnitee is only partially successful in the defense,
investigation, settlement or appeal of any action, suit, investigation or
proceeding described in Section 3 or Section 4, and as a result is not entitled
under Section 5 to indemnification by the Company for the total amount of
reasonable Damages actually and reasonably incurred by him, the Company shall
nevertheless indemnify Indemnitee, as a matter of right pursuant to Section 5,
to the extent Indemnitee has been partially successful.
SECTION 7. Determination of Entitlement to Indemnification.
Upon written request by Indemnitee for indemnification pursuant to
Section 3 or Section 4 , the entitlement of Indemnitee to indemnification
pursuant to the terms of this Agreement shall be determined by the following
person or persons who shall be empowered to make such determination: (a) the
Board of Directors of the Company by a majority vote of a quorum consisting of
Disinterested Directors (as hereinafter defined); or (b) if such a quorum is not
obtainable or, even if obtainable, if the Board of Directors by the majority
vote of Disinterested Directors so directs, by Independent Counsel (as
hereinafter defined) in a written opinion to the Board of Directors, a copy of
which shall be delivered to Indemnitee; or (c) by the shareholders, but shares
owned by or voted under the control of directors, including the Indemnitee, who
are at the time parties to the proceeding may not be voted on the determination.
Such Independent Counsel shall be selected by the Board of Directors and
approved by Indemnitee. Upon failure of the Board of Directors to so select
such Independent Counsel or upon failure of Indemnitee to so approve, such
Independent Counsel shall be selected by an Illinois state court judge of the
Circuit Court of Cook County, Chancery Division, or such other person as such
judge shall designate to make such selection. Such determination of entitlement
to indemnification shall be made no later than sixty (60) days after receipt by
the Company of a written request for indemnification. Such request shall
include documentation or information which is necessary for such determination
and which is reasonably available to Indemnitee. Any Damages incurred by
Indemnitee in connection with his request for indemnification
4
<PAGE>
hereunder shall be borne by the Company. The Company hereby indemnifies and
agrees to hold Indemnitee harmless therefrom irrespective of the outcome of
the determination of Indemnitee's entitlement to indemnification. If the
person making such determination shall determine that Indemnitee is entitled
to indemnification as to part (but not all) of the application for
indemnification, such person shall reasonably prorate such partial
indemnification among such claims, issues or matters.
SECTION 8. Presumptions and Effect of Certain Proceedings.
The Secretary of the Company shall, promptly upon receipt of
Indemnitee's request for indemnification, advise in writing the Board of
Directors or such other person or persons empowered to make the determination as
provided in Section 7 that Indemnitee has made such request for indemnification.
Indemnitee shall be presumed to be entitled to indemnification hereunder and the
Company shall have the burden of proof in the making of any determination
contrary to such presumption. If the person or persons so empowered to make
such determination shall have failed to make the requested indemnification
within 60 days after receipt by the Company of such request, the requisite
determination of entitlement to indemnification shall be deemed to have been
made and Indemnitee shall be absolutely entitled to such indemnification, absent
actual and material fraud in the request for indemnification. The termination
of any action, suit, investigation or proceeding described in Section 3 or
Section 4 by judgment, order, settlement or conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself (a) create a presumption that
Indemnitee 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 Company, and, with
respect to any criminal action or proceeding, that Indemnitee had reasonable
cause to believe that his conduct was unlawful or (b) otherwise adversely affect
the rights of Indemnitee to indemnification except as may be provided herein.
SECTION 9. Advancement of Expenses and Costs.
All reasonable expenses and costs incurred by Indemnitee who is party
to a proceeding or investigation (including counsel fees, retainers and advances
of disbursements required of Indemnitee) (collectively, the "Expense Advance")
shall be paid by the Company in advance of the final disposition of such action,
suit, proceeding or investigation at the request of Indemnitee within twenty
(20) days after the receipt by the Company of a statement or statements from
Indemnitee requesting such advance or advances from time to time. Such
statement or statements shall reasonably evidence the expenses and costs
incurred by him in connection therewith. The Company's obligation to provide an
Expense Advance is subject to the following conditions: (a) if the proceeding
arose in connection with Indemnitee's service as a director and/or executive
officer of, or in any other capacity on behalf of, the Company or any Related
Company, then the Indemnitee or his representative shall have executed and
delivered to the Company an undertaking, which need not be secured and shall be
accepted without reference to Indemnitee's financial ability to make repayment,
by or on behalf of Indemnitee to repay all Expense Advance if and to the extent
that it shall ultimately be determined by a final, unappealable decision
rendered by a court having jurisdiction over the parties and the question that
Indemnitee is not entitled to be indemnified for such Expense Advance under this
Agreement or otherwise; (b) Indemnitee shall give the Company such information
and
5
<PAGE>
cooperation as it may reasonably request and as shall be within Indemnitee's
power; and (c) Indemnitee shall furnish, upon request by the Company and if
required under applicable law, a written affirmation of Indemnitee's good
faith belief that any applicable standards of conduct have been met by
Indemnitee. Indemnitee's entitlement to such Expense Advance shall include
those incurred in connection with any proceeding by Indemnitee seeking an
adjudication pursuant to this Agreement. In the event that a claim for an
Expense Advance is made hereunder and is not paid in full within twenty (20)
days after written notice of such claim is delivered to the Company,
Indemnitee may, but need not, at any time thereafter bring suit against the
Company to recover the unpaid amount of the claim.
SECTION 10. Remedies of Indemnitee in Cases of Determination not to
Indemnify or to Advance Expenses.
In the event that a determination is made that Indemnitee is not
entitled to indemnification hereunder or if payment has not been timely made
following a determination of entitlement to indemnification pursuant to Section
7 or 8, or if expenses are not advanced pursuant to Section 9, Indemnitee shall
be entitled to a final adjudication in an appropriate court of the State of
Illinois or any other court of competent jurisdiction of his entitlement to such
indemnification or advance. The Company shall not oppose Indemnitee's right to
seek any such adjudication or any other claim. Such judicial proceeding shall
be made de novo and Indemnitee shall not be prejudiced by reason of a
determination (if so made) that he is not entitled to indemnification. If a
determination is made or deemed to have been made pursuant to the terms of
Section 7 or 8 that Indemnitee is entitled to indemnification, the Company shall
be bound by such determination and is precluded from asserting that such
determination has not been made or that the procedure by which such
determination was made is not valid, binding and enforceable. The Company
further agrees to stipulate in any such court that the Company is bound by all
the provisions of this Agreement and is precluded from making any assertion to
the contrary. If the court shall determine that Indemnitee is entitled to any
indemnification hereunder, the Company shall pay all reasonable Damages actually
incurred by Indemnitee in connection with such adjudication (including, but not
limited to, any appellate proceedings).
SECTION 11. Other Rights to Indemnification.
The indemnification and advancement of expenses (including counsel
fees) and costs provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may now or in the future be entitled under any
provision of the By-laws or the Charter, any vote of shareholders or
Disinterested Directors, any provision of law or otherwise.
SECTION 12. Counsel Fees and Other Expenses to Enforce Agreement.
In the event that Indemnitee is subject to or intervenes in any
proceeding in which the validity or enforceability of this Agreement is at issue
or seeks an adjudication or award in arbitration to enforce his rights under, or
to recover damages for breach of, this Agreement, Indemnitee, if he prevails in
whole or in part in such action, shall be entitled to recover from the Company,
and shall
6
<PAGE>
be indemnified by the Company against, any reasonable expenses for counsel
fees and disbursements actually and reasonably incurred by him. Indemnitee
shall be entitled to select his own counsel; provided, however, that the
Company may elect to hire a counsel to represent Indemnitee together with
other similarly situated individuals, but only if such joint representation
does not, in the reasonable discretion of Indemnitee, create any conflict of
interest.
SECTION 13. Duration of Agreement.
This Agreement shall continue until and terminate upon the later of
(a) 10 years after Indemnitee has ceased to occupy any of the positions or have
any of the relationships described in Sections 1, 3 or 4 or (b) the final
termination of all pending or threatened actions, suits, proceedings or
investigations with respect to Indemnitee. This Agreement shall be binding upon
the Company and its successors and assigns and shall inure to the benefit of
Indemnitee and his spouse, assigns, heirs, devisees, executors, administrators
or other legal representatives.
SECTION 14. Severability.
If any provision or provisions of this Agreement shall be held to be
invalid, illegal or unenforceable for any reason whatsoever (a) the validity,
legality and enforceability of the remaining provisions of this Agreement
(including without limitation, all portions of any paragraphs of this Agreement
containing any such provision held to be invalid, illegal or unenforceable, that
are not themselves invalid, illegal or unenforceable) shall not in any way be
affected or impaired thereby and (b) to the fullest extent possible, the
provisions of this Agreement (including, without limitation, all portions of any
paragraph of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that are not themselves invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable.
SECTION 15. Identical Counterparts.
This Agreement may be executed in one or more counterparts, each of
which shall for all purposes be deemed to be an original, but all of which
together shall constitute one and the same Agreement. Only one such counterpart
signed by the party against whom enforceability is sought needs to be produced
to evidence the existence of this Agreement.
SECTION 16. Headings; Section References.
The headings of the paragraphs of this Agreement are inserted for
convenience only and shall not be deemed to constitute part of this Agreement or
to affect the construction thereof. Unless otherwise specified herein, each
reference herein to a Section shall be deemed a reference to a Section of this
Agreement.
7
<PAGE>
SECTION 17. Definitions.
For purposes of this Agreement:
(a) "Disinterested Director" shall mean a director of the Company who
is not or was not a party to the action, suit, investigation or proceeding in
respect of which indemnification is being sought by Indemnitee.
(b) "Independent Counsel" shall mean a law firm or a member of a law
firm that neither is presently nor in the past five years has been retained to
represent (i) the Company or Indemnitee in any matter material to either such
party or (ii) any other party to the action, suit, investigation or proceeding
giving rise to a claim for indemnification hereunder. Notwithstanding the
foregoing, the term "Independent Counsel" shall not include any person who,
under the applicable standards of professional conduct then prevailing, would
have a conflict of interest in representing either the Company or Indemnitee in
an action to determine Indemnitee's right to indemnification under this
Agreement.
SECTION 18. Modification and Waiver.
No supplement, modification or amendment of this Agreement shall be
binding unless executed in writing by both of the parties hereto. No waiver of
any of the provisions of this Agreement shall be deemed or shall constitute a
waiver of any other provisions hereof (whether or not similar) nor shall such
waiver constitute a continuing waiver.
SECTION 19. Mutual Acknowledgment.
The Company and Indemnitee acknowledge that, in certain instances,
federal law or public policy may override applicable state law and prohibit the
Company from indemnifying Indemnitee under this Agreement or otherwise. For
example, the Company and Indemnitee acknowledge that the SEC has taken the
position that indemnification is not permissible for liabilities arising under
certain federal securities laws, and federal legislation prohibits
indemnification for certain ERISA violations. Furthermore, Indemnitee
understands and acknowledges that the Company has undertaken or may be required
in the future to undertake with the SEC to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee.
SECTION 20. Notice by Indemnitee.
Indemnitee agrees promptly to notify the Company in writing upon being
served with any summons, citation, subpoena, complaint, indictment, information
or other document relating to any matter which may be subject to indemnification
covered hereunder, either civil, criminal or investigative.
8
<PAGE>
SECTION 21. Notices.
All notices, requests, demands and other communications hereunder
shall be in writing and shall be deemed to have been duly given if (a) delivered
by hand and receipted for by the party to whom said notice or other
communication shall have been directed or (b) mailed by certified or registered
mail with postage prepaid on the third business day after the date on which it
is so mailed, to the following addresses:
(a) to Indemnitee:
John W. Jordan II
The Jordan Company
9 West 57th Street
Suite 4000
New York, New York 10019
(b) to the Company:
Archibald Candy Corporation
1137 West Jackson Boulevard
Chicago, Illinois 60607
Attention: Secretary
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case may be.
SECTION 22. Other Agreements.
This Agreement restates and supersedes, but does not limit or negate,
any indemnification, rights or interests of Indemnitee under any prior
agreements between the Company and Indemnitee.
SECTION 23. Governing Law.
The parties agree that this Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of Illinois.
[signature page follows]
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Indemnification Agreement as of the date first above written.
ARCHIBALD CANDY CORPORATION
By: /s/ Ted A. Shepherd
------------------------------------
Name: Ted A. Shepherd
----------------------------------
Title: President and Chief Operating
Officer
---------------------------------
INDEMNITEE:
By: /s/ John W. Jordan II
------------------------------------
Name: John W. Jordan II
----------------------------------
<PAGE>
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT, dated as of July 2, 1997 (this
"Agreement"), is by and between Archibald Candy Corporation, an Illinois
corporation (the "Company"), and Adam E. Max ("Indemnitee").
WITNESSETH
WHEREAS, highly competent persons are becoming more reluctant to serve
as directors, executive officers or in other capacities of corporations that
have publicly-held equity or debt unless they are provided with adequate
protection through insurance and indemnification against inordinate risks of
claims and actions against them arising out of their service to and activities
on behalf of the corporation; and
WHEREAS, the current difficulties or virtual impossibility of
obtaining adequate insurance and uncertainties relating to indemnification have
increased the difficulty of attracting and retaining such persons; and
WHEREAS, the Board of Directors of the Company has determined that the
inability to attract and retain such persons is detrimental to the best
interests of the Company's shareholders and that the Company should act to
assure such persons that there will be increased certainty of such protection in
the future; and
WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify such persons to the fullest extent
permitted by applicable law so that they will serve or continue to serve the
Company free from undue concern that they will not be so indemnified; and
WHEREAS, the shareholders of the Company have adopted the Amended and
Restated By-laws of the Company (as amended, the "By-laws") providing for the
indemnification of the directors, officers, agents and employees of the Company
to the fullest extent permitted by the Illinois Business Corporation Act (as
amended, the "Act"). The By-laws and the Act specifically provide that they are
not exclusive, and thereby contemplate that contracts may be entered into
between the Company and the members of its Board of Directors and its executive
officers with respect to indemnification of such directors and executive
officers; and
WHEREAS, this Agreement is being entered into as part of Indemnitee's
total compensation for serving as a director and/or an executive officer of the
Company, as the case may be; and
<PAGE>
NOW THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
SECTION 1. Service by Indemnitee.
Indemnitee agrees to serve as director of the Company and/or executive
officer of the Company if so designated by the Company and appointed by the
Board of Directors, and agrees to the indemnification provisions provided for
herein. Indemnitee may at any time and for any reason resign from such position
(subject to any other contractual obligation or other obligation imposed by
operation of law), in which event the Company shall have no obligation under
this Agreement to continue Indemnitee in any such position.
SECTION 2. Indemnification.
The Company shall indemnify Indemnitee to the fullest extent permitted
by applicable law in effect on the date hereof, notwithstanding that such
indemnification is not specifically authorized by this Agreement, the Amended
and Restated Articles of Incorporation of the Company (as amended, the
"Charter"), the Bylaws, the Act or otherwise. In the event of any change, after
the date of this Agreement, in any applicable law, statute or rule regarding the
right of an Illinois corporation to indemnify a member of its board of directors
or an officer, such changes, to the extent that they would expand Indemnitee's
rights hereunder, shall be within the scope of Indemnitee's rights and the
Company's obligations hereunder, and, to the extent that they would narrow
Indemnitee's rights hereunder, shall be excluded from this Agreement; provided,
however, that any change that is required by applicable laws, statutes or rules
to be applied to this Agreement shall be so applied regardless of whether the
effect of such change is to narrow Indemnitee's rights hereunder. Without
diminishing the scope of the indemnification provided by this Section 2, the
rights of indemnification of Indemnitee provided hereunder shall include
indemnification in respect of (a) the proposed offering by the Company of
$100,000,000 of its Senior Secured Notes due 2004 (the "Notes") pursuant to an
exemption from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"), (b) the Company's subsequent filing with the
Securities and Exchange Commission (the "SEC") of a registration statement
relating to an exchange offer for the Notes under the Securities Act and (c) any
other public offerings of securities by the Company, and shall not be limited to
those rights set forth hereinafter, except to the extent expressly prohibited by
applicable law.
SECTION 3. Action or Proceeding Other Than an Action by or in the
Right of the Company.
Indemnitee shall be entitled to the indemnification rights provided in
this Section 3 if he is or was 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 in nature, other than an action by or
in the right of the Company, by reason of the fact that he is or was a director,
officer, employee, agent or fiduciary of the Company or is or was serving at the
request of the Company as a director, officer, employee, agent, partner, trustee
or fiduciary of any other entity (a "Related Company") or by reason of anything
done or not done by him in any such capacity. Pursuant to this
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Section 3, Indemnitee shall be indemnified against reasonable costs and
expenses (including, but not limited to, counsel fees, costs, judgments,
penalties, fines, ERISA excise taxes, and amounts paid in settlement)
(collectively, "Damages") actually and reasonably incurred by him in
connection with such action, suit or proceeding (including, but not limited
to, the investigation, defense, settlement or appeal thereof), if, in the
case of conduct in his official capacity with the corporation, he acted in
good faith and in the Company's best interests, and in all other cases, he
acted in good faith and was at least not opposed to the Company's best
interests, and with respect to any criminal action or proceeding had no
reasonable cause to believe his conduct was unlawful, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which Indemnitee shall have been finally adjudged to be liable for (a)
negligence or misconduct in the performance of his duty to the Company unless
and only to the extent that the court in which such action, suit or
proceeding was brought, or any other court of competent jurisdiction, shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, Indemnitee is fairly and
reasonably entitled to indemnity for such Damages as such court shall deem
proper or (b) a violation of Section 16(b) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), or any of the rules or regulations
promulgated thereunder. Notwithstanding the foregoing, the Company shall be
required to indemnify an officer or director in connection with an action,
suit or proceeding initiated by such person only if such action, suit or
proceeding was authorized or contemplated by the Board or a committee
thereof. No indemnity pursuant to this Agreement shall be provided by the
Company for Damages that have been paid directly to Indemnitee by an
insurance carrier under a policy of directors' and officers' liability
insurance maintained by the Company.
SECTION 4. Actions by or in the Right of the Company.
Indemnitee shall be entitled to the indemnification rights provided in
this Section 4 if he is or was made 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 brought by or in the right of
the Company to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee, agent or fiduciary of the Company or is or
was serving at the request of the Company as a director, officer, employee,
agent, partner, trustee or fiduciary of any Related Company by reason of
anything done or not done by him in any such capacity. Pursuant to this Section
4, Indemnitee shall be indemnified against Damages actually and reasonably
incurred by him in connection with such action or suit (including, but not
limited to, the investigation, defense, settlement or appeal thereof) if, in the
case of conduct in his official capacity with the corporation, he acted in good
faith and in the Company's best interests, and in all other cases, he acted in
good faith and was at least not opposed to the Company's best interests, except
that no indemnification shall be made in respect of any claim, issue or matter
as to which Indemnitee shall have been finally adjudged to be liable for (a)
negligence or misconduct in the performance of his duty to the Company unless
and only to the extent that the court in which such action, suit or proceeding
was brought, or any other court of competent jurisdiction, shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, Indemnitee is fairly and reasonably entitled to
indemnity for such Damages as such court shall deem proper or (b) a violation of
Section 16(b) of the Exchange Act or any of the rules or regulations promulgated
thereunder. Notwithstanding the foregoing, the Company shall be required to
indemnify an officer or director in
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connection with an action, suit or proceeding initiated by such person only
if such action, suit or proceeding was authorized by the Board or a committee
thereof. No indemnity pursuant to this Agreement shall be provided by the
Company for Damages that have been paid directly to Indemnitee by an
insurance carrier under a policy of directors' and officers' liability
insurance maintained by the Company.
SECTION 5. Indemnification for Costs, Charges and Expenses of
Successful Party.
Notwithstanding the other provisions of this Agreement, to the extent
that Indemnitee has served as a witness on behalf of the Company or has been
successful, on the merits or otherwise, including, without limitation, the
dismissal of an action without prejudice, in defense of any action, suit or
proceeding referred to in Section 3 or 4, or in defense of any claim, issue or
matter therein, Indemnitee shall be indemnified against all reasonable costs,
charges, and expenses (including counsel fees) actually and reasonably incurred
by him or on his behalf in connection therewith.
SECTION 6. Partial Indemnification.
If Indemnitee is only partially successful in the defense,
investigation, settlement or appeal of any action, suit, investigation or
proceeding described in Section 3 or Section 4, and as a result is not entitled
under Section 5 to indemnification by the Company for the total amount of
reasonable Damages actually and reasonably incurred by him, the Company shall
nevertheless indemnify Indemnitee, as a matter of right pursuant to Section 5,
to the extent Indemnitee has been partially successful.
SECTION 7. Determination of Entitlement to Indemnification.
Upon written request by Indemnitee for indemnification pursuant to
Section 3 or Section 4 , the entitlement of Indemnitee to indemnification
pursuant to the terms of this Agreement shall be determined by the following
person or persons who shall be empowered to make such determination: (a) the
Board of Directors of the Company by a majority vote of a quorum consisting
of Disinterested Directors (as hereinafter defined); or (b) if such a quorum
is not obtainable or, even if obtainable, if the Board of Directors by the
majority vote of Disinterested Directors so directs, by Independent Counsel
(as hereinafter defined) in a written opinion to the Board of Directors, a
copy of which shall be delivered to Indemnitee; or (c) by the shareholders,
but shares owned by or voted under the control of directors, including the
Indemnitee, who are at the time parties to the proceeding may not be voted on
the determination. Such Independent Counsel shall be selected by the Board of
Directors and approved by Indemnitee. Upon failure of the Board of Directors
to so select such Independent Counsel or upon failure of Indemnitee to so
approve, such Independent Counsel shall be selected by an Illinois state
court judge of the Circuit Court of Cook County, Chancery Division, or such
other person as such judge shall designate to make such selection. Such
determination of entitlement to indemnification shall be made no later than
sixty (60) days after receipt by the Company of a written request for
indemnification. Such request shall include documentation or information
which is necessary for such determination and which is reasonably available
to Indemnitee. Any Damages incurred by Indemnitee in connection with his
request for indemnification
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hereunder shall be borne by the Company. The Company hereby indemnifies and
agrees to hold Indemnitee harmless therefrom irrespective of the outcome of
the determination of Indemnitee's entitlement to indemnification. If the
person making such determination shall determine that Indemnitee is entitled
to indemnification as to part (but not all) of the application for
indemnification, such person shall reasonably prorate such partial
indemnification among such claims, issues or matters.
SECTION 8. Presumptions and Effect of Certain Proceedings.
The Secretary of the Company shall, promptly upon receipt of
Indemnitee's request for indemnification, advise in writing the Board of
Directors or such other person or persons empowered to make the determination
as provided in Section 7 that Indemnitee has made such request for
indemnification. Indemnitee shall be presumed to be entitled to
indemnification hereunder and the Company shall have the burden of proof in
the making of any determination contrary to such presumption. If the person
or persons so empowered to make such determination shall have failed to make
the requested indemnification within 60 days after receipt by the Company of
such request, the requisite determination of entitlement to indemnification
shall be deemed to have been made and Indemnitee shall be absolutely entitled
to such indemnification, absent actual and material fraud in the request for
indemnification. The termination of any action, suit, investigation or
proceeding described in Section 3 or Section 4 by judgment, order, settlement
or conviction, or upon a plea of nolo contendere or its equivalent, shall
not, of itself (a) create a presumption that Indemnitee 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 Company, and, with respect to any criminal action
or proceeding, that Indemnitee had reasonable cause to believe that his
conduct was unlawful or (b) otherwise adversely affect the rights of
Indemnitee to indemnification except as may be provided herein.
SECTION 9. Advancement of Expenses and Costs.
All reasonable expenses and costs incurred by Indemnitee who is party
to a proceeding or investigation (including counsel fees, retainers and advances
of disbursements required of Indemnitee) (collectively, the "Expense Advance")
shall be paid by the Company in advance of the final disposition of such action,
suit, proceeding or investigation at the request of Indemnitee within twenty
(20) days after the receipt by the Company of a statement or statements from
Indemnitee requesting such advance or advances from time to time. Such
statement or statements shall reasonably evidence the expenses and costs
incurred by him in connection therewith. The Company's obligation to provide an
Expense Advance is subject to the following conditions: (a) if the proceeding
arose in connection with Indemnitee's service as a director and/or executive
officer of, or in any other capacity on behalf of, the Company or any Related
Company, then the Indemnitee or his representative shall have executed and
delivered to the Company an undertaking, which need not be secured and shall be
accepted without reference to Indemnitee's financial ability to make repayment,
by or on behalf of Indemnitee to repay all Expense Advance if and to the extent
that it shall ultimately be determined by a final, unappealable decision
rendered by a court having jurisdiction over the parties and the question that
Indemnitee is not entitled to be indemnified for such Expense Advance under this
Agreement or otherwise; (b) Indemnitee shall give the Company such information
and
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cooperation as it may reasonably request and as shall be within Indemnitee's
power; and (c) Indemnitee shall furnish, upon request by the Company and if
required under applicable law, a written affirmation of Indemnitee's good faith
belief that any applicable standards of conduct have been met by Indemnitee.
Indemnitee's entitlement to such Expense Advance shall include those incurred in
connection with any proceeding by Indemnitee seeking an adjudication pursuant to
this Agreement. In the event that a claim for an Expense Advance is made
hereunder and is not paid in full within twenty (20) days after written notice
of such claim is delivered to the Company, Indemnitee may, but need not, at any
time thereafter bring suit against the Company to recover the unpaid amount of
the claim.
SECTION 10. Remedies of Indemnitee in Cases of Determination not to
Indemnify or to Advance Expenses.
In the event that a determination is made that Indemnitee is not
entitled to indemnification hereunder or if payment has not been timely made
following a determination of entitlement to indemnification pursuant to Section
7 or 8, or if expenses are not advanced pursuant to Section 9, Indemnitee shall
be entitled to a final adjudication in an appropriate court of the State of
Illinois or any other court of competent jurisdiction of his entitlement to such
indemnification or advance. The Company shall not oppose Indemnitee's right to
seek any such adjudication or any other claim. Such judicial proceeding shall
be made de novo and Indemnitee shall not be prejudiced by reason of a
determination (if so made) that he is not entitled to indemnification. If a
determination is made or deemed to have been made pursuant to the terms of
Section 7 or 8 that Indemnitee is entitled to indemnification, the Company shall
be bound by such determination and is precluded from asserting that such
determination has not been made or that the procedure by which such
determination was made is not valid, binding and enforceable. The Company
further agrees to stipulate in any such court that the Company is bound by all
the provisions of this Agreement and is precluded from making any assertion to
the contrary. If the court shall determine that Indemnitee is entitled to any
indemnification hereunder, the Company shall pay all reasonable Damages actually
incurred by Indemnitee in connection with such adjudication (including, but not
limited to, any appellate proceedings).
SECTION 11. Other Rights to Indemnification.
The indemnification and advancement of expenses (including counsel
fees) and costs provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may now or in the future be entitled under any
provision of the By-laws or the Charter, any vote of shareholders or
Disinterested Directors, any provision of law or otherwise.
SECTION 12. Counsel Fees and Other Expenses to Enforce Agreement.
In the event that Indemnitee is subject to or intervenes in any
proceeding in which the validity or enforceability of this Agreement is at issue
or seeks an adjudication or award in arbitration to enforce his rights under, or
to recover damages for breach of, this Agreement, Indemnitee, if he prevails in
whole or in part in such action, shall be entitled to recover from the Company,
and shall
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be indemnified by the Company against, any reasonable expenses for counsel
fees and disbursements actually and reasonably incurred by him. Indemnitee
shall be entitled to select his own counsel; provided, however, that the
Company may elect to hire a counsel to represent Indemnitee together with
other similarly situated individuals, but only if such joint representation
does not, in the reasonable discretion of Indemnitee, create any conflict of
interest.
SECTION 13. Duration of Agreement.
This Agreement shall continue until and terminate upon the later of
(a) 10 years after Indemnitee has ceased to occupy any of the positions or have
any of the relationships described in Sections 1, 3 or 4 or (b) the final
termination of all pending or threatened actions, suits, proceedings or
investigations with respect to Indemnitee. This Agreement shall be binding upon
the Company and its successors and assigns and shall inure to the benefit of
Indemnitee and his spouse, assigns, heirs, devisees, executors, administrators
or other legal representatives.
SECTION 14. Severability.
If any provision or provisions of this Agreement shall be held to be
invalid, illegal or unenforceable for any reason whatsoever (a) the validity,
legality and enforceability of the remaining provisions of this Agreement
(including without limitation, all portions of any paragraphs of this Agreement
containing any such provision held to be invalid, illegal or unenforceable, that
are not themselves invalid, illegal or unenforceable) shall not in any way be
affected or impaired thereby and (b) to the fullest extent possible, the
provisions of this Agreement (including, without limitation, all portions of any
paragraph of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that are not themselves invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable.
SECTION 15. Identical Counterparts.
This Agreement may be executed in one or more counterparts, each of
which shall for all purposes be deemed to be an original, but all of which
together shall constitute one and the same Agreement. Only one such counterpart
signed by the party against whom enforceability is sought needs to be produced
to evidence the existence of this Agreement.
SECTION 16. Headings; Section References.
The headings of the paragraphs of this Agreement are inserted for
convenience only and shall not be deemed to constitute part of this Agreement or
to affect the construction thereof. Unless otherwise specified herein, each
reference herein to a Section shall be deemed a reference to a Section of this
Agreement.
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SECTION 17. Definitions.
For purposes of this Agreement:
(a) "Disinterested Director" shall mean a director of the Company who
is not or was not a party to the action, suit, investigation or proceeding in
respect of which indemnification is being sought by Indemnitee.
(b) "Independent Counsel" shall mean a law firm or a member of a law
firm that neither is presently nor in the past five years has been retained to
represent (i) the Company or Indemnitee in any matter material to either such
party or (ii) any other party to the action, suit, investigation or proceeding
giving rise to a claim for indemnification hereunder. Notwithstanding the
foregoing, the term "Independent Counsel" shall not include any person who,
under the applicable standards of professional conduct then prevailing, would
have a conflict of interest in representing either the Company or Indemnitee in
an action to determine Indemnitee's right to indemnification under this
Agreement.
SECTION 18. Modification and Waiver.
No supplement, modification or amendment of this Agreement shall be
binding unless executed in writing by both of the parties hereto. No waiver of
any of the provisions of this Agreement shall be deemed or shall constitute a
waiver of any other provisions hereof (whether or not similar) nor shall such
waiver constitute a continuing waiver.
SECTION 19. Mutual Acknowledgment.
The Company and Indemnitee acknowledge that, in certain instances,
federal law or public policy may override applicable state law and prohibit the
Company from indemnifying Indemnitee under this Agreement or otherwise. For
example, the Company and Indemnitee acknowledge that the SEC has taken the
position that indemnification is not permissible for liabilities arising under
certain federal securities laws, and federal legislation prohibits
indemnification for certain ERISA violations. Furthermore, Indemnitee
understands and acknowledges that the Company has undertaken or may be required
in the future to undertake with the SEC to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee.
SECTION 20. Notice by Indemnitee.
Indemnitee agrees promptly to notify the Company in writing upon being
served with any summons, citation, subpoena, complaint, indictment, information
or other document relating to any matter which may be subject to indemnification
covered hereunder, either civil, criminal or investigative.
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<PAGE>
SECTION 21. Notices.
All notices, requests, demands and other communications hereunder
shall be in writing and shall be deemed to have been duly given if (a) delivered
by hand and receipted for by the party to whom said notice or other
communication shall have been directed or (b) mailed by certified or registered
mail with postage prepaid on the third business day after the date on which it
is so mailed, to the following addresses:
(a) to Indemnitee:
Adam E. Max
The Jordan Company
9 West 57th Street
Suite 4000
New York, New York 10019
(b) to the Company:
Archibald Candy Corporation
1137 West Jackson Boulevard
Chicago, Illinois 60607
Attention: Secretary
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case may be.
SECTION 22. Other Agreements.
This Agreement restates and supersedes, but does not limit or negate,
any indemnification, rights or interests of Indemnitee under any prior
agreements between the Company and Indemnitee.
SECTION 23. Governing Law.
The parties agree that this Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of Illinois.
[signature page follows]
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IN WITNESS WHEREOF, the parties hereto have executed this
Indemnification Agreement as of the date first above written.
ARCHIBALD CANDY CORPORATION
By: /s/ Ted A. Shepherd
------------------------------------
Name: Ted A. Shepherd
----------------------------------
Title: President and Chief Operating
Officer
---------------------------------
INDEMNITEE:
By: /s/ Adam E. Max
------------------------------------
Name: Adam E. Max
----------------------------------
<PAGE>
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT, dated as of July 2, 1997 (this
"Agreement"), is by and between Archibald Candy Corporation, an Illinois
corporation (the "Company"), and Jeffrey Rosen ("Indemnitee").
WITNESSETH
WHEREAS, highly competent persons are becoming more reluctant to serve
as directors, executive officers or in other capacities of corporations that
have publicly-held equity or debt unless they are provided with adequate
protection through insurance and indemnification against inordinate risks of
claims and actions against them arising out of their service to and activities
on behalf of the corporation; and
WHEREAS, the current difficulties or virtual impossibility of
obtaining adequate insurance and uncertainties relating to indemnification have
increased the difficulty of attracting and retaining such persons; and
WHEREAS, the Board of Directors of the Company has determined that the
inability to attract and retain such persons is detrimental to the best
interests of the Company's shareholders and that the Company should act to
assure such persons that there will be increased certainty of such protection in
the future; and
WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify such persons to the fullest extent
permitted by applicable law so that they will serve or continue to serve the
Company free from undue concern that they will not be so indemnified; and
WHEREAS, the shareholders of the Company have adopted the Amended and
Restated By-laws of the Company (as amended, the "By-laws") providing for the
indemnification of the directors, officers, agents and employees of the Company
to the fullest extent permitted by the Illinois Business Corporation Act (as
amended, the "Act"). The By-laws and the Act specifically provide that they are
not exclusive, and thereby contemplate that contracts may be entered into
between the Company and the members of its Board of Directors and its executive
officers with respect to indemnification of such directors and executive
officers; and
WHEREAS, this Agreement is being entered into as part of Indemnitee's
total compensation for serving as a director and/or an executive officer of the
Company, as the case may be; and
<PAGE>
NOW THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
SECTION 1. Service by Indemnitee.
Indemnitee agrees to serve as director of the Company and/or executive
officer of the Company if so designated by the Company and appointed by the
Board of Directors, and agrees to the indemnification provisions provided for
herein. Indemnitee may at any time and for any reason resign from such position
(subject to any other contractual obligation or other obligation imposed by
operation of law), in which event the Company shall have no obligation under
this Agreement to continue Indemnitee in any such position.
SECTION 2. Indemnification.
The Company shall indemnify Indemnitee to the fullest extent permitted
by applicable law in effect on the date hereof, notwithstanding that such
indemnification is not specifically authorized by this Agreement, the Amended
and Restated Articles of Incorporation of the Company (as amended, the
"Charter"), the Bylaws, the Act or otherwise. In the event of any change, after
the date of this Agreement, in any applicable law, statute or rule regarding the
right of an Illinois corporation to indemnify a member of its board of directors
or an officer, such changes, to the extent that they would expand Indemnitee's
rights hereunder, shall be within the scope of Indemnitee's rights and the
Company's obligations hereunder, and, to the extent that they would narrow
Indemnitee's rights hereunder, shall be excluded from this Agreement; provided,
however, that any change that is required by applicable laws, statutes or rules
to be applied to this Agreement shall be so applied regardless of whether the
effect of such change is to narrow Indemnitee's rights hereunder. Without
diminishing the scope of the indemnification provided by this Section 2, the
rights of indemnification of Indemnitee provided hereunder shall include
indemnification in respect of (a) the proposed offering by the Company of
$100,000,000 of its Senior Secured Notes due 2004 (the "Notes") pursuant to an
exemption from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"), (b) the Company's subsequent filing with the
Securities and Exchange Commission (the "SEC") of a registration statement
relating to an exchange offer for the Notes under the Securities Act and (c) any
other public offerings of securities by the Company, and shall not be limited to
those rights set forth hereinafter, except to the extent expressly prohibited by
applicable law.
SECTION 3. Action or Proceeding Other Than an Action by or in the
Right of the Company.
Indemnitee shall be entitled to the indemnification rights provided in
this Section 3 if he is or was 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 in nature, other than an action by or
in the right of the Company, by reason of the fact that he is or was a director,
officer, employee, agent or fiduciary of the Company or is or was serving at the
request of the Company as a director, officer, employee, agent, partner, trustee
or fiduciary of any other entity (a "Related Company") or by reason of anything
done or not done by him in any such capacity. Pursuant to this
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Section 3, Indemnitee shall be indemnified against reasonable costs and
expenses (including, but not limited to, counsel fees, costs, judgments,
penalties, fines, ERISA excise taxes, and amounts paid in settlement)
(collectively, "Damages") actually and reasonably incurred by him in
connection with such action, suit or proceeding (including, but not limited
to, the investigation, defense, settlement or appeal thereof), if, in the
case of conduct in his official capacity with the corporation, he acted in
good faith and in the Company's best interests, and in all other cases, he
acted in good faith and was at least not opposed to the Company's best
interests, and with respect to any criminal action or proceeding had no
reasonable cause to believe his conduct was unlawful, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which Indemnitee shall have been finally adjudged to be liable for (a)
negligence or misconduct in the performance of his duty to the Company unless
and only to the extent that the court in which such action, suit or
proceeding was brought, or any other court of competent jurisdiction, shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, Indemnitee is fairly and
reasonably entitled to indemnity for such Damages as such court shall deem
proper or (b) a violation of Section 16(b) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), or any of the rules or regulations
promulgated thereunder. Notwithstanding the foregoing, the Company shall be
required to indemnify an officer or director in connection with an action,
suit or proceeding initiated by such person only if such action, suit or
proceeding was authorized or contemplated by the Board or a committee
thereof. No indemnity pursuant to this Agreement shall be provided by the
Company for Damages that have been paid directly to Indemnitee by an
insurance carrier under a policy of directors' and officers' liability
insurance maintained by the Company.
SECTION 4. Actions by or in the Right of the Company.
Indemnitee shall be entitled to the indemnification rights provided in
this Section 4 if he is or was made 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 brought by or in the right of
the Company to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee, agent or fiduciary of the Company or is or
was serving at the request of the Company as a director, officer, employee,
agent, partner, trustee or fiduciary of any Related Company by reason of
anything done or not done by him in any such capacity. Pursuant to this Section
4, Indemnitee shall be indemnified against Damages actually and reasonably
incurred by him in connection with such action or suit (including, but not
limited to, the investigation, defense, settlement or appeal thereof) if, in the
case of conduct in his official capacity with the corporation, he acted in good
faith and in the Company's best interests, and in all other cases, he acted in
good faith and was at least not opposed to the Company's best interests, except
that no indemnification shall be made in respect of any claim, issue or matter
as to which Indemnitee shall have been finally adjudged to be liable for (a)
negligence or misconduct in the performance of his duty to the Company unless
and only to the extent that the court in which such action, suit or proceeding
was brought, or any other court of competent jurisdiction, shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, Indemnitee is fairly and reasonably entitled to
indemnity for such Damages as such court shall deem proper or (b) a violation of
Section 16(b) of the Exchange Act or any of the rules or regulations promulgated
thereunder. Notwithstanding the foregoing, the Company shall be required to
indemnify an officer or director in
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connection with an action, suit or proceeding initiated by such person only
if such action, suit or proceeding was authorized by the Board or a committee
thereof. No indemnity pursuant to this Agreement shall be provided by the
Company for Damages that have been paid directly to Indemnitee by an
insurance carrier under a policy of directors' and officers' liability
insurance maintained by the Company.
SECTION 5. Indemnification for Costs, Charges and Expenses of
Successful Party.
Notwithstanding the other provisions of this Agreement, to the extent
that Indemnitee has served as a witness on behalf of the Company or has been
successful, on the merits or otherwise, including, without limitation, the
dismissal of an action without prejudice, in defense of any action, suit or
proceeding referred to in Section 3 or 4, or in defense of any claim, issue or
matter therein, Indemnitee shall be indemnified against all reasonable costs,
charges, and expenses (including counsel fees) actually and reasonably incurred
by him or on his behalf in connection therewith.
SECTION 6. Partial Indemnification.
If Indemnitee is only partially successful in the defense,
investigation, settlement or appeal of any action, suit, investigation or
proceeding described in Section 3 or Section 4, and as a result is not entitled
under Section 5 to indemnification by the Company for the total amount of
reasonable Damages actually and reasonably incurred by him, the Company shall
nevertheless indemnify Indemnitee, as a matter of right pursuant to Section 5,
to the extent Indemnitee has been partially successful.
SECTION 7. Determination of Entitlement to Indemnification.
Upon written request by Indemnitee for indemnification pursuant to
Section 3 or Section 4 , the entitlement of Indemnitee to indemnification
pursuant to the terms of this Agreement shall be determined by the following
person or persons who shall be empowered to make such determination: (a) the
Board of Directors of the Company by a majority vote of a quorum consisting
of Disinterested Directors (as hereinafter defined); or (b) if such a quorum
is not obtainable or, even if obtainable, if the Board of Directors by the
majority vote of Disinterested Directors so directs, by Independent Counsel
(as hereinafter defined) in a written opinion to the Board of Directors, a
copy of which shall be delivered to Indemnitee; or (c) by the shareholders,
but shares owned by or voted under the control of directors, including the
Indemnitee, who are at the time parties to the proceeding may not be voted on
the determination. Such Independent Counsel shall be selected by the Board of
Directors and approved by Indemnitee. Upon failure of the Board of Directors
to so select such Independent Counsel or upon failure of Indemnitee to so
approve, such Independent Counsel shall be selected by an Illinois state
court judge of the Circuit Court of Cook County, Chancery Division, or such
other person as such judge shall designate to make such selection. Such
determination of entitlement to indemnification shall be made no later than
sixty (60) days after receipt by the Company of a written request for
indemnification. Such request shall include documentation or information
which is necessary for such determination and which is reasonably available
to Indemnitee. Any Damages incurred by Indemnitee in connection with his
request for indemnification
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hereunder shall be borne by the Company. The Company hereby indemnifies and
agrees to hold Indemnitee harmless therefrom irrespective of the outcome of
the determination of Indemnitee's entitlement to indemnification. If the
person making such determination shall determine that Indemnitee is entitled
to indemnification as to part (but not all) of the application for
indemnification, such person shall reasonably prorate such partial
indemnification among such claims, issues or matters.
SECTION 8. Presumptions and Effect of Certain Proceedings.
The Secretary of the Company shall, promptly upon receipt of
Indemnitee's request for indemnification, advise in writing the Board of
Directors or such other person or persons empowered to make the determination
as provided in Section 7 that Indemnitee has made such request for
indemnification. Indemnitee shall be presumed to be entitled to
indemnification hereunder and the Company shall have the burden of proof in
the making of any determination contrary to such presumption. If the person
or persons so empowered to make such determination shall have failed to make
the requested indemnification within 60 days after receipt by the Company of
such request, the requisite determination of entitlement to indemnification
shall be deemed to have been made and Indemnitee shall be absolutely entitled
to such indemnification, absent actual and material fraud in the request for
indemnification. The termination of any action, suit, investigation or
proceeding described in Section 3 or Section 4 by judgment, order, settlement
or conviction, or upon a plea of nolo contendere or its equivalent, shall
not, of itself (a) create a presumption that Indemnitee 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 Company, and, with respect to any criminal action
or proceeding, that Indemnitee had reasonable cause to believe that his
conduct was unlawful or (b) otherwise adversely affect the rights of
Indemnitee to indemnification except as may be provided herein.
SECTION 9. Advancement of Expenses and Costs.
All reasonable expenses and costs incurred by Indemnitee who is party
to a proceeding or investigation (including counsel fees, retainers and advances
of disbursements required of Indemnitee) (collectively, the "Expense Advance")
shall be paid by the Company in advance of the final disposition of such action,
suit, proceeding or investigation at the request of Indemnitee within twenty
(20) days after the receipt by the Company of a statement or statements from
Indemnitee requesting such advance or advances from time to time. Such
statement or statements shall reasonably evidence the expenses and costs
incurred by him in connection therewith. The Company's obligation to provide an
Expense Advance is subject to the following conditions: (a) if the proceeding
arose in connection with Indemnitee's service as a director and/or executive
officer of, or in any other capacity on behalf of, the Company or any Related
Company, then the Indemnitee or his representative shall have executed and
delivered to the Company an undertaking, which need not be secured and shall be
accepted without reference to Indemnitee's financial ability to make repayment,
by or on behalf of Indemnitee to repay all Expense Advance if and to the extent
that it shall ultimately be determined by a final, unappealable decision
rendered by a court having jurisdiction over the parties and the question that
Indemnitee is not entitled to be indemnified for such Expense Advance under this
Agreement or otherwise; (b) Indemnitee shall give the Company such information
and
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cooperation as it may reasonably request and as shall be within Indemnitee's
power; and (c) Indemnitee shall furnish, upon request by the Company and if
required under applicable law, a written affirmation of Indemnitee's good faith
belief that any applicable standards of conduct have been met by Indemnitee.
Indemnitee's entitlement to such Expense Advance shall include those incurred in
connection with any proceeding by Indemnitee seeking an adjudication pursuant to
this Agreement. In the event that a claim for an Expense Advance is made
hereunder and is not paid in full within twenty (20) days after written notice
of such claim is delivered to the Company, Indemnitee may, but need not, at any
time thereafter bring suit against the Company to recover the unpaid amount of
the claim.
SECTION 10. Remedies of Indemnitee in Cases of Determination not to
Indemnify or to Advance Expenses.
In the event that a determination is made that Indemnitee is not
entitled to indemnification hereunder or if payment has not been timely made
following a determination of entitlement to indemnification pursuant to Section
7 or 8, or if expenses are not advanced pursuant to Section 9, Indemnitee shall
be entitled to a final adjudication in an appropriate court of the State of
Illinois or any other court of competent jurisdiction of his entitlement to such
indemnification or advance. The Company shall not oppose Indemnitee's right to
seek any such adjudication or any other claim. Such judicial proceeding shall
be made de novo and Indemnitee shall not be prejudiced by reason of a
determination (if so made) that he is not entitled to indemnification. If a
determination is made or deemed to have been made pursuant to the terms of
Section 7 or 8 that Indemnitee is entitled to indemnification, the Company shall
be bound by such determination and is precluded from asserting that such
determination has not been made or that the procedure by which such
determination was made is not valid, binding and enforceable. The Company
further agrees to stipulate in any such court that the Company is bound by all
the provisions of this Agreement and is precluded from making any assertion to
the contrary. If the court shall determine that Indemnitee is entitled to any
indemnification hereunder, the Company shall pay all reasonable Damages actually
incurred by Indemnitee in connection with such adjudication (including, but not
limited to, any appellate proceedings).
SECTION 11. Other Rights to Indemnification.
The indemnification and advancement of expenses (including counsel
fees) and costs provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may now or in the future be entitled under any
provision of the By-laws or the Charter, any vote of shareholders or
Disinterested Directors, any provision of law or otherwise.
SECTION 12. Counsel Fees and Other Expenses to Enforce Agreement.
In the event that Indemnitee is subject to or intervenes in any
proceeding in which the validity or enforceability of this Agreement is at issue
or seeks an adjudication or award in arbitration to enforce his rights under, or
to recover damages for breach of, this Agreement, Indemnitee, if he prevails in
whole or in part in such action, shall be entitled to recover from the Company,
and shall
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be indemnified by the Company against, any reasonable expenses for
counsel fees and disbursements actually and reasonably incurred by him.
Indemnitee shall be entitled to select his own counsel; provided, however, that
the Company may elect to hire a counsel to represent Indemnitee together with
other similarly situated individuals, but only if such joint representation does
not, in the reasonable discretion of Indemnitee, create any conflict of
interest.
SECTION 13. Duration of Agreement.
This Agreement shall continue until and terminate upon the later of
(a) 10 years after Indemnitee has ceased to occupy any of the positions or have
any of the relationships described in Sections 1, 3 or 4 or (b) the final
termination of all pending or threatened actions, suits, proceedings or
investigations with respect to Indemnitee. This Agreement shall be binding upon
the Company and its successors and assigns and shall inure to the benefit of
Indemnitee and his spouse, assigns, heirs, devisees, executors, administrators
or other legal representatives.
SECTION 14. Severability.
If any provision or provisions of this Agreement shall be held to be
invalid, illegal or unenforceable for any reason whatsoever (a) the validity,
legality and enforceability of the remaining provisions of this Agreement
(including without limitation, all portions of any paragraphs of this Agreement
containing any such provision held to be invalid, illegal or unenforceable, that
are not themselves invalid, illegal or unenforceable) shall not in any way be
affected or impaired thereby and (b) to the fullest extent possible, the
provisions of this Agreement (including, without limitation, all portions of any
paragraph of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that are not themselves invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable.
SECTION 15. Identical Counterparts.
This Agreement may be executed in one or more counterparts, each of
which shall for all purposes be deemed to be an original, but all of which
together shall constitute one and the same Agreement. Only one such counterpart
signed by the party against whom enforceability is sought needs to be produced
to evidence the existence of this Agreement.
SECTION 16. Headings; Section References.
The headings of the paragraphs of this Agreement are inserted for
convenience only and shall not be deemed to constitute part of this Agreement or
to affect the construction thereof. Unless otherwise specified herein, each
reference herein to a Section shall be deemed a reference to a Section of this
Agreement.
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SECTION 17. Definitions.
For purposes of this Agreement:
(a) "Disinterested Director" shall mean a director of the Company who
is not or was not a party to the action, suit, investigation or proceeding in
respect of which indemnification is being sought by Indemnitee.
(b) "Independent Counsel" shall mean a law firm or a member of a law
firm that neither is presently nor in the past five years has been retained to
represent (i) the Company or Indemnitee in any matter material to either such
party or (ii) any other party to the action, suit, investigation or proceeding
giving rise to a claim for indemnification hereunder. Notwithstanding the
foregoing, the term "Independent Counsel" shall not include any person who,
under the applicable standards of professional conduct then prevailing, would
have a conflict of interest in representing either the Company or Indemnitee in
an action to determine Indemnitee's right to indemnification under this
Agreement.
SECTION 18. Modification and Waiver.
No supplement, modification or amendment of this Agreement shall be
binding unless executed in writing by both of the parties hereto. No waiver of
any of the provisions of this Agreement shall be deemed or shall constitute a
waiver of any other provisions hereof (whether or not similar) nor shall such
waiver constitute a continuing waiver.
SECTION 19. Mutual Acknowledgment.
The Company and Indemnitee acknowledge that, in certain instances,
federal law or public policy may override applicable state law and prohibit the
Company from indemnifying Indemnitee under this Agreement or otherwise. For
example, the Company and Indemnitee acknowledge that the SEC has taken the
position that indemnification is not permissible for liabilities arising under
certain federal securities laws, and federal legislation prohibits
indemnification for certain ERISA violations. Furthermore, Indemnitee
understands and acknowledges that the Company has undertaken or may be required
in the future to undertake with the SEC to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee.
SECTION 20. Notice by Indemnitee.
Indemnitee agrees promptly to notify the Company in writing upon being
served with any summons, citation, subpoena, complaint, indictment, information
or other document relating to any matter which may be subject to indemnification
covered hereunder, either civil, criminal or investigative.
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SECTION 21. Notices.
All notices, requests, demands and other communications hereunder
shall be in writing and shall be deemed to have been duly given if (a) delivered
by hand and receipted for by the party to whom said notice or other
communication shall have been directed or (b) mailed by certified or registered
mail with postage prepaid on the third business day after the date on which it
is so mailed, to the following addresses:
(a) to Indemnitee:
Jeffrey Rosen
O'Melveny & Meyers
Citicorp Center
153 East 153rd Street, 54th Floor
New York, New York 10022
(b) to the Company:
Archibald Candy Corporation
1137 West Jackson Boulevard
Chicago, Illinois 60607
Attention: Secretary
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case may be.
SECTION 22. Other Agreements.
This Agreement restates and supersedes, but does not limit or negate,
any indemnification, rights or interests of Indemnitee under any prior
agreements between the Company and Indemnitee.
SECTION 23. Governing Law.
The parties agree that this Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of Illinois.
[signature page follows]
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IN WITNESS WHEREOF, the parties hereto have executed this
Indemnification Agreement as of the date first above written.
ARCHIBALD CANDY CORPORATION
By: /s/ Ted A. Shepherd
------------------------------------
Name: Ted A. Shepherd
----------------------------------
Title: President and Chief Operating
Officer
---------------------------------
INDEMNITEE:
By: /s/ Jeffrey Rosen
------------------------------------
Name: Jeffrey Rosen
----------------------------------
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INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT, dated as of July 2, 1997 (this
"Agreement"), is by and between Archibald Candy Corporation, an Illinois
corporation (the "Company"), and Robert A. Schmitz ("Indemnitee").
WITNESSETH
WHEREAS, highly competent persons are becoming more reluctant to serve
as directors, executive officers or in other capacities of corporations that
have publicly-held equity or debt unless they are provided with adequate
protection through insurance and indemnification against inordinate risks of
claims and actions against them arising out of their service to and activities
on behalf of the corporation; and
WHEREAS, the current difficulties or virtual impossibility of
obtaining adequate insurance and uncertainties relating to indemnification have
increased the difficulty of attracting and retaining such persons; and
WHEREAS, the Board of Directors of the Company has determined that the
inability to attract and retain such persons is detrimental to the best
interests of the Company's shareholders and that the Company should act to
assure such persons that there will be increased certainty of such protection in
the future; and
WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify such persons to the fullest extent
permitted by applicable law so that they will serve or continue to serve the
Company free from undue concern that they will not be so indemnified; and
WHEREAS, the shareholders of the Company have adopted the Amended and
Restated By-laws of the Company (as amended, the "By-laws") providing for the
indemnification of the directors, officers, agents and employees of the Company
to the fullest extent permitted by the Illinois Business Corporation Act (as
amended, the "Act"). The By-laws and the Act specifically provide that they are
not exclusive, and thereby contemplate that contracts may be entered into
between the Company and the members of its Board of Directors and its executive
officers with respect to indemnification of such directors and executive
officers; and
WHEREAS, this Agreement is being entered into as part of Indemnitee's
total compensation for serving as a director and/or an executive officer of the
Company, as the case may be; and
<PAGE>
NOW THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
SECTION 1. Service by Indemnitee.
Indemnitee agrees to serve as director of the Company and/or executive
officer of the Company if so designated by the Company and appointed by the
Board of Directors, and agrees to the indemnification provisions provided for
herein. Indemnitee may at any time and for any reason resign from such position
(subject to any other contractual obligation or other obligation imposed by
operation of law), in which event the Company shall have no obligation under
this Agreement to continue Indemnitee in any such position.
SECTION 2. Indemnification.
The Company shall indemnify Indemnitee to the fullest extent permitted
by applicable law in effect on the date hereof, notwithstanding that such
indemnification is not specifically authorized by this Agreement, the Amended
and Restated Articles of Incorporation of the Company (as amended, the
"Charter"), the Bylaws, the Act or otherwise. In the event of any change, after
the date of this Agreement, in any applicable law, statute or rule regarding the
right of an Illinois corporation to indemnify a member of its board of directors
or an officer, such changes, to the extent that they would expand Indemnitee's
rights hereunder, shall be within the scope of Indemnitee's rights and the
Company's obligations hereunder, and, to the extent that they would narrow
Indemnitee's rights hereunder, shall be excluded from this Agreement; provided,
however, that any change that is required by applicable laws, statutes or rules
to be applied to this Agreement shall be so applied regardless of whether the
effect of such change is to narrow Indemnitee's rights hereunder. Without
diminishing the scope of the indemnification provided by this Section 2, the
rights of indemnification of Indemnitee provided hereunder shall include
indemnification in respect of (a) the proposed offering by the Company of
$100,000,000 of its Senior Secured Notes due 2004 (the "Notes") pursuant to an
exemption from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"), (b) the Company's subsequent filing with the
Securities and Exchange Commission (the "SEC") of a registration statement
relating to an exchange offer for the Notes under the Securities Act and (c) any
other public offerings of securities by the Company, and shall not be limited to
those rights set forth hereinafter, except to the extent expressly prohibited by
applicable law.
SECTION 3. Action or Proceeding Other Than an Action by or in the
Right of the Company.
Indemnitee shall be entitled to the indemnification rights provided in
this Section 3 if he is or was 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 in nature, other than an action by or
in the right of the Company, by reason of the fact that he is or was a director,
officer, employee, agent or fiduciary of the Company or is or was serving at the
request of the Company as a director, officer, employee, agent, partner, trustee
or fiduciary of any other entity (a "Related Company") or by reason of anything
done or not done by him in any such capacity. Pursuant to this
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Section 3, Indemnitee shall be indemnified against reasonable costs and
expenses (including, but not limited to, counsel fees, costs, judgments,
penalties, fines, ERISA excise taxes, and amounts paid in settlement)
(collectively, "Damages") actually and reasonably incurred by him in
connection with such action, suit or proceeding (including, but not limited
to, the investigation, defense, settlement or appeal thereof), if, in the
case of conduct in his official capacity with the corporation, he acted in
good faith and in the Company's best interests, and in all other cases, he
acted in good faith and was at least not opposed to the Company's best
interests, and with respect to any criminal action or proceeding had no
reasonable cause to believe his conduct was unlawful, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which Indemnitee shall have been finally adjudged to be liable for (a)
negligence or misconduct in the performance of his duty to the Company unless
and only to the extent that the court in which such action, suit or
proceeding was brought, or any other court of competent jurisdiction, shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, Indemnitee is fairly and
reasonably entitled to indemnity for such Damages as such court shall deem
proper or (b) a violation of Section 16(b) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), or any of the rules or regulations
promulgated thereunder. Notwithstanding the foregoing, the Company shall be
required to indemnify an officer or director in connection with an action,
suit or proceeding initiated by such person only if such action, suit or
proceeding was authorized or contemplated by the Board or a committee
thereof. No indemnity pursuant to this Agreement shall be provided by the
Company for Damages that have been paid directly to Indemnitee by an
insurance carrier under a policy of directors' and officers' liability
insurance maintained by the Company.
SECTION 4. Actions by or in the Right of the Company.
Indemnitee shall be entitled to the indemnification rights provided in
this Section 4 if he is or was made 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 brought by or in the right of
the Company to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee, agent or fiduciary of the Company or is or
was serving at the request of the Company as a director, officer, employee,
agent, partner, trustee or fiduciary of any Related Company by reason of
anything done or not done by him in any such capacity. Pursuant to this Section
4, Indemnitee shall be indemnified against Damages actually and reasonably
incurred by him in connection with such action or suit (including, but not
limited to, the investigation, defense, settlement or appeal thereof) if, in the
case of conduct in his official capacity with the corporation, he acted in good
faith and in the Company's best interests, and in all other cases, he acted in
good faith and was at least not opposed to the Company's best interests, except
that no indemnification shall be made in respect of any claim, issue or matter
as to which Indemnitee shall have been finally adjudged to be liable for (a)
negligence or misconduct in the performance of his duty to the Company unless
and only to the extent that the court in which such action, suit or proceeding
was brought, or any other court of competent jurisdiction, shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, Indemnitee is fairly and reasonably entitled to
indemnity for such Damages as such court shall deem proper or (b) a violation of
Section 16(b) of the Exchange Act or any of the rules or regulations promulgated
thereunder. Notwithstanding the foregoing, the Company shall be required to
indemnify an officer or director in
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connection with an action, suit or proceeding initiated by such person only
if such action, suit or proceeding was authorized by the Board or a committee
thereof. No indemnity pursuant to this Agreement shall be provided by the
Company for Damages that have been paid directly to Indemnitee by an
insurance carrier under a policy of directors' and officers' liability
insurance maintained by the Company.
SECTION 5. Indemnification for Costs, Charges and Expenses of
Successful Party.
Notwithstanding the other provisions of this Agreement, to the extent
that Indemnitee has served as a witness on behalf of the Company or has been
successful, on the merits or otherwise, including, without limitation, the
dismissal of an action without prejudice, in defense of any action, suit or
proceeding referred to in Section 3 or 4, or in defense of any claim, issue or
matter therein, Indemnitee shall be indemnified against all reasonable costs,
charges, and expenses (including counsel fees) actually and reasonably incurred
by him or on his behalf in connection therewith.
SECTION 6. Partial Indemnification.
If Indemnitee is only partially successful in the defense,
investigation, settlement or appeal of any action, suit, investigation or
proceeding described in Section 3 or Section 4, and as a result is not entitled
under Section 5 to indemnification by the Company for the total amount of
reasonable Damages actually and reasonably incurred by him, the Company shall
nevertheless indemnify Indemnitee, as a matter of right pursuant to Section 5,
to the extent Indemnitee has been partially successful.
SECTION 7. Determination of Entitlement to Indemnification.
Upon written request by Indemnitee for indemnification pursuant to
Section 3 or Section 4 , the entitlement of Indemnitee to indemnification
pursuant to the terms of this Agreement shall be determined by the following
person or persons who shall be empowered to make such determination: (a) the
Board of Directors of the Company by a majority vote of a quorum consisting
of Disinterested Directors (as hereinafter defined); or (b) if such a quorum
is not obtainable or, even if obtainable, if the Board of Directors by the
majority vote of Disinterested Directors so directs, by Independent Counsel
(as hereinafter defined) in a written opinion to the Board of Directors, a
copy of which shall be delivered to Indemnitee; or (c) by the shareholders,
but shares owned by or voted under the control of directors, including the
Indemnitee, who are at the time parties to the proceeding may not be voted on
the determination. Such Independent Counsel shall be selected by the Board of
Directors and approved by Indemnitee. Upon failure of the Board of Directors
to so select such Independent Counsel or upon failure of Indemnitee to so
approve, such Independent Counsel shall be selected by an Illinois state
court judge of the Circuit Court of Cook County, Chancery Division, or such
other person as such judge shall designate to make such selection. Such
determination of entitlement to indemnification shall be made no later than
sixty (60) days after receipt by the Company of a written request for
indemnification. Such request shall include documentation or information
which is necessary for such determination and which is reasonably available
to Indemnitee. Any Damages incurred by Indemnitee in connection with his
request for indemnification
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hereunder shall be borne by the Company. The Company hereby indemnifies and
agrees to hold Indemnitee harmless therefrom irrespective of the outcome of
the determination of Indemnitee's entitlement to indemnification. If the
person making such determination shall determine that Indemnitee is entitled
to indemnification as to part (but not all) of the application for
indemnification, such person shall reasonably prorate such partial
indemnification among such claims, issues or matters.
SECTION 8. Presumptions and Effect of Certain Proceedings.
The Secretary of the Company shall, promptly upon receipt of
Indemnitee's request for indemnification, advise in writing the Board of
Directors or such other person or persons empowered to make the determination
as provided in Section 7 that Indemnitee has made such request for
indemnification. Indemnitee shall be presumed to be entitled to
indemnification hereunder and the Company shall have the burden of proof in
the making of any determination contrary to such presumption. If the person
or persons so empowered to make such determination shall have failed to make
the requested indemnification within 60 days after receipt by the Company of
such request, the requisite determination of entitlement to indemnification
shall be deemed to have been made and Indemnitee shall be absolutely entitled
to such indemnification, absent actual and material fraud in the request for
indemnification. The termination of any action, suit, investigation or
proceeding described in Section 3 or Section 4 by judgment, order, settlement
or conviction, or upon a plea of nolo contendere or its equivalent, shall
not, of itself (a) create a presumption that Indemnitee 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 Company, and, with respect to any criminal action
or proceeding, that Indemnitee had reasonable cause to believe that his
conduct was unlawful or (b) otherwise adversely affect the rights of
Indemnitee to indemnification except as may be provided herein.
SECTION 9. Advancement of Expenses and Costs.
All reasonable expenses and costs incurred by Indemnitee who is party
to a proceeding or investigation (including counsel fees, retainers and advances
of disbursements required of Indemnitee) (collectively, the "Expense Advance")
shall be paid by the Company in advance of the final disposition of such action,
suit, proceeding or investigation at the request of Indemnitee within twenty
(20) days after the receipt by the Company of a statement or statements from
Indemnitee requesting such advance or advances from time to time. Such
statement or statements shall reasonably evidence the expenses and costs
incurred by him in connection therewith. The Company's obligation to provide an
Expense Advance is subject to the following conditions: (a) if the proceeding
arose in connection with Indemnitee's service as a director and/or executive
officer of, or in any other capacity on behalf of, the Company or any Related
Company, then the Indemnitee or his representative shall have executed and
delivered to the Company an undertaking, which need not be secured and shall be
accepted without reference to Indemnitee's financial ability to make repayment,
by or on behalf of Indemnitee to repay all Expense Advance if and to the extent
that it shall ultimately be determined by a final, unappealable decision
rendered by a court having jurisdiction over the parties and the question that
Indemnitee is not entitled to be indemnified for such Expense Advance under this
Agreement or otherwise; (b) Indemnitee shall give the Company such information
and
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cooperation as it may reasonably request and as shall be within Indemnitee's
power; and (c) Indemnitee shall furnish, upon request by the Company and if
required under applicable law, a written affirmation of Indemnitee's good faith
belief that any applicable standards of conduct have been met by Indemnitee.
Indemnitee's entitlement to such Expense Advance shall include those incurred in
connection with any proceeding by Indemnitee seeking an adjudication pursuant to
this Agreement. In the event that a claim for an Expense Advance is made
hereunder and is not paid in full within twenty (20) days after written notice
of such claim is delivered to the Company, Indemnitee may, but need not, at any
time thereafter bring suit against the Company to recover the unpaid amount of
the claim.
SECTION 10. Remedies of Indemnitee in Cases of Determination not to
Indemnify or to Advance Expenses.
In the event that a determination is made that Indemnitee is not
entitled to indemnification hereunder or if payment has not been timely made
following a determination of entitlement to indemnification pursuant to Section
7 or 8, or if expenses are not advanced pursuant to Section 9, Indemnitee shall
be entitled to a final adjudication in an appropriate court of the State of
Illinois or any other court of competent jurisdiction of his entitlement to such
indemnification or advance. The Company shall not oppose Indemnitee's right to
seek any such adjudication or any other claim. Such judicial proceeding shall
be made de novo and Indemnitee shall not be prejudiced by reason of a
determination (if so made) that he is not entitled to indemnification. If a
determination is made or deemed to have been made pursuant to the terms of
Section 7 or 8 that Indemnitee is entitled to indemnification, the Company shall
be bound by such determination and is precluded from asserting that such
determination has not been made or that the procedure by which such
determination was made is not valid, binding and enforceable. The Company
further agrees to stipulate in any such court that the Company is bound by all
the provisions of this Agreement and is precluded from making any assertion to
the contrary. If the court shall determine that Indemnitee is entitled to any
indemnification hereunder, the Company shall pay all reasonable Damages actually
incurred by Indemnitee in connection with such adjudication (including, but not
limited to, any appellate proceedings).
SECTION 11. Other Rights to Indemnification.
The indemnification and advancement of expenses (including counsel
fees) and costs provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may now or in the future be entitled under any
provision of the By-laws or the Charter, any vote of shareholders or
Disinterested Directors, any provision of law or otherwise.
SECTION 12. Counsel Fees and Other Expenses to Enforce Agreement.
In the event that Indemnitee is subject to or intervenes in any
proceeding in which the validity or enforceability of this Agreement is at issue
or seeks an adjudication or award in arbitration to enforce his rights under, or
to recover damages for breach of, this Agreement, Indemnitee, if he prevails in
whole or in part in such action, shall be entitled to recover from the Company,
and shall
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be indemnified by the Company against, any reasonable expenses for counsel
fees and disbursements actually and reasonably incurred by him. Indemnitee
shall be entitled to select his own counsel; provided, however, that the
Company may elect to hire a counsel to represent Indemnitee together with
other similarly situated individuals, but only if such joint representation
does not, in the reasonable discretion of Indemnitee, create any conflict of
interest.
SECTION 13. Duration of Agreement.
This Agreement shall continue until and terminate upon the later of
(a) 10 years after Indemnitee has ceased to occupy any of the positions or have
any of the relationships described in Sections 1, 3 or 4 or (b) the final
termination of all pending or threatened actions, suits, proceedings or
investigations with respect to Indemnitee. This Agreement shall be binding upon
the Company and its successors and assigns and shall inure to the benefit of
Indemnitee and his spouse, assigns, heirs, devisees, executors, administrators
or other legal representatives.
SECTION 14. Severability.
If any provision or provisions of this Agreement shall be held to be
invalid, illegal or unenforceable for any reason whatsoever (a) the validity,
legality and enforceability of the remaining provisions of this Agreement
(including without limitation, all portions of any paragraphs of this Agreement
containing any such provision held to be invalid, illegal or unenforceable, that
are not themselves invalid, illegal or unenforceable) shall not in any way be
affected or impaired thereby and (b) to the fullest extent possible, the
provisions of this Agreement (including, without limitation, all portions of any
paragraph of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that are not themselves invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable.
SECTION 15. Identical Counterparts.
This Agreement may be executed in one or more counterparts, each of
which shall for all purposes be deemed to be an original, but all of which
together shall constitute one and the same Agreement. Only one such counterpart
signed by the party against whom enforceability is sought needs to be produced
to evidence the existence of this Agreement.
SECTION 16. Headings; Section References.
The headings of the paragraphs of this Agreement are inserted for
convenience only and shall not be deemed to constitute part of this Agreement or
to affect the construction thereof. Unless otherwise specified herein, each
reference herein to a Section shall be deemed a reference to a Section of this
Agreement.
7
<PAGE>
SECTION 17. Definitions.
For purposes of this Agreement:
(a) "Disinterested Director" shall mean a director of the Company who
is not or was not a party to the action, suit, investigation or proceeding in
respect of which indemnification is being sought by Indemnitee.
(b) "Independent Counsel" shall mean a law firm or a member of a law
firm that neither is presently nor in the past five years has been retained to
represent (i) the Company or Indemnitee in any matter material to either such
party or (ii) any other party to the action, suit, investigation or proceeding
giving rise to a claim for indemnification hereunder. Notwithstanding the
foregoing, the term "Independent Counsel" shall not include any person who,
under the applicable standards of professional conduct then prevailing, would
have a conflict of interest in representing either the Company or Indemnitee in
an action to determine Indemnitee's right to indemnification under this
Agreement.
SECTION 18. Modification and Waiver.
No supplement, modification or amendment of this Agreement shall be
binding unless executed in writing by both of the parties hereto. No waiver of
any of the provisions of this Agreement shall be deemed or shall constitute a
waiver of any other provisions hereof (whether or not similar) nor shall such
waiver constitute a continuing waiver.
SECTION 19. Mutual Acknowledgment.
The Company and Indemnitee acknowledge that, in certain instances,
federal law or public policy may override applicable state law and prohibit the
Company from indemnifying Indemnitee under this Agreement or otherwise. For
example, the Company and Indemnitee acknowledge that the SEC has taken the
position that indemnification is not permissible for liabilities arising under
certain federal securities laws, and federal legislation prohibits
indemnification for certain ERISA violations. Furthermore, Indemnitee
understands and acknowledges that the Company has undertaken or may be required
in the future to undertake with the SEC to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee.
SECTION 20. Notice by Indemnitee.
Indemnitee agrees promptly to notify the Company in writing upon being
served with any summons, citation, subpoena, complaint, indictment, information
or other document relating to any matter which may be subject to indemnification
covered hereunder, either civil, criminal or investigative.
8
<PAGE>
SECTION 21. Notices.
All notices, requests, demands and other communications hereunder
shall be in writing and shall be deemed to have been duly given if (a) delivered
by hand and receipted for by the party to whom said notice or other
communication shall have been directed or (b) mailed by certified or registered
mail with postage prepaid on the third business day after the date on which it
is so mailed, to the following addresses:
(a) to Indemnitee:
Robert A. Schmitz
TCW Capital
200 Park Avenue, 22nd Floor
New York, New York, 10166-0228
(b) to the Company:
Archibald Candy Corporation
1137 West Jackson Boulevard
Chicago, Illinois 60607
Attention: Secretary
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case may be.
SECTION 22. Other Agreements.
This Agreement restates and supersedes, but does not limit or negate,
any indemnification, rights or interests of Indemnitee under any prior
agreements between the Company and Indemnitee.
SECTION 23. Governing Law.
The parties agree that this Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of Illinois.
[signature page follows]
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Indemnification Agreement as of the date first above written.
ARCHIBALD CANDY CORPORATION
By: /s/ Ted A. Shepherd
------------------------------------
Name: Ted A. Shepherd
----------------------------------
Title: President and Chief Operating
Officer
---------------------------------
INDEMNITEE:
By: /s/ Robert A. Schmitz
------------------------------------
Name: Robert A. Schmitz
----------------------------------
10
<PAGE>
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT, dated as of July 2, 1997 (this
"Agreement"), is by and between Archibald Candy Corporation, an Illinois
corporation (the "Company"), and Thomas H. Quinn ("Indemnitee").
WITNESSETH
WHEREAS, highly competent persons are becoming more reluctant to serve
as directors, executive officers or in other capacities of corporations that
have publicly-held equity or debt unless they are provided with adequate
protection through insurance and indemnification against inordinate risks of
claims and actions against them arising out of their service to and activities
on behalf of the corporation; and
WHEREAS, the current difficulties or virtual impossibility of
obtaining adequate insurance and uncertainties relating to indemnification have
increased the difficulty of attracting and retaining such persons; and
WHEREAS, the Board of Directors of the Company has determined that the
inability to attract and retain such persons is detrimental to the best
interests of the Company's shareholders and that the Company should act to
assure such persons that there will be increased certainty of such protection in
the future; and
WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify such persons to the fullest extent
permitted by applicable law so that they will serve or continue to serve the
Company free from undue concern that they will not be so indemnified; and
WHEREAS, the shareholders of the Company have adopted the Amended and
Restated By-laws of the Company (as amended, the "By-laws") providing for the
indemnification of the directors, officers, agents and employees of the Company
to the fullest extent permitted by the Illinois Business Corporation Act (as
amended, the "Act"). The By-laws and the Act specifically provide that they are
not exclusive, and thereby contemplate that contracts may be entered into
between the Company and the members of its Board of Directors and its executive
officers with respect to indemnification of such directors and executive
officers; and
WHEREAS, this Agreement is being entered into as part of Indemnitee's
total compensation for serving as a director and/or an executive officer of the
Company, as the case may be; and
<PAGE>
NOW THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
SECTION 1. Service by Indemnitee.
Indemnitee agrees to serve as director of the Company and/or executive
officer of the Company if so designated by the Company and appointed by the
Board of Directors, and agrees to the indemnification provisions provided for
herein. Indemnitee may at any time and for any reason resign from such position
(subject to any other contractual obligation or other obligation imposed by
operation of law), in which event the Company shall have no obligation under
this Agreement to continue Indemnitee in any such position.
SECTION 2. Indemnification.
The Company shall indemnify Indemnitee to the fullest extent permitted
by applicable law in effect on the date hereof, notwithstanding that such
indemnification is not specifically authorized by this Agreement, the Amended
and Restated Articles of Incorporation of the Company (as amended, the
"Charter"), the Bylaws, the Act or otherwise. In the event of any change, after
the date of this Agreement, in any applicable law, statute or rule regarding the
right of an Illinois corporation to indemnify a member of its board of directors
or an officer, such changes, to the extent that they would expand Indemnitee's
rights hereunder, shall be within the scope of Indemnitee's rights and the
Company's obligations hereunder, and, to the extent that they would narrow
Indemnitee's rights hereunder, shall be excluded from this Agreement; provided,
however, that any change that is required by applicable laws, statutes or rules
to be applied to this Agreement shall be so applied regardless of whether the
effect of such change is to narrow Indemnitee's rights hereunder. Without
diminishing the scope of the indemnification provided by this Section 2, the
rights of indemnification of Indemnitee provided hereunder shall include
indemnification in respect of (a) the proposed offering by the Company of
$100,000,000 of its Senior Secured Notes due 2004 (the "Notes") pursuant to an
exemption from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"), (b) the Company's subsequent filing with the
Securities and Exchange Commission (the "SEC") of a registration statement
relating to an exchange offer for the Notes under the Securities Act and (c) any
other public offerings of securities by the Company, and shall not be limited to
those rights set forth hereinafter, except to the extent expressly prohibited by
applicable law.
SECTION 3. Action or Proceeding Other Than an Action by or in the
Right of the Company.
Indemnitee shall be entitled to the indemnification rights provided in
this Section 3 if he is or was 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 in nature, other than an action by or
in the right of the Company, by reason of the fact that he is or was a director,
officer, employee, agent or fiduciary of the Company or is or was serving at the
request of the Company as a director, officer, employee, agent, partner, trustee
or fiduciary of any other entity (a "Related Company") or by reason of anything
done or not done by him in any such capacity. Pursuant to this
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<PAGE>
Section 3, Indemnitee shall be indemnified against reasonable costs and
expenses (including, but not limited to, counsel fees, costs, judgments,
penalties, fines, ERISA excise taxes, and amounts paid in settlement)
(collectively, "Damages") actually and reasonably incurred by him in
connection with such action, suit or proceeding (including, but not limited
to, the investigation, defense, settlement or appeal thereof), if, in the
case of conduct in his official capacity with the corporation, he acted in
good faith and in the Company's best interests, and in all other cases, he
acted in good faith and was at least not opposed to the Company's best
interests, and with respect to any criminal action or proceeding had no
reasonable cause to believe his conduct was unlawful, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which Indemnitee shall have been finally adjudged to be liable for (a)
negligence or misconduct in the performance of his duty to the Company unless
and only to the extent that the court in which such action, suit or
proceeding was brought, or any other court of competent jurisdiction, shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, Indemnitee is fairly and
reasonably entitled to indemnity for such Damages as such court shall deem
proper or (b) a violation of Section 16(b) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), or any of the rules or regulations
promulgated thereunder. Notwithstanding the foregoing, the Company shall be
required to indemnify an officer or director in connection with an action,
suit or proceeding initiated by such person only if such action, suit or
proceeding was authorized or contemplated by the Board or a committee
thereof. No indemnity pursuant to this Agreement shall be provided by the
Company for Damages that have been paid directly to Indemnitee by an
insurance carrier under a policy of directors' and officers' liability
insurance maintained by the Company.
SECTION 4. Actions by or in the Right of the Company.
Indemnitee shall be entitled to the indemnification rights provided in
this Section 4 if he is or was made 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 brought by or in the right of
the Company to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee, agent or fiduciary of the Company or is or
was serving at the request of the Company as a director, officer, employee,
agent, partner, trustee or fiduciary of any Related Company by reason of
anything done or not done by him in any such capacity. Pursuant to this Section
4, Indemnitee shall be indemnified against Damages actually and reasonably
incurred by him in connection with such action or suit (including, but not
limited to, the investigation, defense, settlement or appeal thereof) if, in the
case of conduct in his official capacity with the corporation, he acted in good
faith and in the Company's best interests, and in all other cases, he acted in
good faith and was at least not opposed to the Company's best interests, except
that no indemnification shall be made in respect of any claim, issue or matter
as to which Indemnitee shall have been finally adjudged to be liable for (a)
negligence or misconduct in the performance of his duty to the Company unless
and only to the extent that the court in which such action, suit or proceeding
was brought, or any other court of competent jurisdiction, shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, Indemnitee is fairly and reasonably entitled to
indemnity for such Damages as such court shall deem proper or (b) a violation of
Section 16(b) of the Exchange Act or any of the rules or regulations promulgated
thereunder. Notwithstanding the foregoing, the Company shall be required to
indemnify an officer or director in
3
<PAGE>
connection with an action, suit or proceeding initiated by such person only
if such action, suit or proceeding was authorized by the Board or a committee
thereof. No indemnity pursuant to this Agreement shall be provided by the
Company for Damages that have been paid directly to Indemnitee by an
insurance carrier under a policy of directors' and officers' liability
insurance maintained by the Company.
SECTION 5. Indemnification for Costs, Charges and Expenses of
Successful Party.
Notwithstanding the other provisions of this Agreement, to the extent
that Indemnitee has served as a witness on behalf of the Company or has been
successful, on the merits or otherwise, including, without limitation, the
dismissal of an action without prejudice, in defense of any action, suit or
proceeding referred to in Section 3 or 4, or in defense of any claim, issue or
matter therein, Indemnitee shall be indemnified against all reasonable costs,
charges, and expenses (including counsel fees) actually and reasonably incurred
by him or on his behalf in connection therewith.
SECTION 6. Partial Indemnification.
If Indemnitee is only partially successful in the defense,
investigation, settlement or appeal of any action, suit, investigation or
proceeding described in Section 3 or Section 4, and as a result is not entitled
under Section 5 to indemnification by the Company for the total amount of
reasonable Damages actually and reasonably incurred by him, the Company shall
nevertheless indemnify Indemnitee, as a matter of right pursuant to Section 5,
to the extent Indemnitee has been partially successful.
SECTION 7. Determination of Entitlement to Indemnification.
Upon written request by Indemnitee for indemnification pursuant to
Section 3 or Section 4 , the entitlement of Indemnitee to indemnification
pursuant to the terms of this Agreement shall be determined by the following
person or persons who shall be empowered to make such determination: (a) the
Board of Directors of the Company by a majority vote of a quorum consisting of
Disinterested Directors (as hereinafter defined); or (b) if such a quorum is not
obtainable or, even if obtainable, if the Board of Directors by the majority
vote of Disinterested Directors so directs, by Independent Counsel (as
hereinafter defined) in a written opinion to the Board of Directors, a copy of
which shall be delivered to Indemnitee; or (c) by the shareholders, but shares
owned by or voted under the control of directors, including the Indemnitee, who
are at the time parties to the proceeding may not be voted on the determination.
Such Independent Counsel shall be selected by the Board of Directors and
approved by Indemnitee. Upon failure of the Board of Directors to so select
such Independent Counsel or upon failure of Indemnitee to so approve, such
Independent Counsel shall be selected by an Illinois state court judge of the
Circuit Court of Cook County, Chancery Division, or such other person as such
judge shall designate to make such selection. Such determination of entitlement
to indemnification shall be made no later than sixty (60) days after receipt by
the Company of a written request for indemnification. Such request shall
include documentation or information which is necessary for such determination
and which is reasonably available to Indemnitee. Any Damages incurred by
Indemnitee in connection with his request for indemnification
4
<PAGE>
hereunder shall be borne by the Company. The Company hereby indemnifies and
agrees to hold Indemnitee harmless therefrom irrespective of the outcome of
the determination of Indemnitee's entitlement to indemnification. If the
person making such determination shall determine that Indemnitee is entitled
to indemnification as to part (but not all) of the application for
indemnification, such person shall reasonably prorate such partial
indemnification among such claims, issues or matters.
SECTION 8. Presumptions and Effect of Certain Proceedings.
The Secretary of the Company shall, promptly upon receipt of
Indemnitee's request for indemnification, advise in writing the Board of
Directors or such other person or persons empowered to make the determination as
provided in Section 7 that Indemnitee has made such request for indemnification.
Indemnitee shall be presumed to be entitled to indemnification hereunder and the
Company shall have the burden of proof in the making of any determination
contrary to such presumption. If the person or persons so empowered to make
such determination shall have failed to make the requested indemnification
within 60 days after receipt by the Company of such request, the requisite
determination of entitlement to indemnification shall be deemed to have been
made and Indemnitee shall be absolutely entitled to such indemnification, absent
actual and material fraud in the request for indemnification. The termination
of any action, suit, investigation or proceeding described in Section 3 or
Section 4 by judgment, order, settlement or conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself (a) create a presumption that
Indemnitee 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 Company, and, with
respect to any criminal action or proceeding, that Indemnitee had reasonable
cause to believe that his conduct was unlawful or (b) otherwise adversely affect
the rights of Indemnitee to indemnification except as may be provided herein.
SECTION 9. Advancement of Expenses and Costs.
All reasonable expenses and costs incurred by Indemnitee who is party
to a proceeding or investigation (including counsel fees, retainers and advances
of disbursements required of Indemnitee) (collectively, the "Expense Advance")
shall be paid by the Company in advance of the final disposition of such action,
suit, proceeding or investigation at the request of Indemnitee within twenty
(20) days after the receipt by the Company of a statement or statements from
Indemnitee requesting such advance or advances from time to time. Such
statement or statements shall reasonably evidence the expenses and costs
incurred by him in connection therewith. The Company's obligation to provide an
Expense Advance is subject to the following conditions: (a) if the proceeding
arose in connection with Indemnitee's service as a director and/or executive
officer of, or in any other capacity on behalf of, the Company or any Related
Company, then the Indemnitee or his representative shall have executed and
delivered to the Company an undertaking, which need not be secured and shall be
accepted without reference to Indemnitee's financial ability to make repayment,
by or on behalf of Indemnitee to repay all Expense Advance if and to the extent
that it shall ultimately be determined by a final, unappealable decision
rendered by a court having jurisdiction over the parties and the question that
Indemnitee is not entitled to be indemnified for such Expense Advance under this
Agreement or otherwise; (b) Indemnitee shall give the Company such information
and
5
<PAGE>
cooperation as it may reasonably request and as shall be within Indemnitee's
power; and (c) Indemnitee shall furnish, upon request by the Company and if
required under applicable law, a written affirmation of Indemnitee's good faith
belief that any applicable standards of conduct have been met by Indemnitee.
Indemnitee's entitlement to such Expense Advance shall include those incurred in
connection with any proceeding by Indemnitee seeking an adjudication pursuant to
this Agreement. In the event that a claim for an Expense Advance is made
hereunder and is not paid in full within twenty (20) days after written notice
of such claim is delivered to the Company, Indemnitee may, but need not, at any
time thereafter bring suit against the Company to recover the unpaid amount of
the claim.
SECTION 10. Remedies of Indemnitee in Cases of Determination not to
Indemnify or to Advance Expenses.
In the event that a determination is made that Indemnitee is not
entitled to indemnification hereunder or if payment has not been timely made
following a determination of entitlement to indemnification pursuant to Section
7 or 8, or if expenses are not advanced pursuant to Section 9, Indemnitee shall
be entitled to a final adjudication in an appropriate court of the State of
Illinois or any other court of competent jurisdiction of his entitlement to such
indemnification or advance. The Company shall not oppose Indemnitee's right to
seek any such adjudication or any other claim. Such judicial proceeding shall
be made de novo and Indemnitee shall not be prejudiced by reason of a
determination (if so made) that he is not entitled to indemnification. If a
determination is made or deemed to have been made pursuant to the terms of
Section 7 or 8 that Indemnitee is entitled to indemnification, the Company shall
be bound by such determination and is precluded from asserting that such
determination has not been made or that the procedure by which such
determination was made is not valid, binding and enforceable. The Company
further agrees to stipulate in any such court that the Company is bound by all
the provisions of this Agreement and is precluded from making any assertion to
the contrary. If the court shall determine that Indemnitee is entitled to any
indemnification hereunder, the Company shall pay all reasonable Damages actually
incurred by Indemnitee in connection with such adjudication (including, but not
limited to, any appellate proceedings).
SECTION 11. Other Rights to Indemnification.
The indemnification and advancement of expenses (including counsel
fees) and costs provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may now or in the future be entitled under any
provision of the By-laws or the Charter, any vote of shareholders or
Disinterested Directors, any provision of law or otherwise.
SECTION 12. Counsel Fees and Other Expenses to Enforce Agreement.
In the event that Indemnitee is subject to or intervenes in any
proceeding in which the validity or enforceability of this Agreement is at issue
or seeks an adjudication or award in arbitration to enforce his rights under, or
to recover damages for breach of, this Agreement, Indemnitee, if he prevails in
whole or in part in such action, shall be entitled to recover from the Company,
and shall
6
<PAGE>
be indemnified by the Company against, any reasonable expenses for counsel
fees and disbursements actually and reasonably incurred by him. Indemnitee
shall be entitled to select his own counsel; provided, however, that the
Company may elect to hire a counsel to represent Indemnitee together with
other similarly situated individuals, but only if such joint representation
does not, in the reasonable discretion of Indemnitee, create any conflict of
interest.
SECTION 13. Duration of Agreement.
This Agreement shall continue until and terminate upon the later of
(a) 10 years after Indemnitee has ceased to occupy any of the positions or have
any of the relationships described in Sections 1, 3 or 4 or (b) the final
termination of all pending or threatened actions, suits, proceedings or
investigations with respect to Indemnitee. This Agreement shall be binding upon
the Company and its successors and assigns and shall inure to the benefit of
Indemnitee and his spouse, assigns, heirs, devisees, executors, administrators
or other legal representatives.
SECTION 14. Severability.
If any provision or provisions of this Agreement shall be held to be
invalid, illegal or unenforceable for any reason whatsoever (a) the validity,
legality and enforceability of the remaining provisions of this Agreement
(including without limitation, all portions of any paragraphs of this Agreement
containing any such provision held to be invalid, illegal or unenforceable, that
are not themselves invalid, illegal or unenforceable) shall not in any way be
affected or impaired thereby and (b) to the fullest extent possible, the
provisions of this Agreement (including, without limitation, all portions of any
paragraph of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that are not themselves invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable.
SECTION 15. Identical Counterparts.
This Agreement may be executed in one or more counterparts, each of
which shall for all purposes be deemed to be an original, but all of which
together shall constitute one and the same Agreement. Only one such counterpart
signed by the party against whom enforceability is sought needs to be produced
to evidence the existence of this Agreement.
SECTION 16. Headings; Section References.
The headings of the paragraphs of this Agreement are inserted for
convenience only and shall not be deemed to constitute part of this Agreement or
to affect the construction thereof. Unless otherwise specified herein, each
reference herein to a Section shall be deemed a reference to a Section of this
Agreement.
7
<PAGE>
SECTION 17. Definitions.
For purposes of this Agreement:
(a) "Disinterested Director" shall mean a director of the Company who
is not or was not a party to the action, suit, investigation or proceeding in
respect of which indemnification is being sought by Indemnitee.
(b) "Independent Counsel" shall mean a law firm or a member of a law
firm that neither is presently nor in the past five years has been retained to
represent (i) the Company or Indemnitee in any matter material to either such
party or (ii) any other party to the action, suit, investigation or proceeding
giving rise to a claim for indemnification hereunder. Notwithstanding the
foregoing, the term "Independent Counsel" shall not include any person who,
under the applicable standards of professional conduct then prevailing, would
have a conflict of interest in representing either the Company or Indemnitee in
an action to determine Indemnitee's right to indemnification under this
Agreement.
SECTION 18. Modification and Waiver.
No supplement, modification or amendment of this Agreement shall be
binding unless executed in writing by both of the parties hereto. No waiver of
any of the provisions of this Agreement shall be deemed or shall constitute a
waiver of any other provisions hereof (whether or not similar) nor shall such
waiver constitute a continuing waiver.
SECTION 19. Mutual Acknowledgment.
The Company and Indemnitee acknowledge that, in certain instances,
federal law or public policy may override applicable state law and prohibit the
Company from indemnifying Indemnitee under this Agreement or otherwise. For
example, the Company and Indemnitee acknowledge that the SEC has taken the
position that indemnification is not permissible for liabilities arising under
certain federal securities laws, and federal legislation prohibits
indemnification for certain ERISA violations. Furthermore, Indemnitee
understands and acknowledges that the Company has undertaken or may be required
in the future to undertake with the SEC to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee.
SECTION 20. Notice by Indemnitee.
Indemnitee agrees promptly to notify the Company in writing upon being
served with any summons, citation, subpoena, complaint, indictment, information
or other document relating to any matter which may be subject to indemnification
covered hereunder, either civil, criminal or investigative.
8
<PAGE>
SECTION 21. Notices.
All notices, requests, demands and other communications hereunder
shall be in writing and shall be deemed to have been duly given if (a) delivered
by hand and receipted for by the party to whom said notice or other
communication shall have been directed or (b) mailed by certified or registered
mail with postage prepaid on the third business day after the date on which it
is so mailed, to the following addresses:
(a) to Indemnitee:
Thomas H. Quinn
Archibald Candy Corporation
c/o The Jordan Company
Arborlake Center
1751 Lake Cook Road, Suite 550
Deerfield, Illinois 60015
(b) to the Company:
Archibald Candy Corporation
1137 West Jackson Boulevard
Chicago, Illinois 60607
Attention: Secretary
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case may be.
SECTION 22. Other Agreements.
This Agreement restates and supersedes, but does not limit or negate,
any indemnification, rights or interests of Indemnitee under any prior
agreements between the Company and Indemnitee.
SECTION 23. Governing Law.
The parties agree that this Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of Illinois.
[signature page follows]
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Indemnification Agreement as of the date first above written.
ARCHIBALD CANDY CORPORATION
By: /s/ Ted A. Shepherd
------------------------------------
Name: Ted A. Shepherd
----------------------------------
Title: President and Chief Operating
Officer
---------------------------------
INDEMNITEE:
By: /s/ Thomas H. Quinn
------------------------------------
Name: Thomas H. Quinn
<PAGE>
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT, dated as of July 2, 1997 (this
"Agreement"), is by and between Archibald Candy Corporation, an Illinois
corporation (the "Company"), and Ted A. Shepherd ("Indemnitee").
WITNESSETH
WHEREAS, highly competent persons are becoming more reluctant to serve
as directors, executive officers or in other capacities of corporations that
have publicly-held equity or debt unless they are provided with adequate
protection through insurance and indemnification against inordinate risks of
claims and actions against them arising out of their service to and activities
on behalf of the corporation; and
WHEREAS, the current difficulties or virtual impossibility of
obtaining adequate insurance and uncertainties relating to indemnification have
increased the difficulty of attracting and retaining such persons; and
WHEREAS, the Board of Directors of the Company has determined that the
inability to attract and retain such persons is detrimental to the best
interests of the Company's shareholders and that the Company should act to
assure such persons that there will be increased certainty of such protection in
the future; and
WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify such persons to the fullest extent
permitted by applicable law so that they will serve or continue to serve the
Company free from undue concern that they will not be so indemnified; and
WHEREAS, the shareholders of the Company have adopted the Amended and
Restated By-laws of the Company (as amended, the "By-laws") providing for the
indemnification of the directors, officers, agents and employees of the Company
to the fullest extent permitted by the Illinois Business Corporation Act (as
amended, the "Act"). The By-laws and the Act specifically provide that they are
not exclusive, and thereby contemplate that contracts may be entered into
between the Company and the members of its Board of Directors and its executive
officers with respect to indemnification of such directors and executive
officers; and
WHEREAS, this Agreement is being entered into as part of Indemnitee's
total compensation for serving as a director and/or an executive officer of the
Company, as the case may be; and
<PAGE>
NOW THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
SECTION 1. Service by Indemnitee.
Indemnitee agrees to serve as director of the Company and/or executive
officer of the Company if so designated by the Company and appointed by the
Board of Directors, and agrees to the indemnification provisions provided for
herein. Indemnitee may at any time and for any reason resign from such position
(subject to any other contractual obligation or other obligation imposed by
operation of law), in which event the Company shall have no obligation under
this Agreement to continue Indemnitee in any such position.
SECTION 2. Indemnification.
The Company shall indemnify Indemnitee to the fullest extent permitted
by applicable law in effect on the date hereof, notwithstanding that such
indemnification is not specifically authorized by this Agreement, the Amended
and Restated Articles of Incorporation of the Company (as amended, the
"Charter"), the Bylaws, the Act or otherwise. In the event of any change, after
the date of this Agreement, in any applicable law, statute or rule regarding the
right of an Illinois corporation to indemnify a member of its board of directors
or an officer, such changes, to the extent that they would expand Indemnitee's
rights hereunder, shall be within the scope of Indemnitee's rights and the
Company's obligations hereunder, and, to the extent that they would narrow
Indemnitee's rights hereunder, shall be excluded from this Agreement; provided,
however, that any change that is required by applicable laws, statutes or rules
to be applied to this Agreement shall be so applied regardless of whether the
effect of such change is to narrow Indemnitee's rights hereunder. Without
diminishing the scope of the indemnification provided by this Section 2, the
rights of indemnification of Indemnitee provided hereunder shall include
indemnification in respect of (a) the proposed offering by the Company of
$100,000,000 of its Senior Secured Notes due 2004 (the "Notes") pursuant to an
exemption from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"), (b) the Company's subsequent filing with the
Securities and Exchange Commission (the "SEC") of a registration statement
relating to an exchange offer for the Notes under the Securities Act and (c) any
other public offerings of securities by the Company, and shall not be limited to
those rights set forth hereinafter, except to the extent expressly prohibited by
applicable law.
SECTION 3. Action or Proceeding Other Than an Action by or in the
Right of the Company.
Indemnitee shall be entitled to the indemnification rights provided in
this Section 3 if he is or was 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 in nature, other than an action by or
in the right of the Company, by reason of the fact that he is or was a director,
officer, employee, agent or fiduciary of the Company or is or was serving at the
request of the Company as a director, officer, employee, agent, partner, trustee
or fiduciary of any other entity (a "Related Company") or by reason of anything
done or not done by him in any such capacity. Pursuant to this
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<PAGE>
Section 3, Indemnitee shall be indemnified against reasonable costs and
expenses (including, but not limited to, counsel fees, costs, judgments,
penalties, fines, ERISA excise taxes, and amounts paid in settlement)
(collectively, "Damages") actually and reasonably incurred by him in
connection with such action, suit or proceeding (including, but not limited
to, the investigation, defense, settlement or appeal thereof), if, in the
case of conduct in his official capacity with the corporation, he acted in
good faith and in the Company's best interests, and in all other cases, he
acted in good faith and was at least not opposed to the Company's best
interests, and with respect to any criminal action or proceeding had no
reasonable cause to believe his conduct was unlawful, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which Indemnitee shall have been finally adjudged to be liable for (a)
negligence or misconduct in the performance of his duty to the Company unless
and only to the extent that the court in which such action, suit or
proceeding was brought, or any other court of competent jurisdiction, shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, Indemnitee is fairly and
reasonably entitled to indemnity for such Damages as such court shall deem
proper or (b) a violation of Section 16(b) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), or any of the rules or regulations
promulgated thereunder. Notwithstanding the foregoing, the Company shall be
required to indemnify an officer or director in connection with an action,
suit or proceeding initiated by such person only if such action, suit or
proceeding was authorized or contemplated by the Board or a committee
thereof. No indemnity pursuant to this Agreement shall be provided by the
Company for Damages that have been paid directly to Indemnitee by an
insurance carrier under a policy of directors' and officers' liability
insurance maintained by the Company.
SECTION 4. Actions by or in the Right of the Company.
Indemnitee shall be entitled to the indemnification rights provided in
this Section 4 if he is or was made 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 brought by or in the right of
the Company to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee, agent or fiduciary of the Company or is or
was serving at the request of the Company as a director, officer, employee,
agent, partner, trustee or fiduciary of any Related Company by reason of
anything done or not done by him in any such capacity. Pursuant to this Section
4, Indemnitee shall be indemnified against Damages actually and reasonably
incurred by him in connection with such action or suit (including, but not
limited to, the investigation, defense, settlement or appeal thereof) if, in the
case of conduct in his official capacity with the corporation, he acted in good
faith and in the Company's best interests, and in all other cases, he acted in
good faith and was at least not opposed to the Company's best interests, except
that no indemnification shall be made in respect of any claim, issue or matter
as to which Indemnitee shall have been finally adjudged to be liable for (a)
negligence or misconduct in the performance of his duty to the Company unless
and only to the extent that the court in which such action, suit or proceeding
was brought, or any other court of competent jurisdiction, shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, Indemnitee is fairly and reasonably entitled to
indemnity for such Damages as such court shall deem proper or (b) a violation of
Section 16(b) of the Exchange Act or any of the rules or regulations promulgated
thereunder. Notwithstanding the foregoing, the Company shall be required to
indemnify an officer or director in
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<PAGE>
connection with an action, suit or proceeding initiated by such person only
if such action, suit or proceeding was authorized by the Board or a committee
thereof. No indemnity pursuant to this Agreement shall be provided by the
Company for Damages that have been paid directly to Indemnitee by an
insurance carrier under a policy of directors' and officers' liability
insurance maintained by the Company.
SECTION 5. Indemnification for Costs, Charges and Expenses of
Successful Party.
Notwithstanding the other provisions of this Agreement, to the extent
that Indemnitee has served as a witness on behalf of the Company or has been
successful, on the merits or otherwise, including, without limitation, the
dismissal of an action without prejudice, in defense of any action, suit or
proceeding referred to in Section 3 or 4, or in defense of any claim, issue or
matter therein, Indemnitee shall be indemnified against all reasonable costs,
charges, and expenses (including counsel fees) actually and reasonably incurred
by him or on his behalf in connection therewith.
SECTION 6. Partial Indemnification.
If Indemnitee is only partially successful in the defense,
investigation, settlement or appeal of any action, suit, investigation or
proceeding described in Section 3 or Section 4, and as a result is not entitled
under Section 5 to indemnification by the Company for the total amount of
reasonable Damages actually and reasonably incurred by him, the Company shall
nevertheless indemnify Indemnitee, as a matter of right pursuant to Section 5,
to the extent Indemnitee has been partially successful.
SECTION 7. Determination of Entitlement to Indemnification.
Upon written request by Indemnitee for indemnification pursuant to
Section 3 or Section 4 , the entitlement of Indemnitee to indemnification
pursuant to the terms of this Agreement shall be determined by the following
person or persons who shall be empowered to make such determination: (a) the
Board of Directors of the Company by a majority vote of a quorum consisting
of Disinterested Directors (as hereinafter defined); or (b) if such a quorum
is not obtainable or, even if obtainable, if the Board of Directors by the
majority vote of Disinterested Directors so directs, by Independent Counsel
(as hereinafter defined) in a written opinion to the Board of Directors, a
copy of which shall be delivered to Indemnitee; or (c) by the shareholders,
but shares owned by or voted under the control of directors, including the
Indemnitee, who are at the time parties to the proceeding may not be voted on
the determination. Such Independent Counsel shall be selected by the Board of
Directors and approved by Indemnitee. Upon failure of the Board of Directors
to so select such Independent Counsel or upon failure of Indemnitee to so
approve, such Independent Counsel shall be selected by an Illinois state
court judge of the Circuit Court of Cook County, Chancery Division, or such
other person as such judge shall designate to make such selection. Such
determination of entitlement to indemnification shall be made no later than
sixty (60) days after receipt by the Company of a written request for
indemnification. Such request shall include documentation or information
which is necessary for such determination and which is reasonably available
to Indemnitee. Any Damages incurred by Indemnitee in connection with his
request for indemnification
4
<PAGE>
hereunder shall be borne by the Company. The Company hereby indemnifies and
agrees to hold Indemnitee harmless therefrom irrespective of the outcome of
the determination of Indemnitee's entitlement to indemnification. If the
person making such determination shall determine that Indemnitee is entitled
to indemnification as to part (but not all) of the application for
indemnification, such person shall reasonably prorate such partial
indemnification among such claims, issues or matters.
SECTION 8. Presumptions and Effect of Certain Proceedings.
The Secretary of the Company shall, promptly upon receipt of
Indemnitee's request for indemnification, advise in writing the Board of
Directors or such other person or persons empowered to make the determination
as provided in Section 7 that Indemnitee has made such request for
indemnification. Indemnitee shall be presumed to be entitled to
indemnification hereunder and the Company shall have the burden of proof in
the making of any determination contrary to such presumption. If the person
or persons so empowered to make such determination shall have failed to make
the requested indemnification within 60 days after receipt by the Company of
such request, the requisite determination of entitlement to indemnification
shall be deemed to have been made and Indemnitee shall be absolutely entitled
to such indemnification, absent actual and material fraud in the request for
indemnification. The termination of any action, suit, investigation or
proceeding described in Section 3 or Section 4 by judgment, order, settlement
or conviction, or upon a plea of nolo contendere or its equivalent, shall
not, of itself (a) create a presumption that Indemnitee 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 Company, and, with respect to any criminal action
or proceeding, that Indemnitee had reasonable cause to believe that his
conduct was unlawful or (b) otherwise adversely affect the rights of
Indemnitee to indemnification except as may be provided herein.
SECTION 9. Advancement of Expenses and Costs.
All reasonable expenses and costs incurred by Indemnitee who is party
to a proceeding or investigation (including counsel fees, retainers and advances
of disbursements required of Indemnitee) (collectively, the "Expense Advance")
shall be paid by the Company in advance of the final disposition of such action,
suit, proceeding or investigation at the request of Indemnitee within twenty
(20) days after the receipt by the Company of a statement or statements from
Indemnitee requesting such advance or advances from time to time. Such
statement or statements shall reasonably evidence the expenses and costs
incurred by him in connection therewith. The Company's obligation to provide an
Expense Advance is subject to the following conditions: (a) if the proceeding
arose in connection with Indemnitee's service as a director and/or executive
officer of, or in any other capacity on behalf of, the Company or any Related
Company, then the Indemnitee or his representative shall have executed and
delivered to the Company an undertaking, which need not be secured and shall be
accepted without reference to Indemnitee's financial ability to make repayment,
by or on behalf of Indemnitee to repay all Expense Advance if and to the extent
that it shall ultimately be determined by a final, unappealable decision
rendered by a court having jurisdiction over the parties and the question that
Indemnitee is not entitled to be indemnified for such Expense Advance under this
Agreement or otherwise; (b) Indemnitee shall give the Company such information
and
5
<PAGE>
cooperation as it may reasonably request and as shall be within Indemnitee's
power; and (c) Indemnitee shall furnish, upon request by the Company and if
required under applicable law, a written affirmation of Indemnitee's good faith
belief that any applicable standards of conduct have been met by Indemnitee.
Indemnitee's entitlement to such Expense Advance shall include those incurred in
connection with any proceeding by Indemnitee seeking an adjudication pursuant to
this Agreement. In the event that a claim for an Expense Advance is made
hereunder and is not paid in full within twenty (20) days after written notice
of such claim is delivered to the Company, Indemnitee may, but need not, at any
time thereafter bring suit against the Company to recover the unpaid amount of
the claim.
SECTION 10. Remedies of Indemnitee in Cases of Determination not to
Indemnify or to Advance Expenses.
In the event that a determination is made that Indemnitee is not
entitled to indemnification hereunder or if payment has not been timely made
following a determination of entitlement to indemnification pursuant to Section
7 or 8, or if expenses are not advanced pursuant to Section 9, Indemnitee shall
be entitled to a final adjudication in an appropriate court of the State of
Illinois or any other court of competent jurisdiction of his entitlement to such
indemnification or advance. The Company shall not oppose Indemnitee's right to
seek any such adjudication or any other claim. Such judicial proceeding shall
be made de novo and Indemnitee shall not be prejudiced by reason of a
determination (if so made) that he is not entitled to indemnification. If a
determination is made or deemed to have been made pursuant to the terms of
Section 7 or 8 that Indemnitee is entitled to indemnification, the Company shall
be bound by such determination and is precluded from asserting that such
determination has not been made or that the procedure by which such
determination was made is not valid, binding and enforceable. The Company
further agrees to stipulate in any such court that the Company is bound by all
the provisions of this Agreement and is precluded from making any assertion to
the contrary. If the court shall determine that Indemnitee is entitled to any
indemnification hereunder, the Company shall pay all reasonable Damages actually
incurred by Indemnitee in connection with such adjudication (including, but not
limited to, any appellate proceedings).
SECTION 11. Other Rights to Indemnification.
The indemnification and advancement of expenses (including counsel
fees) and costs provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may now or in the future be entitled under any
provision of the By-laws or the Charter, any vote of shareholders or
Disinterested Directors, any provision of law or otherwise.
SECTION 12. Counsel Fees and Other Expenses to Enforce Agreement.
In the event that Indemnitee is subject to or intervenes in any
proceeding in which the validity or enforceability of this Agreement is at issue
or seeks an adjudication or award in arbitration to enforce his rights under, or
to recover damages for breach of, this Agreement, Indemnitee, if he prevails in
whole or in part in such action, shall be entitled to recover from the Company,
and shall
6
<PAGE>
be indemnified by the Company against, any reasonable expenses for
counsel fees and disbursements actually and reasonably incurred by him.
Indemnitee shall be entitled to select his own counsel; provided, however, that
the Company may elect to hire a counsel to represent Indemnitee together with
other similarly situated individuals, but only if such joint representation does
not, in the reasonable discretion of Indemnitee, create any conflict of
interest.
SECTION 13. Duration of Agreement.
This Agreement shall continue until and terminate upon the later of
(a) 10 years after Indemnitee has ceased to occupy any of the positions or have
any of the relationships described in Sections 1, 3 or 4 or (b) the final
termination of all pending or threatened actions, suits, proceedings or
investigations with respect to Indemnitee. This Agreement shall be binding upon
the Company and its successors and assigns and shall inure to the benefit of
Indemnitee and his spouse, assigns, heirs, devisees, executors, administrators
or other legal representatives.
SECTION 14. Severability.
If any provision or provisions of this Agreement shall be held to be
invalid, illegal or unenforceable for any reason whatsoever (a) the validity,
legality and enforceability of the remaining provisions of this Agreement
(including without limitation, all portions of any paragraphs of this Agreement
containing any such provision held to be invalid, illegal or unenforceable, that
are not themselves invalid, illegal or unenforceable) shall not in any way be
affected or impaired thereby and (b) to the fullest extent possible, the
provisions of this Agreement (including, without limitation, all portions of any
paragraph of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that are not themselves invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable.
SECTION 15. Identical Counterparts.
This Agreement may be executed in one or more counterparts, each of
which shall for all purposes be deemed to be an original, but all of which
together shall constitute one and the same Agreement. Only one such counterpart
signed by the party against whom enforceability is sought needs to be produced
to evidence the existence of this Agreement.
SECTION 16. Headings; Section References.
The headings of the paragraphs of this Agreement are inserted for
convenience only and shall not be deemed to constitute part of this Agreement or
to affect the construction thereof. Unless otherwise specified herein, each
reference herein to a Section shall be deemed a reference to a Section of this
Agreement.
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<PAGE>
SECTION 17. Definitions.
For purposes of this Agreement:
(a) "Disinterested Director" shall mean a director of the Company who
is not or was not a party to the action, suit, investigation or proceeding in
respect of which indemnification is being sought by Indemnitee.
(b) "Independent Counsel" shall mean a law firm or a member of a law
firm that neither is presently nor in the past five years has been retained to
represent (i) the Company or Indemnitee in any matter material to either such
party or (ii) any other party to the action, suit, investigation or proceeding
giving rise to a claim for indemnification hereunder. Notwithstanding the
foregoing, the term "Independent Counsel" shall not include any person who,
under the applicable standards of professional conduct then prevailing, would
have a conflict of interest in representing either the Company or Indemnitee in
an action to determine Indemnitee's right to indemnification under this
Agreement.
SECTION 18. Modification and Waiver.
No supplement, modification or amendment of this Agreement shall be
binding unless executed in writing by both of the parties hereto. No waiver of
any of the provisions of this Agreement shall be deemed or shall constitute a
waiver of any other provisions hereof (whether or not similar) nor shall such
waiver constitute a continuing waiver.
SECTION 19. Mutual Acknowledgment.
The Company and Indemnitee acknowledge that, in certain instances,
federal law or public policy may override applicable state law and prohibit the
Company from indemnifying Indemnitee under this Agreement or otherwise. For
example, the Company and Indemnitee acknowledge that the SEC has taken the
position that indemnification is not permissible for liabilities arising under
certain federal securities laws, and federal legislation prohibits
indemnification for certain ERISA violations. Furthermore, Indemnitee
understands and acknowledges that the Company has undertaken or may be required
in the future to undertake with the SEC to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee.
SECTION 20. Notice by Indemnitee.
Indemnitee agrees promptly to notify the Company in writing upon being
served with any summons, citation, subpoena, complaint, indictment, information
or other document relating to any matter which may be subject to indemnification
covered hereunder, either civil, criminal or investigative.
8
<PAGE>
SECTION 21. Notices.
All notices, requests, demands and other communications hereunder
shall be in writing and shall be deemed to have been duly given if (a) delivered
by hand and receipted for by the party to whom said notice or other
communication shall have been directed or (b) mailed by certified or registered
mail with postage prepaid on the third business day after the date on which it
is so mailed, to the following addresses:
(a) to Indemnitee:
Ted A. Shepherd
Archibald Candy Corporation
1137 West Jackson Boulevard
Chicago, Illinois 60607
(b) to the Company:
Archibald Candy Corporation
1137 West Jackson Boulevard
Chicago, Illinois 60607
Attention: Secretary
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case may be.
SECTION 22. Other Agreements.
This Agreement restates and supersedes, but does not limit or negate,
any indemnification, rights or interests of Indemnitee under any prior
agreements between the Company and Indemnitee.
SECTION 23. Governing Law.
The parties agree that this Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of Illinois.
[signature page follows]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Indemnification Agreement as of the date first above written.
ARCHIBALD CANDY CORPORATION
By: /s/ Donna M. Snopek
------------------------------------
Name: Donna M. Snopek
----------------------------------
Title: Vice President -- Finance and
Accounting
---------------------------------
INDEMNITEE:
By: /s/ Ted A. Shepherd
------------------------------------
Name: Ted A. Shepherd
----------------------------------
10
<PAGE>
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT, dated as of July 2, 1997 (this
"Agreement"), is by and between Archibald Candy Corporation, an Illinois
corporation (the "Company"), and Donna M. Snopek ("Indemnitee").
WITNESSETH
WHEREAS, highly competent persons are becoming more reluctant to serve
as directors, executive officers or in other capacities of corporations that
have publicly-held equity or debt unless they are provided with adequate
protection through insurance and indemnification against inordinate risks of
claims and actions against them arising out of their service to and activities
on behalf of the corporation; and
WHEREAS, the current difficulties or virtual impossibility of
obtaining adequate insurance and uncertainties relating to indemnification have
increased the difficulty of attracting and retaining such persons; and
WHEREAS, the Board of Directors of the Company has determined that the
inability to attract and retain such persons is detrimental to the best
interests of the Company's shareholders and that the Company should act to
assure such persons that there will be increased certainty of such protection in
the future; and
WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify such persons to the fullest extent
permitted by applicable law so that they will serve or continue to serve the
Company free from undue concern that they will not be so indemnified; and
WHEREAS, the shareholders of the Company have adopted the Amended and
Restated By-laws of the Company (as amended, the "By-laws") providing for the
indemnification of the directors, officers, agents and employees of the Company
to the fullest extent permitted by the Illinois Business Corporation Act (as
amended, the "Act"). The By-laws and the Act specifically provide that they are
not exclusive, and thereby contemplate that contracts may be entered into
between the Company and the members of its Board of Directors and its executive
officers with respect to indemnification of such directors and executive
officers; and
WHEREAS, this Agreement is being entered into as part of Indemnitee's
total compensation for serving as a director and/or an executive officer of the
Company, as the case may be; and
<PAGE>
NOW THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
SECTION 1. Service by Indemnitee.
Indemnitee agrees to serve as director of the Company and/or executive
officer of the Company if so designated by the Company and appointed by the
Board of Directors, and agrees to the indemnification provisions provided for
herein. Indemnitee may at any time and for any reason resign from such position
(subject to any other contractual obligation or other obligation imposed by
operation of law), in which event the Company shall have no obligation under
this Agreement to continue Indemnitee in any such position.
SECTION 2. Indemnification.
The Company shall indemnify Indemnitee to the fullest extent permitted
by applicable law in effect on the date hereof, notwithstanding that such
indemnification is not specifically authorized by this Agreement, the Amended
and Restated Articles of Incorporation of the Company (as amended, the
"Charter"), the Bylaws, the Act or otherwise. In the event of any change, after
the date of this Agreement, in any applicable law, statute or rule regarding the
right of an Illinois corporation to indemnify a member of its board of directors
or an officer, such changes, to the extent that they would expand Indemnitee's
rights hereunder, shall be within the scope of Indemnitee's rights and the
Company's obligations hereunder, and, to the extent that they would narrow
Indemnitee's rights hereunder, shall be excluded from this Agreement; provided,
however, that any change that is required by applicable laws, statutes or rules
to be applied to this Agreement shall be so applied regardless of whether the
effect of such change is to narrow Indemnitee's rights hereunder. Without
diminishing the scope of the indemnification provided by this Section 2, the
rights of indemnification of Indemnitee provided hereunder shall include
indemnification in respect of (a) the proposed offering by the Company of
$100,000,000 of its Senior Secured Notes due 2004 (the "Notes") pursuant to an
exemption from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"), (b) the Company's subsequent filing with the
Securities and Exchange Commission (the "SEC") of a registration statement
relating to an exchange offer for the Notes under the Securities Act and (c) any
other public offerings of securities by the Company, and shall not be limited to
those rights set forth hereinafter, except to the extent expressly prohibited by
applicable law.
SECTION 3. Action or Proceeding Other Than an Action by or in the
Right of the Company.
Indemnitee shall be entitled to the indemnification rights provided in
this Section 3 if he is or was 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 in nature, other than an action by or
in the right of the Company, by reason of the fact that he is or was a director,
officer, employee, agent or fiduciary of the Company or is or was serving at the
request of the Company as a director, officer, employee, agent, partner, trustee
or fiduciary of any other entity (a "Related Company") or by reason of anything
done or not done by him in any such capacity. Pursuant to this
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<PAGE>
Section 3, Indemnitee shall be indemnified against reasonable costs and
expenses (including, but not limited to, counsel fees, costs, judgments,
penalties, fines, ERISA excise taxes, and amounts paid in settlement)
(collectively, "Damages") actually and reasonably incurred by him in
connection with such action, suit or proceeding (including, but not limited
to, the investigation, defense, settlement or appeal thereof), if, in the
case of conduct in his official capacity with the corporation, he acted in
good faith and in the Company's best interests, and in all other cases, he
acted in good faith and was at least not opposed to the Company's best
interests, and with respect to any criminal action or proceeding had no
reasonable cause to believe his conduct was unlawful, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which Indemnitee shall have been finally adjudged to be liable for (a)
negligence or misconduct in the performance of his duty to the Company unless
and only to the extent that the court in which such action, suit or
proceeding was brought, or any other court of competent jurisdiction, shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, Indemnitee is fairly and
reasonably entitled to indemnity for such Damages as such court shall deem
proper or (b) a violation of Section 16(b) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), or any of the rules or regulations
promulgated thereunder. Notwithstanding the foregoing, the Company shall be
required to indemnify an officer or director in connection with an action,
suit or proceeding initiated by such person only if such action, suit or
proceeding was authorized or contemplated by the Board or a committee
thereof. No indemnity pursuant to this Agreement shall be provided by the
Company for Damages that have been paid directly to Indemnitee by an
insurance carrier under a policy of directors' and officers' liability
insurance maintained by the Company.
SECTION 4. Actions by or in the Right of the Company.
Indemnitee shall be entitled to the indemnification rights provided in
this Section 4 if he is or was made 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 brought by or in the right of
the Company to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee, agent or fiduciary of the Company or is or
was serving at the request of the Company as a director, officer, employee,
agent, partner, trustee or fiduciary of any Related Company by reason of
anything done or not done by him in any such capacity. Pursuant to this Section
4, Indemnitee shall be indemnified against Damages actually and reasonably
incurred by him in connection with such action or suit (including, but not
limited to, the investigation, defense, settlement or appeal thereof) if, in the
case of conduct in his official capacity with the corporation, he acted in good
faith and in the Company's best interests, and in all other cases, he acted in
good faith and was at least not opposed to the Company's best interests, except
that no indemnification shall be made in respect of any claim, issue or matter
as to which Indemnitee shall have been finally adjudged to be liable for (a)
negligence or misconduct in the performance of his duty to the Company unless
and only to the extent that the court in which such action, suit or proceeding
was brought, or any other court of competent jurisdiction, shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, Indemnitee is fairly and reasonably entitled to
indemnity for such Damages as such court shall deem proper or (b) a violation of
Section 16(b) of the Exchange Act or any of the rules or regulations promulgated
thereunder. Notwithstanding the foregoing, the Company shall be required to
indemnify an officer or director in
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connection with an action, suit or proceeding initiated by such person only
if such action, suit or proceeding was authorized by the Board or a committee
thereof. No indemnity pursuant to this Agreement shall be provided by the
Company for Damages that have been paid directly to Indemnitee by an
insurance carrier under a policy of directors' and officers' liability
insurance maintained by the Company.
SECTION 5. Indemnification for Costs, Charges and Expenses of
Successful Party.
Notwithstanding the other provisions of this Agreement, to the extent
that Indemnitee has served as a witness on behalf of the Company or has been
successful, on the merits or otherwise, including, without limitation, the
dismissal of an action without prejudice, in defense of any action, suit or
proceeding referred to in Section 3 or 4, or in defense of any claim, issue or
matter therein, Indemnitee shall be indemnified against all reasonable costs,
charges, and expenses (including counsel fees) actually and reasonably incurred
by him or on his behalf in connection therewith.
SECTION 6. Partial Indemnification.
If Indemnitee is only partially successful in the defense,
investigation, settlement or appeal of any action, suit, investigation or
proceeding described in Section 3 or Section 4, and as a result is not entitled
under Section 5 to indemnification by the Company for the total amount of
reasonable Damages actually and reasonably incurred by him, the Company shall
nevertheless indemnify Indemnitee, as a matter of right pursuant to Section 5,
to the extent Indemnitee has been partially successful.
SECTION 7. Determination of Entitlement to Indemnification.
Upon written request by Indemnitee for indemnification pursuant to
Section 3 or Section 4 , the entitlement of Indemnitee to indemnification
pursuant to the terms of this Agreement shall be determined by the following
person or persons who shall be empowered to make such determination: (a) the
Board of Directors of the Company by a majority vote of a quorum consisting
of Disinterested Directors (as hereinafter defined); or (b) if such a quorum
is not obtainable or, even if obtainable, if the Board of Directors by the
majority vote of Disinterested Directors so directs, by Independent Counsel
(as hereinafter defined) in a written opinion to the Board of Directors, a
copy of which shall be delivered to Indemnitee; or (c) by the shareholders,
but shares owned by or voted under the control of directors, including the
Indemnitee, who are at the time parties to the proceeding may not be voted on
the determination. Such Independent Counsel shall be selected by the Board of
Directors and approved by Indemnitee. Upon failure of the Board of Directors
to so select such Independent Counsel or upon failure of Indemnitee to so
approve, such Independent Counsel shall be selected by an Illinois state
court judge of the Circuit Court of Cook County, Chancery Division, or such
other person as such judge shall designate to make such selection. Such
determination of entitlement to indemnification shall be made no later than
sixty (60) days after receipt by the Company of a written request for
indemnification. Such request shall include documentation or information
which is necessary for such determination and which is reasonably available
to Indemnitee. Any Damages incurred by Indemnitee in connection with his
request for indemnification
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hereunder shall be borne by the Company. The Company hereby indemnifies and
agrees to hold Indemnitee harmless therefrom irrespective of the outcome of
the determination of Indemnitee's entitlement to indemnification. If the
person making such determination shall determine that Indemnitee is entitled
to indemnification as to part (but not all) of the application for
indemnification, such person shall reasonably prorate such partial
indemnification among such claims, issues or matters.
SECTION 8. Presumptions and Effect of Certain Proceedings.
The Secretary of the Company shall, promptly upon receipt of
Indemnitee's request for indemnification, advise in writing the Board of
Directors or such other person or persons empowered to make the determination
as provided in Section 7 that Indemnitee has made such request for
indemnification. Indemnitee shall be presumed to be entitled to
indemnification hereunder and the Company shall have the burden of proof in
the making of any determination contrary to such presumption. If the person
or persons so empowered to make such determination shall have failed to make
the requested indemnification within 60 days after receipt by the Company of
such request, the requisite determination of entitlement to indemnification
shall be deemed to have been made and Indemnitee shall be absolutely entitled
to such indemnification, absent actual and material fraud in the request for
indemnification. The termination of any action, suit, investigation or
proceeding described in Section 3 or Section 4 by judgment, order, settlement
or conviction, or upon a plea of nolo contendere or its equivalent, shall
not, of itself (a) create a presumption that Indemnitee 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 Company, and, with respect to any criminal action
or proceeding, that Indemnitee had reasonable cause to believe that his
conduct was unlawful or (b) otherwise adversely affect the rights of
Indemnitee to indemnification except as may be provided herein.
SECTION 9. Advancement of Expenses and Costs.
All reasonable expenses and costs incurred by Indemnitee who is party
to a proceeding or investigation (including counsel fees, retainers and advances
of disbursements required of Indemnitee) (collectively, the "Expense Advance")
shall be paid by the Company in advance of the final disposition of such action,
suit, proceeding or investigation at the request of Indemnitee within twenty
(20) days after the receipt by the Company of a statement or statements from
Indemnitee requesting such advance or advances from time to time. Such
statement or statements shall reasonably evidence the expenses and costs
incurred by him in connection therewith. The Company's obligation to provide an
Expense Advance is subject to the following conditions: (a) if the proceeding
arose in connection with Indemnitee's service as a director and/or executive
officer of, or in any other capacity on behalf of, the Company or any Related
Company, then the Indemnitee or his representative shall have executed and
delivered to the Company an undertaking, which need not be secured and shall be
accepted without reference to Indemnitee's financial ability to make repayment,
by or on behalf of Indemnitee to repay all Expense Advance if and to the extent
that it shall ultimately be determined by a final, unappealable decision
rendered by a court having jurisdiction over the parties and the question that
Indemnitee is not entitled to be indemnified for such Expense Advance under this
Agreement or otherwise; (b) Indemnitee shall give the Company such information
and
5
<PAGE>
cooperation as it may reasonably request and as shall be within Indemnitee's
power; and (c) Indemnitee shall furnish, upon request by the Company and if
required under applicable law, a written affirmation of Indemnitee's good faith
belief that any applicable standards of conduct have been met by Indemnitee.
Indemnitee's entitlement to such Expense Advance shall include those incurred in
connection with any proceeding by Indemnitee seeking an adjudication pursuant to
this Agreement. In the event that a claim for an Expense Advance is made
hereunder and is not paid in full within twenty (20) days after written notice
of such claim is delivered to the Company, Indemnitee may, but need not, at any
time thereafter bring suit against the Company to recover the unpaid amount of
the claim.
SECTION 10. Remedies of Indemnitee in Cases of Determination not to
Indemnify or to Advance Expenses.
In the event that a determination is made that Indemnitee is not
entitled to indemnification hereunder or if payment has not been timely made
following a determination of entitlement to indemnification pursuant to Section
7 or 8, or if expenses are not advanced pursuant to Section 9, Indemnitee shall
be entitled to a final adjudication in an appropriate court of the State of
Illinois or any other court of competent jurisdiction of his entitlement to such
indemnification or advance. The Company shall not oppose Indemnitee's right to
seek any such adjudication or any other claim. Such judicial proceeding shall
be made de novo and Indemnitee shall not be prejudiced by reason of a
determination (if so made) that he is not entitled to indemnification. If a
determination is made or deemed to have been made pursuant to the terms of
Section 7 or 8 that Indemnitee is entitled to indemnification, the Company shall
be bound by such determination and is precluded from asserting that such
determination has not been made or that the procedure by which such
determination was made is not valid, binding and enforceable. The Company
further agrees to stipulate in any such court that the Company is bound by all
the provisions of this Agreement and is precluded from making any assertion to
the contrary. If the court shall determine that Indemnitee is entitled to any
indemnification hereunder, the Company shall pay all reasonable Damages actually
incurred by Indemnitee in connection with such adjudication (including, but not
limited to, any appellate proceedings).
SECTION 11. Other Rights to Indemnification.
The indemnification and advancement of expenses (including counsel
fees) and costs provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may now or in the future be entitled under any
provision of the By-laws or the Charter, any vote of shareholders or
Disinterested Directors, any provision of law or otherwise.
SECTION 12. Counsel Fees and Other Expenses to Enforce Agreement.
In the event that Indemnitee is subject to or intervenes in any
proceeding in which the validity or enforceability of this Agreement is at issue
or seeks an adjudication or award in arbitration to enforce his rights under, or
to recover damages for breach of, this Agreement, Indemnitee, if he prevails in
whole or in part in such action, shall be entitled to recover from the Company,
and shall
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<PAGE>
be indemnified by the Company against, any reasonable expenses for counsel
fees and disbursements actually and reasonably incurred by him. Indemnitee
shall be entitled to select his own counsel; provided, however, that the
Company may elect to hire a counsel to represent Indemnitee together with
other similarly situated individuals, but only if such joint representation
does not, in the reasonable discretion of Indemnitee, create any conflict of
interest.
SECTION 13. Duration of Agreement.
This Agreement shall continue until and terminate upon the later of
(a) 10 years after Indemnitee has ceased to occupy any of the positions or have
any of the relationships described in Sections 1, 3 or 4 or (b) the final
termination of all pending or threatened actions, suits, proceedings or
investigations with respect to Indemnitee. This Agreement shall be binding upon
the Company and its successors and assigns and shall inure to the benefit of
Indemnitee and his spouse, assigns, heirs, devisees, executors, administrators
or other legal representatives.
SECTION 14. Severability.
If any provision or provisions of this Agreement shall be held to be
invalid, illegal or unenforceable for any reason whatsoever (a) the validity,
legality and enforceability of the remaining provisions of this Agreement
(including without limitation, all portions of any paragraphs of this Agreement
containing any such provision held to be invalid, illegal or unenforceable, that
are not themselves invalid, illegal or unenforceable) shall not in any way be
affected or impaired thereby and (b) to the fullest extent possible, the
provisions of this Agreement (including, without limitation, all portions of any
paragraph of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that are not themselves invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable.
SECTION 15. Identical Counterparts.
This Agreement may be executed in one or more counterparts, each of
which shall for all purposes be deemed to be an original, but all of which
together shall constitute one and the same Agreement. Only one such counterpart
signed by the party against whom enforceability is sought needs to be produced
to evidence the existence of this Agreement.
SECTION 16. Headings; Section References.
The headings of the paragraphs of this Agreement are inserted for
convenience only and shall not be deemed to constitute part of this Agreement or
to affect the construction thereof. Unless otherwise specified herein, each
reference herein to a Section shall be deemed a reference to a Section of this
Agreement.
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SECTION 17. Definitions.
For purposes of this Agreement:
(a) "Disinterested Director" shall mean a director of the Company who
is not or was not a party to the action, suit, investigation or proceeding in
respect of which indemnification is being sought by Indemnitee.
(b) "Independent Counsel" shall mean a law firm or a member of a law
firm that neither is presently nor in the past five years has been retained to
represent (i) the Company or Indemnitee in any matter material to either such
party or (ii) any other party to the action, suit, investigation or proceeding
giving rise to a claim for indemnification hereunder. Notwithstanding the
foregoing, the term "Independent Counsel" shall not include any person who,
under the applicable standards of professional conduct then prevailing, would
have a conflict of interest in representing either the Company or Indemnitee in
an action to determine Indemnitee's right to indemnification under this
Agreement.
SECTION 18. Modification and Waiver.
No supplement, modification or amendment of this Agreement shall be
binding unless executed in writing by both of the parties hereto. No waiver of
any of the provisions of this Agreement shall be deemed or shall constitute a
waiver of any other provisions hereof (whether or not similar) nor shall such
waiver constitute a continuing waiver.
SECTION 19. Mutual Acknowledgment.
The Company and Indemnitee acknowledge that, in certain instances,
federal law or public policy may override applicable state law and prohibit the
Company from indemnifying Indemnitee under this Agreement or otherwise. For
example, the Company and Indemnitee acknowledge that the SEC has taken the
position that indemnification is not permissible for liabilities arising under
certain federal securities laws, and federal legislation prohibits
indemnification for certain ERISA violations. Furthermore, Indemnitee
understands and acknowledges that the Company has undertaken or may be required
in the future to undertake with the SEC to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee.
SECTION 20. Notice by Indemnitee.
Indemnitee agrees promptly to notify the Company in writing upon being
served with any summons, citation, subpoena, complaint, indictment, information
or other document relating to any matter which may be subject to indemnification
covered hereunder, either civil, criminal or investigative.
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<PAGE>
SECTION 21. Notices.
All notices, requests, demands and other communications hereunder
shall be in writing and shall be deemed to have been duly given if (a) delivered
by hand and receipted for by the party to whom said notice or other
communication shall have been directed or (b) mailed by certified or registered
mail with postage prepaid on the third business day after the date on which it
is so mailed, to the following addresses:
(a) to Indemnitee:
Donna M. Snopek
Archibald Candy Corporation
1137 West Jackson Boulevard
Chicago, Illinois 60607
(b) to the Company:
Archibald Candy Corporation
1137 West Jackson Boulevard
Chicago, Illinois 60607
Attention: Secretary
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case may be.
SECTION 22. Other Agreements.
This Agreement restates and supersedes, but does not limit or negate,
any indemnification, rights or interests of Indemnitee under any prior
agreements between the Company and Indemnitee.
SECTION 23. Governing Law.
The parties agree that this Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of Illinois.
[signature page follows]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Indemnification Agreement as of the date first above written.
ARCHIBALD CANDY CORPORATION
By: /s/ Ted A. Shepherd
------------------------------------
Name: Ted A. Shepherd
----------------------------------
Title: President and Chief Operating
Officer
---------------------------------
INDEMNITEE:
By: /s/ Donna M. Snopek
------------------------------------
Name: Donna M. Snopek
----------------------------------
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FANNIE MAY HOLDINGS, INC.
FMCAN ACQUISITION CORP.
SECURITIES PURCHASE AGREEMENT
-----------------------------------
AS OF OCTOBER 30, 1991
-----------------------------------
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<PAGE>
TABLE OF CONTENTS
(( Table of Contents will generate here ))
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TABLE OF CONTENTS (Cont'd)
SCHEDULES
Schedule 1
Schedule 1(a)
Schedule 1(b)
Schedule 1(c)
Schedule 3.3
Schedule 3.6
Schedule 3.7
Schedule 3.9
Schedule 3.10
Schedule 3.11
Schedule 3.15
Schedule 3.16
Schedule 3.22
Schedule 3.28
Schedule 7.8
EXHIBITS
Exhibit A Form of Shareholders Agreement
Exhibit B Form of Subordinated Note
Exhibit C Form of Holdings Guaranty
Exhibit D Form of Subsidiary Guaranty
Exhibit E Form of Opinion of Counsel to Holdings
and FMCAN
Exhibit F Form of Duff & Phelps Letter
Exhibit G Form of Confirmation and Assumption
Agreement
Exhibit H Sample Preferred Return Calculations
Exhibit I Letter Agreement
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<PAGE>
FANNIE MAY HOLDINGS, INC.
FMCAN ACQUISITION CORP.
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT is made as of this 30th day of
October, 1991 by and among FANNIE MAY HOLDINGS, INC., a Delaware corporation
("Holdings"), FMCAN Acquisition Corp., an Illinois corporation ("FMCAN"), and
the persons listed on Schedule 1 hereto (the "Purchasers").
RECITALS
Pursuant to the Stock Purchase Agreement dated as of August 22, 1991
(as amended by the First Amendment dated as of October 30, 1991, the "Stock
Purchase Agreement") by and among Archibald Candy Corporation (the "Company"),
its stockholders (the "Sellers") and Holdings, Holdings has arranged for FMCAN
to acquire all of the outstanding shares of the Company's common stock (the
"Stock") and certain stockholders of the Company will exchange shares of the
Company's common stock and preferred stock owned by them for a total of 1,000
shares of Holdings, 5% Senior Preferred Stock (such purchase and exchange being
the "Acquisition"). The purchase price for the Acquisition shall consist of (i)
cash in the aggregate amount of $75,000,000 and (ii) the Senior Preferred Stock
referred to above, which will have an aggregate redemption value of $10,000,000.
To provide funds for the consummation of the Acquisition, certain
persons will purchase from Holdings 294.737 shares of its common stock for a
purchase price of $294,737.
To obtain financing for the Acquisition, FMCAN desires to issue and
sell to the Purchasers $35,000,000 principal amount of its 14% Subordinated
Notes for an aggregate purchase price of $35,000,000, and Holdings desires to
sell to the Purchasers (i) 280 shares of its junior Preferred Stock for an
aggregate purchase
<PAGE>
price of $7,000,000 and (ii) 705.263 shares of its common stock for an aggregate
purchase price of $705,263.
To obtain additional financing for the Acquisition, FMCAN desires to
issue and sell to Jackson National Life Insurance Co. $30,000,000 principal
amount of its Senior Secured Notes (the "Senior Notes") for an aggregate
purchase price of $30,000,000. Working capital financing will be provided by
the First National Bank of Chicago pursuant to a Credit Agreement dated as of
October 30, 1991 (the "Working Capital Facility"). The Senior Notes and the
Working Capital Facility will be secured on a pari passu basis by a pledge of
the stock of FMCAN and by security interests in substantially all the assets of
FMCAN.
Immediately following the consummation of the Acquisition, FMCAN will
be merged with and into the Company with the Company as the surviving entity and
each Subsidiary of the Company (other than Non-Material Subsidiaries (as
hereinafter defined)) will be merged with and into the Company with the Company
as the surviving entity. By operation of law, upon the consummation of the
merger the Company will become FMCAN's successor and will be obligated under the
terms and conditions of this Agreement applicable to FMCAN. The Company will
confirm its obligations under this Agreement and each applicable Ancillary
Agreement (as hereinafter defined) and the Notes by executing a Confirmation and
Assumption Agreement and by countersigning the Notes.
At the closing of the transactions contemplated by this Agreement (a)
Jordan, Holdings, FMCAN and each Purchaser will enter into a Shareholders
Agreement relating to, among other things, the composition of Holdings' and the
Company's boards of directors; (b) Holdings will enter into Management
Consulting and Non-Compete Agreements with Mrs. Jean Thorne, Mr. John Hughes and
Susan V. Thorne; (c) Holdings will enter into Employment Agreements with Mr.
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John D. Thorne and Mr. Charles B. Morrow; (d) the Company will refinance certain
existing indebtedness; and (e) Holdings will enter into a guaranty of the
obligations of FMCAN under the Notes.
Accordingly, the parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
As used herein, the following terms shall have the meanings set forth
below:
"Acquisition" means the acquisition of all of the issued and
outstanding stock of the Company pursuant to the Stock Purchase
Agreement.
"Affiliate" of any Person shall mean any Person that, directly or
indirectly, is in control of, is controlled by, or is under common
control with, such Person. For purposes of this definition, a Person
shall be deemed to be "controlled by" another Person if the other
possesses, directly or indirectly, power either (i) to vote 10% or
more of the securities having ordinary voting power for the election
of directors of such Person or (ii) to direct Or cause the direction
of the management and policies of such Person whether by contract or
otherwise.
"Agreement," "hereof" and "hereunder" and words of similar import
refer to this Securities Purchase Agreement, as it may be from time to
time amended.
"Ancillary Agreements" means the Stock Purchase Agreement, the
Shareholders Agreement, the Holdings Guaranty, the Subsidiary
Guaranty, the Senior Financing Documents, the Plans of Mergers, the
Confirmation and Assumption Agreement, the Management Consulting
Agreement, Investment Banking Fee Agreement, the Employment
Agreements, the Jordan Subscription Agreement, the Noncompetition
Agreement and the SAR Agreements.
"Book Value" means, with respect to any asset at any time, the
value of such asset, net of depreciation or amortization, as reflected
on the most recent consolidated balance sheet of the relevant Person
and its Subsidiaries.
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<PAGE>
"Business" means the business of the Company and its subsidiaries
and shall be deemed to include any of the following incidents of such
business: income, operations, condition (financial or otherwise),
assets, properties, prospects and management.
"Capitalized Lease Obligation" means the amount of the liability
of any Person which in accordance with GAAP should be capitalized or
disclosed on the balance sheet of such Person in respect of a
Capitalized Lease.
"Capital Lease" means any agreement for the lease, hire or use of
any real or personal property required to be characterized as a
capital lease in accordance with GAAP.
"Change of Control" means any or all of the following: (i) the
persons listed on Schedule l(a) hereto and all of their Permitted
Transferees collectively ceasing to own, directly or indirectly, at
least 25% of the outstanding Common Shares, (ii) David Zalaznick, John
W. Jordan II, Adam E. Max, Jonathan F. Boucher, John R. Lowden and
Thomas Quinn collectively ceasing to have the absolute and
unconditional power to vote a majority of the Class C Common Shares or
ceasing to have the right to designate at least three members of the
Board of Directors of Holdings under the applicable provisions of the
Shareholders Agreement, in each case without having to obtain the
consent of any other Person, (iii) David Zalaznick, Thomas Quinn, Adam
E. Max and John W. Jordan collectively ceasing to have the absolute
and unconditional power to vote 35% of the outstanding Class C Common
Shares, without having to obtain the consent of any other Person or
(iv) Holdings ceasing to own 100% of the issued and outstanding shares
of capital stock of FMCAN; provided that the execution of that certain
letter agreement dated as of the date hereof, a copy of which is set
forth as Exhibit I hereto, shall not constitute a Change of Control.
"Class A Common Shares" means shares of Class A Common Stock of
Holdings, par value $0.01 per share.
"Class B Common Shares" means shares of Class B Common Stock of
Holdings, par value $0.01 per share.
"Class C Common Shares" means shares of Class C Common Stock of
Holdings, par value $0.01 per share.
"Class D Common Shares" means shares of Class D Common Stock of
Holdings, par value $0.01 per share.
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<PAGE>
"Closing" has the meaning set forth in Section 2.3 hereof.
"Closing Date" means the date on which the Closing occurs.
"Commission" means the Securities and Exchange Commission.
"Common Shares" means any or all of the Class A Common Shares,
Class B Common Shares, Class C Common Shares and/or Class D Common
Shares.
"Common Stock Equivalents" means Common Shares and any securities
of Holdings that are convertible into or exercisable or exchangeable
for Common Shares and any other options or rights to acquire Common
Shares.
"Company" means, prior to the consummation of the Mergers,
Archibald Candy Corporation, an Illinois corporation, and, from and
after the consummation of the Mergers, Archibald Candy Corporation, an
Illinois Corporation, as survivor of the Mergers, and its successors
and assigns.
"Confirmation and Assumption Agreement" means the Confirmation
and Assumption Agreement to be entered into on the Closing Date by and
among Holdings, the Company and the Purchasers, as such agreement may
be Company and the Purchasers, as such agreement may be from time to
time amended. A form of Confirmation and Assumption Agreement is
attached hereto as Exhibit G.
"Consolidated Interest Expense" means, for any period, total
interest expense (including, without limitation, that portion of any
Capitalized Lease obligations attributable to interest expense in
conformity with GAAP and amortization of capitalized interest) paid or
accrued with respect to all outstanding Indebtedness of Holdings and
its Subsidiaries, excluding all commissions, discounts and other fees
and charges owed with respect to letter of credit and bankers
acceptance financing and net costs under any interest rate hedging,
cap or similar agreement or arrangement, prepayment charges, agency
fees, administrative fees, commitment fees and capitalized transaction
costs allocated to interest expense, payments received under such
interest rate hedging, cap or similar agreement or arrangement, all as
determined for Holdings and its Subsidiaries on a consolidated basis
for such period in accordance with GAAP.
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<PAGE>
"Consolidated Net Income (Loss)" means, for any period, the net
income (or loss) of Holdings and its Subsidiaries on a consolidated
basis for such period taken as a single accounting period, determined
in accordance with GAAP (but in any event without deduction of
dividends paid or payable in respect of any capital stock of
Holdings); PROVIDED that in determining Consolidated Net Income there
shall be excluded (i) the income (or loss) of any Person (other than a
Subsidiary of Holdings) in which any Person other than Holdings or any
of its Subsidiaries has a joint interest or partnership interest,
except to the extent of the amount of dividends or other distributions
actually paid to Holdings or any of its Subsidiaries by such Person
during such period, (ii) the income (or loss) of any Person accrued
prior to the date it becomes a Subsidiary of Holdings or is merged
into or consolidated with Holdings or any of its Subsidiaries or that
Person's assets are acquired by Holdings or any of its Subsidiaries,
(iii) the proceeds of any life insurance policy, (iv) gains and losses
from the sale, exchange, transfer or other disposition of property or
assets not in the ordinary course of business of Holdings and its
Subsidiaries, (v) any other extraordinary or non-recurring gains and
losses of Holdings or its Subsidiaries, and (vi) the income of any
Subsidiary of Holdings to the extent that the declaration or payment
of dividends or similar distributions by that Subsidiary of that
income is not at the time permitted by operation of the terms of its
charter or of any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to that
Subsidiary.
"Consolidated Net Worth" means, as at any date of determination,
the sum at such date of (i) the aggregate par value of Holdings'
outstanding capital stock, PLUS (ii) additional paid-in capital, PLUS
(iii) retained earnings, PLUS (iv) the aggregate amount of
consolidated depreciation and amortization expenses of Holdings and
its Subsidiaries for the period from the Closing Date through the date
of determination (including, without limitation, amortization expense
related to the write-up in the Book Value of any assets due to good
will or unallocated purchase price and other amortization or
depreciation arising out of the transactions contemplated by this
Agreement and the Ancillary Agreements, to the extent such adjustments
are made pursuant to APB Nos. 16 and 17 and are deducted in
determining Consolidated Net Income during such period) (including the
non-cash portion of the expenses under the SAR Agreements and any
Permitted Stock Option Plan, reduced by the amount of any subsequent
cash payments in respect thereto) PLUS (v) the
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transaction costs expensed but not capitalized during the period from
the Closing Date through and including August 31, 1992 PLUS (vi) to
the extent not otherwise included in Consolidated Net Worth, the
cumulative redemption value of any preferred stock of Holdings issued
after the Closing Date in lieu of cash dividends in accordance with
the Certificate of Incorporation of Holdings, LESS Holdings' treasury
stock account, all as determined for Holdings and its Subsidiaries on
a consolidated basis in conformity with GAAP.
"EBITDA" means, for any period, Consolidated Net Income for such
period PLUS all amounts deducted in determining such Consolidated Net
Income on account of Consolidated Interest Expense, taxes based on or
measured by income, depreciation expense and amortization expense
(including, without limitation, amortization expense related to the
write-up in the Book Value of any assets due to goodwill or
unallocated purchase price and other amortization or depreciation
arising out of the transactions contemplated by this Agreement and the
Ancillary Agreements, to the extent such adjustments are made pursuant
to APB Nos. 16 and 17 and are deducted in determining Consolidated Net
Income for such period), the transaction costs expensed but not
capitalized during the period from the Closing Date to and including
August 31, 1992, the consulting fee payable to Thomas Quinn and the
fees of the three directors designated by the Jordan Group (to the
extent that such consulting fee and directors' fees do not exceed, in
the aggregate, $70,000 in any fiscal year), fees and expenses paid or
payable under the Management Consulting Agreement and the Investment
Bank Fee Agreement and the non-cash portion of expenses under the SAR
Agreements and any Permitted Stock Option Plan, all as determined for
Holdings and its Subsidiaries on a consolidated basis in accordance
with GAAP.
"Employment Agreements" means the agreements set forth on
Schedule 1(b) hereto, as amended from time to time.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time.
"ERISA Affiliate" means any corporation or other Person which is
a member of the same controlled group (within the meaning of Section
414(b) of the Internal Revenue Code) of corporations or other Persons
as FMCAN, Holdings, the Company or any of their respective
Subsidiaries (as applicable), or which is under common control (within
the meaning of Section 414(c) of the
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Internal Revenue Code) with FMCAN, Holdings, the Company or any of
their respective Subsidiaries (as applicable), or any corporation or
other Person which is a member of an affiliated service group (within
the meaning of Section 414(m) of the Internal Revenue Code) with
FMCAN, Holdings, the Company or any of their respective Subsidiaries
(as applicable), or any corporation or other Person which is required
to be aggregated with FMCAN, Holdings, the Company or any of their
respective Subsidiaries (as applicable) pursuant to Section 414(o) of
the Internal Revenue Code or the regulations promulgated thereunder
(to the extent currently effective); provided, however, that none of
the Purchasers shall be considered an ERISA Affiliate of FMCAN,
Holdings, the Company or any of their respective Subsidiaries.
"Event of Default" has the meaning set forth in Section 10.1
hereof.
"Exit Event" means any of (i) the sale, lease, transfer or other
disposition (whether directly or by merger, combination or any like
transaction other than the Mergers or pursuant to any sale-leaseback
of transaction) of a Significant Portion of the assets of Holdings and
its Subsidiaries; (ii) any recapitalization of Holdings by means of a
redemption of equity securities of Holdings or a distribution to the
shareholders of Holdings, in either case involving in excess of 50% of
the Common Shares (other than stock splits, rights issuances or
similar transactions); (iii) the issuance of equity securities by
Holdings (other than (A) dividend payments in kind in accordance with
the terms of the Seller Preferred Stock, the Junior Preferred Shares
and the Jordan Junior Preferred Stock and (B) pursuant to the
Permitted Stock Option Plan); (iv) the liquidation or dissolution of
Holdings (other than in a merger of Holdings into FMCAN); and (v) a
Change of Control.
"Financial Statements" has the meaning set forth in Section 3.16
hereof.
"Fixed Charges" shall mean, for any period, without duplication,
Consolidated Interest Expense for such period, PLUS (i) scheduled
payments of principal of all Indebtedness of Holdings and its
Subsidiaries during such period, PLUS (ii) capital expenditures made
during such period (reduced by (a) the aggregate amount of credits
received by FMCAN and its Subsidiaries in respect of motor vehicle
trade-ins during such period and (b) all amounts not in excess of
$510,000, cumulatively and in the aggregate for all periods expended
in compliance with
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Sections 10.3(F) and (G) of the Senior Note Purchase Agreement), PLUS
(iii) payments actually paid or payable in cash with respect to such
period with respect to preferred stock (including, without limitation
and without duplication, dividends paid on the common stock of FMCAN
for the purpose of funding the payment of dividends by Holdings on the
Seller Preferred Stock), all as determined for Holdings and its
Subsidiaries on a consolidated basis in accordance with GAAP.
"FMCAN" means FMCAN Acquisition Corp., an Illinois corporation
and wholly-owned subsidiary of Holdings, and its successors and
assigns, including, following the Mergers, the Company; references
herein to FMCAN or to the Company following the Mergers refer to the
same company and have the same meaning.
"GAAP" means generally accepted accounting principles set forth
in the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards
Board or in such other statements by such other entity as may be
approved by a significant segment of the accounting profession, which
are applicable to the circumstances as of the date of determination.
"Hazardous Substances" means (but shall not be limited to)
substances that are defined or listed in, or otherwise classified
pursuant to, any applicable federal, state or local laws and
regulations, including, without limitation, 40 CFR 261 and 40 CFR 280,
as "hazardous wastes" or "toxic substances," "regulated substances,"
or any other formulation intended to define, list or classify
substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, radioactivity, carcinogenicity, reproductive
toxicity or "EP toxicity."
"Holder" means any holder or holders of Purchaser Common Shares
that are not Public Common Shares.
"Holdings" means Fannie May Holdings, Inc., a Delaware
corporation, and its successors and assigns.
"Holdings Guaranty" means the Guaranty to be executed and
delivered on the Closing Date by Holdings in favor of the Purchasers.
A form of Holdings Guaranty is attached hereto as Exhibit C.
"Indebtedness" means, as applied to any Person, (i) all
indebtedness of that Person for borrowed money, (ii)
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all notes payable and drafts accepted representing extensions of
credit to such Person whether or not representing obligations for
borrowed money (other than trade drafts or notes payable issued in the
ordinary course of business), (iii) any obligation (other than trade
payables incurred in the ordinary course of business) owed by that
Person for all or any part of the deferred purchase price of property
or services which purchase price is due more than six months from the
date of incurrence of the obligation in respect thereof, (iv) that
portion of obligations with respect to Capital Leases which is
properly classified as a liability on the balance sheet of such Person
in conformity with GAAP, (v) all indebtedness of others which such
Person has directly or indirectly guaranteed, endorsed (other than for
payment in the ordinary course of business), discounted with recourse
or agreed to purchase or repurchase, and (vi) the face amount of all
outstanding bankers acceptances and of all outstanding letters of
credit issued by any Person for the account of such Person, less all
drafts drawn thereunder that have been reimbursed to the issuer.
"Initiating Holder" means a Holder or Holders of Purchaser Common
Shares which are not Public Common Shares which constitute at least
40% of the total Common Shares outstanding.
"Interest Payment Date" means each February 28 and August 31 of
each year.
"Internal Revenue Code" means the Internal Revenue Code of 1986,
as amended, or any successor statute.
"Internal Revenue Service" means the United States Internal
Revenue Service and any successor or similar agency performing similar
functions.
"Investment" means, as applied to any Person, any direct or
indirect purchase or other acquisition by that Person of, or of a
beneficial interest in, stock or other securities of any other Person,
or any direct or indirect loan, advance (other than down payments,
advances to employees for moving, relocation and travel expenses,
drawing accounts and similar expenditures in the ordinary course of
business) or capital contribution by that Person to any other Person,
including all indebtedness and accounts receivable from that other
Person which are not current assets or do not arise from sales to that
other Person in the ordinary course of business.
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"Investment Banking Fee Agreement" means the Investment Banking
Fee Agreement to be entered into on the Closing Date by and between
The Jordan Company and Holdings, as such agreement is in effect on
such date.
"Jackson" means Jackson National Life Insurance Company in its
capacity as holder of the Senior Secured Notes due 1999 of FMCAN and
its successors and assigns.
"Jackson National" means Jackson National Life Insurance Company
in its capacity as a Purchaser hereunder and its successors and
assigns.
"Jackson National Transfer" means any transfer or transfers to no
more than a total of two transferees by Jackson National of no more
than 37.740 Purchaser Common Shares in the aggregate to Affiliates of
Jackson National within 18 months following the Closing.
"Jackson National Transferee" means any Person who acquires
securities in a Jackson National Transfer.
"Jordan Group" has the meaning ascribed to such term in the
Shareholders Agreement.
"Jordan Junior Preferred Stock" means the Junior Class B PIK
Preferred Stock of Holdings having a liquidation preference of $25,000
per share, which shall be subordinated to the Junior Preferred Shares.
"Jordan Subscription Agreement" means the Subscription Agreement
to be entered into on the Closing Date between Holdings and the
persons listed on Schedule 1(a) hereto.
"Junior Preferred Shares" means the shares of Junior Class A PIK
Preferred Stock of Holdings having a liquidation preference of $25,000
per share.
"Lien" means any lien, mortgage, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or
other title retention agreement, any lease in the nature thereof, and
any agreement to give any security interest or Lien).
"Management Consulting Agreement" means the Management Consulting
Agreement to be entered into on the Closing Date by and between TJC
Management Corp. and Holdings, as such agreement is in effect on such
date.
"Material Holder" means (i) so long as it holds any Securities,
each of the original Purchasers hereunder and
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(ii) any other Person who holds any of the following: (x) at least
$4,000,000 principal amount of Notes, (y) at least 32 Junior Preferred
Shares or (z) at least 114,300 Common Shares.
"Mergers" means the merger of FMCAN with and into Archibald Candy
Corporation, an Illinois corporation with Archibald Candy Corporation
as the surviving corporation and the merger of each Subsidiary of
Archibald Candy Corporation (other than any Non-Material Subsidiary)
with and into Archibald Candy Corporation with Archibald Candy
Corporation as the surviving corporation.
"Multiemployer Plan" means a "multiemployer plan" as defined in
Section 3(37) or Section 4001(a)(3) of ERISA or Section 414(f) of the
Internal Revenue Code contributed to by Holdings, FMCAN, the Company
or any of their respective Subsidiaries or ERISA Affiliates.
"Non-Competition Agreement" means the Management Consulting and
Noncompetition Agreements to be entered into on the Closing Date
between Holdings, Mrs. Jean Thorne and Mr. John Hughes.
"Non-Material Subsidiary" shall mean any Subsidiary of the
Company, whether or not such Subsidiary is a party to any of the
Ancillary Agreements, (i) the revenues of which (directly and together
with its Subsidiaries) for the most recent fiscal year of the Borrower
were less than 0.1% of the Company's consolidated revenues for such
fiscal year and (ii) the consolidated total assets the Book Value of
which as of the last day of such fiscal year was less than 0.1% of the
Book Value of the Company's consolidated total assets as of such date.
"Notes" means the 14% Subordinated Notes Due 2000 of FMCAN to be
issued and sold to the Purchasers hereunder at the Closing. A form of
Subordinated Note is attached hereto as Exhibit B.
"Original Purchasers" means the TCW Entities, any TCW Transferee,
Jackson National, any Jackson National Transferee and Mezzanine
Capital and Income Trust 2001 PLC.
"Other Shareholders" means persons holding Common Shares other
than Purchaser Common Shares.
"PBGC" means the Pension Benefit Guaranty Corporation or any
successor thereto.
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"Pension Plan" means an employee pension benefit plan, as defined
in Section 3(2) of ERISA, excluding a Multiemployer Plan, maintained
by or contributed to by Holdings, FMCAN, the Company or any of their
respective Subsidiaries or ERISA Affiliates.
"Permitted Liens" means (i) Liens for taxes, assessments,
governmental charges or other governmental levies which, in each case,
are (x) not yet due and payable or (y) being contested in good faith
by appropriate proceedings, adequately reserved against or provided
for in conformity with GAAP and none of Holdings', FMCAN's, or any of
their respective Subsidiaries' title to use or right to use their
properties is materially adversely affected thereby; (ii) statutory
Liens of landlords and depository institutions and Liens of carriers,
warehousemen, mechanics, suppliers, materialmen and other similar
Liens imposed by law or contract incurred in the ordinary course of
business for sums (x) not yet delinquent or (y) being contested in
good faith by appropriate proceedings, adequately reserved against or
provided for in conformity with GAAP and none of Holdings', FMCAN's,
or any of their respective Subsidiaries' title to use or right to use
their properties is materially adversely affected thereby; (iii) Liens
(other than any Lien imposed pursuant to Sections 401(a)(29) or 412(n)
of the Internal Revenue Code or by ERISA) incurred or deposits made in
the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social
security, or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government
contracts, performance and return-money bonds and other similar
obligations (exclusive of obligations for the payment of borrowed
money); (iv) leases or subleases granted to others not interfering in
any material respect with the business of the Person granting such
rights; (v) easements, rights-of-way, restrictions and other similar
charges or encumbrances not interfering in any material respect with
the business of the Person granting such rights; (vi) any interest or
title of a lessor in property subject to any lease permitted
hereunder; (vii) Liens arising out of consignment or similar
arrangements for the sale of goods entered into in the ordinary course
of business in accordance with the reasonable practices in the
industry of the Person making such arrangements; and (viii) judgment
Liens with respect to judgments that do not give rise to an Event of
Default under this Agreement.
"Permitted Stock Option Plan" means an employee stock option or
stock bonus plan which is adopted by the
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Board of Directors of Holdings and reasonably acceptable to the
Purchasers and which provides for the issuance to the employees of
Common Shares so long as (i) the number of Common Shares issued
pursuant to such plan and upon the exercise of such options does not
exceed, in the aggregate, 33 Class A Common Shares.
"Permitted Transferees" means, (x) in the case of any
Shareholder, (A) Affiliates or officers and directors of any such
Shareholder, (B) any individual that is a member of such Shareholder's
immediate family (E.G., spouses, parents and children), or any trust
established for the benefit of any such member, (y) in the case of any
TCW Entity, any TCW Transferee, and (2) in the case of Jackson, any
Jackson Transferee.
"Person" means and includes natural persons, corporations,
limited partnerships, general partnerships, joint stock companies,
joint ventures, associations, companies, trusts, banks and other
organizations, whether or not legal entities, and governments and
agencies and political subdivisions thereof.
"Plan" and "Plans" means any employee benefit plan as defined in
Section 3(3) of ERISA, excluding a Multiemployer Plan, established or
maintained for the benefit of employees of Holdings, FMCAN, the
Company or any of their respective Subsidiaries or ERISA Affiliates.
"Plans of Mergers" means the Plans of Mergers pursuant to which
the Mergers will be consummated.
"Pledge Agreement" means the Pledge Agreement entered into on the
Closing Date by and between Holdings, Wilmington Trust Company, a
Delaware banking corporation, as trustee and William J. Wade as
trustee.
"Preferred Return" means, with respect to Purchaser Common Shares
required to be redeemed pursuant to Section 6.8(a), an amount,
determined as of the date of any such redemption, equal to the sum of
(A) one dollar per Common Share and (B) the product of (i) that amount
which, taking into account (x) all cash payments theretofore or
concurrently made in respect of the Notes (including principal,
premium and interest) and the Junior Preferred Shares and (y) all cash
payments theretofore received by the Original Purchasers in respect of
the Purchaser Common Shares that have previously been redeemed
pursuant to Section 6.8(a) or sold, transferred or otherwise disposed
of (except in a TCW Transfer or Jackson National Transfer), is
sufficient to provide an annual 16% internal rate of return on
$42,000,000 computed on the
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basis of semi-annual compounding, multiplied by (ii) a fraction the
numerator of which shall equal the number of Purchaser Common Shares
then being redeemed which are held by Original Purchasers and the
denominator of which shall equal the number of Common Shares then held
by all Holders. For the purposes of clause (i)(x) above, it shall be
assumed that the Notes and Junior Preferred Shares will be paid in
full as of such date of redemption (provided, that if at any time
Holdings shall redeem any Junior Preferred Shares or FMCAN shall repay
any principal amount of the Notes, certain additional redemption
payments will be made pursuant to Section 6.8(f) at the time of such
redemption or repayment). In calculating the amount required to
provide a Holder with a 16% internal rate of return, each amount taken
into account pursuant to clauses (x) and (y) above (the "Paid
Amounts") shall be discounted from the date of payment or assumed
payment, as applicable back to the Closing Date utilizing an annual
discount rate of 16% and compounded semiannually. The amounts
sufficient to provide the required return shall be that amount which,
when so discounted and when added to all Paid Amounts so discounted,
equals $42,000,000. Exhibit H illustrates the manner in which the
Preferred Return shall be calculated.
"Public Common Shares" means Common Shares that have been sold to
the public pursuant to an effective registration statement or under
Rule 144.
"Purchase Price" means the purchase price paid by each Purchaser
for each class of Securities being purchased by such Purchaser as set
forth on Schedule 1 hereto.
"Purchaser Common Shares" means Common Shares issued and sold to
the Purchasers hereunder or transferred to the TCW Transferees or
Jackson National Transferees pursuant to one or more TCW Transfers or
Jackson National Transfers, as the case may be.
"Purchasers" means, as the context requires, any or all of the
Persons identified as such on Schedule 1 hereto and their respective
successors and assigns.
"Registration" means a registration of Common Shares or other
common equity securities under the Securities Act.
"Reportable Event" means any of the events set forth in Section
4043(b) of ERISA or the regulations thereunder for which the 30-day
notice requirement applies.
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"Requesting Holder" means a Holder or Holders of Purchaser Common
Shares which are not Public Common Shares which constitute at least
50% of such Purchaser Common Shares outstanding.
"Rule 144" means Rule 144 promulgated under the Securities Act,
or any successor provision thereto.
"SAR Agreements" means the agreements set forth on Schedule 1(c)
hereto, as in effect on the Closing Date.
"SAR Amount" means, as of any date on which Common Shares are
required to be redeemed pursuant to Section 6.8, the aggregate amount
payable by Holdings pursuant to all then existing SAR Agreements,
assuming that (i) all stock appreciation rights thereunder are
exercised on such date and (ii) that the fair market value of the
Common Shares is determined by reference to the definition of Fair
Market Value rather than pursuant to the provisions of such SAR
Agreements.
"Securities" means, as the context requires, any or all of the
Notes, the Junior Preferred Shares and the Purchaser Common Shares.
"Securities Act" means the Securities Act of 1933, as amended, or
any successor statute.
"Seller Preferred Stock" means the 5% Senior Preferred Stock of
Holdings having a liquidation preference of $10,000 per share.
"Senior Financing Documents" means the Senior Note Purchase
Agreement, the Working Capital Facility and the Loan Documents (as
defined in the Senior Note Purchase Agreement).
"Senior Note Purchase Agreement" means the Note Purchase
Agreement to be entered into on the Closing Date by and among
Holdings, FMCAN and Jackson as it may be amended from time to time.
"Shareholders Agreement" means the Shareholders Agreement to be
entered into on the Closing Date by and among Jordan, Holdings, FMCAN
and each Purchaser, as it may be from time to time amended. A form of
Shareholders Agreement is attached hereto as Exhibit A.
"Significant Portion" means, with respect to assets of Holdings
and its Subsidiaries (taken as a whole), assets (other than inventory)
which, when added to all other assets (other than inventory) of
Holdings and its
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Subsidiaries sold, leased, transferred, pledged or assigned in one or
more transactions during any four consecutive calendar quarters,
accounted for 60 percent, for purposes of the definition of Exit
Event, or 25 percent, for purposes of Section 7.8, of the revenues of
Holdings and its Subsidiaries on a consolidated basis as at the end of
the calendar quarter immediately preceding the first of such four
consecutive calendar quarters.
"Stock Purchase Agreement" means the Stock Purchase Agreement
dated as of August 22, 1991 by and among Archibald Candy Corporation,
its stockholders and Fannie May Holdings, Inc. as amended by the First
Amendment dated as of October 30, 1991 and as it may be further
amended from time to time.
"Subordination Agreement" means the Subordination Agreement to be
entered into on the Closing Date by and among FMCAN, Holdings,
Jackson, the Working Capital Lender, and the Purchasers as it may be
amended from time to time.
"Subsidiary" means, with respect to any Person, any other Person,
a majority of the voting securities of which are owned by such Person.
"Subsidiary Guaranty" means the Subsidiary Guaranty to be
executed and delivered by each Subsidiary of FMCAN (other than a Non-
Material Subsidiary in accordance with Section 6.11). A form of
Subsidiary Guaranty is attached hereto as Exhibit D.
"TCW" means TCW Special Placements Fund III, a California limited
partnership.
"TCW Entities" means TCW Special Placements Fund III, a
California limited partnership, TCW Capital, a California general
partnership acting solely in its capacity as Investment Manager
pursuant to an Investment Management Agreement dated as of June 19,
1989, TCW Capital, a California general partnership acting solely in
its capacity as Investment Manager pursuant to an Investment
Management Agreement dated as of April 18, 1990 and Mezzanine Capital,
a California general partnership and their respective successors and
assigns.
"TCW Transfer" means any transfer or transfers to no more than a
total of two transferees by one or more of the TCW Entities of no more
than 113.346 Purchaser Common Shares in the aggregate to the partners
or investors of any TCW Entity within 18 months of the Closing.
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"TCW Transferee" means any Person who acquires securities in a
TCW Transfer.
"Threshold Securities" means (i) any Notes, (ii) 92 Junior
Preferred Shares or (ii) 333,000 Purchaser Common Shares which are not
Public Common Shares.
"Triggering Event" means (i) the failure of FMCAN to make any
payment in respect of principal or premium or interest on the Notes as
the same become due, including by acceleration and such failure shall
continue for a period of 90 days; (ii) the failure by Holdings to
redeem the Junior Preferred Shares in accordance with the Section 2.7
hereof and such failure shall continue for a period of 90 days; (iii)
the failure by FMCAN to repay the Notes at maturity; (iv) the failure
by Holdings to redeem the Junior Preferred Shares at their final
redemption date; or (v) after October 31, 1999, the failure by
Holdings to redeem Common Shares in accordance with Section 6.8
hereof. With respect to any Triggering Event described in clauses (i)
or (ii) above, such Triggering Event shall continue indefinitely once
it has occurred. With respect to any Triggering Event described in
clauses (iii), (iv) or (v) above, such Triggering Event shall continue
until the pertinent failure described therein has been cured by
Holdings by payment in full of the amounts required.
"Working Capital Facility" means the Credit Agreement to be
entered into on the Closing Date by and between FMCAN, Holdings, the
Working Capital Lender and the Lenders referred to therein as it may
be amended from time to time.
"Working Capital Lender" means The First National Bank of
Chicago, as agent and its successors and assigns.
SECTION 2. THE SECURITIES; CLOSING; DELIVERY
2.1 AUTHORIZATION OF SECURITIES.
(a) FMCAN has authorized the issuance and sale to the Purchasers,
pursuant to the terms and conditions hereof, of $35,000,000 principal amount of
the Notes.
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(b) Holdings has authorized the issuance and sale to the Purchasers,
pursuant to the terms and conditions hereof, of (i) 280 Junior Preferred Shares,
(ii) 544.135 Class A Common Shares, (iii) 151.128 Class B Common Shares, and
(iv) 10 Class D Common Shares.
2.2 PURCHASE AND SALE. Subject to the terms and conditions hereof, at the
Closing, (i) FMCAN will issue and sell to each Purchaser and each Purchaser will
purchase from FMCAN, the principal amount of Notes and (ii) Holdings will issue
and sell to each Purchaser, and each Purchaser will purchase from Holdings, the
number of Junior Preferred Shares and Common Shares, in each case, set forth
opposite such Purchaser's name on Schedule 1 hereto, for the respective Purchase
Prices there set forth.
2.3 CLOSING. The closing of the purchase and sale of the Notes, the Junior
Preferred Shares and the Common Shares contemplated hereby shall be held at such
time and place as the parties may agree upon. Such closing is hereinafter
referred to as the "Closing." The closing of the Acquisition shall occur
simultaneously with the Closing.
2.4 DELIVERY. Subject to the terms of this Agreement, at the Closing,
unless otherwise requested, FMCAN will deliver to each Purchaser a single
Subordinated Note evidencing the Notes acquired by such Purchaser, and Holdings
will deliver to each Purchaser a single certificate evidencing the Junior
Preferred shares acquired by such Purchaser and a single certificate evidencing
the Common Shares acquired by such Purchaser, against payment of the Purchase
Price therefor in immediately available funds.
2.5 NOTES -- MATURITY; PAYMENT OF INTEREST.
(a) The Notes mature on October 31, 2000, and on such date, or on any
accelerated maturity, the full amount of principal
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then outstanding, and all accrued and unpaid interest thereon, shall be due and
payable.
(b) The Notes shall bear interest at the rate of 14% per annum,
computed on the basis of actual days elapsed and a 360-day year. Interest shall
be payable on and to each Interest Payment Date, commencing on the first such
date to occur after the Closing, upon any prepayment of Notes (to the extent
accrued on the amount of such prepayment) and at maturity.
2.6 NOTES -- VOLUNTARY PREPAYMENTS.
(a) The Notes may not be voluntarily prepaid except as permitted by
this Section 2.6. All prepayments under this Section 2.6 shall be in a minimum
amount of $350,000 shall be made ratably among the holders of the Notes in
proportion to the amounts of principal of such Notes held by such holders, shall
be accompanied by a payment of all interest accrued to the prepayment date on
the principal being prepaid and shall be applied 50% to the payment due on
October 31, 2000 and 50% to the payment due on February 28, 2000. Section
6.8(c) sets forth certain adjustments that may apply in connection with the
prepayment in full of the Notes.
(b) In the event of a prepayment which is being made as a part of a
refunding or anticipated refunding operation excluding a refinancing in
conjunction with a redemption pursuant to Section 6.8, by the application,
directly or indirectly, of borrowed funds, FMCAN may voluntarily prepay
principal of the Notes, at any time, in whole, but not in part, by paying in
addition to such principal, to the extent permitted by law, a premium on such
principal in accordance with the following table:
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Period in Which
Prepayment Is Made Premium
------------------ -------
10/31/91 - 10/30/94 7.00%
10/31/94 - 10/30/95 6.00%
10/31/95 - 10/30/96 5.00%
10/31/96 - 10/30/97 4.00%
10/31/97 - 10/30/98 3.00%
10/31/98 - 10/30/99 2.00%
10/31/99 - 10/30/00 1.00%
Thereafter 0.00%
(c) In the event of a prepayment other than a prepayment to which
2.6(b) applies, FMCAN may voluntarily prepay principal of the Notes at any time,
in whole or in part, without premium. In order to effect a prepayment of all or
any part of the Notes pursuant to this Section 2.6(c), FMCAN shall deliver to
the holders of the Notes on or prior to the date of such prepayment a
certificate of the chief financial officer of FMCAN to the effect that such
prepayment will not reduce consolidated working capital of Holdings (determined
in accordance with GAAP) below an amount which is considered adequate (taking
into account, among other things, the seasonality of the Business) by the Board
of Directors of Holdings for the conduct of the business of Holdings and its
Subsidiaries without the necessity of creating additional Indebtedness to
replace funds used to make such prepayment.
2.7 MANDATORY PREPAYMENT AND REDEMPTION.
(a) On February 28, 2000, FMCAN shall pay an amount of principal of
the Notes equal to $l7,500,000 without premium, but with interest to the date of
repayment, to retire the Notes at maturity. Such payment shall be made ratably
among the holders of the Notes in proportion to the amounts of principal of the
Notes held by such holders.
(b) In the event of the occurrence of an Exit Event (other than the
Exit Event involving the issuance of equity
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securities by Holdings) then, without prejudice to any other right the
Purchasers may have if any of the foregoing events violates or would violate any
provision of this Agreement, the Notes shall become immediately due and payable
with interest, but without premium, to the date of repayment, and Holdings shall
redeem all of the outstanding Junior Preferred Shares at a redemption price
equal to the liquidation preference of such Junior Preferred Shares together
with accrued dividends and dividends deemed to have accrued pursuant to their
terms.
(c) In the event Holdings issues equity securities other than (i)
dividend payments in kind in accordance with the terms of the Seller Preferred
Stock, the Junior Preferred Shares and the Jordan Junior Preferred Stock and
(ii) pursuant to a Permitted Stock Option Plan, then, without prejudice to any
other rights the Purchasers may have if such issuance of equity securities
violates any provision of this Agreement, including, without limitation, any
right that the Purchasers may have by virtue of such issuance to accelerate the
maturity of the Notes, Holdings shall apply 50% of the net proceeds from the
issuance of such securities (A) first to prepay the Notes, without premium, and,
after the Notes have been repaid in full, (B) second to redeem the Junior
Preferred Shares at a redemption price equal to the liquidation preference of
such Junior Preferred Shares together with accrued dividends and dividends
deemed to have accrued pursuant to their terms; provided, however that, if any
Seller Preferred Stock shall be outstanding, Holdings shall apply such proceeds
to redeem the Seller Preferred Stock prior to redeeming the Junior Preferred
Shares pursuant to this clause (B). All such payments shall be accompanied by
payment of all interest accrued to the prepayment date on the principal of the
Notes being prepaid. Notwithstanding the foregoing, if at any time Holdings is
required to apply the proceeds of an equity issuance as described above and such
application is prohibited by the terms of the Senior Financing Documents, then
such proceeds
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shall be applied in accordance with the terms of the Senior Financing Documents.
(d) Section 6.8(f) sets forth certain adjustments that may apply in
connection with the repayment in full of the Notes and the redemption of the
Junior Preferred Shares.
2.8 REGISTRATION; REGISTRATION OF TRANSFER AND EXCHANGE.
(a) FMCAN and Holdings shall maintain a register for the Securities,
in which it shall provide for the registration of the Securities and of
transfers of the Securities.
(b) Upon surrender for registration or transfer of any Note or
certificate evidencing Junior Preferred Shares or Common Shares, FMCAN or
Holdings, as the case may be, at its expense, shall execute and deliver, in the
name of the designated transferee or transferees, one or more new Notes or
certificates evidencing Junior Preferred Shares or Common Shares.
(c) Notes or certificates evidencing Junior Preferred Shares or
Common Shares may be exchanged at the option of any holder thereof for Notes or
certificates evidencing Junior Preferred Shares or Common Shares of a like
aggregate principal amount or number of shares, as appropriate, in the same name
but in different denominations. Whenever any Notes or certificates evidencing
Junior Preferred Shares or Common Shares are so surrendered for exchange, FMCAN
or Holdings, as the case may be, at its expense, shall execute and deliver the
Notes or certificates evidencing Junior Preferred Shares or Common Shares which
the holder making the exchange is entitled to receive.
(d) All Notes and certificates evidencing Junior Preferred Shares or
Common Shares issued upon any registration of transfer or exchange thereof shall
(i) in the case of Notes, be the
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valid obligations of FMCAN, evidencing the same debt, and entitled to the same
benefits, as Notes surrendered upon such registration of transfer or exchange,
and (ii) in the case of certificates evidencing Junior Preferred Shares or
Common Shares, represent the same securities, duly and validly authorized and
issued, fully paid and nonassessable and free of preemptive rights or Liens, and
be entitled to the same benefits, as certificates evidencing Junior Preferred
Shares or Common Shares surrendered upon such registration of transfer or
exchange.
(e) Each Note or certificate evidencing Junior Preferred Shares or
Common Shares presented or surrendered for registration or transfer or exchange
shall (if so required by FMCAN or Holdings) be duly endorsed, or be accompanied
by a written instrument of transfer in form satisfactory to FMCAN or Holdings,
as the case may be, duly executed by the holder thereof or its attorney duly
authorized in writing.
2.9 REPLACEMENT OF SECURITIES. Upon receipt of evidence reasonably
satisfactory to FMCAN or Holdings, as appropriate, of the loss, theft,
destruction or mutilation of a Note or certificate evidencing Junior Preferred
Shares or Common Shares and upon delivery of an unsecured indemnity agreement
reasonably satisfactory to FMCAN or Holdings, as appropriate, from any holder of
such Note or certificate evidencing Junior Preferred Shares or Common Shares or,
in the case of any such mutilation, upon the surrender of such Note or
certificate evidencing Junior Preferred Shares or Common Shares for cancellation
to FMCAN or Holdings, as appropriate, at its principal office, FMCAN or
Holdings, as the case may be, at its expense, will execute and deliver, in lieu
thereof, a new Note or certificate evidencing Junior Preferred Shares or Common
Shares of like tenor, dated in the case of a Note, so that there will be no loss
of interest. Any Note or certificate evidencing Junior Preferred Shares or
Common Shares in lieu of which any such new Note or certificate evidencing
Junior Preferred
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Shares or Common Shares has been so executed and delivered by FMCAN or Holdings,
as the case may be, shall not thereupon be deemed an outstanding Note or
certificate evidencing Junior Preferred Shares or Common Shares for any purpose
under this Agreement.
2.10 TAXES. All payments by FMCAN of principal of, and interest on, the
Notes and all other amounts payable hereunder (excluding any payments in respect
of the Common Shares and the Junior Preferred Shares) shall be made free and
clear of and without deduction for any present or future income, stamp or other
taxes, fees, duties, withholding or other charges of any nature whatsoever
imposed by any taxing authority, other than taxes imposed on or measured by any
Purchasers' net income or receipts (such non-excluded items being hereinafter
referred to as "TAXES"). In the event that any withholding or deduction from any
payment to be made by FMCAN hereunder is required in respect of any Taxes
pursuant to any applicable law, rule or regulation, then FMCAN will:
(a) pay to the relevant authority the full amount required to be
so withheld or deducted;
(b) promptly forward to the applicable Purchaser an official
receipt or other documentation satisfactory to such Purchaser
evidencing such payment to such authority; and
(c) pay to such Purchaser such additional amount or amounts as
is necessary to ensure that the net amount actually received by such
Purchaser equals the full amount such Purchaser would have received
had no such withholding or deduction been required.
Upon the request of FMCAN, each Purchaser that is organized under the laws of a
jurisdiction other than the United States or any
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state thereof shall, prior to the due date of any payments under the Notes,
execute and deliver to FMCAN, on or about the first scheduled payment date in
each calendar year, a United States Internal Revenue Service Form 4224 or Form
1001 (or any successor form), appropriately completed.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF
HOLDINGS AND FMCAN
To induce the Purchasers to enter into this Agreement and to purchase
the Securities hereunder, FMCAN and Holdings hereby represent, warrant and
covenant to the Purchasers as follows:
3.1 ORGANIZATION AND STANDING; CERTIFICATE OF
INCORPORATION AND BY-LAWS.
Each of Holdings, FMCAN and the Company and its Subsidiaries is a
corporation duly organized and validly existing under, and by virtue of, the
laws of its state of incorporation and is in good standing under such laws. Each
of Holdings, FMCAN and the Company and its Subsidiaries has, and Holdings and
its Subsidiaries following the Mergers will have, the corporate power and
authority to own and operate its properties and assets and to carry on its
business as currently conducted and as proposed to be conducted. Each of
Holdings, FMCAN and the Company and its Subsidiaries is duly qualified as a
foreign corporation, and is in good standing, in each jurisdiction in which its
failure to so qualify might reasonably be expected to have a material adverse
effect on its business, operations, prospects, assets or condition (financial or
otherwise). Each of Holdings, FMCAN and the Company and its Subsidiaries has
furnished the Purchasers with copies of its Certificate of Incorporation and By-
Laws and with all of the minutes of meetings of its shareholders and of its
Board of Directors. Such copies are true, correct and complete and contain all
amendments through the date of this Agreement and will contain all amendments
through the Closing.
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3.2 CORPORATE POWER; ENFORCEABILITY.
(a) Each of Holdings and FMCAN has all requisite corporate power to
enter into this Agreement and each of the Holdings, FMCAN, and the Company and
its Subsidiaries has or will have at the Closing all requisite corporate power
to enter into the Ancillary Agreements to which it is or will be a party. At
the Closing, FMCAN will have all requisite corporate power to issue and to sell
the Notes and to make payments on the Notes when due, and Holdings will have all
requisite corporate power to issue and sell the Junior Preferred Shares and
Common Shares. Each of Holdings, FMCAN and the Company and its Subsidiaries will
have at the Closing all requisite corporate power to carry out and perform all
of its respective obligations under the terms of this Agreement and the
Ancillary Agreements. This Agreement, and each Ancillary Agreement to which any
of Holdings, FMCAN, and the Company and its Subsidiaries is a party, is, and at
the Closing this Agreement, and the Ancillary Agreements to which any of them
will be a party, will be, valid and binding obligations of each of them which is
a party thereto, enforceable against them in accordance with their respective
terms.
(b) Following the Mergers, the Company will succeed to all of the
rights, privileges, obligations, and liabilities of FMCAN, including, without
limitation, obligations and liabilities under this Agreement, the Notes and the
Ancillary Agreements to which FMCAN is or will be a party. This Agreement, the
Notes and such Ancillary Agreements will be, at such time, the valid binding
obligations of the Company and enforceable against it in accordance with their
respective terms.
3.3 SUBSIDIARIES. Except for FMCAN, Holdings does not own, never has owned
and immediately following the Mergers will not own, directly or indirectly, any
shares of capital stock of or any equity interest in any Person. Holdings owns
all of the
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authorized, issued and outstanding capital stock of FMCAN, free and clear of any
Lien whatsoever except Liens pursuant to the Senior Financing Documents. Except
as set forth on Schedule 3.3, the Company does not own, never has owned, and
immediately following the Closing and the consummation of the Acquisition will
not own, directly or indirectly, any shares of capital stock of or any equity
interest in any Person. Immediately following the Mergers, each Subsidiary of
the Company will be a Non-Material Subsidiary.
3.4 CAPITALIZATION.
(a) Immediately prior to the Closing, the authorized capital stock of
Holdings will consist of 2,000 Class A Common Shares, 2,000 Class B Common
Shares, 295 Class C Common Shares, 1,000 Class D Common Shares, and 2,500 shares
of preferred stock, without par value, including 1,500 shares of Seller
Preferred Stock, 625 Junior Preferred Shares, and 62 shares of Jordan Junior
Preferred Stock, none of which will be issued and outstanding. Immediately
following the Closing and the consummation of the Mergers, the authorized
capital stock of Holdings will consist of 2,000 Class A Common Shares, of which
544.135 will be issued and outstanding, 2,000 Class B Common Shares, of which
151.128 will be issued and outstanding, 1,000 Class C Common Shares, of which
294.737 will be issued and outstanding, 1,000 Class D Common Shares, of which 10
will be issued and outstanding, 1,500 shares of Seller Preferred Stock, of which
1,000 will be issued and outstanding, 625 Junior Preferred Shares, of which 280
will be issued and outstanding, and 62 shares of Jordan Junior Preferred Stock,
of which 28 will be issued and outstanding and such shares of capital stock will
be owned by the stockholders in the amounts set forth on Schedule 3.4(a).
(b) Immediately prior to the Closing, the authorized capital stock of
FMCAN will consist of 100 shares of common stock, all of which will be issued
and outstanding and owned by Holdings.
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(c) Immediately prior to the Closing, the authorized capital stock of
the Company will consist of 25,000 shares of common stock, of which 19,200 will
be issued and outstanding and owned by the Sellers and 300,000 shares of
preferred stock of which 291,830 will be issued and outstanding and owned by the
Sellers. Immediately following the Closing and the consummation of the Mergers,
the authorized capital stock of the Company will consist of 4,210 shares of
common stock, all of which will be issued and outstanding and owned by Holdings.
(d) Schedule 3.4(d) sets forth the authorized, issued and outstanding
capital stock of each Subsidiary of the Company immediately prior to the Closing
and immediately following the Closing.
(e) Except as set forth on Schedule 3.4(e), there are, and will be at
the Closing Date, no preemptive rights, options, warrants, conversion rights or
similar agreements or understandings for the purchase or acquisition from any of
Holdings, FMCAN or the Company or any of its Subsidiaries or any other Person of
any shares of capital stock or other securities of Holdings, FMCAN or the
Company or any of its Subsidiaries.
3.5 AUTHORIZATION.
(a) All corporate action on the part of Holdings and FMCAN and their
respective officers, directors and shareholders necessary to authorize (i) the
execution, delivery and performance of this Agreement and the Ancillary
Agreements to which it is or will be a party and (ii) the issuance and sale of,
and performance under, the Securities has been taken or will be taken prior to
the Closing.
(b) The Common Shares and Junior Preferred Shares when issued in
compliance with this Agreement, will be duly authorized
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and validly issued, fully paid, nonassessable and free of any preemptive rights
or Liens other than as provided in the Shareholders Agreement. The Notes, when
issued in compliance with this Agreement, will be duly authorized and validly
issued and free of any Liens and will be enforceable against FMCAN, except (i)
as such enforceability may be limited by bankruptcy, insolvency, moratorium,
reorganization or similar laws affecting the enforcement of creditors' rights
generally and (ii) as the remedy of specific performance and injunctive and
other forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any such proceeding may be brought.
(c) All corporate action on the part of Holdings and its officers,
directors and shareholders necessary for the execution, delivery and performance
of the transactions contemplated by the Stock Purchase Agreement has been taken.
(d) All corporate action on the part of Holdings, FMCAN and the
Company and its Subsidiaries and their respective officers, directors and
shareholders necessary for the execution, delivery and performance of the Plan
of Mergers and the consummation of the Mergers will have been taken by the time
of the Mergers and, immediately following the consummation of the Mergers, all
corporate action on the part of the Company necessary for the execution,
delivery and performance of the Ancillary Agreements to which it is a party will
have been taken.
3.6 BUSINESS; CONTRACTS AND OBLIGATIONS.
(a) Holdings and FMCAN were formed to acquire the Company. Neither
Holdings nor FMCAN has engaged in any business other than in connection with the
transactions contemplated by this Agreement. Neither Holdings nor FMCAN has any
intention of engaging, directly or indirectly, in any business or transaction
other than the Acquisition and the ownership and operation of the
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businesses operated by the Company and its Subsidiaries prior to the
Acquisition.
(b) Except for this Agreement and the Ancillary Agreements, and
except as set forth on Schedule 3.6 hereto, neither Holdings nor FMCAN is and
immediately following the Mergers will be a party to any written or oral:
(i) contract with any labor union;
(ii) agreement or indenture relating to the borrowing of money or to
the mortgaging or pledging of, or otherwise placing a Lien (other than Permitted
Liens) on, any material asset or material group of assets of Holdings, FMCAN or
any of their Subsidiaries;
(iii) guarantee of or reimbursement obligation with respect to any
obligation;
(iv) lease or agreement under which it is lessee of or holds or
operates any property, real or personal, owned by any other party (other than
leases and agreements entered into in the ordinary course of business and
calling for annual lease payments of less than $50,000);
(v) agreement or obligation (contingent or otherwise) to repurchase
or otherwise acquire or retire any shares of its capital stock;
(vi) agreement under which it has granted any person or entity any
registration rights (including piggyback rights);
(vii) Capital Lease; or
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(viii) other agreement that is material to its business or prospects.
3.7 LICENSES, AUTHORIZATIONS, TRADEMARKS, ETC. Each of Holdings, FMCAN and
the Company and its Subsidiaries owns and possesses or is licensed to use in its
business activities, and, immediately following the consummation of the Mergers,
Holdings and each of its Subsidiaries will own and possess or will be licensed
to use in its business activities all licenses, permits and authorizations, and
all patents, copyrights, service marks, trademarks and trade names and other
intangible rights necessary or useful to enable it to carry out the business
activities currently conducted by it and the business activities proposed to be
conducted by it except, where the failure to so own and possess or be licensed
to use could not reasonably be expected, singly or in the aggregate, to have a
material adverse effect on the business, operations, prospects, assets or
condition (financial or otherwise) of Holdings and its Subsidiaries taken as a
whole. Each patent, copyright, service mark, registered trademark, trade name
and other intangible right is listed on Schedule 3.7 hereto and all such items
(and all licenses, permits and authorizations) are and at such time will be in
full force and effect. The businesses of Holdings, FMCAN and the Company and
its Subsidiaries as currently conducted do not, and such businesses as proposed
to be conducted following the Closing will not, conflict with the rights of any
other party pursuant to laws relating to the protection of patents, service
marks, trademarks, copyrights, trade names and trade secrets, in a manner which
might reasonably be expected to have a material adverse effect on the business,
operations, prospects, assets or condition (financial or otherwise) of Holdings
and its Subsidiaries taken as a whole.
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3.8 COMPLIANCE WITH LAWS, INSTRUMENTS, AGREEMENTS AND OBLIGATIONS; NONE
BURDENSOME, ETC.
None of Holdings, FMCAN, or the Company or its Subsidiaries is or,
immediately following the Closing and the Mergers, neither Holdings nor any of
its Subsidiaries will be, in violation of any term of its Certificate of
Incorporation. None of Holdings, FMCAN, or the Company or its subsidiaries is
or, immediately following the Closing and the Mergers, neither Holdings nor any
of its Subsidiaries will be in violation of any term of any mortgage, indenture,
contract, lease, agreement, instrument, judgment, decree, order, statute, rule
or regulation applicable to it, where, in any such case, a violation thereof
might reasonably be expected to, singly or in the aggregate, have a material
adverse effect on the business, operations, prospects, assets or condition
(financial or otherwise) of Holdings and its Subsidiaries taken as a whole.
Except for Section 11.12 of Senior Note Purchase Agreement, Section 6.1 of the
Working Capital Facility and this Agreement, immediately following the Closing
and the Mergers, neither Holdings nor any of its Subsidiaries will be a party to
any agreement which prohibits or restricts the payment of dividends by it, the
redemption by it of shares of its capital stock or the payment by it of interest
or principal on its Indebtedness. The execution, delivery and performance of and
compliance with this Agreement and the Ancillary Agreements by Holdings, FMCAN
and the Company and its Subsidiaries, the issuance and sale of the Notes, the
Junior Preferred Shares and the Common Shares pursuant hereto and the payment of
principal of and interest on the Notes will not result in (i) any violation of
or be in conflict with or constitute a default under (x) any term of the
Certificate of Incorporation or By-Laws of Holdings, FMCAN, or the Company or
any of its Subsidiaries, or, (y) any term of any mortgage, indenture, contract,
lease, agreement, instrument, judgment, decree, order, statute, rule or
regulation that is now applicable to Holdings, FMCAN, or the Company or any of
its Subsidiaries, or any of their
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assets or that will be applicable to Holdings or any of its Subsidiaries, or any
of their assets immediately following the Closing and the Mergers, where, any
such violation thereof might reasonably be expected, singly or in the aggregate,
to have a material adverse effect on the business, operations, prospects, assets
or condition (financial or otherwise) of Holdings and its Subsidiaries taken as
a whole or (ii) the creation of any Lien, other than Permitted Liens and Liens
granted pursuant to the Senior Financing Documents, upon any of the properties
or assets of Holdings or FMCAN, or the Company or any of its Subsidiaries
pursuant to any such term. There is no such term which is likely materially and
adversely to affect the business, operations, prospects, assets or condition
(financial or otherwise) of Holdings or any of it Subsidiaries.
3.9 LABOR MATTERS. Except as set forth in Schedule 3.9, during the past
five years there has been no strike, work stoppage, slowdown or other labor
dispute or grievance involving FMCAN, Holdings, the Company or any of their
respective Subsidiaries, or employees of any of such Persons, which has had or
might have a material adverse effect on the business, operations, prospects,
assets or condition (financial or otherwise) of Holdings and its Subsidiaries
taken as a whole, nor to the knowledge of FMCAN or Holdings (following diligent
investigation) is any such action, dispute or grievance currently pending or
threatened against FMCAN, Holdings, the Company or any of their respective
Subsidiaries. Except as set forth in Schedule 3.9, none of FMCAN, Holdings, the
Company or any of their respective Subsidiaries is a party to any collective
bargaining agreement and none of them has any knowledge of any pending or
threatened effort to organize any of their employees. Schedule 3.9 also
contains a true and complete list of all existing written collective bargaining
agreements, material employment agreements, severance agreements, employee
benefit plans, trusts and programs (whether funded or unfunded, and including,
without limitation, all health and welfare plans and all
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pension and profit sharing plans (excluding Multiemployer Plans), thrift plans,
stock option, stock purchase and stock bonus plans, and other bonus and
incentive plans and policies), and other material agreements and employment
policies currently in effect relating to the employment of any of the present or
former officers or employees of FMCAN, Holdings, the Company and any of their
respective Subsidiaries or ERISA Affiliates, as now in effect, copies of which
have been supplied to Purchasers except as disclosed in Schedule 3.9. Schedule
3.9 also contains a true and complete list of all Multiemployer Plans now in
effect under which any employee of FMCAN, Holdings, the Company or any of their
respective Subsidiaries or ERISA Affiliates may now or hereafter be entitled to
receive any benefits.
Except as set forth in Schedule 3.9, no present or former employee or
independent contractor of Holdings, FMCAN, the Company or any of their
respective Subsidiaries has a pending claim or charge which has been asserted or
threatened against Holdings, FMCAN, the Company or any of their respective
Subsidiaries (whether under any foreign, federal, state or common law, through a
government agency, private arbitral body, or otherwise) for (A) overtime pay,
other than overtime pay for the current period; (B) wages, salaries or profit
sharing (excluding wages, salaries or profit sharing for the current payroll
period); (C) vacations, time off or pay in lieu of vacation or time off, other
than vacation or time off (or pay in lieu thereof) earned in respect of the
employer's current fiscal year; (D) any violation of any statute, ordinance,
contract or regulation relating to minimum wages or maximum hours of work; (E)
discrimination against employees on any basis; (F) unlawful or wrongful
employment or termination practices; (G) unlawful retirement, termination or
labor relations practices, breach of contract or other claim arising under a
collective bargaining agreement, individual, express or implied contract, or
policy, practice or procedure manual or statement; (H) any violation of
occupational safety or health standards, or any
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violation of the Worker Adjustment Restraining and Notification Act ("WARN").
FMCAN, Holdings, the Company and their respective Subsidiaries are in
compliance in all material respective with all applicable federal, state and
local statutes, laws, rules, ordinances, regulations, codes, licenses and orders
relating to the employment of labor, including, without limitation, any
provisions thereof relating to wages, bonuses, collective bargaining agreements,
equal pay, occupational safety and health, equal employment opportunity,
wrongful or retaliatory termination of employment, WARN or benefit plans (other
than any Plan).
3.10 COMPLIANCE WITH ERISA. Except as set forth on Schedule 3.9:
(a) no Pension Plan which is subject to Part 3 of Subtitle B of Title
1 of ERISA or Section 412 of the Internal Revenue Code had an accumulated
funding deficiency (as such term is defined in Section 302 of ERISA or Section
412 of the Internal Revenue Code), whether or not waived, as of the last day of
the most recent fiscal year of such Pension Plan heretofore ended;
(b) no liability to the PBGC (other than required insurance premiums,
all of which have been paid when due) has been incurred and is outstanding with
respect to any Pension Plan, and there has not been any Reportable Event, or any
other event or condition, which presents a material risk of involuntary
termination of any Pension Plan by the PBGC;
(c) neither any Multiemployer Plan or Plan nor any trust created
thereunder, nor any trustee or administrator thereof, has, to the knowledge of
Holdings or FMCAN, engaged in a prohibited transaction (as such term is defined
in Section 4975 of the Internal Revenue Code described in Section 406 of ERISA)
that could
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subject the FMCAN, Holdings, the Company, or any of their respective
Subsidiaries or ERISA Affiliates to any material tax or penalty on prohibited
transactions imposed under said Section 4975 or Section 502(i) of ERISA;
(d) no material liability has been incurred and is outstanding with
respect to any Multiemployer Plan as a result of the complete or partial
withdrawal by FMCAN, Holdings, the Company or any of their respective
Subsidiaries or ERISA Affiliates from such Multiemployer Plan under Title IV of
ERISA, nor has FMCAN, Holdings, the Company or any of their respective
Subsidiaries or ERISA Affiliates been notified by any Multiemployer Plan that
such Multiemployer Plan is currently in reorganization or insolvency under and
within the meaning of Section 4241 or 4245 of ERISA or that such Multiemployer
Plan intends to terminate or has been terminated under Section 4041A of ERISA;
(e) FMCAN, Holdings, the Company and their respective Subsidiaries
and ERISA Affiliates are in compliance in all material respects with all
applicable provisions of ERISA and the Internal Revenue Code and the regulations
and published interpretations thereunder with respect to all Plans and
Multiemployer Plans;
(f) as of the Closing Date, the actuarial present value of all
benefit liabilities (as defined in Section 4001(a)(16) of ERISA) under all
Pension Plans that are subject to Title IV of ERISA did not exceed the fair
market value of the assets allocable to such liabilities, determined as if all
such Plans were terminated as of the Closing Date, and by using the Plan's
actuarial assumptions as set forth in the most recent actuarial report
pertaining to each Plan;
(g) the aggregate liability under Title IV of ERISA to the
Multiemployer Plans that would be incurred by FMCAN, Holdings, the Company and
any of their respective Subsidiaries and ERISA
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Affiliates by reason of a complete withdrawal (within the meaning of Section
4203 of ERISA) by all such Persons from all such Multiemployer Plans following
the most recent plan years ended of such Multiemployer Plans would not exceed
$250,000;
(h) no event has occurred with respect to any Plan or with respect to
any other employee pension benefit plan (as defined in Section 3(2) of ERISA)
established or maintained at any time during the five-year period immediately
preceding the Closing Date for the benefit of employees of FMCAN, Holdings, the
Company or any of their respective Subsidiaries or ERISA Affiliates (such ERISA
Affiliates determined by reference to the relationship existing at any time
during such five-year period) which presents a risk of material liability of
FMCAN, Holdings, the Company or any of their respective Subsidiaries or ERISA
Affiliates under Sections 4064 or 4069 or Subtitle E of Title IV of ERISA;
(i) except as provided under the Non-Competition Agreements, no Plan
provides for continued medical, health, life or other welfare benefits for
employees after they leave the employment of FMCAN, Holdings, the Company or any
of their respective Subsidiaries or ERISA Affiliates (other than any such
welfare benefits required to be provided under the Consolidated Omnibus Budget
Reconciliation Act of 1985 or other similar federal or state law); and
(j) none of FMCAN, Holdings, the Company or any of their respective
Subsidiaries or ERISA Affiliates is a party in interest with respect to any
employee benefit plan (as defined in Section 3(3) of ERISA) other than any Plan
or Multiemployer Plan.
3.11 LITIGATION, ETC. There are, and immediately following the Closing
there will be, no actions, proceedings or investigations pending against any of
Holdings, FMCAN, or the Company or any of its Subsidiaries or any of their
officers,
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directors or shareholders (in their capacity as such an officer, director or
shareholder) (or, to the best knowledge of Holdings and FMCAN (following
diligent investigation) any basis therefor or threat thereof), which, either in
a single case or in the aggregate, might reasonably be expected to result in any
material adverse change in the business, operations, prospects, assets or
conditions (financial or otherwise) of Holdings, FMCAN or the Company and its
Subsidiaries taken as a whole or in any material impairment of the right or
ability of each of Holdings, FMCAN or the Company or any of its Subsidiaries to
carry on its business as now conducted or as proposed to be conducted, or in any
material liability on its part and none which questions the validity of this
Agreement, any Ancillary Agreement or any action taken or contemplated in
connection herewith or therewith. Schedule 3.11 lists each legal, administrative
or other proceeding that involves a claim against Holdings, FMCAN, the Company,
or any of its Subsidiaries asserting an aggregate liability of $50,000 or more.
Schedule 3.11 includes with respect to each matter identified, if applicable,
the case title, the court, the court file number, the date filed, the law firm
representing Holdings, FMCAN, the Company or such Subsidiary, as the case may
be, and such other information as the Purchasers may reasonably request.
3.12 GOVERNMENTAL CONSENTS. No consent or authorization of, or filing
with, any governmental authority (including, without limitation, any
authorization or filing or the expiration of any waiting period under the Hart-
Scott-Rodino Anti-Trust Improvements Act of 1976) on the part of either
Holdings, FMCAN or the Company or any of its Subsidiaries or the Sellers is
required in connection with the valid execution, delivery, performance, validity
or enforceability of this Agreement or any Ancillary Agreement, the offer, sale
or issuance of the Securities or any securities to be issued pursuant to the
Ancillary Agreements, the payment of interest and principal on the Notes or the
consummation of any transaction contemplated hereby or thereby, except, if
required,
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qualifications or filings under any applicable federal securities and blue sky
laws, which qualifications or filings will have been obtained or made prior to
the Closing.
3.13 OFFERINGS. None of Holdings, FMCAN or the Company or any of its
Subsidiaries has, directly or indirectly, offered the Securities, or any part
thereof, or (within the last six months) any similar securities for sale to, or
solicited any offer to buy any of the same from, or otherwise approached or
negotiated in respect thereof with, anyone other than the Purchasers and not
more than 35 other institutional investors. Assuming the accuracy of the
representations and warranties of the Purchasers contained herein, the offer,
issuance and sale of the Securities in conformity with the terms of this
Agreement constitute transactions exempt from the registration requirements of
Section 5 of the Securities Act and comply or will comply with federal
securities and state blue sky laws applicable to such offer, sale and issuance.
3.14 USE OF PROCEEDS. Holdings and FMCAN will use substantially all of the
proceeds received therefrom to finance the transactions set forth in the
Recitals hereto, for expenses incident to such transactions and for working
capital.
3.15 CERTAIN TRANSACTIONS. Except pursuant to this Agreement or the
Ancillary Agreements, or as set forth on Schedule 3.15 hereto, immediately
following the Closing and Mergers, neither Holdings nor any of its Subsidiaries
will be indebted, directly or indirectly, to any of its respective officers,
directors or shareholders or to their respective spouses or children, except
with respect to salaries and related employee compensation accrued in the
ordinary course of business, in any amount whatsoever; and none of such
officers, directors or shareholders, or any members of their immediate families,
will be indebted to either of Holdings or any of its Subsidiaries in any amount
whatsoever or will have any
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direct or indirect ownership interest in any other firm or corporation (other
than securities of publicly traded companies in which such Persons own, in the
aggregate, less than five percent of any outstanding class of securities) which
competes with Holdings or any of its Subsidiaries. Except as set forth on
Schedule 3.15 hereto, immediately following the Closing and the Mergers, no
officer, director or shareholder of Holdings or any of its Subsidiaries or any
member of their immediate families, will be, directly or indirectly, interested
in any material contract (other than this Agreement and the Ancillary
Agreements) with either of Holdings or any of its Subsidiaries.
3.16 FINANCIAL STATEMENTS.
(a) Attached hereto as Schedule 3.16 are the following financial
statements: (i) a consolidated unaudited pro forma balance sheet of the Company
as of September 30, 1991, giving effect to the transactions contemplated hereby
and by the Ancillary Agreements and (ii) an audited consolidated balance sheet
of the Company and its Subsidiaries as of August 31, 1991, together with the
related statement of income and changes in financial condition for the fiscal
year then ended (collectively, the "Financial Statements").
(b) The Financial Statements (other than the pro forma balance sheets
described in clause (i) of the preceding paragraph) fairly present the financial
position of the Company and its Subsidiaries as of the pertinent dates and the
results of its operations for the pertinent fiscal periods then ended in
accordance with GAAP applied on a consistent basis throughout the periods
involved.
(c) At the completion of the Closing and the Mergers, neither
Holdings nor any of its Subsidiaries will have any material liability of any
nature whatsoever, whether or not required to be
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disclosed by GAAP, other than liabilities disclosed in the Financial Statements
or in the Stock Purchase Agreement, liabilities that have arisen after August
31, 1991 in the ordinary course of business and other liabilities expressly
disclosed in the schedules to this Agreement.
3.17 ADVERSE OR NEW DEVELOPMENTS. Except as set forth on Schedule 3.17
hereto, since August 31, 1991 there has been no material adverse change in the
business, prospects, assets, condition (financial or otherwise), affairs or
operations, present or proposed, of Holdings, FMCAN, or the Company and its
Subsidiaries taken as a whole, and none of them nor any of their Subsidiaries
has:
(a) except as provided in this Agreement and the Ancillary
Agreements, issued or agreed to issue, any bonds, notes or other debt
securities;
(b) incurred any borrowings or incurred or become subject to any
liabilities (absolute, accrued, contingent or otherwise) other than liabilities
(i) in connection with this Agreement and the Ancillary Agreements, (ii) that
are specifically disclosed elsewhere in this Agreement or in the Schedules
attached hereto or (iii) ordinary trade indebtedness arising in the ordinary
course of business;
(c) discharged or satisfied any Lien or paid any obligation or
liability;
(d) except as contemplated by this Agreement, declared or made any
payment or distribution of cash or other property to shareholders with respect
to its capital stock, or purchased or redeemed any shares of its capital stock;
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(e) mortgaged or pledged any of its properties or assets, or
subjected them to any Lien except Permitted Liens;
(f) sold, assigned or transferred any of its material assets,
tangible or intangible, or cancelled any debts or claims; or
(g) suffered any extraordinary losses or waived any rights of
material value, whether or not in the ordinary course of business or consistent
with past practice.
3.18 TITLE TO PROPERTIES AND ASSETS. The Company and its Subsidiaries have
and, immediately following the consummation of the Mergers, Holdings and its
Subsidiaries will have good and valid title to, or a valid leasehold interest
in, the properties and assets (including, but not limited to, all copyrights,
patents, service marks, trademarks, trade names, know-how and other proprietary
rights) used in the Business or shown on the Financial Statements, in each case
free and clear of all Liens, except (i) as specifically disclosed in the notes
to the Financial Statements, (ii) for Permitted Liens or (iii) for assets
disposed of in the ordinary course of business. The buildings, equipment and
other tangible assets of the Company and its Subsidiaries are and, immediately
following the consummation of the Mergers, the buildings, equipment and other
tangible assets of Holdings and its Subsidiaries will be, in good operating
condition subject to ordinary wear and tear except where the failure to be in
such condition could not reasonably be expected, singly or in the aggregate, to
have a material adverse effect on the business, operations, assets or condition
(financial or otherwise) of Holdings and its Subsidiaries taken as a whole. The
Company and its Subsidiaries own and control or have a valid leasehold interest
in, all assets necessary to conduct the business conducted by the Company and
its Subsidiaries and, immediately following the consummation of the Mergers,
Holdings and its Subsidiaries will own and control, or will have a valid
leasehold interest in, all assets
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necessary to conduct the business to be conducted by Holdings and its
Subsidiaries.
3.19 TAX MATTERS. Holdings and FMCAN have not been obligated to file any
material tax returns of any nature whatsoever. The Company and each of its
Subsidiaries (i) has filed all tax returns that it has been required to file
(and all such returns are true and correct in all material respects), (ii) has
timely paid all taxes due and payable on or before the date hereof and has made
adequate provision in the Financial Statements for all taxes that are not due
and payable on or before the date hereof, whether or not disputed, for all
periods through the date hereof, (iii) has timely paid all taxes which it is
obligated to withhold from amounts owing to any employee (including, but not
limited to, social security taxes), creditor or third party, and (iv) has not
waived any statute of limitations with respect to taxes or agreed to any
extension of time with respect to a tax assessment or deficiency. No
governmental entity has, during the past three years, examined or is in the
process of examining any tax return of the Company or any of its Subsidiaries.
No governmental entity has proposed (tentatively or definitively), asserted or
assessed or, threatened to propose or assert, any deficiency, assessment or
claim for taxes and there would be no basis for any such delinquency, assessment
or claim. There are no agreements, waivers or other arrangements providing for
an extension of time with respect to the assessment of any tax or deficiency
against the Company or any of its Subsidiaries or with respect to any tax return
filed or to be filed by the Company or any of its Subsidiaries. Following the
Closing, the assessment of any additional taxes for periods for which returns
have been filed is not expected to exceed the liability recorded therefor on the
Financial Statements. There are no material unresolved questions or claims
concerning the tax liability of the Company or any of its Subsidiaries.
Following the Acquisition, Holdings and its Subsidiaries will not have any
liability of any nature whatsoever
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for taxes due and payable relating to the ownership or operation of the Business
or the assets thereof prior to the Closing.
3.20 ANCILLARY AGREEMENTS. Holdings has delivered to the Purchasers
complete and correct copies of the Stock Purchase Agreement in the form in which
it has been executed, and of all exhibits and schedules thereto. This
Agreement, the Securities and the Ancillary Agreements constitute (i) the only
agreements relating to the transactions to be consummated at the Closing to
which any of Holdings, FMCAN or the Company or any of its subsidiaries is a
party and (ii) the only agreements relating to the Acquisition of which
Holdings, FMCAN or the Company or any of its subsidiaries has knowledge. The
Ancillary Agreements have not been amended and none of Holdings, FMCAN or the
Company has, by action or inaction, waived any rights thereunder.
3.21 CERTAIN AGREEMENTS. Neither Holdings nor, to its knowledge, any of its
shareholders (other than the Purchasers) is party to any agreement relating to
the voting, disposition, or redemption of Holdings's capital stock, except for
this Agreement and the Ancillary Agreements.
3.22 INSURANCE. Schedule 3.22 hereto contains a list of all insurance
policies and endorsements thereto that will be in effect immediately following
the Closing with respect to Holdings and its Subsidiaries, or covering its or
their properties, inventories, equipment, furniture, fixtures, operations,
damages to the lives and property of others, or the lives of, or performance of
their duties by, its or their directors, officers and employees. All such
policies and endorsements will be in full force and effect at such time.
3.23 INDEBTEDNESS; LIENS. Immediately following the Closing, (i) neither
Holdings nor any of its Subsidiaries will have any outstanding Indebtedness
except Indebtedness permitted by Section
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7.4 hereof and (ii) no assets of either Holdings or any of its Subsidiaries will
be subject to any Liens except Permitted Liens and Liens permitted under Section
7.5.
3.24 CERTAIN ACTIVITIES. None of Holdings, FMCAN, or the Company or any of
its Subsidiaries is or will be engaged primarily, or as one of its important
activities, in the business of extending credit for the purpose of purchasing or
carrying any margin stock within the meaning of any regulation, interpretation
or ruling of the Board of Governors of the Federal Reserve System. In no event
shall Holdings or FMCAN directly or indirectly apply any part of the proceeds
from the sale of any Security hereunder to the purchasing or carrying of any
margin stock within the meaning of any such regulation, interpretation or
ruling.
3.25 GOVERNMENTAL REGULATION. None of Holdings, FMCAN, or the Company or
any of its subsidiaries is, or immediately following the Closing will be,
subject to regulation under the Public Utility Holdings Act of 1935, the Federal
Power Act, the Investment Company Act of 1940, the Interstate Commerce Act, or
to any federal or state statute or regulation limiting its ability to incur
Indebtedness for money borrowed or regulating its issuance of capital stock
(except for the Securities Act, the Securities Exchange Act of 1934, as amended,
and any applicable state securities laws).
3.26 DISCLOSURE. This Agreement (including the Exhibits and Schedules
hereto) and the Ancillary Agreements do not contain any untrue statement by
Holdings or FMCAN of a material fact and do not omit to state a material fact
necessary in order to make the statements contained herein and therein not
misleading. There is no fact which materially adversely affects, or will
materially adversely affect, the business, prospects, assets, condition
(financial or otherwise), affairs or operations, present and proposed, of
Holdings, FMCAN, or the Company and its Subsidiaries
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taken as a whole, which has not been set forth in this Agreement or otherwise
disclosed in writing to each of the Purchasers by Holdings or FMCAN.
3.27 BROKERS. Except as set forth on Schedule 3.27, neither Holdings,
FMCAN nor any officer, agent or employee of Holdings or FMCAN has retained any
broker or finder in connection with the transaction contemplated by this
Agreement and the Ancillary Agreements other than those fees paid or payable by
Holdings pursuant to the Investment Banking Fee Agreement.
3.28 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 3.28 hereto,
(i) no Person (including, without limitation, any previous owner, lessor or
sublessor of property of the Company or any of its Subsidiaries) has generated,
used, treated, stored, released or disposed of or has suffered or permitted
anyone else to generate, use, transport, treat, store, release or dispose of
Hazardous Substances on any of its properties or any of the properties to be
acquired, directly or indirectly, by Holdings and FMCAN pursuant to the
transaction contemplated hereby (whether owned, leased, subleased or used by
such Person) in violation of any applicable statutes, regulations or ordinances,
including, without limitation, the Resource Conservation and Recovery Act (42
U.S.C. Section 6901, ET SEQ., "RCRA") and the regulations issued thereunder,
pertinent state or local environmental protection or toxic substances statutes
or similar legal regimes; (ii) there has been no generation, use,
transportation, handling, treatment, storage, spill, release, disposal or any
other discharge of Hazardous Substances on or from any properties owned, leased,
subleased or used by Holdings, FMCAN or the Company or any of its Subsidiaries,
or on or from any adjacent properties or facilities, that, in any such case,
could subject Holdings, FMCAN or the Company or any of its Subsidiaries or their
shareholders to liability or require reporting or notification to any
governmental entity; (iii) no asbestos which is or could become friable,
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electrical equipment containing any oil or dielectric fluid containing levels of
polychlorinated biphenyls in excess of fifty parts per million, or underground
storage tanks or surface impoundments, are located on or under (A) any
properties leased, subleased or used by Holdings, FMCAN, or the Company or any
of its Subsidiaries which could reasonably be expected, singly or in the
aggregate, to have a material adverse effect on the business operations, assets
or condition (financial or otherwise) of Holdings and its Subsidiaries taken as
a whole or (B) any properties owned by Holdings, FMCAN, the Company or any of
its subsidiaries; (iv) Holdings, FMCAN, the Company and its Subsidiaries have
not received (A) any notice or claim to the effect that any of them may be
liable to any person as a result of the release or threatened release of any
Hazardous Substances or (B) any letter or request for information under Section
104 of the Comprehensive Environmental Response, Compensation, and Liability Act
(42 U.S. Section 9604) or comparable state laws. To the best knowledge of
Holdings and FMCAN none of the operations of the Company or any of its
Subsidiaries is the subject of any federal or state investigation evaluating
whether any remedial action is needed to respond to a release or a threatened
release of any Hazardous Substance at any facility of the Company or its
Subsidiaries, or at any other location; (v) Holdings, FMCAN, the Company and its
Subsidiaries have obtained all permits, licenses and other governmental
authorizations which are required with respect to the operation of their
business under all applicable laws relating to the environment, health and
safety ("Required Environmental Permits"); (vi) Holdings, FMCAN, the Company and
its Subsidiaries are in compliance with all material terms and conditions of all
Required Environmental Permits; and (vii) Holdings, FMCAN, the Company and its
Subsidiaries are not subject to any material liabilities (contingent or
otherwise) pursuant to any outstanding written order or agreement with any
governmental authority or private party respecting any environmental laws or any
environmental claims.
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3.29 SOLVENCY. Upon the consummation of all the transactions contemplated
by this Agreement and the Ancillary Agreements, based upon certain valuations
and the Financial Statements, and upon each of Holdings, and FMCAN's knowledge
of the business, operations, prospects, assets and condition (financial or
otherwise) of Holdings and its Subsidiaries:
(a) The present fair salable value of the assets of Holdings and its
Subsidiaries will exceed the amount that will be required to pay the probable
liability on the existing debts (whether matured or unmatured, liquidated or
unliquidated, absolute, fixed or contingent) of Holdings and its Subsidiaries,
as they become absolute and matured;
(b) The sum of the debts (whether matured or unmatured, liquidated or
unliquidated, absolute, fixed or contingent) of Holdings and its Subsidiaries
will not exceed all of the property of Holdings and its Subsidiaries, at a fair
valuation;
(c) The capital of Holdings and its Subsidiaries will not be
unreasonably small for Holdings and its Subsidiaries to carry on their
businesses; and
(d) Holdings and its Subsidiaries do not intend to, or believe they
will, by virtue of consummating the transactions contemplated hereby, incur
debts that will be beyond its ability to pay as they mature.
3.30 STOCK PURCHASE AGREEMENT REPRESENTATIONS. The representations and
warranties of the Company and the Sellers contained in the Stock Purchase
Agreement are true and correct in all material respects.
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SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser hereby severally and not jointly represents and warrants to
Holdings as follows:
4.1 ORGANIZATION AND STANDING; POWER; ENFORCEABILITY. Such Purchaser is
duly organized and validly existing under the laws of the state of its
organization with power and authority under such laws to enter into and perform
its obligations under this Agreement and the Ancillary Agreements to which it is
a party. Such Purchaser has the power and authority pursuant to its governing
instruments to enter into and perform its obligations under this Agreement and
the Ancillary Agreements to which it is a party. This Agreement and the
Ancillary Agreements to which such Purchaser is a party have been duly
authorized, executed and delivered by it and each of this Agreement and the
Ancillary Agreements to which it is a party is enforceable against it in
accordance with their respective terms.
4.2 INVESTMENT. Such Purchaser is purchasing the Securities with no
intention of distributing or reselling the Securities or any part thereof, or
interest therein, in any transaction which would be in violation, or cause
Holdings to be in violation, of the securities laws of the United States or any
state thereof, without prejudice, however, to such Purchaser's right at all
times to sell or otherwise dispose of all or any part of the Securities under an
effective registration statement under the Securities Act or under an exemption
from such registration requirements available under the Securities Act and any
applicable state securities laws, and subject, nevertheless, to the disposition
of such Purchaser's property being at all times within the Purchaser's control.
4.3 NO PUBLIC MARKET. Such Purchaser understands that the Securities have
not been registered under the Securities Act by reason of their issuance in a
transaction exempt from the
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registration and prospectus delivery requirements of the Securities Act pursuant
to Section 4(2) thereof, and that such Purchaser (or the Person on whose behalf
it is acting) will have to hold the Securities, and bear the economic risk of
such investment, indefinitely unless a subsequent disposition thereof is
registered under the Securities Act or is exempt from registration.
4.4 EXPERIENCE. Without in any way limiting the force or effect of (or
the allocation of risks effected by) the representations and warranties of
Holdings and FMCAN or any other party contained in this Agreement or any
Ancillary Agreement, such Purchaser acknowledges that it and its representatives
are experienced in, and capable of, evaluating the financial condition and
prospects of corporations like Holdings, FMCAN and the Company and such
Purchaser has had the opportunity to obtain the information it deems necessary
in connection with the transactions contemplated hereby.
4.5 BROKERS. Neither of such Purchaser nor any officer, agent or employee
acting on its behalf retained any broker or finder in connection with the
transactions contemplated by this Agreement and the Ancillary Agreements.
SECTION 5. CONDITIONS TO CLOSING
5.1 CONDITIONS TO OBLIGATIONS OF THE PURCHASERS. Each Purchaser's
obligation to purchase the Securities pursuant to this Agreement is subject to
the fulfillment, at or prior to the Closing, of the following conditions, any
one or more of which may be waived by such Purchaser:
(a) The representations and warranties of Holdings and FMCAN
contained in this Agreement shall be true and correct in all material respects
when made, and shall be true and correct in all
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material respects on the Closing Date with the same force and effect as if they
had been made on and as of such date.
(b) Holdings and FMCAN shall have performed all material obligations
and conditions herein required to be performed or observed by them Under this
Agreement at or prior to the Closing.
(c) All other parties to the transactions to be consummated at the
Closing pursuant to this Agreement and the Ancillary Agreements shall be ready,
willing and able to consummate such transactions, and all such transactions,
including the Acquisition, shall be consummated simultaneously.
(d) Herbert B. Max, Esq., counsel to Holdings and FMCAN, shall have
delivered an opinion addressed to the Purchasers, dated the date of the Closing,
substantially the same, in form and content, as that attached hereto as Exhibit
E.
(e) Winston & Strawn, counsel to the Sellers shall have delivered the
opinion described in Section 7.03 of the Stock Purchase Agreement (which will be
addressed to the Purchasers).
(f) The purchase of the Securities, the Acquisition, the Mergers and
the other transactions contemplated hereby shall be permitted by all laws and
regulations to which Holdings, FMCAN, the Company and its Subsidiaries, the
Purchasers and the other parties thereto are subject.
(g) All corporate and other proceedings in connection with the
transactions to be consummated at the Closing, all Ancillary Agreements and all
documents and instruments incident to such transactions, shall be satisfactory
in substance and form to the Purchasers and to special counsel to the
Purchasers.
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(h) The Shareholders Agreement shall have been executed and delivered
by all parties thereto.
(i) The Holdings Guaranty shall have been executed and delivered by
Holdings.
(j) The Confirmation and Assumption Agreement shall have been
executed by all parties thereto.
(k) If Holdings shall have been entitled, under any provision of
Article X of the Stock Purchase Agreement, to terminate the Stock Purchase
Agreement, and shall have elected not to do so, the Purchasers in their sole
discretion shall have concurred in that election.
(l) Each of Holdings and FMCAN shall have delivered to the Purchasers
a certificate, executed by its President or Vice President and Secretary or
Assistant Secretary, dated the Closing Date, certifying to the fulfillment of
the conditions specified in Sections 5.1(a), (b) and (c) hereof.
(m) Duff & Phelps Financial Consulting Co. shall have delivered a
letter addressed to the Purchasers in the form attached hereto as Exhibit F.
(n) Purchasers shall have received a site assessment environmental
report with respect to all material real properties owned by the Company and its
Subsidiaries by environmental engineers satisfactory to the Purchasers and such
report shall be satisfactory to the Purchasers.
5.2 CONDITIONS TO OBLIGATIONS OF HOLDINGS AND FMCAN. The obligation of
Holdings and FMCAN to issue and sell the Securities pursuant to this Agreement
is subject to the fulfillment, at or
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prior to the Closing, of the following conditions, any one or more of which may
be waived by it:
(a) The representations and warranties of the Purchasers contained in
this Agreement shall be true and correct in all material respects when made, and
shall be true and correct in all material respects on the Closing Date with the
same force and effect as if they had been made on and as of such date; and
(b) The conditions set forth in Section 5.1(f) hereof shall have been
fulfilled.
SECTION 6. AFFIRMATIVE COVENANTS OF HOLDINGS AND FMCAN
Each of Holdings and FMCAN hereby covenants and agrees that it will
comply, and will cause each of its Subsidiaries to comply, with such of the
following provisions as are applicable to it or them:
6.1 FINANCIAL STATEMENT AND RELATED INFORMATION. Holdings and FMCAN shall
furnish or cause to be furnished to each Material Holder:
(a) as soon as available, but in any event no later than 90 days
after the end of each fiscal year (or, if Holdings has a class of securities
registered with the Commission, contemporaneously with the filing with the
Commission), a consolidated balance sheet for Holdings and its Subsidiaries as
at the end of such fiscal year, and the related statements of income,
shareholders' equity and changes in cash flows for such fiscal year, prepared in
accordance with GAAP and setting forth in each case in comparative form the
figures for the previous fiscal year, all in reasonable detail and certified by
Arthur Andersen & Co. or another firm of independent public accountants of
national standing which shall be retained by Holdings;
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(b) as soon as available, but in any event no later than 45 days
after the end of each fiscal quarter of each fiscal year (including, without
limitation, the fourth quarterly period thereof) (or, if Holdings has a class of
securities registered with the Commission, contemporaneously with the filing
with the Commission), a consolidated balance sheet for Holdings as at the end of
such quarter, and the related statements of income, shareholders' equity and
changes in cash flows for such quarter and for the portion of the fiscal year
then ended, prepared in accordance with GAAP (except for the absence of year-end
adjustments) and setting forth in each case in comparative form the figures for
the corresponding periods of the previous fiscal year, all in reasonable detail
and certified, subject to changes resulting from year-end adjustments and notes,
by the principal financial officer of Holdings;
(c) as soon as available, but in any event no later than 45 days
after the end of each of the first six months following the Closing Date and no
later than 30 days after the end of each month thereafter, a consolidated
balance sheet for Holdings as at the end of such month, and the related
statements of income, shareholder's equity and changes in cash flows for such
month and for the portion of the fiscal year then ended, prepared in accordance
with GAAP (except for the absence of year-end adjustments) and setting forth in
each case in comparative form the figures from the corresponding periods to the
extent available of the previous fiscal year, all in reasonable detail and
certified, subject to changes resulting from year-end adjustments and notes, by
the principal financial officer of Holdings;
(d) no later than 60 days after the end of each fiscal year, the
operating budget or fiscal projections for Holdings and its Subsidiaries for the
succeeding fiscal year;
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(e) Together with each delivery of financial statements of Holdings
and its Subsidiaries pursuant to Sections 6.1(a) and (b) commencing with the
second fiscal quarter ending after the Closing Date, a management discussion and
analysis of the results of operations and financial condition of Holdings and
its Subsidiaries at the end of and for the period covered by such financial
statements, in reasonable detail, describing any significant events relating to
Holdings and its Subsidiaries occurring during such fiscal period and discussing
the reasons for any significant variations from the corresponding figures
contained in Holdings, financial statements for comparable periods of its
immediately preceding fiscal year.
(f) promptly after the filing thereof, copies of all reports,
documents and information, if any, filed by Holdings or its Subsidiaries with
the Commission; and
(g) as promptly as possible, copies of all statements, releases and
information, if any, sent by Holdings or its Subsidiaries to shareholders of
Holdings;
(h) promptly and in any event within 10 days after FMCAN or Holdings
knows or, in the case of a Pension Plan, has reason to know, (i) that a
Reportable Event with respect to any Pension Plan has occurred, (ii) that any
Pension Plan or Multiemployer Plan is or may be terminated, reorganized,
partitioned or declared insolvent under Title IV of ERISA, (iii) that Holdings,
FMCAN or any of their Subsidiaries or ERISA Affiliates will or may incur any
material liability to or on account of a Pension Plan or Multiemployer Plan
under Title IV of ERISA, (iv) that any other material liability under ERISA or
the Internal Revenue Code has been asserted against Holdings, FMCAN or any of
their Subsidiaries or ERISA Affiliates, including (x) material liability under
Section 302 of ERISA or Section 412 of the Internal Revenue Code for failure to
satisfy the minimum funding standards or failure to make
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a required contribution, (y) under Sections 409, 502(c)(i) or (1) or 4071 of
ERISA, or (z) under Chapter 43 of the Internal Revenue Code; or (v) that, other
than as provided under the Non-Competition Agreements, any liability has been
incurred by Holdings, FMCAN or any of their Subsidiaries or ERISA Affiliates
with respect to any employer-provided continued welfare benefits for employees
or consultants after they leave employment of or are no longer retained by
Holdings, FMCAN or any of their Subsidiaries or ERISA Affiliates (other than any
such benefits required to be provided by the Consolidated Omnibus Budget
Reconciliation Act of 1985 or other similar federal or state law); an Officer's
Certificate of Holdings or FMCAN setting forth information as to such occurrence
and what action, if any, Holdings, FMCAN or such Subsidiary or ERISA Affiliate
is required or proposes to take with respect thereto, together with any notices
concerning such occurrences which are (a) required to be filed by Holdings,
FMCAN or such Subsidiary or ERISA Affiliate or the plan administrator of any
such Plan controlled by Holdings, FMCAN or such Subsidiary or ERISA Affiliate
with the Internal Revenue Service or the PBGC, or (b) received by Holdings,
FMCAN or such Subsidiary or ERISA Affiliate from any plan administrator of a
Plan not under their control or from a Multiemployer Plan;
(i) promptly and in any event not later than 10 days after the date
of filing thereof with the Internal Revenue Service or the PBGC or (as the case
may be) the date received by Holdings, FMCAN or their Subsidiaries or ERISA
Affiliates, a copy of each annual report (Form 5500 Series) of any Pension Plan
prepared by Holdings, FMCAN or any of their Subsidiaries or ERISA Affiliates or
of any such report of any Multiemployer Plan received by any of them; and
promptly, and in any event not later than 10 days following the deadline for the
filing of an annual report with the Internal Revenue Service or the PBGC by a
Multiemployer Plan, a copy of a written request pursuant to Section 4221(e) of
ERISA which shall be made by Holdings, FMCAN, the Company or any of their
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Subsidiaries or ERISA Affiliates that are obligated to contribute to such
Multiemployer Plan, to the plan sponsor of such Multiemployer Plan for either an
estimate of its or their potential withdrawal liability with respect to such
Multiemployer Plan or that such plan sponsor provide such general information
necessary for it or them to compute such potential withdrawal liability, and
promptly and in any event not later than 10 days after the date of receipt of
such estimate or information from such plan sponsor, either a copy of the
estimate from the plan sponsor or notice of its or their computation of such
potential withdrawal liability;
(j) promptly upon an officer of Holdings or any of its Subsidiaries
obtaining knowledge of any material adverse change in the business, assets,
financial condition or results of operations of Holdings or its Subsidiaries, a
certificate of the principal financial officer or chief operating officer of
Holdings setting forth the details thereof and what action Holdings is taking
with respect thereto.
(k) promptly upon an officer of Holdings or any of its Subsidiaries
obtaining knowledge of the occurrence thereof, a certificate of the principal
financial officer of chief operating officer of the Holdings specifying the
nature and date of any event or occurrence which constitutes an Event of Default
or which, with notice of the lapse of time, or both, would constitute an Event
of Default;
6.2 INSPECTION. As often as may be reasonably requested, each of Holdings
and FMCAN will permit any authorized representative designated by a Material
Holder to visit and inspect any of its properties or the properties of any of
its Subsidiaries, including their financial and accounting records, and to make
copies and take extracts therefrom, and to discuss their affairs, finances and
accounts with their officers and independent public
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accountants, all upon at least three days, notice and at reasonable times during
normal business hours.
6.3 CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. For so long as
Threshold Securities shall remain outstanding:
(a) Holdings will engage in no business other than the ownership of
the stock of FMCAN or, after the consummation of the Mergers, the Company.
FMCAN will engage in no business other than (x) the ownership and operation of
the Business and any other businesses reasonably related thereto and (y) the
ownership of the stock of Subsidiaries of the Company.
(b) Each of Holdings and FMCAN will, and will cause its Subsidiaries
(other than Non-Material Subsidiaries) to, comply with all terms of their
respective corporate charters and bylaws and to (i) preserve, renew and keep in
full force and effect each of their corporate existences and take all reasonable
action to maintain all rights, privileges and franchises necessary or desirable
in the normal conduct of their businesses, and (ii) comply with all terms of any
mortgage, indenture, contract, agreement, instrument, statute, rule or
regulation applicable to any of them or to any of their assets (excluding the
Senior Financing Documents, a breach of which shall be governed by Section
10.1(e)), except to the extent that the failure to comply with clause (i) or
(ii) hereof would be unlikely, singly or in the aggregate, to have a material
adverse effect on the business, prospects, operations, assets or condition
(financial or otherwise) of Holdings and its Subsidiaries taken as a whole.
6.4 PAYMENT OF TAXES AND CLAIMS. Each of Holdings and FMCAN will, and
will cause its Subsidiaries to, pay all taxes, assessments and other
governmental charges imposed upon them or any of their properties or assets or
in respect of any of their franchises, business, income or property before any
penalty or
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interest accrues thereon, and all claims (including, without limitation, claims
for labor, services, materials and supplies) for sums which have become due and
payable and which by law have or may become a Lien upon them or their properties
or assets, prior to the time when any penalty or fine shall be incurred with
respect thereto, except to the extent the failure to comply with this Section
6.4 would be unlikely, singly or in the aggregate, to have a material adverse
effect on the business, prospects, operations, assets or condition (financial or
otherwise) of Holdings and its Subsidiaries taken as a whole; PROVIDED, however,
that no such tax, assessment, charge or claim need be paid if being contested in
good faith by appropriate proceedings instituted and diligently conducted, if
such reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made therefor and if Holdings' and each of
its Subsidiaries' title to and right to use their properties is not materially
adversely affected thereby.
6.5 MAINTENANCE OF PROPERTIES; INSURANCE. Each of Holdings and FMCAN
will, and will cause each of its Subsidiaries to, maintain or cause to be
maintained in good repair, working order and condition, subject to ordinary wear
and tear, all material properties (subject to replacement in the ordinary course
of business) necessary for use in its businesses or the businesses of its
Subsidiaries, and from time to time will make or cause to be made all
appropriate repairs, renewals and replacements thereof, except to the extent
that the failure to comply with this sentence would be unlikely, singly or in
the aggregate, to have a material adverse effect on the business, prospects,
operations assets or condition (financial or otherwise) of Holdings and its
Subsidiaries taken as a whole. Each of Holdings and FMCAN will maintain or
cause to be maintained, with financially sound and reputable insurers, insurance
in respect of its properties and business and the properties and business of its
Subsidiaries against loss or damage of the kinds customarily insured against by
corporations of
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established reputation engaged in the same or a similar business, of such types
and in such amounts as are customarily carried under similar circumstances by
such other corporations.
6.6 EXPENSES. Whether or not the transactions contemplated hereby are
consummated, Holdings and FMCAN shall pay or reimburse the Purchasers (other
than any Purchaser whose breach of its obligations hereunder is the sole reason
for the failure to consummate such transactions) for all expenses reasonably
incurred by the Purchasers in connection with (i) the transactions contemplated
hereby, (ii) transactions contemplated by the Ancillary Agreements and (iii) any
amendments or waivers of, or any enforcement of any rights granted under, this
Agreement or the Ancillary Agreements, including, without limitation: (x) the
cost and expenses of preparing and duplicating this Agreement, the Ancillary
Agreements and all certificates on behalf of Holdings or any of its
Subsidiaries; (y) out-of-pocket expenses, including fees, expenses and
disbursements of the Purchasers' counsel, in connection with the transactions
contemplated by this Agreement and the Ancillary Agreements and all agreements
contemplated thereby, or in connection with any waivers or amendments relating
to or any efforts to enforce the provisions of such agreements, or in connection
with or arising out of any litigation, investigation or proceeding instituted
with respect to such agreements or any transaction contemplated thereby; and (z)
all documentary, stamp, transfer and similar taxes, including interest and
penalties and any recording fees and filing fees at any time payable in respect
of the consummation of the transactions contemplated by this Agreement and the
Ancillary Agreements, or the issuance of any of the Securities. Holdings and
FMCAN also agree to save the Purchasers harmless from all claims in respect of
the fees and expenses of brokers and finders, or any depositaries or transfer
and other agents retained in connection with the transactions contemplated
hereby.
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6.7 SHAREHOLDERS AGREEMENT. Holdings shall comply with the terms of the
Shareholders Agreement, and shall use its best efforts to ensure that its
Certificate of Incorporation and By-Laws do not at any time contain any
provision which is contrary to or inconsistent with the provisions of the
Shareholders Agreement.
6.8 CERTAIN REDEMPTION RIGHTS.
(a) At any time, or from time to time, after the earlier of (x)
December 10, 1998, (y) the date immediately preceding the date of the
consummation of an Exit Event or (z) the first date as of which the Notes shall
have been paid in full and all Junior Preferred Shares have been redeemed, at
the request of a Requesting Holder, Holdings shall redeem the number of Common
Shares held by such Requesting Holder which such Holder requests to be redeemed.
Any notice of redemption by a Holder shall be in writing and shall also state
the number of Common Shares to be redeemed. Upon receipt of any such request by
a Requesting Holder, Holdings shall promptly give notice of such proposed
redemption to all other Holders. Each such other Holder may elect to include
its Common Shares in the redemption to be made pursuant to this Section 6.8(a)
by so notifying the Company within 15 days after receipt of the notice referred
to in the immediately preceding sentence. Holdings shall notify all Holders in
writing of the proposed occurrence of an Exit Event as soon as reasonably
practicable but in no event later than 45 days prior to the consummation of such
Exit Event. In the case of any redemption in connection with an Exit Event, any
Requesting Holder shall notify Holdings of its desire to cause a redemption
under Section 6.8(a) as soon as it is reasonably practicable but in no event
shall such notice be provided later than 15 days prior to the consummation of
such Exit Event. Notwithstanding the foregoing, Holdings shall not be required
to redeem Common Shares pursuant to this Section 6.8(a) (i) if the request for
such redemption is made after the date on which Holdings shall have consummated
one or more registered public
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offerings of its equity securities with aggregate net proceeds to Holdings and
the selling shareholders of at least $15,000,000 or (ii) if any request for
redemption occurs within 365 days of any previous request for redemption and
Holdings shall have redeemed all Common Shares covered by such previous request.
(b) The redemption price payable by Holdings upon any redemption of
Common Shares pursuant to Section 6.8(a) shall be equal to (x) in the case of
Common Shares held by Holders other than Original Purchasers, the product of the
Fair Market Value of Holdings and a fraction, the numerator of which is the
number of such Common Shares being redeemed and the denominator of which is the
number of Common Stock Equivalents then outstanding, and (y) in the case of
Common Shares held by an Original Purchaser, the greater of the amount referred
to clause (x) and the Preferred Return in respect of such Common Shares.
(c)(1) If a redemption is requested in connection with an Exit Event
involving a sale, lease, transfer or other disposition of assets described in
clause (i) of the definition of Exit Event, then the Fair Market Value of
Holdings shall equal the fair market value of the equity of Holdings as
determined by the Board of Directors of Holdings, reasonably and in good faith,
on the basis of the aggregate net proceeds received by Holdings for such assets
reduced by the outstanding indebtedness, preferred shares and other liabilities
of Holdings (including without limitation any liabilities in respect of any SAR
Agreements).
(c)(2) If a redemption is requested in connection with an Exit Event
involving the issuance by Holdings of Common Shares (i.e., clause (iii) of the
definition of Exit Event), then the Fair Market Value of Holdings shall equal
the fair market value of the equity of Holdings as determined by the Board of
Directors of Holdings, reasonably and in good faith, on the basis of the price
per share at which such Common Shares are sold.
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(c)(3) If a redemption is requested other than in connection with an
Exit Event described in Section 6.8(c)(1) or (c)(2), then the Fair Market Value
of Holdings shall be determined in accordance with Section 6.8(d).
(d) Within 10 days of receipt of any notice of redemption in
connection with any event described in Section 6.8(c)(3), Holdings shall notify
the Requesting Holder either (i) of its election to determine the Fair Market
Value of Holdings on the basis of an appraisal (in which case it shall equal the
fair market value of the equity of Holdings valued as a going concern) or (ii)
its election, in lieu of an appraisal, to arrange for a sale of substantially
all of the assets of Holdings and its Subsidiaries or of all of Holdings
outstanding Common Shares to any Person other than an Affiliate of Holdings (a
"Sale") in order to determine the Fair Market Value of Holdings.
(1) If Holdings does not promptly notify the Requesting Holder
pursuant to the immediately preceding sentences, a nationally recognized
investment banking firm selected by the Requesting Holder shall determine
the Fair Market Value of Holdings.
(2) If Holdings shall have elected the appraisal option, Holdings
shall in such notice select a nationally recognized investment banking
firm, and within 10 days of receipt of such notice the Requesting Holder
shall select a nationally recognized investment banking firm, and the two
investment banking firms shall select a third nationally recognized
investment banking firm to determine the Fair Market Value of Holdings.
(3) If Holdings shall have elected to pursue a Sale and such Sale is
consummated within one year of the date of notice of such election, then
the Fair Market Value of Holdings shall
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equal (A) in the case of a Sale of all or substantially all of the assets
of Holdings, the aggregate net proceeds received by Holdings in connection
therewith reduced by any outstanding indebtedness, preferred shares and
other liabilities (including without limitation any liabilities in respect
of the SAR Agreements) of Holdings and (B) in the case of a Sale of all of
the outstanding Common Shares of Holdings, the price per Common Share paid
in connection therewith multiplied by the aggregate number of Common Stock
Equivalents.
(4) If Holdings shall have elected to pursue a Sale and such effort
is abandoned or such Sale has not been consummated within one year of the
notice by Holdings of such election, then Holdings shall, within 10 days of
the earlier to occur of such abandonment or the expiration of such one-year
period, select a nationally recognized investment banking firm, and within
10 days thereafter the Requesting Holder shall select a nationally
recognized investment banking firm, and the two investment banking firms
shall select a third nationally recognized investment banking firm to
determine the Fair Market Value of Holdings.
If Holdings does not make the selection of an investment banking firm within the
time periods specified above, the investment banking firm selected by the
Requesting Holder shall determine the Fair Market Value of Holdings. Holdings
shall pay the fees and expenses of the investment banking firms selected to
determine the Fair Market Value of Holdings.
If any Holder which has elected to include any Common Shares held by
it in a redemption to be made pursuant to a redemption notice described in the
first sentence of this Section 6.8(d) refuses to permit, or otherwise to
participate in, a proposed Sale, and such proposed Sale was not consummated
solely by means of such refusal, then such Holder shall be deemed to have
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withdrawn its election to include its Common Shares in such redemption.
(e) Any purchase pursuant to this Section 6.8 shall (i) if based on
Fair Market Value of Holdings as determined in accordance with an appraisal, be
made no later than 90 days following such determination, and (ii) if based on
Fair Market Value of Holdings as determined by reference to an Exit Event
described in Sections 6.8(c)(1) or (2) or to a Sale, simultaneously with the
consummation of such Exit Event or Sale.
(f) Anything in this Section 6.8 to the contrary notwithstanding,
Holdings shall not be required to redeem Common Shares to the extent that
Holdings is prohibited by applicable statutes relating to insolvency or to the
maintenance of adequate stated or legal capital or transfers for equivalent
value from (i) effecting such a redemption and (ii) revaluing its assets or
otherwise generating or creating surplus sufficient to permit such a redemption.
In the event that Holdings is so prohibited from effecting such a redemption,
Holdings shall use all funds that are legally available to effect such a
purchase ratably from the Holders in proportion to the aggregate number of
Common Shares proposed to be redeemed. Any Holder may, with respect to all
Common Shares proposed to be redeemed but not redeemed by reason of this Section
6.8(e), elect either (i) to rescind such Holder's request that Holdings redeem
the Common Shares (in which event the Holders shall have no liability for the
expenses of Holdings) or (ii) to leave such request in place, in which case
Holdings shall, as soon as funds are legally available, pay to such Holder the
redemption price for the Common Shares redeemed by such Holder, together with
interest thereon at a rate of 16% per annum, compounded semi-annually, from the
date redemption would have been required but for this Section 6.8(f).
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(g) In the event that any Common Shares shall have been redeemed
pursuant to Section 6.8(a) for a redemption price equal to the Preferred Return
and any Notes or Junior Preferred Shares shall have remained outstanding after
the date on which such redemption was consummated, then on each subsequent date
(an "Additional Payment Date") on which Holdings shall redeem any Junior
Preferred Shares or FMCAN shall repay any principal in respect of the Notes,
Holdings shall simultaneously therewith pay to each Original Purchaser that had
previously redeemed any Common Shares pursuant to Section 6.8(a) for a
redemption price equal to the Preferred Return an amount equal to the
"Additional Redemption Price" (as defined below) multiplied by a ratio, the
numerator of which shall equal the aggregate number of Common Shares previously
redeemed by such Original Purchaser pursuant to Section 6.8(a) for a redemption
price based on the Preferred Return, and the denominator of which shall equal
the aggregate number of Common Shares previously redeemed by all Original
Purchasers pursuant to Section 6.8(a) for a redemption price based on the
Preferred Return.
"Additional Redemption Price" means, with respect to any Additional
Payment Date, an amount determined as of such date equal to that amount which,
taking into account (x) the product of (i) all cash payments theretofore or
concurrently made (or assumed to be made) in respect of the Notes (including
principal, premium and interest) and the Junior Preferred Shares and (ii) the
Preferred Return Redemption Ratio and (y) all cash payments theretofore or
concurrently received by all Original Purchasers in respect of any Common Shares
previously redeemed pursuant to Section 6.8(a) for a redemption price based on
the Preferred Return, is sufficient to provide an annual 16% internal rate of
return, computed on the basis of semi-annual compounding, on the product of (i)
$42,000,000 and (ii) the Preferred Return Redemption Ratio. For the purpose of
the foregoing calculation it shall be assumed that the Notes and Junior
Preferred Shares will be repaid in full as of such Additional Payment Date, and
such calculations shall be performed
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in a manner consistent with the procedures described in the final sentence of
the definition of Preferred Return.
"Preferred Return Redemption Ratio" means as of any Additional Payment
Date, a ratio, the numerator of which shall equal the aggregate number of Common
Shares previously redeemed pursuant to Section 6.8(a) for a price based on the
pertinent Preferred Return, and the denominator of which shall equal the
aggregate number of Purchaser Common Shares as of the Closing Date.
6.9 BOARD REPRESENTATION. Subject to the terms and conditions of the
Shareholders Agreement, the Boards of Directors of each of Holdings and FMCAN
shall include two directors nominated by TCW. Upon the occurrence and during
the continuance of a Triggering Event, unless the holders of the Seller
Preferred Stock shall have elected a director pursuant to Section 1.6 of the
Certificate of Designation for the Seller Preferred Stock and such director
shall continue to serve as a director of Holdings, the holders of Class D Common
Shares shall be entitled to elect a director who shall have 51% of the total
voting power of the Board of Directors of Holdings.
6.10 ERISA COVENANTS. Holdings and FMCAN will, so long as any Notes
or at least 92 Junior Preferred Shares shall remain outstanding, (i) continue to
meet the ERISA representations and warranties set forth under Section 3.10 of
this Agreement, (ii) not grant any increase in compensation or pay or agree to
pay or accrue any bonus or like benefit to or for the credit of any director,
officer or employee except for normal increases in the ordinary course of
business and consistent with prudent business practices, not establish or adopt
an employee benefit plan as defined in Section 3(3) of ERISA that is subject to
Title IV of ERISA, Section 302 of ERISA, or Section 412 of the Code, and (iii)
not establish or adopt an employee welfare benefit plan as defined in Section
3(1) of ERISA other than as provided under the Non-Competition
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Agreements that provides for employer-provided continued welfare benefits for
employees or consultants after they leave the employment of or are no longer
retained by FMCAN, Holdings or any of their Subsidiaries (other than any such
benefits required to be provided by the Consolidated Omnibus Budget
Reconciliation Act of 1985 or other similar federal or state law).
6.11 FUTURE FMCAN SUBSIDIARIES. For so long as any of the Notes shall
remain outstanding, promptly upon any Person becoming a direct or indirect
Subsidiary of FMCAN (other than a Subsidiary that immediately thereafter on a
pro forma basis is a Non-Material Subsidiary), or upon any direct or indirect
Subsidiary of FMCAN no longer meeting the criteria for being a Non-Material
Subsidiary, such Subsidiary shall execute and deliver to each holder of Notes a
Subsidiary Guaranty substantially in the form of Exhibit D hereto.
Holdings covenants that it will not incorporate, organize or acquire
any Subsidiary other than FMCAN and the direct Subsidiaries of FMCAN.
SECTION 7. NEGATIVE COVENANTS OF HOLDINGS AND FMCAN
Each of Holdings and FMCAN hereby covenants and agrees that it will
comply, and will cause each of its Subsidiaries to comply, with such of the
following provisions as are applicable to it or them:
7.1 RESTRICTED PAYMENTS. For so long as any of the Notes or at least 92
Junior Preferred Shares shall remain outstanding, Holdings and FMCAN will not,
and will not permit any of their Subsidiaries to, directly or indirectly,
declare, make or pay any cash dividends on, or make any payment on account of,
or set apart assets for a sinking or other analogous fund for, the purchase,
redemption, retirement or other acquisition of, any shares of any
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class of stock of any of them, whether now or hereafter outstanding, or make any
other distribution in respect thereof, whether in cash or property or in
obligations of Holdings or any of its Subsidiaries or purchase or otherwise
acquire any such shares from any Person; provided that (i) any wholly-owned
Subsidiary of FMCAN may make distributions to FMCAN and FMCAN may make
distributions to Holdings; (ii) for so long as no Event of Default shall have
occurred and be continuing, Holdings may pay cash dividends on Seller Preferred
Stock in accordance with its terms as in effect on the Closing Date; and (iii)
Holdings may redeem Purchaser Common Shares to the extent required by Section
6.8 of this Agreement.
7.2 CERTAIN TRANSACTIONS. For so long as Threshold Securities shall
remain outstanding, Holdings and FMCAN will not, and will not permit any of
their Subsidiaries to, directly or indirectly, enter into any transaction with,
any of its officers, directors or shareholders, or any member of their immediate
families, or any firm, corporation, trust, or other entity in which such persons
have an ownership interest or any Affiliate of the foregoing; provided, however,
that Holdings shall not be in violation of this Section 7.2 by virtue of (i) the
transactions consummated pursuant to this Agreement and the Ancillary
Agreements; (ii) compensation accrued in the ordinary course of business; (iii)
advances to employees of Holdings or its Subsidiaries for moving, relocation and
travel expenses, drawing accounts and similar expenditures in the ordinary
course of business; (iv) other advances to employees which in the aggregate
shall not at any time exceed $300,000 for all employees; (v) for so long as no
Event of Default shall have occurred and be continuing, any
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payments made during the period ending on the sixth anniversary of the Closing
pursuant to the terms of the Management Consulting Agreement as in effect on the
date hereof without giving any effect to any amendments thereto; (vi) for so
long as no Event of Default under Section 10.1(a) shall have occurred and be
continuing, any payments made pursuant to the terms of the Investment Banking
Agreement as in effect on the date hereof without giving effect to any
amendments thereto; (vii) consulting fees to Thomas Quinn not in excess of
$40,000 per year (subject to reasonable increases) and reasonable directors'
fees in the ordinary course or (viii) transactions described in Schedule 3.15
hereto.
7.3 FUNDAMENTAL CHANGES. Subsequent to the Closing, and for so long as
Threshold Securities shall remain outstanding, Holdings and FMCAN will not, and
will not cause or permit any of their Subsidiaries to, (i) sell, pledge, assign,
transfer or otherwise dispose of, or cause or permit the sale, pledge,
assignment, transfer or other disposition of, any of the capital stock of any of
its Subsidiaries other than pursuant to the Pledge Agreement, (ii) liquidate or
dissolve (other than in connection with a merger permitted under clause (iii)),
or (iii) merge into or consolidate with any Person (other than a merger of any
Subsidiary of FMCAN into FMCAN with FMCAN as the surviving corporation or a
merger of a Subsidiary of FMCAN into a wholly-owned Subsidiary of FMCAN with
such wholly-owned Subsidiary as the surviving corporation); provided, however
that nothing in this Section 7.3 shall prohibit (x) the grant or creation of any
Lien permitted under Section 7.5 or (y) the Mergers.
7.4 INDEBTEDNESS. For so long as any Notes or at least 92 Junior
Preferred Shares shall remain outstanding, Holdings and FMCAN will not, and will
not permit any of their Subsidiaries to, directly or indirectly create, incur,
assume, guarantee or otherwise become or remain directly or indirectly liable
with respect to any Indebtedness except:
(a) Indebtedness in respect of the Note;
(b) Indebtedness in respect of the Senior Note Purchase Agreement or
the Working Capital Facility or, in each case, any
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refinancing thereof, in an aggregate principal amount not to exceed $47,500,000
reduced by all actual payments made in respect of Indebtedness under the Senior
Note Purchase Agreement or in respect of any agreement respecting term
Indebtedness incurred to refinance all or a portion of the Indebtedness under
this Section 7.4(b) (other than any payments made from the proceeds of any such
refinancing);
(c) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument inadvertently
drawn against insufficient funds in the ordinary course of business, provided
that such Indebtedness is extinguished within five business days of its
incurrence;
(d) Indebtedness of a Subsidiary of FMCAN owing to FMCAN or to
another Subsidiary of FMCAN;
(e) Indebtedness existing on the Closing Date and listed on Schedule
7.4;
(f) Other Indebtedness, including, without limitation, Indebtedness
incurred in respect of Capital Leases, purchase money security interests and
capital expenditures permitted by Section 7.7; provided that the aggregate
principal amount of such indebtedness incurred during any fiscal year shall not
exceed $1,000,000;
(g) Obligations under the Management Consulting Agreements, the
Investment Banking Fee Agreement and the SAR Agreements.
7.5 LIENS. For so long as any of the Notes or at least 92 Junior Preferred
Shares shall remain outstanding, Holdings and FMCAN will not, and will not
permit any of their Subsidiaries to,
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directly or indirectly, create, grant, suffer to exist or permit the creation of
any Lien on any of its properties or assets except:
(a) Permitted Liens;
(b) Liens specifically described and identified on Schedule 3.6
hereto;
(c) Liens in respect of Indebtedness permitted by Section 7.4(f);
(d) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods; and
(e) Liens securing Indebtedness permitted under Section 7.4(b).
7.6 INVESTMENTS. For so long as any Notes or at least 92 Junior Preferred
Shares shall remain outstanding, except as set forth on Schedule 7.6, Holdings
and FMCAN will not, and will not permit any of their Subsidiaries to, directly
or indirectly, make or own any Investment except Investments in (i) short-term
obligations of the Treasury of the United States of America or of any agency of
the United States government, (ii) certificates of deposit of any domestic
commercial bank having capital and surplus in excess of $100,000,000, (iii) open
market commercial paper, maturing within 270 days after the acquisition thereof,
which has the highest credit rating of either Standard & Poor's Corporation or
Moody's Investors Service, Inc., issued by a corporation (other than Holdings or
any of its Subsidiaries) organized under the laws of any State of the United
States of America or of the District of Columbia, (iv) any capital stock of or
loan or advance to or guaranty of, the obligations of FMCAN or any of its
Subsidiaries, (v) deposits with insurance companies in connection with self-
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insurance and (vi) Investments in municipal bonds in existence on the Closing
Date.
7.7 CAPITAL EXPENDITURES. For so long as any Notes or at least 92 Junior
Preferred Shares shall remain outstanding, Holdings and FMCAN will not, and will
not permit any of their Subsidiaries to, directly or indirectly, make any
capital expenditures during any fiscal year in an aggregate amount for Holdings
and its Subsidiaries in excess of $2,750,000 plus (a) the amount by which
$2,750,000 exceeds the actual capital expenditures in the preceding fiscal year
and (b) the aggregate amount of credits received by FMCAN and its Subsidiaries
in such fiscal year in respect of motor vehicle trade-ins. Notwithstanding the
foregoing, there shall be excluded from the calculation of capital expenditures
under this Section 7.7 for the period from the Closing Date through October 31,
1992 all amounts not in excess of $510,000 in the aggregate actually expended in
compliance with Sections 10.3(F) and (G) of the Senior Note Purchase Agreement.
7.8 SALE OF ASSETS. Notwithstanding anything to the contrary herein, so
long as any of the Notes or at least 92 Junior Preferred Shares shall remain
outstanding, Holdings and FMCAN will not, and will not permit any of their
Subsidiaries to, directly or indirectly, sell, convey, lease, transfer or
otherwise dispose of, any of its assets, except:
(a)sales of inventory in the ordinary course of it business;
(b) sales of obsolete or worn out property in the ordinary course of
business, in an amount not to exceed, in the aggregate, $250,000 in any fiscal
year (provided that there shall be excluded from any determination of such
amount the aggregate amount of credits received by FMCAN and its Subsidiaries in
such fiscal year in respect of motor vehicle trade-ins);
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(c) sales of assets listed on Schedule 7.8 hereto; and
(d) sales of asset at a price not less than fair market value that,
in the aggregate, do not constitute a Significant Portion of the assets of
Holdings or any of its Subsidiaries; provided however that the aggregate
consideration for such assets received by Holdings and its Subsidiaries is in
the form of cash or cash equivalents, and provided further that any proceeds
from any such sale that constitute cash sale proceeds are used within six months
of their receipt (x) either to prepay Indebtedness in respect of the Senior
Financing Documents or for purposes of adding to the property, plant or
equipment of the business of Holdings and its Subsidiaries as conducted on the
date hereof; and (y) thereafter to prepay the Notes.
7.9 CAPITAL STOCK. Subsequent to the Closing, and so long as Threshold
Securities shall remain outstanding, Holdings and FMCAN will not, and will not
permit any of their Subsidiaries to, issue, directly or indirectly, additional
capital stock (common or preferred), capital stock equivalents, securities
convertible into capital stock, or options, warrants or other rights to acquire
capital stock except the payment of in-kind dividends on the Seller Preferred
Stock, the Junior Preferred Shares and the Jordan Junior Preferred Shares and
the issuance of equity securities by Holdings pursuant to the Permitted Stock
Option Plan.
7.10 FINANCIAL COVENANTS.
(a) For so long as any Note or at least 92 Junior Preferred Shares
shall remain outstanding, Holdings shall not permit its Consolidated Net Worth
as at the end of each fiscal year of Holdings set forth below to be less than
the amounts corresponding to such period set forth below:
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FISCAL YEAR ENDED AUGUST 31 CONSOLIDATED NET WORTH
--------------------------- ----------------------
1992 $18,830,700
1993 $22,575,600
1994 $28,498,500
1995 $32,152,500
1996 and thereafter $39,030,300
(b) For so long as any Note or at least 92 Junior Preferred Shares
shall remain outstanding, Holdings shall not permit the ratio of its EBITDA to
its Fixed Charges, measured as of any date set forth below for the period of
four full fiscal quarters of Holdings set forth opposite such date, to be less
than the ratio corresponding to such period set forth below; provided, however,
that for the dates set forth below occurring prior to November 30, 1992, the
applicable measuring period shall be the period from the Closing Date to and
including such date:
DATE RATIO
---- -----
May 31, 1992 1.44 : 1.00
the last day of each 1:00 : 1.00
subsequent fiscal quarter
SECTION 8. RESTRICTIONS ON TRANSFER
(a) Each Note shall be endorsed with the following legend:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAW AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING
SUCH SECURITIES UNLESS SUCH SALE, TRANSFER, ASSIGNMENT OR
HYPOTHECATION IS EXEMPT FROM REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SUCH ACT OR THE SALE IS MADE IN ACCORDANCE WITH RULE
144 UNDER THE ACT.
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(b) Each certificate evidencing Junior Preferred Shares or Purchaser
Common Shares shall be endorsed with the following legend (the "Securities
Legend"):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAW AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING
SUCH SECURITIES UNLESS THE ISSUER RECEIVES AN OPINION OF COUNSEL FOR
THE HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE ISSUER
STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF
SUCH ACT OR THAT THE SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER
THE ACT.
Holdings need not register a transfer of legended certificates evidencing Junior
Preferred Shares or Purchaser Common Shares, and may instruct its transfer agent
not to register the transfer of such Securities, unless the conditions specified
in the Securities Legend are satisfied. The Securities Legend shall be removed,
and Holdings shall issue a certificate evidencing Junior Preferred Shares or
Purchaser Common Shares without a Securities Legend to the holder of such
Security, (i) if such Security is registered under the Securities Act and a
prospectus meeting the requirements of Section 10 of the Securities Act is
available, or (ii) if such holder provides Holdings with an opinion of counsel
for such holder, reasonably satisfactory to Holdings to the effect that a public
sale, transfer or assignment of such Security may be made without registration
under the Securities Act or any applicable state securities law.
(c) All transfers of Notes shall be in a minimum principal amount
equal to the lesser of $2,000,000 or the aggregate amount held by such
transferring holder; provided that any transfer of Notes by the TCW entities or
TCW Transferees to any Person shall be aggregated for the purposes of this
Section 8(c).
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SECTION 9. REGISTRATION RIGHTS.
9.1 HOLDINGS REGISTRATION.
(a) If at any time Holdings determines to effect a Registration for
its own account or for the account of Other Shareholders, Holdings shall:
(i) give each Holder 30 days written notice thereof (which
notice shall include, to the extent available, a list of the jurisdictions in
which Holdings intends to attempt to qualify such Common Shares under applicable
blue sky or other state securities laws); and
(ii) use its best efforts to include in any such Registration all
Purchaser Common Shares which Holders, within 20 days of receipt of such notice,
request in writing to be registered.
(b) If the Registration of which Holdings gives notice is for a
public offering involving an underwriting, Holdings shall so advise the Holders
as a part of the written notice given pursuant to Section 9.1(a) hereof. In such
event, any Holder desiring to exercise its right to Registration pursuant to
this Section 9.1 shall include within its Registration request a statement as to
whether such Holder desires to (i) participate in such underwriting or (ii)
register Purchaser Common Shares without participating in such underwriting (in
which event the Holder shall inform Holdings, as part of such request, of the
method by which the Holder intends to distribute such shares). All Holders
proposing to distribute their Common Shares through such underwriting shall
(together with Holdings and the Other Shareholders distributing their securities
through such underwriting) enter into an underwriting agreement in customary
form with the underwriter or underwriters selected for such
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underwriting by Holdings. All Holders proposing to distribute their Common
Shares other than through such underwriting shall, if the underwriter determines
that marketing factors so require and advises Holdings in writing, agree to
refrain from distributing such shares for 90 days after the effective date of
the applicable registration statement, on the condition that all Other
Shareholders proposing to distribute their Common Shares other than through such
underwriting who own or have rights to acquire a number of Common Shares equal
to five percent or more of the outstanding Common Shares also agree to so
refrain.
(c) Notwithstanding any other provision of this Section 9.1, if the
managing underwriter or underwriters determine that marketing factors require a
limitation on the number of outstanding shares to be underwritten and so advise
Holdings in writing, the number of the Common Shares included in the
underwriting must be limited, in which case the Holders' rights to participate
in the underwriting and the rights of all Other Shareholders desiring to
participate in the underwriting shall be limited in proportion to the number of
Common Shares requested to be registered by each such Holder or Other
Shareholder. Any Common Shares excluded from the underwriting by reason of the
underwriter's marketing limitation may nonetheless, at the option of the Holder,
be included in the registration subject to Section 9.1(d) hereof. If any Holder
disapproves of the terms of any such underwriting, it may elect to withdraw
therefrom by written notice to Holdings and the managing underwriter or
underwriters, in which event the Common Shares so withdrawn from the
underwriting may nonetheless, at the option of the Holder, be included in the
registration.
(d) Notwithstanding any other provision of this Section 9.1, if the
managing underwriter or underwriters determine that marketing factors require
that the registration be limited to shares included in the underwriting and so
advise Holdings in writing, the Holders will have no right to register Common
Shares
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without participating in the underwriting. In such event, (i) Common Shares
excluded from the underwriting by reason of Section 9.1(c) hereof shall also be
excluded from the registration, and (ii) any Common Shares withdrawn from the
underwriting as provided in Section 9.1(c) hereof shall also be withdrawn from
the registration.
(e) Holdings shall pay all expenses in connection with each
registration pursuant to this Section 9.1; provided, however, that the Holders
who include Common Shares in a registration pursuant to this Section 9.1 shall
bear the cost of any underwriters' discount or commission relating to their
Common Shares which are sold and of any incremental filing or similar fees,
including but not limited to incremental fees related to any blue sky filing,
relating to their Common Shares which are registered, and shall bear the costs
of any legal counsel they retain for themselves.
(f) Holdings shall not be required by this Section 9.1 to file a
registration statement at any time or to prosecute a filing to effectiveness.
9.2 DEMAND REGISTRATION.
(a) From and after the earlier of the sixth anniversary of the
Closing, or 90 days after the date Holdings shall have first sold equity
securities in a public offering registered under the Securities Act, upon a
request in writing by an Initiating Holder that Holdings effect a registration
of at least 100.000 Purchaser Common Shares, Holdings shall:
(i) promptly given written notice of the proposed registration
to all other Holders; and
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(ii) use its best efforts to effect the registration as soon as
practical of the Common Shares which (x) the Initiating Holder has requested to
be registered and (y) the other Holders have, within 20 days of such notice,
requested in writing to be registered.
(b) Notwithstanding Section 9.2(a) hereof, Holdings shall not be
required to file a registration statement pursuant to Section 9.2(a) if Holdings
has already effected two or more registrations pursuant to Section 9.2(a) hereof
unless the Initiating Holder requesting such registration shall have agreed to
pay the expenses of such registration.
(c) If the registration of which the Initiating Holder gives notice
is for a public offering involving an underwriting, Holdings shall so advise the
Holders as a part of the written notice given pursuant to Section 9.2(a) hereof.
In such event, any Holder desiring to exercise its right to registration
pursuant to this Section 9.2 shall include within its registration request a
statement as to whether such Holder desires to (i) participate in such
underwriting or (ii) register Common Shares without participating in such
underwriting (in which event the Holder shall inform Holdings, as part of such
request, of the method by which the Holder intends to distribute such shares).
All Holders proposing to distribute their Common Shares through such
underwriting shall (together with Holdings and any Other Shareholders
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by Holdings with the consent of the Initiating
Holder, which consent shall not be unreasonably withheld. All Holders proposing
to distribute their Common Shares other than through such underwriting shall, if
the underwriter determines that marketing factors so require and advises
Holdings in writing, agree to refrain from distributing such shares for 90 days
after the
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effective date of the applicable registration statement, on the condition that
all Other Shareholders proposing to distribute their Common Shares other than
through such underwriting who own or have rights to acquire a number of Common
Shares equal to five percent or more of the outstanding Common Shares also agree
to so refrain.
(d) Notwithstanding any other provisions of this Section 9.2, if the
managing underwriter or underwriters determine that marketing factors require a
limitation on the number of shares to be underwritten and so advise Holdings in
writing, and if, as a result of such limitation, the number of the Common Shares
included in the underwriting must be limited, the Holders' right to participate
in the underwriting shall be limited in proportion to the number of Common
Shares requested to be registered by each Holder and Holdings. Any Common
Shares excluded from the underwriting by reason of the underwriter's marketing
limitation may nonetheless, at the option of the Holder, be included in the
registration. If any Holder disapproves of the terms of any such underwriting,
it may elect to withdraw therefrom by written notice to Holdings and the
managing underwriter or underwriters, in which event the Common Shares so
withdrawn from the underwriting may nonetheless, at the option of the Holder, be
included in the registration.
(e) Notwithstanding any other provision of this Section 9.2, if the
managing underwriter or underwriters determine that marketing factors require
that the registration be limited to shares included in the underwriting and so
advise Holdings in writing, the Holders will have no right to register Common
Shares without participating in the underwriting. In such event, (i) Common
Shares excluded from the underwriting by reason of Section 9.2(d) hereof shall
also be excluded from the registration, and (ii) any Common Shares withdrawn
from the underwriting as provided in Section 9.2(d) hereof shall also be
withdrawn from the registration.
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(f) Holdings may include Common Shares for its own account, or Common
Shares for the account of Other Shareholders having rights to participate in
registrations of Holdings, in any registration and underwriting pursuant to this
Section 9.2; provided, however, that Holdings include shares for its own account
or for the account of such Other Shareholders only if the managing underwriter
or underwriters so agree and if the number of Common Shares which would
otherwise have been included in the underwriting will not thereby be limited.
(g) Except as otherwise provided in Section 9.2(b), Holdings shall
pay all expenses in connection with each registration pursuant to this Section
9.2; provided, however, that the Holders who include Common Shares in a
registration pursuant to this Section 9.2 shall bear the cost of any
underwriters' discount or commission relating to their Common Shares which are
sold and of any incremental filing or similar fees relating to their Common
Shares which are registered, and shall bear the costs of any legal counsel they
retain for themselves.
9.3 INDEMNIFICATION.
(a) Holdings will indemnify each Holder, its agents, each of their
respective officers, directors and partners, and each Person controlling such
Holder within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act, with respect to whose shares registration has been effected
pursuant to this Section 9, and each underwriter, if any, and each Person who
controls any underwriter against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on (i) any untrue statement
(or alleged untrue statement) of a material fact contained in any prospectus
(including without limitation preliminary and supplemental prospectuses), or
other similar document (including any related registration statement) incident
to any such registration, or based on any omission (or
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alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, or (ii) any
violation by Holdings of any federal, state or common law rule or regulation
applicable to Holdings and relating to action or inaction required of Holdings
in connection with any such registration, and will reimburse each such Holder,
its agents, each of their respective officers, directors and partners, and each
Person controlling such Holder, each such underwriter and each Person who
controls any such underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action; provided, however, that Holdings will not be liable
in any such case to the extent that any such claim, loss, damage, liability or
expense arises out of or is based on any untrue statement or omission made in a
registration statement, prospectus, offering circular or other document in
reliance upon and in conformity with written information furnished to Holdings
by such Holder or underwriter specifically for use therein; and provided,
further, that, with respect to any untrue statement or omission or alleged
untrue statement or omission made in any preliminary prospectus, Holdings will
not be liable to any Holder to the extent that any loss, claim, damage,
liability or expense results from the fact that a current copy of the prospectus
was not sent or given to the Person asserting any such loss, claim, damage,
liability or expense at or prior to the written confirmation of the sale of the
Common Shares concerned to such Person if it is determined that it was the
responsibility of such Holder to provide such Person with a current copy of the
prospectus and such current copy of the prospectus would have cured the defect
giving rise to such loss, claim, damage, liability or expense.
(b) Each Holder will, if Common Shares held by such Holder are
included in the securities as to which such registration, qualification or
compliance is being effected, indemnify Holdings, each of its directors and
officers, each
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underwriter, if any, of the securities of Holdings covered by such a
registration statement, each Person who controls Holdings or such underwriter
within the meaning of the Securities Act, and each other such Holder, each of
its officers and directors and each Person controlling such Holder, against all
claims, losses, damages and liabilities (or actions in respect thereof) arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any such registration statement, prospectus, offering
circular, or other similar document, or any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading in light of the circumstances under which
they are made, and will reimburse Holdings, such Holders, such directors,
officers, Persons, underwriters, or control Persons for any legal or any other
expenses reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability, or action, in each case to the extent, but
only to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular, or other document in reliance upon and in
conformity with written information furnished to Holdings by such Holder
specifically for use therein; provided, however, that, with respect to any
untrue statement or omission or alleged untrue statement or omission made in any
preliminary prospectus, the indemnity agreement contained in this Section 9.3(b)
shall not apply to the extent that any loss, claim, damage, liability or expense
results from the fact that a current copy of the prospectus was not sent or
given to the Person asserting any such loss, claim, damage, liability or expense
at or prior to the written confirmation of the sale of the Common Shares
concerned to such Person if it is determined that it was the responsibility of
Holdings, any of its directors, officers or agents, or any underwriter to
provide such Person with a current copy of the prospectus and such current copy
of the prospectus would have cured
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the defect giving rise to such loss, claim, damage, liability or expense.
(c) Each party entitled to indemnification under this Section 9.3
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party's expense, and provided further that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Section 9.3 unless such failure to give notice shall
materially adversely affect the Indemnifying Party in the defense of any such
claim or any such litigation. With respect to any claim or litigation being
conducted by the Indemnifying Party, no Indemnified Party shall, except with the
consent of such Indemnifying Party, consent to entry of any judgment or enter
into any settlement of any claim as to which indemnity may be sought. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect of such claim or litigation.
9.4 RULE 144 REPORTING.
(a) With a view to making available to the Holders the benefits
of certain rules and regulations of the Commission
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which may permit the sale of Common Shares to the public without registration,
Holdings agrees, following an initial public offering of the Common Shares or
after Holdings otherwise becomes subject to the reporting requirements of
Section 13 or Section 15(d) of the Exchange Act, to:
(1) make and keep public information available as those terms
are understood and defined in Rule 144;
(2) file with the Commission in a timely manner all reports and
other documents required of Holdings under the Securities Act and the Exchange
Act; and
(3) furnish to the Holders forthwith upon request a written
statement by Holdings as to its compliance with the reporting requirements of
Rule 144, and of the Securities Act and the Exchange Act, a copy of the most
recent annual or quarterly report of Holdings filed with the Commission, if any,
and such other reports and documents of Holdings and other information in the
possession of or reasonably obtainable by Holdings as the Holders may reasonably
request in availing themselves of any rule or regulation of the Commission
allowing the Holders to sell securities without registration.
(4) Holdings agrees to provide to the Holders such information as is
reasonably available to Holdings in order to permit the Holders to sell
Purchaser Common Shares pursuant to Rule 144A of the Securities Act.
9.5 REGISTRATION PROCEDURES.
(a) If and whenever Holdings is required to use its best efforts to
include in any registration any Purchaser Common Shares under this Section 9,
Holdings will promptly, at its expense:
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(i) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement current and
effective and to comply with the provisions of the Securities Act with respect
to the disposition of all securities covered by such registration statement
until such time as all of such securities have been disposed of in accordance
with the intended methods of disposition by the seller or sellers thereof set
forth in such registration statement, but in no event for a period of more than
five months after such registration statement becomes effective;
(ii) furnish to each seller of such securities such reasonable
number of copies of such registration statement and of each such amendment and
supplement thereto (in each case including all exhibits), such reasonable number
of copies of the prospectus included in such registration statement (including
each preliminary prospectus), in conformity with the requirements of the
Securities Act, and such other documents, as such seller may reasonably request
in order to facilitate the disposition of the securities owned by such seller;
(iii) use its best efforts to register or qualify such securities
covered by such registration statement under such other securities or blue sky
laws of such jurisdictions within the United States (including territories and
commonwealths thereof) as each seller shall reasonably request, and do any and
all other acts and things which may be reasonably necessary or advisable to
enable such seller to consummate the disposition in such jurisdictions of the
securities owned by such seller, except that Holdings shall not for any such
purpose be required to qualify generally to do business as a foreign corporation
in any jurisdiction wherein it is not so qualified, to subject itself to
taxation in any such jurisdiction, or to consent to general service of process
in any such jurisdiction;
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(iv) notify each seller of any such securities covered by such
registration statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act within the period mentioned in
Section 9.5(a)(i), of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect, includes
an untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing, and at the request
of any such seller prepare and furnish to such seller a reasonable number of
copies of a supplement to or an amendment of such prospectus as may be necessary
so that, as thereafter delivered to the purchasers of such securities, such
prospectus shall not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing;
(v) Advise each seller, promptly after it shall receive notice
or obtain knowledge thereof, of the issuance of any stop order by the Commission
suspending the effectiveness of such registration statement or the initiation or
threatening of any proceeding for that purpose and promptly use its best efforts
to prevent the issuance of any stop order or to obtain its withdrawal if such
stop order should be issued;
(vi) Otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make generally available to holders
of Purchaser Common Shares, earning statements satisfying the provisions of
Section 11(a) of the Securities Act, no later than forty-five (45) days after
the end of any twelve (12) month period (or ninety (90) days, if such a period
is a fiscal year) (i) commencing at the end of any fiscal quarter in which
Purchaser Common Shares are sold to underwriters in an
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underwritten offering, or, if not sold to underwriters in such an offering, (ii)
beginning with the first month of Holdings' first fiscal quarter commencing
after the effective date of a registration statement; and
(vii) Not file any amendment or supplement to such registration
statement or prospectus to which a majority in interest of such holders has
objected on the grounds that such amendment or supplement does not comply in all
material respects with the requirements of the Securities Act or the rules and
regulations thereunder, after having been furnished with a copy thereof at least
five (5) business days prior to the filing thereof; provided, however, that the
failure of such holders or their counsel to review or object to any amendment or
supplement to such registration statement or prospectus shall not affect the
rights of such holders or any controlling person or persons thereof or any
underwriter or underwriters therefor under the provisions of this Agreement.
(b) Holdings may require each seller of any securities as to which
any registration is being effected to furnish promptly to Holdings such
information regarding such seller and the distribution of such securities as
Holdings may from time to time reasonably request in writing or as shall be
required by law in connection therewith.
SECTION 10. EVENTS OF DEFAULT
10.1 EVENTS OF DEFAULT; REMEDIES. If any one or more of the following
events ("Events of Default") shall occur:
(a) FMCAN shall fail to make any payment in respect of (i) the
principal of or premium on any of the Notes as the same shall become due,
whether at maturity or by acceleration or otherwise, or (ii) interest on any of
the Notes as the same shall
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become due and such failure to pay interest shall continue for a period of five
business days;
(b) Either Holdings or FMCAN shall fail to perform or observe any
covenant, agreement or provision required to be performed or observed by it
under Section 6.8 or Section 7 hereof;
(c) Either Holdings or FMCAN shall fail to perform or observe any
covenant, agreement or provision required to be performed or observed by it
under this Agreement or the Holdings Guaranty other than those described in
Sections 10.1(a), (b), or (h) hereof, and such failure shall not be rectified,
cured or waived in writing within 45 days after any officer of Holdings or any
Subsidiary of Holdings has received written notice from any Holder of the Notes
of such failure.
(d) Any representation or warranty made by Holdings, FMCAN or the
Company in or in connection with this Agreement or any Ancillary Agreement,
including, without limitation, any such representation or warranty incorporated
by reference in any of the foregoing, shall prove to have been false or
misleading in any material respect as of any date as of which it was made;
(e) Holdings or any of its Subsidiaries shall fail to make any
required payment under any other Indebtedness with respect to which the
aggregate principal amount outstanding exceeds $500,000, or shall fail to
perform or observe any other covenant or provision required to be performed or
observed by it or them pursuant to any Senior Financing Document or any other
agreement in respect of borrowed money with respect to which the aggregate
principal amount outstanding exceeds $500,000, and, in any such case involving a
failure to make required payments or perform or observe any other such covenant
or provision (i) such failure shall continue, without having been duly cured,
beyond the period of grace, if any, therein specified, the effect of which is to
result
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in the acceleration of any such Indebtedness or to cause any such Indebtedness
to remain unpaid following its final maturity, or (ii) any security interest in
or Lien on any property securing any such Indebtedness shall be enforced;
(f) A final judgment which, in the aggregate with other final
judgments then outstanding against Holdings or any of its Subsidiaries, exceeds
$500,000 shall be rendered against Holdings or any of its Subsidiaries if,
within 45 days after entry thereof, such judgment shall not have been discharged
or stayed pending appeal, or within 45 days after expiration of such stay such
judgment shall not have been discharged;
(g) any Reportable Event shall occur which could constitute grounds
for termination by the PBGC of any Plan or for the appointment by the
appropriate United States District Court of a trustee to administer any Plan and
such Reportable Event is not corrected and such determination is not revoked
within thirty (30) days after the administrator of any Plan (if FMCAN, Holdings,
the Company or any of their Subsidiaries or ERISA Affiliates is the
administrator) or Holdings, FMCAN, the Company or any of their Subsidiaries or
ERISA Affiliates, as the case may be, has knowledge, or has reason to have
knowledge, thereof; or any proceedings shall be instituted by the PBGC to
terminate any Plan or to appoint a trustee to administer any Plan; or a trustee
shall be appointed by the appropriate United States District Court to administer
any Plan; or any Plan shall be terminated by its sponsor; or there shall occur a
complete or partial withdrawal from any Multiemployer Plan by Holdings, FMCAN,
the Company or any of their respective Subsidiaries or ERISA Affiliates
(including any transaction described in, and meeting the requirements of,
Section 4204 of ERISA); where in any such case the aggregate liability of
Holdings, FMCAN, the Company and their respective Subsidiaries and ERISA
Affiliates for all such terminations or withdrawals exceeds or is reasonably
likely to exceed $500,000;
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<PAGE>
(h) any breach or breaches of the covenants set forth in Section 6.10
shall occur which singly or in the aggregate would result in liability in excess
of $500,000 or would otherwise reasonably be expected to have a material adverse
effect on the business, operations, prospects, assets or condition (financial or
otherwise) of Holdings and its Subsidiaries taken as a whole;
(i) Holdings or any of its Subsidiaries (other than any Non-Material
Subsidiary) shall be involved in financial difficulties as evidenced:
(i) by its commencement of a voluntary case under Title 11 of
the United States Code as from time to time in effect, or by its
authorizing, by appropriate proceedings of its Board of Directors or other
governing body, the commencement of such a voluntary case;
(ii) by the filing against it of a petition commencing an
involuntary case under said Title 11 and such petition shall not be
dismissed or stayed pending appeal within 60 days;
(iii) by its seeking relief as a debtor under any applicable law,
other than said Title 11, of any jurisdiction relating to the liquidation
or reorganization of debtors or to the modification or alteration of the
rights of creditors, or by its consenting to or acquiescing in such relief;
(iv) by the entry of an order by a court of competent
jurisdiction (a) finding it to be bankrupt or insolvent, (b) ordering or
approving its liquidation, reorganization or any modification or alteration
of the rights of its creditors, or (c) assuming custody of, or appointing a
receiver or other custodian for, all or a substantial part of its property;
or
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<PAGE>
(v) by its making a general assignment for the benefit of, or
entering into a composition with, its creditors, or appointing or
consenting to the appointment of a receiver or other custodian for all or a
substantial part of its property;
then (A) in the case of an Event of Default other than an Event of Default under
Section 10.1(a) hereof, the holders of at least 50 percent of the aggregate
principal amount outstanding under the Notes may, by written notice to Holdings
(unless there shall have occurred an Event of Default under Section 10.1(i) with
respect to the Company, in which case the unpaid principal and interest of the
Notes automatically shall become due and payable), declare all or any part of
the unpaid principal amount of the Notes then outstanding to be forthwith due
and payable and (B) in the case of an Event of Default under Section 10.1(a)
hereof, the holders of at least 10 percent of the aggregate principal amount
outstanding under the Notes may, by written notice to Holdings, declare all or
any part of the unpaid principal amount of the Notes held by such holders to be
forthwith due and payable, and in either case such unpaid principal amount or
part thereof, together with interest accrued thereon, and to the extent
permitted by law, any premium shall become so due and payable without
presentation, presentment, protest or further demand or notice of any kind, all
of which are hereby expressly waived, and such holder or holders may proceed to
enforce payment of such amount or part thereof in such manner as it or they may
elect, provided, however, that any declaration in clause (B) above shall be
automatically rescinded (i) if the Event of Default giving rise to such
declaration shall have been cured within 15 days of such Declaration and (ii)
the holders of at least 50 percent of the aggregate principal amount outstanding
under the Notes shall have elected to rescind such declaration; provided
further, that so long as any holder of Notes or any Affiliate of such holder
shall hold any notes or other securities evidencing
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<PAGE>
Indebtedness to which the Notes are subordinated, such holder shall have no
right to exercise any rights set forth in this paragraph.
10.2 WAIVERS. Holdings and FMCAN hereby waive to the extent not prohibited
by applicable law which cannot itself be waived (a) all presentments, demands
for performance, notices of nonperformance (except to the extent required by the
provisions hereof), (b) any requirement of diligence or promptness on the part
of any holder of Securities in the enforcement of its rights under the
provisions of this Agreement, (c) any and all notices of every kind and
description which may be required to be given by any statute or rule of law
(except to the extent required by the provisions of this Agreement), and (d) any
defense of any kind (other than payment) which it may now or hereafter have with
respect to its liability under the Notes.
10.3 COURSE OF DEALING; REMEDIES CUMULATIVE. No course of dealing between
Holdings or FMCAN and any holder of the Securities shall operate as a waiver of
any of the rights of any holder of the Securities under this Agreement. No
delay or omission in exercising any right under this Agreement shall operate as
a waiver of such right or any other right. A waiver on any one occasion shall
not be construed as a bar to or waiver of any right or remedy on any other
occasion. No waiver or statement of satisfactory cure or consent shall be
binding upon any holder of any Security unless it is in writing. The remedies
provided in this Section 10 are in addition to all rights and remedies available
to the Purchasers and the holders of any Security under this Agreement, the
Ancillary Agreements or any other document or by law or equity.
10.4 LIMITATION ON REMEDIES. The Purchasers acknowledge that Holdings and
FMCAN have obtained a substantial portion of their knowledge and information
regarding the Business in the course of the negotiation of the Stock Purchase
Agreement and related investigations. In consequence, notwithstanding anything
to the
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<PAGE>
contrary herein, the Purchasers' sole remedy for any breach of any
representation or warranty made in Section 3 hereof relating exclusively to the
Business, or the assets acquired from the Company shall be to accelerate the
maturity of the Notes pursuant to Section 10 hereof and to receive costs and
expenses if (x) such representation or warranty was based solely on information
furnished to Holdings and FMCAN by the Company or the former shareholders of the
Company and (y) Holdings and FMCAN neither knew nor should, in the exercise of
reasonable care and diligence, have known of such breach at the time such
representation or warranty was made or at the Closing.
SECTION 11. MISCELLANEOUS
11.1 WAIVERS AND AMENDMENTS. This Agreement may not be amended,
supplemented, waived, discharged or terminated except in writing. The written
consent of holders of a majority of (i) the principal amount of the Notes then
outstanding, (ii) aggregate number of Junior Preferred Shares and (iii) the
aggregate number of Purchaser Common Shares which are not Public Common Shares
then outstanding shall be required for any amendment, supplement, waiver,
discharge or termination hereof; provided, however, that (x) if the provisions
to be amended, supplemented, waived, discharged or terminated by their terms
apply only to the Notes or Junior Preferred Shares or are effective only so 1ong
as Notes or at least 92 Junior Preferred Shares remain outstanding, then such
provisions may be amended, supplemented, waived, discharged or terminated by the
written consent of the holders of a majority of the principal amount of the
Notes of the Junior Preferred Shares then outstanding, (y) if the provisions to
be amended, supplemented, waived, discharged or terminated are contained in
Section 9, then such provisions may be amended, supplemented, waived, discharged
or terminated by the written consent of the holders of a majority of the total
number of Purchaser Common Shares that are not Public Common Shares then
outstanding and (z)
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<PAGE>
without the written consent of 80% of the aggregate principal amount of the
Notes then outstanding and each Original Purchaser which holds any Notes, no
amendment, supplement, waiver, discharge or termination shall extend the fixed
maturity of the Notes, change the dates on which interest or any premium is
payable, reduce the principal amount thereof, reduce the rate of interest
thereon, reduce any premium payable on prepayment thereof or amend this clause
(iii) of Section 11.1.
11.2 INDEMNITY. In addition to the payment of expenses pursuant to Section
6.6 hereof, whether or not the transactions contemplated hereby shall be
consummated, Holdings and FMCAN agree jointly and severally to indemnify,
exonerate and hold the Purchasers and each of their respective partners,
investors, officers, directors, trustees, advisory committee members, employees
and agents (collectively the "indemnities") free and harmless from and against
any and all actions, causes of action, suits, losses, liabilities and damages,
and reasonable expenses in connection therewith, including, without limitation,
reasonable attorneys' fees and disbursements (the "indemnified liabilities"),
reasonably incurred in any capacity by the indemnities or any of them as a
result of, or arising out of, or relating to (a) any transaction financed or to
be financed in whole or in part directly or indirectly with proceeds from the
sale of any of the Securities or the arranging of all or any part of the
financing for such transactions, or (b) the execution, delivery, performance or
enforcement of this Agreement or any instrument contemplated hereby by any of
the indemnities; provided, however, that neither Holdings nor FMCAN shall have
any obligation to an indemnitee hereunder with respect to indemnified
liabilities arising out of or resulting from the gross negligence or willful
misconduct of that indemnitee. To the extent that the undertaking to indemnify,
pay and hold harmless set forth in the preceding sentence may be unenforceable
because it is violative of any law or public policy, Holdings and FMCAN shall
contribute the maximum portion which they are permitted to pay and
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<PAGE>
satisfy under applicable law to the payment and satisfaction of all indemnified
liabilities incurred by the indemnities or any of them.
11.3 CONFIDENTIALITY. Should any Person receive confidential information
hereunder or under any Ancillary Agreement, it shall hold such information in
strict confidence, unless compelled to disclose it by judicial or administrative
process or, in the opinion of its counsel, by other requirements of law (except
to the extent that such information (x) can be shown to have been (i) previously
known to the Person to which it was furnished, (ii) in the public domain through
no fault of such Person, or (iii) 1ater lawfully acquired from other sources by
the Person to which it was furnished, (y) is requested by any applicable
regulatory authority, including the National Association of Insurance
Commissioners or (z) is provided to a rating agency, including without
limitation, Duff & Phelps, to obtain a rating for securities issued by Holdings
or FMCAN); provided, however, that any such Person may disclose such information
to any Affiliate, or to any other Person in connection with a possible sale of
Securities if such Person agrees in writing to keep such information
confidential substantially in accordance with the terms hereof. Each such Person
shall be deemed to have satisfied its obligation to hold confidential
information received hereunder if it exercised the same care as it takes to
preserve confidentiality for its own similar information.
11.4 GOVERNING LAW. This Agreement is made and shall be governed by and
construed in all respects in accordance with the laws of the State of New York,
without regard to the principles of conflicts of laws thereof which might refer
such interpretation to the laws of a different state or jurisdiction.
11.5 SURVIVAL. The representations and warranties made herein shall
survive the Closing of the transactions pursuant hereto and the Ancillary
Agreements, notwithstanding any investigation made by the Purchasers. All
statements as to factual matters contained in
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<PAGE>
any certificate or other instrument delivered by or on behalf of Holdings and
FMCAN pursuant hereto or in connection with the transactions contemplated hereby
shall be deemed to be representations and warranties by Holdings and FMCAN
hereunder as of the date of such certificate or instrument and not of any
individual executing the same.
11.6 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, transferees, heirs, executors and administrators
of the parties hereto including, without limitation, any transferee of the
Securities, and any such transferee shall, upon such transfer, have the rights
of a Purchaser hereunder relating to the purchased Security and be deemed a
Purchaser for purposes of this Agreement.
11.7 ENTIRE AGREEMENT. This Agreement, the exhibits and schedules hereto
and the Ancillary Agreements constitute the full and entire understanding and
agreement among the parties with regard to the subjects hereof and thereof.
11.8 LIMITED LIABILITY OF PARTNERS. Each of Holdings and FMCAN agrees that
it will not seek, or permit any of its Subsidiaries to seek, and agrees that it
and its Subsidiaries shall have no right to recourse against (i) any of the
partners of TCW, (ii) any assets of TCW Capital, a California general
partnership, (iii) any assets of investors whose assets are managed pursuant to
the Investment Management Agreement dated June 19, 1989 or the Investment
Management Agreement dated April 18, 1990, other than assets managed pursuant to
such agreements, and (iv) any of the partners of TCW Capital.
11.9 NOTICES. All notices and other communications (other than payments of
principal, interest, dividends and other amounts with respect to the Securities)
required or permitted hereunder
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<PAGE>
shall be in writing and shall be delivered by facsimile, courier or first class
mail, postage prepaid, addressed (a) if to the Purchasers, to the addresses set
forth on Schedule 1 hereto, and (b) if to Holdings, FMCAN or any of their
affiliates to:
Fannie May Holdings, Inc.
c/o Jordan Company
315 Park Avenue South
New York, New York 10010
Attention: Adam E. Max,
Vice President
With copies to: Herbert B. Max
c/o Spengler Carlson Gobar
Brodsky & Frischling
520 Madison Avenue, 4th Floor
New York, New York 10022
11.10 PAYMENTS. All payments to the Purchasers pursuant to this
Agreement shall be made as set forth on Schedule 1 hereto.
11.11 SEPARABILITY. In case any provision of this Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions of this Agreement shall not in any way be affected or
impaired thereby.
11.12 INTERPRETATION. The titles of the Sections of this Agreement are
for convenience of reference only and are not to be considered in construing
this Agreement. Whenever reference is made herein to specific numbers of shares
of stock (as opposed to percentages, proportions and like ratable computations),
such numbers shall, in the event of any stock split, stock dividend,
reclassification or similar event, be appropriately adjusted to reflect the
impact, if any, of such event upon such number of shares. All references in the
definitions in Section 1 to the singular shall be deemed to include the plural
and all references to the plural shall be deemed to include the singular.
-100-
<PAGE>
11.13 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
11.14 CHANGES IN ACCOUNTING PRINCIPLES. If any changes in accounting
principles from those used in the preparation of the financial statements
referred to in this Agreement are hereafter occasioned by the promulgation of
rules, regulations, pronouncements or opinions of or required by the Financial
Accounting Standards Board or the American Institute of Certified Public
Accountants (or successors thereto or agencies with similar functions), or there
shall occur any change in Holdings' or any of its Subsidiaries' fiscal or tax
years and, as a result of any such changes, there shall result in a change in
the method of calculating any of the financial covenants, negative covenants,
standards, or other terms or conditions found in this Agreement, then the
parties hereto agree to enter into negotiations in order to amend such
provisions so as to equitably reflect such changes with the desired result that
the criteria for evaluating the financial condition of Holdings and its
Subsidiaries shall be the same after such changes as if such changes had not
been made.
11.15 SUBORDINATION. The provisions of this Agreement are subject to
the applicable provisions of the Subordination Agreement.
11.16 WAIVER OF RIGHT TO TRIAL BY JURY. EACH OF HOLDINGS, FMCAN AND
EACH PURCHASER HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND,
ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS AGREEMENT OR ANY OTHER
INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH
OR (ii) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF
THE PARTIES HERETO OR ANY OF THEM IN RESPECT TO THIS AGREEMENT OR ANY OTHER
INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH
OR THE TRANSACTIONS RELATED HERETO, IN EACH
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CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT
OR TORT OR OTHERWISE. EACH OF HOLDINGS, FMCAN AND EACH PURCHASER HEREBY AGREES
AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE
DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT ANY PARTY MAY FILE AN ORIGINAL
COUNTERPART OR A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF
THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
FANNIE MAY HOLDINGS, INC.
By: /s/ Adam E. Max
-------------------------------
Its: Vice President
-------------------------------
FMCAN ACQUISITION CORP.
By: /s/ Adam E. Max
-------------------------------
Its: Vice President
-------------------------------
TCW SPECIAL PLACEMENTS FUND III
By: TCW Capital
Its: General Partner
By: TCW Asset Management
Company
Its: Managing General Partner
By: /s/ Thomas Ferguson
----------------------
Its: Vice President
---------------------
TCW CAPITAL, as Investment Manager
pursuant to an Investment
Management Agreement dated as of
June 30, 1989
By: TCW Asset Management Company
Its: Managing General Partner
By: /s/ Thomas Ferguson
---------------------------
Its: Vice President
--------------------------
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TCW CAPITAL, as Investment Manager
pursuant to an Investment
Management Agreement dated as of
April 18, 1990
By: TCW Asset Management Company
Its: Managing General Partner
By: /s/ Thomas Ferguson
---------------------------
Its: Vice President
--------------------------
MEZZANINE CAPITAL
By: TCW Asset Management Company
Its: Managing General Partner
By: /s/ Thomas Ferguson
---------------------------
Its: Vice President
--------------------------
JACKSON NATIONAL LIFE INSURANCE
COMPANY
By: /s/ John A. Knutson
---------------------------
Its: Senior Vice President
--------------------------
MEZZANINE CAPITAL AND INCOME TRUST
2001 PLC
By: /s/ James E. Jordan
---------------------------
Its: Director
--------------------------
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SCHEDULE 1
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Purchase
Purchaser Securities Purchased Price
- --------------------------------------------------------------------------------
<S> <C> <C>
TCW Special $19,502,428 Principal Amount $19,502,428
Placements Fund III of Notes
156.0194 Junior Preferred $3,900,486
Shares
382.980 Class A Common $382,980
Shares
10.000 Class D Common Shares $10,000
- --------------------------------------------------------------------------------
TCW Capital, as Investment $1,440,421 Principal Amount $1,440,421
Manager pursuant to an of Notes
Investment Manage-ment Agreement 11.5234 Junior Preferred $288,084
dated as of April 18, 1990 Shares
29.026 Class A Common Shares $29,026
- --------------------------------------------------------------------------------
TCW Capital, as Investment $278,702 Principal Amount $278,702
Manager pursuant to an of Notes
Investment Manage-ment Agreement 2.2296 Junior Preferred $55,740
dated as of June 19, 1989 Shares
5.616 Class A Common Shares $5,616
- --------------------------------------------------------------------------------
Mezzanine Capital $1,278,449 Principal Amount $1,278,449
of Notes
10.2276 Junior Preferred $255,690
Shares
25.761 Class A Common Shares $25,761
- --------------------------------------------------------------------------------
Jackson National Life Insurance $7,500,000 Principal Amount $7,500,000
Company of Notes
60 Junior Preferred Shares $1,500,000
151.128 Class B Common $151,128
Shares
- --------------------------------------------------------------------------------
Mezzanine Capital and Income $5,000,000 Principal Amount $5,000,000
Trust 2001 of Notes
40 Junior Preferred Shares $1,000,000
100.752 Class A Common $100,752
Shares
- --------------------------------------------------------------------------------
</TABLE>
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<PAGE>
ADDRESSES FOR NOTICES
TCW Special Placements Fund III
c/o Trust Company of the West
Representative Office
200 Park Avenue, Suite 2200
New York, New York 10166
Attn: Frank J. Pados, Jr.
TCW Capital, as Investment Manager
pursuant to an Investment Management
Agreement dated as of April 18, 1990
c/o Trust Company of the West
Representative Office
200 Park Avenue, Suite 2200
New York, New York 10166
Attn: Frank J. Pados, Jr.
TCW Capital, as Investment Manager
pursuant to an Investment Management
Agreement dated as of
June 19, 1989
c/o Trust Company of the West
Representative Office
200 Park Avenue, Suite 2200
New York, New York 10166
Attn: Frank J. Pados, Jr.
Mezzanine Capital
c/o Trust Company of the West
Representative Office
200 Park Avenue, Suite 2200
New York, New York 10166
Attn: Frank J. Pados, Jr.
With copy to: O'Melveny & Myers
555 13th Street, N.W.
Suite 500-West
Washington, D.C. 20004-1109
Attn: Jeffrey J. Rosen, Esq.
Jackson National Life Insurance
c/o PPM America Inc.
227 West Monroe, Suite 3880
Chicago, Illinois 60606
Attn: Bruce Gorchow
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<PAGE>
Mezzanine Capital &
Income Trust 2001 PLC
c/o Jordan/Zalaznick Advisors, Inc.
315 Park Avenue South
New York, New York 10010
Attn: James E. Jordan
PAYMENT PROVISIONS
All payment pursuant to this Securities Purchase Agreement shall be made to:
Sanwa Bank Trust Operations
ABA # 122-003-516
1977 Saturn Street
Monterey Park, California 91754
Attn: Charles McKinley
The following routing information should be used when sending transfers:
TCW Special Placements Fund III
Account No. 400-1800
TCW Capital (Under April 18, 1990 Investment Management
Agreement)
Account No. 400-3800
TCW Capital (Under June 19, 1990 Investment Management Agreement)
Account No. 400-0300
Mezzanine Capital
Account No. 400-1100
All wire transfers should provide sufficient information with such transfer to
identify the source and application of such funds, and with instructions to give
immediate telephone advice of payment to:
Trust Company of the West's Trust Department
(213) 683-4344
All notices of such payment to such Purchasers and all written confirmations of
such wire transfers shall be made to:
Trust Company of the West
400 South Hope Street
Los Angeles, California 90071
Attn: David Sandie
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<PAGE>
Mezzanine Capital Income Trust
c/o Republic National Bank of New York
ABA No. 026-0048-28
4 World Trade Center
New York, New York 10048
Account No. 458105201
Confirmation to: Mr. James E. Jordan
c/o Jordan/Zalaznick Advisors, Inc.
Telephone No.: (212) 460-1923
Jackson National Life Insurance Company
MANNER OF PAYMENT
All payments on account of the Notes shall be made by bank wire or transfer of
immediately available funds to:
Northern CHGO
ABA #0710-0015-2
Credit Account #60116706
26-91241 Jackson National Life
Insurance Company
Ref: Archibald, Date of Payment,
principal and interest breakdown.
ADDRESS FOR COMMUNICATIONS FOR NOTICES OF PAYMENTS AND
CONFIRMATION OF WIRE TRANSFERS
PPM America Inc.
227 West Monroe, Suite 3880
Chicago, Illinois 60606
Attention: Bruce Gorchow
Telephone: (312) 201-1090
Telecopy: (312) 201-0279
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<PAGE>
EXHIBIT D
[FORM OF]
SUBSIDIARY GUARANTY
THIS GUARANTY (the "Guaranty") is entered into as of the ____ day of
October 1991, by each of the Undersigned Subsidiaries of Archibald Candy
Corporation (each a "Guarantor," and collectively, the "Guarantors") in favor of
the Purchasers under the Securities Purchase Agreement referred to below to
secure obligations of FMCAN Acquisition Corp., an Illinois corporation
("Borrower").
Pursuant to the Securities Purchase Agreement dated as of the date hereof
(the "Securities Purchase Agreement") by and among Fannie May Holdings, Inc.
("Holdings"), Borrower and the purchasers listed on Schedule 1 thereto, the
Borrower desires to issue and sell to the Purchasers $35,000,000 principal
amount of its 14% Subordinated Notes due 2000 (collectively, the "Subordinated
Notes"), all on the terms and conditions set forth therein.
The proceeds from the sale of the Subordinated Notes will be used to
finance the acquisition (the "Acquisition") contemplated by the Stock Purchase
Agreement dated as of August 22, 1991 (the "Stock Purchase Agreement") and for
other general corporate purposes of Holdings, the Borrower and the Guarantors,
as Subsidiaries of the Borrower. It is a condition precedent to the purchase and
sale of the Subordinated Notes that each Guarantor shall have executed this
guaranty. Capitalized terms not otherwise defined herein shall have the meaning
given them in the Securities Purchase Agreement.
NOW, THEREFORE, in consideration of the benefits which will inure to each
of the Guarantors as a result of the transactions contemplated by the Securities
Purchase Agreement, and for other good and valuable consideration, the receipt
of which hereby is acknowledged, each Guarantor hereby agrees as follows:
1. PAYMENT AND PERFORMANCE OF THE OBLIGATIONS. In order to secure
payment of the Subordinated Notes and performance of the Securities Purchase
Agreement by Borrower, each Guarantor hereby irrevocably and unconditionally
guarantees to Purchasers the due and punctual payment and performance of all the
obligations of Borrower to Purchasers arising out of or provided for in the
Subordinated Notes and the Securities Purchase Agreement or under any renewals,
extensions or modifications thereof, whether primary, secondary, direct,
contingent, sole, joint, several or joint and several, including without
limitation the payment of principal and any interest accruing thereon, now
existing or hereafter at any time or times incurred (hereinafter referred to
individually as an "Obligation," and collectively, as "Obligations"). If any
Obligation is not paid or performed by Borrower punctually when due, subject to
any applicable grace period, including without limitation any Obligation due by
acceleration of the maturity
<PAGE>
thereof, each Guarantor will, upon demand by any Purchaser, immediately pay or
perform such Obligation or cause the same to be paid or performed strictly in
accordance with the terms thereof (including amounts that would become due but
for any stay, injunction or other prohibition preventing such payment or
performance in respect of the Ob1igations guaranteed hereby). Each Guarantor
will pay to Purchasers, upon demand, all costs and expenses, including without
limitation, reasonable counsel fees which may be incurred by any Purchaser in
the collection or enforcement of the Obligations or of any Guarantor's
obligations under this Guaranty. The liability of each Guarantor under this
Guaranty shall not exceed the Maximum Guaranty Amount (as defined in Exhibit A
hereto) determined as of the Ending Date (as defined in Exhibit A hereto).
2. REPRESENTATIONS AND WARRANTIES.
(a) Each Guarantor is a corporation duly organized and validly
existing under, and by virtue of, the laws of the state of its incorporation and
is in good standing under such laws. Each Guarantor has the corporate power and
lawful authority to own and operate its properties and assets and to carry on
its business as currently conducted and, with respect to its current operations,
as proposed to be conducted.
(b) Each Guarantor has all requisite legal and corporate power to
enter into this Guaranty, and to carry out and perform all of its obligations
under the terms of this Guaranty. This Guaranty is a valid and binding
obligation of each Guarantor, enforceable against such Guarantor in accordance
with its respective terms, except (i) as such enforceability may be limited by
bankruptcy, insolvency, moratorium, reorganization, or similar laws affecting
the enforcement of creditors' rights generally and (ii) as the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought.
3. GENERAL TERMS AND CONDITIONS.
(a) All payments by any Guarantor hereunder shall be made in Dollars
of the United States of America.
(b) Each Guarantor hereby waives, to the extent not prohibited by
applicable law which cannot itself be waived, (i) all presentments, demands for
performance, notices of nonperformance (except to the extent required by the
provisions hereof), (ii) any requirement of diligence or promptness on the part
of any Purchaser in the enforcement of its rights under the provisions of this
Guaranty, (iii) any and all notices (other than notices required to be given by
this Guaranty) of every kind and description which may
-2-
<PAGE>
be required to be given by any statute or rule of law, and (iv) any defense
based on rights of setoff or statutes of limitations.
(c) The obligation of each Guarantor under this Guaranty is absolute
and unconditional and any Purchaser may at any time and from time to time
without the consent of or notice to Guarantors and without impairing or
releasing the obligations of Guarantors hereunder (i) exercise or refrain from
exercising any right or remedy against Borrower or others, including without
limitation Guarantors, and (ii) modify, amend, extend, supplement or waive or
consent to the breach of any provision of the Subordinated Notes or any
provision of the Securities Purchase Agreement applicable solely to Borrower, to
which modifications, amendments, extensions, supplements, waivers and consents
each Guarantor hereby assents. Without limiting the foregoing, it is
specifically understood that any modification, limitation or discharge of
Borrower's liability under the Subordinated Notes or the Securities Purchase
Agreement arising out of or by virtue of any bankruptcy, arrangement,
reorganization or similar proceeding for relief of debtors under federal or
state law hereinafter initiated by or against Borrower shall not affect, modify,
limit or discharge the liability of each Guarantor in any manner and this
Guaranty shall remain in full force and effect and shall be enforceable against
each Guarantor to the same extent and with the same effect as if such
proceedings had not been instituted.
(d) The guaranty and surety contained in paragraph 1 hereof is
absolute and unconditional, primary, direct and immediate and shall be valid and
binding upon each Guarantor regardless of (i) any invalidity, irregularity,
defect or unenforceability of or in the Subordinated Notes, the Securities
Purchase Agreement or any other obligation or agreement of Borrower or
Guarantors, (ii) any action or inaction by Purchasers or any other occurrence
referred to in subsection 3(c) above, or (iii) any other circumstance which
might otherwise constitute a defense available to, or a discharge or release of,
Borrower or Guarantors by operation of law.
(e) No failure or delay on the part of any Purchaser in exercising
any right, power or privilege hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any right, power or privilege hereunder
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. This Guaranty will not be discharged as to any
Obligation except by payment in full of the principal thereof, premium if any,
and interest thereon. The rights and remedies of Purchasers hereunder are
cumulative and concurrent and not exclusive of any other rights or remedies
Purchasers may have.
(f) No set-off, counterclaim, reduction or diminution of an
obligation, or any defense of any kind or nature that any Guarantor has or may
have against Borrower or any Purchaser shall affect, modify or impair such
Guarantor's obligations hereunder.
-3-
<PAGE>
Any claim that any Guarantor now or hereafter has against Borrower by way of
subrogation under this Guaranty or otherwise shall be fully subordinate in lien
and payment to any claim that any Purchaser now or hereafter has against
Borrower.
(g) This Guaranty is made and shall be governed by and construed
under the laws of the State of New York, without regard to the principles of
conflicts of laws.
(h) This Guaranty is a continuing guaranty and shall be binding upon
each Guarantor and their respective successors and assigns, and shall inure to
the benefit of the successors and assigns of the Purchasers and, in the event of
any permitted transfer or assignment of rights by any Purchaser, the rights and
privileges herein conferred upon such Purchaser shall automatically extend to
and be vested in such transferee or assignee, all subject to the terms and
conditions hereof. Upon the liquidation of any Guarantor, the obligations of
such Guarantor hereunder shall be assumed by its successor or Successors except
to the extent that any such assumption shall be prohibited by applicable law.
4. SUBORDINATION. The obligations of Borrower to the Purchasers are
subordinated to the obligations of Borrower under the Senior Financing Documents
to the extent and in the manner set forth in the Subordination Agreement.
5. SUBROGATION. Subject to payment in full of the Senior Obligations, the
Purchasers shall be subrogated to the rights of the holders of the Senior
Obligations to receive payments or distributions of assets of each Guarantor to
the extent that distributions otherwise payable to the Purchasers have been
applied to the payment of Senior Obligations.
6. TERMINATION. This Guaranty shall terminate and be of no further force
or effect upon the payment in full of all of the Obligations, provided that this
Guaranty shall continue to be effective or be reinstated (as the case may be) if
at any time payment of any of the Obligations is refunded or must otherwise be
returned by any Purchaser upon the bankruptcy, arrangement, reorganization or
similar proceeding for relief of debtors under state or federal law, all as
though such payment had not been made.
7. MISCELLANEOUS.
(a) This Guaranty shall be binding upon each Guarantor and upon the
heirs, executors, administrators, successors and assigns of each Guarantor, and
shall inure to the benefit of Purchasers and their successors and assigns.
(b) Any notice, demand or request under this Guaranty shall be in
writing, and shall be delivered by personal service or shall be sent by postage
prepaid, first class mail, addressed, if
-4-
<PAGE>
to Purchasers, at their respective addresses set forth in Schedule 1 to the
Securities Purchase Agreement, and if to any Guarantor at the address specified
in Section 11.9 of the Securities Purchase Agreement.
or at such other address as the addressee may designate in writing. Each notice,
demand or request hereunder shall be deemed given on the date it is delivered.
(c) No amendment, modification or release from or waiver of any
provision hereof shall be effective unless in writing and signed by Purchasers
and shall be effective only in the specific instance and for the specific
purpose for which given.
(d) This Guaranty may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
(e) The paragraph headings used herein are for convenience only and
do not affect or modify the terms and conditions hereof.
(f) If any provision hereof is found by a court of competent
jurisdiction to be prohibited or unenforceable it shall be ineffective only to
the extent of such prohibition or unenforceability, and such prohibition or
unenforceability shall not invalidate the balance of such provision to the
extent it is not prohibited or unenforceable, nor invalidate the other
provisions hereof, all of which shall be liberally construed in favor of
Purchasers in order to effect the provisions hereof.
IN WITNESS WHEREOF, each undersigned Guarantor has caused this Guaranty to
be duly executed as of the day and year first above written.
[SUBSIDIARIES OF ARCHIBALD CANDY CORPORATION]
-5-
<PAGE>
EXHIBIT A
TO
SUBSIDIARY GUARANTY
Set forth below are the definitions used in the Guaranty to determine
the maximum liability of each Guarantor thereunder. These definitions and their
use in the Guaranty should be construed in a manner that gives effect to the
following intent: the parties intend that each Guarantor shall be liable in an
amount equal to 95% of the value of its assets after subtracting its liabilities
(as determined using the definitions below), with the goal of maximizing the
amount payable by such Guarantor without thereby rendering it insolvent, leaving
it with an unreasonably small amount of capital with which to conduct its
business, or leaving it unable to pay its debts as they mature.
"Ending Date" means the earlier of the date of the commencement of a
case under Title 11 of the United States Code involving Borrower or the date
enforcement of this Guaranty is sought.
"Fair Saleable Value" of any assets means the amount which may be
realized, as of a Calculation Date, within a reasonable time either through
collection of such assets or sale of such assets at the regular market value,
understanding "regular market value" to mean the amount which could be obtained
for the assets in question within such period by a capable and diligent
businessperson from an interested buyer who is willing to purchase under
ordinary selling conditions.
"Adjusted Indebtedness" means the present value, as of a Calculation
Date, of known probable liabilities, whether matured or unmatured, liquidated or
unliquidated, absolute, fixed or contingent, but excluding (i) any liabilities
under the Guaranty and (ii) all intercompany indebtedness owed by such Guarantor
to Borrower or any Corporation as to which the Borrower is a wholly-owned
subsidiary, it being understood that a portion of such indebtedness shall be
discharged in full in an amount equal to the amount paid by Guarantor hereunder.
Contingent or unliquidated liabilities shall be valued as of a Calculation Date
at the amount which, in light of all the facts and circumstances existing at
such time, represents the amount which could reasonably be expected to become an
actual matured liability.
"Adjusted Net Worth" means, as of a Calculation Date, the excess of
(i) the Fair Saleable Value of the assets of such Guarantor on such Calculation
Date, over (ii) the amount of Adjusted Indebtedness of such Guarantor on such
Calculation Date.
"Calculation Date" means the date of the Closing Date and each day
thereafter on or prior to the Ending Date.
-1-
<PAGE>
"Maximum Guaranty Amount" shall be calculated as of each Calculation
Date, and means 95% of Adjusted Net Worth as of such Calculation Date.
-2-
<PAGE>
EXHIBIT H
The Jordan Company
FANNIE MAY HOLDINGS, INC. - Subordinate Debt/Preferred Strip Returns
(Dollars in Thousands)
1. ASSUMING REDEMPTION OF ALL COMMON STOCK, PREFERRED STOCK AND SENIOR SUB
DEBT IN SAME YEAR (1-10).
<TABLE>
<CAPTION>
Year
0 1 1 2 2 3 3 4 4 5 5
Oct-91 Apr-92 Oct-92 Apr-93 Oct-93 Apr-94 Oct-94 Apr-95 Oct-95 Apr-96 Oct-96
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year 10 Exit: (42,000) 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450
- --------------
10.000% (42,000) 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450
Year 9 Exit: (42,000) 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450
- -------------
10.000% (42,000) 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450
Year 8 Exit: (42,000) 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450
- -------------
10.000% (42,000) 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450
Year 7 Exit: (42,000) 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450
- -------------
10.000% (42,000) 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450
Year 6 Exit: (42,000) 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450
- -------------
10.000% (42,000) 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450
Year 5 Exit: (42,000) 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 47,735(b)
- ------------- 9,890
-------
10.000% (42,000) 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 57,625(a)
Year 4 Exit: (42,000) 2,450 2,450 2,450 2,450 2,450 2,450 2,450 48,973(b)
- ------------- 7,150
-------
10.000% (42,000) 2,450 2,450 2,450 2,450 2,450 2,450 2,450 54,123(a)
Year 3 Exit: (42,000) 2,450 2,450 2,450 2,450 2,450 46,268(b)
- ------------- 4,855
-------
10.000% (42,000) 2,450 2,450 2,450 2,450 2,450 51,123(a)
Year 2 Exit: (42,000) 2,450 2,450 2,450 45,015(b)
- ------------- 2,835
-------
10.000% (42,000) 2,450 2,450 2,450 48,550(a)
Year 1 Exit: (42,000) 2,450 45,010(b)
- ------------- 1,332
-------
10.000% (42,000) 2,450 46,342(a)
<CAPTION>
6 6 7 7 8 8 9 9 10 10
Apr-97 Oct-97 Apr-98 Oct-98 Apr-99 Oct-99 Apr-00 Oct-00 Apr-01 Oct-01
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year 10 Exit: 2,450 2,450 2,450 2,450 2,450 19,850 1,225 18,725 0 15,112
- -------------- 32,330
-------
10.000% 2,450 2,450 2,450 2,450 2,450 19,850 1,225 18,725 0 47,482
Year 9 Exit: 2,450 2,450 2,450 2,450 2,450 19,850 1,225 32,718(b)
- ------------- 20,700
-------
10.000% 2,450 2,450 2,450 2,450 2,450 19,850 1,225 50,418(a)
Year 8 Exit: 2,450 2,450 2,450 2,450 2,450 60,407(b)
- ------------- 21,625
-------
10.000% 2,450 2,450 2,450 2,450 2,450 72,032(a)
Year 7 Exit: 2,450 2,450 2,450 49,447(b)
- ------------- 17,025
-------
10.000% 2,450 2,450 2,450 66,472(a)
Year 6 Exit: 2,450 48,556(b)
- ------------- 13,150
-------
10.000% 2,450 61,708(a)
Year 5 Exit:
- -------------
10.000%
Year 4 Exit:
- -------------
10.000%
Year 3 Exit:
- -------------
10.000%
Year 2 Exit:
- -------------
10.000%
Year 1 Exit:
- -------------
</TABLE>
- -------------------------
(a) In addition, Investors will receive $1.00 per share of common stock owned
upon exit
(b) Consists of Sub Debt Interest and Principal, as well as Preferred Stock and
Accrued PIK Dividends where Applicable
-1-
<PAGE>
The Jordan Company
FANNIE MAY HOLDINGS, INC. - Subordinate Debt/Preferred Strip Returns
(Dollars in Thousands)
2. ASSUMING "PUT" AS STRIP COMMON EQUIPTY IN YEAR 7 WITH REDEMPTION OF DEBT
AND PREFERRED A LATER DATE:
<TABLE>
<CAPTION>
Year 0 1 1 2 2 3 3 4 4 5 5
Oct-91 Apr-92 Oct-92 Apr-93 Oct-93 Apr-94 Oct-94 Apr-95 Oct-95 Apr-96 Oct-96
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year 10 Exit: (42,000) 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450
- --------------
10.000% (42,000) 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450
Year 9 Exit: (42,000) 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450
- -------------
10.000% (42,000) 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450
Year 8 Exit: (42,000) 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450
- -------------
10.000% (42,000) 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450
Year 7 Exit: (42,000) 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450
- -------------
10.000% (42,000) 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450
Year 6 Exit: (42,000) 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450
- -------------
10.000% (42,000) 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450
Year 5 Exit: (42,000) 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 47,735(b)
- ------------- 9,890
-------
10.000% (42,000) 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 57,625(a)
Year 4 Exit: (42,000) 2,450 2,450 2,450 2,450 2,450 2,450 2,450 48,973(b)
- ------------- 7,150
-------
10.000% (42,000) 2,450 2,450 2,450 2,450 2,450 2,450 2,450 54,123(a)
Year 3 Exit: (42,000) 2,450 2,450 2,450 2,450 2,450 46,268(b)
- ------------- 4,855
-------
10.000% (42,000) 2,450 2,450 2,450 2,450 2,450 51,123(a)
Year 2 Exit: (42,000) 2,450 2,450 2,450 45,015(b)
- ------------- 2,835
-------
10.000% (42,000) 2,450 2,450 2,450 48,550(a)
Year 1 Exit: (42,000) 2,450 45,010(b)
- ------------- 1,332
-------
10.000 (42,000) 2,450 46,342(a)
<CAPTION>
6 6 7 7 8 8 9 9 10 10
Apr-97 Oct-97 Apr-98 Oct-98 Apr-99 Oct-99 Apr-00 Oct-00 Apr-01 Oct-01
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year 10 Exit: 2,450 2,450 2,450 2,450 2,450 19,950 1,225 18,725 0 15,112
- -------------- 1,770 1,490 1,200
------- ------- -------
10.000% 2,450 2,450 2,450 2,450 2,450 21,720 1,225 20,215 0 16,312
Year 9 Exit: 2,450 2,450 2,450 2,450 2,450 19,950 1,225 32,718(b)
- ------------- 1,770 1,490
------- -------
10.000% 2,450 2,450 2,450 2,450 2,450 21,720 1,225 34,208(a)
Year 8 Exit: 2,450 2,450 2,450 2,450 2,450 50,407(b)
- ------------- 1,770
-------
10.000% 2,450 2,450 2,450 2,450 2,450 52,177(a)
Year 7 Exit: 2,450 2,450 2,450 49,447(b)
- ------------- 17,025
-------
10.000% 2,450 2,450 2,450 66,472(a)
Year 6 Exit: 2,450 48,556(b)
- ------------- 13,150
-------
10.000% 2,450 61,708(a)
Year 5 Exit:
- -------------
10.000%
Year 4 Exit:
- -------------
10.000%
Year 3 Exit:
- ------------- 4,855
10.000%
Year 2 Exit:
- -------------
10.000%
Year 1 Exit:
- -------------
10.000
</TABLE>
_________________________
(a) In addition, Investors will receive $1.00 per share of common stock owned
upon exit
(b) Consists of Sub Debt Interest and Principal, as well as Preferred Stock and
Accrued PIK Dividends where Applicable
-2-
<PAGE>
The Jordan Company
FANNIE MAY HOLDINGS, INC. - Subordinate Debt/Preferred Strip Returns
(Dollars in Thousands)
3. ASSUMING 1/3 OF THE "PUT" STRIP COMMON EQUITY IN YEAR 7 WITH REDEMPTION OF
DEBT PREFERRED AND REMAINING 2/3 OF STRIP COMMON EQUITY IN YEAR 9:
<TABLE>
<CAPTION>
Year
0 1 1 2 2 3 3 4 4 5 5
Oct-91 Apr-92 Oct-92 Apr-93 Oct-93 Apr-94 Oct-94 Apr-95 Oct-95 Apr-96 Oct-96
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year 9 Exit: (42,000) 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450
- -------------
10.000% (42,000) 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450
Year 8 Exit: (42,000) 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450
- -------------
10.000% (42,000) 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450
Year 7 Exit: (42,000) 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450
- -------------
10.000% (42,000) 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450
Year 6 Exit: (42,000) 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450
- -------------
10.000% (42,000) 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450
Year 5 Exit: (42,000) 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 47,735(b)
- ------------- 9,890
-------
10.000% (42,000) 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 2,450 57,625(a)
Year 4 Exit: (42,000) 2,450 2,450 2,450 2,450 2,450 2,450 2,450 48,973(b)
- ------------- 7,150
-------
10.000% (42,000) 2,450 2,450 2,450 2,450 2,450 2,450 2,450 54,123(a)
Year 3 Exit: (42,000) 2,450 2,450 2,450 2,450 2,450 46,268(b)
- ------------- 4,855
-------
10.000% (42,000) 2,450 2,450 2,450 2,450 2,450 51,123(a)
Year 2 Exit: (42,000) 2,450 2,450 2,450 45,015(b)
- ------------- 2,835
-------
10.000% (42,000) 2,450 2,450 2,450 48,550(a)
Year 1 Exit: (42,000) 2,450 45,010(b)
- ------------- 1,332
-------
10.000% (42,000) 2,450 46,342(a)
<CAPTION>
6 6 7 7 8 8 9 9 10 10
Apr-97 Oct-97 Apr-98 Oct-98 Apr-99 Oct-99 Apr-00 Oct-00 Apr-01 Oct-01
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year 9 Exit: 2,450 2,450 2,450 2,450 2,450 19,950 1,225 32,716(b)
- ------------- 5,675 580 497
------- ------- 17,800
-------
10.000% 2,450 2,450 2,450 8,125 2,450 20,540 1,225 81,015(a)
Year 8 Exit: 2,450 2,450 2,450 2,450 2,450 80,409(b)
- ------------- 5,675 15,007
------- -------
10.000% 2,450 2,450 2,450 8,125 2,450 85,413(a)
Year 7 Exit: 2,450 2,450 2,450 49,447(b)
- ------------- 17,025
-------
10.000% 2,450 2,450 2,450 66,472(a)
Year 6 Exit: 2,450 48,556(b)
- ------------- 13,150
-------
10.000% 2,450 61,708(a)
Year 5 Exit:
- -------------
10.000%
Year 4 Exit:
- -------------
10.000%
Year 3 Exit:
- -------------
10.000%
Year 2 Exit:
- -------------
10.000%
Year 1 Exit:
- -------------
10.000%
</TABLE>
- -------------------------
(a) In addition, Investors will receive $1.00 per share of common stock owned
upon exit
(b) Consists of Sub Debt Interest and Principal, as well as Preferred Stock and
Accrued PIK Dividends where Applicable
-3-
<PAGE>
FANNIE MAY HOLDINGS, INC.
SUBORDINATE DEBT / PREFERRED STRIP
EXAMPLE OF 16.0% PREFERRED RETURN TO ORIGINAL PURCHASERS
Scenario: Assume 1/3 of Original Purchasers "put" Strip Common Equity in Year
7, subject to Section 6.8, with redemption of Subordinate Debt, Preferred
and remaining 2/3 of Strip Common Equity through a sale to the Company in
Year 9.
A. Those Purchasers who "put" their Common Equity in Year 7 will receive the
following minimum distributions in Years 7, 8 and 9 as consideration for
the Preferred Return:
($'s in Millions) Year 7 Year 8 Year 9
------ ------ ------
Minimum Common Equity
Payments to 1/3 of
Purchasers $5.676 (a) $0.590 $0.497
-----------
(a) In addition, these Original Purchasers will receive $1.00/share for
each share of Common Equity "put" back to the Company.
B. Those remaining 2/3 of Original Purchasers will receive the following
minimum distribution in Year 9 as consideration for the Preferred Return:
($'s in Millions) Year 9
------
Minimum Common Equity Payment
to Remaining 2/3 of Purchasers $17.800 (b)
-----------
(b) In addition, these Original Purchasers will receive $1.00/share for
each share of Common Equity sold.
C. Thus, the total minimum payments to the Original Purchasers in Years 7, 8
and 9 in this example are as follows:
-1-
<PAGE>
($'s in Millions) Year 7 Year 8 Year 9
------ ------ ------
Subordinate Debt Interest $4.900 $ 4.900 $ 2.450
Subordinate Debt Principal $0.000 $17.500 $17.500
Preferred Stock Principal
and Accrued Dividends $0.000 $0.000 $3.993
Minimum Common Equity
Payments to 1/3 of
Purchasers who "Put" $5.675 (a) $0.590 $0.497
Minimum Common Equity
Payment to Remaining 2/3
of Purchasers $0.000 $0.000 $17.800 (b)
------ ------ -------
Total Minimum
Distributions $10.575 $22.990 $52.240
<PAGE>
EXHIBIT I
THE JORDAN COMPANY
315 PARK AVENUE SOUTH
NEW YORK, NEW YORK 10010
October 30, 1991
VIA TELECOPY
(011-4439-241-2133)
- -------------------
Mezzanine Capita1 &
Income Trust 2001 PLC
c/o Sinclair Henderson Limited
23 Cathedral Yard
Exeter, England EX1 1HB
Attention: Mr. Ian Henderson
Re: Securities Purchase Agreement, dated as of October 30, 1991 (the
"PURCHASE AGREEMENT"), between Fannie May Holdings, Inc.
("HOLDINGS") and FMCAN Acquisition Corp., as issuers, and TCW
Special Placements Fund III, TCW Capital as an investment manager
pursuant to each of two Investment Management Agreements,
Mezzanine Capital, Jackson National Life Insurance Company and
Mezzanine Capital & Income Trust 2001 PLC ("MCIT"), as
purchasers.
Gentlemen:
Each of the undersigned, being all of the Holders of Class C Common Shares
of Holdings, hereby agrees with MCIT, in connection with (and as a condition to)
its investment made today under the Purchase Agreement, not to exercise any of
the voting power available to holders of Class C Common Shares as a class to
elect a Director to the Board of Directors of Holdings whose vote will
constitute 51% of the voting power of such Board as provided in Section II.D(3)
of Article Fourth of the Certificate of Amendment of the Certificate of
Incorporation until such time as either (a) MCIT shall so consent or (b) David
W. Zalaznick and John W. Jordan II shall, in their sole and absolute discretion
and in their capacity as investment advisers to MCIT and as individual
investors, have determined that the investments in Holdings of MCIT and the
holders of Class C Common Shares are considered likely to be in jeopardy.
Terms for which meanings are provided in the Purchase Agreement are used
herein with such meanings. This letter shall be
<PAGE>
construed in accordance with Sections 9(a), 9(c), 9(f), 9(g), 9(l) and 9(p) of
the Shareholders Agreement, as so defined, understanding that all references in
such Sections to "this Agreement" shall refer instead to this letter agreement.
Very truly yours,
THE JOHN W. JORDAN, II
By:
------------------------------------------
Title:
----------------------------------
LEUCADIA INVESTORS, INC.
By:
------------------------------------------
Title:
----------------------------------
THE JW/JENN TRUST
By:
------------------------------------------
Title:
----------------------------------
------------------------------------------
David W. Zalaznick
------------------------------------------
Jonathan F. Boucher
------------------------------------------
John R. Lowden
------------------------------------------
Adam E. Max
------------------------------------------
John M. Camp
------------------------------------------
Richard Caputo
------------------------------------------
James E. Jordan
------------------------------------------
Paul Rodzevik
------------------------------------------
Thomas H. Quinn
-2-
<PAGE>
FIRST AMENDMENT
This First Amendment (this "Amendment") is entered into as of
September 18, 1992 by and among Fannie May Holdings, Inc., a Delaware
corporation ("Holdings"), Archibald Candy Corporation, an Illinois corporation,
as successor by merger to FMCAN Acquisition Corp. (the "Company") and the
persons named on the signature pages hereof (the "Purchasers") and amends the
Securities Purchase Agreement entered into as of October 30, 1991 among
Holdings, the Company and the Purchasers (the "Securities Purchase Agreement").
All capitalized terms used herein and not otherwise defined shall have the
respective meanings provided such terms in the Securities Purchase Agreement.
RECITALS
WHEREAS, Fanny Farmer Candy Shops, Inc., a New York corporation (the
"Seller") and the Company have entered into that certain Agreement for
Acquisition of Certain Assets dated July 31, 1992, in the form attached hereto
as Exhibit A (as amended by the Amendatory Agreement dated as of September 18,
1992, the "Acquisition Agreement"), pursuant to which the Company has agreed to
purchase certain assets (the "Acquired Assets") from the Seller;
WHEREAS, the Company desires to finance a portion of the purchase
price of the Acquired Assets pursuant to an Amended and Restated Credit
Agreement dated as of September 18, 1992 among the Company, Holdings, the
lenders named therein and The First National Bank of Chicago, as Agent, in the
form attached hereto as Exhibit B (the "Amended Working Capital Facility");
WHEREAS, in connection with the acquisition of the Acquired Assets and
the execution of the Amended Working Capital Facility, the Company desires
certain amendments to the provisions of the Securities Purchase Agreement.
NOW, THEREFORE, in consideration of the premises, and the agreements
contained herein, the undersigned hereby agree as follows:
1. Section 1 of the Securities Purchase Agreement is hereby amended
by amending and restating the following definitions:
"EBITDA" means, for any period, Consolidated Net Income for such
period PLUS all amounts deducted in determining such Consolidated Net Income on
account of Consolidated Interest Expenses, taxes based on or measured by income,
depreciation expense and amortization expense (including, without limitation,
amortization expense related to the write-up in the Book Value of any assets due
to goodwill or unallocated purchase price and other amortization or depreciation
arising out of the transactions contemplated by this Agreement, the Ancillary
Agreements and the First Amendment, to the extent such adjustments are made
pursuant to APB Nos. 16 and 17 and are deducted in determining Consolidated Net
Income for such period), the transaction costs expensed
<PAGE>
but not capitalized during the period from the Closing Date to and including
August 31, 1992 transaction costs relating to the transactions contemplated by
the First Amendment expensed but not capitalied prior to August 31, 1993, the
consulting fee payable to Thomas Quinn and the fees of the three directors
designated by the Jordan Group (to the extent that such consulting fee and
directors' fees do not exceed, in the aggregate, $150,000 in any fiscal year),
fees and expenses paid or payable under the Management Consulting Agreement and
the Investment Bank Fee Agreement and the non-cash portion of expenses under SAR
Agreements and any Permitted Stock Option Plan, all as determined for Holdings
and its Subsidiaries on a consolidated basis in accordance with GAAP.
"Investment Banking Fee Agreement" means the Investment Banking Fee
Agreement entered into on October 30, 1991 by and between The Jordon Company and
Holdings, as such agreement was amended on September 18, 1992.
"Fixed Charges" shall mean, for any period, without duplication,
Consolidated Interest Expense for such period, PLUS (i) scheduled payments of
principal of all Indebtedness of Holdings and its Subsidiaries during such
period (including payments actually made in cash during such period required in
connection with scheduled commitment reductions under the Working Capital
Facility), PLUS, (ii) capital expenditures made during such period (reduced by
(a) the aggregate amount of credits received by the Company and its Subsidiaries
in respect of motor vehicle trade-ins during such period and (b) all amounts not
in excess of $510,000, cumulatively and in the aggregate for all periods
expended in compliance with Sections 10.3(F) and (G) of the Senior Note Purchase
Agreement), PLUS (iii) payments actually paid or payable in cash with respect to
such period with respect to preferred stock (including, without limitation and
without duplication, dividends paid on the common stock of the Company for the
purpose of funding the payment of dividends by Holdings on the Seller Preferred
Stock), all as determined for Holdings and its Subsidiaries on a consolidated
basis in accordance with GAAP.
"Management Consulting Agreement" means the Management Consulting
Agreement entered into on October 30, 1991 by and between TJC Management Corp.
and Holdings, as such agreement was amended on September 18, 1992.
2. Section 1 of the Securities Purchase Agreement is hereby further
amended by adding the following definition:
"First Amendment" means the First Amendment dated as of September 18,
1992 to this Agreement.
3. Clause (v) of Section 7.2 of the Securities Purchase Agreement
is hereby amended to read in its entirety as follows:
"(v) for so long as no Event of Default shall have occurred and be
continuing, any payments made during the period ending on the sixth
anniversary of the Closing pursuant to the terms of the Management
Consulting Agreement as amended by the Amendment thereto dated
September 18, 1992 but without giving effect to any other
amendments thereto;"
2
<PAGE>
4. Clause (vi) of Section 7.2 of the Securities Purchase Agreement
is hereby amended to read in its entirety as follows:
"(vi) for so long as no Event of Default shall have occurred and
be continuing, any payments made during the period ending on the
sixth anniversary of the Closing pursuant to the terms of the
Management Consulting Agreement as amended by the Amendment
thereto dated September 18, 1992 but without giving effect to any
other amendments thereto;"
5. Clause (b) of Section 7.4 of the Securities Purchase Agreement is
hereby amended by replacing the number "$47,500,000" in the fourth line thereof
with "57,500,000 and by inserting "and reduced by any permanent reduction in the
Facility A Commitment as defined in the Working Capital Facility" at the end of
such clause.
6. Section 7.10(a) of the Securities Purchase Agreement is hereby
amended by and restated and reads in its entirety as follows:
"Holdings covenants that it shall not, in any fiscal year, permit
the aggregate amount of Extraordinary Losses to exceed (a)
$1,000,000 in the aggregate in any fiscal year or (b) $4,400,000
cumulatively and in the aggregate from and after the Closing
Date. For purposes of this Section 7.10(a), "Extraordinary
Losses" shall mean, with respect to any period, for Holdings and
its Subsidiaries on a consolidated basis, the aggregate amount of
losses which are properly classified as extraordinary or non-
recurring in accordance with GAAP (including, without limitation,
losses from the sale or other disposition of Property not in the
ordinary course of business but excluding any depreciation or
amortization resulting from revaluations of the assets acquired
in the Acquisition or pursuant to the Agreement for the
Acquisition of Certain Assets dated as of July 31, 1992 between
the Company and Fanny Farmer Candy Shops, Inc.), net of any
income or gain realized during such period which is properly
classified as extraordinary or non-recurring in accordance with
GAAP (including, without limitation, gain or income from the sale
or other disposition of property not in the ordinary course of
business).
7. Section 7.10(b) of the Securities Purchase Agreement is hereby
amended by replacing the table therein with the following table:
May 31, 1992 1.44:1.00
August 31, 1992 1.00:1.00
November 30, 1992 1.00:1.00
February 28, 1993 1.00:1.00
3
<PAGE>
May 31, 1993 1.00:1.00
August 31, 1993 1.00:1.00
November 30, 1993 1.00:1.00
February 28, 1994 1.00:1.00
May 31, 1994 1.00:1.00
August 31, 1994 1.00:1.00
November 30, 1994 1.00:1.00
February 28, 1995 1.00:1.00
May 31, 1995 1.00:1.00
August 31, 1995 1.11:1.00
November 30, 1995 1.00:1.00
February 28, 1996 1.00:1.00
May 31, 1996 1.00:1.00
August 31, 1996 and thereafter 1.06:1.00
8. (a) The Purchasers hereby acknowledge and agree the purchase of
the Acquired Assets pursuant to the Acquisition Agreement shall not be deemed to
be a capital expenditure for the purposes of Section 7.7 of the Securities
Purchase Agreement.
(b) Section 7.7 of the Securities Purchase Agreement is hereby
amended by replacing the first sentence thereof with the following:
"For so long as any Notes or at least 92 Junior
Preferred Shares shall remain outstanding,
Holdings and the Company will not, and will not
permit any of their Subsidiaries to, directly or
indirectly, make any capital expenditures during
any fiscal year in an aggregate amount for
Holdings and its Subsidiaries in excess of (a)
with respect to each of the fiscal years ending
August 31, 1993 and August 31, 1994, $4,400,000
plus (i) the amount by which
4
<PAGE>
$4,400,000 exceeds the actual capital expenditures in the
preceding fiscal year and (ii) the aggregate amount of credits
received by the Company and its Subsidiaries in such fiscal
year in respect of motor vehicle trade-ins; (b) with respect
to the fiscal year ending August 31, 1995, $3,300,000 plus (i)
the amount by which $4,400,000 exceeds the actual capital
expenditures in the preceding fiscal year and (ii) the
aggregate amount of credits received by the Company and its
Subsidiaries in such fiscal year in respect of motor vehicle
trade-ins; and (c) with respect to the fiscal year ending
August 31, 1996 and any fiscal year thereafter, $3,300,000
plus (i) the amount by which $3,300,000 exceeds the actual
capital expenditures in the preceding fiscal year and (ii) the
aggregate amount of credits received by the Company and its
Subsidiaries in such fiscal year in respect of motor vehicle
trade-ins.
9. Effective as of the Effective Date (as hereinafter defined), in
consideration of the representations, and warranties, covenants and agreements
of Holdings and the Company set forth in this Amendment, the Purchasers hereby
consent to the execution, delivery and performance of the Acquisition Agreement
and the Amended Working Capital Facility and waive any Event of Default under
the provisions of the Securities Purchase Agreement that would otherwise be
deemed to result EXCLUSIVELY from such execution, delivery and performance.
10. To induce the Purchasers to enter into this Amendment and to
amend the Securities Purchase Agreement in the manner provided herein, Holdings
and the Company jointly and severally represent and warrant to each Purchaser
that the following statements are true, correct and complete:
(a) Each of Holdings and the Company has all requisite corporate
power and authority to enter into this Amendment and to carry out the
transactions contemplated by, and perform its obligations under, the Securities
Purchase Agreement as amended by this Amendment (the "Amended Agreement").
(b) The execution and delivery of this Amendment has been duly
authorized by all necessary corporate action by Holdings and the Company.
(c) The execution and delivery by each of Holdings and the
Company and the performance by Holdings and the Company of the Amended Agreement
does not and will not (i) violate any provision of any law, rule or regulation
applicable to Holdings, the Company or any of their respective Subsidiaries, the
Certificate of Incorporation or Bylaws of Holdings, the Company or any of their
respective Subsidiaries or any order, judgment or decree of any court or other
agency of government binding on Holdings, the Company or any of their respective
Subsidiaries, (ii) conflict with, result in a breach of, or constitute a default
under, any contractual obligation of Holdings, the Company or any of their
respective Subsidiaries, (iii) result in or require the creation or imposition
of any Lien upon any of their properties or assets (other than Liens created
pursuant to the Senior Financing Documents), or (iv) require any approval of
stockholders or any approval or consent or any Person under any contractual
obligation of Holdings, the Company or any of their respective Subsidiaries
except consents under the Senior Financing Documents which consents have been
obtained on or before the Effective Date (as hereinafter defined).
5
<PAGE>
(d) This Amendment and the Amended Agreement are the legally
valid and binding obligations of each of Holdings and the Company enforceable
against such entity in accordance with their respective terms.
(e) Except as set forth on Schedule 1 hereto, the
representations and warranties contained in the Securities Purchase Agreement
are and will be true, correct and complete in all material respects on and as of
the Effective Date to the same extent as though made on and as of that date.
(f) No event has occurred and is continuing or will result from
the transactions contemplated by this Amendment which would constitute an Event
of Default.
(g) All representations and warranties of the Company and the
Seller in the Acquisition Agreement are true, correct and complete in all
material respects on and as of the effective date.
11. This Amendment will become effective on a date (the "Effective
Date") when the following conditions have been satisfied or waived:
(a) The representations of Holdings and the Company contained in
this Amendment shall be true, correct and complete when made, and shall be true,
correct and complete on the Effective Date with the same force and effect as if
they had been made at and as of such time.
(b) Other than consents required under leases that are part of
the Acquired Assets, Holdings, the Company and their respective Subsidiaries
shall have obtained prior to or on the Effective Date any and all consents,
permits and waivers, and completed all filings necessary or appropriate for
consummation of the transactions contemplated by this Amendment, and all such
transactions shall be legally permitted by all laws and regulations to which the
Purchasers, Holdings and the Company and any of their respective subsidiaries
are subject.
(c) the Amended Working Capital Facility shall have been entered
into by the parties thereto.
(d) All corporate and other proceedings of Holdings and the
Company in connection with the transactions contemplated by this Amendment, and
all documents and instruments incident to such transactions, shall be reasonably
satisfactory in form and substance to the Purchasers and their counsel.
12. Except as specifically amended by this Amendment, the Securities
Purchase Agreement shall remain in full force and effect and is hereby ratified
and confirmed. The execution, delivery and performance of this Amendment shall
not, except as expressly provided herein, constitute a waiver of any provision
of, or operate as a waiver of any right, power or remedy of the Purchasers under
the Securities Purchase Agreement or the Holdings Guaranty.
6
<PAGE>
13. This Amendment may be executed in any number of counterparts and
by the different parties hereto in separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of which
together shall constitute one and the same instrument.
14. This Amendment and the rights and obligations of the parties
hereunder shall be construed in accordance with and governed by the laws of the
State of New York.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
as of the date first above written.
FANNIE MAY HOLDINGS, INC.
By: /s/ Adam E. Max
------------------------------------------
Its: Vice President
------------------------------------------
ARCHIBALD CANDY CORPORATION
By: /s/ Adam E. Max
------------------------------------------
Its: Vice President
------------------------------------------
TCW SPECIAL PLACEMENTS FUND III
By: TCW Capital
Its: Managing General Partner
By: TCW Asset Management Company
Its: Managing General Partner
By: /S/ Thomas Ferguson
---------------------------------------
Its: Vice President
---------------------------------
TCW CAPITAL, as Investment Manager
pursuant to an Investment
Management Agreement dated as of
June 30, 1989
By: TCW Asset Management Company
Its: Managing General Partner
By: /s/ Thomas Ferguson
---------------------------------------
Its: Vice President
-------------------------------------
8
<PAGE>
TCW CAPITAL, as Investment Manager
pursuant to an Investment
Management Agreement dated as of
April 18, 1990
By: TCW Asset Management Company
Its: Managing General Partner
By: /s/ Thomas Ferguson
-----------------------------------------
Its: Vice President
-------------------------------------
MEZZANINE CAPITAL
By: TCW Asset Management Company
Its: Managing General Partner
By: /s/ Thomas Ferguson
----------------------------------------
Its: Vice President
------------------------------------
JACKSON NATIONAL LIFE INSURANCE
COMPANY
By: /s/ John A. Knutson
----------------------------------------
Its: SENIOR VICE PRESIDENT & CHIEF FINANCIAL
OFFICER
------------------------------------------
MEZZANINE CAPITAL AND INCOME TRUST
2001 PLC
By: /s/ James E. Jordan
------------------------------------------
Its: DIRECTOR
--------------------------------------
WCT PTE. LTD
By: /s/ NG KIN SZE
---------------------------------------
Its: DIRECTOR
-------------------------------------
9
<PAGE>
SECOND AMENDMENT
This Second Amendment (this "Amendment") is entered into as of August
12, 1994 by and among Fannie May Holdings, Inc., a Delaware corporation
("Holdings"), Archibald Candy Corporation, an Illinois corporation, as successor
by merger to FMCAN Acquisition Corp. (the "Company"), and the persons named on
the signature pages hereof (the "Purchasers"), and amends the Securities
Purchase Agreement entered into as of October 30, 1991 among Holdings, the
Company and the Purchasers (as amended by the First Amendment thereto dated as
of September 18, 1992, and as otherwise amended, modified and supplemented prior
to the date hereof, the "Securities Purchase Agreement"). All capitalized terms
used herein and not otherwise defined shall have the respective meanings
provided such terms in the Securities Purchase Agreement.
RECITALS
WHEREAS, the Company and Holdings are parties to an Amended and Restated Credit
Agreement dated as of September 18, 1992 with the lenders named therein (the
"Lenders") and The First National Bank of Chicago, as agent thereunder (as
amended, modified and supplemented prior to the date hereof, the "Existing
Credit Agreement");
WHEREAS, the Company and Holdings also are parties to a Note
Purchase Agreement dated as of October 30, 1991 with Jackson National Life
Insurance Company (as amended, modified and supplemented prior to the date
hereof, the "Senior Note Purchase Agreement");
WHEREAS, the Company and the Lenders desire to enter into a new
Credit Agreement (the "New Credit Agreement") in order to refinance its
indebtedness under the Existing Credit Agreement and the Senior Note Purchase
Agreement and to provide working capital to the Company, among other purposes;
and
WHEREAS, in connection with the execution of the New Credit
Agreement, the Company, Holdings and the Purchasers desire to make certain
amendments to the Securities Purchase Agreement, as more fully set forth below.
NOW, THEREFORE, in consideration of the premises and the
agreements contained herein the undersigned hereby agree as follows:
(a) Section 1 of the Securities Purchase Agreement is hereby
amended by adding the following definitions:
"Asset Sale" means, with respect to any Person, (i) the sale,
lease, conveyance, disposition or other transfer by such Person
of any of its assets (including by way of a sale-leaseback
transaction and including the sale or other transfer of any of
the capital stock of any
<PAGE>
Subsidiary of such Person), other than (A) sales of inventory in
the ordinary course of business, or (B) the disposition of
obsolete or worn-out equipment, other personal property or store
fixtures in the ordinary course of business, or (ii) the
issuance, sale, conveyance, disposition or other transfer by such
Person of any equity interests of or in such Person.
"Credit Agreement" means the Credit Agreement to be entered into
on the date of the Second Amendment by and among the Company,
Holdings, the lenders referred to therein and The First National
Bank of Chicago, as agent thereunder, as it may be amended from
time to time.
"Management Fees" means any amounts owing by the Company or
Holdings to (i) any of their respective directors, (ii) Thomas H.
Quinn, (iii) TJC Management Corp. or (iv) any Affiliate of either
of the Company or Holdings, in the case of any of clauses (i),
(ii), (iii) or (iv) above in exchange for services related to
management, consulting, investment banking or other similar
services (including, without limitation, compensation for serving
as a director of Holdings or the Company), but, in any case, only
to the extent permitted under Section 7.2 hereof.
"Net Cash Proceeds" means, with respect to any Asset Sale of any
Person, (a) cash received by such Person or any Subsidiary of
such Person from such Asset Sale (including cash received as
consideration for the assumption or incurrence of liabilities
incurred in connection with or in anticipation of such Asset
Sale), net of (i) provision for all income or other taxes
measured by or resulting from such Asset Sale, (ii) all brokerage
commissions and other reasonable fees and expenses directly
related to such Asset Sale, and (iii) all amounts used to repay
Indebtedness secured by a Lien on any asset disposed of in such
Asset Sale or which is or may be required (by the express terms
of the instrument governing such Indebtedness) to be repaid in
connection with such Asset Sale (including payments made to
obtain or avoid the need for the consent of any holder of such
Indebtedness), and (b) cash payments in respect of any
Indebtedness, capital stock or other consideration received by
such Person or any Subsidiary of such Person from such Asset Sale
upon receipt of such cash payments by such Person or such
Subsidiary.
"Second Amendment" means the Second Amendment to this Agreement,
dated as of August 12, 1994.
-2-
<PAGE>
"TJC Management Corp." means TJC Management Corp., a Delaware
corporation, and its successors and assigns, including a debtor-
in-possession on behalf of TJC Management Corp.
2. Section 1 of the Securities Purchase Agreement is hereby
further amended by amending and restating the definition of "Consolidated
Interest Expense" set forth therein in its entirety as follows:
"Consolidated Interest Expense" means, for any period, total
interest expense (including, without limitation, that portion of
any Capitalized Lease Obligations attributable to interest
expense in conformity with GAAP) paid or accrued with respect to
all outstanding Indebtedness for borrowed money of Holdings and
its Subsidiaries, plus net payments made (or minus net payments
received) under any interest rate hedging, cap or similar
agreement or arrangement, and EXCLUDING all commissions,
discounts and other fees and charges owed with respect to letters
of credit and bankers acceptance financing and prepayment
charges, agency fees, administrative fees, commitment fees and
capitalized transaction costs allocated to interest expense, all
as determined for Holdings and its Subsidiaries on a consolidated
basis for such period in accordance with GAAP.
3. Section 1 of the Securities Purchase Agreement is hereby
further amended by amending and restating CLAUSE (V) of the definition of
"Consolidated Net Income (Loss)" set forth therein in its entirety as follows:
"(v) any other extraordinary gains (but not losses) of Holdings
or its Subsidiaries,"
4. Section 1 of the Securities Purchase Agreement is hereby
further amended by adding the following to the end of the definition of
"Consolidated Net Income (Loss)" set forth therein:
"and (vii) the approximately $2,500,000 of extraordinary losses
of the Company resulting from the early retirement of debt
resulting from the transactions contemplated by the Credit
Agreement"
5. Section 1 of the Securities Purchase Agreement is hereby
further amended by amending and restating the definition of "EBITDA" set forth
therein in its entirety as follows:
"EBITDA" means, for any period, Consolidated Net Income for such
period (a) PLUS all amounts deducted in determining such
Consolidated Net Income on account of
-3-
<PAGE>
(i) Consolidated Interest Expense, (ii) taxes based on or
measured by income, (iii) depreciation expense, (iv) amortization
expense (including, without limitation, amortization expense
related to the write-up in the Book Value of any assets due to
goodwill or unallocated purchase price and other amortization or
depreciation arising out of the transactions related to Holdings'
acquisition of the Company, to the extent such adjustments are
made pursuant to APB Nos. 16 and 17 and are deducted in
determining Consolidated Net Income for such period), (v) all
Management Fees accrued during such period, and (vi) the non-cash
portion of expenses under the SAR Agreements and any Stock Option
Plan (b) MINUS all Management Fees paid or (to the extent all
covenants restricting the payment of Management Fees will be
satisfied) to be paid with respect to such period, all as
determined for Holdings and its Subsidiaries on a consolidated
basis in accordance with GAAP.
6. Section 1 of the Securities Purchase Agreement is hereby
further amended by amending and restating the definition of "Fixed Charges" set
forth therein in its entirety as follows:
"Fixed Charges" shall mean, for any period, without duplication,
Consolidated Interest Expense for such period, PLUS (i) scheduled
payments of principal of all Indebtedness for borrowed money of
Holdings and its Subsidiaries during such period, PLUS (ii)
capital expenditures made during such period (reduced by the
aggregate amount of Net Cash Proceeds received by the Company and
its Subsidiaries during such period in respect of sales of
capital assets), PLUS (iii) payments actually paid in cash with
respect to such period with respect to the SAR Agreements, or
notes issued pursuant thereto, and preferred stock, all as
determined for Holdings and its Subsidiaries on a consolidated
basis in accordance with GAAP.
7. Section 1 of the Securities Purchase Agreement is hereby
further amended by amending and restating the definition of "SAR Agreements" set
forth therein in its entirety as follows:
"SAR Agreements" means (A) the agreements set forth on Schedule
1.1-C of the Credit Agreement as of the date of the Second
Amendment, as may be amended by Holdings after the date of the
Second Amendment, but only to the extent necessary to cause the
terms and conditions (but not the number of stock appreciation
rights granted thereunder) of such SAR Agreements to be
consistent with the terms and conditions of the SAR Agreement
dated as of January 1, 1993 between Holdings and Joseph S. Secker
(the "Secker SAR Agreement") and (B) any other stock
-4-
<PAGE>
appreciation rights agreements entered into by Holdings after the
date of the Second Amendment in substantially the form of the
Secker SAR Agreement, but only to the extent that such agreements
do not provide stock appreciation rights, when aggregated with
the stock appreciation rights granted under all then-existing SAR
Agreements, in excess of 52.75.
8. Section 1 of the Securities Purchase Agreement is hereby
further amended by amending and restating the definition of "Senior Financing
Documents" set forth therein in its entirety as follows:
"Senior Financing Documents" means the Working Capital Facility.
9. Section 1 of the Securities Purchase Agreement is hereby
further amended by amending and restating the definition of "Working Capital
Facility" set forth therein in its entirety as follows:
"Working Capital Facility" means the Credit Agreement and all
other Loan Documents (as defined in the Credit Agreement).
10. Section 7.2 of the Securities Purchase Agreement is hereby
amended by adding the following sentence to the end thereof:
Notwithstanding anything to the contrary in this Agreement, each
of Holdings and the Company agrees that it will not, and will not
permit any of its Subsidiaries to, directly or indirectly, pay
any Management Fees pursuant to clause (v) of this Section 7.2
which are accrued as of the effective date of the Second
Amendment or accrue thereafter UNLESS:
(a) all of the conditions set forth in clause (v) of this
Section 7.2 are satisfied, and
(b) such payment is made
(i) after the February 28, 1995 and Purchasers holding
a majority of the outstanding indebtedness under the
Notes shall have consented in writing to the payment of
such fees (which consent such Purchasers may give or
withhold in their sole discretion), or
(ii) after May 31, 1995 if the ratio of Holdings'
EBITDA to its Fixed Charges, measured as of the last
day of any fiscal quarter of Holdings ending on or
after May 31, 1995 for
-5-
<PAGE>
the period of four full fiscal quarters of Holdings
ending on such date, is equal to or greater than
1.00:1.00.
11. Clause (b) of Section 7.4 of the Securities Purchase
Agreement is hereby amended and restated in its entirety as follows:
(b) Indebtedness in respect of the Working Capital Facility
or any refinancing thereof, in an aggregate principal amount not
to exceed $63,000,000 reduced by all actual payments made in
respect of any term (but not revolver) indebtedness under the
Working Capital Facility or under any agreement respecting
indebtedness incurred to refinance all or a portion of the
Indebtedness under this Section 7.4(b) (other than any payments
made from the proceeds of any refinancing) and reduced by any
permanent reduction in the Aggregate Revolving Loan Commitment
(as defined in the Credit Agreement) or any permanent reduction
in the aggregate revolving loan commitment available under any
refinancing thereof (excluding, in each case, permanent
reductions made in connection with a refinancing or refunding
thereof) (for purposes of this clause (b), the term "principal
amount" shall be deemed to include the amounts available for
drawing under any letters of credit issued and outstanding under
the Working Capital Facility or any refinancing thereof);
12. Clause (f) of the Section 7.4 of the Securities Purchase
Agreement is hereby amended by replacing "$1,000,000", which appears at the end
of such clause, with "$1,500,000".
13. Section 7.7 of the Securities Purchase Agreement is hereby
deleted in its entirety.
14. Section 7.10(a) of the Securities Purchase Agreement is
hereby deleted in its entirety.
15. Section 7.10(b) of the Securities Purchase Agreement is
hereby amended by replacing the table therein with the following table:
August 31, 1994 0.50:1.00
November 30, 1994 0.50:1.00
February 28, 1995 0.65:1.00
May 31, 1995 0.90:1.00
August 31, 1995 1.00:1.00
November 30, 1995 1.00:1.00
February 28, 1996 1.00:1.00
May 31, 1996 1.00:1.00
August 31, 1996
and thereafter 1.00:1.00
-6-
<PAGE>
16. Effective as of the Effective Date (as hereinafter defined),
the Purchasers hereby waive Holdings' noncompliance with Section 7.10(b) of the
Securities Purchase Agreement and any Event of Default created thereby with
respect to the period of four consecutive full fiscal quarters ended on May 31,
1994 to the extent that such noncompliance or Event of Default was caused by
Holdings' failure to maintain during such period a ratio of EBITDA to Fixed
Charges of not less than 1.00:1.00, provided, however, that the ratio of EBITDA
to Fixed Charges maintained by Holdings during such period was not less than
0.50:1.00. Notwithstanding such waiver, Holdings and the Company agree that
payment by either of them or any of their respective Subsidiaries of any
management fees described in Section 7.2(v) of the Amended Agreement shall be
expressly subject to compliance with and satisfaction of the conditions set
forth in Section 7.2, as amended by this Amendment.
17. Effective as of the Effective Date, in consideration of the
representations, warranties, covenants and agreements of Holdings and the
Company set forth in this Amendment, the Purchasers hereby consent to the
execution, delivery and performance of, and the consummation of the transactions
contemplated by, the New Credit Agreement (including the incurrence of
indebtedness, the granting of security interests, the creation of Liens and the
repayment of certain existing indebtedness, all as contemplated by the New
Credit Agreement) and waive any Event of Default under the provisions of the
Securities Purchase Agreement that would be deemed to result exclusively from
such execution, delivery, performance and consummation. The parties hereto
acknowledge and agree that the Indebtedness of the Company under the Senior Note
Purchase Agreement is being paid in full concurrently with the execution and
delivery hereof and that accordingly, the terms "Pledge Agreement", "Senior Note
Purchase Agreement", and "Jackson" shall no longer have any force or effect with
respect to the Securities Purchase Agreement. The Securities Purchase Agreement
shall be deemed to be amended wherever and as necessary to reflect the
foregoing. Nothing in this paragraph 17 shall be deemed to waive or modify any
provision of the Amended Agreement to permit any transaction to occur after the
Effective Date merely because such transaction is permitted or required by the
terms of the New Credit Agreement or any document or agreement executed in
connection therewith.
18. To induce the Purchasers to enter into this Amendment,
Holdings and the Company jointly and severally represent and warrant to each
Purchaser that the following statements are true, correct and complete as of the
date hereof:
(a) Each of Holdings and the Company has all requisite corporate
power and authority to enter into this Amendment and to perform its
obligations under the Securities Purchase Agreement as amended by this
Amendment (the "Amended Agreement").
-7-
<PAGE>
(b) The execution and delivery of this Amendment has been duly
authorized by all necessary corporate action by Holdings and the Company.
(c) The execution and delivery by each of Holdings and the
Company of this Amendment and the performance by Holdings and the Company
of their respective obligations under the Amended Agreement do not and will
not (i) violate any provision of any law, rule or regulation applicable to
Holdings, the Company or any of their respective Subsidiaries, the
organizational documents of Holdings, the Company or any of their
respective Subsidiaries or any order, judgment or decree of any court or
any agency or government binding on Holdings, the Company or any of their
respective Subsidiaries, (ii) conflict with, result in a breach of, or
constitute a default under, any contractual obligation of Holdings, the
Company or any of their respective Subsidiaries, (iii) result in or require
the creation or imposition of any Lien upon any of their properties or
assets (other than Liens created pursuant to the Senior Financing
Documents), or (iv) require any approval of stockholders or any approval or
consent of any Person under any contractual obligation of Holdings, the
Company or any of their respective Subsidiaries except approvals and
consents which have been obtained on or before the Effective Date.
(d) This Amendment and the Amended Agreement are the legally
valid and binding obligations of each of Holdings and the Company
enforceable against such entity in accordance with their respective terms.
(e) No event has occurred and is continuing or will result from
the transactions contemplated by this Amendment which would constitute an
Event of Default.
19. This Amendment will become effective upon the effectiveness
of the New Credit Agreement (the "Effective Date").
20. Except as specifically amended by this Amendment, the
Securities Purchase Agreement shall remain in full force and effect and is
hereby ratified and confirmed. The execution, delivery and performance of this
Amendment shall not, except as expressly provided herein, constitute a waiver of
any provision of, or operate as a wavier of any right, power or remedy of the
Purchasers under the Securities Purchase Agreement.
21. This Amendment may be executed in any number of counterparts
and by the different parties hereto in separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of which
together shall constitute one and the same instrument.
-8-
<PAGE>
22. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE
STATE OF NEW YORK.
[SIGNATURE PAGES FOLLOW]
-9-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Second
Amendment as of the date first above written.
FANNIE MAY HOLDINGS, INC.
By: /s/ Joseph Secker
----------------------------------
Its: Vice President
----------------------------------
ARCHIBALD CANDY CORPORATION
By: /s/ Joseph Secker
----------------------------------
Its: Vice President and Chief
Financial Officer
----------------------------------
TCW SPECIAL PLACEMENTS FUND III
By: TCW Capital
Its: Managing General Partner
By: TCW Asset Management Company
Its: Managing General Partner
By: /s/ Kevin P. Newman
------------------------------
Its: Managing Director
-----------------------------
TCW CAPITAL, as Investment Manager pursuant
to an Investment Management Agreement dated
as of June 30, 1989
By: TCW Asset Management Company
Its: Managing General Partner
By: /s/ Kevin P. Newman
------------------------------
Its: Managing Director
-----------------------------
-10-
<PAGE>
TCW CAPITAL, as Investment Manager pursuant
to an Investment Management Agreement dated
as of April 18, 1990
By: TCW Asset Management Company
Its: Managing General Partner
By: /s/ Kevin P. Newman
------------------------------
Its: Managing Director
-----------------------------
MEZZANINE CAPITAL
By: TCW Asset Management Company
Its: Managing General Partner
By: /s/ Kevin P. Newman
------------------------------
Its: Managing Director
-----------------------------
JACKSON NATIONAL LIFE INSURANCE COMPANY
By: /s/
----------------------------------------
Its: Chief Operating Officer
---------------------------------------
MEZZANINE CAPITAL AND INCOME TRUST 2001 PLC
By: /s/ James E. Jordan
----------------------------------------
Its: Director
---------------------------------------
WCT PTE, LTD
By: /s/ NG KIN SZE
----------------------------------------
Its: Director
---------------------------------------
-11-
<PAGE>
THIRD AMENDMENT
This Third Amendment (this "Amendment") is entered into as of July 2,
1997 by and among Fannie May Holdings, Inc., a Delaware corporation
("Holdings"), Archibald Candy Corporation, an Illinois corporation, as successor
by merger to FMCAN Acquisition Corp. (the "Company"), and the persons named on
the signature pages hereof (the "Purchasers"), and amends the Securities
Purchase Agreement entered into as of October 30, 1991 among Holdings, the
Company and the Purchasers (as amended by the First Amendment thereto dated as
of September 18, 1992, and the Second Amendment thereto dated as of August 12,
1994, and as otherwise amended, modified and supplemented prior to the date
hereof, the "Securities Purchase Agreement"). All capitalized terms used herein
and not otherwise defined shall have the respective meanings provided such terms
in the Securities Purchase Agreement.
RECITALS
A. The Company is issuing $100,000,000 in principal amount of
10-1/4% Senior Secured Notes due 2004 ("Senior Notes"), initially in
transactions that comply with Rule 144A and other available exemptions under the
Securities Act (the "Offering").
B. Part of the net proceeds of the Offering will be used to (i)
repay in full all outstanding indebtedness under the Credit Agreement, and (ii)
repurchase the Notes, including accrued and unpaid interest thereon and the
prepayment premium applicable thereto.
C. Pursuant to an Indenture (the "Indenture") entered into by the
Company with The Bank of New York, as trustee (the "Trustee"), on the date the
Offering is consummated (the "Note Closing"), the Senior Notes will be secured
by (collectively, "Indenture Collateral") (i) security interests in certain of
the Company's equipment, fixtures and general intangibles, including trademarks,
and mortgages on certain of the Company's owned real property, and proceeds of
the foregoing, and (ii) a security interest in and a pledge of all of the
capital stock of the Company's future subsidiaries, if any.
D. Simultaneously with the Note Closing, the Company is entering
into a new revolving credit facility with the lenders referred to therein and
The First National Bank of Chicago, as agent thereunder (the "Credit Facility"),
pursuant to which, subject to certain limitations, the Company may borrow from
time to time up to an aggregate amount of $20,000,000.
E. The Company's obligations under the Credit Facility will be
secured by ("Bank Collateral") (i) a security interest in the Company's
accounts, raw materials and finished goods inventory and (ii) at the Company's
election, mortgages on the Company's owned stores.
<PAGE>
F. Simultaneously with the Note Closing, (i) the Company is entering
into a Tax Sharing and Management Consulting Agreement with Holdings, in the
form attached hereto as Annex 1 ("Tax Sharing Agreement"); (ii) Holdings is
entering into a Management Consulting Agreement with TJC Management Corp., in
the form attached hereto as Annex 2 ("TJC Agreement"); and (iii) Holdings and
TJC Management Corp. are terminating the Management Consulting Agreement and
replacing it with the TJC Agreement.
G. Subsequent to the Note Closing, the Company intends to file a
registration statement with the Commission with respect to an offer to exchange
the Senior Notes (the "Exchange Offer") for senior secured debt securities of
the Company with terms substantially identical to the Senior Notes (the
exchanged notes are herein referred to as "Senior Notes").
H. In connection with the foregoing transactions, the Company,
Holdings and the Purchasers desire to make certain amendments to the Securities
Purchase Agreement, as more fully set forth below.
NOW, THEREFORE, in consideration of the premises and the agreements
contained herein, the undersigned hereby agree as follows:
1. Section 1 of the Securities Purchase Agreement is hereby amended
by adding the following definitions:
"Bank Collateral" has the meaning ascribed to such term in Recital E
of the Third Amendment.
"Credit Facility" has the meaning ascribed to such term in Recital D
of the Third Amendment, as it may be amended from time to time.
"Exchange Offer" has the meaning ascribed to such term in Recital G of
the Third Amendment.
"Indenture" has the meaning ascribed to such term in Recital C of the
Third Amendment, as it may be amended from time to time.
"Indenture Collateral" has the meaning ascribed to such term in
Recital C of the Third Amendment.
"Note Closing" has the meaning ascribed to such term in Recital C of
the Third Amendment.
"Offering" has the meaning ascribed to such term in Recital A of the
Third Amendment.
2
<PAGE>
"Redemption Date" shall mean the date determined as follows: (i) (1)
if Holdings has elected the Sale option in accordance with Section
6.8(d), then the earlier of (x) the date the Sale is consummated and
(y) the date which is one year after the date of the notice of such
election, or (2) if Holdings has elected the Sale option and prior to
the expiration of the period set forth in clause (y) above, abandons
such Sale, then the date which is 90 days following the determination
of Fair Market Value by appraisal; or (ii) if Holdings elects to have
Fair Market Value determined in accordance with an appraisal, then the
date no later than 90 days following such determination; or (iii) if
the Fair Market Value of Holdings is determined by reference to an
Exit Event described in Sections 6.8(c)(1) or (2), the date such Exit
Event is consummated.
"Senior Notes" has the meaning ascribed to such terms in Recitals A
and G of the Third Amendment.
"Tax Sharing Agreement" has the meaning ascribed to such term in
Recital F of the Third Amendment, as in effect on the date of its
execution.
"Third Amendment" means the Third Amendment to this Agreement, dated
as of July 2, 1997.
"TJC Agreement" has the meaning ascribed to such term in Recital F of
the Third Amendment, as in effect on the date of its execution.
"Trustee" has the meaning ascribed to such term in Recital C of the
Third Amendment.
2. Section 1 of the Securities Purchase Agreement is hereby further
amended by amending and restating the definition of "Management Fees" set forth
therein in its entirety as follows:
"Management Fees" means any amounts owing by the Company or Holdings
to (i) any of their respective directors, (ii) Thomas H. Quinn, (iii)
TJC Management Corp. (or its designee(s)), (iv) affiliates of the TCW
Entities for expense reimbursement, or (v) any Affiliate of either of
the Company or Holdings, in the case of any of clauses (i) - (v) above
in exchange for services related to management, consulting, investment
banking or other similar services (including, without limitation,
compensation for serving as a director of Holdings or the Company) or
reimbursement of expenses, but, in any such case, only to the extent
permitted under Section 7.2 hereof."
3. Section 1 of the Securities Purchase Agreement is hereby further
amended by amending and restating clause (v) of the definition of "Triggering
Event" set forth therein in its entirety as follows:
3
<PAGE>
"(v) in the event of a request for redemption in accordance with
Section 6.8 hereof, the failure of Holdings to redeem the Common
Shares requested for redemption on or prior to the Redemption Date."
4. Section 1 of the Securities Purchase Agreement is hereby further
amended by amending and restating the definition of "Senior Financing Documents"
set forth therein in its entirety as follows:
"Senior Financing Documents" means the Indenture, Security Documents
(as defined in the Indenture), Credit Facility and Loan Documents (as
defined in the Credit Facility)."
5. Section 1 of the Securities Purchase Agreement is hereby further
amended by amending and restating the definition of "Working Capital Facility"
set forth therein in its entirety as follows:
"Working Capital Facility" means the Credit Facility and all other
Loan Documents (as defined in the Credit Facility).
6. Section 2.6(b) of the Securities Purchase Agreement is hereby
amended to provided that the premium in the event of prepayment of Notes for the
period October 31, 1996 to October 30, 1997 is 5.00%.
7. Section 6.8(a) of the Securities Purchase Agreement is hereby
amended by amending clause (x) thereof to read "January 1, 2000" rather than
"December 10, 1998."
8. Section 6.8(d)(2) of the Securities Purchase Agreement is hereby
amended by adding the following to the end thereof:
"In determining the Fair Market Value of Holdings, the investment
banking firms shall consider the discount or premium at which the
Senior Notes trade, but shall not consider in their appraisal any
costs arising from a prepayment of the Senior Notes."
9. Section 7.2 of the Securities Purchase Agreement is hereby
amended and restated in its entirety as follows:
"7.2 CERTAIN TRANSACTIONS.
For so long as Threshold Securities shall remain outstanding,
Holdings and the Company will not, and will not permit any of their
Subsidiaries to, directly or indirectly, enter into any transaction
with, any of its officers, directors or shareholders, or any member of
their immediate families, or any firm, corporation, trust, or other
entity in which such persons have an ownership interest or any
Affiliate of the
4
<PAGE>
foregoing; provided, however, that Holdings shall not be in violation
of this Section 7.2 by virtue of (i) the transactions consummated
pursuant to this Agreement and the Ancillary Agreements; (ii)
compensation accrued in the ordinary course of business; (iii)
advances to employees of Holdings or its Subsidiaries for moving,
relocation and travel expenses, drawing accounts and similar
expenditures in the ordinary course of business; (iv) other advances
to employees which in the aggregate shall not at any time exceed
$300,000 for all employees; (v) payments made pursuant to the terms of
the Tax Sharing Agreement; (vi) subject to accrual and deferral if
required by the Senior Financing Documents or by the TCW Entities,
payments made pursuant to the terms of the TJC Agreement as in effect
on the date of the Note Closing without giving effect to any
amendments thereto; (vii) consulting fees to Thomas Quinn not in
excess of $52,000 per year (subject to reasonable increases) and
reasonable directors' fees in the ordinary course; (viii)
reimbursement of expenses of up to $48,000 to affiliates of the TCW
Entities; (ix) transactions described in Schedule 3.15 hereto or (x)
transactions contemplated to occur simultaneously with the Note
Closing and described in the Senior Notes Offering Circular dated June
27, 1997; provided, however, that if the TCW Entities have required
the accrual and deferral of payments under the TJC Agreement in
accordance with clause (vi) above, the reimbursement of expenses
described in clause (viii) above shall automatically and without
further action be accrued and deferred for so long as the payments
under the TJC Agreement are required to be accrued and deferred by the
TCW Entities."
10. Section 7.3 of the Securities Purchase Agreement is hereby
amended to amend and restate clause (i) thereof to read in its entirety as
follows:
"(i) sell, pledge, assign, transfer or otherwise dispose of, or cause
or permit the sale, pledge, assignment, transfer or other disposition
of, any of the capital stock of any of its Subsidiaries other than a
pledge of the capital stock of any of its Subsidiaries pursuant to the
Indenture as required thereby,".
11. Section 7.4 of the Securities Purchase Agreement is hereby
amended and restated in its entirety as follows:
"7.4 INDEBTEDNESS. For so long as any Notes or at least 92 Junior
Preferred Shares shall remain outstanding, Holdings and the Company
will not, and will not permit any of their Subsidiaries to, directly
or indirectly, create, incur, assume, guarantee or otherwise become or
remain directly or indirectly liable with respect to any Indebtedness
except:
(a) Indebtedness in respect of the Senior Notes;
(b) Indebtedness in respect of the Working Capital Facility or any
refinancing thereof, in an aggregate principal amount not to exceed
$25,000,000 reduced by any
5
<PAGE>
permanent reduction in the aggregate revolving loan commitment
(excluding, in each case, permanent reductions made in connection with
a refinancing or refunding thereof) (for purposes of this clause (b),
the term "principal amount" shall be deemed to include the amounts
available for drawing under any letters of credit issued and
outstanding under the Working Capital Facility or any refinancing
thereof);
(c) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument
inadvertently drawn against insufficient funds in the ordinary course
of business, provided that such Indebtedness is extinguished within
five business days of its incurrence;
(d) Indebtedness of a Subsidiary of the Company owing to the Company
or to another Subsidiary of the Company;
(e) Indebtedness existing on the Closing Date and listed on Schedule
7.4;
(f) Other Indebtedness, including, without limitation, Indebtedness
incurred in respect of Capital Leases, purchase money security
interests and capital expenditures permitted by Section 7.7; provided
that the aggregate principal amount of such indebtedness incurred
during any fiscal year shall not exceed $1,500,000; and
(g) Obligations under the Tax Sharing Agreement, the TJC Agreement and
the SAR Agreements.
12. Section 7.5 of the Securities Purchase Agreement is hereby
amended and restated in its entirety as follows:
"7.5 LIENS. For so long as any of the Notes or at least 92 Junior
Preferred Shares shall remain outstanding, Holdings and the Company
will not, and will not permit any of their Subsidiaries to, directly
or indirectly, create, grant, suffer to exist or permit the creation
of any Lien on any of its properties or assets except:
(a) Permitted Liens;
(b) Liens specifically described and identified on Schedule 3.6
hereto;
(c) Liens in respect of Indebtedness permitted by Section
7.4(f);
(d) Liens in favor of customs and revenue authorities arising as
a matter of law to secure payment of customs duties in connection with
the importation of goods;
(e) Liens securing Indebtedness permitted under Sections 7.4(b)
(and any refinancing thereof); and
6
<PAGE>
(f) Liens securing the Senior Notes granted pursuant to the
Indenture and Security Documents (as defined in the Indenture) and any
refinancing thereof."
13. Effective as of the Effective Date (as hereinafter defined), in
consideration of the representations, warranties, covenants and agreements of
Holdings and the Company set forth in this Amendment, the Purchasers hereby
consent to each of the following: (i) the consummation of the Offering of the
Senior Notes and the execution, delivery and performance of, the Indenture and
the Collateral Documents (as defined in the Indenture) (including the incurrence
of indebtedness, the granting of security interests, the creation of Liens, the
repayment of the Notes and Indebtedness under the Credit Agreement and the
payment of fees and expenses related thereto) and the subsequently contemplated
Exchange Offer; (ii) the execution, delivery and performance of, and the
consummation of the transactions contemplated by, the Credit Facility and the
Loan Documents (as defined in the Credit Facility) (including the incurrence of
indebtedness, the granting of security interests, the creation of Liens and the
payment of fees and expenses related thereto); (iii) the payment out of the net
proceeds of the Offering of the outstanding investment banking fee aggregating
$500,000 pursuant to the Investment Banking Fee Agreement; (iv) the payment out
of the net proceeds of the Offering of any accrued fees actually due under the
Management Consulting Agreement to TJC Management Corp. (or its designee(s))
aggregating approximately $1,200,000 as of March 1, 1997; and (v) the execution,
delivery and performance of the Tax Sharing Agreement and the TJC Agreement, and
waive any Event of Default under the provisions of the Securities Purchase
Agreement that would be deemed to result exclusively from such execution,
delivery, performance and consummation of the transactions set forth in clauses
(i)-(v) above.
14. To induce the Purchasers to enter into this Amendment, Holdings
and the Company, jointly and severally, represent and warrant to each Purchaser
that the following statements are true, correct and complete as of the date
hereof:
(a) Each of Holdings and the Company has all requisite corporate
power and authority to enter into this Amendment and to perform its
obligations under the Securities Purchase Agreement as amended by this
Amendment (the "Amended Agreement").
(b) The execution and delivery of this Amendment has been duly
authorized by all necessary corporate action by Holdings and the
Company.
(c) The execution and delivery by each of Holdings and the
Company of this Amendment and the performance by Holdings and the
Company of their respective obligations under the Amended Agreement do
not and will not (i) violate any provision of any law, rule or
regulation applicable to Holdings, the Company or any of their
respective Subsidiaries, the organizational documents of Holdings, the
Company or any of their respective Subsidiaries or any order, judgment
or decree of any court or any agency or government binding on
Holdings, the Company or any of their respective Subsidiaries, (ii)
conflict with, result in a breach of, or constitute a
7
<PAGE>
default under, any contractual obligation of Holdings, the Company or
any of their respective Subsidiaries, (iii) result in or require the
creation or imposition of any Lien upon any of their properties or
assets (other than Liens created pursuant to the Senior Financing
Documents), or (iv) require any approval of stockholders or any
approval or consent of any Person under any contractual obligation of
Holdings, the Company or any of their respective Subsidiaries, except
approvals and consents which have been obtained on or before the
Effective Date.
(d) This Amendment and the Amended Agreement are the legally
valid and binding obligations of each of Holdings and the Company
enforceable against such entity in accordance with their respective
terms.
(e) No event has occurred and is continuing which would
constitute an Event of Default.
15. This Amendment will become effective upon the payment in full of
the Notes (including accrued and unpaid interest thereon and the prepayment
premium applicable thereto) (the "Effective Date").
16. Except as specifically amended by this Amendment, the Securities
Purchase Agreement shall remain in full force and effect and is hereby ratified
and confirmed. The execution, delivery and performance of this Amendment shall
not, except as expressly provided herein, constitute a waiver of any provisions
of, or operate as a waiver of any right, power or remedy of the Purchasers
under, the Securities Purchase Agreement.
17. This Amendment may be executed in any number of counterparts and
by the different parties hereto in separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of which
together shall constitute one and the same instrument.
18. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE
STATE OF NEW YORK.
[signature pages follow]
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Third
Amendment as of the date first above written.
FANNIE MAY HOLDINGS, INC.
By: /s/ Ted A. Shepherd
--------------------------------------
Its: President and Chief Operating Officer
--------------------------------------
ARCHIBALD CANDY CORPORATION
By: /s/ Ted A. Shepherd
--------------------------------------
Its: President and Chief Operating Officer
--------------------------------------
TCW SPECIAL PLACEMENTS FUND III
By: TCW Capital
Its: Managing General Partner
By: TCW Asset Management Company
Its: Managing General Partner
By: /s/ Raymond F. Henze
--------------------------
Its: Group Managing Director
--------------------------
By: /s/ Kevin P. Newman
--------------------------
Its: Managing Director
--------------------------
TCW CAPITAL, as Investment Manager
pursuant to an Investment Management
Agreement dated as of June 19, 1989
By: TCW Asset Management Company
Its: Managing General Partner
By: /s/ Raymond F. Henze
--------------------------------
Its: Group Managing Director
--------------------------------
By: /s/ Kevin P. Newman
--------------------------------
Its: Managing Director
--------------------------------
9
<PAGE>
TCW CAPITAL, as Investment Manager
pursuant to an Investment Management
Agreement dated as of April 18, 1990
By: TCW Asset Management Company
Its: Managing General Partner
By: /s/ Raymond F. Henze
--------------------------------
Its: Group Managing Director
--------------------------------
By: /s/ Kevin P. Newman
--------------------------------
Its: Managing Director
--------------------------------
MEZZANINE CAPITAL
By: TCW Asset Management Company
Its: Managing General Partner
By: /s/ Raymond F. Henze
--------------------------------
Its: Group Managing Director
--------------------------------
By: /s/ Kevin P. Newman
--------------------------------
Its: Managing Director
--------------------------------
MCIT (EXISTING POOL) LIMITED
By: /s/ James E. Jordan
--------------------------------------
Its: Director
--------------------------------------
WCT INVESTMENT PTE. LTD
By: /s/ Kunnasagaran Chinniah
--------------------------------------
Its: Director
--------------------------------------
JORDAN INDUSTRIES, INC.
By: /s/ John W. Jordan II
--------------------------------------
Its: Chief Executive Officer
--------------------------------------
10
<PAGE>
ANNEX 1
to
THIRD AMENDMENT
TO
SECURITIES PURCHASE AGREEMENT
Form of Tax Sharing Agreement
11
<PAGE>
TAX SHARING AND MANAGEMENT CONSULTING AGREEMENT
THIS TAX SHARING AND MANAGEMENT CONSULTING AGREEMENT is made and entered as
of July 2, 1997 (this "Agreement") by and between Fannie May Holdings, Inc., a
Delaware corporation ("Holdings"), and Archibald Candy Corporation, an Illinois
corporation (the "Company").
WITNESSETH
WHEREAS, Holdings owns all of the issued and outstanding capital stock of
the Company and may, therefore, include the income and expense of the Company
and each of its subsidiaries, if any, in Holdings' consolidated federal income
tax returns; and
WHEREAS, the parties hereto desire to consolidate such returns upon the
terms and conditions herein set forth; and
WHEREAS, the Company desires to have Holdings and its affiliates provide
management consulting and financial advisory services on the terms and
conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein set forth, the parties hereto hereby agree as follows:
1. TAX SHARING AGREEMENT.
(a) FILING AND PREPARATION OF FUTURE RETURNS. Company, on behalf of
itself and each existing and future subsidiary thereof (the Company and each
existing and future subsidiary thereof are sometimes collectively referred to as
the "Subsidiaries" or individually as a "Subsidiary"), consents to joining with
Holdings (Holdings and each of its consolidated subsidiaries being herein
referred to as the "Group") in the filing of the consolidated federal income tax
returns for any taxable year for which a consolidated return can be filed and
each taxable year thereafter, in accordance with
<PAGE>
applicable income tax laws and regulations. Holdings agrees that it will
prepare and file in a timely manner all federal income tax returns required
to be filed on behalf of the Group.
(b) ESTIMATED TAX PAYMENTS; TAX BENEFIT REIMBURSEMENTS.
(i) Promptly following a request by Holdings, each Subsidiary
shall pay to Holdings an amount equal to such Subsidiary's separate return
tax liability as defined in Treasury Regulations Section 1.1552-1(a)(2)(ii)
(the "Separate Return Tax Liability") multiplied by a fraction the numerator
of which equals one and the denominator of which equals the total number of
estimated tax payments that would be made by such Subsidiary for such taxable
year if it were filing a separate tax return for such year. If the estimated
tax payment of the Group is based upon the prior taxable year's consolidated
tax liability, such Subsidiary's payment under this Section 1(b)(i) shall be
determined by using its Separate Return Tax Liability for such prior year,
and if such estimated tax payment is based upon the current year's tax
liability, such Subsidiary's payment under this Section 1(b)(i) shall be
determined by using its estimated Separate Return Tax Liability for such
current year.
(ii) In the event that the sum of any estimated payments made by
any Subsidiary in a taxable year under Section 1(b)(i) exceeds such Subsidiary's
final Separate Return Tax Liability for such taxable year, Holdings shall
promptly pay to such Subsidiary the amount of such excess. In the event that
the final Separate Return Tax Liability of such Subsidiary for a taxable year
exceeds the sum of any payments based on estimated amounts made by such
Subsidiary under Section 1(b)(i) for such taxable year, such Subsidiary shall
pay such excess to Holdings promptly following Holdings' request therefor.
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(iii) The aggregate of any loss carryovers or credit
carryovers of the Group as of August 30, 1997, shall not be available in any
carryover year for purposes of calculating the Separate Return Tax Liability of
a member.
(iv) The losses of each of the Subsidiaries generated after
August 30, 1997 that do not reduce the taxable income of the Group shall be
carried forward for utilization by the Group and shall be available for
calculating the Separate Return Tax Liability of any Subsidiary. Holdings shall
determine the order in which losses incurred by each of the Subsidiaries shall
be utilized by the Group, in a manner not inconsistent with calculating Separate
Return Tax Liability.
(v) Any payments or reimbursements hereunder shall be computed
by Holdings.
(c) ADJUSTMENTS TO LIABILITY. Holdings and each Subsidiary agree
that in the event there should be any factual circumstance, or any application,
either retroactively or prospectively, of any federal income tax laws or
revision of the federal income tax laws, which results in a redetermination of
the Separate Return Tax Liability of any Subsidiary, the payment under Section
1(b) shall be adjusted to account for such redeterminations. It is intended
that the adjustment referred to in this Section shall relate to those items
which are given recognition in the Group's consolidated tax returns or are
approved or adjusted by the Internal Revenue Service in its audit of said
returns, and which therefore have been recognized or given effect by the
computation of the consolidated income tax of the Group and the income tax
computed on the separate return basis of each Subsidiary.
(d) OTHER TAXES. Each Subsidiary shall pay to Holdings any foreign,
federal, state or local taxes or governmental charges incurred by Holdings or
(to the extent required by law to be
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paid by Holdings) by such Subsidiary relating to the business, operations or
finances of such Subsidiary (except for any taxes or charges otherwise
addressed in this Section 1). For purposes of this Agreement, the term
"taxes" shall include, but is not limited to, all net income, capital gains,
gross income, gross receipts, sales, use, transfer, franchise, profits,
license, capital, payroll, excise, value added or other taxes and any related
interest or governmental charge.
(e) ADDITIONAL SUBSIDIARIES. If at any time after the date upon
which this Agreement is executed, any party to this Agreement acquires or
creates one or more subsidiary corporations that are includible corporations of
the Group, either Holdings or a Subsidiary shall cause such subsidiary
corporation to be subject to this Agreement and all references to either Group
or a Subsidiary herein shall thereafter be interpreted to refer to Holdings, the
Subsidiaries and such subsidiary or subsidiaries, or to a Subsidiary and such
subsidiary or subsidiaries, respectfully. The parties hereto agree that this
Agreement shall govern only the allocation of income taxes among Holdings and
each Subsidiary for each taxable year, or portions thereof, in which each
respective Subsidiary is included in a consolidated income tax return filed by
Holdings and that no party to this Agreement shall have any rights or
obligations under this Agreement to any other party to this Agreement subsequent
to such party's disaffiliation from the Group, as defined in the Code.
2. MANAGEMENT CONSULTING AND INVESTMENT BANKING SERVICES.
(a) AFFILIATES OF HOLDINGS. Any services to be performed by Holdings
pursuant to this Section 2 may be performed by affiliates of Holdings and
appropriate personnel of such affiliates or by independent third party
contractors, in each case as may be designated from time to time by Holdings.
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(b) MANAGEMENT CONSULTING SERVICES. The Company hereby retains
Holdings to render management consulting services from time to time for the
Company regarding the Company and its subsidiaries, their financial and business
affairs and their relationships with their lenders and shareholders, and the
operation and expansion of their businesses. Holdings' personnel shall attend
Board of Directors' meetings and shall be available to the Company's managers,
auditors and other personnel for consultation and advice, subject to Holdings'
reasonable convenience and scheduling. Services may be rendered from such
locations as may be selected by Holdings and agreed to by the Company.
(c) INVESTMENT BANKING SERVICES. In addition to the management
consulting services set forth in Section 2(b) above, Holdings also shall from
time to time provide financial advisory services to the Company, and in its
capacity as financial advisor to the Company, Holdings will maintain its
familiarity with the Company's operations, prospects, assets, capitalization and
financial position, the trading markets for its securities, and such other
related factors as Holdings deems relevant. Holdings will advise the Company as
to opportunities in the financial markets for the Company, assist the Company in
all of its financing transactions and advise the Company in any future
recapitalization transactions, acquisitions or dispositions of assets or any
similar transactions.
(d) OPTIONAL SERVICES. If after the date hereof the Company requests
Holdings to render any services which are outside of the scope of services
contemplated by Sections 2(b) and (c) above, the Company and Holdings may
negotiate the terms of such engagement, including the fees to be payable by the
Company to Holdings; PROVIDED, that such services must be reasonably necessary
and the amounts charged for such services must be comparable to the charge for
such services in a commercial, unrelated third party transaction.
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<PAGE>
3. TERM.
(a) The tax sharing agreement set forth in Section 1 hereof shall
continue in effect until terminated by written agreement between all the parties
hereto.
(b) The term of services to be provided in Section 2 hereof shall
commence on the date hereof and continue in effect until the fifth (5th)
anniversary of the date hereof ("Base Term"), and shall be automatically renewed
for successive one-year terms (each, a "Renewal Term") unless either party, not
earlier than 60 days or later than 30 days prior to the last day of the Base
Term or any Renewal Term, notifies the other party as to its termination of this
Agreement.
4. PAYMENTS, FEES AND EXPENSES.
(a) MANAGEMENT CONSULTING FEE AND OTHER PAYMENTS. In consideration
of the services to be provided by Holdings pursuant to Section 2(b) above, the
Company shall make the following payments to Holdings:
(i) $412,000 per annum, payable in four equal quarterly installments
in arrears, on the last day of each fiscal quarter, the first payment
of which shall be made (prorated for the number of days, commencing
with the date hereof, during which the Agreement was in effect) on the
last day of the fiscal quarter ending in August 1997; and
(ii) such amounts, payable to Holdings within five (5) days of its
demand therefor, sufficient for Holdings to pay (A) the fees and
expenses of Holdings' directors; and (B) its indemnification
obligations to Holdings' directors arising from the Indemnification
Agreements between Holdings and its directors, Holdings' By-laws and
its Certificate of Incorporation, in each case, as amended or
restated, and the General Corporation Law of the State of Delaware.
(b) INVESTMENT BANKING FEE. In consideration of the services to be
provided by Holdings pursuant to Section 2(c) above, the Company shall make the
following payments to Holdings:
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(i) for any future recapitalizations, acquisitions or dispositions of
the Company's assets, sale of the Company stock, merger, consolidation
or similar transaction, a fee of two percent (2%) of the transaction
value payable upon consummation of such transaction; and
(ii) for any financing transaction, a fee of one percent (1%) of the
aggregate amount financed in such transaction.
(c) EXPENSES. In addition to the amounts payable pursuant to
Sections 4(a) and (b) above, the Company shall reimburse Holdings for actual and
direct out-of-pocket expenses incurred by Holdings and its personnel in
performing the services hereunder, including, but not limited to, any travel
expenses and legal and accounting fees incurred. The Company shall make such
reimbursement payments to Holdings within 30 days of the date it receives a
statement therefor together with such supporting data as the Company may
reasonably require.
(d) DEFERRAL. Notwithstanding the foregoing, the Company shall not
be required to pay, and Holdings shall have no right to receive and keep, the
fees set forth in Sections 4(a)(i) and 4(b) above, if and to the extent
expressly prohibited by the provisions of any credit, stock, financing or other
agreements or instruments (including, without limitation, (i) the Securities
Purchase Agreement dated as of October 30, 1991, (ii) the Indenture dated as of
July 2, 1997, pursuant to which the 10 1/4% Senior Secured Notes due 2004 were
issued, and (iii) the Amended and Restated Credit Agreement dated as of July 2,
1997, each as amended); PROVIDED, HOWEVER, that if, as a result of the operation
of such prohibitions on postponements, payments otherwise owed hereunder are not
made, such payments shall not be cancelled but rather shall accrue, and shall be
payable without interest, by the Company promptly when, and to the extent, that
the Company is no longer prohibited from making such payments.
5. LIMITATION OF LIABILITY; INDEMNIFICATION. The Company will indemnify
and hold
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harmless the officers, agents and employees of Holdings and its affiliates
and each other person, if any, controlling Holdings or any of its affiliates,
and any and all independent contractors hired by Holdings specifically for
the services contemplated by this Agreement, from and against any losses,
claims, damages or liabilities (or actions in respect thereof) related to or
arising out of its engagement under this Agreement or its role in connection
therewith, and will reimburse Holdings and any other party entitled to be
indemnified hereunder for all expenses (including reasonable counsel fees) as
they are incurred by it or any such other indemnified party in connection
with investigating, preparing or defending any such action or claim, whether
or not in connection with pending or threatened litigation in which it is a
party. Neither Holdings nor any of Holdings' affiliates, nor any officer,
director, employee or agent of Holdings or its affiliates nor any person
controlling Holdings or any of its affiliates shall have any liability
(whether direct or indirect, in contract or tort or otherwise) to the Company
for or in connection with such engagement except for any such liability for
losses, claims, damages, liabilities or expenses incurred by the Company that
result from Holdings' or any indemnified party's criminal acts or intentional
wrongdoing. Nothing in this Section shall limit or otherwise affect the
rights or obligations, if any, of any of the parties hereto pursuant to
officer/director indemnification agreements, by-laws or certificates of
incorporation, in each case as amended or restated, or applicable law. The
provisions of this Section 5 shall survive the termination of this Agreement.
6. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement sets forth the entire
understanding of the parties with respect to the tax sharing arrangement between
Holdings and the Company and Holdings' rendering of management consulting and
investment banking services to the Company. Neither this
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Agreement nor any provision hereof may be modified, waived, terminated or
amended except expressly by an instrument in writing signed by Holdings and
the Company.
(b) SUCCESSORS AND ASSIGNS. This Agreement may not be assigned by
either party without the consent of the other party but shall be binding upon
and inure to the benefit of the parties and their respective successors and
assigns upon such permitted assignment.
(c) ENFORCEABILITY. In the event that any provision of this
Agreement shall be held to be void or unenforceable, in whole or in part, the
remaining provisions of this Agreement and the remaining portion of any
provision not held void or unenforceable in part shall continue in full force
and effect.
(d) NOTICES. Except as otherwise specifically provided herein,
notice given hereunder shall be deemed sufficient if delivered personally or
sent by registered or certified mail or receipted document delivery service to
the address of the party for whom intended at the principal executive offices of
such party, or at such other address as such party may hereafter specify by
written notice to the other party.
(e) WAIVERS. No waiver by either party of any breach of any
provision of this Agreement shall be deemed a continuing waiver or a waiver of
any preceding or succeeding breach of such provision or of any other provision
herein contained.
(f) INDEPENDENT CONTRACTORS. Holdings and its personnel shall, for
purposes of this Agreement, be independent contractors with respect to the
Company.
(g) GOVERNING LAW. This Agreement shall be governed by the internal
laws (and not the law of conflicts) of the State of Illinois.
[signature page follows]
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IN WITNESS WHEREOF, the parties hereto have duly executed this Tax Sharing
and Management Consulting Agreement as of the date first above written.
FANNIE MAY HOLDINGS, INC.
By:
-----------------------------------
Title:
---------------------------------
ARCHIBALD CANDY CORPORATION
By:
-----------------------------------
Title:
--------------------------------
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ANNEX 2
to
THIRD AMENDMENT
TO
SECURITIES PURCHASE AGREEMENT
Form of TJC Agreement
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<PAGE>
MANAGEMENT CONSULTING AGREEMENT
THIS MANAGEMENT CONSULTING AGREEMENT, dated as of July 2, 1997 (this
"Agreement"), is by and between FANNIE MAY HOLDINGS, INC. (the "Company") and
TJC MANAGEMENT CORP. (the "Consultant").
WITNESSETH
WHEREAS, the Consultant's personnel are highly skilled in the field of
rendering advice to business concerns such as the Company; and
WHEREAS, the Company and the Consultant entered into that certain
Management Consulting Agreement dated as of October 30, 1991 (as amended, the
"Original Management Consulting Agreement"), pursuant to which the Consultant
agreed to render certain consulting services to the Company and its
subsidiaries, if any, and the Company agreed to pay the Consultant certain fees
and expenses for a term continuing until November 1, 1997, unless extended, or
sooner terminated, as provided in the Original Management Consulting Agreement;
and
WHEREAS, as of March 1, 1997, the Company had accrued an aggregate amount
of $1,183,000 in fees owing to the Consultant under the Original Management
Consulting Agreement and the Company intends to pay on or about the date hereof
any and all accrued and unpaid amounts to the Consultant; and
WHEREAS, the Company and the Consultant desire to terminate the Original
Management Consulting Agreement effective as of their entering into this
Agreement.
NOW, THEREFORE, in consideration of the foregoing, the parties hereto
hereby agree as follows:
1. The Original Management Consulting Agreement is hereby terminated and
deemed of no further force or effect; provided, however, that the Company shall
remain obligated to pay to the Consultant (or its designee(s)) any and all fees
and expenses due thereunder.
2. The Company hereby retains the Consultant for the term of this
Agreement to render consulting services from time to time to it regarding the
Company and its subsidiaries, if any, their financial and business affairs and
their relationships with their lenders and stockholders, and the operation and
expansion of their businesses. The Consultant's personnel shall attend meetings
of the Board of Directors of the Company and its subsidiaries and shall be
available to the Company's managers, auditors and other personnel for
consultation and advice, subject to Consultant's reasonable convenience and
scheduling. Services may be rendered at the Consultant's offices or at such
other locations selected by the Consultant as the Company shall from time to
time agree upon.
<PAGE>
3. The Company agrees to pay the Consultant a fee of $364,000 per annum,
payable in four equal quarterly installments in arrears, on the last day of each
fiscal quarter, the first payment of which shall be made (prorated for the
number of days, commencing with the date hereof, during which this Agreement was
in effect) on the last day of the fiscal quarter ending in August 1997.
4. (a) In addition to the management consulting services set forth in
paragraph 2 above, and subject to paragraph 4(b) below, the Consultant also
shall from time to time during the term of this Agreement provide financial
advisory services to the Company, and in its capacity as financial advisor to
the Company, the Consultant shall maintain its familiarity with the Company's
operations, prospects, assets, capitalization and financial position, the
trading markets for its securities if relevant, and such other related factors
as the Consultant deems relevant. The Consultant will advise the Company as to
opportunities in the financial markets for the Company, assist the Company in
all of its financing transactions and advise the Company in any future
recapitalization transactions, acquisitions or dispositions of assets or any
similar transactions.
(b) For so long as there are any directors of the Company designated
by TCW Capital or its affiliates, prior to rendering the financial advisory
services contemplated by paragraph 4(a) above, the Company shall have obtained
the consent and approval of TCW Capital or the two (2) directors of the Company
designated by TCW Capital or its affiliates.
(c) Subject to paragraph 4(b) above, in consideration of the services
to be provided by the Consultant pursuant to paragraph 4(a) above, the Company
shall make the following payments to the Consultant:
(i) for any future recapitalizations, acquisitions or
dispositions of the Company's assets, sale of the Company stock,
merger, consolidation or similar transaction, a fee of two percent
(2%) of the transaction value payable upon consummation of such
transaction; and
(ii) for any financing transaction, a fee of one percent (1%) of
the aggregate amount financed in such transaction.
5. In addition to the amounts payable pursuant to paragraphs 3 and 4(c)
above, the Company shall reimburse the Consultant for actual and direct out-of-
pocket expenses incurred by the Consultant and its personnel in performing the
services hereunder, including, but not limited to, any travel expenses and legal
and accounting fees incurred. The Company shall make such reimbursement
payments to the Consultant within 30 days of the date it receives a statement
therefor together with such supporting data as the Company may reasonably
require.
6. Notwithstanding the foregoing, the Company shall not be required to
pay, and the Consultant shall have no right to receive and keep, the foregoing
fees referred to in paragraphs 3 or 4(c) above, if and to the extent expressly
prohibited by, or deferred pursuant to, the provisions of any credit, stock,
financing or other agreements or instruments (including, without limitation, (i)
the Securities Purchase Agreement dated as of October 30, 1991, (ii) the
Indenture dated as of July 2,
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1997, pursuant to which the 10 1/4% Senior Secured Notes were issued and (iii)
the Amended and Restated Credit Agreement dated as of July 2, 1997, each as
amended), binding upon the Company, its subsidiaries or their properties;
PROVIDED, HOWEVER, that if, as a result of the operation of such
prohibitions, deferments, nonpayments or postponements, payments otherwise
owed hereunder are not made, such payments shall not be canceled but rather
shall accrue, and shall be payable, without interest, by the Company promptly
when, and to the extent, that the Company is no longer prohibited from making
such payments.
7. The term of this Agreement shall commence on the date hereof and
continue until the fifth anniversary of the date hereof (the "Base Term");
PROVIDED, HOWEVER, that thereafter, this Agreement shall be automatically
renewed for successive one-year terms (each, a "Renewal Term") unless either
party, not earlier than sixty (60) days nor later than thirty (30) days prior to
the last day of the Base Term or any Renewal Term, notifies the other party as
to its termination of this Agreement.
8. The Consultant shall have no liability to the Company on account of
any advice which it renders to the Company provided the Consultant believed in
good faith that such advice was useful or beneficial to the Company at the time
it was rendered.
9. (a) This Agreement sets forth the entire understanding of the parties
with respect to the Consultant's rendering of services to the Company. This
Agreement or any provision hereof may not be modified, waived, terminated or
amended except expressly by an instrument in writing signed by the Consultant
and the Company.
(b) This Agreement may not be assigned by either party without the
consent of the other party but shall be binding upon and inure to the benefit of
the parties and their respective successors and assigns upon such permitted
assignment; provided, however, that the Consultant may, without the consent of
the Company, assign its right to receive fees hereunder to any person or entity.
Any services to be performed by the Consultant pursuant to this Agreement may be
performed by affiliates of the Consultant and appropriate personnel of such
affiliates, or by independent third party contractors, in each case as may be
designated from time to time by the Consultant.
(c) In the event that any provision of this Agreement shall be held
to be void or unenforceable, in whole or in part, the remaining provisions of
this Agreement and the remaining portion of any provision not held void or
unenforceable in part shall continue in full force and effect.
(d) Except as otherwise specifically provided herein, notice given
hereunder shall be deemed sufficient if delivered personally or sent by
registered or certified mail or receipted document delivery service to the
address of the party for whom intended at the principal executive offices of
such party, or at such other address as such party may hereafter specify by
written notice to the other party.
(e) No waiver by either party of any breach of any provision of the
Agreement shall be deemed a continuing waiver or a waiver of any preceding or
succeeding breach of such
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<PAGE>
provision or of any other provision herein contained.
(f) The Consultant and its personnel shall, for purposes of this
Agreement, be independent contractors with respect to the Company.
(g) This Agreement shall be governed by the internal laws (and not
the law of conflicts) of the State of Illinois.
[signature page follows]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Management
Consulting Agreement as of the date first above written.
FANNIE MAY HOLDINGS, INC.
By:
-----------------------------------------
Title:
--------------------------------------
TJC MANAGEMENT CORP.
By:
-----------------------------------------
Title:
--------------------------------------
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<PAGE>
SHAREHOLDERS AGREEMENT
SHAREHOLDERS AGREEMENT, dated as of October 30, 1991 (as amended from time
to time, this "Agreement"), by and among TCW Special Placements Fund III, a
California limited partnership ("TCW"), TCW Capital, a California general
partnership acting solely in its capacity as Investment Manager pursuant to an
Investment Management Agreement dated as of June 19, 1989, TCW Capital, a
California general partnership acting solely in its capacity as Investment
Manager pursuant to an Investment Management Agreement dated as of April 18,
1990, Mezzanine Capital, a California general partnership (the former four
entities, the "TCW Entities"), Jackson National Life Insurance Company, a
Michigan corporation in its capacity as a Purchaser under the Securities
Purchase Agreement (as defined below) ("Jackson"), Mezzanine Capital & Income
Trust 2001 PLC, a trust organized under the laws of the United Kingdom ("MCIT"),
the persons listed on the signature pages hereof as members of the Jordan Group
(collectively the "Jordan Group"), Fannie May Holdings, Inc., a Delaware
corporation ("Holdings") and Archibald Candy Corporation, an Illinois
corporation ("the Company").
R E C I T A L S
WHEREAS, each of the TCW Entities, Jackson, MCIT and the Jordan Group is
purchasing simultaneously with the execution hereof, certain shares of Class A
common stock, par value $0.01 per share, Class B common stock, par value $0.01
per share, Class C common stock, par value $0.01 per share and Class D common
stock, par value $0.01 per share, together, constituting, in the aggregate, all
of the issued and outstanding common stock of Holdings; and
WHEREAS, the parties believe it is in the best interests of Holdings and
the parties to provide certain assurances relating to the governance of Holdings
and the Company and to provide for certain restrictions on, and rights in the
event of, certain transfers of Common Shares;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties hereto agree as follows:
ARTICLE 1. DEFINITIONS.
Capitalized terms used herein but not defined herein shall have the
meanings set forth in the Securities Purchase Agreement dated as of October 30,
1991 by and among Holdings, FMCAN and the persons listed on Schedule 1 thereto
(the "Securities Purchase Agreement") and the following terms, as used herein,
shall have the following respective meanings:
"COMMON SHARE EQUIVALENTS" means any securities of Holdings that are
convertible into or exercisable or exchangeable for Common Shares and any other
options or rights to acquire Common Shares (Common Share Equivalents shall not
include stock appreciation rights).
"CONVERSION EVENT" means the conversion by Jackson of any of its Class B
Common Shares into Class A Common Shares.
<PAGE>
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, or
any similar federal statute then in effect.
"HOLDER" means the Original Shareholders and each other Person who has
agreed to be bound or is required to agree to be bound or otherwise becomes
bound by the terms of this Agreement as a Holder pursuant to Sections 4(a) and
9(f).
"NON-TRIGGERING SECURITIES" has the meaning set forth in Section 6(a).
"OFFEREE" has the meaning set forth in Section 4(b)(i).
"ORIGINAL SHAREHOLDERS" means the TCW Entities, Jackson, MCIT and each
member of the Jordan Group.
"PERMITTED TRANSFEREES" means, (x) in the case of any Shareholder, (A)
Affiliates or officers and directors of any such Shareholder, (B) any individual
that is a member of such Shareholder's immediate family (E.G., spouses, parents
and children), or any trust established for the benefit of any such member, (y)
in the case of any TCW Entity, any TCW Transferee, and (z) in the case of
Jackson, any Jackson Transferee.
"PROPOSED TRANSFEREE" has the meaning set forth in Section 4(b)(i).
"PROPOSED TRANSFEROR" has the meaning set forth in Section 4(b)(i).
"PROPOSING HOLDER" means (a) Holders of at least 72% of the outstanding
Common Shares or (b) on or after the eighth anniversary of the Closing Date, any
Holder who holds Common Shares that Holdings is required to but has failed to
redeem pursuant to Section 6.8 of the Securities Purchase Agreement.
"PUBLIC OFFERING" means a public offering by the Holders of Common Shares
or Common Share Equivalents pursuant to a registration statement effective under
the Securities Act.
"PUBLIC SALE" means a sale of Common Shares or Common Share Equivalents to
the public in a Public Offering or through a broker pursuant to Rule 144 (or any
comparable provision then in effect) under the Securities Act.
"SEC" means the Securities and Exchange Commission or any other federal
agency at the time administering the Securities Act or the Exchange Act.
"SECRETARY" has the meaning set forth in Section 2(a).
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
similar federal statute then in effect.
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"SHAREHOLDERS" means the Original Shareholders and their Permitted
Transferees.
"TAG-ALONG NOTICE" has the meaning set forth in Section 4(b)(ii).
"TAG-ALONG RIGHT" has the meaning set forth in Section 4(b)(i).
"THIRD PARTY PURCHASER" has the meaning set forth in Section 5(a).
"TRANSFER" means any sale, assignment, transfer, pledge, hypothecation or
other disposition of any nature whatsoever, whether directly or indirectly,
voluntarily or involuntarily, by operation of law or otherwise, of any Common
Shares or Common Share Equivalent.
"TRIGGERING SHARES" has the meaning set forth in Section 6(a).
ARTICLE 2. BOARD OF DIRECTORS.
(a) ELECTION OF DIRECTORS. Subject to Section 2(d), each Holder (other
than Holders of Class B Common Shares) agrees that from and after the Closing
Date and for a period of ten years thereafter it will vote, or cause to be
voted, all Common Shares (other than Class B Common Shares) now owned or
hereafter acquired by it so as to elect (or remove, as applicable) certain
members of a Board of Directors of Holdings as follows:
(i) for so long as TCW or its Permitted Transferees collectively
holds 100,000 or more Common Shares, two designees of TCW, who shall
initially be Frank J. Pados, Jr. and Thomas L. Ferguson; and
(ii) for so long as the Jordan Group or its Permitted Transferees
collectively holds any Common Shares, three designees of Jordan, who shall
initially be John W. Jordan II, Thomas H. Quinn and Adam E. Max.
To effectuate this Agreement, the Secretary of Holdings, or if there is no
Secretary, such other officer of Holdings as the Board of Directors may appoint
to fulfill the duties of the Secretary (either such person, the "SECRETARY"),
shall not record any vote contrary to the terms of this Agreement without the
written consent of all parties hereto.
(b) REMOVAL. If any Holders with a right to designate one or more
directors pursuant to Section 2(a) shall notify the other Holders of their
desire to remove any director of Holdings previously designated by such Holders,
each Holder (other than Holders of Class B Common Shares) agrees that it will
vote all of the Common Shares owned or held of record by it so as to remove such
director.
(c) SUCCESSORS. If any director previously designated by any Holders with
a right to designate one or more directors pursuant to Section 2(a) ceases to
serve on the Board of Directors (whether by reason of death, resignation,
removal or otherwise), the Holders who designated such
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<PAGE>
director shall be entitled to designate a successor director to fill the vacancy
created thereby. Each Holder (other than Holders of Class B Common Shares)
agrees that it will vote all of the Common Shares owned or held of record by it
so as to elect such designee as a director.
(d) DIRECTORS OTHER THAN NOMINEES. At any time that any Holder's right to
designate one or more directors terminates, the Secretary shall call a special
meeting of the shareholders of Holdings for the purpose of electing a director
to replace such directors, such special meeting to be held not more than 90 days
from the date upon which such right terminated. Such director, as well as any
directors to be elected in addition to the designees, shall be elected by the
shareholders of Holdings in accordance with Holdings' charter and by-laws.
(e) PROXY. For so long as this Agreement is in effect, (i) if any Holder
(other than a Holder of Class B Common Shares) fails or refuses to vote that
Holder's Common Shares as provided in this Article 2, without further action by
such Holder, each Holder willing so to vote such Common Shares shall have an
irrevocable proxy so to vote those Common Shares in accordance with this
Agreement, and each Holder (other than Holders of Class B Common Shares) hereby
grants to the other Holders such irrevocable proxy and (ii) Holdings hereby
grants to TCW an irrevocable proxy to vote the common stock of the Company upon
the occurrence of a Triggering Event and so long as Trustee (as defined in the
Pledge Agreement) has not exercised its rights to vote the common stock of the
Company pursuant to Section 1 of the Pledge Agreement. It is hereby
acknowledged that, upon exercise by the Trustee of such rights, TCW shall have
no rights pursuant to the foregoing proxy until such time as the Trust shall no
longer be entitled to vote such shares of common stock pursuant to Section 1 of
the Pledge Agreement.
(f) COMPANY BOARD. Prior to the occurrence and continuance of a
Triggering Event, Holdings, as the sole shareholder of the Company, and the
Company shall take all action necessary such that the Board of Directors of the
Company shall at all such times consist only of the nominees designated pursuant
to this Article 2. Upon the occurrence and during the continuance of a
Triggering Event, Holdings, as sole shareholder of the Company, and the Company
shall take all action necessary such that the Board of Directors of the Company
shall at all such times consist solely of directors designated by TCW, subject
to the rights of the Trustee (as defined in the Pledge Agreement), to vote
common stock of the Company pursuant to Section 1 of the Pledge Agreement. It
is hereby acknowledged that, upon exercise by the Trustee of such rights, TCW
shall have no further rights to designate directors of the Company pursuant to
this Section 2 (f) until such time as the Trustee shall no longer be entitled to
vote such shares of common stock pursuant to Section 1 of the Pledge Agreement.
ARTICLE 3. CERTAIN CORPORATE ACTIONS.
(a) SUPERMAJORITY VOTING REQUIREMENTS. Upon the occurrence of a
Triggering Event, unless TCW controls the Board of Directors, no Holder shall
cause or permit Holdings to take any of the following actions without the
affirmative vote or consent of 60% of the outstanding Commons Shares (other than
the Class B Common Shares):
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(i) (A) enter into any transaction of merger, consolidation or
amalgamation, or liquidate, wind up or dissolve itself, (B) convey, sell,
lease, transfer or otherwise dispose of in a transaction or related series
of transactions 25% (determined on the basis of fair market value) or more
of the property, business or assets of Holdings and its Subsidiaries or (C)
acquire by purchase or otherwise the business or any assets of, or stock or
other evidences of beneficial ownership of, any Person with a purchase
price in excess of 20% of the then net worth of Holdings and its
Subsidiaries (determined on the basis of fair market value); PROVIDED, that
the foregoing affirmative vote or consent shall not be required for any of
the following transactions: (x) the merger or consolidation of any
Subsidiary of Holdings with or into Holdings or with or into any one or
more wholly owned Subsidiaries of Holdings; or (y) the sale, lease,
transfer or other disposition by any Subsidiary of Holdings of any or all
of its respective assets (upon voluntary liquidation or otherwise) to any
one or more wholly-owned Subsidiaries of Holdings or to Holdings;
(ii) issue any equity securities of Holdings or any of its
Subsidiaries except (A) the payment of in-kind dividends on the Seller
Preferred Stock, the Junior Preferred Shares or the Jordan Junior Preferred
Stock, (B) the issuance of securities pursuant to a permitted Stock Option
Plan and (C) the issuance of Class A Common Shares or Class B Common Shares
in connection with a conversion of Class A Common Shares, Class B Common
Shares, Class C Common Shares or Class D Common Shares;
(iii) repurchase or redeem any Common Shares from any Holder which
repurchase or redemption is not pro rata among all Holders (except
repurchases and redemptions pursuant to the Securities Purchase Agreement);
(iv) substantially alter or modify the business of Holdings or
any of its Subsidiaries; or
(v) approve a recapitalization of Holdings and its Subsidiaries
involving a distribution to its shareholders of 20% or more of the net
worth of Holdings and its Subsidiaries determined on the basis of fair
market value.
(b) TCW CONCURRENCE RIGHTS. From and after the Closing Date, no Holder
shall cause Holdings or any of its Subsidiaries to take any of the following
actions without the affirmative vote or consent of a director designated by TCW:
(i) make any amendment to the certificate of incorporation or
by-laws of Holdings which would be materially adverse to the TCW Entities
and their Permitted Transferees (solely in their capacity as Holders);
(ii) delegate any authority of the Board of Directors to any
committee or member thereof; or
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(iii) enter into any transaction other than the transactions
contemplated by the Ancillary Agreements with any Affiliate or associate of
Jordan except transactions entered into in the ordinary course of business
in good faith and on fair and reasonable terms no less favorable to
Holdings than Holdings would be able to obtain in a comparable arm's-length
transaction with a Person not an Affiliate or associate of Jordan. For
purposes of this clause (iii), transactions with Affiliates and associates
shall include any transactions involving the sale of Holdings by way of
merger or otherwise or any recapitalization of Holdings, in each case in
which any Affiliate or associate of Jordan has a continuing equity interest
or Holdings has borrowed money from any Affiliate or associate unless the
relative interests prior to such transaction of the TCW Entities (and their
Permitted Transferees) and Jordan (and its Permitted Transferees) remain
the same after consummation of such transaction;
PROVIDED that, if Holders are no longer required to vote for the election of at
least one director designated by TCW pursuant to Section 2(a)(i), the consent or
affirmative vote of such designee of TCW shall not be required pursuant to this
Section 3(b).
(c) The provisions set forth in Sections 3(a) and (b) shall be set forth
in the by-laws of Holdings and no Holder shall take any action to amend the
applicable provisions of the by-laws without the approval of the requisite
parties required to take the actions enumerated in such Sections.
ARTICLE 4. RESTRICTIONS ON TRANSFER.
(a) GENERAL RESTRICTIONS. Notwithstanding any other provision of this
Agreement or in the Securities Purchase Agreement, no Holder shall effect a
Transfer to any Person (other than a transfer in a Public Sale) unless
simultaneously with such Transfer such Person executes a counterpart of this
Agreement in accordance with Section 9(f) pursuant to which such Person agrees
to be bound by all of the provisions of this Agreement.
(b) TAG-ALONG RIGHTS. (i) Subject to Section 4(e), in the event that any
Shareholder(s) (collectively, the "PROPOSED TRANSFEROR"), propose to Transfer
any Common Shares to any Person or group of Persons (the "PROPOSED TRANSFEREE")
in any transaction each other Shareholder (each, an "OFFEREE") shall have the
right (the "TAG-ALONG RIGHT") to require the Proposed Transferee to purchase
from it up to the number of whole Common Shares to equal the number derived by
multiplying (A) the aggregate number of Common Shares to be acquired by the
Proposed Transferee in the Transfer by (B) a fraction, the numerator of which is
the aggregate number of Common Shares such Offeree desires to include in the
Transfer, and the denominator of which is the aggregate number of Common Shares
owned by the Proposed Transferor plus the aggregate number of Common Shares that
all Offerees desire to include in the Transfer. The Proposed Transferor shall
notify all Offerees in writing of each such proposed transfer. Such notice
shall set forth: (w) the number of Common Shares proposed to be transferred, (x)
the name and address of the Proposed Transferee, (y) the proposed amount of
consideration and terms and conditions of payment offered by the Proposed
Transferee and (z) that the Proposed Transferee has been informed of the
Tag-Along Right provided for in this Section 4(b) and has agreed to purchase
Common Shares in accordance with the terms hereof.
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(ii) The Tag-Along Right may be exercised by an Offeree by delivery
of a written notice to the Proposed Transferor (the "TAG-ALONG NOTICE") within
15 days following its receipt of the notice specified in Section 4(b)(i). The
Tag-Along Notice shall state the number of Common Shares that such Offeree
proposes to include in such Transfer to the Proposed Transferee determined as
aforesaid. In the event that the Proposed Transferee does not purchase Common
Shares from an Offeree at the same price and on the same terms and conditions as
purchases from the Proposed Transferor, then the Proposed Transferor shall not
be permitted to Transfer any Common Shares to the Proposed Transferee in the
proposed Transfer. If no Tag-Along Notice is received during the 15-day period
referred to above, the Proposed Transferor shall have the right, for a 60-day
period after the expiration of the 15-day period referred to above, to transfer
to the Proposed Transferee the Common Shares proposed to be transferred on terms
and conditions no more favorable to the Proposed Transferor than those stated in
the notice specified in Section 4(b)(i). Any Common Shares which continue to be
held by the Proposed Transferor after such 60-day period shall again be subject
to the provisions of this Section 4(b).
(iii) Each Offeree shall have Tag-Along Rights with respect to all
Common Shares acquired by it, other than Public Common Shares. The Shareholders
hold all of their Common Shares subject to the Tag-Along Rights, other than
Common Shares that have been effectively sold to the public as described in the
immediately preceding sentence.
(iv) Any Common Shares purchased from an Offeree pursuant to this
Section 4(b) shall be paid for at the same price per share and upon the same
terms and conditions as the transfer by the Proposed Transferor.
(c) COMPLIANCE WITH SECTIONS 4(A) AND 4(B). Any Person desiring to effect
a Transfer of Common Shares or any interest therein shall be bound by any and
all of the provisions of Sections 4(a) and 4(b) applicable by their terms to
such Person and such Transfer, and any Transfer of Common Shares or any interest
therein by any such Person must comply with the terms of each such applicable
provision. Without limiting the generality of the foregoing, any Person bound
by Section 4(b) must deliver to the appropriate parties a Tag-Along Notice, must
permit all Persons accepting the offer made in the Tag-Along Notice to include
their Common Shares in the Transfer pursuant to Section 4(b).
(d) EXCLUDED TRANSACTIONS. Anything to the contrary herein
notwithstanding, the provisions of Sections 4(b) shall not apply to (i)
Transfers by any Shareholder to any of its Permitted Transferees that agree in
writing to be bound by this Agreement as a Shareholder with respect to the
transferred Common Shares; (ii) any bona fide pledge or hypothecation of Common
Shares or any interest therein to financial institutions (including insurance
companies) that agree in writing to be bound by this Agreement as a Shareholder
with respect to such transferred Common Shares; (iii) Transfers pursuant to a
Public Offering and (iv) transfers to another Original Shareholder.
(e) COSTS. All costs and expenses incurred by any seller (including the
Proposed Transferor) in connection with a Transfer under Section 4(b), including
without limitation all attorneys' fees, costs and disbursements and any finders'
fees or brokerage commissions, shall be
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allocated PRO RATA among the Shareholders transferring Common Shares in such
Transfer, with each bearing that portion of such costs and expenses equal to the
aggregate of such costs and expenses multiplied by a fraction, the numerator of
which is the amount of the gross proceeds received by such Shareholder from such
Transfer, and the denominator of which is the total amount of the gross proceeds
received by all Shareholders from such Transfer.
(f) BENEFIT OF SECTION. Section 4(b) is intended to benefit Shareholders
only and Section 4(a) is intended to benefit Holdings and Shareholders only. No
Shareholder shall have any obligation whatsoever under Section 4(a) or 4(b) to
any Person other than the Shareholders and, as applicable, Holdings.
ARTICLE 5. RIGHTS TO COMPEL SALE.
(a) RIGHTS TO COMPEL SALE. If a Proposing Holder proposes to sell all
Common Shares by way of merger with, or stock or asset sale to, any Person
(other than an Affiliate of the Proposing Holder) (the "THIRD PARTY PURCHASER"),
then (in addition to the right of the remaining Holders to participate in such
sale pursuant to Section 4(b)) Proposing Holder may, at its option, require all
other Holders to sell (or vote in favor of such transaction, to the extent
required) all Common Shares held by them to the Third Party Purchaser for the
same consideration per share and otherwise on the same terms and conditions upon
which the Proposing Holder sells its Common Shares; provided that no Holder of
Class B Common Shares shall be required to accept any consideration other than
cash or marketable securities that constitute a legal investment by such Holder
under applicable law or regulatory restrictions.
(b) SALE PROCEDURES. The Proposing Holder shall send written notice of
the exercise of its rights pursuant to this Article 5 to each other Holder,
setting forth the consideration per share to be paid by the Third Party
Purchaser and the other terms and conditions of such transaction. Within 30
days following the date of the notice, each Holder shall deliver (in escrow
pending delivery of consideration) to a representative of the Proposing Holder
designated in the certificates representing all Common Shares held by such
Holder, duly endorsed, together with all other documents required to be executed
in connection with such transactions. In the event that a Holder shall fail to
deliver such certificates to the Proposing Holder, Holdings shall cause the
books and records of Holdings to show that such shares are bound by the
provisions of this Article 5 and that such shares shall be transferred only to
the Third Party Purchaser upon surrender for transfer by the Holder thereof.
(c) RETURN OF CERTIFICATES. If, within 120 days after the Proposing
Holder gives such notice, it has not completed the sale of all the Common Shares
of the Holders in accordance herewith, the Proposing Holder shall return to each
Holder all certificates representing Common Shares that such Holder delivered
for sale pursuant hereto, and all the restrictions on sale or other disposition
contained in the Agreement with respect to Common Shares owned by the Proposing
Holder shall again be in effect.
(d) PAYMENT OF SALES PRICE. Promptly (but in no event later than the day
of receipt) after the consummation of the sale of Common Shares of the Proposing
Holder and other Holders
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pursuant to this Article 5, the Proposing Holder shall give notice thereof to
each Holder, shall remit to each Holder the total sales price of the Common
Shares of such Holder sold pursuant thereto, and shall furnish such other
evidence of the completion and time of completion of such sale or other
disposition and the terms thereof as may be reasonably requested by such Holder.
(e) PROXY. For so long as this Agreement is in effect, if any Holder
fails or refuses to vote that Holder's Common Shares as provided in this Article
5, without further action by such Holder, each Holder willing so to vote such
Common Shares shall have an irrevocable proxy so to vote those Common Shares in
accordance with this Article 5, and each Holder hereby grants to the other
Holders such irrevocable proxy.
(f) TERMINATION. The rights to compel a sale of Holdings contained in
this Article 5 shall terminate at such time as at least 50% of the aggregate
number of all Common Shares outstanding on a fully diluted basis shall have been
effectively sold to the public in one or more Public Offerings.
ARTICLE 6. PREEMPTIVE RIGHTS.
(a) If Holdings shall propose to issue Common Shares or Common Share
Equivalents ("TRIGGERING SHARES"), other than as described in Section 6(b),
Holdings shall give each Shareholder 30 days' prior written notice thereof and
each Shareholder shall have the right, by written notice to Holdings no later
than the scheduled date of such issuance (as set forth in such notice), to
purchase at a price per share equal to the price per share paid by all other
Persons acquiring Triggering Shares, up to the number of Triggering Shares that
would result in such Shareholder holding in the aggregate, after the issuance of
all such Triggering Shares, the same proportionate interest in the fully diluted
common equity of Holdings as it held immediately prior to the issuance of such
Triggering Shares; PROVIDED that, if such Triggering Shares are issued as a unit
with debt or other securities or Holdings that do not constitute common equity
("NON-TRIGGERING SECURITIES"), such Shareholder shall, in conjunction with the
purchase of Triggering Shares pursuant to this Section 6(a), purchase a
proportionate principal amount, or number of shares, as applicable, of such
Non-Triggering Securities. For purposes of this Section 6(a), the per share
purchase price of Triggering Shares (or Non-Triggering Securities) issued for
consideration other than cash shall be (x) the aggregate fair market value of
such non-cash consideration, as determined in good faith by resolution of a
majority of the Board of Directors (including one disinterested member voting in
the affirmative), divided by (y) the aggregate number of Triggering Shares (or
Non-Triggering Securities, as applicable) issued for such non-cash
consideration.
(b) Anything to the contrary herein notwithstanding, no Shareholder shall
have a right to purchase Triggering Shares pursuant to Section 6(a) by reason of
the issuance of Triggering Shares (x) pursuant to a Permitted Stock Option Plan,
(y) in connection with any merger or consolidation (other than a merger or
consolidation with a Shareholder or an Affiliate of a Shareholder), or (z) to
acquire, directly or indirectly, all or a portion of the outstanding capital
stock or assets of another Person (other than any Shareholder or any Affiliate
of a Shareholder).
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ARTICLE 7. RESTRICTION LEGENDS.
Each Holder agrees that substantially the following legends shall be placed
on the certificates representing any Common Shares held by such Holder (other
than Common Shares that have previously been sold in a Public Offering or
pursuant to Rule 144 under the Securities Act (or any similar provision then in
effect)):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
RESTRICTIONS CONTAINED IN A SHAREHOLDERS AGREEMENT DATED AS OF OCTOBER
30, 1991, A COPY WHICH IS ON FILE AT THE OFFICE OF THE SECRETARY OF
THE COMPANY.
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAW AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT
COVERING SUCH SECURITIES UNLESS THE ISSUER RECEIVES AN OPINION OF
COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO
THE ISSUER STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR
HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SUCH ACT OR THE SALE IS MADE IN ACCORDANCE WITH RULE
144 UNDER THE ACT.
ARTICLE 8. REPRESENTATIONS AND WARRANTIES.
(a) REPRESENTATIONS AND WARRANTIES. Each TCW Entity, Jackson, MCIT and
Jordan each Permitted Transferee and each other Holder hereby represents, as of
the date hereof or, if different, as of the date of such Person's execution of a
counterpart of this Agreement, as follows:
(i) if such Person is a corporation or partnership, that it is duly
incorporated or formed, validly existing and in good standing in its
jurisdiction of incorporation or formation, with full power to enter into
this Agreement and perform its obligations hereunder;
(ii) such Holder has duly authorized, validly executed and delivered
this Agreement, and this Agreement is valid, binding and enforceable
against such Holder in accordance with its terms;
(iii) the execution, delivery and performance of this Agreement will
not (x) violate, conflict with, or result in the breach, acceleration,
default or termination of, or otherwise give any other contracting party
the right to terminate, accelerate, modify or cancel any of the terms,
provisions, or conditions of any material agreement or instrument to which
such Holder is a party or by which it or its assets may be bound, or (y)
constitute
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a violation of any material applicable law, rule or regulation, or of any
judgment, order, injunction, award or decree of any court, administrative
agency or other governmental authority applicable to such Holder; and
(iv) such Holder is not a party to any agreement, other than this
Agreement and the Securities Purchase Agreement relating to the voting,
disposition or redemption of capital stock of Holdings.
(b) REPRESENTATIONS AND WARRANTIES OF HOLDINGS. Holdings hereby
represents and warrants, as of the date hereof, as follows:
(i) that it is duly incorporated, validly existing and in good
standing in its jurisdiction of incorporation, with full power to enter
into this Agreement and to perform its obligations hereunder;
(ii) it has duly and validly executed and delivered this Agreement,
and this Agreement is valid, binding and enforceable against it in
accordance with its terms;
(iii) the execution, delivery and performance of this Agreement will
not (x) violate, conflict with, or result in the breach, acceleration,
default or termination of, or otherwise give any other contracting party
the right to terminate, accelerate, modify or cancel any of the terms,
provisions or conditions of any agreement or instrument to which it is a
party or by which it or its assets may be bound, or (y) constitute a
violation of any applicable law, rule or regulation, or of any judgment,
order, injunction, award or decree of any court, administrative agency or
other governmental authority applicable to it; and
(iv) Holdings is not a party to any agreement, other than this
Agreement and the Securities Purchase Agreement relating to the voting,
disposition or redemption of capital stock of Holdings.
ARTICLE 9. GENERAL.
(a) AMENDMENTS; WAIVERS. This Agreement may be amended only by agreement
in writing of all parties. No waiver of any provision nor consent to any
exception to the terms of this Agreement shall be effective unless in writing
and signed by the party to be bound and then only to the specific purpose,
extent and instance so provided.
(b) BEST EFFORTS; FURTHER ASSURANCES. Each party will use its best
efforts to perform and fulfill all obligations on its part to be performed and
fulfilled under this Agreement to the end that the transactions contemplated by
this Agreement shall be effected substantially in accordance with its terms as
soon as reasonably practicable. The parties shall cooperate with each other in
such actions. Each party shall deliver such further documents and take such
other actions as may be necessary or appropriate to consummate or implement the
transactions contemplated hereby or to
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evidence such events or matters; provided that this Section 9(b) shall not
require any Shareholder disproportionately to incur any material expense.
(c) GOVERNING LAW. This Agreement and the legal relations between the
parties shall be governed by and construed in accordance with the laws of the
State of New York applicable to contracts made and performed in such State and
without regard to conflicts of law doctrines except to the extent that certain
matters are preempted by federal law or are governed by the law of the
jurisdiction of organization of the respective parties.
(d) NO ASSIGNMENT. Except as set forth in Section 9(f) hereof, neither
this Agreement nor any rights or obligations under it are assignable.
(e) ENTIRE AGREEMENT. This Agreement and the Securities Purchase
Agreement together constitute the entire agreement and understanding of the
parties hereto in respect of the subject matter contained herein and therein,
and there are no restrictions, promises, representations, warranties, covenants
or undertakings with respect to the subject matter hereof, other than those
expressly set forth or referred to herein or therein. This Agreement and the
Securities Purchase Agreement supersede all prior agreements and understandings
between the parties hereto with respect to the subject matter hereof.
(f) OBLIGATIONS OF TRANSFEREES. If a Holder Transfers any interest in
Common Shares to any Person other than pursuant to a Public Sale it shall be a
condition to such Transfer that such transferee agree in writing to be bound as
a Holder and, in the case of a Permitted Transferee of a Shareholder, as a
Shareholder by all of the terms and provisions of this Agreement; provided that
any such transferee shall automatically be so bound by the terms hereof, whether
or not such transferee shall have so agreed in writing. Any transferee of
Common Shares from a Shareholder pursuant to a Transfer that is in whole or in
part gratuitous must agree to be bound by this Agreement as a Shareholder with
respect to such transferred Common Shares.
(g) TERMINATION. Unless an Article or Section of this Agreement specifies
a different time of termination, the provisions of this Agreement shall
terminate in their entirety on the earlier to occur of (i) the tenth anniversary
hereof and (ii) such time as at least [50%] of all Common Shares outstanding on
a fully diluted basis shall have been effectively sold to the public in one or
more Public Offerings.
(h) ADDITIONAL HOLDERS. Each employee of Holdings or any of its
subsidiaries who becomes a holder of Common Shares after the date hereof shall
become a party to this Agreement and shall be bound by its terms as a
Shareholder. Holdings shall not issue Common Shares to any employee unless the
person to whom the Common Shares are to be issued or transferred executes a
counterpart of this Agreement.
(i) RECAPITALIZATION, ETC. In the event that any stock or other
securities are issued in respect of, in exchange for, or in substitution of, any
Common Shares by reason of any reorganization, recapitalization,
reclassification, merger, consolidation, spin-off, partial or complete
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liquidation, stock dividend, split-up, sale of assets, distribution to
stockholders or combination of the Common Shares or any other change in
Holdings' capital structure, appropriate adjustments shall be made in the
percentages specified herein so as to fairly and equitably preserve, as far as
practicable, the original rights and obligations of the parties hereto under
this Agreement.
(j) HEADINGS. The descriptive headings of the Articles and Sections of
this Agreement are for convenience only and do not constitute a part of this
Agreement.
(k) COUNTERPARTS. This Agreement and any amendment hereto or any other
agreement (or document) delivered pursuant hereto may be executed in one or more
counterparts and by different parties in separate counterparts. All of such
counterparts shall constitute one and the same agreement (or other document) and
shall become effective (unless otherwise provided therein) when one or more
counterparts have been signed by each party and delivered to the other party.
(l) PARTIES IN INTEREST. This Agreement shall be binding upon and inure
to the benefit of each party, and nothing in this Agreement, express or implied,
is intended to confer upon any other Person any rights or remedies of any nature
whatsoever under or by reason of this Agreement. Nothing in this Agreement is
intended to relieve or discharge the obligation of any third person to any party
to this Agreement.
(m) NOTICES. Any notice or other communication hereunder must be given in
writing and (a) delivered in person, (b) transmitted by telex, telefax or
telecommunications mechanism provided that any notice so given is also mailed as
provided in clause (c) or (c) mailed by certified or registered mail, postage
prepaid, receipt requested, (i) if to an Original Shareholder, at the addresses
set forth in Schedule I hereto, (ii) if to any Holder (other than an Original
Shareholder) to such address as such Holder shall designate in writing to the
other Holders and Holdings and (iii) if to Holdings or FMCAN as follows:
Fannie May Holdings, Inc.
c/o Jordan Company
315 Park Avenue South
New York, NY 10010
Attention: Adam E. Max, Vice President
With a copy to:
Herbert B. Max
c/o Spengler Carlson Gubar Brodsky & Frischling
520 Madison Avenue, 4th Floor
New York, NY 10022
or to such other address or to such other person as either party shall have last
designated by such notice to the other party. Each such notice or other
communication shall be effective (i) if given by
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telecommunication, when transmitted to the applicable number so specified in (or
pursuant to) this Section 9(m) and an appropriate answerback or confirmation of
receipt is received, (ii) if given by mail, three days after such communication
is deposited in the mails with first class postage prepaid, addressed as
aforesaid or (iii) if given by any other means, when actually received at such
address.
(n) REMEDIES; WAIVER. Except to the extent this Section 9(n) is
inconsistent with any other provision in this Agreement or applicable law, all
rights and remedies existing under this Agreement and any related agreements or
documents are cumulative to and not exclusive of, any rights or remedies
otherwise available. No failure on the part of any party to exercise or delay
in exercising any right hereunder shall be deemed a waiver thereof, nor shall
any single or partial exercise preclude any further or other exercise of such or
any other right.
(o) ATTORNEY FEES. In the event of any action for the breach of this
Agreement or misrepresentation by any party, the prevailing party shall be
entitled to reasonable attorney's fees, costs and expenses incurred in
connection with such action.
(p) SPECIFIC PERFORMANCE. Holdings, FMCAN and each Holder acknowledge
that, in view of the transactions contemplated by this Agreement, each party
would not have an adequate remedy at law for money damages in the event that
this Agreement has not been performed in accordance with its terms, and
therefore agrees that the non-breaching parties shall be entitled to specific
enforcement of the terms hereof in addition to any other remedy to which such
non-breaching parties may be entitled at law or in equity.
(q) SEVERABILITY. If any provision of this Agreement is determined to be
invalid, illegal or unenforceable by any governmental entity, the remaining
provisions of this Agreement shall remain in full force and effect provided that
the essential terms and conditions of this Agreement for all parties remain
valid, binding and enforceable. In event of any such determination, the parties
agree to negotiate in good faith to modify this Agreement to fulfill as closely
as possible the original intents and purposes hereof.
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by its duly authorized officers as of the day and year
first above written.
FANNIE MAY HOLDINGS, INC.
By: /s/ Adam E. Max
------------------------------------------
Its: Vice President
------------------------------------------
ARCHIBALD CANDY CORPORATION
By: /s/ Adam E. Max
------------------------------------------
Its: Vice President
------------------------------------------
TCW SPECIAL PLACEMENTS FUND III
By: TCW Capital
Its: General Partner
By: TCW Asset Management Company
Its: Managing General Partner
By: /s/ Thomas Ferguson
---------------------------------
Its: Vice President
---------------------------------
TCW CAPITAL, as Investment Manager pursuant to an
Investment Management Agreement dated as of
June 30, 1989
By: TCW Asset Management Company
Its: Managing General Partner
By: TCW Asset Management Company
Its: General Partner
By: /s/ Thomas Ferguson
---------------------------------
Its: Vice President
---------------------------------
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TCW CAPITAL, as Investment Manager pursuant to an
Investment Management Agreement dated as of
April 18, 1990
By: TCW Asset Management Company
Its: Managing General Partner
By: /s/ Thomas Ferguson
---------------------------------
Its: Vice President
---------------------------------
MEZZANINE CAPITAL
By: TCW Asset Management Company
Its: Managing General Partner
By: /s/ Thomas Ferguson
---------------------------------
Its: Vice President
---------------------------------
JACKSON NATIONAL LIFE INSURANCE COMPANY
By: /s/ John A. Knutson
---------------------------------
Its: Senior Vice President
---------------------------------
MEZZANINE CAPITAL AND INCOME TRUST 2001 PLC
By: /s/ James Jordan
---------------------------------
Its: Director
---------------------------------
16
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Shareholder's
Agreement as of the date and year first above written.
LEUCADIA INVESTORS, INC.
By: /s/ Ruth Keindworth
--------------------------------------------
Its: Vice President
--------------------------------------------
THE JOHN W. JORDAN II REVOCABLE TRUST
By: /s/ John W. Jordon II
--------------------------------------------
Trustee
THE JW/JENN TRUST
By: /s/ John W. Jordon II
--------------------------------------------
TRUSTEE
/s/ David W. Zalaznick
-------------------------------------------------
/s/ Johnathan F. Boucher
-------------------------------------------------
/s/ John R. Lowden
-------------------------------------------------
/s/ Adam E. Max
-------------------------------------------------
/s/ John M. Camp
-------------------------------------------------
/s/ Richard Caputo
-------------------------------------------------
/s/ James E. Jordan
-------------------------------------------------
/s/ Paul Rodzevik
-------------------------------------------------
17
<PAGE>
/s/ Thomas H. Quinn
-------------------------------------------------
18
<PAGE>
Schedule I
TCW Special Placements Fund III
c/o Trust Company of the West
Representative Office
200 park Avenue, Suite 2200
New York, New York 10166
Attn: Frank J. Pados, Jr.
TCW Capital, as Investment Manager
pursuant to an Investment Management
Agreement dated as of April 18, 1990
c/o Trust Company of the West
Representative Office
200 Park Avenue, Suite 2200
New York, New York 10166
Attn: Frank J. Pados, Jr.
TCW Capital, as Investment Manager
pursuant to an Investment Management
Agreement dated as of June 19, 1989
c/o Trust Company of the West
Representative Office
200 Park Avenue, Suite 2200
New York, New York 10166
Attn: Frank J. Pados, Jr.
Mezzanine Capital
c/o Trust Company of the West
Representative Office
200 Park Avenue, Suite 2200
New York, New York 10166
Attn: Frank J. Pados, Jr.
With copy to: O'Melveny & Myers
555 13th Street, N.W.
Suite 500-West
Washington, D.C. 20004-1109
Attn: Jeffrey J. Rosen, Esq.
Jackson National Life Insurance
c/o PPM America Inc.
227 West Monroe, Suite 3880
Chicago, Illinois 60606
Attn: Bruce Gorchow
<PAGE>
Mezzanine Capital & Income Trust 2001 PLC
c/o Jordan/Zalaznick Advisors, Inc.
315 Park Avenue South
New York, New York 10010
Attn: James E. Jordan
2
<PAGE>
TAX SHARING AND MANAGEMENT CONSULTING AGREEMENT
THIS TAX SHARING AND MANAGEMENT CONSULTING AGREEMENT is made and entered as
of July 2, 1997 (this "Agreement") by and between Fannie May Holdings, Inc., a
Delaware corporation ("Holdings"), and Archibald Candy Corporation, an Illinois
corporation (the "Company").
WITNESSETH
WHEREAS, Holdings owns all of the issued and outstanding capital stock of
the Company and may, therefore, include the income and expense of the Company
and each of its subsidiaries, if any, in Holdings' consolidated federal income
tax returns; and
WHEREAS, the parties hereto desire to consolidate such returns upon the
terms and conditions herein set forth; and
WHEREAS, the Company desires to have Holdings and its affiliates provide
management consulting and financial advisory services on the terms and
conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein set forth, the parties hereto hereby agree as follows:
1. TAX SHARING AGREEMENT.
(a) FILING AND PREPARATION OF FUTURE RETURNS. Company, on behalf of
itself and each existing and future subsidiary thereof (the Company and each
existing and future subsidiary thereof are sometimes collectively referred to as
the "Subsidiaries" or individually as a "Subsidiary"), consents to joining with
Holdings (Holdings and each of its consolidated subsidiaries being herein
referred to as the "Group") in the filing of the consolidated federal income tax
returns for any taxable year for which a consolidated return can be filed and
each taxable year thereafter, in accordance with
<PAGE>
applicable income tax laws and regulations. Holdings agrees that it will
prepare and file in a timely manner all federal income tax returns required
to be filed on behalf of the Group.
(b) ESTIMATED TAX PAYMENTS; TAX BENEFIT REIMBURSEMENTS.
(i) Promptly following a request by Holdings, each Subsidiary
shall pay to Holdings an amount equal to such Subsidiary's separate return
tax liability as defined in Treasury Regulations Section 1.1552-1(a)(2)(ii)
(the "Separate Return Tax Liability") multiplied by a fraction the numerator
of which equals one and the denominator of which equals the total number of
estimated tax payments that would be made by such Subsidiary for such taxable
year if it were filing a separate tax return for such year. If the estimated
tax payment of the Group is based upon the prior taxable year's consolidated
tax liability, such Subsidiary's payment under this Section 1(b)(i) shall be
determined by using its Separate Return Tax Liability for such prior year,
and if such estimated tax payment is based upon the current year's tax
liability, such Subsidiary's payment under this Section 1(b)(i) shall be
determined by using its estimated Separate Return Tax Liability for such
current year.
(ii) In the event that the sum of any estimated payments made by
any Subsidiary in a taxable year under Section 1(b)(i) exceeds such Subsidiary's
final Separate Return Tax Liability for such taxable year, Holdings shall
promptly pay to such Subsidiary the amount of such excess. In the event that
the final Separate Return Tax Liability of such Subsidiary for a taxable year
exceeds the sum of any payments based on estimated amounts made by such
Subsidiary under Section 1(b)(i) for such taxable year, such Subsidiary shall
pay such excess to Holdings promptly following Holdings' request therefor.
2
<PAGE>
(iii) The aggregate of any loss carryovers or credit
carryovers of the Group as of August 30, 1997, shall not be available in any
carryover year for purposes of calculating the Separate Return Tax Liability of
a member.
(iv) The losses of each of the Subsidiaries generated after
August 30, 1997 that do not reduce the taxable income of the Group shall be
carried forward for utilization by the Group and shall be available for
calculating the Separate Return Tax Liability of any Subsidiary. Holdings shall
determine the order in which losses incurred by each of the Subsidiaries shall
be utilized by the Group, in a manner not inconsistent with calculating Separate
Return Tax Liability.
(v) Any payments or reimbursements hereunder shall be computed
by Holdings.
(c) ADJUSTMENTS TO LIABILITY. Holdings and each Subsidiary agree
that in the event there should be any factual circumstance, or any application,
either retroactively or prospectively, of any federal income tax laws or
revision of the federal income tax laws, which results in a redetermination of
the Separate Return Tax Liability of any Subsidiary, the payment under Section
1(b) shall be adjusted to account for such redeterminations. It is intended
that the adjustment referred to in this Section shall relate to those items
which are given recognition in the Group's consolidated tax returns or are
approved or adjusted by the Internal Revenue Service in its audit of said
returns, and which therefore have been recognized or given effect by the
computation of the consolidated income tax of the Group and the income tax
computed on the separate return basis of each Subsidiary.
(d) OTHER TAXES. Each Subsidiary shall pay to Holdings any foreign,
federal, state or local taxes or governmental charges incurred by Holdings or
(to the extent required by law to be
3
<PAGE>
paid by Holdings) by such Subsidiary relating to the business, operations or
finances of such Subsidiary (except for any taxes or charges otherwise
addressed in this Section 1). For purposes of this Agreement, the term
"taxes" shall include, but is not limited to, all net income, capital gains,
gross income, gross receipts, sales, use, transfer, franchise, profits,
license, capital, payroll, excise, value added or other taxes and any related
interest or governmental charge.
(e) ADDITIONAL SUBSIDIARIES. If at any time after the date upon
which this Agreement is executed, any party to this Agreement acquires or
creates one or more subsidiary corporations that are includible corporations of
the Group, either Holdings or a Subsidiary shall cause such subsidiary
corporation to be subject to this Agreement and all references to either Group
or a Subsidiary herein shall thereafter be interpreted to refer to Holdings, the
Subsidiaries and such subsidiary or subsidiaries, or to a Subsidiary and such
subsidiary or subsidiaries, respectfully. The parties hereto agree that this
Agreement shall govern only the allocation of income taxes among Holdings and
each Subsidiary for each taxable year, or portions thereof, in which each
respective Subsidiary is included in a consolidated income tax return filed by
Holdings and that no party to this Agreement shall have any rights or
obligations under this Agreement to any other party to this Agreement subsequent
to such party's disaffiliation from the Group, as defined in the Code.
2. MANAGEMENT CONSULTING AND INVESTMENT BANKING SERVICES.
(a) AFFILIATES OF HOLDINGS. Any services to be performed by Holdings
pursuant to this Section 2 may be performed by affiliates of Holdings and
appropriate personnel of such affiliates or by independent third party
contractors, in each case as may be designated from time to time by Holdings.
4
<PAGE>
(b) MANAGEMENT CONSULTING SERVICES. The Company hereby retains
Holdings to render management consulting services from time to time for the
Company regarding the Company and its subsidiaries, their financial and business
affairs and their relationships with their lenders and shareholders, and the
operation and expansion of their businesses. Holdings' personnel shall attend
Board of Directors' meetings and shall be available to the Company's managers,
auditors and other personnel for consultation and advice, subject to Holdings'
reasonable convenience and scheduling. Services may be rendered from such
locations as may be selected by Holdings and agreed to by the Company.
(c) INVESTMENT BANKING SERVICES. In addition to the management
consulting services set forth in Section 2(b) above, Holdings also shall from
time to time provide financial advisory services to the Company, and in its
capacity as financial advisor to the Company, Holdings will maintain its
familiarity with the Company's operations, prospects, assets, capitalization and
financial position, the trading markets for its securities, and such other
related factors as Holdings deems relevant. Holdings will advise the Company as
to opportunities in the financial markets for the Company, assist the Company in
all of its financing transactions and advise the Company in any future
recapitalization transactions, acquisitions or dispositions of assets or any
similar transactions.
(d) OPTIONAL SERVICES. If after the date hereof the Company requests
Holdings to render any services which are outside of the scope of services
contemplated by Sections 2(b) and (c) above, the Company and Holdings may
negotiate the terms of such engagement, including the fees to be payable by the
Company to Holdings; PROVIDED, that such services must be reasonably necessary
and the amounts charged for such services must be comparable to the charge for
such services in a commercial, unrelated third party transaction.
5
<PAGE>
3. TERM.
(a) The tax sharing agreement set forth in Section 1 hereof shall
continue in effect until terminated by written agreement between all the parties
hereto.
(b) The term of services to be provided in Section 2 hereof shall
commence on the date hereof and continue in effect until the fifth (5th)
anniversary of the date hereof ("Base Term"), and shall be automatically renewed
for successive one-year terms (each, a "Renewal Term") unless either party, not
earlier than 60 days or later than 30 days prior to the last day of the Base
Term or any Renewal Term, notifies the other party as to its termination of this
Agreement.
4. PAYMENTS, FEES AND EXPENSES.
(a) MANAGEMENT CONSULTING FEE AND OTHER PAYMENTS. In consideration
of the services to be provided by Holdings pursuant to Section 2(b) above, the
Company shall make the following payments to Holdings:
(i) $412,000 per annum, payable in four equal quarterly installments
in arrears, on the last day of each fiscal quarter, the first payment
of which shall be made (prorated for the number of days, commencing
with the date hereof, during which the Agreement was in effect) on the
last day of the fiscal quarter ending in August 1997; and
(ii) such amounts, payable to Holdings within five (5) days of its
demand therefor, sufficient for Holdings to pay (A) the fees and
expenses of Holdings' directors; and (B) its indemnification
obligations to Holdings' directors arising from the Indemnification
Agreements between Holdings and its directors, Holdings' By-laws and
its Certificate of Incorporation, in each case, as amended or
restated, and the General Corporation Law of the State of Delaware.
(b) INVESTMENT BANKING FEE. In consideration of the services to be
provided by Holdings pursuant to Section 2(c) above, the Company shall make the
following payments to Holdings:
6
<PAGE>
(i) for any future recapitalizations, acquisitions or dispositions of
the Company's assets, sale of the Company stock, merger, consolidation
or similar transaction, a fee of two percent (2%) of the transaction
value payable upon consummation of such transaction; and
(ii) for any financing transaction, a fee of one percent (1%) of the
aggregate amount financed in such transaction.
(c) EXPENSES. In addition to the amounts payable pursuant to
Sections 4(a) and (b) above, the Company shall reimburse Holdings for actual and
direct out-of-pocket expenses incurred by Holdings and its personnel in
performing the services hereunder, including, but not limited to, any travel
expenses and legal and accounting fees incurred. The Company shall make such
reimbursement payments to Holdings within 30 days of the date it receives a
statement therefor together with such supporting data as the Company may
reasonably require.
(d) DEFERRAL. Notwithstanding the foregoing, the Company shall not
be required to pay, and Holdings shall have no right to receive and keep, the
fees set forth in Sections 4(a)(i) and 4(b) above, if and to the extent
expressly prohibited by the provisions of any credit, stock, financing or other
agreements or instruments (including, without limitation, (i) the Securities
Purchase Agreement dated as of October 30, 1991, (ii) the Indenture dated as of
July 2, 1997, pursuant to which the 10 1/4% Senior Secured Notes due 2004 were
issued, and (iii) the Amended and Restated Credit Agreement dated as of July 2,
1997, each as amended); PROVIDED, HOWEVER, that if, as a result of the operation
of such prohibitions on postponements, payments otherwise owed hereunder are not
made, such payments shall not be cancelled but rather shall accrue, and shall be
payable without interest, by the Company promptly when, and to the extent, that
the Company is no longer prohibited from making such payments.
5. LIMITATION OF LIABILITY; INDEMNIFICATION. The Company will indemnify
and hold
7
<PAGE>
harmless the officers, agents and employees of Holdings and its affiliates
and each other person, if any, controlling Holdings or any of its affiliates,
and any and all independent contractors hired by Holdings specifically for
the services contemplated by this Agreement, from and against any losses,
claims, damages or liabilities (or actions in respect thereof) related to or
arising out of its engagement under this Agreement or its role in connection
therewith, and will reimburse Holdings and any other party entitled to be
indemnified hereunder for all expenses (including reasonable counsel fees) as
they are incurred by it or any such other indemnified party in connection
with investigating, preparing or defending any such action or claim, whether
or not in connection with pending or threatened litigation in which it is a
party. Neither Holdings nor any of Holdings' affiliates, nor any officer,
director, employee or agent of Holdings or its affiliates nor any person
controlling Holdings or any of its affiliates shall have any liability
(whether direct or indirect, in contract or tort or otherwise) to the Company
for or in connection with such engagement except for any such liability for
losses, claims, damages, liabilities or expenses incurred by the Company that
result from Holdings' or any indemnified party's criminal acts or intentional
wrongdoing. Nothing in this Section shall limit or otherwise affect the
rights or obligations, if any, of any of the parties hereto pursuant to
officer/director indemnification agreements, by-laws or certificates of
incorporation, in each case as amended or restated, or applicable law. The
provisions of this Section 5 shall survive the termination of this Agreement.
6. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement sets forth the entire
understanding of the parties with respect to the tax sharing arrangement between
Holdings and the Company and Holdings' rendering of management consulting and
investment banking services to the Company. Neither this
8
<PAGE>
Agreement nor any provision hereof may be modified, waived, terminated or
amended except expressly by an instrument in writing signed by Holdings and
the Company.
(b) SUCCESSORS AND ASSIGNS. This Agreement may not be assigned by
either party without the consent of the other party but shall be binding upon
and inure to the benefit of the parties and their respective successors and
assigns upon such permitted assignment.
(c) ENFORCEABILITY. In the event that any provision of this
Agreement shall be held to be void or unenforceable, in whole or in part, the
remaining provisions of this Agreement and the remaining portion of any
provision not held void or unenforceable in part shall continue in full force
and effect.
(d) NOTICES. Except as otherwise specifically provided herein,
notice given hereunder shall be deemed sufficient if delivered personally or
sent by registered or certified mail or receipted document delivery service to
the address of the party for whom intended at the principal executive offices of
such party, or at such other address as such party may hereafter specify by
written notice to the other party.
(e) WAIVERS. No waiver by either party of any breach of any
provision of this Agreement shall be deemed a continuing waiver or a waiver of
any preceding or succeeding breach of such provision or of any other provision
herein contained.
(f) INDEPENDENT CONTRACTORS. Holdings and its personnel shall, for
purposes of this Agreement, be independent contractors with respect to the
Company.
(g) GOVERNING LAW. This Agreement shall be governed by the internal
laws (and not the law of conflicts) of the State of Illinois.
[signature page follows]
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Tax Sharing
and Management Consulting Agreement as of the date first above written.
FANNIE MAY HOLDINGS, INC.
By: /s/ Ted A. Shepherd
-----------------------------------
Title: President and Chief Operating
Officer
---------------------------------
ARCHIBALD CANDY CORPORATION
By: /s/ Ted A. Shepherd
-----------------------------------
Title: President and Chief Operating
Officer
--------------------------------
10
<PAGE>
MANAGEMENT CONSULTING AGREEMENT
THIS MANAGEMENT CONSULTING AGREEMENT, dated as of July 2, 1997 (this
"Agreement"), is by and between FANNIE MAY HOLDINGS, INC. (the "Company") and
TJC MANAGEMENT CORP. (the "Consultant").
WITNESSETH
WHEREAS, the Consultant's personnel are highly skilled in the field of
rendering advice to business concerns such as the Company; and
WHEREAS, the Company and the Consultant entered into that certain
Management Consulting Agreement dated as of October 30, 1991 (as amended, the
"Original Management Consulting Agreement"), pursuant to which the Consultant
agreed to render certain consulting services to the Company and its
subsidiaries, if any, and the Company agreed to pay the Consultant certain fees
and expenses for a term continuing until November 1, 1997, unless extended, or
sooner terminated, as provided in the Original Management Consulting Agreement;
and
WHEREAS, as of March 1, 1997, the Company had accrued an aggregate amount
of $1,183,000 in fees owing to the Consultant under the Original Management
Consulting Agreement and the Company intends to pay on or about the date hereof
any and all accrued and unpaid amounts to the Consultant; and
WHEREAS, the Company and the Consultant desire to terminate the Original
Management Consulting Agreement effective as of their entering into this
Agreement.
NOW, THEREFORE, in consideration of the foregoing, the parties hereto
hereby agree as follows:
1. The Original Management Consulting Agreement is hereby terminated and
deemed of no further force or effect; provided, however, that the Company shall
remain obligated to pay to the Consultant (or its designee(s)) any and all fees
and expenses due thereunder.
2. The Company hereby retains the Consultant for the term of this
Agreement to render consulting services from time to time to it regarding the
Company and its subsidiaries, if any, their financial and business affairs and
their relationships with their lenders and stockholders, and the operation and
expansion of their businesses. The Consultant's personnel shall attend meetings
of the Board of Directors of the Company and its subsidiaries and shall be
available to the Company's managers, auditors and other personnel for
consultation and advice, subject to Consultant's reasonable convenience and
scheduling. Services may be rendered at the Consultant's offices or at such
other locations selected by the Consultant as the Company shall from time to
time agree upon.
<PAGE>
3. The Company agrees to pay the Consultant a fee of $364,000 per annum,
payable in four equal quarterly installments in arrears, on the last day of each
fiscal quarter, the first payment of which shall be made (prorated for the
number of days, commencing with the date hereof, during which this Agreement was
in effect) on the last day of the fiscal quarter ending in August 1997.
4. (a) In addition to the management consulting services set forth in
paragraph 2 above, and subject to paragraph 4(b) below, the Consultant also
shall from time to time during the term of this Agreement provide financial
advisory services to the Company, and in its capacity as financial advisor to
the Company, the Consultant shall maintain its familiarity with the Company's
operations, prospects, assets, capitalization and financial position, the
trading markets for its securities if relevant, and such other related factors
as the Consultant deems relevant. The Consultant will advise the Company as to
opportunities in the financial markets for the Company, assist the Company in
all of its financing transactions and advise the Company in any future
recapitalization transactions, acquisitions or dispositions of assets or any
similar transactions.
(b) For so long as there are any directors of the Company designated
by TCW Capital or its affiliates, prior to rendering the financial advisory
services contemplated by paragraph 4(a) above, the Company shall have obtained
the consent and approval of TCW Capital or the two (2) directors of the Company
designated by TCW Capital or its affiliates.
(c) Subject to paragraph 4(b) above, in consideration of the services
to be provided by the Consultant pursuant to paragraph 4(a) above, the Company
shall make the following payments to the Consultant:
(i) for any future recapitalizations, acquisitions or
dispositions of the Company's assets, sale of the Company stock,
merger, consolidation or similar transaction, a fee of two percent
(2%) of the transaction value payable upon consummation of such
transaction; and
(ii) for any financing transaction, a fee of one percent (1%) of
the aggregate amount financed in such transaction.
5. In addition to the amounts payable pursuant to paragraphs 3 and 4(c)
above, the Company shall reimburse the Consultant for actual and direct out-of-
pocket expenses incurred by the Consultant and its personnel in performing the
services hereunder, including, but not limited to, any travel expenses and legal
and accounting fees incurred. The Company shall make such reimbursement
payments to the Consultant within 30 days of the date it receives a statement
therefor together with such supporting data as the Company may reasonably
require.
6. Notwithstanding the foregoing, the Company shall not be required to
pay, and the Consultant shall have no right to receive and keep, the foregoing
fees referred to in paragraphs 3 or 4(c) above, if and to the extent expressly
prohibited by, or deferred pursuant to, the provisions of any credit, stock,
financing or other agreements or instruments (including, without limitation, (i)
the Securities Purchase Agreement dated as of October 30, 1991, (ii) the
Indenture dated as of July 2,
2
<PAGE>
1997, pursuant to which the 10 1/4% Senior Secured Notes were issued and (iii)
the Amended and Restated Credit Agreement dated as of July 2, 1997, each as
amended), binding upon the Company, its subsidiaries or their properties;
PROVIDED, HOWEVER, that if, as a result of the operation of such
prohibitions, deferments, nonpayments or postponements, payments otherwise
owed hereunder are not made, such payments shall not be canceled but rather
shall accrue, and shall be payable, without interest, by the Company promptly
when, and to the extent, that the Company is no longer prohibited from making
such payments.
7. The term of this Agreement shall commence on the date hereof and
continue until the fifth anniversary of the date hereof (the "Base Term");
PROVIDED, HOWEVER, that thereafter, this Agreement shall be automatically
renewed for successive one-year terms (each, a "Renewal Term") unless either
party, not earlier than sixty (60) days nor later than thirty (30) days prior to
the last day of the Base Term or any Renewal Term, notifies the other party as
to its termination of this Agreement.
8. The Consultant shall have no liability to the Company on account of
any advice which it renders to the Company provided the Consultant believed in
good faith that such advice was useful or beneficial to the Company at the time
it was rendered.
9. (a) This Agreement sets forth the entire understanding of the parties
with respect to the Consultant's rendering of services to the Company. This
Agreement or any provision hereof may not be modified, waived, terminated or
amended except expressly by an instrument in writing signed by the Consultant
and the Company.
(b) This Agreement may not be assigned by either party without the
consent of the other party but shall be binding upon and inure to the benefit of
the parties and their respective successors and assigns upon such permitted
assignment; provided, however, that the Consultant may, without the consent of
the Company, assign its right to receive fees hereunder to any person or entity.
Any services to be performed by the Consultant pursuant to this Agreement may be
performed by affiliates of the Consultant and appropriate personnel of such
affiliates, or by independent third party contractors, in each case as may be
designated from time to time by the Consultant.
(c) In the event that any provision of this Agreement shall be held
to be void or unenforceable, in whole or in part, the remaining provisions of
this Agreement and the remaining portion of any provision not held void or
unenforceable in part shall continue in full force and effect.
(d) Except as otherwise specifically provided herein, notice given
hereunder shall be deemed sufficient if delivered personally or sent by
registered or certified mail or receipted document delivery service to the
address of the party for whom intended at the principal executive offices of
such party, or at such other address as such party may hereafter specify by
written notice to the other party.
(e) No waiver by either party of any breach of any provision of the
Agreement shall be deemed a continuing waiver or a waiver of any preceding or
succeeding breach of such
3
<PAGE>
provision or of any other provision herein contained.
(f) The Consultant and its personnel shall, for purposes of this
Agreement, be independent contractors with respect to the Company.
(g) This Agreement shall be governed by the internal laws (and not
the law of conflicts) of the State of Illinois.
[signature page follows]
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Management
Consulting Agreement as of the date first above written.
FANNIE MAY HOLDINGS, INC.
By: /s/ Ted A. Shepherd
-----------------------------------------
Title: President and Chief Operating Officer
--------------------------------------
TJC MANAGEMENT CORP.
By: /s/ John W. Jordan II
-----------------------------------------
Title: Chairman of the Board and
Assistant Secretary
--------------------------------------
5
<PAGE>
Computation of Ratios of Earnings to Fixed Charges
(Dollars in thousands)
<TABLE>
<CAPTION>
Ten Months Fiscal Year Ended Thirty-Nine Weeks Ended
Ended ------------------------------------------------- -----------------------
October 31, August 31, August 31, August 26, August 31, May 26, May 31,
1992 1993 1994 1995 1996 1996 1997
-------- ---------- ---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Fixes charges:
Interest expense $ 6,872 $ 8,492 $ 8,913 $ 9,237 $ 9,455 $ 7,023 $ 6,697
Amortization of debt expense 492 963 933 957 720 551 495
Rental expense included in fixed charges 1,955 4,562 4,548 4,342 3,949 3,048 2,873
-------- -------- -------- -------- -------- -------- --------
Total fixed charges $ 9,319 $ 14,017 $ 14,394 $ 14,536 $ 14,124 $ 10,622 $ 10,065
-------- -------- -------- -------- -------- -------- --------
Earnings:
Pre-tax (loss) income $ (3,695) $(11,670) $(14,556) $ (5,672) $ (1,066) $ 6,581 $ 9,664
Plus: fixed charges 9,319 14,017 14,394 14,536 14,124 10,622 10,065
-------- -------- -------- -------- -------- -------- --------
Total earnings $ 5,624 $ 2,347 $ (162) $ 8,864 $ 13,058 $ 17,203 $ 19,729
-------- -------- -------- -------- -------- -------- --------
Ratio of earnings to fixed charges n/a n/a n/a n/a n/a 1.6 2.0
======== ======== ======== ======== ======== ======== ========
</TABLE>
<PAGE>
SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
JURISDICTION OF
SUBSIDIARIES INCORPORATION DOING BUSINESS AS
<S> <C> <C>
1. Mrs. Snyders Home Made Candies, Inc. Illinois Mrs. Snyders Home Made Candies, Inc.
2. Fannie May Candy Company, Inc. Delaware Fannie May Candy Company, Inc.
3. Grandmother's Candy Shops, Inc. Illinois Grandmother's Candy Shops, Inc.
4. Archibald Home Made Candies, Inc. Illinois Archibald Home Made Candies, Inc.
5. Archibald Box Corporation Illinois Archibald Box Corporation
</TABLE>
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated October 25, 1996 in the Registration Statement (Form
S-1) and related Prospectus of Archibald Candy Corporation dated August 15,
1997.
ERNST & YOUNG LLP
Chicago, Illinois
August 15, 1997
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) / /
------------------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
<TABLE>
<S> <C>
NEW YORK 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 WALL STREET, NEW YORK, N.Y. 10286
(Address of principal executive offices) (Zip code)
</TABLE>
------------------------
ARCHIBALD CANDY CORPORATION
(Exact name of obligor as specified in its charter)
<TABLE>
<S> <C>
ILLINOIS 360743280
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
1137 WEST JACKSON BOULEVARD CHICAGO, 60607
ILLINOIS (Zip code)
(Address of principal executive offices)
</TABLE>
------------------------
10 1/4% SENIOR SECURED NOTES DUE 2004
(Title of the indenture securities)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
1. GENERAL INFORMATION. Furnish the following information as to the
Trustee:
(a) Name and address of each examining or supervising authority to which it
is subject.
<TABLE>
<CAPTION>
NAME ADDRESS
- --------------------------------------------------- ---------------------------------------------------
<S> <C>
Superintendent of Banks of the State of New York 2 Rector Street, New York, N.Y. 10006, and Albany,
N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York, N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
</TABLE>
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
2. AFFILIATIONS WITH OBLIGOR.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
16. LIST OF EXHIBITS.
Exhibits identified in parentheses below, on file with the Commission,
are incorporated herein by reference as an exhibit hereto, pursuant to Rule
7a-29 under the Trust Indenture Act of 1939 (the "Act") and 17 C.F.R.
229.10(d).
1. A copy of the Organization Certificate of The Bank of New York (formerly
Irving Trust Company) as now in effect, which contains the authority to
commence business and a grant of powers to exercise corporate trust
powers. (Exhibit 1 to Amendment No. 1 to Form T-1 filed with Registration
Statement No. 33-6215, Exhibits 1a and 1b to Form T-1 filed with
Registration Statement No. 33-21672 and Exhibit 1 to Form T-1 filed with
Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1
filed with Registration Statement No. 33-31019.)
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No. 33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or examining
authority.
2
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New York,
a corporation organized and existing under the laws of the State of New York,
has duly caused this statement of eligibility to be signed on it behalf by the
undersigned, thereunto duly authorized, all in The City of New York, and State
of New York, on the 13th day of August, 1997.
<TABLE>
<S> <C> <C>
THE BANK OF NEW YORK
By: /s/ WALTER N. GITLIN
-----------------------------------------
Name: Walter N. Gitlin
TITLE: VICE PRESIDENT
</TABLE>
<PAGE>
EXHIBIT 7
CONSOLIDATED REPORT OF CONDITION OF
THE BANK OF NEW YORK
of 48 Wall Street New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business March 31, 1997,
published in accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act.
<TABLE>
<CAPTION>
DOLLAR AMOUNTS
IN THOUSANDS
--------------
<S> <C> <C>
ASSETS
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin....................... $ 8,249,820
Interest-bearing balances................................................ 1,031,026
Securities:
Held-to-maturity securities.............................................. 1,118,463
Available-for-sale securities............................................ 3,005,838
Federal funds sold and Securities purchased under agreements to resell..... 3,100,281
Loans and lease financing receivables:
Loans and leases, net of unearned income................................. 32,895,077
LESS: Allowance for loan and lease losses................................ 633,877
LESS: Allocated transfer risk reserve.................................... 429
Loans and leases, net of unearned income, allowance, and reserve......... 32,260,771
Assets held in trading accounts............................................ 1,715,214
Premises and fixed assets (including capitalized leases)................... 684,704
Other real estate owned.................................................... 21,738
Investments in unconsolidated subsidiaries and associated companies........ 195,761
Customers' liability to this bank on acceptances outstanding............... 1,152,899
Intangible assets.......................................................... 683,503
Other assets............................................................... 1,526,113
--------------
Total assets............................................................... $54,746,131
--------------
--------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DOLLAR AMOUNTS
IN THOUSANDS
--------------
<S> <C> <C>
LIABILITIES
Deposits:
In domestic offices...................................................... $25,614,496
Noninterest-bearing...................................................... 10,564,652
Interest-bearing......................................................... 15,050,309
In foreign offices, Edge and Agreement subsidiaries, and IBFs 15,103,615
Noninterest-bearing...................................................... 560,944
Interest-bearing......................................................... 14,542,671
Federal funds purchased and Securities sold under agreements to
repurchase............................................................... 2,093,286
Demand notes issued to the US Treasury..................................... 239,354
Trading liabilities........................................................ 1,399,064
Other borrowed money:
With remaining maturity of one year or less.............................. 2,075,092
With remaining maturity of more than one year............................ 20,679
Banks liability on acceptances executed and outstanding.................... 1,160,012
Subordinated notes and debentures.......................................... 1,014,400
Other liabilities.......................................................... 1,840,245
--------------
Total liabilities.......................................................... 50,560,708
--------------
EQUITY CAPITAL
Common stock............................................................... 942,284
Surplus.................................................................... 731,319
Undivided profits and capital reserves..................................... 2,544,303
Net unrealized holding gains (loses) on available-for-sale securities...... (19,449)
Cumulative foreign currency translation adjustments........................ (13,034)
--------------
Total equity capital....................................................... 4,185,423
--------------
Total liabilities and equity capital....................................... $54,746,131
--------------
--------------
</TABLE>
I Rober E. Keilman, Senior Vice President and Comptroller of the above-named
bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
Alan R. Griffith
J. Carter Bacot
Thomas A. Renyi
DIRECTORS
<PAGE>
LETTER OF TRANSMITTAL
ARCHIBALD CANDY CORPORATION
OFFER TO EXCHANGE
$1,000 IN PRINCIPAL AMOUNT OF
10 1/4% SENIOR SECURED NOTES DUE 2004
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR
EACH $1,000 IN PRINCIPAL AMOUNT OF OUTSTANDING
10 1/4% SENIOR SECURED NOTES DUE 2004
THAT WERE ISSUED AND SOLD IN A TRANSACTION EXEMPT FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON ,
, 1997, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE
WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
DELIVERY TO: The Bank of New York, EXCHANGE AGENT
<TABLE>
<CAPTION>
BY REGISTERED OR CERTIFIED MAIL: BY HAND OR OVERNIGHT DELIVERY:
- -------------------------------------------- --------------------------------------------
<S> <C>
The Bank of New York The Bank of New York
101 Barclay Street, 7E 101 Barclay Street, 7E
New York, New York 10286 Corporate Trust Services Window
Attention: Reorganization Department Ground Level
Arwen Gibbons New York, New York 10286
Attention: Reorganization Department
Arwen Gibbons
</TABLE>
CONFIRM BY TELEPHONE:
(212) 815-5920
FACSIMILE TRANSMISSIONS:
(ELIGIBLE INSTITUTIONS ONLY)
(212) 815-6339
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, WILL
NOT CONSTITUTE A VALID DELIVERY.
The undersigned acknowledges that he or she has received and reviewed the
Prospectus, dated , 1997 (the "Prospectus"), of Archibald Candy
Corporation, an Illinois corporation (the "Company"), and this Letter of
Transmittal (the "Letter"), which together constitute the Company's offer (the
"Exchange Offer") to exchange an aggregate principal amount of up to
$100,000,000 of its 10 1/4% Senior Secured Notes due 2004, which have been
registered under the Securities Act of 1933, as amended (the "New Notes"), for a
like principal amount of its issued and outstanding 10 1/4% Senior Secured Notes
due 2004 (the "Old Notes") from the holders thereof.
For each Old Note accepted for exchange, the holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. The New Notes will bear interest at the rate of 10 1/4% per annum,
payable semi-annually on January 1 and July 1 of each year, commencing January
1, 1998. Interest on the New Notes will accrue from the last interest payment
date on which interest was paid on the Old Notes surrendered in exchange
therefor or, if no interest has been paid on the Notes, from the date of
original issue of the Old Notes.
This Letter is to be completed by a holder of Old Notes either if
certificates are to be forwarded herewith or if a tender of certificates for Old
Notes, if available, is to be made by book-entry transfer to the account
maintained by the Exchange Agent at The Depository Trust Company (the
"Book-Entry Transfer
<PAGE>
Facility") pursuant to the procedures set forth in "The Exchange
Offer--Book-Entry Transfer" section of the Prospectus. Holders of Old Notes
whose certificates are not immediately available, or who are unable to deliver
their certificates or confirmation of the book-entry tender of their Old Notes
into the Exchange Agent's account at the Book-Entry Transfer Facility (a
"Book-Entry Confirmation") and all other documents required by this Letter to
the Exchange Agent on or prior to the Expiration Date, must tender their Old
Notes according to the guaranteed delivery procedures set forth in "The Exchange
Offer-- Guaranteed Delivery Procedures" section of the Prospectus. See
Instruction 1. Delivery of documents to the Book-Entry Transfer Facility does
not constitute delivery to the Exchange Agent.
The undersigned has completed the appropriate boxes below and signed this
Letter to indicate the action the undersigned desires to take with respect to
the Exchange Offer.
List below the Old Notes to which this Letter relates. If the space provided
below is inadequate, the certificate numbers and principal amount of Old Notes
should be listed on a separate signed schedule affixed hereto.
<TABLE>
<S> <C> <C> <C>
DESCRIPTION OF OLD NOTES 1 2 3
AGGREGATE
NAME(S) AND ADDRESS(ES) OF REGISTERED PRINCIPAL PRINCIPAL
HOLDER(S) CERTIFICATE AMOUNT OF AMOUNT
(PLEASE FILL IN, IF BLANK) NUMBER(S)* OLD NOTE(S) TENDERED**
TOTAL
* Need not be completed if Old Notes are being tendered by book-entry transfer.
** Unless otherwise indicated in this column, a holder will be deemed to have tendered ALL
of the Old Notes represented by the Old Notes indicated in column 2. See Instruction 2.
Old Notes tendered hereby must be in denominations of principal amount of $1,000 and
any integral multiple thereof.See Instruction 1.
</TABLE>
<TABLE>
<S> <C>
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE
ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY TRANSFER FACILITY AND
COMPLETE THE FOLLOWING:
Name of Tendering Institution
----------------------------------------------------------
Account Number ------------------- Transaction Code Number -------------------
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s)
---------------------------------------------------------
Window Ticket Number (if any)
----------------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery
---------------------------------------
Name of Institution which guaranteed delivery
---------------------------------------------
IF DELIVERED BY BOOK-ENTRY TRANSFER, COMPLETE THE FOLLOWING:
Account Number ------------------- Transaction Code Number -------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
/ / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE
PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name: ------------------------------------------------------------------------------------
Address: ----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
</TABLE>
If the undersigned is not a broker-dealer, the undersigned represents that
it is not engaged in, and does not intend to engage in, a distribution of New
Notes. If the undersigned is a broker-dealer that will receive New Notes for its
own account in exchange for Old Notes, it represents that the Old Notes to be
exchanged for New Notes were acquired by it as a result of market-making or
other trading activities and acknowledges that it will deliver a prospectus in
connection with any resale of such New Notes; however, by so acknowledging and
by delivering a prospectus, the undersigned will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act of 1933, as
amended.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the aggregate principal amount of Old
Notes indicated above. Subject to, and effective upon, the acceptance for
exchange of Old Notes tendered hereby, the undersigned hereby sells, assigns and
transfers to, or upon the order of, the Company all right, title and interest in
and to such Old Notes as are being tendered hereby.
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, sell, assign and transfer the Old Notes tendered
hereby and that the Company will acquire good and unencumbered title thereto,
free and clear of all liens, restrictions, charges and encumbrances and not
subject to any adverse claim when the same are accepted by the Company. The
undersigned hereby further represents that any New Notes acquired in exchange
for Old Notes tendered hereby will have been acquired in the ordinary course of
business of the person receiving such New Notes, whether or not such person is
the undersigned, that neither the holder of such Old Notes nor any such other
person has an arrangement or understanding with any person to participate in the
distribution of such New Notes and that neither the holder of such Old Notes nor
any such other person is an "affiliate," as defined in Rule 405 under the
Securities Act of 1933, as amended (the "Securities Act"), of the Company.
The undersigned also acknowledges that this Exchange Offer is being made in
reliance on interpretations by the staff of the Securities and Exchange
Commission (the "Commission"), as set forth in no-action letters issued to third
parties, that New Notes issued in exchange for Old Notes pursuant to the
Exchange Offer may be offered for resale, resold and otherwise transferred by
holders thereof (other than any such holder that is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act), without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such New Notes are acquired in the ordinary course
of such holders' business and such holders have no arrangement with any person
to participate in the distribution of such New Notes. However, the Company does
not intend to request the Commission to consider, and the Commission has not
considered the Exchange Offer in the context of a no-action letter and there can
be no assurance that the staff of the Commission would make a similar
determination with respect to the Exchange Offer as in other circumstances. If
the undersigned is not a broker-dealer, the undersigned represents that it is
not engaged in, and does not intend to engage in, a distribution of New Notes
and has no arrangement or understanding to participate in a distribution of New
Notes. If any holder is an affiliate of the Company, is engaged in or intends to
engage in or has any arrangement or understanding with respect to the
distribution of New Notes to be acquired pursuant to the Exchange Offer, such
holder (i) cannot rely on the applicable interpretations of the staff of the
Commission and (ii) must comply with the registration and prospectus
<PAGE>
delivery requirements of the Securities Act in connection with any resale
transaction. If the undersigned is a broker-dealer that will receive New Notes
for its own account in exchange for Old Notes, it represents that the Old Notes
to be exchanged for the New Notes were acquired by it as a result of market
making or other trading activities and acknowledges that it will deliver a
prospectus in connection with any resale of such New Notes; however, by so
acknowledging and by delivering a prospectus, the undersigned will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Old Notes tendered hereby. All authority
conferred or agreed to be conferred in this Letter and every obligation of the
undersigned hereunder shall be binding upon the successors, assigns, heirs,
executors, administrators, trustees in bankruptcy and legal representatives of
the undersigned and shall not be affected by, and shall survive, the death or
incapacity of the undersigned. This tender may be withdrawn only in accordance
with the procedures set forth in "The Exchange Offer--Withdrawal Rights" section
of the Prospectus.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, please deliver the New Notes (and, if applicable,
substitute certificates representing Old Notes for any Old Notes not exchanged)
in the name of the undersigned or, in the case of a book-entry delivery of Old
Notes, please credit the account indicated above maintained at the Book-Entry
Transfer Facility. Similarly, unless otherwise indicated under the box entitled
"Special Delivery Instructions" below, please send the New Notes (and, if
applicable, substitute certificates representing Old Notes for any Old Notes not
exchanged) to the undersigned at the address shown above in the box entitled
"Description of Old Notes."
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD NOTES"
ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD NOTES AS
SET FORTH IN SUCH BOX ABOVE.
<PAGE>
<TABLE>
<S> <C>
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4) (SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates To be completed ONLY if certificates
for Old Notes not exchanged and/or New for Old Notes not exchanged and/or New
Notes are to be issued in the name of Notes are to be sent to someone other
and sent to someone other than the than the person or persons whose
person or persons whose signature(s) signature(s) appear(s) on this Letter
appear(s) on this Letter above, or if above or to such person or persons at
Old Notes delivered by book-entry any address other than shown in the box
transfer which are not accepted for entitled Description of Old Notes on
exchange are to be returned by credit this Letter above.
to an account maintained at the
Book-Entry Transfer Facility other than
the account indicated above.
Issue: New Notes and/or Old Notes to: Mail: New Notes and/or Old 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)
/ / Credit unexchanged Old Notes
delivered by book-entry transfer to
the Book-Entry Transfer Facility
account set forth below.
- ---------------------------------------
(Book-Entry Transfer Facility
Account Number, if applicable)
</TABLE>
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF (TOGETHER WITH THE CERTIFICATES FOR
OLD NOTES OR A BOOK-ENTRY CONFIRMATION AND ALL OTHER REQUIRED DOCUMENTS OR THE
NOTICE OF GUARANTEED DELIVERY) MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO
5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX ABOVE.
<PAGE>
<TABLE>
<S> <C>
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9 ON REVERSE SIDE)
Date: ------------------------------------------------------------------,
1997
x -------------------------------- --------------------------------, 1997
x -------------------------------- --------------------------------, 1997
SIGNATURE(S) OF OWNER DATE
Area Code and Telephone Number ---------------------------------------------
If a holder is tendering any Old Notes, this Letter must be signed by the
registered holder(s) as the name(s) appear(s) on the certificate(s) for the
Old Notes or by any person(s) authorized to become registered holder(s) by
endorsements and documents transmitted herewith.If signature is by a trustee,
executor, administrator, guardian, officer or other person acting in a
fiduciary or representative capacity, please set forth full title. See
Instruction 3.
Name(s): -------------------------------------------------------------------
- ----------------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
Capacity: -------------------------------------------------------------------
Address: --------------------------------------------------------------------
- ----------------------------------------------------------------------------
(INCLUDING ZIP CODE)
SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 3)
Signature(s) Guaranteed by
an Eligible Institution:
- --------------------------------------------------------
(AUTHORIZED SIGNATURE)
- -----------------------------------------------------------------------------
(TITLE)
- -----------------------------------------------------------------------------
(NAME AND FIRM)
Dated: -----------------------------------------------------------------,
1997
</TABLE>
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER TO EXCHANGE
10 1/4% SENIOR SECURED NOTES DUE 2004 WHICH HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 FOR THE OUTSTANDING
10 1/4% SENIOR SECURED NOTES DUE 2004 OF ARCHIBALD CANDY CORPORATION
1. DELIVERY OF THIS LETTER AND NOTES; GUARANTEED DELIVERY PROCEDURES.
This letter is to be completed by noteholders either if certificates are to
be forwarded herewith or if tenders are to be made pursuant to the proceedings
for delivery by book-entry transfer set forth in "The Exchange Offer--Book-Entry
Transfer" section of the Prospectus. Certificates for all physically tendered
Old Notes, or Book-Entry Confirmation, as the case may be, as well as a properly
completed and duly executed Letter (or manually signed facsimile hereof) and any
other documents required by this Letter, must be received by the Exchange Agent
at the address set forth herein on or prior to the Expiration Date, or the
tendering holder must comply with the guaranteed delivery procedures set forth
below. Old Notes tendered hereby must be in denominations of principal amount of
$1,000 and any integral multiple thereof.
Noteholders whose certificates for Old Notes are not immediately available
or who cannot deliver their certificates and all other required documents to the
Exchange Agent on or prior to the Expiration Date, or who cannot complete the
procedure for book-entry transfer on a timely basis, may tender their Old Notes
pursuant to the guaranteed delivery procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures" section of the Prospectus. Pursuant to
such procedures, (i) such tender must be made through an Eligible Institution
(as defined herein), (ii) prior to the Expiration Date, the Exchange Agent must
receive from such Eligible Institution a properly completed and duly executed
Letter (or a facsimile thereof) and Notice of Guaranteed Delivery, substantially
in the form provided by the Company (by telegram, telex, facsimile transmission,
mail or hand delivery), setting forth the name and address of the holder of Old
Notes and the amount of Old Notes tendered, stating that the tender is being
made thereby and guaranteeing that within five New York Stock Exchange ("NYSE")
trading days after the date of execution of the Notice of Guaranteed Delivery,
the certificates for all physically tendered Old Notes, or a Book-Entry
Confirmation, and any other documents required by the Letter will be deposited
by the Eligible Institution with the Exchange Agent, and (iii) the certificates
for all physically tendered Old Notes, in proper form of transfer, or Book-Entry
Confirmation, as the case may be, and all other documents required by this
Letter, are received by the Exchange Agent within five NYSE trading days after
the date of execution of the Notice of Guaranteed Delivery.
The method of delivery of this Letter, the Old 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 Old Notes are sent by mail, it is suggested that the mailing be made
sufficiently in advance of the Expiration Date to permit delivery to the
Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date.
See "The Exchange Offer" section of the Prospectus.
2. PARTIAL TENDERS (NOT APPLICABLE TO NOTEHOLDERS WHO TENDER BY BOOK-ENTRY
TRANSFER).
If less than all of the Old Notes evidenced by a submitted certificate are
to be tendered, the tendering holder(s) should fill in the aggregate principal
amount of Old Notes to be tendered in the box above entitled "Description of Old
Notes--Principal Amount Tendered." A reissued certificate representing the
balance of nontendered Old Notes will be sent to such tendering holder, unless
otherwise provided in the appropriate box on this Letter, promptly after the
Expiration Date. ALL OF THE OLD NOTES DELIVERED TO THE EXCHANGE AGENT WILL BE
DEEMED TO HAVE BEEN TENDERED UNLESS OTHERWISE INDICATED.
3. SIGNATURES ON THIS LETTER; BOND POWERS AND ENDORSEMENTS; GUARANTEE OF
SIGNATURES.
If this Letter is signed by the registered holder of the Old Notes tendered
hereby, the signature must correspond exactly with the name as written on the
face of the Certificates without any change whatsoever.
<PAGE>
If any tendered Old Notes are owned of record by two or more joint owners,
all of such owners must sign this Letter.
If any tendered Old Notes are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
copies of this Letter as there are different registrations of certificates.
When this Letter is signed by the registered holder or holders of the Old
Notes specified herein and tendered hereby, no endorsements of certificates or
separate bond powers are required. If, however, the New Notes are to be issued,
or any untendered Old Notes are to be reissued, to a person other than the
registered holder, then endorsements of any certificates transmitted hereby or
separate bond powers are required. Signatures on such certificate(s) must be
guaranteed by an Eligible Institution.
If this Letter is signed by a person other than the registered holder or
holders of any certificate(s) specified herein, such certificate(s) must be
endorsed or accompanied by appropriate bond powers, in either case signed
exactly as the name or names of the registered holder or holders appear(s) on
the certificate(s) and signatures on such certificate(s) must be guaranteed by
an Eligible Institution.
If this Letter or any certificates or bond powers are signed by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by the Company,
proper evidence satisfactory to the Company of their authority to so act must be
submitted.
ENDORSEMENTS ON CERTIFICATES FOR OLD NOTES OR SIGNATURES ON BOND POWERS
REQUIRED BY THIS INSTRUCTION 3 MUST BE GUARANTEED 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 (AN "ELIGIBLE
INSTITUTION").
SIGNATURES ON THIS LETTER NEED NOT BE GUARANTEED BY AN ELIGIBLE INSTITUTION,
PROVIDED THE OLD NOTES ARE TENDERED: (I) BY A REGISTERED HOLDER OF OLD NOTES
(WHICH TERM, FOR PURPOSES OF THE EXCHANGE OFFER, INCLUDES ANY PARTICIPANT IN THE
BOOK-ENTRY TRANSFER FACILITY SYSTEM WHOSE NAME APPEARS ON A SECURITY POSITION
LISTING AS THE HOLDER OF SUCH OLD NOTES) WHO HAS NOT COMPLETED THE BOX ENTITLED
"SPECIAL ISSUANCE INSTRUCTIONS" OR "SPECIAL DELIVERY INSTRUCTIONS" ON THIS
LETTER, OR (II) FOR THE ACCOUNT OF AN ELIGIBLE INSTITUTION.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS.
Tendering holders of Old Notes should indicate in the applicable box the
name and address to which New Notes issued pursuant to the Exchange Offer and/or
substitute certificates evidencing Old Notes not exchanged are to be issued or
sent, if different from the name or address of the person signing this Letter.
In the case of issuance in a different name, the employer identification or
social security number of the person named must also be indicated. Holders
tendering Old Notes by book-entry transfer may request that Old Notes not
exchanged be credited to such account maintained at the Book-Entry Transfer
Facility as such noteholder may designate hereon. If no such instructions are
given, such New Notes and Old Notes not exchanged will be returned to the name
or address of the person signing this Letter.
5. TAX IDENTIFICATION NUMBER.
Federal income tax law generally requires that a tendering holder whose Old
Notes are accepted for exchange must provide the Company (as payor) with such
holder's correct Taxpayer Identification Number ("TIN") on Substitute Form W-9
below, which in the case of a tendering holder who is an individual, is his or
her social security number. If the Company is not provided with the current TIN
or an adequate basis for an exemption, such tendering holder may be subject to a
$50 penalty imposed by the Internal Revenue Service. In addition, delivery to
such tendering holder of New Notes may be subject to backup withholding in an
amount equal to 31% of all reportable payments made after the exchange. If
withholding results in an overpayment of taxes, a refund may be obtained.
<PAGE>
Exempt holders of Old Notes (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. See the enclosed Guidelines of Certification of Taxpayer
Identification Number on Substitute Form W-9 (the "W-9 Guidelines") for
additional instructions.
To prevent backup withholding, each tendering holder of Old Notes must
provide its correct TIN by completing the Substitute Form W-9 set forth below,
certifying that the TIN provided is correct (or that such holder is awaiting a
TIN) and that (i) the holder is exempt from backup withholding, or (ii) the
holder has not been notified by the Internal Revenue Service that such holder is
subject to backup withholding as a result of a failure to report all interest or
dividends or (iii) the Internal Revenue Service has notified the holder that
such holder is no longer subject to backup withholding. If the tendering holder
of Old Notes is a nonresident alien or foreign entity not subject to backup
withholding, such holder must give the Company a completed Form W-8, Certificate
of Foreign Status. These forms may be obtained from the Exchange Agent. If the
Old Notes are in more than one name or are not in the name of the actual owner,
such holder should consult the W-9 Guidelines for information on which TIN to
report. If such holder does not have a TIN, such holder should consult the W-9
Guidelines for instructions on applying for a TIN, check the box in Part 2 of
the Substitute Form W-9 and write "applied for" in lieu of its TIN. Note:
Checking this box and writing "applied for" on the form means that such holder
has already applied for a TIN or that such holder intends to apply for one in
the near future. If such holder does not provide its TIN to the Company within
60 days, backup withholding will begin and continue until such holder furnishes
its TIN to the Company.
6. TRANSFER TAXES.
The Company will pay all transfer taxes, if any, applicable to the transfer
of Old Notes to it or its order pursuant to the Exchange Offer. If however, New
Notes and/or substitute Old Notes not exchanged are to be delivered to, or are
to be registered or issued in the name of, any person other than the registered
holder of the Old Notes tendered hereby, or if tendered Old Notes are registered
in the name of any person other than the person signing this Letter, or if a
transfer tax is imposed for any reason other than the transfer of Old Notes to
the Company or its order pursuant to the Exchange Offer, the amount of any such
transfer taxes (whether imposed on the registered holder or any other persons)
will be payable by the tendering holder. If satisfactory evidence of payment of
such taxes or exemption therefrom is not submitted herewith, the amount of such
transfer taxes will be billed directly to such tendering holder.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE OLD NOTES SPECIFIED IN THIS LETTER.
7. WAIVER OF CONDITIONS.
The Company reserves the absolute right to waive satisfaction of any or all
conditions enumerated in the Prospectus.
8. NO CONDITIONAL TENDERS.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders of Old Notes, by execution of this Letter, shall
waive any right to receive notice of the acceptance of their Old Notes for
exchange.
Neither the Company, the Exchange Agent nor any other person is obligated to
give notice of any defect or irregularity with respect to any tender of Old
Notes nor shall any of them incur any liability for failure to give any such
notice.
9. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES.
Any holder whose Old Notes have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated above for further
instructions.
<PAGE>
10. 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, may be directed to the
Exchange Agent, at the address and telephone number indicated above.
TO BE COMPLETED BY ALL TENDERING HOLDERS
(SEE INSTRUCTION 5)
PAYOR'S NAME: ARCHIBALD CANDY CORPORATION
<TABLE>
<S> <C> <C>
SUBSTITUTE PART 1--PLEASE PROVIDE YOUR TIN TIN:
FORM W-9 IN THE BOX AT RIGHT AND CERTIFY ---------------------------
DEPARTMENT OF THE BY SIGNING AND DATING BELOW. Social Security Number or
TREASURY Employer Identification
INTERNAL REVENUE SERVICE Number
PAYOR'S REQUEST FOR PART 2--TIN APPLIED FOR / /
TAXPAYER IDENTIFICATION CERTIFICATION: UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT:
NUMBER (TIN) AND (1) the number shown on this form is my correct Taxpayer
CERTIFICATION Identification Number (or I am waiting for a number to be issued
to me).
(2) I am not subject to backup withholding either because: (a) I
am exempt from backup withholding, or (b) 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 (c) the IRS has
notified me that I am no longer subject to backup
withholding, and
(3) any other information provided on this form is true and
correct.
SIGNATURE ..................... DATE .....................
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 and you have not been notified by the IRS that you are no
longer subject to backup withholding.
</TABLE>
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART 2 OF SUBSTITUTE FORM W-9
<TABLE>
<S> <C>
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has not been
issued to me, and either (a) I have mailed or delivered an application to receive a
taxpayer identification number to the appropriate Internal Revenue Service Center or
Social Security Administration Office or (b) I intend to mail or deliver an application
in the near future. I understand that if I do not provide a taxpayer identification
number by the time of the exchange, thirty-one (31%) percent of all reportable payments
made to me thereafter will be withheld until I provide a number.
------------------------------------------- ------------------------------------------
SIGNATURE DATE
</TABLE>
<PAGE>
NOTICE OF GUARANTEED DELIVERY FOR
ARCHIBALD CANDY CORPORATION
This form or one substantially equivalent hereto must be used to accept the
Exchange Offer of Archibald Candy Corporation (the "Company") made pursuant to
the Prospectus, dated , 1997 (the "Prospectus"), if certificates
for the outstanding 10 1/4% Senior Secured Notes due 2004 of the Company (the
"Old Notes") are not immediately available or if the procedure for book-entry
transfer cannot be completed on a timely basis or time will not permit all
required documents to reach the Company prior to 5:00 p.m., New York City time,
on the Expiration Date of the Exchange Offer. Such form may be delivered or
transmitted by telegram, telex, facsimile transmission, mail or hand delivery to
The Bank of New York (the "Exchange Agent") as set forth below. In addition, in
order to utilize the guaranteed delivery procedure to tender Old Notes pursuant
to the Exchange Offer, a completed, signed and dated Letter of Transmittal (or
facsimile thereof) must also be received by the Exchange Agent prior to 5:00
p.m., New York City time, on the Expiration Date. Capitalized terms not defined
herein are defined in the Prospectus.
DELIVERY TO: The Bank of New York, EXCHANGE AGENT
<TABLE>
<CAPTION>
BY REGISTERED OR CERTIFIED MAIL: BY HAND OR OVERNIGHT DELIVERY:
- ------------------------------------------------ ------------------------------------------------
<S> <C>
The Bank of New York The Bank of New York
101 Barclay Street, 7E 101 Barclay Street, 7E
New York, New York 10286 Corporate Trust Services Window
Attention: Reorganization Department Ground Level
Arwen Gibbons New York, New York 10286
Attention: Reorganization Department
Arwen Gibbons
</TABLE>
CONFIRM BY TELEPHONE:
(212) 815-5920
FACSIMILE TRANSMISSIONS:
(ELIGIBLE INSTITUTIONS ONLY)
(212) 815-6339
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, WILL
NOT CONSTITUTE A VALID DELIVERY.
Ladies and Gentlemen:
Upon the terms and conditions set forth in the Prospectus and the
accompanying Letter of Transmittal, the undersigned hereby tenders to the
Company the principal amount of Old Notes set forth below, pursuant to the
guaranteed delivery procedure described in "The Exchange Offer--Guaranteed
Delivery Procedures" section of the Prospectus.
Principal Amount of Old Notes Tendered:*
$
- ------------------------------------------------
Certificate Nos. (if available):
<TABLE>
<S> <C>
- -------------------------------------------------- If Old Notes will be delivered by book-entry
transfer to The Depository Trust Company,
provide account number.
</TABLE>
Total Principal Amount Represented by
- --------------------------
* Must be in denominations of principal amount of $1,000 and any integral
multiple thereof.
Old Notes Certificate(s):
<TABLE>
<S> <C>
$ ------------------------------------------ Account Number --------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
ALL AUTHORITY HEREIN CONFERRED OR AGREED TO BE CONFERRED SHALL SURVIVE THE
DEATH OR INCAPACITY OF THE UNDERSIGNED AND EVERY OBLIGATION OF THE UNDERSIGNED
HEREUNDER SHALL BE BINDING UPON THE HEIRS, PERSONAL REPRESENTATIVES, SUCCESSORS
AND ASSIGNS OF THE UNDERSIGNED.
- --------------------------------------------------------------------------------
PLEASE SIGN HERE
<TABLE>
<S> <C>
X ---------------------------------
---------
X ---------------------------------
---------
Signature(s) of Owner(s) Date
or Authorized Signatory
</TABLE>
Area Code and Telephone Number:
- -------------------
Must be signed by the holder(s) of Old Notes as their name(s) appear(s) on
certificates for Old Notes or on a security position listing, or by person(s)
authorized to become registered holder(s) by endorsement and documents
transmitted with this Notice of Guaranteed Delivery. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer or other
person acting in a fiduciary or representative capacity, such person must set
forth his or her full title below.
<TABLE>
<CAPTION>
PLEASE PRINT NAME(S) AND ADDRESS(ES)
<S> <C>
Name(s):
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Capacity:
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Address(es):
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
</TABLE>
GUARANTEE
The undersigned, a member of a registered national securities exchange, or a
member of the National Association of Securities Dealers, Inc., or a commercial
bank or trust company having an office or correspondent in the United States,
hereby guarantees that the certificates representing the principal amount of Old
Notes tendered hereby in proper form for transfer, or timely confirmation of the
book-entry transfer of such Old Notes into the Exchange Agent's account at The
Depository Trust Company pursuant to the procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures" section of the Prospectus, together with
a properly completed and duly executed Letter of Transmittal (or a manually
signed facsimile thereof) with any required signature guarantee and any other
documents required by the Letter of Transmittal, will be received by the
Exchange Agent at the address set forth above, no later than five New York Stock
Exchange trading days after the date of execution hereof.
<TABLE>
<S> <C>
- ------------------------------------------- -------------------------------------------
Name of Firm Authorized Signature
- ------------------------------------------- -------------------------------------------
Address Title
Name: -------------------------------------
- -------------------------------------------
Zip Code (Please Type or Print)
Area Code and Tel. No. Dated: -------------------------------------
- ----------------------
</TABLE>
NOTE: DO NOT SEND CERTIFICATES FOR OLD NOTES WITH THIS FORM. CERTIFICATES FOR
OLD NOTES SHOULD ONLY BE SENT WITH YOUR LETTER OF TRANSMITTAL.
<PAGE>
ARCHIBALD CANDY CORPORATION
OFFER TO EXCHANGE
$1,000 IN PRINCIPAL AMOUNT OF
10 1/4% SENIOR SECURED NOTES DUE 2004
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR
EACH $1,000 IN PRINCIPAL AMOUNT OF OUTSTANDING
10 1/4% SENIOR SECURED NOTES DUE 2004
THAT WERE ISSUED AND SOLD IN A TRANSACTION EXEMPT FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933
To: BROKERS, DEALERS, COMMERCIAL BANKS,
TRUST COMPANIES AND OTHER NOMINEES:
Archibald Candy Corporation (the "Company") is offering, upon and subject to
the terms and conditions set forth in the Prospectus, dated , 1997
(the "Prospectus"), and the enclosed Letter of Transmittal (the "Letter of
Transmittal"), to exchange (the "Exchange Offer") its 10 1/4% Senior Secured
Notes due 2004, which have been registered under the Securities Act of 1933, as
amended, for its outstanding 10 1/4% Senior Secured Notes due 2004 (the "Old
Notes"). The Exchange Offer is being made in order to satisfy certain
obligations of the Company contained in the Registration Rights Agreement dated
July 2, 1997, by and among the Company and the initial purchasers referred to
therein.
We are requesting that you contact your clients for whom you hold Old Notes
regarding the Exchange Offer. For your information and for forwarding to your
clients for whom you hold Old Notes registered in your name or in the name of
your nominee, or who hold Old Notes registered in their own names, we are
enclosing the following documents:
1. Prospectus dated , 1997;
2. The Letter of Transmittal for your use and for the information of your
clients;
3. A Notice of Guaranteed Delivery to be used to accept the Exchange Offer
if certificates for Old Notes are not immediately available or time will not
permit all required documents to reach the Exchange Agent prior to the
Expiration Date (as defined below) or if the procedure for book-entry transfer
cannot be completed on a timely basis;
4. A form of letter which may be sent to your clients for whose account you
hold Old Notes registered in your name or the name of your nominee, with space
provided for obtaining such clients' instructions with regard to the Exchange
Offer;
5. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9; and
6. Return envelopes addressed to The Bank of New York, the Exchange Agent
for the Old Notes.
YOUR PROMPT ACTION IS REQUESTED. THE EXCHANGE OFFER WILL EXPIRE AT 5:00
P.M., NEW YORK CITY TIME, ON , 1997, UNLESS EXTENDED BY THE
COMPANY (THE "EXPIRATION DATE"). OLD NOTES TENDERED PURSUANT TO THE EXCHANGE
OFFER MAY BE WITHDRAWN AT ANY TIME BEFORE THE EXPIRATION DATE.
To participate in the Exchange Offer, a duly executed and properly completed
Letter of Transmittal (or facsimile thereof), with any required signature
guarantees and any other required documents, should be sent to the Exchange
Agent and certificates representing the Old Notes should be delivered to the
Exchange Agent, all in accordance with the instructions set forth in the Letter
of Transmittal and the Prospectus.
If holders of the Old Notes wish to tender, but it is impracticable for them
to forward their certificates for Old Notes prior to the expiration of the
Exchange Offer or to comply with the book-entry transfer procedures on a timely
basis, a tender may be effected by following the guaranteed delivery procedures
described in the Prospectus under "The Exchange Offer--Guaranteed Delivery
Procedures."
<PAGE>
The Company will, upon request, reimburse brokers, dealers, commercial banks
and trust companies for reasonable and necessary costs and expenses incurred by
them in forwarding the Prospectus and the related documents to the beneficial
owners of Old Notes held by them as nominee or in a fiduciary capacity. The
Company will pay or cause to be paid all stock transfer taxes applicable to the
exchange of Old Notes pursuant to the Exchange Offer, except as set forth in
Instruction 6 of the Letter of Transmittal.
Any inquiries you may have with respect to the Exchange Offer, or requests
for additional copies of the enclosed materials, should be directed to The Bank
of New York, the Exchange Agent for the Old Notes, at its address and telephone
number set forth on the front of the Letter of Transmittal.
Very truly yours,
ARCHIBALD CANDY CORPORATION
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY
PERSON AS AN AGENT OF THE COMPANY OR THE EXCHANGE AGENT, OR AUTHORIZE YOU OR ANY
OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENTS ON BEHALF OF EITHER OF
THEM WITH RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS EXPRESSLY MADE IN
THE PROSPECTUS OR THE LETTER OF TRANSMITTAL.
Enclosures
<PAGE>
ARCHIBALD CANDY CORPORATION
OFFER TO EXCHANGE
$1,000 IN PRINCIPAL AMOUNT OF
10 1/4% SENIOR SECURED NOTES DUE 2004
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR
EACH $1,000 IN PRINCIPAL AMOUNT OF OUTSTANDING
10 1/4% SENIOR SECURED NOTES DUE 2004
THAT WERE ISSUED AND SOLD IN A TRANSACTION EXEMPT FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933
TO OUR CLIENTS:
Enclosed for your consideration is a Prospectus, dated , 1997
(the "Prospectus"), and the related Letter of Transmittal (the "Letter of
Transmittal"), relating to the offer (the "Exchange Offer") of Archibald Candy
Corporation (the "Company") to exchange its 10 1/4% Senior Secured Notes due
2004, which have been registered under the Securities Act of 1933, as amended
(the "New Notes"), for its outstanding 10 1/4% Senior Secured Notes due 2004
(the "Old Notes"), upon the terms and subject to the conditions described in the
Prospectus and the Letter of Transmittal. The Exchange Offer is being made in
order to satisfy certain obligations of the Company contained in the
Registration Rights Agreement dated July 2, 1997, by and among the Company and
the initial purchasers referred to therein.
This material is being forwarded to you as the beneficial owner of the Old
Notes carried by us in your account but not registered in your name. A TENDER OF
SUCH OLD NOTES MAY ONLY BE MADE BY US AS THE HOLDER OF RECORD AND PURSUANT TO
YOUR INSTRUCTIONS.
Accordingly, we request instructions as to whether you wish us to tender on
your behalf the Old Notes held by us for your account, pursuant to the terms and
conditions set forth in the enclosed Prospectus and Letter of Transmittal.
Your instructions should be forwarded to us as promptly as possible in order
to permit us to tender the Old Notes on your behalf in accordance with the
provisions of the Exchange Offer. The Exchange Offer will expire at 5:00 p.m.,
New York City time, on , , 1997, unless extended by the
Company. Any Old Notes tendered pursuant to the Exchange Offer may be withdrawn
at any time before the Expiration Date.
Your attention is directed to the following:
1. The Exchange Offer is for the exchange of $1,000 principal amount at
maturity of the New Notes for each $1,000 principal amount at maturity of the
Old Notes, of which $100,000,000 aggregate principal amount of the Old Notes was
outstanding as of , 1997. The terms of the New Notes are
substantially identical (including principal amount, interest rate, maturity,
security and ranking) to the terms of the Old Notes, except that the New Notes
(i) are freely transferable by holders thereof (except as provided in the
Prospectus) and (ii) are not entitled to certain registration rights and certain
liquidated damage provisions which are applicable to the Old Notes under a
registration rights agreement dated as of July 2, 1997 (the "Registration Rights
Agreement") between the Company and Jefferies & Company, Inc. and First Chicago
Capital Markets, Inc. as initial purchasers.
2. THE EXCHANGE OFFER IS SUBJECT TO CERTAIN CONDITIONS SET FORTH IN THE
PROSPECTUS IN THE SECTION CAPTIONED "THE EXCHANGE OFFER -- CERTAIN CONDITIONS TO
THE EXCHANGE OFFER."
3. The Company has agreed to pay the expenses of the Exchange Offer except
as provided in the Prospectus and the Letter of Transmittal.
<PAGE>
4. Any transfer taxes incident to the transfer of Old Notes from the holder
to the Company will be paid by the Company, except as otherwise provided in the
Prospectus and the Letter of Transmittal.
5. The Exchange Offer and withdrawal rights will expire at 5:00 p.m., New
York City time, on , , 1997, unless extended by the Company.
If you wish to have us tender your Old Notes, please so instruct us by
completing, executing and returning to us the instruction form on the back of
this letter. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR INFORMATION ONLY
AND MAY NOT BE USED DIRECTLY BY YOU TO TENDER OLD NOTES.
<PAGE>
INSTRUCTIONS WITH RESPECT TO
THE EXCHANGE OFFER
The undersigned acknowledge(s) receipt of your letter and the enclosed
material referred to therein relating to the Exchange Offer made by Archibald
Candy Corporation with respect to its Old Notes.
This will instruct you to tender the Old Notes held by you for the account
of the undersigned, upon and subject to the terms and conditions set forth in
the Prospectus and the related Letter of Transmittal.
Please tender the Old Notes held by you for my account as indicated below:
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL AMOUNT OF OLD NOTES
--------------------------------------------------------
<S> <C>
10 1/4% Senior Secured Notes --------------------------------------------
due 2004...............................................
/ / Please do not tender any Old Notes held by
you for my account.
Date: ---------------------, 1997 --------------------------------------------
--------------------------------------------
Signature(s)
--------------------------------------------
--------------------------------------------
--------------------------------------------
Please print name(s) here
--------------------------------------------
--------------------------------------------
Address(es)
--------------------------------------------
Area Code and Telephone Number
--------------------------------------------
Tax Identification or Social Security No(s).
</TABLE>
None of the Old Notes held by us for your account will be tendered unless we
receive written instructions from you to do so. Unless a specific contrary
instruction is given in the space provided, your signature(s) hereon shall
constitute an instruction to us to tender all the Old Notes held by us for your
account.
<PAGE>
EXHIBIT 99.5
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER.
Social Security numbers have nine digits separated by two hyphens: i.e.
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen: i.e. 00-0000000. The table below will help determine the number to
give the payer.
<TABLE>
<CAPTION>
------------------------------------------------------
GIVE THE SOCIAL
SECURITY
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
------------------------------------------------------
<S> <C> <C>
1. Individual The individual
2. Two or more individuals The actual owner of the
(joint account) account or, if combined
funds, the first
individual on the
account (2)
3. Custodian account of a The minor (4)
minor (Uniform Gift to
Minors Act)
4. a. The usual revocable The grantor- trustee
savings trust (grantor (2)
is also trustee)
b. So-called trust The actual owner (2)
account that is not a
legal or valid trust
under State law
5. Sole proprietorship The owner (1)
<CAPTION>
------------------------------------------------------
GIVE THE EMPLOYER
IDENTIFICATION NUMBER
FOR THIS TYPE OF ACCOUNT: OF--
------------------------------------------------------
<S> <C> <C>
6. Sole proprietorship The owner (1)
7. A valid trust, estate, Legal entity (3)
or pension trust
8. Corporate The corporation
9. Association, club, The organization
religious, charitable,
educational or other
tax-exempt organization
10. Partnership The partnership
11. A broker or registered The broker or nominee
nominee
12. Account with the The public entity
Department of
Agriculture in the name
of a public entity
(such as a State or
local government,
school district, or
prison) that receives
agricultural program
payments
</TABLE>
- --------------------------------------------------------------------------------
(1) You must show your individual name, but you may also enter your business or
"doing business as" name. You may use either your SSN or EIN.
(2) List first and circle the name of the person whose number you furnish.
(3) List first and circle the name of the legal trust, estate, or pension trust.
(Do not furnish the identifying number of the personal representative or
trustee unless the legal entity itself is not designated in the account
title.)
(4) Circle the minor's name and furnish the minor's social security number.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
The following is a list of payees exempt from backup withholding and for which
no information reporting is required. For interest and dividends, all listed
payees are exempt except item (9). For broker transactions, payees listed in
items (1) through (13) and a person registered under the Investment Advisers Act
of 1940 U.C. who regularly acts as a broker are exempt. Payments subject to
reporting under sections 6041 and 6041A are generally exempt from backup
withholding only if made to payees described in items (1) through (7), except a
corporation that provides medical and health care services or bills and collects
payments for such services is not exempt from backup withholding or information
reporting. Only payees described in items (2) through (6) are exempt from backup
withholding for barter exchange transactions, patronage dividends and payments
by certain fishing boat operators.
(1) A corporation.
(2) An organization exempt from tax under
section 501(a), or an individual retirement plan or custodial account
under section 403(b)(7).
(3) The United States or any agency or
instrumentality thereof.
(4) A State, the District of Columbia, a possession of
the United States, or any subdivision or instrumentality thereof.
(5) A foreign government, a political subdivision of a
foreign government, or an agency or instrumentality thereof.
(6) An international organization or any agency or
instrumentality thereof.
(7) A foreign central bank of issue.
(8) A dealer in securities or commodities required to
register in the U.S. or a possession of the U.S.
(9) A futures commission merchant registered with
the Commodity Futures Trading Commission.
(10)A real estate investment trust.
(11)An entity registered at all times under the
Investment Company Act of 1940.
(12)A common trust fund operated by a bank under
section 584(a).
(13)A financial institution.
(14)A middleman known in the investment community
as a nominee or listed in the most recent publication of the American
Society of Corporate Secretaries, Inc. Nominee List.
(15)An exempt charitable remainder trust, or a non-
exempt trust described in section 4947.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
- Payments to nonresident aliens subject to
withholding under section 1441.
- Payments to partnerships not engaged in a trade or
business in the U.S. and which have at least one nonresident partner.
- Payments of patronage dividends not paid in money.
- Payments made by certain foreign organizations.
NOTE: You may be subject to backup withholding if this interest is $600 or more
and is paid in the course of the payer's trade or business and you have not
provided your correct taxpayer identification number to the payer.
- Payments of tax-exempt interest (including exempt-
interest dividends under section 852).
- Payments described in section 6049(b)(5) to
nonresident aliens.
- Payments on tax-free covenant bonds under
section 1451.
- Payments made by certain foreign organizations.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM AND RETURN IT TO
THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO
SIGN AND DATE THE FORM.
Certain payments other than interest, royalties, and patronage dividends that
are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6045, and 6050A.
PRIVACY ACT NOTICE. Section 6109 requires most recipients of dividend, interest,
or other payments to give taxpayer identification numbers to payers who must
report the payments to IRS. IRS uses the numbers for identification purposes.
Payers must be given the numbers whether or not recipients are required to file
tax returns. Payers must generally withhold 31% of taxable interest, dividend,
and certain other payments to a payee who does not furnish a taxpayer
identification number to a payer. Certain penalties may also apply.
PENALTIES
(1) PENALTIES FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS. If you fail to
include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being due
to negligence and will be subject to a penalty of 5% on any portion of an
under-payment attributable to that failure unless there is clear and convincing
evidence to the contrary.
(3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. If you make
a false statement with no reasonable basis which results in no imposition of
backup withholding, you are subject to a penalty of $500.
(4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
